Energy Disputes: Lawyering Your Way to a Solution · Energy Disputes: Lawyering Your Way to a Solution Wednesday 26th April 2017

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Energy Disputes: Lawyering Your Way to a Solution

Wednesday 26th April 2017

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John Murray, Legal Manager, Premier Oil Plc

[email protected]

John is a corporate and commercial lawyer who has specialised in the international energy sector since 2004. He is the legal manager of Premier Oil plc’s Falkland Islands Business Unit, based in London, with responsibility for the provision of all legal services required by the business in this new basin; from joint ventures and upstream exploration and development activities to financing, disputes and M&A. He has also held roles in private practice in Aberdeen, London and Hong Kong.

Annual Energy Disputes Seminar - Quadrant Chambers

John Murray - Premier Oil

Managing Market ChangeThe In-house Perspective

• High Oil Price Themes

• Low Oil Price Themes

• M&A Opportunities and Risks

• Cost Control

• Transitioning Commitments

• Disputes


Simon Rainey QC, Quadrant Chambers

Called: 1982 Silk: 2000

[email protected]

Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar with a high reputation for his intellect and advocacy skills. He is regularly involved in high value complex energy disputes, for example: drilling and exploration projects, both in terms of construction and infrastructure issues and in relation to casualties due to failures of equipment or negligent operation involving the allocation of responsibility in complex factual and technical situations; offshore and onshore construction projects covering virtually every species of oil and gas platform, rig, FPSO, offshore vessel and wind farm; production, transportation and processing agreement matters; oilfield redetermination and boundary disputes; energy generation and energy trading etc.

Recent and current cases include: Vitol E&P v New Age Energy (Com. Ct.); Crestar Resources v Newton Energy (Com. Ct.); Ithaca v Petrofac (Com. Ct.).

He was ranked by Chambers UK in Band 1 for Energy & Natural Resources (2017) and as the Star Individual for Shipping and Commodities in both 2016 and 2017; is the Shipping Silk of the Year 2016-2017 (Chambers UK and Legal 500). He has long been ranked as a leading silk in both directories (UK and Asia) for Energy and also Commercial Litigation and International Arbitration, and was nominated Legal 500 International Arbitration Silk of the Year 2016-2017.

He is co-author of “Offshore Structures: Law and Liability” (Sweet & Maxwell, publication 2017: chapters on LOGIC and IADC forms and the OGUK and AIPN JOA forms). He is also the author of the leading text on marine offshore contracts: “The Law of Tug and Tow and Offshore Contracts” (Informa, 3rd Edn, 2013: 4th Edn due 2017) and co-author of “Offshore Contracts and Liabilities” (Informa, 2015: chapter on offshore project mutual indemnities).

He is a Deputy High Court Judge (Commercial Court and Queen’s Bench Division), sits as arbitrator and has performed numerous expert determinations, especially on North Sea matters.

Recent directory quotes in Energy and Natural Resources include:

» “Fiercely intelligent, incredibly proactive and hands-on” (Legal 500, 2016)

» “He’s quite outstanding as he’s meticulous and just never misses an argument. He’s always one step ahead of everybody.” (Chambers, UK, 2017)

» “He has an agile mind and is not afraid to push the boundaries of the law” (Chambers UK, 2017)

“He’s quite outstanding as he’s meticulous and just never misses an argument. He’s always one step ahead of everybody.” (Chambers UK 2017)


Simon Rainey QC

Contracting and Contract Management:

All change... or business as usual?

Simon Rainey Q.C.©

Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101

Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900

TEST: “where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense”

REJECTED APPROACH: “Unless the most natural meaning of the words produces a result which is so extreme as to suggest that it was unintended, the court has no alternative but to give effect it its terms.”

Arnold v Britton [2015] UKSC 36;

(1) The “Commercial Meaning” and “CommercialCommon Sense” in Construing Contracts

Lord Neuberger:

• “The reliance placed in some cases on commercial common sense and surrounding circumstances (e.g. in Chartbrook) should not be invoked to undervalue the importance of the language of the provision which is to be construed. … meaning is most obviously to be gleaned from the language of the provision.

•Unlike commercial common sense and the surrounding circumstances, theparties have control over the language they use in a contract. ”

•While commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.

The final word? Arnold v Britton [2015] UKSC 36


Simon Rainey QC

The Issues:

• (1) Had the Supreme Court ‘rowed back’ in Arnold from the guidance givenin Rainy Sky?

• (2) Does one start (a) by construing the language and then view its commerciality or (b) with commercial considerations and then look at the language? (!)

WHOOPS!

“[Counsel] did not have the opportunity to develop this argument as the court stated that it did not accept the proposition that Arnold had altered the guidance given in Rainy Sky . The court invited him to present his case without having to refer to the well known authorities on contractual interpretation, with which it was and is familiar. [8]

And now ….Wood v Capita Insurance Services Ltd [2017] UKSC 24 (29th March 2017)

•Lord Hodge:

• It is not appropriate in this case to reformulate the guidance given in theRainy Sky and Arnold cases; the legal profession has sufficient judicial statements of this nature. ” [!]

• [12] This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated:. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.

• [14] On the approach to contractual interpretation, the Rainy Sky and Arnoldcase were saying the same thing.

Wood v Capita Insurance Services Ltd [2017] UKSC 24 (29th March 2017)

SPA and Construction of the phrase “the drilling of the Lideka East Well is not commenced”

• “Does “commencement of drilling” here mean the initial turning of the drill bit into the seabed (also known as “spudding”), as Vitol contends or does it refer to a broader concept of the drilling process as a whole which commences with mobilisation of the rig, as AOGC contends?”

