Legal update for energy lawyers - July 2021
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Legal Development 30 July 2021 30 July 2021
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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
- Supreme Court gives guidance regarding liquidated damages clauses
- SFO approves Deferred Prosecution Agreement requiring payment of £103m
- Supreme Court reframes the ‘SAAMCo principle’ in the tort of negligence
- UK courts ready to enforce foreign judgments without reviewing merits
- Contract addendum not binding despite no ‘subject to contract’ label
- Litigation privilege and pre-action correspondence
- High Court rules on level of detail to be included in a Notice of Claim
- Importance of rules and official guidance on expert evidence
- Transition away from coal
In Triple Point Technology Inc v PTT Public Company, the UK Supreme Court has clarified the function of liquidated damages when a contract is terminated prior to work being completed. The contractor (Triple Point) failed to supply and install a software system on time, and so the customer (PTT) terminated the contract. When each party sued the other, the customer sought to rely on a liquidated damages clause providing (in the usual way) for a sum to be paid for each day of delay by the contractor “from the due date of delivery up to the date [the employer] accepts such work”. The Court of Appeal considered this ineffective given that the work promised by the contractor had never been completed or accepted, and held that general damages rather than liquidated damages should apply. The Supreme Court disagreed, emphasising among other things that the parties could be taken to know that liquidated damages would cease to accrue on termination: they did not have to provide for that expressly. The judgment confirms the general understanding of how clauses of this kind work, and provides welcome certainty. More
An English court has approved a Deferred Prosecution Agreement (DPA) entered into by the Serious Fraud Office (SFO) and Amec Foster Wheeler Limited (AFWEL) in relation to offences by AFWEL’s legacy Foster Wheeler business regarding the use of corrupt agents in the oil and gas sector in Nigeria, Saudi Arabia, Malaysia, India and Brazil between 1996 and 2014. The DPA requires AFWEL to pay £103m in financial penalties and costs in the UK as part of a global settlement of US$177m involving UK, US and Brazilian authorities. The SFO emphasises that the court made no findings of fact, and did not seek to determine or assess the culpability of any individual people. The DPA concerns the criminal liability of AFWEL alone and the SFO will continue its investigation into the conduct of individual suspects. More
In two separate judgements (Manchester Building Society v Grant Thornton and Khan v Meadows) the Supreme Court has considered the scope of the duty of care within the tort of negligence. In so doing, it has reformulated the long-established SAAMCo principle that an adviser will be liable only for losses which fall within the scope of its duty of care to a claimant. In Manchester, which concerned negligent financial advice, the Supreme Court held that the scope of the duty of care assumed by a professional adviser is governed by the purpose of the duty, judged on an objective basis by reference to the purpose for which the advice is being given. The previous distinction within the SAAMCo principle between “information cases” (in which the professional is liable only to the foreseeable consequences of wrong information”) and “advice cases” (in which the professional assumes wider responsibility for the consequences of the activities) is now subordinate to an analysis of the purpose of the duty. In Khan, the Supreme Court confirmed that the reformulated SAAMCo principle is not restricted only to commercial transactions, and applied the principle to a case of clinical negligence (more).
The English Court of Appeal has reiterated its willingness to recognise and enforce judgments obtained outside the jurisdiction, without reviewing their merits, subject only to limited exceptions. In Lenkor Energy Trading DMCC v Puri, the appellant submitted that enforcement of the judgment (which concerned dishonoured cheques) would be contrary to English public policy on the basis that the underlying transaction was tainted by illegality. The Court of Appeal dismissed the appeal. Lewison LJ stated that: “[t]his is not a question of enforcing a contract. It is a question of enforcing a judgment given by a foreign court of competent jurisdiction. The two are not the same…There are sound justifications for taking a different approach to substantive claims and enforcement claims, reflecting the different role by the court in each circumstance…The judgment of a foreign court of competent jurisdiction creates an obligation to pay the judgment sum enforceable in this jurisdiction as a debt, irrespective of the underlying cause of action.”
