Legal update for energy lawyers – October 2020

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.

Legal update for energy lawyers - October 2020

Contents

1. Supreme Court gives guidance on the laws governing an arbitration agreement

In the recent case of Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb , the UK Supreme Court has reversed a decision of the Court of Appeal regarding the law applicable to an arbitration agreement. Where this is not explicitly stated, it will generally be the same as the law chosen by the parties to govern the contract as a whole. It is only in the absence of any choice that the court should apply the law with which the arbitration agreement is “most closely connected”, which will generally be the law where the arbitration is seated. The Court of Appeal had attached too much weight to the seat, although the practical result in this case was the same – the arbitration agreement was subject to the laws of England. Although the Supreme Court’s (majority) decision is intended to promote legal certainty, as well as avoid future decisions that are artificial or contrary to parties’ expectations, the best way that parties can achieve certainty is simply to state separately the law that governs the contract as a whole and the law governing the arbitration agreement within it. They should do this whether the laws are the same or different. 

2. Remoteness of damages in linked contracts

The Privy Council has issued a judgment concerning the remoteness of damages under English contract law, specifically in the engineering context where the same company is hired to design and build a plant and then (under a separate contract) to operate and maintain it. In Attorney General of the Virgin Islands v Global Water Associates Ltd the court ruled that damages claimed by the engineering contractor against the employer should include profits lost under the second contract, even though the case was based on a breach of the first one.  The reason for this was that the two contracts were closely related, having been executed on the same day, being between the same two parties, and relating to the same project. The Privy Council found that the contractor’s profit under the second contract was within the reasonable contemplation of the parties when the contracts were entered into and thus was not too remote. The decision provides a useful analysis of how established contractual principles apply in this context.   

3. Contract subject to approval: pre-condition or performance condition?

The meaning of ‘subject to contract’ is well understood, and there are numerous cases explaining it. But contracts are often subject to other things, such as the approval of a certain person or body. In such cases, the effect of failure to obtain the relevant approval may be unclear. In Nautica Marine Ltd v Trafigura Trading LLC (‘The Leonidas’) the High Court considered the question in relation to negotiation of a voyage charter, where the “suppliers’ approval” was required. The court decided this was a “pre-condition” (condition precedent) of the contract, rather than a “performance condition”, a condition which does not prevent a binding contract from coming into existence and which would have impliedly obliged one of the parties to take reasonable steps to obtain the approval. The court based its decision on a number of factors, including the approval being dependent on the commercial judgment of one of the potential parties. Uncertainty regarding the identity of the relevant suppliers was also a factor in the court’s reasoning. This case is a reminder to draft definitions clearly, as well as to be clear about the status of key contractual obligations. 

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4. Consistency in contractual drafting

Courts often look at the ‘factual matrix’ of a contract when interpreting its provisions. However, there is a line of cases that encourage courts to consider also the internal consistency of a contract – in other words, to interpret a specific provision by reference to other contractual provisions, as well as the wider picture. In Gwynt y Mor Ofto PLC v Gwynt y Mor Offshore Wind Farm Ltd and others the court followed this approach, deciding that an indemnity should be construed narrowly for consistency’s sake, so that it covered only the six days between signing and completion in a transaction. The decision does not break new ground, but emphasises the need to review an agreement in its entirety, and not just check individual sections before finalising the document.

5. Unprecedented extension granted for challenging an arbitral award

In a remarkable recent decision (Federal Republic of Nigeria v Process and Industrial Developments Ltd (No 1)) the English Commercial Court has allowed an arbitral award to be challenged under sections 67 and 68(2)(g) of the Arbitration Act 1996 (covering jurisdiction and fraud respectively), even though the statutory deadline for making the challenges had expired years before. In exercising its discretion, the court applied established guidelines (from previous case law) and took note in particular of the strength of the challenge, the reasonableness of the claimant’s conduct in relation to suspected fraud, and the demands of overall fairness and public policy. Taken together, these factors outweighed the desirability of speed and finality in arbitration, especially given that the respondent itself appeared to have contributed to the long delay by covering up the fraud. The length of the time extension was indeed rare, but demonstrates how the relevant guidelines can be applied in unusual cases.