• I first consider whether there is a “natural” interpretation of the words “commencement of drilling”. I find that there is and it is the physical penetration of the seabed i.e. spudding. This is to be distinguished from preparations for drilling. Drilling is itself not a momentary process and so it is perfectly sensible to speak of when drilling starts, in the spudding sense, and when it stops. That is the sense in which one would define drilling the road or the drilling of one's teeth by a dentist. I further find that “commencement” naturally means the beginning of drilling, not the beginning of preparations for drilling

• It is first said by AOGC that this wider interpretation must have been intended since the protection conferred upon it was time-limited to begin with and so it would be unfair if AOGC did not have as much protection as possible. However, that does not follow just because the parties have chosen an arbitrary but certain cut-off point for the protection. And anyway, the fact that AOGC may (now) perceive the outcome as unfair is irrelevant where on no sensible view can it be said that Vitol's interpretation produces commercially absurd or unworkable or objectively unreasonable results.

Some examples: (1) Vitol E & P v Africa Oil and Gas [2016] EWHC 1677 (Comm)


Simon Rainey QC

Joint Shipper's Agreement (“JSA”) BP Gas Marketing La Societe Sonatrach.

Clause D2.2.2(ii)(b) of the JSA provided for allocation of nitrogen costs (allocated by Grain LNG Limited to BP and Sonatrach in respect of nitrogen added to LNG cargoes imported through Grain's terminal according to a formula

–“ [….]the variable component of nitrogen costs allocated by Grain to the Shipper shall be allocated in accordance with the quantity of gas Sent Out and the quality of the LNG delivered by each Co-Shipper (the delivering Co-Shipper) as follows:

–XMA = TCM × TN2A / TN2A + TN2B

–Where: TN2A and TN2B is calculated as the product of:[…] (ii) The greater of X or Y,

–Y is the correction factor for Wobbe (tonnes of nitrogen N2 per GWh) calculated as follows:

–((weighted average higher heating value of LNG as delivered by the delivering Co-Shipper (in the case of TN2A) or the other Co-Shipper (in the case of TN2B) in the month (M) / (LNG molar weight) &circ; 0.5) – 51.41 )

Some examples:(2) BP Gas v Sonatrach [2016] EWHC 2461 (Comm)

“51.41” is “proxy” for, or is short-hand, or a dictionary definition for, “the average monthly operational Wobbe index value used for LNG blending and regasification at the Terminal from time to time” .

“At first blush, at least, that would appear to be a challenging submission based on the express language of clause D2.2.2(ii)(b).”

1. the figure of “51.41”, like all other figures in the formula, is a numerical value, and as such is a constant.

2. a situation where an event subsequently occurs which was plainly not intended or contemplated by the parties judging from the language of the contract. In such a case “ ifit is clear what the parties would have intended the court will give effect to that intention” (emphasis added)..

3. Sonatrach has to say that it is clear that the parties would have intended the 51.41 element in the formula to mean “ the average monthly operational Wobbe index value used for LNG blending and regasification at the Terminal from time to time” ,

Some examples:(2) BP Gas v Sonatrach [2016] EWHC 2461 (Comm)

Long term gas SPA: breach of term (cl. 7.1) as to operation of facilities to produce deliverable gas

Article 1.1: “underdelivery ”:

“…a failure by the Seller to deliver an amount of Natural Gas which the Seller was obliged to deliver in accordance with the Buyer's proper nomination and of which the Buyer was able to accept delivery.”

Article 16.1:

“In respect of any Day … on which an underdelivery occurs, a quantity equal to the difference between the amount properly nominated under this Agreement … and the amount delivered by the Seller shall be calculated and such quantity shall be classified … as ‘Default Gas'.”

Article 16.6

“The delivery of Natural Gas at the Default Gas Price and the payment of sums due in accordance with the provisions of Clause 16.4 shall be in full satisfaction and discharge of all rights, remedies and claims howsoever arising whether in contract or in tort or otherwise in law on the part of the Buyer against the Seller in respect of underdeliveries by the Seller under this Agreement, and save for the rights and remedies set out in Clauses 16.1 to 16.5 (inclusive) and any claims arising pursuant thereto, the Buyer shall have no right or remedy and shall not be entitled to make any claims in respect of any such underdelivery.”

Some examples:(3) Scottish Power UK Plc v BP Exploration Operating Co Ltd


Simon Rainey QC

1. “carefully drafted long-term contracts for the supply of natural gas”.

2. “Improbable intention to attribute to the parties that, in relation to a quantity of gas for which the Buyer had automatically received an equivalent amount of Default Gas as compensation for its non-delivery, Scottish Power should also be free to pursue a claimfor another remedy for the failure to deliver the same quantity of gas.”

3. Non delivery would be due to (i) a deliberate decision not to supply; (ii) some failure on the part of the Sellers to comply with their obligations under Article 7.1 to the Standard ofa Reasonable and Prudent Operator; (iii) some non-negligent accident or mishap; or (iv) some natural e.g. geological cause. “If Scottish Power is right, Article 16.6 operates so as to confine the remedy to Default Gas only in relation to categories (iii) and (iv) and, presumably, to category (i) if, but not unless, there is no breach of Article 7.1”

4. Modern Engineering v Gilbert-Ash “the strength of the presumption is reduced inproportion to the degree of derogation from the common law position” [30]

5. Article 16.6 is not a pure exclusion clause …. [it] replaces common law rights with a different contractual remedy which may, in certain circumstances be more valuable than the right to damages”

Some examples:(3) Scottish Power UK Plc v BP Exploration Operating Co Ltd

A new (slightly) more literal dawn? Conclusions to be drawn:

1. PRESUMPTIONS (GILBERT ASH / CONTRA PROFERENTEM): resort to technical drafting presumptions and canons of construction to narrow the language or exclude what its natural sense might have been thought to be may fare less well in the context of a sophisticated “mutually balanced” O&G or energy contract.

2. LANGUAGE: resort to ‘what is a commercial solution’ will only have force where the language – approached textually in the factual matrix - really permits of two results.

