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Success in North Sea oil dispute

30th Jul 2020

Apache North Sea Limited v INEOS FPS Limited [2020] EWHC 2081 (Comm)

David Allen QC and Michael Ryan successfully represented Apache North Sea Limited in a case against INEOS FPS Ltd concerning an agreement not to unreasonably withhold consent.

The parties entered into contracts for the transportation to shore of Apache’s oil from the North Sea through the Forties Pipeline System (“the FPS”) operated by INEOS. The Commercial Court was asked to interpret a “consent provision” which provided for a shipment schedule in the contract to be amended at the requirement of Apache with the consent of INEOS, such consent not to be unreasonably withheld.

INEOS purported to impose a condition on its consent to agree to ship increased quantities by requiring an amendment to increase the price stipulated in the contract payable to INEOS for the transportation of oil through the FPS. Mr Justice Foxton agreed with Apache that INEOS was not permitted to impose such a condition under the contract.

In this important judgment, Mr Justice Foxton addressed the recent Supreme Court case of Sequent Nominees Ltd v Hautford Ltd [2020] AC 28 which concerned the court’s approach to consent provisions contained in leases. The Judge confirmed that even where a contractual provision imports a standard of reasonableness, the court must still construe the contract as a whole to establish what the consent-providing party is entitled to do under the relevant clause. Importantly, such clauses cannot be used to re-write the parties’ bargain so as to deprive the counterparty to the contract of rights it has under it. INEOS’s attempt to increase the price was an illegitimate attempt to rewrite the bargain and therefore impermissible.

The Judge said at [41]:

I accept that Lord Briggs JSC’s judgment [in Sequent Nominees] provides a salutary warning that a court cannot substitute its own judgment for that of the contractual decision-maker, and turn what is essentially an evaluation of fact into an issue of law for the court, by concluding that a consent provision was originally included in a contract to serve a particular purpose, and then holding that refusing consent for any other purpose falls outside the consent provision as a matter of construction. … However, Sequent Nominees clearly did not decide that it is no longer necessary to construe a consent provision in the context of the contract as a whole, nor render illegitimate the approach of construing such clauses on the basis that they are not ordinarily intended to allow the consent-provider to override or nullify a contractual right conferred elsewhere, and in more specific terms. Lord Briggs JSC at [37] noted that “the correct approach is to construe [the consent provision] so as to discover what, upon its express terms, it permits the landlord to do”, an exercise not limited to looking at the terms of the consent provision in isolation (as INEOS’s submissions appeared to assume at times), but also at the other terms of the contract of which it forms a part.”

The case is thus an important re-statement of principle in the approach to clauses which require the consent of a party to a course of action, such consent not to be unreasonably withheld.

A copy of the judgment in Apache North Sea Limited v INEOS FPS Limited [2020] EWHC 2081 (Comm) can be accessed here.

David Allen QC and Michael Ryan acted for the successful Claimant, Apache North Sea Ltd, and were instructed by David Bennett and Mark Walsh of Clyde & Co.30