Describe the areas of energy development in the country.
The UK energy industry comprises a diversified range of sub-sectors including coal, oil, gas, onshore and offshore wind farms, solar farms, hydroelectric, tidal and nuclear.
The UK Continental Shelf Act came into force in 1964 and the first exploration licences for offshore oil and gas were issued for the North Sea shortly thereafter, with production commencing in the 1970s. Production peaked in 1999 and, though now in decline, according to industry body Oil & Gas UK, it is estimated that there could be up to 20 billion barrels of oil and gas still to recover from the UK’s offshore areas. The government’s focus is now on maximising economic recovery from the UK North Sea.
Further, the UK currently has 15 nuclear reactors generating about 21 per cent of its electricity, with almost half of these to be retired by 2025 when it is planned that new reactors will come on-stream. In September 2016, the UK government gave the go-ahead for a new nuclear plant at Hinkley Point, which is expected to start generating electricity by 2025. Construction is progressing in accordance with the planned timetable with over £10 billion of contracts signed since the approval of the project. Once constructed, it is anticipated that Hinkley Point will generate 7 per cent of the UK’s electricity needs for 60 years.
With a target of sourcing at least 15 per cent of the UK’s energy from renewable sources by 2020, government subsidies for renewable energy development have prompted a proliferation of onshore and offshore wind farms and solar farms throughout the UK. Renewable energy currently comprises 30 per cent of the UK’s electricity supply, in line with the country’s 2020 targets. However, the UK is still far from meeting its targets for renewables in heating and transport, making it unlikely that UK will meet its overall 2020 target. It is noteworthy that funding for further onshore wind and solar farms has been withdrawn.
The UK Treasury has published a new framework designed to limit ‘green taxes’ amid concerns about the costs that consumers are picking up in their energy bills. However, existing agreements still stand and the government has committed over £550 million of funding to support less well established renewable technologies, including offshore wind.
In June 2019, the UK government amended the Climate Change Act 2008 to include a target of net zero for UK greenhouse gas emissions by 2050, making it the first major economy to pass laws to end its contribution to global warming. This marks an increase from the 80 per cent reduction in GHG emissions compared to 1990 levels originally contained in the Act.Role of government
Describe the government’s role in the ownership and development of energy resources. Outline the current energy policy.
Rights to oil and gas in the UK belong to the state. The Petroleum Act 1998 vests all rights to petroleum in the Crown, with licences being granted to third parties to explore and exploit oil and gas resources. This function was carried out historically by the Secretary of State but transferred over to the Oil and Gas Authority (OGA) upon the entry into force of the Energy Act 2016. A separate regime applies to onshore oil and gas in Northern Ireland, established under the powers devolved to the Northern Ireland Assembly. The OGA issues licences through competitive licensing rounds that generally take place every year. Companies wishing to participate in the UK oil and gas sector must bid for licences or seek to acquire an interest in existing assets from third parties. Any such acquisition will be subject to regulatory consents. The terms and conditions for each licence are set out in secondary legislation under the Petroleum Act and are known as ‘model clauses’.
The government’s stated energy policy is focused on maximising economic recovery (MER) of hydrocarbons from the UK Continental Shelf and it has recently bolstered tax incentives to encourage investment from the industry as output declines. The OGA is furthering MER through initiatives including the provision of petroleum-related information and samples to industry stakeholders. The OGA believes this could help to unlock a potential £140 billion of additional revenue from increased oil and gas activity. The OGA is also working closely with industry to develop Area Plans, which focus on maximising production from basins as a whole as opposed to individual fields. These plans are not intended to guarantee commercial returns for participants but instead achieve the MER UK Strategy.
In November 2019, the UK government announced an immediate halt to fracking for oil and gas in England. The decision was taken on the basis of a report by the OGA, which warned that it is ‘not currently possible to accurately predict the probability or magnitude of earthquakes linked to fracking operations’. The government stopped short of an outright ban, stating that it will not agree to any future fracking until there is compelling new evidence that proves fracking can be safely undertaken.
The UK government has withdrawn subsidy support for all but a limited number of developing renewables technologies. Following a period of sustained growth, annual investment in clean energy has shrunk 60 per cent since 2015, from £26 billion to £10 billion. Investment is now at its lowest level since 2008. The Environmental Audit Committee, in a report published in 2018, described the drop as a ‘dramatic and worrying collapse’ in investment.
Further, there is some uncertainty over how the Brexit vote will affect UK energy policy. On 29 March 2017, a formal notice to withdraw from the EU was served by the UK, which triggered a two-year period of exit negotiations. The product of those negotiations was recorded within the draft Withdrawal Agreement published by the government on 14 November 2018. This 585-page document sets out the terms on which the UK is to leave the EU. The UK has failed to meet deadlines to leave the EU so it remains to be seen how any agreement reached with the EU will ultimately impact the UK’s energy industry and in particular the ability of operators to retain skilled EU workers for operations within the UK. As and when the UK leaves, the UK, European and global energy markets are likely to be impacted, particularly if the UK leaves the EU without any deal governing the exit.
Alongside its withdrawal from the EU, the UK will leave the European Atomic Energy Community (Euratom). Euratom’s role is to promote and support the development of nuclear energy in Europe by regulating the nuclear industry, safeguarding the transportation of nuclear materials, overseeing the safe disposal of nuclear waste and carrying out nuclear research. On 11 October 2017, the Nuclear Safeguards Bill 2017–19 was introduced in Parliament, setting out the government’s proposals for a UK-specific safeguarding regime to replace the existing framework following the UK’s exit from the Euratom. The Bill received Royal Assent on 26 June 2018 and became the Nuclear Safeguards Act 2018. The Act allows the government to make regulations for, and implement international agreements in relation to, nuclear safeguarding. The Nuclear Safeguards (EU Exit) Regulations 2019 will come into effect on the UK’s exit from the EU. The regulations will require operators to make arrangements to provide information on its qualifying nuclear material to the Office for Nuclear Regulation.
Until the UK exits the EU, the existing legal and regulatory regime is likely to remain in place in materially the same form. The government has introduced the European Union (Withdrawal) Bill, which will convert existing EU law into domestic law on the date the UK leaves the EU. The government has always retained control over its energy policy, including key matters such as licensing and taxation of oil and gas exploration, appraisal, development and production activities. Consequently, it is generally expected that there are unlikely to be dramatic changes to the UK oil and gas industry. However, the Brexit vote has already affected the organisational structure governing the UK energy industry, particularly with the merger of the Department for Energy and Climate Change (DECC) with the Department for Business, Innovation and Skills to create a new Department of Business, Energy and Industrial Strategy (BEIS), as described in further detail below. This may indicate more active involvement by the government in the future with an energy strategy focused increasingly towards economic stimulation and business growth.