3. CHANGES OF CIRCUMSTANCE: if the parties have not catered for it, likely tobe fixed with the meaning which made sense at the time the contract was made.

The “Commercial Meaning”: Is the Tide In or Out?

1. ‘Complete Code’ or ‘Limited Code’ applicable only in certain circumstances / premised on a non-breach situation?

2. Premises on which an arrangement is based (especially long term contrcats): spell them out and make provision for change (RPI in Arnold; Changes in the Wobbe Index in Sonatrach).

3. Better definitions / clearer definitions (Vitol E&P: why assume?)

4. Cross-referencing / explanation of relationship of clauses (cf BP v ScottishPower: Moore Bick LJ’s question -why no reference to Cl. 7.1. in Cl. 16?)

“Future-Proofing”?


Simon Rainey QC

The Court of Appeal [2016] EWCA Civ 372:General approach: ‘not a typical Exclusion Clause’

Court was influenced by the mutual risk allocation aspect:

• 1) “Although clause 20 is an exclusion clause, it has certain characteristics which differ from a typical exclusion clause, by which a commercially stronger party seeks to exclude or limit liability for its own breaches of contract. In this case the parties are of equal bargaining power and have entered into mutual undertakings to accept the risk of consequential loss flowing from each other’s breaches of contract. [14]

•2) MUTUAL: nor does it have a role to play in relation to a clause which favours both parties equally, especially where they are of equal bargaining power. In the case of a mutual clause such as the present clause 20 it is impossible to say who is the proferens and who the proferee. But: Cf. Ease Faith v Leonis [2006] 1 Ll. Rep. 673

•3) GILBERT ASH: “In any event, it is clear that in agreeing to clause 20 in this case

the parties did intend to give up some of their rights;” Therefore the only question

was what was excluded – and how widely -and Gilbert-Ash does not assist on that

Scottish Power UK Plc v BP Exploration Operating Co Ltd [2015] EWHC 2658 (Comm);

• Applying the distinction drawn in McGregor on Damages (19th Edn, 2014) at paras 3-008 — 3-012, the difference between the contract price and the market price of the goods is the normal loss. All losses going beyond the normal measure may naturally be described as “consequential losses” — which is the description adopted by McGregor. … I respectfully agree with the late Harvey McGregor that, as he maintained over many editions of his treatise, this unnatural interpretation of the term “consequential loss” is to be deprecated:

Transocean Drilling U.K. Ltd v Providence Resources Plc [2016] EWCA Civ 372

• See the line of cases that includes Saint Line v Richardsons Westgarth & Co Ltd, Croudace Construction Ltd v Cawoods Concrete Products Ltd and Deepak Fertilisers Ltd v ICI Chemicals and Polymers Ltd. It is questionable whether some of those cases would be decided in the same way today, when courts are more willing to recognise that words take their meaning from their particular context and that the same word or phrase may mean different things in different documents.

(1) Consequential Loss Clauses

• (1) The specific context in which the wording was used, namely as part of a ‘complete code’ of shipbuilder’s responsibility, was crucial to a proper understanding of the term and of “fundamental importance in considering the ambit of Article IX” [10].

• (2) The clause differentiated between the cost of repair or replacement undertaken by builder, on the one hand, and the broader financial consequences occasioned by the need for a repair or replacement on the other which was excluded [36].

• (3) “in such circumstances, the word ‘consequential’ had to mean that which follows as a result or consequence of physical damage, namely additional financial loss other than the cost of repair or replacement” [36]. In other words, the clause extended to all loss and damage which was a consequence of the defect covered under the guarantee and the word 'consequential' was used by the parties in this agreement in its cause-and-effect sense, as meaning ‘following as a result or consequence of’ [6].

• (4) In the context of a guarantee and warranty clause which imposed a scheme of responsibilities on the builder, it was held to be unrealistic and strained to read the exclusion as saying that the builder accepted responsibility under the complete ‘code’ for all direct losses (limb 1) while excluding responsibility only for indirect ones (limb 2): [35].

Star Polaris LLC v HHIC-Phil Inc [2016] EWHC 2941 (Comm): Judgment of Sir Jeremy Cooke


Simon Rainey QC

• Is this the beginning of the end for Croudace v Cawoods?

• Sir Jeremy Cooke at [18] “In my judgment Teare J has expressed the position accurately as a matter of the general approach of the courts when construing a contract with phraseology of the kind found here and the Yard did not seek to persuade me otherwise. What is said by ..the Yard, however, is that the Contract shows that this well- recognised meaning was not the intended meaning of the parties and that the line of authorities is therefore nothing to the point.”

• Ferryways NV v Associated British Ports [2008] 1 CLC 117, per Teare J at paras. 82-84: “Where a party seeks to protect himself from liability for losses otherwise recoverable by law for breach of contract he must do so by clear and unambiguous language ... In the light of the well- recognised meaning which has been accorded to such words in a variety of exemption clauses by the courts from 1934-1999 it would require very clear words indeed to indicate that the parties' intentions when using such word was to exclude losses which fall outside that well recognised meaning”

• BUT: still a salutary lesson that a mechanistic application of the settled meaning of this phrase is inappropriate: the context and purpose may show that the parties used the termin a different and simpler sense.

Don’t party too soon!

• Look to the substance: Lords Sumption and Neuberger stated in Cavendish at [15]: “…the classification of terms for the purpose of the penalty rule depends on the substance of the term and not on its form or on the label which the parties have given to it”.

