Legal update for energy lawyers - June 2021
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Legal Development 25 June 2021 25 June 2021
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UK & Europe
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Energy & Natural Resources
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
- Decommissioning liability: Section 29 notices interpreted narrowly
- OGA revises its Decommissioning Strategy
- Shell ordered by Dutch court to reduce its net CO2 emissions by 45%25
- German government ordered to enact long-term plans to tackle climate change
- Exxon shareholders force change
- Court of Appeal resolves inconsistency between contractual documents
- Mediation submissions and the without prejudice rule
- Evidence obtained by hacking may be admissible in English courts
- Invoking force majeure / frustration in relation to the pandemic
- International arbitration available in domestic commercial disputes in India
In a significant case concerning the extent of a former licensee’s liability for decommissioning, the English High Court has interpreted narrowly the scope of notices served by the Secretary of State under section 29 of the Petroleum Act 1998. In Apache UK Investment Ltd v Esso Exploration and production UK Ltd, the dispute concerned the level of security to be provided by Apache under Bilateral Decommissioning Security Agreements that it had entered into with Esso. Esso demanded additional security relating to the future decommissioning costs of subsea facilities constructed between 2015 to 2020 by an affiliate of Apache, after that affiliate had been purchased by Apache from Esso in 2011. Esso demanded this security on the basis of potential decommissioning liability that it had following service of s.29 notices in 2004/5 when the affiliate was owned by Esso. The High Court found in favour of Apache. It ruled that the s.29 notices did not apply to offshore installations that did not exist and were not even planned at the time the notices were served. Accordingly, the Secretary of State had no power to impose a liability on Esso for the decommissioning of the facilities, and Apache was not required to provide the security sought. Apache was represented by David Bennet and Mark Walsh of Clyde & Co. More
The Oil and Gas Authority (OGA) has revised its Decommissioning Strategy, which was originally published in 2016. The new document focuses on four priorities: planning for decommissioning; commercial transformation; supporting the energy transition from late life into decommissioning; and technology, processes and guidance. These priorities have been updated to take into account the obligations set out in the revised (overall) OGA Strategy, including building on the tools, processes and experience gained since 2016, and reflecting the UK government's ambitions to strengthen the UK's offshore oil and gas industry. They also take into account the commercial transformation that is needed to take the next step in delivering cost-efficient decommissioning, and outline how the energy transition will be integrated into late life and decommissioning.
The District Court of The Hague has ordered Royal Dutch Shell to reduce its global net CO2 emissions by 45% compared to 2019 levels. This is to be achieved by the end of 2030 at the latest. The required reduction applies to the emissions produced by Shell’s own operations (Scope 1 emissions) as well as the emissions produced by the operations of its suppliers (Scope 2 emissions) and its customers (Scope 3 emissions). In respect of Shell’s Scope 1 emissions, this is a “result obligation”, meaning the result in question must be achieved; while in respect of its suppliers’ and customers’ Scope 2 and 3 emissions, this is an “effort obligation”, meaning Shell must use best endeavours to achieve the result in question. The case was brought against Shell by environmental groups Milieudefensie (Friends of the Earth Netherlands), ActionAid and others, and was supported by more than 17,000 Dutch citizens. The judgment marks the first time that a corporation has been held to be responsible for reducing its net emissions in line with targets introduced by the Paris Agreement. More
Germany's Federal Constitutional Court has ruled that the country's Federal Climate Protection Act (Bundes-Klimaschutzgesetz) is incompatible with fundamental rights because it deals mainly with carbon emissions up to 2030, leaving much of the burden of reducing emissions to years after that date. The court commented that "practically every freedom is potentially affected [by this], because today almost all areas of human life are bound up with greenhouse gas emissions … and could therefore be threatened by drastic constraints after 2030". It has ordered the federal government to enact provisions by the end of 2022 specifying in greater detail how reductions in emissions are to be adjusted after 2030. The ruling is based among other things on Article 20a of the German Constitution (Grundgesetz), which requires the government to take climate action, and on Germany's obligations under the Paris Agreement. The case forms part of a trend of climate change litigation against governments which is growing both in frequency and strength. More
A number of Exxon Mobil Corp shareholders, including hedge fund Engine No. 1, have unseated at least two board members in an attempt to force the company to take more radical measures to tackle climate change. The shareholders are also trying to obtain more information from the company on its climate and grassroots lobbying efforts, which have been the subject of criticism by activists. CEO Darren Woods has responded by acknowledging investors' desire for ExxonMobil to increase its efforts to tackle climate change, commenting that the company is "well positioned to do that". More
In a case concerning the sale of allegedly defective high sulphur fuel oil (Septo Trading Inc v Tintrade Ltd), the English Court of Appeal has considered the effect of a certificate of quality that was issued by an independent load port inspector. According to one contractual document (a bespoke deal recap), the certificate was binding in relation to quality, but under the incorporated general terms and conditions, it was conclusive for invoicing purposes only. The court found that the first document overrode the second in this instance, partly because the latter was said to be incorporated only “where not in conflict with” the recap. However, the court also took into account the fundamental difference between a regime in which a certificate of quality is binding and one where it is not. In addition, it also bore in mind that taking the standard terms at face value in this case would have deprived the recap term of all effect. The court's decision does not develop the law in a fundamental way, but it does serve as a warning to take care when appending standard terms of any bespoke agreement.
