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HALLIBURTON COMPANY -v- CHUBB BERMUDA INSURANCE LTD: IMPLICATIONS FOR ARBITRAL BIAS, PART II

The unanimous judgement of the UK Supreme Court in Halliburton Company -v- Chubb Bermuda Insurance Ltd (2020) UKSC 48 has attracted overwhelming attention in international arbitration circles and far beyond, since its publication on 27th November 2020.

The case clarifies and consolidates the crucial feature of arbitrator fairness and impartiality in English law. It also shows the English courts’ willingness to intervene in cases where apparent arbitral bias has been suggested. It provides invaluable guidance to all those considering choosing London as their preferred forum for dispute resolution. But above all, it will reassure those who seek to rely on the high ethical standing for which London arbitration is known.   

Part I of this series assessed the background facts and the actions in the High Court and the Court of Appeal. Part II will now cover the Supreme Court proceedings that gave rise to the 27th November 2020 judgment.

Legal Issues

The issues to be decided by the Supreme Court were: (i) whether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias and (ii) whether and to what extent the arbitrator might accept such appointments without disclosure.

Duty of Impartiality and Fairness

The primary duty of impartiality and fairness is a core principle of arbitration law. It is not only good practice but also a duty in English statute law. Section 33 of the 1996 Arbitration Act provides:

“(1) The tribunal shall –

Act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, …..”

This duty exists for party-appointed arbitrators, for arbitrators jointly appointed by the parties and for arbitrators either appointed by arbitral institutions or by the court. They owe no allegiance to the parties appointing them.

To assess whether an arbitrator or arbitral tribunal act fairly or impartially, the objective test is whether the ‘fair-minded and informed’ observer would conclude there is a real possibility of bias “having regard to the particular characteristics of international arbitration, including the private nature of most arbitrations”.

Duty of Disclosure

The duty of disclosure of matters which might reasonably give rise to justifiable doubts as to his or her impartiality is not one of good practice only but also one of English law (Section 24 of the Arbitration Act 1996). It derives from the statutory duty of the arbitrator.

The legal duty of disclosure does not in principle override the arbitrator’s duty of confidentiality: “Where the information to be disclosed is subject to the arbitrators’s duty of privacy and confidentiality, disclosure can be made only if the parties to whom the obligations are owed give their consent”. If such consent is witheld by either of the parties to the first or the second arbitration, then the arbitrator will have to decline the second appointment. Referring specifically to the views expressed by the interveners, “such consent may be express or inferred from the arbitration agreement itself in the context of the custom and practice in the relevant fields of arbitration”.

The Supreme Court noted that in assessing whether an arbitrator had failed in this duty to make proper disclosure, the fair-minded and informed observer would have regard to the facts and circumstances as at and from the time the duty arose, “the question is to be considered prospectively”. By contrast, in assessing whether there was a real possibility that he was biased, the fair-minded and informed observer would have regard to the facts and circumstances known at the time of the hearing to remove the arbitrator. This would have been at the time of the High Court hearing in January 2017 when Halliburton’s lawyers had already received Mr. Rokison’s explanation and apology. 

Judgment

After a careful examination of the different practices in the interveners’ respective areas of arbitration and a through review of the preceding caselaw, the Supreme Court concluded that in the context of the Bermuda Form arbitration and examing the different practices the circumstances might reasonably give rise to a conclusion that there was a possibility of bias and that the arbitrator in this case was under a duty to disclose the appointments unless the parties had agreed otherwise. In this set of circumstances, Mr. Rokison had breached his duty of disclosure owed to Halliburton.

Yet, the Court dismissed Halliburton’s appeal. It held that “at the date of the Hearing to remove Mr. Rokison” the fair minded and informed observer would not conclude that circumstances existed that gave rise to justifiable doubts about Mr. Rokison’s impartiality. How did it arrive at this conclusion?

  • At the time of the Hearing in First Instance to remove Mr. Rokison, the law as regards the duty of disclosure had not been fully clear and decided, i.e. whether there existed a legal duty of disclosure and whether disclosure was needed.
  • There was a considerable time lapse between the Halliburton appointment and the two subsequent appointments.
  • Mr. Rokison’s response had been measured and temperate. He had offered to resign if the subsequent references were not settled.
  • He had not received any secret financial benefit as Halliburton had hinted at, and there was no basis for any unconscious ill will vis a vis Halliburton on his part.

The unanimous and highly pragmatic judgement was followed by a concurring judgement by Lady Arden, who added by way of practical advice that high-level disclosure about a proposed appointment in a further arbitration can be made without any breach of confidentiality by naming only the common party (who may be taken to have consented to disclosure) but not the other parties to the arbitration.

This case provides a salutary lesson for each prospective arbitrator to inform him or herself of his or her duty of well-timed disclosure prior to accepting an appointment. On the other hand, the certainty afforded by the Supreme Court judgment and the English courts’ evident and vigorous protectiveness of arbitration in the face of any ill-founded objections, should be a comfort to all users of London arbitration as a pre-eminent means of dispute resolution.

About the Author

Reina Maria van Pallandt is a senior disputes resolution lawyer with dual British and Dutch nationality. After obtaining an LLB Honors degree in Dutch Law and Public International Law at the University of Amsterdam (UvA), Reina Maria studied International Law of the Sea at London School of Economics (LSE). She was admitted as a Solicitor of the Senior Courts of England & Wales in 1979 and of the Law Society of Ireland in 2019. Reina Maria originally practised as a solicitor at Holman, Fenwick & Willan in London and Paris and thereafter at Clifford Chance where she specialised in marine and general commercial arbitration and litigation representing shipowners, P&I Clubs, shipbuilders, repair yards and charterers such as oil and gas companies and commodity traders.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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EVERYTHING YOU EVER WANTED TO KNOW ABOUT DAIRY PRODUCER ORGANISATIONS… BUT WERE AFRAID TO ASK

Having historically had very little influence or power with regards to the terms on which they sell their milk, dairy farmers may choose to come together as a Dairy Producer Organisation (DPO) to increase their bargaining position collectively. In this article Prospect Law’s Nina Winter provides a comprehensive introduction to the purpose a DPO typically serves, the activities it can cover, how a DPO is formed and how it typically interacts with its farmer members and milk processors, as well as how Brexit will affect DPOs.

