Legal Update for Energy Lawyers – September 2021

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

- Litigation privilege and regulatory investigations 
- Liquidated damages clause inflexible but valid 
- High Court emphasises need to view contractual clauses in context 
- Consequences of supplying fuel in breach of specifications 
- Economic duress clarified 
- Law Society guidance on Legal Professional Privilege 
- Judicial Review of OGA strategy 
- UK announces Hydrogen Strategy 
- OGA releases data on North Sea

1. Litigation privilege and regulatory investigations

In Qatar v Banque Havilland, the English High Court ordered the disclosure of a forensic investigation report produced by a firm of accountants, as well as disclosure of drafts and other associated documents, on the basis that the regulatory investigations underway at the time did not amount to ‘adversarial proceedings’ for the purpose of litigation privilege. There was also insufficient evidence that the proceedings were expected to become adversarial in the future. This contrasts with the facts of the leading case on this subject, SFO v ENRC (Court of Appeal, 2018), where a criminal investigation was anticipated relatively early on.  The decision in Qatar is a reminder of the difficulty of showing that a document was produced for the dominant purpose of seeking or giving legal advice in relation to ‘litigation’, i.e. adversarial proceedings, or to collect evidence for use in such proceedings. In many cases, the relevant document is created before litigation is anticipated, or for multiple purposes. Where such ‘dual purpose’ exists, the dominant purpose threshold may not be met.

2. Liquidated damages clause inflexible but valid

In Eco World – Ballymore Embassy Gardens Co Ltd v Dobler UK Ltd, the English High Court has confirmed the validity of a liquidated damages clause in a construction contract, despite the clause making no provision for the claimant taking early possession of part of the property.  In seeking general damages for delay, the claimant had argued that the clause was inflexible and therefore a penalty; however the judge disagreed, describing it as “reasonably clear and certain" and, unlike some clauses of this type, "capable of being operated".  Since it was also not unconscionable or extravagant (Makdessi v Cavendish Square (2015) SC), there was no reason to declare the clause unenforceable or invalid.  The claimant was not therefore free to claim damages in excess of those specified in the contract. 

3. High Court emphasises need to view contractual clauses in context

In Acerus Pharmaceuticals Corporation (incorporated in Canada) v Recipharm Ltd, the English High Court again adopted a pragmatic approach to contractual interpretation in the commercial context.  Viewed in isolation, a clause in the parties’ contract allowed the defendant to walk away from its obligations to supply a plant-derived medicinal product to the claimant before the relevant contract was terminated.  This did not make commercial sense and in the court’s view could not have been the intention of the parties, objectively considered.  However, if the clause was viewed in context, it applied only to circumstances where a third party brought a claim against one of the parties.  The court favoured this second construction, echoing Lord Clarke’s comment in Rainy Sky v Kookmin that "if there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."  The judgment is being appealed.

4. Consequences of supplying fuel in breach of specifications

The English High Court has ruled in Galtrade Ltd v BP Oil International Ltd on the legal effect of a company supplying straight run fuel oil (SRFO) that did not comply with the maximum/minimum tolerances laid down in the contract  -  in this case, limits for sulphur content.  (The contract incorporated the defendant’s General Terms and Conditions for Sales and Purchases of Crude Oil Petroleum Products.) In the court’s view, specifications of this kind were not generally conditions of the contract, but innominate terms, meaning in practice that a supplier’s breach of them did not entitle a buyer to reject the SFRO.  The market was able to accommodate cargo of different specifications, therefore the breaches did not go to the root of the contract.  If the parties had wished the specifications to be a condition, this should have been specifically stated in the contract.

5. Economic duress clarified

The UK’s Supreme Court has dismissed an appeal based on the tort of economic (or ‘lawful act’) duress. Its decision in Pakistan International Airline Corporation v Time Travel Ltd clarifies and limits the doctrine, which is something of a grey area in English law. For the tort to exist, an illegitimate threat or pressure must be exerted by the defendant, causing the claimant to enter into a contract. In addition, the claimant must have no reasonable alternative to yielding to the threat or pressure. In the court’s view these conditions would only rarely be met, and in practice the doctrine has been applied only where knowledge of criminal activity was being exploited or where reprehensible means were being used to manoeuvre the claimant into a position of weakness, forcing it to waive its claim.  The court was unwilling to extend the doctrine, even to cover situations where a party has acted in bad faith, which was not the case here. For the official summary, click here.

6. Law Society guidance on Legal Professional Privilege

The Law Society of England and Wales has published guidance on Legal Professional Privilege. This reflects among other things the recent judgments of the Court of Appeal on privilege in the regulatory context (Sports Direct v Financial Reporting Council) and the problem of emails sent to multiple individuals including lawyers (CAA v R Jet2.com).  The guidance includes a new section on the meaning of ‘client’ in legal advice privilege, although the courts’ narrow interpretation of this has not changed substantially since the Three Rivers decisions of 2003/4.  Note that Law Society guidance provides a useful snapshot of the law, together with helpful practical advice, but is not kept continuously up to date so should be treated with caution.

7. Judicial Review of OGA strategy

The English High Court has given the green light for Greenpeace and others to challenge the strategy recently developed by the Oil and Gas Authority (OGA).This involves continuing to extract fossil fuels from the North Sea while simultaneously working towards a ‘net zero’ carbon future.According to the campaigners, this cannot work, and so public support for it is irrational and incompatible with the government’s legally binding climate targets.The OGA argues that its strategy is “the primary tool [it] has to hold industry to account on emission reductions, as well as ensuring pace on essential energy transition projects including carbon capture and storage”. More

8. UK announces Hydrogen Strategy

The UK has announced its Hydrogen Strategy which takes a “holistic approach to developing a thriving UK hydrogen sector.” It explains what needs to happen to enable the production, distribution, storage and use of hydrogen, and contains a roadmap showing how the government expects the hydrogen economy to evolve and scale up over the coming decade.  It is intended to stimulate progress in the short term, as well as setting the direction for the longer term, supporting innovation and attracting the investment that is required.  In addition to the strategy itself, the government is running a number of consultations, seeking views on its preferred Hydrogen Business Model, the design of its flagship £240m Net Zero Hydrogen Fund, and a UK Low Carbon Hydrogen Standard. 

9. OGA releases data on North Sea

The OGA has made more than 50 years’ worth of North Sea data available through its National Data Repository (NDR).The NDR is a cloud-based project by the OGA to provide petroleum-related information to companies and other users. When launched in 2019, the platform initially included 100 terabytes of well, geophysical, and other petroleum licence data and it is anticipated that a further 400 terabytes will be added in the coming months. By using its regulatory powers to ensure that the data is reported, the OGA anticipates an increase in volume of data of 4000% in 5 years. More