TAQA Bratani Ltd v Rockrose UKCS8 LLC
| Jurisdiction | England & Wales |
| Judge | Pelling |
| Judgment Date | 17 January 2020 |
| Neutral Citation | [2020] EWHC 58 (Comm) |
| Date | 17 January 2020 |
| Docket Number | Case No: CL-2019-000471 |
| Court | Queen's Bench Division (Commercial Court) |
[2020] EWHC 58 (Comm)
HIS HONOUR JUDGE Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: CL-2019-000471
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr David Foxton QC, Ms Philippa Hopkins QC and Mr David Davies (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Claimants
Mr Sa'ad Hossain QC and Mr Richard Eschwege (instructed by Pinsent Masons LLP) for the Defendant
Hearing dates: 2–5 December 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HIS HONOUR JUDGE Pelling QC SITTING AS A JUDGE OF THE HIGH COURT
HH Judge Pelling QC:
Introduction
This is the expedited trial 1 of a claim by which the claimants seek declarations that notices by which they purported to terminate the appointment of the defendant as Operator under four Joint Operating Agreements and a Unitisation and Unit Operating Agreement (collectively “JOAs”) between the claimants and the defendant concerning the operation of five oil and gas field blocks (“Blocks”) on the UK Continental Shelf (“UKCS”) in the North Sea known collectively as the Brae Fields are valid and take effect in accordance with their terms.
The claimants maintain that on a true construction of the JOAs they were collectively entitled to act as they have without being obliged to justify their decision to the defendant or to give any reasons for that decision. The defendant maintains that the express terms on which the claimants rely were impliedly qualified by obligations that required the claimants to not exercise the express powers they rely on capriciously or arbitrarily and only in good faith and, in consequence, only in the best interests of the operation of the Block or Blocks in question, that the claimants did not comply with the qualifications for which the defendant contends and in consequence the claimants' purported notices were invalid and of no effect.
The trial took place between 2–5 December 2019. I heard oral evidence adduced on behalf of the claimants from:
(a) Mr. Alexander Hutchison, the Legal, Commercial and Business Services Director for the first claimant and a director of both the first and second claimants (hereafter collectively “TAQA”). He was one of three people that formed the first and second claimants' Leadership Team responsible for proposing and then voting for the removal of Marathon Oil UK LLC (“MOUK”) as Operator;
(b) Mr. Naoyoshi Kaneko, a director and the general manager of the third claimant (“JX”), who took the decision on behalf of JX to vote in favour of the removal of MOUK as Operator under the JOAs and in support of the resolution to appoint TAQA in its place; and
(c) Mr. Gerald Harrison, a director of the fourth claimant (“Spirit”) and its Executive Vice-President for Health Safety Environment & Security, Sub-Surface and Exploration and UK Non-Operated Production
and on behalf of the defendant from:
(a) Mr. Peter Mann, Managing Director of RockRose Energy Plc (“RR”); and
(b) Mr. Graham Taylor, the Developments Manager employed by RockRose UKCS8 LLC (“RRUK”).
I also heard expert evidence given by Mr. David Robottom, appointed by the claimants and Mr. Paul Mason, appointed by the defendant. In the end this evidence was of no
assistance in resolving the issues that arise because those witnesses did not establish the existence of any relevant market practice. I address this issue in detail later in this judgment.Background
The first and second claimants are companies controlled ultimately by the Government of Abu Dhabi. TAQA is an experienced Operator of UKCS oil and gas fields other than those with which this claim is concerned as well as holding extensive non-operator participatory interests in UKCS fields other than those relevant to these proceedings. I explain the distinction between Operators and non-operator participants later in this judgment. The third claimant is a company controlled by a Japanese parent company and the fourth claimant is a company jointly ultimately controlled by Centrica Plc and Bayerngas Norge AS. Each of JX and Spirit carries on business in the exploration and exploitation of oil and gas fields including but not limited to the Brae Fields.