What is a DPO?

It’s a group of dairy farmers who come together to jointly market their milk. They may have other objectives, too. They form a legal entity together (such as a limited company), and the group is then formally recognised by the government as a DPO.

What’s the point of a DPO?

First and foremost, the DPO is there to help improve the farmers’ bargaining position. There is now so much concentration at the milk processor level that, depending upon where farmers are based in the UK, they have often have very little – if any at all – bargaining power vis-à-vis the milk processor. By representing a bigger milk field, the DPO should have an improved bargaining position compared to the individual farmer members of the DPO.

But can’t dairy farmers do that anyway, without being part of a DPO?

Yes to an extent, but they have to be really careful about competition law. If a group of dairy farmers come together to jointly sell milk at the same price, they risk being seen by the competition law regulator as a price-fixing cartel. That’s serious – the farmers can be heavily fined or even risk criminal prosecutions, so they need to make sure they stay the right side of the legal line.

By contrast, DPOs can jointly market the milk – even at the same price across all farmers – and not fall foul of competition law, because DPOs are specifically authorised in law to do certain things.

What are the advantages of DPOs?

As well as hopefully improving the farmers’ bargaining position and giving the farmers some legal protection, the DPO also creates a formal structure allowing the farmers to co-operate with each other in as many ways as they want to. DPOs can be very flexible – farmers can choose the right legal vehicle to suit their objectives and then the DPO can work in the way that the farmers want it to. There are some legal parameters in terms of what the DPO can do, but inside those wide parameters, there’s a lot of flexibility and choice.

How are DPOs different from a co-operative?

In the UK, a co-operative is registered with the Financial Conduct Authority and it is regulated by the Co-operative and Community Benefit Societies Act 2014. The Act is prescriptive about the formation, registration and on-going governance of a co-operative. By contrast, the legal regime for DPOs is much less prescriptive and much more flexible. Put simply, farmers forming a DPO have a lot more flexibility than farmers forming a co-operative.

In addition, co-operatives in the dairy sector in the UK have traditionally undertaken milk processing on behalf of their farmer members. DPOs, being formed by milk producers, are far less likely to undertake processing.  If a DPO wanted to join with a milk processor, together they could form an Inter Branch Organisation (IBO). IBOs are for economic operators at different levels of the supply chain; producer organisations are for producers operating at the same level in the supply chain. 

How is a DPO formed?

Legally, a DPO must be formed on the initiative of the producers. It can’t, for example, be formed because a processor pushed for it. The producers agree one or more objectives for the DPO, and one of those objectives must come from the regulation; for example, the objectives of the DPO might be: placing the farmers’ milk on the market and concentration of supply (that’s one of the regulatory objectives); joint purchasing of inputs; and joint management of waste.

Once the farmers have agreed objectives, they need to form a legal entity and then apply for formal recognition of the DPO from the government. If the DPO meets the legal requirements for being a DPO, the government must by law recognise it, and this should be within 4 months of the application.

Once the DPO has been recognised, it is officially registered as a DPO and it can start doing its work.

What does a DPO do?

Whatever its farmer members want it to do, so long as it pursues one of the statutory objectives, stays within regulatory parameters and carries out its activities properly and effectively.

What could a DPO do?

There’s a huge amount of flexibility in terms of what the DPO could do for its farmer members. At the least integrated end of the spectrum, the DPO could simply negotiate the milk price and milk contract terms on behalf of its farmer members with a processor, and then the farmers would sign up to individual contracts on the terms that the DPO had negotiated.

At the most integrated end of the spectrum, the DPO could buy raw milk from its farmer members, have that milk contract-processed by a processor(s), then sell the processed milk on to customers, with the DPO (not the processor) having the supply relationship with the customer. The DPO could undertake marketing and R&D for its farmer members, buy inputs for them at large economies of scale, optimise production and transport costs, provide technical assistance to its farmer members, and help its members to achieve high environmental standards. The DPO could use futures markets to protect its members from volatility. 

The sky is the limit, and it really is up to the farmer members of the DPO to decide what they want the DPO to do. The key starting point is the rationale for the group of farmers coming together in the first place. Have they come together as producers all supplying the same processor? Or do they have a common production system?  Or are they in the same geographic location?  Or do they have the same vision for dairy farming of the future? Or do they have environmental objectives they want to achieve? Or do they have a brand idea that they want to develop together? Or do they simply want a better bargaining position and more stable prices for their milk?

Does the DPO have the right to terminate a farmer’s milk contract, or enter a new one on the farmer’s behalf?

Not unless the farmer members of the DPO want it to. The farmers might want the DPO to have the right, on their behalf, to terminate their milk contracts and move the milk across to another processor; this would certainly give the DPO a significant bargaining position with processors.  But equally the farmers might prefer that the DPO negotiates the terms and price, but they have individual milk contracts with the processor. If the DPO supplies more than one processor, then a farmer might be able to move his milk around between processors that the DPO supplies, benefitting from whatever price and terms the DPO negotiated with those processors. If the DPO supplies only one processor then the rules of the DPO will need to specify what happens when a farmer terminates his milk supply contract with that processor.

Does the DPO own the milk that its farmer members produce?

Again, only if the farmer members of the DPO want it to.

Does a farmer have to supply all of his milk to the DPO?

Not from a legal perspective; farmers can market some of their milk through the DPO and some elsewhere. Obviously if the farmers forming the DPO want to supply the DPO exclusively, they can make that a rule of the DPO. But farmers cannot be members of more than one DPO – that’s set out in the regulation. In addition, the milk going into the DPO must not be contracted to a co-operative.  Since co-operatives almost always require their farmer members to supply milk exclusively to the co-operative, that effectively means a farmer cannot be a member of a co-operative and a DPO.

Do all farmer members of the DPO get the same milk price?

That’s entirely up to the farmer members. They can all have the same price, or they can have different prices, as they choose.

Can a DPO sell to more than one buyer?

Yes.

How big can a DPO get?

Up until 31st December 2020, a DPO could cover up to 3.5% of EU milk production and up to 33% of milk production in a Member State. With Brexit now completed, a DPO is able to cover up to 33% of UK milk production.

Do DPOs have to be processor-orientated?

Not at all, and certainly a DPO cannot be formed on the initiative of a processor – it must by law be formed on the initiative of the milk producers.