• Price Adjustment or ‘Change of Consideration’ Clauses

• I see no principled reason why the law on penalties should be confined to clauses that require the contract-breaker to pay money in the event of breach and not extend to clauses that in the same circumstance allow the innocent party to withhold moneys which are otherwise due. Indeed, there is ample authority to support the view that clauses which allow the innocent party to withhold payments on breach may be unenforceable as penalties where the sums retained are, or may be, wholly disproportionate to the loss suffered by the withholding party”: Lord Hodge [226]; Lord Mance [152]

(2) Penalty Clauses post Makdessi v CavendishSquare [2015] UKSC 67

Lord Mance: [152]:

• “…What is necessary in each case is to consider, first, whether any (and if so what)legitimate business interest is served and protected by the clause, and, second, whether, assuming such an interest to exist, the provision made for the interest is nevertheless in the circumstances extravagant, exorbitant or unconsciable.”

Lord Hodge: [255]:

• “Where the test to be applied to a clause fixing the level of damages to be paid on breach, an extravagant disproportion between the stipulated sum and the highest level of damages that could possibly arise from the breach would amount to a penalty and thus be unenforceable. In other circumstances the contractual provision that applies on breach is measured against the interest of the innocent party which is protected by the contract and the court asks whether the remedy is exorbitant or unconscionable.”

• Future-proofing? If there is a commercial rationale /legitimate business interest : explain it / demonstrate how the adjustment works and what it is reflecting

(2) Penalty Clauses post Makdessi v CavendishSquare [2015] UKSC 67


Simon Rainey QC

If any of the actual quality parameters of the Goods exceeds the minimum/ maximum values provided by the clause 1.4 of the present Annex in accordance with the procedure specified in the clause 4.8 of the Contract, the actual price is to be adjusted as follows:

If [content of X] in the batch of the Goods is more than 30.0%, and/or total moisture as received basis is more than 12.0%, and/or the actual net calorific value as received basis is less than Z kcal/kg the actual price is to be set at the amount of 10% of the base price, indicated in the clause 2 of the present Annex.

–Does the Buyer have a legitimate business interest in receiving the product with a 30% or lower X content etc?

–If it does, how is the tenfold price decrease in the event of non-compliance, howeverslight, was proportionate or justifiably protective of that interest.

–Why is the price reduction required over and above the ordinary properly compensatory measure pursuant to section 53(3) of the Sale of Goods Act 1979?

An example ….

(2) “Self-Help”: How much can you (or they) getaway with in cash-strapped times?

• Evincing an intention to perform but in a manner which is substantially inconsistent with the contractual terms is evincing an intention not to perform: Ross T Smyth & Co Ltd v T.D. Bailey, Son & Co [1940] 3 All ER 60, 72.

• Whether such conduct is renunciatory depends upon whether the threatened difference in performance is repudiatory.

• NB The pleaded case of GCS in Spar Shipping: “Charterers were willing to pay hire atthe agreed rate, albeit not in advance due to the temporary cash flow problems andthe internal restructuring”

Renunciation by substantially different performance?Spar Shipping v Grand China [2016]EWCA Civ 982


Simon Rainey QC

• In a long term time charter, the question whether non payment of hire amountedto a repudiation was essentially a mathematical exercise in which the amount paid and its timing could be plotted on a graph against an equivalent timeline forregular and punctual payment;

•To determine whether the owners had been deprived of substantially the whole benefit of the charter, the gap between the two had to be compared with the total hire due for the whole charter period.

•So, by way of example, for a charterer to pay late for one month throughout thecourse of the charter would and indeed could not be repudiatory.

•Benefit which Spar was intended to receive under the two five year charters was a total amount of hire of over US$30M and the three year charter US$18M.

•Against this background falling into arrears by a few instalments constituting asmall proportion of the total could not be said to be depriving Spar of substantially the whole benefit of the charters

The Defaulting Charterer’s argument in Spar Shipping: the “Graph” analysis

Cf. Valilas v Januzaj [2014] EWCA Civ 436

Floyd & Arden LJJ

• Although X would be deprived of monthly payments, he knew that he would obtain that to which he was entitled in the end. That position was to be contrasted with one, clearly repudiatory, in which a party refused to pay at all.

• . Payment from Y was not X's only source of income. It was true that X continued to pay the outgoings of the practice, but that was not something which necessarily caused him significant harm.

• X's only likely loss was the loss of the use of the money in the meantime. If X wished to establish that the consequences of Y's late payment were serious for him, the burden fell upon him to establish it. It was clear that the judge consideredthat he had failed to do so

Underhill LJ (dissenting)

• The essential point ..is that this was not a case of payments being missed by mistake or as a result of some temporary or unexpected shortage of funds. The Claimant made a deliberate choice to depart from the agreed arrangements as regards his primary obligationunder the contract. Under those arrangements he had to pay the Defendant 50% of his actual receipts month by month;

• By contrast, [his] stance meant that he would retain the full PCT payments and pay nothing tothe Defendant until a final accounting occurred, whenever that might be;

• I would add that the sums involved were not trivial.. over £17,000. As he protested more thanonce, the Defendant had to go on bearing the running costs of the practice; and the amount outstanding would increase with each month

1. What is the contractually stipulated benefit which the Claimant was intended toobtain from the performance by the Defendant of the Contract?

“The starting point”: Ampurius Nu Holdings v Telford Homes [2013] 4 All ER 377 per Lewison LJ at [51]

2. What is the prospective non- or mis-performance foreshadowed by theDefendant’s conduct?

3. Was that prospective standard of performance such as to “go to the root of thecontract”, i.e. was the prospective non-performance such as to deprive the Claimant of substantially the whole of the benefit which they were intended to obtain assessed under (1).

The Three Stage Analysis for testing a Potential Renunciation


Simon Rainey QC

1. Express rights of termination

2. Express rights of termination with provision for damages for remainder of term

3. Time of the essence / enhance status of obligation to that of a condition

4. Suspension of performance pending non-payment.

5. Demonstrate effect (cf Valilas: “If X wished to establish that the consequences of Y's late payment were serious for him, the burden fell upon him to establish it”)

Future-Proofing?