6. Silence does not necessarily indicate consent

An LMAA arbitration award has been successfully challenged in the English Commercial Court because the tribunal did not have jurisdiction to determine the dispute (section 67 of the English Arbitration Act 1996). The key issue in MVV Environment Devonport Ltd v NTO Shipping GmbH & Co KG & others was whether a shipping agency had authority to enter into a contract of carriage with a shipping company on behalf of the claimant. The agency copied the claimant into 33 emails which attached bills of lading naming the claimant as shipper. However, the claimant did not reply. The court found that silence did not indicate consent in this case, and so the agency did not have the claimant’s authority (implied, actual or ostensible) to enter into the contract on its behalf. As a result, the arbitration agreement in the contract did not bind the claimant, and the tribunal did not have jurisdiction over the dispute. The decision suggests that agents who think they are acting for a party should take care to obtain the explicit consent of their principals, who may otherwise believe (as the claimant did) that they are being copied into emails purely “for information”. The case emphasises the requirement for parties to have consented to refer their disputes to arbitration.

7. Legal advice privilege and foreign lawyers

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In England, it is well established that legal advice privilege attaches to communications between a client and its in-house and/or foreign lawyers, among others. However, the Commercial Court has clarified in PJSC Tatneft v Bogolyubov that to attract legal advice privilege in England, it is not necessary for the advice of those foreign qualified in-house lawyers to be privileged under local laws and regulations. This decision comes hard on the heels of Civil Aviation Authority v R Jet2.com Ltd, in which the Court of Appeal held that the role the lawyer plays in the client organisation is irrelevant, so long as they are providing advice in a legal context and other conditions for legal advice privilege are met. Taken together, the two judgments produce the odd result that “lawyer” has the broadest possible meaning in this context, while the definition of “client” remains very narrow following the Three Rivers judgment almost twenty years ago.

8. LCIA launches new rules adapted to the Covid era

The London Court of International Arbitration (LCIA) has revised its arbitration rules, couching them in plain English and making electronic working the norm. Although described as an “update” executed with a “light touch”, some substantive changes have been made, including allowing tribunals to issue the equivalent of summary judgment (called “early determination”) and making it easier for claims based on multiple contracts to be decided together. There is also a new emphasis on the procedural short cuts that arbitrators can use to move simple cases forward quickly, even where the sum in dispute is relatively large. The new rules apply to any LCIA arbitration commenced on or after 1 October 2020.More

9. BP’s $1.1bn deal to develop wind power

BP has announced that it will purchase 50% stakes in Empire Wind and Beacon Wind, two US projects owned by Equinor. The deal is worth $1.1bn and is reported to be part of CEO Bernard Looney’s drive to refocus BP on clean energy and achieve Net Zero emissions by 2050. Meanwhile Equinor has appointed a new CEO and is also focussing on renewable energy, aiming to build up wind power operations in the US, North Sea and Baltic Sea. The two organisations are expected to cooperate on four further offshore projects located near New York and Massachusetts. It is anticipated that these projects could provide power for an estimated two million homes.

10. Joke cracking arbitrator challenged

Uber Technologies Inc. and its founder Travis Kalanick have recently had a price-fixing arbitration award in their favour upheld by the New York District Court despite accusations of bias against the arbitrator (Meyer v. Kalanick et al, Case No. 1:15-cv-09796 (S.D. N.Y. Aug. 3, 2020)). The arbitrator, Les J. Weinstein, made a joke during his concluding remarks on the third day of the hearing that he would “need security” if he found against Uber, because “people would be after me”. The plaintiff subsequently filed a motion with the New York District Court to have the award vacated on the grounds that the arbitrator was not impartial. Did this joke show that the arbitrator was not impartial? The Judge ruled that the remarks were “patently” in jest, in keeping with other attempts at humour during the hearing (some of which were apparently quite funny) and so did not demonstrate a lack of impartiality.


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