Following a general election in December 2019, the UK’s Conservative Party increased its majority in the government. The Conservative manifesto focused heavily on energy efficiency in the domestic market. The manifesto also reiterated the UK’s goal of being carbon neutral by 2050, including promises of significant funding dedicated to renewable energy. The change in government is, therefore, likely to impact UK energy policy over the next year.
Commercial/civil law – substantiveRules and industry standards
Describe any industry-standard form contracts used in the energy sector in your jurisdiction.
Oil & Gas UK, a not-for-profit representative body for the UK offshore oil and gas industry, publishes a standard form joint operating agreement, confidentiality agreement, pipeline crossing agreement and decommissioning security agreement. Its subsidiary, LOGIC, supports a suite of 10 standard contracts covering a broad range of oil and gas operations in the UK Continental Shelf (UKCS), including onshore and offshore services, well services, construction (including marine construction) and supply of equipment. These standard forms are widely used across the industry.
A Master Deed for UKCS asset transfers has also been developed as part of a joint industry and government initiative to lower barriers to UKCS development. The Master Deed aims to standardise existing pre-emption arrangements, create proforma transfer agreements and reduce complexities around signature and the timing of completions. LOGIC facilitates these transfers by acting as the administrator for the Master Deed.
The Association of International Petroleum Negotiators (AIPN), an independent not-for-profit professional membership association that supports international energy negotiators also publishes model form contracts, including a joint operating agreement, farmout agreement, confidentiality agreement, gas sales agreement and unitisation and unit operating agreement, although these are less commonly used in the UK.
What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?
Contractual interpretation is the task of ascertaining the meaning that the words of a contract would convey to a reasonable person. Under English law, modern contractual interpretation is a matter of applying general principles of construction rather than strict rules. These principles apply equally to energy contracts, as to other contracts. The starting point for the court will be to look at the language used by the parties and to interpret it in accordance with its conventional usage to understand the parties’ intentions. Those intentions will be assessed objectively.
Where there are two or more possible interpretations of a term, that which has most business common sense will typically prevail. However, while the courts will be reluctant to adopt an interpretation that will lead to a very unreasonable result, it will keep in mind that the parties may indeed have agreed to something unreasonable or commercially unwise. In the Supreme Court decision in Arnold v Britton  EWSC 36, judges were cautioned not to disregard the literal wording of the contract in pursuit of commercial common sense. Lord Neuberger said: ‘First, the reliance placed in some cases on commercial common sense and surrounding circumstances . . . should not be invoked to undervalue the importance of the language of the provision . . . the clearer the natural meaning the more difficult it is to justify departing from it.’ In Wood v Capita Insurance Services Limited  UKSC 24, the Supreme Court confirmed that a court will look at both the language of the contract (textualism) as well as the commercial context in which the contract was drafted (contextualism) to ascertain the objective meaning of the clause in question. In Barnardos v Buckinghamshire  UKSC 55 the Supreme Court has held that ‘In deciding which interpretative tools will best assist in ascertaining the meaning of an instrument, and the weight to be given to each of the relevant interpretative tools, the court must have regard to the nature and circumstances of the particular instrument.’
In the recent decision of Amey Birmingham Highways Ltd v Birmingham City Council  EWCA Civ 264, the Court of Appeal remarked on the importance of parties to ‘relational contracts’ that is, contracts based upon a long-term relationship of trust, adopting a reasonable approach to the interpretation of such contracts and not ‘latching onto . . . infelicities and oddities . . . to disrupt the project and maximise their own gain’. While Amey concerned the maintenance of the road network in Birmingham under a long-term PFI contract, the court’s observations are of broader relevance to energy companies since energy contracts typically call for similarly high levels of interaction, cooperation and communication between the parties over the life of the economic relationship.
As considered in more detail below, clear words must be used to exclude rights or remedies that arise by operation of law. The courts will start on the premise that neither party intends to abandon any remedies that arise by operation of law. Express wording should therefore be used to rebut that premise (Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd  AC 689). The principle of contra proferentem will also be used in certain circumstances, including where a clause is relied on that only stands to benefit one party. The principle states that an ambiguous clause must be interpreted in a manner adverse to the interests of the party that suggested its inclusion. The Court of Appeal decision in Persimmon Homes Ltd v Ove Arup & Partners Ltd  EWCA Civ 373 casts doubt on whether the contra proferentem principle continues to apply to the interpretation of exclusion clauses and is increasingly seen by the courts as outdated. In Persimmon Homes, the court emphasised that the wording of the clause, the relevant context, and commercial common sense should be sufficient in determining the meaning of a contract term.
In limited circumstances the court may be willing to imply certain terms if, having regard to the express wording of the agreement, it is unable to ascertain the meaning. However, the courts are not permitted to imply essential terms (ie, where the effect is to make a contract where one would not otherwise exist) as per Wells v Devani  EWCA Civ 1106. Similarly in the case of Teekay Tankers Ltd v STX Offshore Ltd  EWHC 253, the Commercial Court confirmed that where the parties have deliberately agreed to specify an essential term at a later date (eg, delivery dates), the courts will not imply a term to uphold the parties’ contractual bargain especially in the absence of any objective criteria or mechanism through which any such essential term may later be finalised (eg, expert determination).
Finally, where a general phrase follows a list of specific items in a contract, the phrase will generally be interpreted as being limited to other examples of the same type. This is known as the ejusdem generis rule.
Describe any commonly recognised industry standards for establishing liability.
The terms ‘wilful misconduct’ and ‘gross negligence’ are commonly used in contracts in the UK energy sector to define and allocate liability between contracting parties. However, these terms are not recognised principles of English law. Their meaning must therefore be defined in the contract or they will be subject to interpretation by the courts in accordance with usual principles of contractual construction.
The English courts have been reluctant to define these terms but in Porter v Magill  UKHL 67 the court referred to ‘wilful misconduct’ as deliberately doing something that is wrong, knowing it to be wrong or having reckless indifference as to whether or not it is wrong. In National Semiconductors (UK) Ltd v UPS Ltd J  2 Lloyd’s Rep 212 Longmore J held that wilful misconduct requires either an intention to do something that the actor knows to be wrong; a reckless act that the actor is aware may cause loss but does not care whether loss will result or not; or the taking of a risk that the actor knew he or she ought not to take. There is, however, no need to prove motivation or intentional malice.
The English courts have distinguished gross negligence from simple negligence by looking at the seriousness of the act or omission committed, or whether the conduct complained of equates to recklessness (see Red Sea Tankers Limited v Papachristidis  2 Lloyd’s Rep 547).
Parties may also hold themselves to the standard of ‘reasonable and prudent operator’. Again, this is not a recognised principle of English law and therefore a definition of the standard will typically be found in the contract. In Scottish Power UK PLC v BP Exploration Operating Company Limited & Ors  EWHC 2658, the Commercial Court (as upheld by the Court of Appeal) held that a party that deliberately decides not to perform one of its contractual obligations is not acting as a reasonable and prudent operator and cannot hide behind that standard to justify its breach.
