Legal update for energy lawyers - July 2022

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

• Levy imposed on oil and gas profits in the UK
• SFO under fire again
• Council obtains innovative injunction against environmental protestors
• Parties did not waive their right to appeal an arbitration award on a point of law
• Penalties for refusing to engage in mediation
• High Court wrong to strike out “unmanageable” claims of 200,000 Brazilians
• Japanese executives ordered to pay £80 billion following nuclear incident
• UK’s Climate Change Act bares its teeth
• Revised Energy Charter Treaty agreed
• UK government published Energy Security Bill
• New rules for ICSID investment arbitration

1. Levy imposed on oil and gas profits in the UK

Following a very short consultation lasting just one week, the UK government has passed the Energy (Oil and Gas) Profits Levy Act 2022, which affects oil and gas companies operating in the UK or on the UK Continental Shelf. The statute introduces a new, temporary 25% levy on ring fence profits, adding to Ring Fence Corporation Tax (charged at 30%) and the Supplementary Charge (charged at 10%). The headline rate of tax has therefore increased from 40% to 65%. Also included is a new 80% investment allowance available to companies at the point of investment on qualifying expenditure. According to the government’s impact assessment, the measure should raise £5bn in its first year at current market prices. More

2. SFO under fire again

The Court of Appeal has now quashed a third conviction in the Unaoil case, which concerned oil contracts secured following the invasion of Iraq, and a review of the SFO’s operations has exposed serious failings within the organisation. Amongst other things, the review found that meetings were not properly recorded and there was an inappropriate use of personal mobile phones. More importantly, the review exposed the SFO’s lack of an effective disclosure strategy, as well as significant distrust between senior management and case workers. The retired judge leading the review has referred to “a category of decisions and events that, in hindsight, can be seen to have caused problems which should be clearly managed and not repeated in the future," The government has accepted all the recommendations made in the review.

3. Council obtains innovative injunction against environmental protestors

In Thurrock Council and another v Adams and others, the claimants obtained an injunction against members of the protest group Just Stop Oil, preventing them from blocking roads or impeding vehicles at certain local fuel terminals. The injunction allows police to remove quickly and effectively anyone attempting to block access to the sites on the ground that they are key to national supply. More generally, the judgment demonstrates that prohibitory injunctive relief is available against named defendants and/or persons unknown on a clearly defined set of roads. The case may encourage other councils throughout the country to obtain injunctions against environmental campaigners who cause major disruption to fuel deliveries and transport in general.

4. Parties did not waive their right to appeal an arbitration award on a point of law

Under the English Arbitration Act 1996, parties have a right to appeal an arbitration award on a point of law “unless otherwise agreed” (section 69(1)). Certain arbitration rules (including those of the International Chamber of Commerce (ICC) and London Court of International Arbitration) exclude the right to appeal on this basis. However, in the context of a dispute regarding a gas sales and purchase contract, the Commercial Court has ruled that the parties did not waive their right to an appeal on a point of law merely by referring in their arbitration agreement to the "procedural rules" of the ICC and the possibility of such rules being used to fill in gaps in an otherwise bespoke procedure (National Iranian Oil Co v Crescent Petroleum Co International Ltd). The court found that there was no gap to be filled by Article 28.6 of the ICC Rules which excludes the right to appeal on a point of law. It stressed that “the default position … is that there is a right of appeal, not the other way round”, adding that it was “wholly unnecessary and unrealistic to expect that the parties should have explicitly to reserve the right”. The judgment confirms that whilst express reference to section 69 is not required, an agreement to exclude the section 69 right of appeal must be sufficiently clear.  

5. Penalties for refusing to engage in mediation

In England and Wales, parties can be penalised in costs if they unreasonably refuse to accept an offer of mediation, or simply fail to respond to such an offer. However, in Richards v Speechly Bircham LLP the Commercial Court held that the defendants’ refusal to mediate did not justify an award of indemnity costs. Although an offer of mediation had been made (and rejected) four times, it was sufficient for the defendants to pay the claimants’ costs on the standard basis up to and including trial. The decision should not encourage litigants to ignore offers of mediation or any other form of ADR; on the contrary, this can have serious adverse costs consequences. However, the case is a reminder that refusing an offer of mediation is not like refusing a reasonable Part 36 offer. The consequences are far from automatic and refusal to mediate is only one factor that the court takes into account when exercising its discretion regarding costs.