The defendant is a Delaware registered corporation that until 1 July 2019 was called Marathon Oil UK LLC and was wholly owned by Marathon Oil Corporation (“Marathon”), an Ohio registered corporation operating in the multinational hydrocarbons sector with very substantial worldwide experience of oil and gas exploration, extraction and commercial exploitation, both on and offshore. On 1 July 2019 RR completed the purchase of 100% of the share capital in MOUK, which was then renamed RockRose UKCS8 LLC. I refer to the defendant hereafter as MOUK in relation to events that occurred prior to 1 July 2019 and as RRUK for events that occurred thereafter.
The claimants and RRUK hold petroleum licences from the UK Government to extract oil and gas from the UKCS North Sea in Blocks 16/3a, 16/3b, 16/3c, 16/7a and the East Brae Field Block. TAQA has the largest interest in the Blocks; RRUK has the next largest interest and each of the other claimants have much smaller interests. The precise size of the interest that each holds differs from block to block and does not matter for present purposes.
The parties operate each Block as an unincorporated joint venture, which is governed by the JOA relevant to the Block concerned. The relationship between the parties in respect of Blocks 16/3b and 16/3c is governed by two JOAs in identical terms each dated 16 October 1979 (“P.313 2 JOAs”). The parties' relationship in relation to Blocks 16/3a and 16/7a is governed by JOAs each dated 25 January 1980 (respectively “Block 16/3a JOA” and “Block 16/7a JOA”) and their relationship in relation to the East Brae field is governed by a Unitisation and Unit Operating Agreement (“UUOA”) dated 19 September 1990 (“East Brae JOA”). There is no difference between a UUOA and a JOA that is relevant to this dispute.
It will be necessary for me to set out the typical terms of the relevant agreements later in this judgment. It is necessary to note at this stage that the JOAs proceed on the basis that one of the joint venturers will be the “ Operator”. The function of the Operator under the JOAs is to manage all operational and commercial activity in connection with the relevant field on a no gain no loss basis. The Operator and each non-operator
participant is liable for the cost of carrying out such operations in proportion to their equity interest in the venture and the activities of the Operator are subject to the supervision of an Operating Committee (“OC”) on which each participant is represented. From the outset, MOUK (and since 1 July 2019 RRUK) has been the Operator for the Brae Fields. Each of the JOAs provide for the removal of the Operator either by (a) resignation, (b) immediate termination in the event of one of a number of specified events occurring and (c) by votes of all (or, in some cases, a majority) of the non-operator participants on not less than 90 days' noticeOn 25 February 2019, RR agreed to acquire the issued share capital in what was then MOUK and on 28 February 2019 TAQA learned formally that RR had been successful in its bid. TAQA had also bid to acquire MOUK but its offer was rejected. As I have explained the acquisition was completed on 1 July 2019.
TAQA maintains that it and the other claimants had and have serious concerns about the performance of MOUK as Operator prior to its sale and the ability of what became RRUK to perform the role of Operator under the JOAs both from an operational and financial perspective. TAQA first raised these issues with their fellow non-operational joint venturers in a series of telephone discussions on 28 February 2019. It will be necessary for me to consider the factual material in some detail below but, by the end of April 2019, TAQA alleges that it had come to the view that the most satisfactory way of mitigating the risks it maintains were posed by the take over of MOUK by RR was to remove MOUK as Operator under the JOAs and for TAQA to be appointed in its place. As I have explained however, TAQA had formed the view that it should attempt to acquire MOUK (and thereby become Operator) much earlier than this and as I explain below TAQA's management have consistently held the view that it is in TAQA's economic best interests to become Operator of the Brae Fields. As I explain below, there is no doubt that this view was at least one of the reasons for it deciding to remove MOUK as Operator. RRUK's case is that this was not something that TAQA could properly have regard to when deciding whether to seek the discharge of MOUK as Operator and thus renders its decision unenforceable.
Both JX and Spirit agreed that it was in their best interests that TAQA should become Operator in place of MOUK from no later than the end of April 2019. Transferring the Operatorship comes at a cost that would usually be met by all the participants in proportion to their equity interests in the relevant Fields, applying the accounting procedures set out in the JOAs. The cost of a transition from MOUK/RRUK to TAQA is not known precisely but in the course of the trial was variously estimated by the claimants at between £5m and £10m. By a letter of 5 June 2019, signed by each of TAQA, JX and Spirit, TAQA agreed with JX and Spirit that
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