Legal update for energy lawyers – May 2022

This newsletter provides general information and is not intended to be comprehensive or to provide specific legal advice.

Contents

• English High Court rejects application for summary judgment based on ambiguous variation clause
• English Commercial Court confirms robust approach to arbitral challenges
• English Commercial Court provides clarity on section 68 of the Arbitration Act
• UK adjudication decision vitiated by a breach of the principles of natural justice
• Australia’s Full Federal Court overturns duty to consider climate impacts
• British energy security strategy published
• UK government announces independent public body to oversee UK energy system
• UK’s Oil and Gas Authority changes name to North Sea Transition Authority
• UK’s Ministry of Justice dispute resolution consultation responses published
• UK Crown Prosecution Service launches team to tackle economic and organised crime​

1. English High Court rejects application for summary judgment based on ambiguous variation clause 

In Integral Petroleum SA & Ors v Dun & Ors, the High Court rejected an application for summary judgment on the basis that the applicant had failed to demonstrate that a variation clause in a facility agreement excluded oral variations. It held that the clause was ambiguous as to whether the words “in writing” required an amendment to be effected in a written document or whether it was sufficient for it to be evidenced in writing i.e., agreed orally and later reduced to writing. The issue of construction was one of law and fact and could not be resolved without oral evidence and cross examination. The decision is a reminder that variation clauses require careful consideration; in specific contexts, the words “in writing” may not be enough to exclude oral variations.

2. English Commercial Court confirms robust approach to arbitral challenges 

In WSB v FOL, the Commercial Court dismissed an application to set aside an order dismissing a challenge to an arbitration award under section 67 (substantive jurisdiction) and section 68 (serious irregularity) of the Arbitration Act 1996 and refusing permission to appeal under section 69 (point of law) without a hearing. It held that where the court exercises its powers to determine challenges under section 67 and section 68 of the Act on paper, the claimant may seek an oral rehearing at the risk of indemnity costs (paragraph O.8.7 of the newly published Commercial Court Guide). An oral hearing would only be permitted if the claim had a real prospect of success or other good reason. However, no right to an oral rehearing existed under section 69 of the Act (which is omitted from paragraph O.8.7 of the Guide). Section 69(5) permitted the court to consider if a section 69 challenge required a hearing, but it was too late to ask for an oral hearing once the determination under section 69(5) was made on paper. The decision clearly sets out the narrow limits in which the court will intervene in arbitral awards and the robust approach of the judiciary when considering applications for oral hearings.

3. English Commercial Court provides clarity on section 68 of the Arbitration Act 

In Ducat Maritime Ltd v Lavender Shipmanagement Incorporated, the Commercial Court set aside part of an arbitral award on the basis of a serious irregularity causing substantial injustice as per section 68(2)(a) of the Arbitration Act 1996 (failure by the tribunal to comply with its general duty to act fairly). The court held that in making an obvious accounting error, the arbitrator had reached a conclusion which was contrary to the common position of the parties, and for which neither party had contended, without providing an opportunity for the parties to address him on the issue. This was more than illogicality or irrationality on the part of the tribunal which would not in itself fall within the scope of section 68. The decision provides clarity surrounding the scope of section 68 where there has been an obvious or gross accounting mistake; an award may be challenged not because it represents an extreme illogicality, but because it constitutes a departure from the case put by both sides without the parties having had an opportunity to address the mistake. 

4. UK adjudication decision vitiated by a breach of the principles of natural justice 

In Van Oord UK Ltd v Dragados UK Ltd, the Outer House Court of Session (Scotland) held that an adjudicator’s decision to award prolongation costs breached the principles of natural justice. In this case the pursuer (claimant) gave the defender notice of termination of a subcontract due to the defender causing a critical delay. The adjudicator selected a baseline date from which to assess critical delay without canvassing the parties. The court held that this prevented the defender from raising a time bar argument, thereby creating an opportunity for injustice. Similar to Ducat (at 3. above), this decision will serve as a reminder to adjudicators and arbitrators that if they propose a novel approach on a significant issue which has not been canvassed, further submissions should be sought from the parties.