The 'without prejudice' rule is subject to a number of exceptions under English law. One such exception is that evidence of without prejudice negotiations is admissible to show that an agreement concluded based on those negotiations should be set aside on the grounds of misrepresentation, fraud, or undue influence. This exception was applied in Berkeley Square Holdings v Lancer Property Asset Management Ltd, where the Court of Appeal confirmed that the defendants could rely on mediation position papers in support of their defence. The claimants were seeking to have settlement deeds which had resulted from the mediation set aside on the basis that the deeds were part of a fraud, which the defendants were allegedly complicit in. The claimants claimed to have only learned of certain key facts in respect of the alleged fraud in 2016. The defendants sought to rely on the mediation position papers as evidence that the claimants had known of the key facts as early as 2012. This circumstance did not neatly fit into the relevant exception as the defendants were seeking to rely on the mediation position papers to uphold the settlement deeds, not to have them set aside. However, the court confirmed that the purpose for which the defendants sought to adduce the evidence was to establish the validity of the settlement deeds and so such evidence was admissible. The court acknowledged that this may amount to a ‘principled extension’ of this exception to the without prejudice rule.
In Ras Al Khaimah Investment Authority v Azima, the English Court of Appeal has confirmed that evidence is generally admissible in English proceedings, regardless of how it is obtained, so long as it is relevant to the matters at issue. The only exception to this is where evidence is obtained by torture. In the present dispute, the defendant alleged that evidence on which the claimant relied had been obtained by hacking into his emails. The court found that the allegation of hacking had not been proven. However, even if it had been proven, the evidence would not necessarily have been inadmissible. The court has discretion under the English Civil Procedure Rules to exclude otherwise admissible evidence. However, in exercising this a court has to balance two potentially conflicting public policies - the need to achieve justice in a particular case on the one hand, and the need to promote the observance of the law on the other. In this instance, the Court of Appeal agreed with the High Court judge that without the evidence, “[the claimant] would have been unable to prove its claims and [the defendant] would have been left with the benefit of his seriously fraudulent conduct”. The Court of Appeal also noted that the defendant would have had to disclose these documents under an order for standard disclosure in any event. A party that seeks to rely on evidence obtained illegally can, however, still be sanctioned by the court in other ways, such as cost sanctions.
When the pandemic first caused disruption outside China in March 2020, many parties sought to terminate contracts on the basis of force majeure or frustration. Whether those doctrines could be successfully invoked will depend on the facts. In two recent cases concerning aircraft leases the English High Court has decided against parties who relied on them. In Salam Air SAOC v Latam Airlines Group SA, the court held that the contract was not frustrated, despite the imposition of a flight ban by the Omani Government, because the lease in question was a “dry aircraft" one, i.e. for the aircraft themselves, without a single crew member. In this kind of agreement, the lessee assumes a large degree of risk, and this was "a challenging context in which to establish frustration". Fubula Air Travel SRL v Just-US Air SRL, on the other hand, concerned a “wet aircraft” lease. However, it was terminated 11 days before flights between the relevant countries were suspended, and so at the time of termination there was no force majeure event. For these and other reasons the lessees failed in both cases to obtain the return of their security deposits. These cases demonstrate how difficult it can be to terminate on the basis of force majeure or frustration.
The Indian Supreme Court has confirmed that a foreign-seated arbitration between two Indian companies can result in an enforceable 'foreign' award for the purposes of the Indian Arbitration and Conciliation Act 1996, providing certain conditions are met. Specifically, the dispute must be a commercial one, governed by a written arbitration agreement, and arising between 'persons', regardless of their nationality, residence, or domicile. In addition, the arbitration must be seated in a country that is party to the New York Convention 1958. In this particular case (PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited), the parties were both Indian companies engaged in a commercial dispute, and their agreement was in writing, providing for ICC arbitration in Zurich. This meant that the relevant conditions were met and the resulting award was a 'foreign' one for the purposes of the 1996 Act. It was therefore enforceable in India, and the parties were also free to seek interim relief there if needed. The court considered public policy issues (under the Indian Contract Act 1872), but decided that on balance they should not prevent purely domestic disputes from being resolved by international arbitration if that was the parties' choice, since that caused no "clear and undeniable harm … to the public." The Supreme Court's decision clears up long-standing uncertainty on this issue, and will give a significant boost to international arbitration within India.
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