(3) Avoiding the ultimate melt-down: puncturing thecorporate veil in tort cases

The three-stage test in Caparo Industries plc v Dickman [1990] 2 AC 605:

1. the particular damage suffered should be foreseeable;

2. there should exist a relationship of proximity or neighbourhood between the relevant parties; and

3. the situation should be one in which the court considers it fair, just and reasonable to impose a duty of care on one party over the other.

As to (2) see Chandler v Cape [2012] 1 WLR 3111 and Thompson v Renwick Group Plc [2014] EWCA Civ 635 )

1. whether the companies were operating the same businesses;

2. whether the parent had superior or specialist knowledge compared to the subsidiary;

3. whether the parent had knowledge of the subsidiary's systems of work; and

4. whether the parent knew that the subsidiary was relying on it to protect the claimants.

His Royal Highness Okpabi v Royal Dutch Shell Plc [2017] EWHC 89 (TCC)

• “The claims against RDS are premised on the high level of oversight that it exercised over SPDC's operations in Nigeria."

• Materials relied upon for Stage 2:

–“1. Public statements by RDS regarding the degree of extent and control it is said to exert over SPDC;

–2. Statements in corporate materials published by RDS that emphasis the ultimate responsibility of RDS' board of directors;

–3. The role of the RDS Executive Committee;

–4. The role of the RDS Corporate Social Responsibility Committee, which effectively ensures compliance with Group policies and business standards;

–5. Corporate literature published by RDS which contains references to the scope and scale of pollution by SPDC;

–6. Widely publicised reports about the harmful effect of SPDC's polluting activities in the Niger delta.


Simon Rainey QC

His Royal Highness Okpabi v Royal Dutch Shell Plc [2017] EWHC 89 (TCC)

Held Fraser J;

•Both Chandler and Thompson made an express distinction between parent companies and holding companies.

•RDS was a holding company.

•The holding company and the subsidiary were entirely separate entities.

•The former had its headquarters and board meetings in the Netherlands. It had no employees, and engaged neither in operations nor the provision of services. It had no oil producing assets and no regulatory licences.

•Public statements by Shell about its commitment to environmental issues hadbeen made for the purposes of stock exchange listings and were not sufficient to establish a duty of care.

See also: AAA v (1) Unilever PLC & (2) Unilever Tea Kenya Ltd [2017] EWHC 371 (QB)

Held Laing J;

The relationship between D1 and D2 differs from that between the parent and subsidiary in Okpabi. Publicly available documents show that D1 is not just a holding company but plays a more active role in managing D2's affairs.

• Cs draw attention to D1's memorandum of association, among other things. I was also shown many documents in the hearing in which D1 laid down rules about the policies and procedures (including for health, safety and risk management) which D2 (and all its other subsidiaries across the world) should adopt, and documents about monitoring and auditing those policies and procedures.

• On paper, D1 has assumed apparent control of the content and auditing of such policies.

• “some hesitation in concluding that what I have seen shows the sort of control and superior knowledge which the Court of Appeal described in Chandler. It is formal control exercised by UEx at a high level of abstraction, and over the content and auditing of general policies and procedures”

Thank you for your attention.

© SIMON RAINEY Q.C., 2016

Quadrant Chambers

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Rob Wilson, Partner & Head of Energy Disputes, CMS UK

[email protected]

Rob Wilson is a partner at CMS and Head of the firm’s Energy Disputes Practice. He has worked with the oil & gas sector since 1998 and is dual qualified (Scotland and England & Wales). He also acts for power and renewables companies and his practice covers both dispute avoidance and dispute resolution including litigation (both in England and Scotland), international arbitration (in particular ICC, LCIA, UNCITRAL and LMAA) and mediation (acting both as mediator and in representing clients). Much of Rob’s work is of an international nature and he is often asked to advise on construction / engineering issues arising out of EPC contracts.

Rob’s team works alongside the firm’s transactional oil and gas, power and renewables team. This allows for a seamless flow in the advice required by energy clients. The team has advised on a wide range of energy disputes including JOA disputes, LNG and natural gas price reviews, transportation and processing disputes, EPC disputes, SPA disputes, termination issues, pipeline FPSO and rig disputes, insolvency issues and many others.

Directory Quotes include:

» He is ‘personable and experienced, and has good technical abilities’ (Legal 500).

» “Always very articulate, professional and courteous,” “very quick to understand what we need and excellent at clearly explaining our legalposition and options.” (Chambers UK).

» Sources have highlighted his knowledge of the energy industry - “He is thorough in his preparation and tenacious in negotiations. He is very comprehensive and built us a bulletproof defence.” He also wins plaudits for his work on mediations. (Chambers UK)

Sources have highlighted his knowledge of the energy industry - “He is thorough in his preparation and tenacious in negotiations. He is very comprehensive and built us a bulletproof defence.” He also wins plaudits for his work on mediations. (Chambers UK)


Rob Wilson, CMS UK 1

Quadrant Chambers Seminar – Energy Disputes: Lawyering Your Way To A Solution | 26 April 2017

CMS

Energy disputes in the current climate: is ADR on the increase?

Rob Wilson, Partner and Head of Energy Disputes, CMS UK

� Has the industry adopted a different approach to disputes in recent years?

• issues/challenges currently facing the energy sector when resolving

commercial disputes

• the nature of disputes in the context of the lower oil price

• the approach taken by some oil companies and contractors

� Is ADR on the increase?

• multi-tier clauses and ADR

• anecdotal evidence

• conclusions


Lionel Persey QC, Quadrant Chambers

Called: 1981 Silk: 1997

[email protected]

Lionel Persey QC is a leading commercial barrister specialising in energy and shipping law. He was called to the Bar in 1981 and became a QC in 1997. Lionel is ranked in Band 1 by Chambers UK, Legal 500 UK, Legal 500 Asia Pacific and Chambers Global for his work in energy and shipping. He was the first Legal 500 Energy and Projects “Silk of the Year” in 2014.