What does “recognition” of a DPO mean?

It’s the process by which the government formally accepts the DPO as a DPO; once “recognised” by the government, the DPO can start work for its members. It’s really important to stress that recognition of DPOs is not done by processors – a common misconception. If the DPO is recognised by the government, it’s a DPO and that is that.

What if the processor won’t negotiate with the DPO?

There is nothing in law to compel a processor to negotiate with a DPO, and it wouldn’t be feasible to make it a legal requirement for processors to have to negotiate with DPOs. 

Certainly, if a DPO is formed with the sole objective of giving the processor a hard time, and it takes that approach from the outset, it’s highly unlikely that the processor will want to engage; after all, who wants to buy from a supplier whose key objective is to cause you difficulties?

Processors in the UK are likely to be somewhat sceptical about DPOs and the key for the DPO will be to offer the processor a compelling proposition.  What can the DPO offer to the processor, to encourage the processor to come to the table? Clearly a big milk field will help, especially at times when processors are recruiting. But what if the DPO offers a supply profile that meets the processor’s needs? What if the DPO manages the relationships with the farmer suppliers, so the processor only needs to have one negotiation – with the DPO. What if the DPO can offer the processor cost savings (e.g. by arranging transport of the milk to the processor’s facility)?

In addition, the likely forthcoming regulation of milk contracts by the government will mean that processors have to operate differently in any event; what a great opportunity for DPOs to enter the market and offer processors some compelling solutions at a time of challenge and transition.

What will happen to DPOs after Brexit?

Up to 31st December 2020, DPOs were regulated at EU level, whereas now domestic legislation has come into force and DPOs are recognised and regulated under that UK legislation. The provisions that have come into force are much the same as the EU provisions, but they have been tweaked to reflect the fact that they apply across the UK, rather than across the EU.

About the Author

Nina Winter is a Senior Solicitor with 16 years post-qualification experience in litigation and dispute resolution, with particular expertise in judicial review challenges to government and public body decisions and an established reputation as a legal expert in the agricultural industry. Nina read law at Oxford University before training and qualifying at Eversheds. In 2006 Nina joined the legal team of the National Farmers’ Union (NFU), the leading trade association representing farmers and growers in England and Wales. In 2009 Nina was appointed as the NFU’s Chief Legal Adviser, a position she held for 12 years before joining Prospect Law. Having worked as in-house counsel for 14 years, Nina is able to quickly identify the legal issues at stake and to work pragmatically and seamlessly as part of a team to achieve the client’s objective. Nina’s expertise in agriculture means she brings a comprehensive understanding of the issues facing agri-businesses to her legal work.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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DAIRY PRODUCER ORGANISATIONS – TO BE, OR NOT TO BE?

That is indeed the question. Shakespeare asks whether it is nobler to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles to end them. 

You might well ask the same questions about Dairy Producer Organisations (DPOs). The opportunity to form DPOs has been available to farmers since 2012 when the EU brought in the “dairy package” – a set of measures designed to help the industry during that crisis. But very few DPOs have been formed in the UK, although farmers in some other EU countries have taken the plunge. 

Frequently misunderstood and often maligned, I think the DPO in fact presents farmers with a great opportunity to work together to improve their bargaining position. I’ve heard some industry commentators say that farmers can’t – or won’t – collaborate, and that’s why DPOs haven’t taken off in the UK; but I just don’t believe that’s right. Look at what’s been achieved in wildlife control to prevent the spread of bovine TB; farmers have come together in areas all across England to deliver successful disease control in the most challenging of situations.

So if collaboration isn’t the issue, what is? Personally, I think it’s really a question of timing. Up until now, there’s been a limit to what a DPO can achieve because processors can ultimately impose unfair contract terms on farmers, however well the DPO negotiates on their behalf. But with the forthcoming potential regulation of dairy contracts, I think DPOs will come into their own. Contract regulation alone won’t solve all of the issues that dairy farmers face, just like DPOs on their own could not either. But together, contract regulation and the formation of DPOs give a real possibility of reform. Contract regulation will prevent processors from imposing unfair terms, and DPOs will give farmers an improved bargaining position.

In 2018 when I was at the NFU I went out to Madrid to find out more about dairy contract regulation in Spain. It was clear from everyone – farmers, processors and the government – that contract regulation was in their view only one part of the puzzle. DPOs – and, interestingly, IBOs (processors and farmers together) – were the other critical element that was needed to put the industry on a better footing.

So, as contract regulation looms large on the horizon, the time has come for farmers to stop suffering the slings and arrows of outrageous fortune and to start using the tools they have available – including DPOs – to end the sea of troubles.

Find out more about DPOs in my follow-up article: Everything you ever wanted to know about Dairy Producer Organisations…. but were afraid to ask.

About the Author

Nina Winter is a Senior Solicitor with 16 years post-qualification experience in litigation and dispute resolution, with particular expertise in judicial review challenges to government and public body decisions and an established reputation as a legal expert in the agricultural industry. Nina read law at Oxford University before training and qualifying at Eversheds. In 2006 Nina joined the legal team of the National Farmers’ Union (NFU), the leading trade association representing farmers and growers in England and Wales. In 2009 Nina was appointed as the NFU’s Chief Legal Adviser, a position she held for 12 years before joining Prospect Law. Having worked as in-house counsel for 14 years, Nina is able to quickly identify the legal issues at stake and to work pragmatically and seamlessly as part of a team to achieve the client’s objective. Nina’s expertise in agriculture means she brings a comprehensive understanding of the issues facing agri-businesses to her legal work.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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HALLIBURTON COMPANY -v- CHUBB BERMUDA INSURANCE LTD: IMPLICATIONS FOR ARBITRAL BIAS, PART I

The unanimous judgement of the UK Supreme Court in Halliburton Company -v- Chubb Bermuda Insurance Ltd (2020) UKSC 48 has attracted overwhelming attention in international arbitration circles and far beyond, since its publication on 27th November 2020.

The case clarifies and consolidates the crucial feature of arbitrator fairness and impartiality in English law. It also shows the English courts’ willingness to intervene in cases where apparent arbitral bias has been suggested. It provides invaluable guidance to all those considering choosing London as their preferred forum for dispute resolution. But above all, it will reassure those who seek to rely on the high ethical standing for which London arbitration is known.   