Lawyers understand the importance of using the ‘subject to contract’ label where appropriate, so as not to be bound by a draft agreement. However, failing to use the label does not necessarily result in the agreement being enforceable. In Jamp Pharma Corp v Unichem Laboratories Ltd, the High Court considered a contractual addendum that was not marked subject to contract which had been signed by only one party. The court considered various evidence, including emails between the parties and statements made at meetings, to ascertain the parties’ objective intention. The court concluded that the parties’ objective intention was to be bound by the addendum only if executed in a certain way (i.e. signed by both parties) and that any agreement was conditional on the addendum being signed, even though the words ‘subject to contract’ had never been used. The decision reflects basic contractual principles, but should not dissuade parties from using the label, where appropriate, to avoid disputes of this kind.
In the normal course of events, pre-action correspondence will not attract litigation privilege because it passes from one party in a dispute to the other. However, in Ahuja Investments Ltd v Victorygame, Ahuja initially sent a letter of claim to its former solicitors alleging negligence. Ahuja subsequently commenced proceedings against a different party, Victorygame. Victorygame sought disclosure of the letter of claim in those proceedings. The English High Court considered that the true purpose of the letter of claim had been to obtain information for the proceedings against Victorygame. Accordingly, it concluded that the letter need not be produced, since it benefited from litigation privilege, having been written for the dominant purpose of obtaining information for use in the subsequent court action against Victorygame, which was already in prospect. It was irrelevant that the letter did not say this, and threatened proceedings only against the solicitors.
In Dodkia v United Luck Group Holdings, the English Court of Appeal considered the validity of a Notice of Claim (NoC) issued by the buyer under a sale and purchase agreement (SPA). The SPA included a covenant under which the sellers promised to reimburse the buyer for various tax liabilities. The SPA also stated that the buyer could bring a claim only if it gave written notice stating in reasonable detail the matter which gave rise to the claim. The buyer issued a NOC relating to an investigation being carried out by the Slovenian tax authorities. The NOC specified the period covered by the investigation and when the authorities became involved, but did not detail the amount being claimed as the investigation was ongoing. The question before the court was whether this amounted to “reasonable detail” of the “matter” giving rise to the claim, for the purposes of the notification clause in the SPA. The court of first instance decided that it did not, and that the NoC was therefore invalid. The Court of Appeal disagreed. It noted that the clause was not precise regarding the content of a NoC, and what was “reasonable” depended on the circumstances. These included the information that was already known to the seller, and so it would be “empty formalism” to insist that the buyer should have included that information in the NoC. Nevertheless, the decision highlights the importance of complying strictly with notification clauses and providing full information in the relevant notice.
Experts who give evidence in English court proceedings must comply with the strict rules of Part 35 of the Civil Procedure Rules. The rules are summarised and explained in Guidance published by the Civil Justice Council in 2014. However, they are quite often broken, as happened repeatedly in Dana UK AXLE Ltd v Freudenberg FST GmbH, where two of the defendant’s experts, for example, made site visits without informing the claimant’s experts or allowing them to access the same information. The court also criticised “serious and unexplained” breaches of a pre-trial review order in relation to expert evidence, and as a result, the defendant’s technical expert reports were excluded by the court. The case is a reminder of the need for lawyers to exercise “careful oversight and control” over expert witnesses so as to ensure a level playing field and compliance with all the rules.
The UK government has announced that Great Britain will stop using coal to generate electricity from 1 October 2024 - a year earlier than planned. This follows a statement made by Prime Minister Boris Johnson in 2020 regarding the need to transition quickly away from coal-fired electricity generation. The necessary legislation will be introduced at the earliest opportunity. Energy and Climate Change Minister Anne-Marie Trevelyan has described the move as “sending a clear signal around the world that the UK is leading the way in consigning coal power to the history books and that we’re serious about decarbonising our power system so we can meet our ambitious, world-leading climate targets.” More
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