Pursuant to a Transportation, Processing and Operating Services Agreement (TPOSA), Talisman (operators of the Ross Field, a hydrocarbon accumulation on the UK Continental Shelf) agreed to provide transportation services to the adjoining Blake Field (operated by BG). The services included the use of a Floating Production, Storage and Offloading unit (FPSO) that was already providing services to the Ross Field. BG initially paid for the services by way of an oil tariff, and subsequently by way of a contribution to “operating expenditure”.
A dispute arose as to the amount of operating expenditure charged under the TPOSA. This involved a detailed analysis of the meaning of “operating expenditure” within the terms of the TPOSA. Whilst the decision is restricted to the facts of this particular case, the Court took a broad view of the meaning of “operating expenditure”, favouring a commercial construction by which all expenses incurred by the FPSO in relation to the Blake Field would be for BG’s account.
A further question was whether BG’s prior written approval was necessary if a change in Talisman’s payment obligations would lead to increased operating expenditure or have a material adverse impact on the services provided under the TPOSA. The relevant clause required “such approval not to be unreasonably delayed and/or withheld”.
The Court held that Talisman’s “reasonable belief” that the changes would not affect either the Operating Expenses or BG’s material position was irrelevant. Instead, the circumstances in which BG’s consent was required depended on an objective assessment, i.e. whether on the balance of probabilities the changes would have such effects.
In the circumstances, the Court found that Talisman should have sought BG’s consent to change the payment obligations. If no consent was sought, or consent was sought and unreasonably withheld, damages would be assessed based on the loss caused to BG by Talisman agreeing such changes without their consent. If consent was withheld reasonably, there would be no breach. The Court held that the burden of proof rested with the party attempting to show that consent has been unreasonably withheld.
The case also confirms the principle that if consent is not sought there can be no withholding of consent, let alone an unreasonable withholding of consent. For more on this topic, and in particular for further commentary on the meaning of “such approval/consent not to be unreasonably withheld”, please see our Briefing which can be found here: http://www.hfw.com/Good-faith-honesty-and-reasonableness-December-2014.