Part I of this series assesses the background facts and the actions in the High Court and the Court of Appeal. Part II will cover the Supreme Court proceedings that gave rise to the 27th November 2020 judgment.

Judgments

In the lead judgement, Lord Justice Hodge has stated that “there appears to have been a lack of clarity in English case law as to whether there was a legal duty of disclosure and whether disclosure was needed”.  In an extensive analysis of the facts and the law, Lord Hodge considered the circumstances in which an arbitrator in an international arbitration may appear to be biased, concluding that there was a legal obligation on arbitrators to disclose circumstances giving rise to justifiable doubts about their impartiality. He tempered that conclusion nevertheless by accepting that the factual matrix in individual cases might moderate the obligation.

The Factual Background

The factual background to this case contains a cautionary tale for every arbitrator considering accepting appointments in multiple references concerning the same or overlapping subject matter with only one common party, without thereby giving rise to an appearance of bias.  

In April 2010 the semi-submersible rig ‘Deepwater Horizon’, drilling in the Gulf of Mexico, suffered a blow out, caught fire, exploded and sank. Her Owners, ‘Transocean Holdings LLC’ (‘Transocean’), had provided crew and drilling teams to the rig’s lessees, ‘BP Exploration and Production Inc’ (‘BP’), whilst the oilfield services company, ‘Halliburton Company’ (‘Halliburton’), had supplied BP with cementing and well-monitoring services.

The calamity gave rise to many claims in respect of loss of life, injury, coastal damage and pollution against all three parties. In the US court proceedings which ensued, the US Federal Judge for the Eastern District of Louisiana apportioned 67 % blame for the disaster to BP, 30 % to Transocean and 3 % to Halliburton.

Refusal of Claims by Chubb

Halliburton settled the claims against it and then claimed under its Bermuda Form liability policy against its insurers, Chubb Bermuda Insurance Ltd (‘Chubb’).

Chubb declined cover on the basis that the settlement reached was not reasonable. Transocean, also insured with Chubb against similar losses, were equally refused cover.

The Bermuda Form policies provided for a New York law clause with London arbitration, conducted by two arbitrators and a third arbitrator as chairman.

Commencement of Arbitration proceedings against Chubb

In January 2015 Halliburton, having been refused cover under the Bermuda Form policy, commenced arbitration proceedings against Chubb. Both parties appointed their own arbitrator but were not able to agree on the third arbitrator. Mr.K. Rokison QC, a renowned arbitrator of international standing, was proposed by Chubb but Halliburton’s lawyers argued that the Bermuda Form liability policy provided for New York law and that Mr. Rokison was an English law specialist.

Appointments of Mr. Rokison

In June 2015 the parties went to the High Court in London for a determination of the issue. After a contested hearing Mr.Rokison was duly appointed by Court Order to chair the Tribunal. Halliburton did not object to that Order. Before this appointment Mr. Rokison disclosed that he had been and was still acting in a number of arbitrations involving Chubb.

In December 2015, Mr. Rokison accepted the appointment as arbitrator on behalf of Chubb relating to Transocean’s claim against Chubb under its liability cover.

In August 2016, Mr. Rokison was  appointed by Transocean jointly with others in a reference between Transocean against another insurer relating also to its liability cover.

Mr Rokison disclosed neither appointment to Halliburton.

In November 2016, Halliburton found out about these two subsequent appointments. Ample correspondence between Mr. Rokison and Halliburton ensued. Mr. Rokison explained that his non-disclosure was due to an oversight and apologised but argued that he had not learned anything in the two later arbitrations which was not in the public domain, adding that he would tender his resignation, conditional upon the consent of Chubb, in those arbitrations if they would not through preliminary determinations on construction which were to follow shortly, come to be concluded in any event.

Furthermore, Mr. Rokison offered to resign from the Halliburton arbitration if the parties,  could agree, this time around, on a mutually acceptable chairman before the main hearing of the arbitration fixed for January 2017.

High Court Proceedings

In December 2016, Halliburton nevertheless applied to the High Court seeking the removal of Mr. Rokison and the appointment of a substitute chairman. Halliburton prayed in aid Section 24 (1) (a) of the Arbitration Act 1996 which provides for the:

Power of the court to remove arbitrator.

(I)A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on any of the following grounds –

(a) that circumstances exist that give rise to justifiable doubts as to his impartiality……,

In February 2017, the High Court dismissed Halliburton’s application on the grounds that the mere fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not itself give rise to an appearance of bias and that in the underlying case (1) the circumstances did not give rise to any ‘justifiable’ doubts about Mr. Rokison’s impartiality and (2) there was accordingly no need for disclosure. Halliburton appealed to the Court of Appeal.

Court of Appeal

In April 2018, the Court of Appeal refined but did not disagree with the High Court’s judgement, drawing extensively on a number of Court of Appeal and Privy Council cases stating that the approach it was taking applied to arbitral tribunals for the same reasons as had been given in the judicial authorities it had referred to.

The Court of Appeal summarised the position under English law to be “that disclosure ought to be given of facts or circumstances which would or might lead the ‘fair minded and informed observer’, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased.” The ‘fair-minded and informed observer’ description and definition were in fact taken from 2000, 2001 and 2008 House of Lords cases. Citing also an earlier Court of Appeal judgement it concluded that for apparent bias to be established “something more is required” and  “that must be something of substance”. The Court in its reasoning also referred to the practice of a number of foremost arbitration institutions such as the ICC and the LCIA as well as the IBA Guidelines.

The Court of Appeal dismissed Halliburton’s appeal, ruling that as a matter of law and good practice disclosure ought to have been made at the time of the last two appointments, but that non-disclosure in itself did not justify a finding of apparent bias on the part of Mr. Rokison since such was not proven by the evidence before it.  And in so far as the “arbitrator’s duty of confidentiality” was concerned, “the duty of disclosure must be regarded as being an exception to that duty”.

The Supreme Court

Halliburton renewed its challenge before the Supreme Court.

The case was heard on 12th and 13th November 2019. Judgement was given on 27th November 2020. The Supreme Court allowed five prominent arbitral insitutions as interveners to make representations about the practices in their domain of arbitration: ICC, LCIA, CIArb.,LMAA and GAFTA.

