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Legal update for energy lawyers - September 2020

  • Market Insight 7 September 2020 7 September 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.

Legal update for energy lawyers - September 2020
  1. Tribunal refuses to suspend arbitration proceedings due to pandemic

In The Estate of Julio Miguel Orlandini-Agreda and another v Bolivia (PCA Case No. 2018-39), Bolivia argued that the arbitration proceedings should be suspended indefinitely, on the basis that the COVID-19 pandemic was a force majeure event, which made it impossible to file its defence. The tribunal objected to suspending proceedings indefinitely, and noted that whilst COVID-19 has led to a “new reality” which might “require more time and effort”, it did not mean that preparation of submissions was infeasible. The tribunal was willing to postpone all deadlines by 30 days. The decision illustrates the importance courts and tribunals are attaching to progressing cases despite the practical challenges posed by the pandemic.

  1. Privilege lost by repeatedly referring to legal advice in court documents

The English Commercial Court has ruled that a party waived privilege in legal advice by referring to it repeatedly in submissions and witness statements. In PCP Capital Partners LLP and another v Barclays Bank plc the defendant had not set out the content of the advice in those documents, but it had referred to the advice in such a way as to indicate lawyers' approval of relevant agreements and conduct. This was sufficient for the claimant's application for inspection of the advice to succeed. The decision is a warning of the dangers of referring to legal advice in court documents, especially given that applications of this kind often turn on their detailed facts. In principle, parties can legitimately refer to the "effect" of legal advice without it losing privilege; it is only when the "content" of advice is disclosed that privilege is lost. However, the distinction can be difficult to draw in practice.

  1. Duty to disclose adverse documents in English litigation

In Castle Water Ltd v Thames Water Utilities Ltd, the English High Court ruled that parties producing documents under the disclosure pilot scheme must carry out "reasonable and proportionate checks" to see if any adverse documents exist, and then take "reasonable and proportionate steps to locate them." Without such checks (which are presumably less onerous than "searches"'), the requirement to disclose adverse documents would be "emasculated", according to the court. The court also decided that following initial disclosure, a party must conduct additional searches if there is a change to its opponent's case. The decision is helpful because searches are ordered sparingly under the pilot scheme, although the obligation to disclose "known adverse documents" is a general one (Practice Direction 51U, paragraphs 2 and 3). The scheme was initially due to end on 31 December 2020, but has now been extended by one year. For the time being it applies only in the Business & Property Courts.

  1. Exception to confidentiality of mediation proceedings

In general, statements made during a mediation are protected from disclosure by the without prejudice rule. There are exceptions to this, but they are limited. In Berkeley Square Holdings v Lancer Property Asset Management Ltd the English High Court ruled that passages from the defendant's mediation position paper were admissible in evidence, in order to rebut allegations of fraud. Part of the court's reasoning was that if a party is allowed to reveal a misrepresentation it had relied on when entering into a settlement agreement (an established exception), then a party should also be allowed to disclose its own statements in a mediation where it is subsequently accused of fraud. Even if this logic was not sound, the court was nevertheless inclined to make a "small and principled extension" to the existing exception, "to serve the interests of justice."

  1. Guidance re obtaining freezing orders

The English High Court has refused to renew a worldwide freezing order in Les Ambassadeurs Club Limited v Sheikh Salah Hamdan Albluewi, which concerned a Saudi businessman's non-payment of gambling debts. The decision is a reminder that it is generally necessary to demonstrate dishonesty when seeking a freezing order, although dishonesty is not in itself sufficient; there must be a real risk that assets will be dissipated. Given the size of the debts relative to the defendant's wealth, and his substantial connections with London, the claimant was unable to demonstrate a real risk of dissipation in this case. The claimant had also failed to disclose all relevant facts at the without notice hearing when the freezing order was initially granted.  The English Commercial Court has also refused to renew a freezing order in Petrochemical Logistics Ltd and another v PSB Alpha AG and another, in the context of an arbitration. Here the court was concerned again with the dissipation of assets, but a key issue was whether the assets in question actually belonged to the defendant. The court found that they did not, since they had already been sold to a third party. This shows the limits of the broad view of "assets" that has traditionally been favoured by the English courts.

  1. UK Supreme Court restricts ambit of reflective loss principle

In one of the most significant commercial judgments of the year so far, Sevilleja v Marex Financial Ltd, the UK Supreme Court has changed the law regarding reflective loss. The basic principle of reflective loss is that where a company suffers a wrong, only the company may sue for damages, not its shareholders. However, the principle has been extended in recent years, and was understood to extend to prevent the company's creditors from making independent claims against the wrongdoer. Now the Supreme Court has reversed this trend, holding that the principle applies to shareholders only. Creditors (including shareholders acting as creditors) are free to claim independently for wrongs done to the company - in this case for loss allegedly caused by Mr Sevilleja taking money out of companies that he owned so as to avoid satisfying existing judgments in Marex's favour. The Supreme Court's decision has been widely welcomed, in particular because it gives more power to creditors who are the indirect victims of fraud. See this official summary of the Supreme Court decision.