Finally, there is no general duty to perform contracts in good faith under English law. While parties can include an express duty to act in good faith, or wording of a similar nature in a contract, the English courts have generally been reluctant to develop any doctrine of good faith. For example, in Monde Petroleum SA v WesternZagros Ltd  EWHC 1472 the court refused to imply a term that a party could not terminate the agreement in bad faith.
The courts may, however, use the concept of good faith to imply fact-specific duties into the parties’ relationship (see, for example, the 2013 decision in Yam Seng Pte Limited v International Trade Corporation Limited  EWHC 111). In an industry where relational contracts are common, any developments in this area are being watched with interest. In 2018, in Al Nehayan v Kent  EWHC 333 (Comm), the High Court implied a duty of good faith into an oral joint venture contract between the parties on the basis that it was essential to give effect to the parties’ reasonable expectations and also satisfied the business necessity test. In the recent decision of Bates v Post Office  EWHC 606 (QB), Fraser J appeared to go further and imply a duty to act in good faith as a matter of law on the basis that the agreement was a relational contract. An application for permission to appeal brought by the Post Office was denied by Coulson LJ and it remains to be seen how the decision will be treated going forward. In the oil and gas context, the litigation between Rockrose and TAQA Bratani LTD currently in the High Court will be closely followed in 2020. TAQA’s claim that it has given valid notice to transfer operatorship of oil fields is contested by RR UK (recently acquired by Rockrose Energy PLC), which will, among other things, argue that any contractual power to discharge is necessarily subject to good faith.Performance mitigation
Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility, recognised in your jurisdiction?
English law takes a strict approach to contractual performance and will only excuse discharge of a party’s contractual obligations in very limited circumstances. The basic premise is pacta sunt servanda or ‘agreements must be kept’. The English court’s approach to keeping parties to their contractual bargain was exemplified in the case of MT Hojgaard AS v EON Climate and Renewables UK Robin Rigg East Ltd & Anor  UKSC 59. In this case it was held by the Supreme Court that where two related contractual obligations imposed different or inconsistent standards or requirements, rather than concluding that they were inconsistent, the correct analysis under the contract was that the more rigorous or demanding of the two standards or requirements must prevail. The less rigorous standard could be treated as a minimum requirement.
Only where a supervening event has rendered performance of a contract impossible, or essentially and radically different from that which the parties contemplated, will the common law doctrine of frustration apply. As a consequence of frustration the contract is automatically discharged and the parties are excused from their future obligations. A contract is not discharged by frustration where it is merely less attractive or more difficult or expensive to perform (Seadrill Ghana Operations Ltd v Tullow Ghana Ltd  EWHC 1640). These will generally be considered foreseeable risks, which are capable of allocation between the parties by the express terms of the contract.
Although there is no English law concept of force majeure, it is common to see express force majeure clauses in contracts. These clauses define what constitutes an event of force majeure and set out the consequences of such an event. As well as widening the circumstances in which performance may be excused beyond the very narrow range of events that will frustrate a contract, a force majeure clause can also provide for the consequences of such an event, whereas if a contract is frustrated, it is treated as immediately and totally terminated (irrespective of the wishes of the parties). The court held that a force majeure event must be the only effective cause of default by a party under a contract relying on a force majeure provision.
In Seadrill Ghana v Tullow Ghana, the court determined that Tullow had been prevented from fulfilling its contractual obligation to provide drilling instructions to the claimant due to the occurrence of two matters: one force majeure, the other not. Tullow was therefore not entitled to rely on the force majeure clause to avoid its contractual obligation. The court emphasised that force majeure is a creature of contract. The construction of any clause to that effect will ultimately turn on the words used therein.
It is relatively uncommon for parties to treat commodity price or supply volatility as events of force majeure, and in some cases it is explicitly excluded. For example, in AIPN’s model form gas sales agreement, the force majeure clause provides that the definition of force majeure will not include changes in the market. Instead, parties may use hardship clauses or material adverse change clauses to relieve a party from continued contractual performance where it has become economically disadvantageous (but not impossible).
A hardship clause operates so that if, over time, changes in the market result in relative ‘hardship’ to a party, it can reopen the terms of the contract to negotiate better economic or other terms. Some clauses provide that if agreement of revised terms cannot be agreed, an independent third party will decide the issue.
Finally, if there is an accepted threshold beyond which it is uneconomic or impossible to continue to supply goods or services, then the parties can link these thresholds to the contractual termination provisions.Nuisance
What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?
Nuisance claims can be divided into common law nuisance (private and public) and statutory nuisance under Part III of the Environmental Protection Act 1990. There are 11 categories of statutory nuisance including noise from premises (including vibration); dust, steam, smell or other effluvia from industrial, trade or business premises; and any accumulation or deposit.
For a claim of private nuisance, the claimant must have a direct proprietary interest in the land affected by the nuisance. A claimant can bring civil proceedings against a defendant for damages or injunctive relief requiring the defendant to abate a continuing nuisance and to prevent its recurrence. This means that energy developments can be halted by injunctions where the claimant entity establishes a claim in nuisance.
In contrast to private nuisance, the claimant in public nuisance and statutory nuisance claims is not required to have a proprietary interest that is affected. Further, for statutory nuisance the onus and cost is on a local authority to take action to ensure that the nuisance is abated.
For certain types of development, including the construction of windfarms and solar parks and hydrocarbon extraction, an environmental impact assessment (EIA) is needed before a project can receive development consent. The purpose of an EIA is to assess the potential impact of the project on the environment. Any successful planning permission application will have conditions attaching to it to minimise any potential nuisance. However, the fact that a defendant has planning permission for the activity is not a defence to a common law nuisance claim. Neither is the defendant’s compliance with an environmental permit, of itself, a defence.Liability and limitations
How may parties limit remedies by agreement?