Part II

Part II of this series will address Halburton’s pleaded case in the Supreme Court, the issues on which the Supreme Court had to decide and the Judgment it arrived at. There will be coverage of the duty of impartiality and fairness and how this may be assessed, as well as analysis of the disclosure and confidentiality duties that apply to Arbitrators.

About the Author

Reina Maria van Pallandt is a senior disputes resolution lawyer with dual British and Dutch nationality. After obtaining an LLB Honors degree in Dutch Law and Public International Law at the University of Amsterdam (UvA), Reina Maria studied International Law of the Sea at London School of Economics (LSE). She was admitted as a Solicitor of the Senior Courts of England & Wales in 1979 and of the Law Society of Ireland in 2019. Reina Maria originally practised as a solicitor at Holman, Fenwick & Willan in London and Paris and thereafter at Clifford Chance where she specialised in marine and general commercial arbitration and litigation representing shipowners, P&I Clubs, shipbuilders, repair yards and charterers such as oil and gas companies and commodity traders.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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NEC – TAKING SIDES – A LOOK AT THE NEED FOR PROJECT MANAGER IMPARTIALITY

This is the third in a series of articles on the NEC standard form of contract, this time dealing with the requirement for Project Manager impartiality.

The NEC standard form stipulates that the main contributors to the Project shall behave in a particular manner.  This is contained within Clause 10.1, which states:

“The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this contract and in a spirit of mutual trust and co-operation.”

The Project Manager administers the contract as a manager, gives instructions, assesses and implements Compensation Events and approves the Contractor’s submitted Programme.  The Employer will clearly expect his interests to be protected through this process.  The Project Manager is appointed by the Employer and in some cases may also be a direct employee of the Employer’s organisation.  This can clearly lead to the Project Manager feeling they sit squarely in the Employer’s camp and presents the risk of the contract being administered in the interests of the Employer, whilst at the same time to the detriment of the Contractor, especially in cases where the Project Manager feels pressure to comply with the wishes of his/her paymaster.  The question in such cases, should the Project Manager exhibit bias, is whether he/she is fulfilling their obligations under the contract and at law.  The simple answer is a resounding no.

The issue was already clarified for JCT forms of contract in Sutcliffe v Thackrah [1974] AC 727, where the court stated that the Architect had two strictly separate functions, one under which they are bound to act upon their client’s instructions and one under which they must act upon their own opinion, the latter being under their role as Contract Administrator.  The NEC standard form had, however, been sold to a large degree on the fact that the Project Manager was acting solely in the interests of the Employer and it took many years for the court to expressly clarify that this was not the case.

Clarification came in the decision handed down by Mr Justice Jackson in Costain Ltd v Bechtel Ltd [2005] EWHC 1018. The decision in this case was that the principles regarding impartiality in acting as a contract administrator brought out in Sutcliffe v Thackrah were just as relevant under NEC as they were under JCT.

Arguments were put forward by counsel in this case that as any dispute between the Parties could be referred to adjudication, then the adjudicator would redress the balance through his/her impartiality, suggesting there was no requirement for a Project Manager to be unbiased.  This was not accepted by Mr Justice Jackson, who stated that there were many instances within the NEC standard form where the Project Manager was required to exercise their own independent judgement and as such there was no reason why the use of such discretion should exclude the principles brought out in Sutcliffe v Thackrah.

And so at last clarity.  In administering an NEC standard form the Project Manager is under an obligation to administer on behalf of the Employer but in the interests of both the Employer and the Contractor, equally and fairly.  Clause 10.1 confers an obligation on the Parties to work together and effectively upon the Employer not to interfere with the Project Manager’s duty of impartiality in administering the contract.  It may however still be difficult for some Project Managers to separate the two clear functions and refuse to comply with certain express wishes of the Employer.  Any Employer and/or Project Manager working within a framework where there is a real danger of bias being evident should not take this lightly.  Should bias be proven there is a real risk that all previous decisions of the Project Manager could be challenged, resulting in the Project Manager’s position being no longer tenable and potentially throwing a project into chaos.  The moral of this tale is that sometimes “sitting on the fence” is not such a bad place to be.

About the Author

John Blackshaw is a dual qualified specialist construction law lawyer who worked as a commercial manager, project/programme manager and contracts manager before qualifying as a solicitor. John has worked internationally for in excess of 25 years in North America, South America, and in Western, Central and Eastern Europe on a wide range of projects across the energy, nuclear, roads, rail, marine, infrastructure, automotive, industrial, residential and commercial sectors, both with Employers, and with Tier 1/Tier 2 Contractors as well as in-house.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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COSTS TO BUSINESSES & HOUSEHOLDS OF NEW FUNDING ARRANGEMENTS AT HINKLEY POINT: PART II

Various cost scenarios can be run, based on projected compounding rates of inflation and forward base-load electricity prices. However, here a snapshot of the ‘net present cost’ in 1st April 2020 ‘money of the day’ can be calculated simply, if just to give the reader ‘a feel’ of the cost of the arrangements. The calculation is based only on publicly available information. Referencing data freely available online, offered by the Office of National Statistics, the Bank of England and the 451 page contract itself, posted up on the UK Government website here

Some important, certainly wished-for information seems to be missing, unclear or redacted. So the calculation below may not give a completely reliable picture just yet. Although they will hopefully give the reader a good idea of the figures UK consumers could be looking at.  

Let’s consider a successfully-completed project; a twin 1,600 Mega Watt reactor power station which generates electricity at a rate of 3,200 MW over 35 years, 24 x 365 x 35 hours in total, operating on average 91% of the time (the load factor depicted in the CfD contract). The developers, CGN & EDF finally secured a strike price of £89.50/MWh though the prevailing strike price is guaranteed to have rise with CPI, escalating every six months, backdated to October 2012 and compounding thereafter ’til the natural termination of the Contract in 2059/60. In this case, consumers effectively pay to CGN and EDF the difference is between the prevailing strike price (£89.50/MWh in 2012 money) and the wholesale market price for base-load electricity. But since October 2012, the operative strike price has already risen, quite significantly. As of 1st April 2020, it is already calculated to have climbed past £121.50/MWh.  With the contract due to run ’til 2060 and compounding inflation in the interim, the accent Hinkley’s strike price looks set to climb looks a steep one, under all scenarios in fact.  