Lionel’s energy practice has a particular focus on upstream and midstream matters. He has advised and acted in many offshore and onshore disputes involving: oil and gas exploration; the construction, repair and sale of fixed platforms, semi-subs, jack-up rigs, FPSOs, tankers and LNG carriers, offshore vessels, power plants and pipelines; drilling contracts; contracts for the supply and carriage of oil and gas; and JVs between oil companies and other entities. As well as having a busy litigation and arbitration practice as counsel, Lionel is appointed regularly as an arbitrator in energy matters. He is a Deputy High Court Judge (Commercial Court & QBD) and Recorder of the Crown Court.

Recent substantial energy cases in which Lionel has been involved as counsel include: Repsol Sinopec Energy UK Limited v Baker Hughes Limited (court); and Transocean Drilling v Providence Resources (court).

Recent Directory Quotes include:

» “Really does know the energy business inside and out.” “A master tactician, he is an outstanding lawyer who works exceptionally hard.” “He isgood at managing a really big case and one of the leading examiners of experts in the business.” (Energy & Natural Resources – Chambers 2017)

» ‘The best cross-examiner of technical experts in the business’ (Energy – The Legal 500 2016)

“Really does know the energy business inside and out.” “A master tactician, he is an outstanding lawyer who works exceptionally hard.” “He is good at managing a really big case and one of the leading examiners of experts in the business.” (Chambers UK 2017)

Annual Energy Disputes Seminar ‐ Quadrant Chambers

Lionel Persey QC, Quadrant Chambers 1

PICKING UP THE PIECES

Some Common Themes in Recent Offshore Contract Cancellation

Disputes

Lionel Persey QC

26th April 2017

• Oil US$110/bbl – peaked in March 2011 –still high inmid-2012

• Oil companies had significant new drilling campaignsin the pipeline – eg:-– Chevron – Rosemount field in North Sea– Husky – Canada and Greenland

• Drilling contractors were looking to upgrade theirfleets and bid for these campaigns.

• First division “traditional” shipyards were in severefinancial difficulties and looking to diversify.

2011-2012

BOLLSTA DOLPHIN

DOLPHIN DRILLING & HHI



WEST MIRA

SEADRILL & HHI

EDDA FORTIS

EDDA ACCOMODATION & HHI

PACIFIC ZONDA

PACIFIC DRILLING & SAMSUNG



SONGA CATEGORY D RIGS

SONGA AND DSME

• All high value contracts – some > US$600 million

• All very demanding in terms of specification and quality

• All on modified SAJ (shipbuilding) terms.–Strict notification regime for varied work and for seeking EOTs

in respect of varied work–Strict notification regime when seeking EOTs for permissible

delay–Buyer entitled to cancel and to refund of all instalments if

permissible delay extended beyond the Drop Dead Date (typically 180-205 days after the Contract Delivery Date)

• Relatively fast-track.

What did the contracts have in common?

• Imposed significant design obligations upon the Yards:-

– Contracts concluded on a turnkey basis.

– Yards responsible for designing and engineering all aspects of the units.

– Each unit was bespoke.

– Yards provided with preliminary concept designs from designers as part of the bid process. For the Yards then to contract with the designers to produce FEED /basic designs and then detailed designs.

What did the contracts have in common?



What else did they have in common?

BOLLSTA DOLPHIN

DOLPHIN DRILLING & HHI

WEST MIRA

SEADRILL & HHI



EDDA FORTIS

EDDA ACCOMODATION & HHI

PACIFIC ZONDA

PACIFIC DRILLING & SAMSUNG

SONGA CATEGORY D RIGS

SONGA AND DSME



• All late – in the cancelled cases the Yard missed the DDD

• Oil prices by mid-late 2015 were reducing from c.US$60bbl to US$40bbl.

• The oil companies wanted to delay their drilling campaigns – did not want to take on drilling units at the extremely high daily rates that had been agreed.

• The drilling companies did not want to take delivery of expensive units for which they would have no, or insufficiently remunerative, work.

Common themes?

• Lack of experience.

– Two of the yards in question had not built a sophisticated offshore unit for many years(HHI’s shipbuilding division had not built one since 1990, and its offshore division notsince 2001 – the Deepwater Horizon).

– These new units were light years ahead of earlier semi-subs in terms of complexity.

• Financial difficulties.

– 2011-2015 was a difficult and volatile period for Korean shipbuilders

– Virtually no orders in 2009 after the crash, and few in 2010.

– The Yards aggressively priced their projects in 2011-2013 to retain market share againststrong Chinese competition.

– Yards (or their banks) also agreed to fund much of the construction themselves. The vastbulk of the purchase price was payable on delivery.

– The projects experienced cashflow problems. This led to delays in procurement and inadequate resourcing.

What went wrong?

• Planning and management.

– Failure to appreciate the complexities of the projects

– Failure to use sophisticated planning software.

• Without properly logic-linked planning schedules defining the relationship between all project activities it is impossible to understand where the critical path lies in a complex project;

• Lack of flexibility in adjusting the building and completion sequence when delays started to occur.

• Meeting the specification.

– Yards had difficulties in understanding and complying with some of the onerous offshore spec requirements.

– E.g. with regard to weld quality and profiling – of key importance to specialistcoating systems needed for operation in harsh offshore environments.

What went wrong?



• In each case the yard commenced arbitration first – either before the inevitable cancellation or after. To prevent the refund guarantors repaying the first instalments to the buyers.

• Issues that arose in arbitration for the most part little different to those in “ordinary” shipbuilding contracts:-

– Assertions that buyer was responsible for providing a more developed FEED design and that unexpected time was spent in developing the design.

– Assertions that delays caused as a result of excessive insistence upon quality,and misinterpretation of contractual standards;

– Assertions that buyers’ supervisors were over-exigent;

– Assertions that the above gave rise to permissible delays.