Contracts in the energy sector will typically include comprehensive regimes for the allocation of liabilities between parties, using a variety of contractually agreed remedies and exclusions of liability. As a matter of English law, contracting parties have a wide freedom to limit remedies by agreement, although this must be done expressly. In Strachan & Henshaw v Stein Industrie (UK) Limited and GEC Alsthom Limited  EWCA Civ 2940, the Court of Appeal observed that if parties wished to limit their potential liability to one another then there was ‘no reason why the law should stand in their way and prevent them from doing so’. However, courts will generally proceed on the basis that parties do not intend to give up rights or claims that the general law gives them and accordingly any such rights are only capable of being excluded and limited using clear words to that effect (Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd  AC 689). In Scottish Power UK PLC v BP Exploration Operating Company Ltd and Others  EWCA Civ 1043, Scottish Power (buyer) entered into long-term agreements for the sale and purchase of natural gas from the sellers. The agreements provided that the only remedy the buyer was entitled to in respect of any underdeliveries was default gas at the default gas price (at 70 per cent of the contract price). The buyer subsequently initiated proceedings against the sellers, claiming that in underdelivering gas the sellers had breached their obligation to operate the facilities to the standard of a reasonable and prudent operator (RPO). Accordingly, Scottish Power claimed that it was entitled to common law damages, rather than default gas. Scottish Power argued that a breach of the RPO standard was not caught by the default gas regime, which only applied to underdeliveries caused by events such as non-negligent accident or a natural cause (ie, underdeliveries despite compliance with the standard of RPO). However, the Court of Appeal held that the contractual drafting was sufficiently clear in providing for the exclusive remedy of default gas in respect of any underdeliveries (howsoever caused) and that there was therefore no scope for the payment of additional common law damages. This case demonstrates that clear and unequivocal drafting can operate to replace common law rights with a different contractual remedy.
Agreements in the oil and gas sector may include an overall cap on one party’s liability to the other. The cap can be applied annually or over a lifetime of the relevant agreement and can be expressed in a variety of ways (eg, by reference to the contract price, tariff or capacity payments in gas transportation agreements).
Liquidated damages clauses are also used, which prescribe a fixed sum or sums to be paid in the event of certain specified breaches of contract (again, often up to an agreed cap). They are frequently used in construction contracts for delay-related breaches and will typically be an exhaustive remedy precluding the innocent party from claiming general damages. Liquidated damages can also apply to other breaches of contract, for example, as above for under-deliveries in long-term supply contracts.
If a liquidated damages clause amounts to a penalty it will not be enforceable on grounds of public policy. The traditional definition of a penalty looks at whether the liquidated damages constitute a genuine pre-estimate of loss and whether the overriding objective was deterrence from breach rather than compensation for damage suffered. However, the Supreme Court reconsidered the law on penalties in Cavendish Square Holding BV v El Makdessi  3 WLR 1373 and Parking Eye Ltd v Beavis  UKSC 67. In these cases, the Supreme Court laid down a two-fold test for penalty clauses: first, the provision in question must give rise to a secondary obligation and second, the secondary obligation must impose a detriment out of all proportion to the legitimate interest of the innocent party.
Clauses excluding liability for particular types of loss are also commonly used and, consistent with the principle of freedom of contract, permissible under English law. However, as set out above, such clauses will be interpreted strictly and the courts will only accept that a party has surrendered legal remedies where clear words to that effect are used. In First Tower Trustees Ltd v CDS (Superstores International) Ltd  EWCA Civ 1396, it was held that contractual estoppel and non-reliance clauses were not immune from scrutiny under section 3 of the Misrepresentation Act 1967. Such clauses could not prevent liability arising if they failed to satisfy the reasonableness test under section 11(1) of the Unfair Contract Terms Act 1977. Accordingly, a landlord was not permitted to rely on a clause in a lease restricting its liability for representations, where it had misrepresented to the tenant that it had no knowledge of environmental problems affecting the property, when in fact it was aware of asbestos problems.
Recovery of consequential losses are often excluded from recovery but the definition of what constitutes a ‘consequential loss’ is a matter of debate among English lawyers and accordingly these clauses are frequently litigated. The general rule under English law for the recovery of damages following breach of contract is set out in Hadley v Baxendale  9 Ex 341. Recoverable losses are those that either arise naturally or directly from the breach of contract (known as direct losses) or those that were within the contemplation of the parties at the time of the contract (known as indirect or consequential losses). Where ‘consequential loss’ is excluded under an exclusion clause, it will typically be interpreted as excluding recovery of losses under the second limb. Accordingly, where a party can show that a loss of profit is a direct loss those losses will be recoverable. In Star Polaris v HHIC-Phil Inc  EWHC 2941 exclusion of liability for ‘consequential losses or expenses’ was given an expansive meaning by the court, reducing the range of recoverable damages under the contract. Similarly, in Transocean Drilling UK Ltd v Providence Resources Plc  EWCA Civ 372, the Court of Appeal held that parties must be prepared to accept that by the operation of limitation of liability clauses, claims that may have otherwise been recoverable at law may well be excluded.
Other types of contractually agreed remedies seen in joint operating agreements in the energy sector include, loss of voting rights, loss of petroleum entitlements, forfeiture and withering clauses to give parties access to remedies that would not be available at law and to promote contractual certainty. Historically, there had been concern that forfeiture could amount to a penalty, but the recent Supreme Court cases mentioned above have alleviated these concerns in the context of joint operating agreements as such agreements would seem to be good examples of cases where there is a wider legitimate interest beyond compensating the innocent party.
Is strict liability applicable for damage resulting from any activities in the energy sector?
Strict liability applies to certain health and safety and environmental offences. The UK has a highly developed health and safety and environmental regulatory regime that applies to all industries and includes a particular focus on the extractive industries, which are perceived as high risk. Lessons learnt from incidents that have occurred in the oil and gas sector, such as the Piper Alpha disaster, have contributed to the development of this regime.
Strict liability applies to the operators of nuclear installations and extends to any damage to third parties caused by radioactive emissions from the installation. The nuclear liability regime in the UK is based on the Paris and Brussels Conventions together with the yet to be ratified 2004 Protocols. In preparation for the ratification of the Protocols, on 4 May 2016, the UK government issued the Nuclear Installations (Liability for Damage) Order 2016. The Order puts the existing UK nuclear liability regime in line with the Protocols by increasing the scope of operators’ liability and broadening coverage in the event of a nuclear incident. Once the Protocols are ratified, the order will come into force.
Commercial/civil law – proceduralEnforcement
How do courts in your jurisdiction resolve competing clauses in multiple contracts relating to a single transaction, lease, licence or concession, with respect to choice of forum, choice of law or mode of dispute resolution?
While the case law in this area is not entirely consistent, the decision of an English court in a situation involving competing dispute resolution or governing law clauses will usually turn on the interpretation of contractual terms.
In relation to competing dispute resolution clauses, the Court of Appeal in Sebastian Holdings Inc v Deutsche Bank AG  EWCA Civ 998 (and endorsed in AmTrust v Trust Risk  EWCA Civ 437) discussed adopting a ‘broad and purposive construction’. The court stated that ‘what is required is a careful and commercially minded construction of the agreements providing for the resolution of disputes’. Similarly, in UBS AG v HSH Nordbank AG  EWCA Civ 585, Lord Walker stated that ‘the parties must be presumed to be acting commercially’. As regards competing governing law clauses, the matter was considered by the High Court in Desarrollo v Kader Holdings  EWHC 1460 (QB) and, again, the question was treated as one of construction.
Whether the approach of the courts will change following the Supreme Court’s call for a more literal contractual interpretation in Arnold v Britton & Ors  UKSC 36 remains to be seen.
