The OGA and arbitration under the Model Clauses

United KingdomScotland

Two significant issues for oil & gas industry licensees as regards challenging decisions or actions by their regulator, the Oil & Gas Authority (the “OGA”), arose recently in AT, DV, SD, HG v Oil & Gas Authority [2021] EWHC 1470 (Comm):

  • whether a dispute in respect of a proposed course of action by the OGA falls within the scope of the Arbitration Agreement contained in the Model Clauses – so that court remedies under the Arbitration Act 1996 are available, including urgent orders such as injunction before arbitration proceedings have been commenced; and
  • the balance that needs to be struck between the OGA’s exercise of its decision making powers and the significant harm this might cause where the result is disclosure of commercially sensitive or confidential information.

The Facts of the Case

As is commonly the case for an application made in terms of the Arbitration Act 1996, the published judgment does not identify the parties bringing the claim. It has also been heavily redacted by agreement between the parties and with the approval of the Court, presumably to avoid disclosing any aspect of the commercially sensitive information that the Claimants sought to protect. That includes the identity of the licence(s) in question, the nature of the OGA’s apparent concerns or the Notice it proposed to serve, the parties with whom the OGA proposed to communicate, or the reasons for the OGA’s intended approach. The full factual context is therefore difficult to discern, but the Court’s considerations in reaching its decision are otherwise set out in full.

From the decision, it is apparent that:

  • the OGA proposed to serve a Notice on the Claimants in respect of concerns held by the OGA – paragraphs 2, 3 and 4 of the Notice are described in the judgment as “material” for the purposes of the Court’s consideration, and are set out in the redacted judgment in the following terms:

“2. The OGA considers it appropriate, before serving the notice, to give you the opportunity to make any representations that you wish on the content, and/or propose any commitments or other mitigations that may address the OGA’s concerns, as expressed herein.

3. Any such representations and/or proposals and the like shall be sent to the OGA by [date redacted by agreement between the parties]

4. For the avoidance of doubt, the OGA is under no legal obligation to provide you with an opportunity to make representations on whether the OGA should (a) serve such a notice or (b) send a copy of this [Notice] to [redacted by agreement between the parties] but considers that it is appropriate to do so in this particular case…”

  • before serving the Notice, the OGA delivered the Notice to the Claimants under covering correspondence which appears to have invited representation on how they may address the OGA’s concerns: “The OGA considers it appropriate to give you the opportunity to make any representations that you wish, and/or to propose any commitments or other mitigations that may address the OGA’s concerns. For the avoidance of doubt, the OGA does not consider that it is under any legal duty to do this, but considers it appropriate to do so in this case. Any such representations and/or proposals should be sent to the OGA by [date redacted by agreement between the parties]”
  • once the deadline contained in the covering correspondence had passed, the OGA intended to circulate the Notice (or a redacted version of it) to third parties.

The Arbitration Agreement

The Arbitration Agreement on which the Claimants relied is contained in the Model Clauses that apply to a Licence granted in accordance with the Petroleum Act 1998 (or its predecessor legislation), by virtue of the Petroleum Production Regulations 1966 or the Petroleum Licensing (Production)(Seaward Areas) Regulations 2008. The parties agreed that the Court should determine the application on the basis that the relevant terms were those set out in the Model Clauses contained in Schedule 1 to the 2008 Regulations. Model Clause 43(1) provides:

If at any time any dispute, difference or question shall arise between the Minister or the OGA and the Licensee as to any matter arising under or by virtue of this licence or as to their respective rights and liabilities in respect thereof then the same shall, except where it is expressly provided by this licence that the matter or thing to which the same relates is to be determined, decided, directed, approved or consented to by the Ministers or the OGA, be referred to arbitration…”

The basis for the application

Although it is difficult to be certain from the limited information contained in the judgment, it seems that the Claimants were very concerned at the prospect that the OGA would circulate the Notice to third parties. The Claimants contended that the OGA’s proposed course of action was:

  1. unlawful, in the public law sense; and/or
  2. in breach of terms to be implied into the relevant Licences; and/or
  3. irrational, in the public law sense.