Issues arising

• The Yards claimed:-

– EOTs.

• But in many instances they had not given the requisite notices under the Contracts.

• A builder is not entitled to a contractual EOT if he does not comply with contractual notice requirements for claiming delay: see eg Adyard Abu Dhabi vSDMS [2011] BLR 284; Zhoushan v Golden [2015] 1 Lloyd’s Rep. 283.

– Damages for delay, relying on the prevention principle.

• The employer cannot hold the contractor to a specified completion date, if the employer has by act or omission prevented the contractor from completing bythat date. Instead, time becomes at large and the obligation to complete by the specified date is replaced by an implied obligation to complete within a reasonable time: Jackson J in Multiplex v Honeywell [2007] Bus LR Digest 109

• BUT, the prevention principle does not apply if the contract provides for an EOT in respect of the relevant events: see Multiplex and Adyard.

Issues arising

• Three of the five cases mentioned have settled in the past few months.

• Two cases still to be heard.

• Contented lawyers.

• A number of hi-spec units now available.

The result?



• Three of the five cases mentioned have settled in the past few months.

• Two cases still to be heard.

• Contented lawyers.

• A number of hi-spec units now available.

ANYONE INTERESTED?

The result?

THANK YOU

Lionel Persey QC

26th April 2017


Sam Dunkley, Legal Manager, Oil & Gas UK

[email protected]

Sam Dunkley has acted as Legal Manager of Oil & Gas UK since 2014, following an in-house career with Amoco, ARCO and BG Group. He currently chairs the Oil & Gas UK Operators Legal Committee, and coordinates the Legal Issues Forum and related work groups.

For further information on Oil & Gas UK’s legal services, please see http://oilandgasuk.co.uk/legalservices.cfm


GuestsHenry Adams BirkettsJide Adesokan Stephenson Harwood LLPJay Alexander Baker Botts LLPValerie Allan CMS UKLisa Allenden Berwin Leighton Paisner LLPPhoebe Anderson Haynes and Boone CDG, LLPRebecca Archer PerencoInga Aryanova Norton Rose Fulbright LLPPhillip Ashley CMS UKYasmin Bailey DLA Piper UK LLPAbinash Barik Independent Advocate (India)Bithika Basu Baker MckenzieMark Beeley Vinson & Elkins RLLPAdrian Bell CMS UKPeter Bennett Stephenson Harwood LLPJonathan Biggins Lester Aldridge LLPMichael Bingham Milbank Tweed Hadley & McCloy LLPClare Birchenhough Ince & Co LLPRichard Black Gide Loyrette NouelAilsa Bloomer Herbert Smith Freehills LLPCiaran Boyle Baker Botts LLPAaron Bradley Haberman Ilett LLPAnna Brownrigg Enyo Law LLPAndrew Buchmann Hill Dickinson LLPEmma Burrage Norton Rose Fulbright LLPAlistair Calvert Pinsent MasonsJames Cameron Fenwick ElliottFiona Carfrae Haynes and Boone CDG, LLPJames Carter DLA Piper UK LLPStuart Carter FieldFisherPeter Cassidy Reed Smith LLPWill Cecil Haynes and Boone CDG, LLPAlexander Chaize DLA Piper UK LLPElizabeth Chan Three CrownsGautham Chandrakumar Stephenson Harwood LLPDavid Chang Kit Idemitsu Petroleum UK LtdPhilippa Charles Stewarts Law LLPSarah Choudhry Navig8 Chemical Pool IncHenry Clack Holman Fenwick Willan LLPDavid Clark Pequod Associates LtdRichie Clark Fox WilliamsLisa Clarke Thomas Miller & Co (UK) P&I ClubMark Clarke White & Case LLPPhillip Clifford Latham & WatkinsHelen Conybeare Williams Haynes and Boone CDG, LLPKate Corby Baker MckenzieAntony Corsi Norton Rose Fulbright LLPElizabeth Cox Norton Rose Fulbright LLPBruce Craig Pinsent Masons (Aberdeen)Claudia Culley Norton Rose Fulbright LLPTom Cummins Ashurst LLPMargaret Curzon XL Insurance Company LimitedMichael Davar Squire Patton Boggs (UK) LLPCecily Davis FieldFisherStefanie Day Nabarro LLPCelso De Azevedo Thomas CooperMarine De Bailleul Quinn Emanuel Urquhart & SullivanShane De Beer FieldFisherTerry de Souza Berwin Leighton Paisner LLPAnnabel Dearing BB Energy Trading LTDSanjay Desai HLCCCara Dowling Norton Rose Fulbright LLPLauren Downes Queen Mary University of LondonJamie Doyle Nexen Petroleum UK LimitedAndreas Dracoulis Haynes and Boone CDG, LLPChantal Du Toit Allen & Overy LLPSam Dunkley Oil & Gas UKDuncan Ealand Campbell Johnston Clark LTDLindsay East Reed Smith LLP