Are stepped and split dispute clauses common? Are they enforceable under the law of your jurisdiction?
Stepped clauses for dispute resolution are increasingly common in contracts governed by English law. Stepped clauses will typically require discussions at management or board of director level, followed by mediation and finally litigation or arbitration.
The practical and commercial benefits of such clauses are obvious: they require the parties to attempt to reach settlement at an early stage that, if successful, avoids the costs and delays associated with litigation and arbitration and may also allow parties to preserve their commercial relationship. The Civil Procedure Rules now expect that parties will consider alternative dispute resolution methods before litigating and using a stepped pre-action process is a good way to meet this requirement.
Until the decision in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited  EWHC 2104 (Comm), the English courts had been reluctant to find that prescribed steps such as senior executive negotiations are conditions precedent to commencing litigation or arbitration on the basis that agreements to agree are unenforceable. However, in Emirates Trading the judge held that a time-limited obligation to hold ‘friendly discussions’ to resolve the dispute was enforceable and therefore a condition precedent to the right to arbitrate. Parties who wish to incorporate stepped clauses into their contracts should therefore take care with the drafting to ensure that the agreement is sufficiently certain to be enforceable.
Split clauses are less commonly used in energy contracts and would usually only be found in energy financing documents. A typical clause will specify that the courts of one jurisdiction will have exclusive jurisdiction to resolve any disputes, or that disputes will be resolved by arbitration, but then provide that such exclusivity is stipulated solely for the benefit of financing parties, who may, should they wish, bring an action against the borrower before any other court with competent jurisdiction. If suitably drafted, split clauses are generally enforceable as a matter of English law.
How is expert evidence used in your courts? What are the rules on engagement and use of experts?
Independent expert evidence is used to assist the court when a claim involves particular technical or specialist issues about which the court does not have the necessary knowledge. While experts are party-appointed, their primary duty is to help the court and this duty overrides any duty to the instructing party.
An expert will typically give their opinion evidence in the form of a written report and will then be called to give oral evidence at trial. Pursuant to CPR 35.4, no expert report may be served or expert evidence used without the court’s permission. The experts’ written reports will normally stand as evidence in-chief, so the expert does not need to provide oral evidence on the matters set out in their statement. The opposing party can cross-examine the expert, following which the party calling the expert has the opportunity to re-examine that expert. The expert may also be asked questions by the judge.
Since 1 April 2013, the court has been able to order that oral evidence from experts at trial be given concurrently. The court may set an agenda for the taking of expert evidence, or may direct that the parties agree to such an agenda subject to the approval of the court. This is known as ‘hot-tubbing’. Anecdotal evidence suggests that hot-tubbing is not being widely used in practice.
The rules governing the conduct of expert witnesses can be found in CPR 35 and the accompanying Practice Direction. The Courts and Tribunals Judiciary has also published guidance for the instruction of experts in civil claims that should be referred to, together with the relevant court guide, when appointing an expert.
What interim and emergency relief may a court in your jurisdiction grant for energy disputes?
The English courts have wide powers to grant interim and emergency relief, including interim injunctions, freezing injunctions, search orders, specific disclosure, security for costs and payments into court. Usually, English courts will only make orders relating to property within their jurisdiction. However, in exceptional circumstances, the English courts will grant freezing injunctions with extraterritorial or worldwide effect.
The English court may also grant interim relief (typically in the form of freezing injunctions) in aid of legal proceedings elsewhere in the world. On 17 July 2014, the European Account Preservation Order (EAPO) Regulation entered into force, creating a new procedure under which a creditor is entitled to freeze monies in any EU bank account held by a debtor up to the value of its debt. The procedure started to be applied by participating member state courts on 18 January 2017. The UK government has not opted into the Regulation and currently EAPO is not an alternative to seeking a freezing injunction in England. However, account holders and companies operating in participating member states will still be affected by the Regulation in situations where an application for an EAPO is made by a creditor in a participating member state against the bank account of an English entity that is located in another member state.
What is the enforcement process for foreign judgments and foreign arbitral awards in energy disputes in your jurisdiction?Foreign judgments
Broadly, there are four regimes for enforcing foreign judgments in England and Wales:
- the UK regime covers judgments from Scotland and Northern Ireland;
- the European regime covers judgments from EU and certain European Free Trade Area countries;
- the statutory regime covers judgments from most commonwealth countries; and
- the common law regime covers judgments from other countries, such as the United States.
The regime under which the foreign judgment falls will determine the ease or difficulty of enforcement, in addition to the types of defence open to the party against which the judgment has been awarded. However, it remains to be seen how the UK’s withdrawal from the EU will influence the manner in which judgments from the EU and European free trade areas are implemented.Foreign arbitral awards
The UK is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), meaning that courts in England and Wales will recognise and enforce arbitral awards made in the territory of another contracting state as if they were a UK award.
Arbitration proceedings in England and Wales are governed by the Arbitration Act 1996. The procedure for enforcement is largely the same as for domestic awards.
Where the New York Convention does not apply, foreign awards may be enforceable under the Geneva Convention, the Foreign Judgments (Reciprocal Enforcement) Ordinance (mainly applicable to former Commonwealth nations) or common law rules.Alternative dispute resolution
Are there any arbitration institutions that specifically administer energy disputes in your jurisdiction?
At present, there is no arbitral institution in England or Wales dedicated to energy disputes. However, the London Court of International Arbitration and the London Maritime Arbitrators’ Association administer a significant number of energy and marine-related arbitrations, both for UK matters and internationally.
Is there any general preference for litigation over arbitration or vice versa in the energy sector in your jurisdiction?
The choice of dispute resolution method will very much depend on the subject matter of the contract and surrounding circumstances. Where there are concerns with regard to international enforcement or confidentiality, arbitration will generally be selected. However, the English courts remain very popular with both domestic and international players in the energy sector since they offer a relatively quick, cost-efficient and predictable forum for dispute resolution.
Are statements made in settlement discussions (including mediation) confidential, discoverable or without prejudice?
Negotiations, whether written or oral, that are genuinely aimed at settlement are generally subject to without prejudice privilege, meaning they are excluded from evidence. This is to encourage parties to ‘fully and frankly put their cards on the table’ (Cutts v Head  CH 290, 306 (CA)). If there is a challenge to a without-prejudice claim, the court will look to the substance rather than the form of the disputed document. Accordingly, labelling a document ‘without prejudice’ will not necessarily bring it within the without prejudice-privilege rule.Privacy and privilege
Are there any data protection, trade secret or other privacy issues for the purposes of e-disclosure/e-discovery in a proceeding?
The Data Protection Act 1998 (DPA) contains mechanisms that restrict the circumstances and means by which an organisation can disclose personal data to third parties. However, the English Court of Appeal (Durham County Council v Dunn  EWCA Civ 1654) has established that these provisions may effectively be overridden by obligations to disclose information during the course of proceedings under the Civil Procedure Rules.