Base-load prices went on to fall further but even on 1st April this year Forward Season Contract was already languishing at £32.00/MWh on the O.T.C. market. It is important to note that base-load electricity is still being downgraded, regarding by some in trading circles as a ‘residual’ or ‘nuisance’ commodity’ to trade relative to ‘peak-load’ and prized ‘shape’ volumes so the gap between strike and base-load prices may also widen for this reason alone and base-load prices could continue to stagnate and fall in value relative to inflation, whatever the fiscal or monetary environment. Indeed, the gap between the operative HPC strike price and market price is already quite substantial and it could widen in the years ahead, especially if inflationary conditions change at points over the four decades ahead of us. Consequently, the estimated figure calculated, in today’s money (or 1st April, 2020), should be treated with caution, conservative as they are. However, below is one estimate of the direct cost element of Hinkley’s funding arrangements, based just on the CfD contract.  

Scenario calculations are more precise. But to illustrate simply, the cost to UK consumers in subsidising this one power station through the CfD surcharge added to electricity bills can be estimated as:     

(£121.50/MWh – £32.00/MWh) x 3,200 MW x 24 x 365 x 35 x 0.91 (load factor) = £ 79,907,318,400

This estimate is in ‘today’s money’ or start of current tax year 6th April, 2020. By the time the power station comes on-line, likely in 2025, the estimate could be markedly higher; the strike price escalating a further twelve of thirteen times in the interim.

The estimate considers direct funding i.e. through the CFD alone. It excludes any separate taxpayers’ contribution or liability by way of construction costs (circa £25 billion), project default risk, waste disposal and clean-up or plant decommissioning.

Given the further escalation and separate costs questions above, the estimated cost is likely to be a conservative figure. One scenario being modelled just now (a High Case but perfectly plausible) envisages a significant further loosing of fiscal policy and, in particular, monetary policy by central banks in response to the current pandemic, leading to higher inflation which an become difficult to control above 3.5% . Higher CPI rates feed directly into the strike price, pushing the final cost of Hinkley’s price support towards £115 billion by the time the power station is fully online during 2026.    

To the outside world, this order of subsidy might seem a high price to pay for any new power station, barely supplying 5% of national electricity demand on an average basis in this case and inflexible base-load power at that, which will not address the principal security of supply challenge ahead, i.e. to offer both reliable & flexible volumes to manage peaks and troughs in wind, solar and other renewable generation.

The paper does not in any way profess to be ‘the final word on the matter’. Base-load or not,  there is no doubt that the UK needs significant new ‘low carbon’ electricity anyway to replace retiring nuclear power stations. However, given the sheer scale of cost involved in supporting this nuclear and others planned soon, it is vital to keep the debate open.

Certain other contract considerations (e.g. a limited degree of possible profit-sharing or cost-sharing with the developers) may need to be considered too and incorporated in the cost estimates predicted. They will still remain high however. Nit all these details are clear or available from the information available to date but this paper should still give the reader an impression of the cost to expect and the impact on finances or electricity bills. As things stand, it does look like ‘the balance’ in terms of market and inflationary risk has been left firmly with the consumer, who will subsidise this and potentially other EPR1 projects to  2060 or beyond in the case of any second such power station.

It would be fair of the consumer to ask why so high degree of inflation (a 100% quotient in this instance) was used for the contract price indexation formula, rather than a typical varied basket of commodity indices, as is normal for any term exceeding 10 or 15 years, 35 in this case. Generally, the negotiators on the seller’s side push for as high an element of inflation as possible and the negotiators on the buyer’s side seek to keep it to a minimum, who would seek to include indices that are directly related to the commodity they are buying as well as the product they go on to produce with this feedstock. Equally, the unusual was the agreement to allow such indexation to CPI to escalate upwards twice each  year, rather each year which more usual; especially given  such a long period; potentially 48 years in this case over 2012 to 2060 so 96 upwards-only and compounding re-adjustments to the strike price.

Equally to ask why, in the case of the near identical EPR1 project at Olkiluoto  which started construction before Hinkley Point C, was able to proceed although without the same concessions made by the Finnish taxpayer or consumers in terms of their expected scale.

Such questions are important given discussions taking place now with the same developers in respect of a second such power station destined for Sizewell, albeit based on an alternative Return on Asset Base (RAB) model. Although very little information is still available and the actual details are unclear at the moment. In conjunction, such talks will include discussions over a third new-build plant, a ‘first of its kind’ thorium nuclear reactor of Chinese design which CGN wants to take a lead in building at EDF’s Bradwell facility in Essex.

About the Author

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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COSTS TO BUSINESSES & HOUSEHOLDS OF NEW FUNDING ARRANGEMENTS AT HINKLEY POINT: PART I

Hinkley Point C (HPC) is a nuclear power station based on the French European Pressurised Reactor design, code-named the EPR1. The project involves the commissioning of twin 1,600 MW reactors which will ultimately deliver a final output of 3,200 MW (3.2 GW).

The plant is being constructed in Somerset by developers, CGN (China General Nuclear Corporation) and EDF. The plant could meet up to 6% of the UK’s electricity needs. However, it should be pointed out that this output is predominantly inflexible base-load which cannot be used to balance swings in demand or to off-set changes in renewable generation. Nonetheless, with seven of the UK’s eight remaining reactors due for retirement soon, base-load as well as peak-load generation will be required, especially where it is ‘low carbon’.

Background

HPC’s building programme has been dogged by delays. Although similar delays have been reported at the two other sites where EPR1 reactors are being built, at Olkiluoto in Finland and at Flamaville in France, both of them started construction before Hinkley and each should have been working by now. Such have been the delays and the extent of cost over-runs at EDF’s Flamaville plant in Normandy that France’s own National Assembly voted this year to block any new projects, in France, based on the EPR1 design. Possibly awaiting an alternative design (code-named the EPR2) which the same French manufacturer, Areva, is understood to be working on; of modular construction and mooted to offer enhanced construction reliability and reduced costs.

The UK meanwhile is believed to be advancing its discussions with EDF and CGN over final consent and government support for a second new-build nuclear power station project, this one at EDF’s Sizewell plant, based on the same EPR1 still under construction at Hinkley.