Peter Edworthy Milbank Tweed Hadley & McCloy LLPKaren Ellison Reed Smith LLPLouise Elmes FieldFisherAngela Evans Idemitsu Petroleum UK LtdGreg Falkof Eversheds SutherlandJeremy Farr Ince & Co LLPElizabeth Farrell Reed Smith LLPJames Farrell Herbert Smith Freehills LLPAnia Farren Berwin Leighton Paisner LLPLaura Feldman Eversheds SutherlandRyan Ferro Shell International LimitedLouise Fisher Allen & Overy LLPHarriet Foster DLA Piper UK LLPLaurie Frey Baker Botts LLPLucy Frith Eversheds SutherlandRamin Frough CSolutions LtdFrances Furness Reed Smith LLPHelen Fyfe CMS UKSejal Gandhi Reed Smith LLPDaniel Gardiner Pinsent MasonsNicola Gare Holman Fenwick Willan LLPCatherine Gilfedder Dentons UKMEA LLPReeta Gill FieldFisherPeter Glover Norton Rose Fulbright LLPNelson Goh Boies, Schiller & Flexner LLPChris Gooding Nabarro LLPFrancisco Gozalvez LA MarineEdward Gray MFB SolicitorsTed Greeno Quinn Emanuel Urquhart & SullivanSarah Grenfell CMS UKTeena Grewal Haynes and Boone CDG, LLPKristian Grice Pinsent MasonsChris Grieveson Wikborg ReinPaul Griffin White & Case LLPNirada Griffith Ince & Co LLPDominic Gurney-Champion FieldFisherMarc Hammerson Akin Gump Strauss Hauer & FeldKaty Hanks Shell International LimitedMatt Hannaford Hannaford Turner LLPNathaniel Harding The Shipowners ClubTara Harding Navig8 Chemical Pool IncGraham Harris Squire Patton Boggs (UK) LLPStephanie Hawes CMS UKRichard Hickey Campbell Johnston Clark LTDJames Hickland Tatham MacinnesWilliam Hooker Boies, Schiller & Flexner LLPBen Horn CSolutions LtdBen Hornan Hogan LovellsMadalena Houlihan CMS UKChristopher Humby Quinn Emanuel Urquhart & SullivanMunib Hussain Milbank Tweed Hadley & McCloy LLPAndrew Hutcheon Watson Farley & Williams LLPRob Jardine-Brown Wikborg ReinJane Jenkins Freshfields Bruckhaus DeringerSora Jeon Tatham MacinnesHwan-Hee Jeong Segye Law FirmMarc Jones Beale and CompanyNick Jones Enyo Law LLPSukhi Kaler Nabarro LLPCarinne Kamdar Baker MckenzieGlenn Kangisser Haynes and Boone CDG, LLPVivek Kapoor Stephenson Harwood LLPThomas Karalis Ashurst LLPSonam Kathuria Norton Rose Fulbright LLPClare Kempkens Ince & Co LLPNicholas Kendrick Bracewell & GiulianiChris Kidd Ince & Co LLPNicola King Pinsent MasonsThomas King Pinsent MasonsShawn Kirby Wikborg Rein


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Duncan Ross David Rutherford Helen Sandgren Matthew Saunders Kyle Sethi Jeremy Sher Kyung-Hwa (Julie) Shin Reema Shour Simon Sloane Victoria Smart Antoine Smiley Paul Smith Ben Spannuth Holly Stebbing Willem Steyn John Stockdale Paul Stockley Paul Surry Patrick Sutton Emily Sweeney Minli Tang Michael Taylor Captain Rajiv Thakar Max Thompson Nick Tidnam Jelena Tosic Al Trent Sachin Trikha Richard Twomey Sarah Valentine Tomas Varga Mark Walsh Sarah Walsh David Wartski Lucy Webster Emmanuel Wedlock Robert Wheal Patrick Wilkinson Laura Williams Nicholas Wilson Robert Wilson Steven Wilson Charlotte Winter Kyu-Il Yeon Jaqueline Zalapa Baili Zhao Terry Zhao Haris Zografakis

The NRG Group CMS UK Gard (UK) Ltd P&I Ashurst LLP Beale and Company DLA Piper UK LLP Jungan Law Firm Ince & Co LLP FieldFisher Haberman Ilett LLP Reed Smith LLP DLA Piper UK LLP Beale and Company Norton Rose Fulbright LLP Tullow Oil PLC JX Nippon Exploration and Production Ltd Bond Dickinson LLP Reed Smith LLP Reed Smith LLP BP Legal Allbright Law Offices - China Hogan Lovells W K Webster & Co Ltd Navig8 Chemical Pool Inc Hogan Lovells FieldFisher Stewarts Law LLP Clifford Chance LLP DWF LLP Reed Smith LLP Fried, Frank, Harris, Shriver & Jacobson LLP

Clyde & Co LLP Shell International Limited Mays Brown Eversheds Sutherland BB Energy Trading LTD White & Case LLP CMS UK Reed Smith LLP Bentleys Stokes & Lowless CMS UK CMS UK Norton Rose Fulbright LLP Joowon Attorney at Law & Notary Office Michelet & Co Nexen Petroleum UK Limited Bentleys Stokes & Lowless Stephenson Harwood LLP

HostsLuke Parsons QCLionel Persey QCSimon Rainey QCSimon Kverndal QCNigel Cooper QCRobert Thomas QCChirag Karia QC Matthew ReeveThomas Macey-DareNichola WarrenderStewart BuckinghamYash KulkarniChris SmithRuth HoskingCaroline Pounds

Paul Henton Gemma Morgan Stephanie Barrett Henry Ellis Peter Stevenson Liisa Lahti Ben Gardner Tom Bird Joseph England Max Davidson Michael Proctor Koye Akoni Craig Williams Ross Birkbeck Reanne Mackenzie

Peter BlairGary VenturaSimon SlatteryJohn WalkerJames TannerSarah LongdenJohn ClementsRebecca Ward


Contacts

Gary VenturaSenior Clerk

Mobile: +44 (0)7761 004 100Direct: +44 (0)20 7822 1487 Email: [email protected]

Simon SlatterySenior Clerk

Mobile: +44 (0)7956 335 684Direct: +44 (0)20 7822 1437Email: [email protected]

Pauline RobertsDeputy Senior Clerk


Daniel WestermanPractice Manager


John WalkerPractice Manager


James TannerFirst Junior


Paul BloxhamPractice Manager


Quadrant House, 10 Fleet Street, London EC4Y 1AU Tel: +44 (0)207 583 4444 Fax +44 (0)207 583 4455www.quadrantchambers.com

Sarah Longden Business Development Director


Energy Disputes: Lawyering Your Way to a Solution · Energy Disputes: Lawyering Your Way to a Solution Wednesday 26th April 2017

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