Further, the General Data Protection Regulation (GDPR), which came into force in May 2018 (and effectively replaced the DPA) is likely to impact e-disclosure in proceedings before English courts.
The concept of ‘personal data’ is very wide under EU data protection laws and this remains the case under the GDPR. Personal data encompasses any information relating to an identified or identifiable natural person. Given the wide scope of personal data and processing activities, data protection may touch disclosure at various stages. For disclosure in English civil litigation, the main risk, from a data protection perspective, is the disclosure of irrelevant personal data. That is, personal data that is not within the scope of the disclosure ordered by the court. This risk can be mitigated by either redaction or by taking steps to closely control sources of data captured as part of the disclosure exercise.
In addition, the general legal and regulatory obligations described above should always be borne in mind.
What are the rules in your jurisdiction regarding attorney-client privilege and work product privileges?
Under English law there are two principal types of privilege: legal advice privilege and litigation privilege.
Guidance from Three Rivers  1 AC 610 states that legal advice privilege extends to communications (both written and oral) between a client and a lawyer (or an intermediate agent of either) that is made in confidence for the purpose of giving or obtaining legal advice or assistance and whether or not in the context of litigation. Third-party communications (lawyer and a third party or a client and a third party) are not covered by legal advice privilege.
For the purpose of legal advice privilege, the word ‘client’ is narrowly construed to apply to
only those individuals within the company who are authorised to instruct lawyers and to receive legal advice on the entity’s behalf on the matter in question. The narrow interpretation of ‘client’ was most recently applied in the case of The RBS Rights Issue Litigation  EWHC 3161 (Ch), where it was confirmed that ‘client’ only extended to those individuals who are authorised to seek and obtain legal advice on behalf of the organisation and does not include those who are authorised only to provide information to the lawyers. Where a third party (or an employee who is not part of the client) provides information to the lawyer, this will not be privileged outside the litigation context. In Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd  EWCA Civ 2006, the Court of Appeal indicated that had it been open to it to depart from Three Rivers it would have done so. However, it considered it properly a matter for the Supreme Court.Litigation privilege
Litigation privilege covers confidential oral and written communication between a client or lawyer on the one hand and third parties on the other (or other documents created by or on behalf of the client or his lawyer) that come into existence once litigation is in contemplation or has commenced for the dominant purpose of use in the litigation.
The courts will look at the dominant purpose of the communication or document. Where there is a dual purpose, it is necessary to identify the dominant purpose. It is not sufficient if the relevant litigation purpose is a secondary or equal purpose. In addition, litigation must have commenced or be contemplated; it must be more than a ‘mere possibility’ or even a distinct possibility that sooner or later someone might make a claim. Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd  EWCA Civ 2006 is a case involving various communications connected with an internal investigation (including notes of interviews with employees and ex-employees). At first instance, the High Court held that litigation privilege did not apply to the documents. Andrews J held that it could not be said that litigation was in contemplation when the company initiated internal investigations. In any event, even if litigation was in contemplation, the documents were not created for the dominant purpose of use in the litigation.
In September 2018, the Court of Appeal reversed this decision, finding that the judge had been wrong ‘to suggest a general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken’. On the facts, litigation was in reasonable contemplation when the company initiated its internal investigation and certainly when it received a letter from the SFO. This was so notwithstanding that the letter expressly stated that the SFO was not carrying out a criminal investigation at that stage, but only made reference to ‘recent intelligence and media reports concerning allegations of corruption and wrongdoing by ENRC’ and urged ENRC to consider carefully the SFO’s 21 July 2009 Self-Reporting Guidelines while undertaking its internal investigations. The judgment provides useful guidance as to when litigation will be ‘in contemplation’ for the purposes of litigation privilege.
Further, the court held that the fact that ENRC’s solicitors prepared certain documents with the ultimate intention of showing those documents to the opposing party does not automatically deprive the preparatory legal work of litigation privilege. There may be circumstances where solicitors spend much time fine-tuning a response to a claim to give their client the best chance of reaching an early settlement. The discussions surrounding the drafting of such a letter are covered by litigation privilege as any other work done in preparing to defend the claim. The Court of Appeals’ observations in this regard are noteworthy. Legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings.Jurisdiction
Must some energy disputes, as a matter of jurisdiction, first be heard before an administrative agency?
It is not usual for energy disputes to be first heard before an administrative agency. One exception, however, is that the Oil & Gas Authority (OGA) may intervene, or be requested to intervene, in disputes between infrastructure owners and third parties relating to access to upstream oil and gas infrastructure. The OGA has also been granted dispute resolution powers under the Energy Act 2016.
Identify the principal agencies that regulate the energy sector and briefly describe their general jurisdiction.
The principal regulators in the energy sector include Department for Business, Energy and Industrial Strategy (BEIS), the Oil & Gas Authority (OGA), the Office of Gas and Electricity Markets (OFGEM) and the Office for Nuclear Regulation (ONR). The Environmental Agency, the Health and Safety Executive, the Maritime and Coastguard Agency and the police also play an enforcement role in regulating the industry.
BEIS sets the UK’s energy and climate change mitigation policies, having replaced the Department of Energy and Climate Change (DECC) as the governmental body responsible for UK energy policy. It is responsible for establishing the framework for achieving the policy goals in these areas.
The OGA is responsible for regulating offshore and onshore oil and gas operations in the UK, including licensing, with an emphasis on maximising oil and gas recovery in the North Sea. It was launched on 1 April 2015 as an executive agency of DECC (now BEIS) and took over a number of responsibilities for oil and gas regulation. The OGA became a government company in October 2016 and was established as a fully independent regulator by the Energy Act 2016, which granted it new powers and amended various statutory provisions, including provisions of the Petroleum Act 1998. The OGA took over the powers of the Secretary of State with regard to licenses for exploration and extraction of oil and gas resources. The OGA is now able to issue enforcement notices and financial penalties, and to revoke licences arising from breaches of the MER UK Strategy. In addition to these powers, the OGA has the power to investigate ‘qualifying disputes’ and make non-binding recommendations for the resolution of disputes that are intended to contribute to the fulfilment of the Maximising Economic Recovery UK Strategy.
OFGEM is the government regulator for the downstream gas market and electricity market in the UK. The ONR carries out the function of the safety regulator for the civil nuclear industry in the UK.
The Environmental Agency (EA) is the environmental regulator for all onshore oil and gas operations in England. The EA must be consulted on a wide range of issues including on matters relating to shale gas.
The Health and Safety Executive (HSE) is responsible for enforcing health and safety legislation and principally acts through its Energy Division in regulating the oil and gas industry.Access to infrastructure
Do new entrants to the market have rights to access infrastructure? If so, may the regulator intervene to facilitate access?