Subsidy Arrangements

The Hinkley Point C project will include the developers being paid a guaranteed strike price, giving rise to a surcharge added to consumer bills. This is revised every six months but in upwards-only movements, as will be discussed shortly. This direct funding part of the government support is based on the Contract for Differences (CfD). This provides for a surcharge to be added to consumer bills under the 35 year term agreement, payable from the time that the plant starts to produce electricity, a date now expected to near the end of 2025. However, the strike price itself (£89.50/MWh in 2012 prices) is calculable from the date of the original signing of the heads of terms. In other words, the strike price against which the subsidy is calculated (vs. the wholesale market price for base-load) has already started rising, backdated to October 2012, and will continue rising forthwith every six months.

Unusually it was agreed that the operative strike price be linked exclusively to inflation or the consumer price index (CPI). Equally unusually, it was also agreed for the indexation to be bi-annual rather than yearly. Consequently, if HPC were to start generating in 2025/2026 as now expected and it fulfils its 35 year contract term at or around 2060, the strike price will have increased with inflation over 95 times, in upwards-only price revisions, carrying forward and compounding spikes in or periods of inflation along the way.  

CfD – Possible cost to consumers

This article will not detail the various scenarios being modelled and refined just now. However, it will offer the reader a simple estimate, a ‘present value calculation’ if you like, of the expected minimum cost to the UK consumers, or the direct subsidy element of the  Contract for Difference contract which was originally negotiated and, after a rethink, was finally signed off in 2016.

The cost estimate given below is based on a provision calculation only. The figure is also based on a comparatively limited and a ‘historically low’ period of inflation. The final value of the CfD to the developers will remain sensitive to the CPI index, before HPC comes online as well as thereafter.  Just now, our compound inflation model and calculations currently estimate that the extra cost to bills by way of the CfD will be £80 billion, in today’s money.

The initial estimate given looks at direct UK funding only. It does not consider indirect nor unquantifiable costs, such as loan guarantees backed by the Treasury or potential other ‘de facto’ contributions by the taxpayer towards the construction costs or insurance, nuclear waste disposal and final decommissioning of the nuclear power station itself.

Secondary Costs

Of course, the estimate is of the cost of CfD subsidy only. It excludes the actual cost of the electricity generated which will be traded on and repurchased off the wholesale market in the usual way. If we wish to include the ‘final cost’ of the electricity volume and add that to the cost of the price support then the ‘all in’ cost of the project rises to £109 billion. In fact, this second estimate is easier still to calculate accurately because constantly-changing electricity market prices are now absent from the calculation. This ‘all in’ calculation is then a simple case of multiplying the inflation-adjusted strike price (in £/MWh) by the output (3,200 MW) of the power station and by total running time (in hours) of the 35 year contract, adjusted for load factor to be conservative.   

The CfD surcharge is an item that is already present in business and household electricity bills today, providing support for renewable projects generally. However, this quotient will be a ‘step jump’ once HPC and possibly other nuclear plants start up in the years ahead.   

Negotiations with the developers had been temporarily suspended whilst the project was reassessed in 2016 and the agreement was re-negotiated amid industry and also public concern about the perceived ‘overly generous’ terms afforded to the developers. However, the project was finally signed off. Most changes made to the contract were in fact only peripheral and other still not totally clear now.

Following the renegotiation, the strike price was reduced, from £92.50/MWh (at the 2012 base date) to £89.50/MWh. However, it was agreed that the base date (to which the strike price is indexed) will remain the same, in spite of delays and much firmer power market, so operative strike prices will still be backdated to the 4th quarter of 2012, rendering the headline reduction in strike price quite superficial in mathematical terms. More to the point, the bi-annual indexation to CPI provision also emerged from the discussions unscathed before the final contract was signed off.

Part II of this article will put forward a costs scenario analysing the possible costs of the arrangements set out above.

About the Author

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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WHOLESALE ENERGY PRICES: OIL, NATURAL GAS AND ELECTRICITY AS AT OCTOBER 2020

Oil

Oil markets rebounded. Brent prices rose over 20% at one point although the spot contract gave up some of its gains recently as worries over the 2nd wave pandemic weighed on the market. In the background, geo-political and upstream investment concerns over Middle Eastern supply remain. There is no end in sight for the shut-in of Iranian exports and there is rising concern over the export capacity of Iraq, Libya and Angola, where mounting political tensions and worsening infighting have thwarted efforts to reinforce war-damaged and aging infrastructure across the supply chain, from well-head production, pipeline transport, storage and offshore loading facilities. The sharp reduction in global demand this year has led to unprecedented oil inventories at or near full capacity, with a glut of crude cargoes still looking for a home. However, oil supply in non-OPEC regions has been curtailed and demand generally could see a rebound in years ahead, much of it within the region itself. Simply to illustrate, Egypt recorded a population eclipsing 100 million this year, just one example of rapid population growth across the North African and Middle Eastern region, which are on a steep oil demand trajectory. Should global demand pick up, the crude market may turn out to be tighter than the current headlines or short-term prices suggest.  

Natural Gas

Gas markets across Northern Europe recovered strongly up 28% over the period, in spite of the market going into winter with storage facilities across the Continent 85% full or higher still in some cases. Prices were said to have climbed amid agreed US-EU sanctions against Russia, which would threaten to delay or possibly block the completion of the huge Nord Stream 2 pipeline to Germany. However, with just 350 km to be finished, it is doubtful if this latest spat with Russia will finally affect the supply outlook for long. Gas prices traded at the National Balancing Point (NBP) may also be affected by any further weakening of Sterling versus the Euro. UK gas prices, traded in pence per therm, are strongly influenced by the arbitrage play between the NBP and Dutch TTF (Title Transfer Facility), which is the principal hub for the North European gas corridor and which is used to clear traded volumes in €/MWh. There are many factors in the mix. However were Sterling to fall to parity with the Euro, say, this would certainly feed through to the wholesale market and immediately to commercial prices here in the UK.

It is possible that the summer months may have been used to re-evaluate need for a new wave of gas-fired power stations, to counteract the impact of more intermittent renewable generation in the years ahead. We are already seeing evidence of this on the Continent with new coal/lignite-fired as well gas-fired generation projects being sanctioned to meet the expected demand for peak-demand electricity. Looking at just the few months ahead, wholesale gas prices will be most sensitive to demand (pandemic, general economy and weather-related – equally unpredictable); Sterling currency movements; background oil & gas prices and available supply from major North Sea, Russian and global LNG producers, among many other factors.

