Augusta Energy SA v Top Oil and Gas Development Company Limited
[2024] EWHC 2285 (Comm)
Premier Oil UK Limited v Shell International Trading and Shipping Company Limited
20 December 2023
[2023] EWHC 3269 (Comm)
High Court
Two big oil companies disagreed on how a neutral expert should decide on a new oil price, since the old one was broken. The judge decided not to tell the expert what to do beforehand; instead, the judge will check the expert's answer later to make sure it's correct.
Key Facts
- •Premier Oil UK Limited and Shell International Trading and Shipping Company Limited dispute the jurisdiction of a referee under two crude oil sale contracts.
- •The contracts contain a pricing structure referencing the "Urals Assessment", a benchmark impacted by European sanctions on Russia.
- •Platts, the publisher, materially changed the Urals Assessment methodology, leading to a dispute on an alternative price information source.
- •The contracts provide a referee determination mechanism if parties fail to agree on an alternative source within ten days.
- •The parties disagree on the referee's scope of authority; Shell seeks a limited interpretation, while Premier advocates a broader review.
- •The court considers whether to provide advance guidance to the referee on the ambit of their decision-making power.
Legal Principles
The court applies ordinary principles of contractual construction to expert determination clauses.
Various case laws cited, including Norwich Union, Mercury Communications, Barclays Bank, and Apache North Sea.
If the issue is within the expert's remit, the court generally doesn't interfere unless there's fraud or collusion.
Norwich Union Life Insurance Society v P & O Property Holdings Ltd [1993] 1 EGLR 164
The court can intervene if the expert misapplies agreed principles or procedures, exceeding their authority.
Mercury Communications Ltd v Director General of Telecommunications & Anor [1994] C.L.C. 1125
The court's intervention before expert determination is discretionary, typically avoided unless strong grounds exist, considering time and cost efficiency.
Thorne v. Courtier [2011] EWCA Civ 460
A court may provide advance guidance if the dispute is real (not hypothetical) and it's in the interests of justice and convenience.
Barclays Bank plc v. Nylon Capital LLP [2012] Bus LR 542
Outcomes
The court declines to provide advance guidance to the referee on the interpretation of clauses 8.4 and 8.2.
The court finds the dispute hypothetical, stemming from parties' fears about each other's intentions rather than a demonstrable risk of the referee exceeding their authority. The court believes it's better positioned to interpret the clauses after reviewing the referee's determination and understanding their reasoning.
The court grants declaratory relief confirming that the referee's jurisdiction is defined by clauses 8.4 (Schiehallion Contract) and 8.2 (Clair Contract).
This decision reflects the parties' initial agreement to refer the matter to a referee and avoids potentially unwarranted restrictions on the referee's decision-making process.