5. Australia’s Full Federal Court overturns duty to consider climate impacts  

In Minister for the Environment v Sharma [2022] FCAFC 35, Australia’s Full Federal Court held that the exercise of certain powers under the Environmental Protection and Biodiversity Conversation Act 1999 did not create a duty to take reasonable care to avoid causing personal injury to children, arising from emissions of carbon dioxide. In overturning the primary judgment, the court held that the creation of a novel duty required a review of policy considerations unsuitable for judicial determination, and that the imposition of a novel duty was inconsistent with the Act which does not contain as an overall purpose the safety of human life. The court also concluded that to impose a duty would result in indeterminate liability, and sufficient closeness between the applicants and the minister’s exercise of powers had not been established. The case demonstrates the difficulties in applying principles of negligence to emerging climate change issues. Future cases may seek to pursue other statutory causes of action more suitable to the complexity of climate change issues.

6. British energy security strategy published 

The UK government has published its British energy security strategy which aims to increase the energy efficacy of Britain’s homes and businesses and reduce the UK’s long term dependence on foreign energy sources. The strategy involves investing in the North Sea and ramping up Britain’s production of offshore wind and nuclear power, which will enable Britain to increase its hydrogen energy capacity. Its objectives are ambitious: by 2030 the government hopes that over half of Britain’s renewable generation capacity will be wind, with 95% of British electricity derived from low carbon sources.

7. UK government announces independent public body to oversee UK energy system 

The UK government has announced the creation of an expert independent public body, the Future System Operator (FSO), to oversee developments across Britain’s entire energy system and provide independent advice to the government and Ofgem. The FSO will play an important role in the integration of existing networks with emerging technologies, adopting a ‘whole system’ approach, with a commitment to achieving net zero whilst working with energy providers to maintain energy security and resilience. The initial announcement has been welcomed as a clear and necessary commitment from the government towards greater independence and harmonisation in the energy industry. The government expects the process of establishing the FSO to conclude by the end of 2024. Against a backdrop of increasingly restrictive economic sanctions and geopolitical tensions, adhering to this timetable will be vital.

8. UK’s Oil and Gas Authority changes name to North Sea Transition Authority 

The Oil and Gas Authority has changed its name to the North Sea Transition Authority (NSTA) to reflect its evolving role towards energy transition and its revised strategy to prioritise net zero as dependence on oil and gas decreases over the coming years. As the body overseeing the oil and gas industry (which currently provides about 75% of the UK’s energy needs) the NSTA will continue to prioritise energy security. The NSTA’s specific workstreams also include stewarding carbon storage projects through development, leading studies to assess the potential for hydrogen power and driving offshore energy integration to build closer links between oil and gas and renewables.

9. UK’s Ministry of Justice dispute resolution consultation responses published 

Following last year’s Dispute Resolution in England and Wales: Call for Evidence, the Ministry of Justice has published a summary of responses which offer valuable insight into the attitudes and perception of dispute resolution in the civil, family and administrative courts. Dispute resolution was ultimately considered effective, but various barriers to engagement were identified. Tougher costs sanctions for non-compliance with protocols were generally considered important to address issues of engagement. Proposals for mandatory mediation measures received a mixed response; some respondents considered compulsion was necessary to address preconceptions of mediation as a soft option, others felt it would turn mediation into a tick box exercise impacting negatively on engagement and quality. The government are using these findings to further develop the dispute resolution landscape in England and Wales.

10. UK Crown Prosecution Service launches team to tackle economic and organised crime 

The Crown Prosecution Service has launched a specialist team to combat the increasingly sophisticated tactics used by organised crime to commit fraud and money laundering. The Serious Economic, Organised Crime and International Directorate (SEOCID) will bring together experts in economic, organised and international crime to tackle criminals working in complicated multi-jurisdictional networks. The launch is part of the Economic Crime Strategy 2025 which aims to increase digital expertise (in areas such as cryptocurrencies) and facilitate cross border communications to seize assets more readily.