6. High Court wrong to strike out “unmanageable” claims of 200,000 Brazilians

In Municipio De Mariana v BHP Group (UK) Ltd (formerly BHP Group Plc), the English Court of Appeal has overturned a decision of the High Court to strike out the claims of over 200,000 Brazilians affected by the collapse of a dam in Brazil. The judge had initially objected to the claims on the basis that they were (i) an abuse of process; (ii) “irredeemably unmanageable”; and (iii) might give rise to irreconcilable judgments in different jurisdictions. However, the Court of Appeal did not think that manageability of the litigation was strictly relevant if the claims were properly advanced. The judge had also been mistaken in holding that the litigation should be stayed either on forum non conveniens grounds or under EU jurisdiction rules (Art 34 of the Brussels Regulation (Recast) EU 1215/2012). The case is another illustration of mass claims being brought in England and Wales on the basis of one of the defendants being located within the jurisdiction.

7. Japanese executives ordered to pay £80 billion following nuclear incident

Former executives at Tokyo Electric Power Company (Tepco) have been ordered by the Tokyo District Court to pay 13 trillion Yen (approx. £80 bn) to shareholders for failing to exercise due care and so prevent the Fukushima nuclear incident that followed the tsunami near Japan in March 2011. It is not expected that the former executives will be able to pay the full sum ordered, which may be the highest level of damages ever awarded in a civil case in Japan, and the decision has been appealed. Although no-one was killed in the Fukushima incident and its long-term effects are unclear, it is generally considered the worst nuclear incident to have occurred since Chernobyl in 1986.

8. UK’s Climate Change Act bares its teeth

Environmentalists have achieved a limited victory over the UK government in Friends of the Earth Limited & Ors v Secretary of State for Business Energy and Industrial Strategy. The English Administrative Court agreed with the claimants that the Secretary of State had not discharged all his duties under the Climate Change Act 2008 when reporting to parliament on the UK's Net Zero Strategy. As such, a further and more detailed report is to be submitted to parliament by the end of March 2023. Although the claimants’ case failed in other aspects, the decision shows that the 2008 Act has ‘teeth’ and may form the basis of further and more substantial challenges to government policy on the environment.

9. Revised Energy Charter Treaty agreed

The Energy Charter Conference has now reached a landmark “agreement in principle” to modernise the 1994 Energy Charter Treaty (ECT) amidst mounting pressure and scrutiny. According to the ECT’s official announcement, the revised treaty will grant contracting parties flexibility to exclude fossil fuel investments from ECT protection and has a much stronger focus on clean, affordable energy and protecting states’ sovereignty to govern their energy resources. Nevertheless, the treaty will still protect existing fossil fuel investments for at least a decade in the EU and UK – and perhaps longer elsewhere. The text of the revised treaty has not yet been published, but it is due to be signed in November 2022.

10. UK government published Energy Security Bill

The UK government has published an Energy Security Bill which aims to deliver a cleaner, more affordable and more secure energy system. It aims to achieve this by building on commitments in the Prime Minister’s Ten Point Plan and the British Energy Security Strategy to invest in homegrown energy and maintain the diversity and resilience of the UK’s energy supply. In particular, the government aims to leverage private investment in clean technologies, build a homegrown energy system, and introduce reforms to protect consumers from unfair pricing. The Bill will also increase the safety, security and resilience of the UK’s energy system, for example by removing barriers to investment in the British nuclear industry.  

11. New rules for ICSID investment arbitration

After more than five years of consultation, six working papers, and a vote of approval by member states, the new arbitration rules of the International Centre for the Settlement of Investment Disputes (ICSID) have now been finalised. The rules came into effect on 1 July 2022. Most of the changes aim to speed up proceedings, improve transparency, and flesh out ICSID procedure generally. More