Legal Update for Energy Lawyers - March 2024

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

• High Court rules that Nigerian community can pursue oil pollution claim against Shell 
• Judge draws an end to high-profile Federal Republic of Nigeria v P&ID saga
• No general obligation of good faith between parties in competition
• Court of Appeal confirms that parties can be ordered to engage in ADR
• US relaxes sanctions on Venezuela’s oil & gas, and gold sectors
• UK signs the 2019 Hague Judgments Convention
• Arbitration Bill undergoing fast track procedure in Parliament

1. High Court rules that Nigerian community can pursue oil pollution claim against Shell 

The High Court in London has ruled that 13,000 Nigerian fishermen and farmers involved in a significant oil pollution case against Shell can pursue claims for violations of their right to a clean environment under Nigerian constitutional law. The case stems from a 2021 UK Supreme Court ruling that Shell, a UK-listed company, exerted significant control over its Nigerian subsidiary and could therefore be held liable in a British court. (Shell had initially challenged jurisdiction, arguing that the case should be adjudicated by Nigerian courts.) Should the case prevail at trial, it would mark the first instance in legal history where a UK multinational has been found guilty of violating a community's right to a clean environment. Shell argues that the litigation overlooks the primary causes of oil spills, namely theft and sabotage, emphasising its efforts in spill remediation. This case highlights the growing pressures on Shell and the broader implications for oil companies' operations in environmentally sensitive areas.

2. Judge draws an end to high-profile Federal Republic of Nigeria v P&ID saga

On 21 December 2023, Mr Justice Robin Knowles refused permission to appeal his earlier ruling (The Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638) in which Nigeria successfully challenged an US$11 billion arbitral award. This looks to have concluded the high-profile saga, with Mr Justice Knowles remarking that P&ID “had a fair trial and it has lost”, indicating it had no real prospects of succeeding on its grounds of appeal.

In the earlier judgment, handed down on 23 October 2023, Nigeria had applied to set aside the arbitral awards made in favour of P&ID under sections 67 and 68 of the Arbitration Act 1996. Nigeria argued that the awards were procured by fraud and/or other conduct that is contrary to public policy and that the Tribunal lacked jurisdiction. In reaching his verdict, Mr Justice Knowles stated that Nigeria had suffered substantial injustice, finding that P&ID:

1. Relied on and provided to the Tribunal knowingly false information;
2. Continually bribed a key witness, Mrs Grace Taiga, to “keep her ‘on-side’” and to prevent her from sharing information about the corruption which caused Nigeria and P&ID to enter into the relevant contract; and
3. Improperly retained Nigeria’s privileged documents to monitor its position and level of understanding.

3. No general obligation of good faith between parties in competition

In Phones 4U Ltd (In Administration) v EE Ltd and others [2023] EWHC 2826 (Ch), the High Court provided further guidance on duties of good faith under English law. Phones 4U claimed that when EE informed it in September 2014 that it would not be renewing its agreement when it expired in a year’s time, it was in breach of an express and implied obligation of good faith. Phones 4U relied on a contract clause requiring EE to act in good faith and avoid any activity designed to reduce Phones 4U’s revenue, to argue that EE was under a general duty of good faith.

The Court concluded that the duty of good faith was restricted to activity designed to reduce Phones 4U’s revenue. This was a professionally drafted and very full contract between sophisticated parties and if the parties had intended to impose a general obligation of good faith, they would have done so. Moreover, it was inconceivable that the contract would not also have imposed the same obligation on Phones 4U, which it did not. The Court also rejected Phones 4U’s argument that the contract was a “relational contract” into which a general duty of good faith should be implied. The fact that the agreement included a detailed description of the parties’ collaboration was inconsistent with it being of a relational nature. In addition, EE not only enabled Phones 4U to supply connections to its network but was also in competition with it in seeking to supply such connections to customers directly. The fact the parties were in direct competition strongly indicated that this was not a relational contract. In any case, the fact that the contract expressly addressed the question of good faith precluded the implication of a more general duty. 

4. Court of Appeal confirms that parties can be ordered to engage in ADR

In Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, the Court of Appeal examined the legality of mandating non-court-based dispute resolution processes, marking a shift away from the precedent established by the Halsey Judgment, which highlighted the voluntary nature of alternative dispute resolution (ADR). The Council sought to stay proceedings to compel the Claimant, Mr Churchill, to engage with its internal complaints procedure over a dispute concerning Japanese knotweed encroachment, but the stay was denied despite the Court's recognition that ordering parties into ADR could be lawful under certain conditions.

This decision signifies a move towards recognising the courts' role in encouraging, and potentially mandating, ADR to resolve disputes efficiently, fairly, and cost-effectively, without infringing on the right to a judicial hearing. The Judgment did not set fixed principles for such orders but stressed the importance of considering the specifics of each case. This development aligns with broader policy trends in the UK to integrate mediation into the dispute resolution process, especially for small claims, reflecting a growing endorsement of mandatory mediation in certain contexts.

5. US relaxes sanctions on Venezuela’s oil & gas, and gold sectors

The US  has relaxed sanctions on Venezuela, notably in respect of Venezuela’s oil & gas, and gold sectors. General Licences No. 43 and No. 44 issued by the Office of Foreign Assets Control authorised certain transactions with CVG Compania General de Mineria de Venezuela CA (Minerven), a state owned gold mining company, and Petroleos de Venezuela, S.A. (PdVSA), a state owned oil & gas company, along with their subsidiaries. Transactions with PdVSA are only authorised until 18 April 2024 under General Licence No. 44. However, following Venezuela’s Supreme Court upholding a ban on opposition leader, Maria Corina Machado, the US has already reinstated sanctions on Venezuela’s gold sector pursuant to General Licence No. 43A – transactions with Minerven will be prohibited from 12.01am EST 13 February 2024. The US is, also, threatening to reimpose sanctions on Venezuela’s oil sector. Considering the evolving circumstances, companies engaged in Venezuelan business activities should ensure they remain thoroughly informed about the current sanctions regime and safeguarded against any potential reinstatement of sanctions.

6. UK signs the 2019 Hague Judgments Convention

On 12 January 2024, the UK signed the 2019 Hague Judgments Convention, which will be operational 12 months post-ratification and applicable to judgments from proceedings initiated thereafter. As highlighted in our September update, the convention is currently active between the EU (excluding Denmark) and Ukraine, with Uruguay joining on 1 October 2024. Israel, the US, Costa Rica, and Russia have signed but not ratified the convention. Its enforcement in the UK will streamline the procedure for recognising judgments from other contracting states without exclusive jurisdiction agreements. While most commercial entities may not need the 2019 Convention due to existing exclusive jurisdiction clauses opting for the 2005 Hague Choice of Courts Agreement Convention, both conventions aim to fill the void left by the UK's departure from the Brussels Regulation post-Brexit.

7. Arbitration Bill undergoing fast track procedure in Parliament

The Arbitration Bill (the Bill) was introduced to the House of Lords on 21 November 2023. It was created to amend the Arbitration Act 1996 following the Law Commission’s review. As a result, it is considered uncontroversial and is currently making its way through Parliament under a special fast track procedure. The Bill aims to ensure that the Arbitration Act 1996 remains fit for purpose and continues to promote the UK as a leading destination for arbitrations. The Explanatory Notes to the Bill state that: “The final report of the Law Commission concluded that the Arbitration Act 1996 generally works well, and that root and branch reform is not needed nor wanted. Nevertheless, the Law Commission made a number of recommendations for targeted reform. The Government accepted all the recommendations.” Key recommendations that will be implemented by the Bill were discussed in our September update.