Legal Update for Energy Lawyers - March 2023

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: 

1. Shell directors personally sued by ClietEarth over alleged mismanagement of climate risk
2. Arbitration agreements in "subject to" contracts
3. Commercial Court decision on arbitrator bias
4. Witness statements and hearsay - risks for parties and lawyers
5. Russian petroleum product price cap implemented
6. Government announces new Department of Energy Security and Net Zero
7. UK government budget announcement concerning carbon capture and nuclear energy

1) Shell directors personally sued by ClientEarth over alleged mismanagement of climate risk

ClientEarth has filed a claim against the board of directors of Shell for allegedly failing to prepare the company for the energy transition. The claim was filed with the High Court and is regarded as the first of its kind in Europe. 

ClientEarth, which holds a minor stake in Shell, brought a derivative claim under the UK Companies Act 2006 against Shell’s directors for various causes of action, including breach of directors’ duties. A derivative claim allows a shareholder to sue the company directors on behalf of the company for breaching duties to the company. Under English Law, the directors of UK companies are under a fiduciary duty to promote the success of the company for the benefit of its members as a whole. The claim accuses Shell’s directors of failing to adopt an energy transition strategy, failing to deliver a reduction in the company’s emissions as required by 2021 court order obtained in the Netherlands and failing to address risks posed to the company’s business by climate change. 

ClientEarth now awaits permission from the High Court whether its claim can proceed.

2) Arbitration agreements in “subject to” contracts 

A recent Court of Appeal decision has considered the scope and applicability of the separability principle to determine whether a proposed “subject to” charterparty contained a binding arbitration agreement granting jurisdiction on an arbitrator to determine the validity of the contract. 

DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd concerned the main terms of a proposed voyage charter, which were subject to the shipper/receiver’s approval. The main terms contained an arbitration clause. Ultimately, the vessel was not approved and the charterer released the vessel.  The tribunal ruled that a binding charterparty with an arbitration clause had been concluded and that by  releasing the vessel, the charterer had repudiated the contract.  The Charterer appealed on the ground that the arbitral tribunal had no substantive jurisdiction. 

The Court of Appeal held that the separability principle created no presumption that an arbitration agreement had been reached. The “subject” was a pre-condition, the effect of which was to prevent the conclusion of a binding contract until the “subject” was lifted. The absence of an intention to conclude a binding contract also applies to an arbitration clause and other clauses within the contract. As a result, the Court of Appeal held that the arbitrator had no substantive jurisdiction. 

This judgment serves as a reminder that if parties intend an arbitration agreement to survive the potential breakdown of a “subject to” contract, such intention must be expressed clearly in the agreement. 

3) Commercial Court decision on arbitrator bias

A cocoa trader claimant has recently failed in an application to set aside an award handed down by the Board of Appeal of the Federation of Cocoa Commerce (FCC).

In Africa Sourcing Cameroun Limited v LMBS Societe Par Actions Simplifee [2023] EWHC 150 (Comm) the claimant argued that there was a serious irregularity under s.68 of the Arbitration Act 1996 on the basis that the chairman of the FCC Board had failed to disclose that he had past professional contact with the Defendant. The claimant argued that this gave rise to an appearance of bias. 

The Commercial Court rejected that argument stating that, given the small size of the commodities market, it was not unusual that traders and an FCC arbitrator would be known to each other, and a fair minded and informed observer would not consider there to have been a real possibility of bias. 

4) Witness statements and hearsay – risks for parties and lawyers 

The High Court has highlighted the importance for witnesses and lawyers of complying with Practice Direction 57AC (“PD57AC”) in the preparation and certification of witness statements.

PD57AC provides that trial witness statements should, among other things, not seek to argue the case or include commentary on other evidence in the case. Witnesses and legal representatives are required to sign certificates of compliance in this regard.

In Cumbria Zoo Company Limited v the Zoo Investment Company Limited, the High Court held that a statement served by the defendant’s Managing Director involved gross non-compliance with PD57AC. The statement, which was accompanied by a certificate of compliance signed by the defendant’s solicitor, was “littered with comments and expressions of belief which can at best only be based on unattributed hearsay”. Contrary to PD57AC, the witness had scrutinised various documents, “carefully explaining to the reader how she says those documents undermine the Claimant’s case”.

The judge noted that had the issue come before the court at a pre-trial review, it would have prohibited the defendant from relying on the statement. As it was, the “flagrant and substantial” non-compliance undermined the witness’s credibility and the defendant’s case. In addition, the judge indicated that there would be little prospect of a successful party recovering the costs of preparing a witness statement so grossly non-compliant. The solicitor who signed the certificate of compliance was also criticised.

5) Russian petroleum product price cap implemented 

On 5 February 2023, the Russian petroleum product price cap entered into force. The cap applies to the provision of maritime services concerning the transportation of petroleum products of Russian origin or consigned or exported from Russia to non-G7 countries. The relevant restricted petroleum products fall under the HS/CN Code 2710.

The restrictions on maritime transportation and services only apply if the price per barrel (or per tonne under UK guidance) of the petroleum products such products are at or below the Premium to Crude or Discount to Crude price cap. The price cap covers the price of restricted petroleum products and does not include supplementary costs such as legal fees. The sanctions regimes provide for a wind down window if the restricted petroleum products were loaded onto a ship before 5 February 2023 and discharged / clear customs by 1 April 2023. 

The UK (alongside the EU and the US) updated its price cap guidance to include restricted petroleum products. The UK guidance provides key updates on payment processing, flagging services, bunkering fuel and services and origin of goods, which would be relevant for market players.

6) Government announces new Department of Energy Security and Net Zero 

The UK government has announced the new Department for Energy Security and Net Zero. The former Department for Business, Energy and Industrial Strategy (BEIS) will be split into three separate departments. 

A new Department for Energy Security and Net Zero will concentrate on the security of energy supply, greater energy efficiency and net zero opportunities. The new Department is also tasked with ensuring that the UK maintains a properly functioning energy markets, coordinates Net Zero objectives across government, and brings external delivery expertise to bear on its portfolio of major projects. This year’s objectives include easing the costs of living and delivering financial security by reducing energy bills and keeping them down.  

7) UK government budget announcements concerning carbon capture and nuclear energy

The UK government has made announcements in its latest budget of measures to support carbon capture and nuclear projects.

As part of a “clean-energy reset”, the chancellor Jeremy Hunt announced carbon capture and storage package designed to mobilise £20bn of investment over the next two decades.

As regards nuclear, the chancellor said that he wanted to encourage new investment in nuclear power by classifying it as “environmentally sustainable”, which would give nuclear projects the same incentives as renewable energy.  He also announced that he would launch Great British Nuclear, a development which he said “will bring down costs and provide opportunities across the nuclear supply chain to help provide up to one quarter of our electricity by 2050.”