Legal update for energy lawyers - July 2020

This newsletter provides general information and is not intended to be comprehensive or to provide specific legal advice. Professional advice appropriate to a specific situation should always be sought.

Contents

• Costs penalty for rejecting offer of mediation
• Interpretation of Force Majeure Clauses
• Government guidance on responsible contractual behaviour
• Court of Appeal confirms power to issue anti-suit injunctions in arbitration
• Further recent cases on anti-suit injunctions
• Court of Appeal confirms objective test for dishonesty
• Actual Performance required to remedy breach
• High Court refuses to release $1bn in gold to Venezuela
• Electronic signatures
• Significant changes to UK insolvency law
• French employee wins damages for boredom at work

1. Costs penalty for rejecting offer of mediation
   An English court deprived a successful defendant of a substantial portion of its costs on the basis that it failed to accept two offers of mediation, one at the pre-action stage and another before witness statements were exchanged (Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd and another).  The judge was of the view that mediation had a reasonable prospect of success at both stages of the proceedings, and so in his judgment refusing the offer was unreasonable.  He therefore considered that this justified a costs penalty under principles established by the Court of Appeal in Halsey v Milton Keynes General NHS Trust (2004). This case follows a string of decisions by the English courts that a party, which unreasonably refuses to engage in mediation, or other forms of ADR, will be penalised on costs.
2. Interpretation of Force Majeure Clauses
   Given the pandemic and current interest in force majeure clauses, the High Court's recent decision in 2 Entertain Video Ltd v Sony DADC Europe Ltd is a reminder that parties seeking to rely on force majeure will need to demonstrate that the purported force majeure event is the cause, and not merely the context, of its losses.
   
   In this case, Sony provided warehousing services to 2 Entertain. During the London riots in 2011, a gang set fire to the warehouse that held 2 Entertain’s stock. The contract contained a force majeure provision covering “circumstances beyond the reasonable control of the party affected including…riot [and] civil commotion…” However, the Court found that the risks of unauthorised entry and arson were reasonably foreseeable and Sony had not in fact secured the warehouse adequately against these risks. The broader context of civil unrest would not be sufficient to engage the force majeure provision when the underlying cause of loss was within Sony’s reasonable control.
3. Government guidance on responsible contractual behaviour
   On 7 May 2020 the Government published a non–binding guidance note, 'Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency', which applies to all contracts impacted by the pandemic with immediate effect. The Guidance applies only to England, and does not apply to Scotland, Wales and Northern Ireland.  It encourages parties to remain cooperative and states that "parties to contracts should act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy".  The specific objectives of the Guidance are said to be:
   
   • maintaining contractual performance necessary to support the response to Covid-19 and to protect public health, jobs and the economy;
   • ensuring cash flow in those contracts is maintained;
   • ensuring contracts, supply chains and markets can be preserved during the crisis
   • generally ensuring contractual and economic activity is preserved and can recommence once the current emergency is over.
   
   For more on the Guidance and its practical implications, see our article here.
4. Court of Appeal confirms power to issue anti-suit injunctions in arbitration
   The Court of Appeal has issued an important ruling concerning the role of the English Court as the supervisory body in arbitration proceedings seated in England.  The Court confirmed in Enka Insaat ve Sanayi AS v OOO "Insurance Company Chubb" and others that it is generally appropriate for English courts to issue injunctions restraining court proceedings in other countries where those would breach an agreement providing for arbitration in England.  At first instance, the High Court had ruled that, in respect of the proceedings commenced in Moscow, it was for the Moscow court to determine the scope of the arbitration agreement and its applicability.  The Court of Appeal reversed  this decision and held that English Court (as the seat chosen by the parties) is necessarily an appropriate court to grant an anti-suit injunction and questions of forum non conveniens do not arise. 
   
   The Court also considered the law applicable to an arbitration agreement, holding that this would normally be that of the seat of the arbitration, absent a choice to the contrary or other "powerful countervailing factors".  Where the parties have chosen a law governing the matrix contract, it was a matter of construction as to whether that applied to the arbitration agreement too.
   
   Please note that leave has been granted for this case to be appealed in the Supreme Court.
5. Further recent cases on anti-suit injunctions
   The Commercial Court also granted an anti-suit injunction in unusual circumstances recently in Daiichi Chuo Kisen Kaisha v Chubb Seguros Brasil, when it ordered an insurer to discontinue court proceedings in Brazil.  Applications for anti-suit injunctions should be made promptly, in the interests of both fairness to the respondent and comity towards the overseas court.  Here, the application for the injunction was made after some delay.  However, the court nevertheless granted a final mandatory anti-suit injunction requiring the defendant to discontinue the Brazilian proceedings, as they had been brought in breach of an undertaking not to actively pursue them.
   
