Questions answered in the 6th Edition of our Energy and Natural Resources Case Law Update

We will shortly be publishing the 6^th Edition of our Energy and Natural Resources Case Law Update, which discusses significant English Court decisions relevant to businesses in the ENR sector handed down in the period July 2020 to July 2021.

Read on for a summary of the questions answered in the 6th Edition. If these are of interest, look out for the full Update, which will be published on Monday, 8 November 2021 and will provide the context for each of the questions answered in brief below, as well as the key takeaways to be aware of arising from each case.

Questions answered in the 6th edition of our Energy and Natural Resources Case Law Update

When can contractual consent reasonably be withheld?

Where the consent of a contractual counterparty may not "be unreasonably withheld", the party is precluded from seeking to impose pre-conditions to its consent where that would amount to a fundamental revision of the parties’ commercial agreement. While consent can be legitimately withheld in some circumstances, the Court will look closely at the contractual context to determine whether the grounds for withholding consent are compatible with the broader scheme of the parties’ agreement (Apache North Sea Limited v INEOS FPS Limited¹).

To what extent is commercial practice relevant when interpreting English law contracts?

A gas producer was in breach of its obligation to meet required capacity levels from specific reservoirs by topping up supply levels with gas from other reservoirs. General commercial considerations or other market practices which do not form part of the contract will have little to no effect on parties’ obligations where the contractual terms are clear (since as a matter of English law an objective approach to interpretation is taken) (British Gas Trading Ltd v (1) Shell UK Ltd (2) Esso Exploration & Production UK Ltd²).

To what extent are other contracts in a suite of contracts relevant to the interpretation of a particular clause in one contract within that suite?

The Court of Appeal has confirmed that, when interpreting the meaning of a provision appearing in a suite of contracts, regard must be had to the nature of the parties’ dealings at the time and that where two or more contracts form part of a package, they "fall to be read together" and must be construed "in their proper context as a cohesive whole" (Apache North Sea Ltd v Euroil Exploration Ltd³).

How do the Courts reconcile inconsistent provisions between standard and bespoke terms?

In line with settled case law in this area, the Court of Appeal has confirmed that a practical and commercial approach will be taken to inconsistent provisions, with consideration given to: (i) the parties’ intentions at the point of entering into the contract, (ii) a contract’s broader commercial context, and (iii) whether a term can sensibly be read alongside another without depriving it of its practical effect (Septo Trading Inc v Tintrade Limited⁴).

Do delay liquidated damages apply in a contract that has been terminated prior to completion of the planned works?

The Supreme Court has provided welcome clarity by answering this question in the affirmative such that delay liquidated damages can be claimed up to the date of contractual termination, even where works are not complete. General damages are then claimable after termination. This decision clarifies that the ‘orthodox approach’ is applicable when interpreting a delay liquidated damages clause (Triple Point Technology, Inc v PTT Public Company Ltd⁵).

When do ‘constituent territories’ and their employees benefit from state immunity?

This is an important question for businesses operating in ENR sector, who will frequently encounter contractual arrangements involving states, state-owned entities and other "separate entities", including constituent territories. A recent case has demonstrated that the doctrine of state immunity can confer immunity not just on states but also on "separate entities", which can include constituent territories of states, as well as their employees. This can be the case even where the constituent territory in question is acting without direct support or instruction from the state, provided the state’s constitution grants the constituent territory the right and power to act (Dynasty Co for Oil and Gas Trading Ltd v Kurdistan Regional Government of Iraq⁶).

What are the consequences of delivering an off-specification product when quality terms do not form part of the product’s description?

A recent case shows that the answer to this question depends on whether a party’s obligation to provide a product of a certain quality is a condition of the contract, or if not, that there has been a sufficiently serious breach of an intermediate term. In this particular case, a buyer of fuel oil was not entitled to reject the product despite it failing to meet specification requirements, and the buyer's rejection of the cargo was a repudiatory breach of contract (Galtrade Ltd v BP Oil International Ltd⁷).

What is the interplay between contract and restitution claims where there has been a total failure of consideration?

The Court has confirmed that restitution can provide a route to recovery where there has been a total failure of consideration under a contract, even in circumstances where the termination of that contract was itself a repudiatory breach. Equally, in interpreting contractual provisions, the Court will give primacy to the natural and ordinary meaning of the term in question (BP Oil International Ltd v Vega Petroleum Ltd & Anor⁸).

Is a finding of illegality in relation to a commercial transaction an absolute bar to enforcement of a related judgment?

The Court of Appeal has rejected an argument that a judgment of the Dubai court should not be enforced as a matter of public policy. This judgment demonstrates that a finding of illegality in relation to an underlying contract, whether by an arbitral tribunal or foreign court, will not necessarily be a bar to enforcement of a related foreign judgment in England on the grounds of public policy. The Court will instead consider the degree of connection between the alleged illegality and the subject matter of the judgment to be enforced and weigh that against strong public policy considerations in favour of enforcement of a judgment of a foreign court of competent jurisdiction (Lenkor Energy Trading DMCC v Puri⁹).

To what extent is it possible to challenge Government policy through the Human Rights Act 1998?

Although in this particular case the claim was statute-barred, the Court of Appeal’s finding that a signed and part-performed commercial contract is capable of amounting to a "possession" may enable a party to challenge an adverse policy decision of a public body under the Human Rights Act 1998 on the basis that its right to peaceful enjoyment of that possession under the European Convention for the Protection of Human Rights and Fundamental Freedoms has been infringed. (Solaria Energy UK Ltd v Department for Business, Energy & Industrial Strategy¹⁰).