Early Termination of Resource, Energy and other long

Transcription

Early Termination of Resource, Energy and other long
John Randall QC
Early Termination of
Resource, Energy
and other long-term
Contracts
Common Issues,
Common Solutions
Dili, Timor L’Este
July 2014
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Termination at Common Law: some ‘revision’:



‘Conditions’
Mere warranties
Intermediate Terms
Anticipatory Breach
Communication
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Express Termination Clauses:

Purpose

Wording

Effect if validly operated

Strict compliance by terminating party necessary?

Must terminating party act reasonably/in good faith?
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Case Studies: Communication and Strict Compliance
Compare:

Vitol SA v Norelf (common law)
with

Geys v Société Generale (express termination clause)
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
•
Vitol SA v Norelf (The Santa Clara) [1996] AC 800 (HL)
 Cargo of propane gas (a volatile market)
 Market price plunged before ship loaded $400→$170pmt
 Vitol gave notice to terminate while loading underway
 Norelf did not respond, loading completed, ship sailed,
and Norelf sought to re-sell the gas on the open market
In the factual context, that alone was sufficient
acceptance of the buyers’ (Vitol’s) repudiatory breach
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
• Geys v Société Generale [2013] 1 AC 523 (UKSC)
 Banker employed with increasing bonus entitlement
 ETC operable immediately by making payment in lieu
 29 Nov: banker told terminated with immediate effect
 18 Dec: correct sum paid into banker’s account
 New Year: bonus went up from €7M to >€12.5M
 6 Jan: receipt of letter saying what bank had done
 Banker got higher bonus: no termination before 6 Jan
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
The ‘Changing Horses’ or ‘Second Thoughts’ principle
Exceptions:

Where an ‘election’ is involved (e.g. consequences of
two types of termination incompatible)

Estoppel / Waiver
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Case Study: Where giving notice under an ETC does
involve an election not to terminate at common law

Shell Egypt v Dana Gas
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
• Shell Egypt v Dana Gas Egypt [2010] EWHC 465 (Comm)
 Dana had petroleum concession in Egypt as ‘contractor’
 “FIA” agreement with Shell, including ETC
 Shell: we accepted repudiation OR exercised the ETC
 Arbitrators:- Dana did repudiate but not accepted
:- ETC operated, but no right to expectation damages
 ETC gave rise to alternative rights, thus notice under it
could not be acceptance of repudiation at common law
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Consequences of ETCs:

Loss of common law rights?

Minimum level of seriousness for repudiatory breach
CASE STUDY: Amoco (UK) Exploration v British American

Starting presumption: common law rights not excluded
CASE STUDY: Dalkia Utilities v Celtech International
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
•
Amoco (UK) v British American [2001] All ER (D) (Nov)
 Contract min. 12 months for rig to drill/test oil wells
 Design & build of rig (Rowan Gorilla V) cost D $225M
 Daily hire $175,000 (c. $65M per annum)
 Amoco: termination notice (late arrival) 19 Jan 99
 BAO: on hire 25 Dec 98, repudiation accepted 22 Oct 99
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
• Amoco (UK) v British American (continued)
 Amoco’s attempted operation of ETC ineffective
 triggering failure had not occurred
 no adequate notice served giving opportunity to remedy
 Common law rights not excluded, but:
 any breach not so serious & would have been remedied
 NB grounds under ETC set minimum level for repudiation
 Judgment for BAO (hire + damages to total 12 months)
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
• Dalkia Utilities v Celtech [2006] 1 Lloyd’s Rep 599
 Long-term contract to provide energy to paper mill
 ETC exercisable on various grounds inc. non-payment
 ETC triggered- material breach of duty to pay charges
 Linked clause setting our rights upon a termination
did not sufficiently clearly displace common law right
to terminate on true repudiation e.g. refusal to perform
 BUT breaches not sufficient to constitute repudiation
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Other consequences of ETCs:

Need the termination be immediate?

Is termination possible before performance is due?

Measure of accompanying damages
CASE STUDY: express clause penal? Dalkia Utilities

Reducing the risk of an ‘own goal’ by terminating
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts: CASE STUDY
• Dalkia Utilities v Celtech (again)
 Were express provisions in event of termination under the
ETC unenforceable as penalties?
 Test: A punishment for breach or in terrorem of offending
party, or simply a genuine pre-estimate of loss?

Not penal – just brought forward time when Celtech had to
make capital repayment (entitling them to keep the plant)

Had judge construed them as giving rise to immediate
obligation to pay future charges inc. operational element
(so for service not provided), would have been a penalty
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Advantages of terminating at common law include:
 Preserving claim to loss of bargain damages
 More flexibility as to facts giving the right to terminate
 May be no obligation first to offer opportunity to remedy
 Anticipatory termination may be possible
 More flexibility as to sufficient communication
John Randall QC
Early Termination of Resource, Energy
and other long-term Contracts
•
Advantages of terminating under an ETC include:
 Greater certainty as to whether right to do so has arisen
 In principle, no need to establish a repudiatory breach
 Termination taking effect on future date may be possible
 Reduced risk of a fatal ‘own goal’ if no right to do so
 If no ‘election’, may always rely on common law later
Contact us:
enquiries@st-philips.com
55 Temple Row
Birmingham, B2 5LS
41 Park Square
Leeds, LS1 2NP
9 Gower Street
London, WC1E 6HB
www.st-philips.com
Birmingham Tel: 0121 246 7000
Leeds Tel: 0113 244 6691
London Tel: 0207 467 9444

Similar documents

Get Labour Law Expert Advice in Hong Kong

Get Labour Law Expert Advice in Hong Kong We are experts in Employment Law in Hong Kong. Our expert Employment Law consultants can help you with all kinds of employment law and labour law matters in Hong Kong. Contact us today! For More Info: https://hkemploymentadvice.com/

More information