The Infrastructure Code of Practice (ICoP) was introduced in 2004 to ensure that new entrants and smaller players in the UK Continental Shelf could exploit discoveries that required access to existing third-party infrastructure to make the field commercially viable. ICoP requires owners to publish annually their main commercial conditions for access to their upstream infrastructure. These commercial conditions form the basis for negotiations between the owners and third parties. The ICoP and its accompanying guidance notes were updated in 2012 and were again most recently revised in August 2017 to reflect certain legislative changes (principally the transfer of power from DECC/BEIS to the OGA) and more general drafting improvements.
While ICoP is voluntary, non-binding and industry-led, it is supported by a statutory regime through which the OGA can intervene to grant access to infrastructure. The OGA may become involved where parties have had a reasonable time to reach an agreement but there is no realistic prospect of an agreement being reached or where a third party has made an application to the OGA for a notice granting the relevant rights. Importantly, it is worth noting that, under section 83 of the Energy Act 2011, the OGA can issue an access notice under its own initiative; however, guidance from the OGA envisages that this power would only ever be used in very limited circumstances, as this would override the right of a prospective user to make an application to the OGA at the time that it sees fit.
Under the Gas Act 1995, a similar regime applies to downstream gas processing facilities (for example, facilities that process gas for the purpose of the gas being put into storage, an LNG import or export facility, a gas interconnector or a distribution system pipeline).Judicial review
What is the mechanism for judicial review of decisions relating to the sector taken by administrative agencies and other public bodies? Are non-judicial procedures to challenge the decisions of the energy regulator available?
In England and Wales, judicial review is the mechanism that allows an affected party to request that the courts consider the lawfulness of a decision or action taken by a body exercising a public function. The court’s supervisory jurisdiction is found in the Senior Courts Acts 1981 but has largely developed through case law.
Judicial review is only available in limited circumstances and serves a specific function. The court’s role is not to remake the decision or to decide on the merits of the decision (other than for the purpose of considering whether it was lawful). It is to review the process by which the decision was reached and to determine whether that process was lawful or fair. If there is an appeal process, a claimant should exhaust this route before applying for judicial review.
To bring an application for judicial review:
- a party must have sufficient interest or ‘standing’;
- the decision or action must be amenable to judicial review, that is, there must be some exercise of public function, which can apply to government departments, public bodies and, in certain circumstances, private parties;
- one of the substantive grounds for judicial review must apply:
- procedural unfairness; or
- breach of a legitimate expectation; and
- the application must be brought promptly and in any event within three months of the date when grounds for the application first arose.
If a judicial review claim is successful, the principal remedies that the court may grant are a mandatory order requiring the body being reviewed to do something; a prohibiting order restraining the body being reviewed from doing something; or a quashing order that sets aside the decision of the body being reviewed. It is worth noting that the result of a successful judicial review might be the same as the impugned decision but reached lawfully.Fracking
What is the legal and regulatory position on hydraulic fracturing in your jurisdiction?
Under the Petroleum Act 1998, the Crown owns the mineral rights in relation to land and not the landowner; the OGA is responsible for regulating onshore and offshore oil and gas operations in the UK, including granting licences for exploration and production of shale gas on behalf of the Crown.
The Infrastructure Act 2015 contained some key provisions relating to shale gas exploration. These provisions include a new underground access regime to use deep-level land (300 metres below the surface), which prevents landowners who have not agreed to drilling access under their land from claiming that there has been a trespass. The Infrastructure Act separately introduced a number of safeguards against hydraulic fracturing as well as bans to fracturing in certain protected areas (eg, National Parks, Areas of Outstanding National Beauty, the Broads and World Heritage Sites).
The Finance Act 2014 introduced a new tax regime to encourage the exploration of shale gas, which the government believes will make the shale gas regime in the UK the most competitive in Europe.
For exploration and production, a number of consents are required and may include: a Petroleum Exploration and Development Licence (PEDL) as issued by the OGA, planning permission from the relevant minerals planning authority, environmental permits (from the Environment Agency, Natural Resources Wales or the Scottish Environment Protection Agency), abstraction licence, authorisation from the coal authority, well consent and notification, field development consent, flaring and venting consent and consents from the landowners whose land is affected by the exploration. In August 2015, DECC (now BEIS) and the Department for Communities and Local Government implemented new planning processes to allow shale gas planning applications to be fast-tracked, with the aim that faster decision-making on shale gas will promote economic growth and energy security. In February 2017, BEIS published further guidance on the process of seeking consent to commence hydraulic fracturing operations within the UK. Additional guidance on ‘Developing Shale Gas in the UK’ was published by BEIS in October 2018.
In November 2019, the government announced an immediate halt to fracking for oil and gas in England. The decision was taken on the basis of a report by the OGA that warned that 'not currently possible to accurately predict the probability or magnitude of earthquakes linked to fracking operations'. The government stopped short of an outright ban, stating that it will not agree to any future fracking until there is compelling new evidence that proves fracking can be done safely. Given this, shale gas can no longer be relied upon to meet the UK’s gas needs.Other regulatory issues
Describe any statutory or regulatory protection for indigenous groups.
Describe any legal or regulatory barriers to entry for foreign companies looking to participate in energy development in your jurisdiction.
Every licence issued for the exploration and production of oil and gas will have attached to it detailed terms and conditions, which are set out in model clauses enshrined in secondary legislation under the Petroleum Act 1998. The main ways in which a licence can be obtained are through assignment of licences from an existing licensee with the permission of the OGA, or through competitive licensing rounds that generally take place every year. Before approving the transfer of a licence or awarding licences, the OGA must be satisfied that the applicant meets certain criteria that focus on the technical and financial capacity of the prospective licensee. These criteria apply equally to domestic companies as to foreign companies.
What criminal, health and safety, and environmental liability do companies in the energy sector most commonly face, and what are the associated penalties?
The UK energy sector is highly regulated and companies are expected to conform to strict health and safety and environmental standards. Unlimited fines for offences under the Health and Safety at Work etc Act 1974, Environmental Damage Regulations 2009 and related legislation can be ordered by the courts.
The HSE’s Energy Division regulates the risks to health and safety arising from work activity in the offshore oil and gas industry on the UKCS. The OGA separately has the power to issue financial penalty notices of up to £1 million for a failure to comply with a ‘petroleum-related requirement’.
The level of fines for health and safety and environmental offences has been steadily increasing, as has the willingness of judges to impose custodial sentences on individuals (including company directors and employers) for serious offences resulting in fatalities in the workplace. New sentencing guidelines set out ranges for fines that apply in respect of breaches of health and safety legislation as well as those payable in the event of a corporate manslaughter conviction. These range from £10–£50 million (for health and safety breaches) and £180,000–£20 million (for corporate manslaughter). The guideline expressly provides that where an offending organisation’s turnover or equivalent very greatly exceeds the threshold applicable for large organisations (£50 million), it may be necessary to move outside the suggested ranges to achieve a proportionate sentence.