   Meanwhile, the Commercial Court in London issued an anti-suit injunction in Times Trading Corporation v National Bank of Fujairah (Dubai Branch), restraining the defendant from pursuing court proceedings in Singapore.  The case is of note because the facts did not fall into any established category where an injunction of this kind had previously been considered appropriate, but the court issued one on the basis that it was highly probable that an arbitration clause existed and that it bound both parties.  Underlying this decision is the principle that it is unfair to allow a party to invoke a contract without following the dispute resolution provisions contained within it.  
6. Court of Appeal confirms objective test for dishonesty
   In R v Barton and Booth, the Court of Appeal confirmed that the criminal test for dishonesty is the same as the civil test for dishonesty as developed by the Supreme Court in 2017 in Ivey v Genting Casinos. The test outlined in Ivey is as follows: (a) what was the defendant's actual state or knowledge or belief at to the facts; and (b) was his conduct dishonest by the standards of ordinary decent people. The Court of Appeal refined this test by confirming that all matters, including the experience and intelligence of the defendant, that led to the defendant acting as he or she did will be taken into consideration. Nonetheless, this is still an appreciably more objective test than the test for dishonesty previously set out in R v Ghosh which required that a defendant must subjectively appreciate that his or her conduct was dishonest. Although helpful that the Court of Appeal has clarified the law, the law is now potentially unfavourable for defendants and a boon for prosecutors. It is now possible for a defendant to be convicted even where they genuinely believe that their conduct was honest. The Ivey test therefore has a potentially wider scope for conviction that the Ghosh test.
7. Actual Performance required to remedy breach
   In Bains v Arunvill Capital Ltd and another, the Court of Appeal emphasised that actual performance of a contract was needed to remedy non-performance which amounted to a material breach.  In this case, the consultant refused to provide services until it received payment from Arunvill, which amounted to a material breach of the contract, entitling Arunvill to terminate the contract.  A mere promise from the consultant of future performance was insufficient to remedy the material breach.

8. High Court refuses to release $1bn in gold to Venezuela
   At a hearing held at the end of June, the English High Court denied a request by the Nicolas Maduro led government of Venezuela for the Bank of England to release $1bn in gold reserves and for Deutsche Bank to pay $120m, being the proceeds of a gold swap contract, to the Venezuelan Central Bank in order to fight the COVID-19 pandemic. The government led by Juan Guaido had sought to deny the release of the funds to the Maduro government and issued conflicting instructions to the Bank of England and Deutsche Bank. The Court was therefore asked to decide whether the UK Government recognises Nicolas Maduro or Juan Guaido as the lawful president of Venezuela. The Court confirmed that the UK Government has "unequivocally recognised" Juan Guaido as the lawful president and so there was no need for the Court to consider whether Nicolas Maduro exercises administrative control over Venezuela as the 'de facto' president. The Maduro government has already confirmed its intention to appeal the decision. For more information, please see here.

9. Electronic signatures
   The Law Society has created a web page gathering together existing guidance from different sources on the use of e-signatures and the virtual execution of documents.  The legal position here is somewhat confused, and there are particular difficulties with executing deeds and witnessing documents remotely.  Lawyers should bear in mind the various statutory rules that have to be respected, and also of the need in some circumstances for documents to be executed in a way that satisfies foreign courts and authorities.  It should also be borne in mind that electronic signatures in court documents (e.g. statements of case and witness statements) are governed by completely separate principles, set out mainly in Part 5 of the Civil Procedure Rules. 
10. Significant changes to UK insolvency law
    As a result of the COVID 19 pandemic, there are some significant changes to UK insolvency law which are currently making their way through Parliament. The changes are set out in the Corporate Insolvency and Governance Bill and are expected to be enacted in July.
    
    One of the alterations to the law will be the enactment of provisions that restrict the ability of suppliers of goods or services to businesses which have entered the insolvency process in the UK to terminate on the basis of an insolvency event.  This will have far reaching implications for parties operating in the UK.  Please see this link for more details.
    
    And finally! 
     
11. French employee wins damages for boredom at work
    A French perfume company has been ordered to pay €40,000 in damages to a former employee who suffered from boredom at work because he was not tasked with anything interesting to do in his job.  He had claimed his job was full of menial tasks, such as setting up the CEO's new tablet and letting a plumber into his boss's house.
    
    Paris’ appeals court ruled that the employee suffered from a condition known as "bore out" which caused his health to deteriorate.  The term “boreout” was coined by Swiss business consultants Peter Werder and Philippe Rothlin in 2007, and can result from an absence of meaningful, challenging tasks. Symptoms can include depression, headaches and insomnia.