  1. Convictions in the Unaoil bribery case

The Southwark Crown Court has sentenced a British businessman to three years in prison for his part in a plot to secure oil infrastructure contracts corruptly in the aftermath of the Iraq War. Another man had been sentenced already to five years' imprisonment for his part in the plot, which involved an attempt to pay bribes worth USD 6 million to politicians and state-owned companies. Both businessmen were executives at the Monaco-based oil company, Unaoil. Meanwhile, the Serious Fraud Office's (SFO) investigation into that company has been criticised because of its director's behaviour in relation to a freelance intelligence agent, who was allegedly allowed to contact defendants in the case. The SFO has responded by launching a review of the case.

  1. Commerzbank fined for inadequate anti-money laundering systems

The UK's Financial Conduct Authority (FCA) has imposed a £37,805,400 fine on the London branch of Commerzbank AG as a result of its failure to put adequate anti-money laundering systems and controls in place over a five year period (2012 – 2017). The FCA says that it warned Commerzbank of the problem on three occasions during that period, but the failures continued. Among other things, Commerzbank failed to conduct timely periodic due diligence on its clients, to address weaknesses in its automated tool for monitoring money laundering risk on transactions for clients and to have adequate policies and procedures in place when undertaking customer due diligence. However, steps have now been taken to remedy the situation. The fine imposed by the FCA would have been higher had Commerzbank not benefited from a 30% discount for agreeing to resolve the matter at an early stage of the investigation. More

  1. Net zero

OGUK has published a report entitled The Pathway to Net Zero: Production Emissions Targets. It explains how the UK's offshore oil and gas industry aims to halve operational emissions over the next decade, which will help it meet its net zero-emissions target by 2050. Among other things, the report envisages progressive reductions in flaring and venting, as well as major capital investment programmes allowing electricity rather than gas to be used to power offshore facilities. Meanwhile, BP has been charting its own course towards net zero, which it hopes to reach by 2050 at the latest. Taking this goal into account, and also the long-term impact of the COVID-19 pandemic, the company has been reviewing its long-term price assumptions, reportedly slashing up to USD 17.5 billion off the value of its oil and gas assets. More

  1. OGA Mediation pilot continues

The Oil and Gas Authority (OGA) has confirmed that its year-long ‘UKCS Mediation Pilot’ will continue from 1 June 2020. The pilot, which was initially launched in February, aims to test the extent to which disputes between oil and gas licensees, operators and infrastructure owners can be resolved without recourse to the courts or to the OGA itself. In the OGA's view, disputes have generally arisen because of entrenched licensee behaviours or communication breakdowns, and it is concerned that they are expensive in terms of time and money for the companies involved, and that they also threaten the delivery of the Maximising Economic Recovery Strategy for the UK. More

  1. Revised guidance on remote hearings

The Commercial Bar Association has revised its guidance on remote hearings to take into account the gradual reopening of the English Commercial Court. Since the beginning of June 2020, four options have been available there: a fully remote hearing; a hearing where only the judge is present in their office or the court; a hybrid hearing in which the judge and some participants are in court but others are not; and a normal physical hearing. Each presents its own challenges, which are explored in the new guidance. It emphasises the need for pre-trial reviews in many cases, and the likelihood of holding interlocutory hearings by video link. It also points out that skeleton arguments are more useful than ever when a hearing is remote to some degree. The guidance will be revised again when court practice changes.

  1. Brexit deadline

It is now impossible for the UK and EU to agree to extend the Brexit transition period. This means that it is important to commence UK court proceedings before the end of the year if they have a European angle to them. Otherwise litigants may face disruptive court tactics in EU Member States and UK judgments will not be so easy to enforce there. The problem only affects litigation, though - arbitration is not directly affected by Brexit. For more on these issues, and the drafting of dispute resolution agreements in these uncertain times, see our article: Brexit fog and UK court judgments.

And finally

  1. Oil rigs as tourist attractions?

Does Aberdeen need a new tourist attraction? If so, a giant decommissioned oil rig might be put into service, according to Bill Skidmore, an oil veteran of thirty years: "It would a great opportunity for Aberdeen to make use of one of these oil platforms being decommissioned and set up a new tourist attraction. When I saw the picture of the Brent Alpha when they brought it to shore, I thought it would be great to get a hold of one and sit it out near the harbour where all the cruise ships are supposedly going to be coming in." Aberdeen City Council has not been asked to comment on this specific proposal, but is already considering similar ideas.

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