OtherSovereign boundary disputes
Describe any actual or anticipated sovereign boundary disputes involving your jurisdiction that could affect the energy sector.
There are no actual or anticipated sovereign boundary disputes involving the UK that could affect the energy sector. However, oil and gas exploration in the waters surrounding the Falkland Islands continues to be a source of tension between UK and the islands on the one hand and Argentina on the other.
An UNCLOS treaty was signed between Norway and the UK in 1965 allowing for the joint sharing of proceeds of hydrocarbons for single petroleum fields that extend across the continental shelf boundary. However, an exclusive economic zone has not been agreed between the two countries.Energy treaties
Is your jurisdiction party to the Energy Charter Treaty or any other energy treaty?
The Energy Charter Treaty, which entered into force on 16 April 1998, was ratified by the UK on 13 December 1996.
Describe any available measures for protecting investors in the energy industry in your jurisdiction.
The UK generally provides a stable investment environment for investors in the energy industry. Bilateral investment treaties are in force between the UK and approximately 100 countries. The UK is also a party to the ICSID Convention, the primary purpose of which is to provide facilities and services to support conciliation and arbitration of international investment disputes. The UK is also party to the Energy Charter Treaty that includes provisions on investment protection and creates a legal framework for energy, trade, transit and investment among member states.
Describe any legal standards or best practices regarding cybersecurity relevant to the energy industry in your jurisdiction, including those related to the applicable standard of care.
As with all organisations, energy companies handle sensitive personal information and face data privacy and cybersecurity risks as a result. In addition, energy companies also face significant operational and critical infrastructure risks that can arise out of data security incidents and other incidents linked to the use of networked technology. This is an area that has undergone significant change from a legal perspective in the past few years.
In terms of best practice, organisations should always take steps to ascertain whether the data security and cyber-risk preparedness measures they have in place are adequate for the data privacy and security risks that they are facing. There is growing concern that energy companies are becoming increasingly prone to cyberattacks. The National Cyber Security Centre has highlighted the future dangers of an attack on the UK’s critical national infrastructure outlining its recommendations for improving cybersecurity. In recent years, there have been a number of successful cyberattacks on significant energy infrastructure assets in a range of jurisdictions – see, for example, the impact that the Shamoon computer virus had on operations at Saudi Aramco in 2012, or the cyberattack on the Ukrainian electricity grid in 2015, which left several hundred thousand people without power for a short period. Trade associations, government, sector regulators and industry are working closely together to promote a greater understanding of how best to manage and effectively deal with cyber risk, and this is likely to grow in importance in the future as the energy and infrastructure space becomes ever more reliant on the use of networked technologies.
The UK has a substantial body of law governing data privacy and security, much of which is derived from EU law. In particular, the GDPR imposes broad obligations on data controllers relating to the processing of data. The GDPR requires compliance with six separate data protection principles, the sixth of which requires that data controllers use ‘appropriate technical and organisational measures . . . that ensure appropriate security of personal data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage [to that personal data]’. Article 24 of the GDPR also imposes a specific obligation on data controllers to implement appropriate technical and organisational measures to ensure and to be able to demonstrate that processing is performed in accordance with the GDPR. Such measures should take into account the nature, scope, context and purposes of processing as well as the risks arising from it, and should be reviewed and updated where necessary. Taken together, these requirements mean that a data controller must ensure a level of security appropriate to the harm that might result from the unauthorised or unlawful processing of data, or its accidental loss, destruction or damage. As well as imposing a range of specific obligations on data controllers and processors, the GDPR also makes compulsory the reporting of certain data incidents to national data protection authorities, and will give those authorities the discretion to impose heavy fines on organisations that breach their obligations (in some circumstances, up to €20 million or 4 per cent of the organisation’s global annual turnover). To date, the UK data protection authority (the Information Commissioner's Office) has issued notices of intent to impose individual fines of up to £180 million (approximately).
In addition, those active in the energy industry need to be aware of national legislation implementing the Network and Information Systems Directive (NISD) in EEA member states. In many member states including the UK, this legislation was introduced in May 2018 and imposes further obligations relating to network and information security on providers of ‘essential services’, which includes significant organisations operating in the energy sector. Similar to the GDPR, organisations that are subject to national legislation implementing the NISD will be obliged to report serious network and information security incidents to their national sector-specific regulator, and non-compliance with the NISD could lead to the imposition of heavy fines – under the UK Network and Information Systems Regulations, for example, up to £17 million.
Finally, recent legal changes in a number of jurisdictions have given rise to an increased risk of litigation arising out of data and cyber risks, most notably in a privacy and data protection context – this applies equally to energy as to other industry sectors. In the US, privacy class actions following large data breaches have been common for some time. More recently, litigation of this type has been growing in other jurisdictions. The GDPR provides individuals a right to bring a claim for damage caused by a breach of the regulation – ‘damage’ in this context would include distress and anxiety as well as financial loss and (following a very recent case that is subject to appeal) for loss of control of data without any wider loss. A number of collective claims are already being brought in the English courts on this basis. Claims may also be brought in the English courts in tort for misuse of private information or in equity for breach of confidence, even where no pecuniary loss has been suffered by claimants. This means that there are a number of means by which claims can be brought in the data privacy and cybersecurity context. Allied to this is a recent development in English law that has established that companies can be held vicariously liable for data breaches caused by employees. While this latter decision remains subject to appeal to the Supreme Court, it highlights the trend towards increased litigation and a more difficult litigation risk landscape in the context of data breaches and similar data or cybersecurity incidents.
Update and trendsUpdate and trends
List any major developments (case law, statute or regulation) that are anticipated to affect the energy sector in your jurisdiction in the next 12 months, including any developments related to the taxation of energy projects. What is the anticipated impact of climate change regulations, treaties and public opinion on energy disputes?
Climate change has risen to the top of both political and economic agendas in the UK. The climate activist group Extinction Rebellion challenged Parliament to declare a climate change emergency and take action, leading two ‘international rebellions’ this year in April and October. There have also been strikes by UK school children, workers and politicians.
In response to this increasing public scrutiny on climate change issues, the UK has become the first major economy to commit to net zero carbon emissions by 2050, by reducing carbon emissions and furthering progress towards offsetting, carbon capture and storage schemes. A number of UK headquartered companies have made commitments to reduce their contributions to climate change.
Climate-related case law is also rapidly developing in the UK. Climate change litigants, typically consisting of individuals, groups of individuals and interest groups, are increasingly able to access funding and resources from litigation funds and climate-change charities. Globally cases have been brought against governments, public policies and private corporations in domestic courts. While some have been successful, claims in the English courts face the legal hurdles of justiciability, standing, causation, remoteness and evidential issues.