Electricity

Base-load power prices climbed by a fifth; almost in tandem with energy markets generally. However the increase was muted, cut back in its tracks amid renewed uncertainty over the economy and electricity demand itself, which has fallen substantially across the UK and the Continent this year.   

Supporting very long-term prices perhaps was the confirmed shut-down of the Advanced Gas-cooled Reactor at Hunterston B in Scotland, with other AGR closures now expected to happen sooner as a result. All of the UK’s currently operating nuclear power stations bar one employ the same AGR design and will have the same safe-operating design life; and most were built at around the same time during the 1980s. It is quite plausible a scenario for the UK to have just two nuclear power stations, at Sellafield and Hinkley Point, operating by 2029. It is not just an issue here but a concern on the Continent as well, typified again with one dominant design in a nuclear fleet which is older still, with many such plants having begun to be constructed in the wake of the Oil Crisis of 1974.

The medium-term supply outlook for electricity is stable and the market looks well-supplied for the time being, although a growing array of factors is at play which could influence base-load prices either way. Further, the Forward Market for electricity remains illiquid. This makes it difficult (and expensive, due to the high risk premiums resulting) for I&C buyers to lock into a forward contract price beyond a year or so. Prices along the forward curve are lacking in transparency and are also prone to sharp fluctuation. Equally, the intra-day Elexon and day-ahead/N2EX balancing markets have been exceptionally volatile of late, a trend that looks set to continue into the future as more renewable generation gradually comes online, requiring ever more urgent balancing actions by the system operator (National Grid) using its appointed market operator Elexon to requisition power from spinning reserve power stations and electric storage, all of which will come at a cost which will feed to consumers.  

Consequently, more commercial users could be looking to install on-site generation and energy storage in future: to mitigate increasing brownout/supply-disruption risks, reduce net power purchases and buy the residual electricity on more favourable price terms than otherwise. This together with improved energy conservation, demand management and purchasing strategy will each have a role to play in mitigating rising non-commodity costs which already make up circa 65% of a typical business electricity bill. Such pass-through charges, the Climate Change Levy in particular, will continue rising, possibly on a much sharper trend, in order to support the new nuclear power station at Hinkley Point and future low-carbon projects.

About the Author

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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COVID-19 AND EMPLOYMENT LAW: HELPING GET EMPLOYEES BACK TO WORK AND BACK TO BUSINESS

This article is written further to the webinar Employment Law webinar that we hosted on Wednesday 30th September.

There has never been a more important time for employers to re-assess the employment relationship. Furlough leave is coming to an end and the new Job Support Scheme is already causing worry. Many employees are returning to newly negotiated terms and conditions and many businesses are facing complete overhaul in light of the impact the pandemic has had and are exploring redundancies.

Employers do not generally want to make redundancies but a correct and fair process can help achieve the best, most useful results. The important thing is to start with a clear assessment of what the business needs. It might be that employees can go part time, however it will need to be considered whether the Job Support Scheme makes this more expensive than cutting down the workforce.

Businesses worry about losing key staff and not being able to guarantee them a return but the redundancy process can actually be helpful in this regard, as many businesses find things are changing on a weekly basis and other alternatives to redundancy arising throughout the consultation process.

The employment relationship is all about being reasonable. Communication with staff and documenting everything is paramount. Most employees treated with empathy will be on your side, and, of course, the relationship is mutual.  Employees need to understand the reasons for the changes, which is where clear and concise communication helps.

Naturally the process of change can be trying when employees refuse to engage, or, for example, an employee on maternity leave cries discrimination when she has been selected fairly.

However, as long as businesses have genuine business needs and fulfil the statutory definition of redundancy, that work is diminishing or disappearing in that particular area, it will be difficult for anyone to mount a challenge, maternity leave or not.

Getting back on track can of course present difficulties. What of the problem employees who refuse to come back, the one who flouts your new social distancing guidelines or do not self isolate when they are supposed to, potentially putting others at risk? In these cases, businesses must be robust and prepared to make it clear that such actions merit possible disciplinary sanctions, including dismissal. Suspension on full pay is also an option whilst you investigate and decide what to do.

There is no doubt these times of adjustment will be difficult for businesses re-grouping, cutting down or changing around their workforces but as far as the logistics go, get the right team around you and there will be no situation that cannot be sorted out on a legally sound basis.

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

Philippa Wood is a solicitor with many years’ experience advising on all areas of contentious and non-contentious employment law. Her clients include individuals and companies of all sizes from entrepreneurs to global brands. Philippa qualified as a solicitor in 2005 after working for 13 years in the media, most notably being part of the start-up team for two national cable television stations in the 1980s and 90s. 

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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PROSPECT LAW TO JOIN WITH K&L GATES FOR NUCLEAR FUSION WEBINAR ON 1ST OCTOBER

We are pleased to announce that we will be joining with US law firm K&L Gates in a webinar addressing how Governments are approaching risk and regulation when it comes to the commercial production of energy from nuclear fusion (as distinct from nuclear fission).

For nearly 100 years, scientists and engineers, as well as science fiction authors and fans, have dreamt of harnessing fusion reactions to power our economy. Despite daunting technical challenges, fusion energy may become a technically viable and economic energy source in the coming years, as an attractive carbon-free baseload alternative to conventional energy sources.

As the energy sector progresses towards commercial fusion, governmental regulators around the world are considering how they should treat fusion facilities. Two of the most active jurisdictions for commercial fusion development are the United States and the United Kingdom. Along with Fire Energy and Prospect Law, K&L Gates’ fusion energy team will provide an update on the regulatory approaches to fusion that the US and UK are taking, the prospects for differentiating regulations for future fusion facilities from those applicable to existing fission-powered nuclear plants and next steps in developing regulatory certainty for the emerging fusion power sectors in these nations, as well as  a section on risk and the management of risk through insurance.

Panellists:

The Webinar will be hosted on Thursday 1st October at 5pm BST.

If you are interested in attending, please click here to register or contact Adam Mikula on adm@prospectlaw.co.uk if you have any questions or problems.