Relying on the Arbitration Agreement, the Claimants asserted that a dispute had arisen between them and the OGA that fell within the scope of the Arbitration Agreement, such that the Claimants were entitled to an order restraining the OGA from its proposed course of action in terms of section 44(3) of the Arbitration Act 1996 (broadly speaking, section 44(3) permits the Court to make certain orders in support of arbitration proceedings, including urgent orders before arbitration proceedings have been commenced). The parties agreed that, if the court concluded that the Arbitration Act route was not available to the Claimants (because the dispute did not fall within the scope of the Arbitration Agreement), then the application should be determined as if it were a claim for interim relief in a judicial review claim – in that event, judicial review would be the only available remedy and the Claimants had offered an undertaking to commence judicial review proceedings within a very short period if that was the Court’s conclusion.

The OGA’s position

The OGA resisted the application on two main grounds:

  1. the Arbitration Agreement did not apply to the dispute in question, because either
    1. the dispute was not one to which the Arbitration Agreement applied because it was not a dispute “arising under or by virtue of” the Licences or pertaining to the “respective rights and liabilities” of the parties thereunder; or, alternatively
    2. the dispute fell within the exception in Model Clause 43(1) in respect of a “matter or thing… to be determined, decided, directed, approved or consented to by the Ministers or the OGA…”; and
  2. in all the circumstances, the balance of convenience test was not met, so that an injunction should not be granted.

Judgment

Arbitration Agreement

Although the Court considered various preliminary and potential arguments (not all of which had been raised by the parties), the application turned on the construction of the Arbitration Agreement and whether the dispute fell within its scope, properly understood.

Pelling J did not accept the OGA’s contention that this was not a dispute “arising under or by virtue of” the Licences or as to the “respective rights and liabilities” of the parties thereunder. In principle, the Arbitration Agreement applied, subject to the express exception it contained. The language used was wide and the dispute plainly fell within its terms. The fact that the dispute was concerned in essence with public law principles did not take it outside that scope – although the remedies available to the Administrative Court (in a judicial review application) would be different to those available to an arbitrator, an arbitrator could nonetheless frame an award in the form of a declaration or a prohibitory order so as to prevent the OGA from proceeding as proposed if that was the outcome of the process. It was also not sufficient to take the matter outside the scope of the Arbitration Agreement that the OGA’s proposed course of action was not expressly permitted by the Licence: “The process that the OGA has adopted is incidental or ancillary to the exercise of its powers…and as such the dispute as to its fairness is one that arises either by virtue of the Licence or as to the OGA’s rights in respect of it.”

The key question was therefore whether the exception identified in the Arbitration Agreement applied i.e. whether the subject matter of the dispute was a “matter or thing” to be “determined, decided, directed, approved or consented to” by the OGA in terms of a power conferred on the OGA by the Licence. In that regard, Pelling J considered that:

  • No distinction could be drawn between operative provisions of the Licence and matters that raise public policy issues. The only distinction for the purposes of the exception was between matters expressly to be decided by the Minister or the OGA, and those that were not. That distinction made sense, because decisions made by a public authority (including the OGA) are generally capable only of challenge on public law grounds and best dealt with by means of judicial review, whereas other disputes that did not involve such a determination would not appropriately be dealt with in that way.
  • That said, the wording of the exception was broad, so that it was not limited to the actual exercise of an express power under the Licence, but it was sufficient that the dispute “related to” a matter or thing to be determined by the OGA – it included not only a decision to exercise its power or discretion, but also decisions by the OGA as to how to exercise that power or discretion, including as regards consultations prior to exercising a power.

Relief to be granted

As it was decided that the Arbitration Agreement did not apply, the Court proceeded to consider what relief ought to be granted on the Claimants’ undertaking to issue judicial review proceedings. In deciding whether an interim injunction should be granted the test to be applied is a modified version of the familiar American Cyanamid test - namely (i) is there a serious issue to be tried; and (ii) does the balance of convenience require an order to be granted. The OGA did not assert that there was not a serious issue to be tried, therefore, the only remaining question was as to the balance of convenience.

The Court held that there was a significant risk the Claimants would suffer “serious and irreparable harm” if the OGA shared the Notice with any third parties. The Notice was not framed in neutral terms and, in sharing even a redacted version of it, recipients would likely act in their own best interests which would put the Claimants at risk of significant commercial damage. There was also a significant risk of further dissemination of the information contained in the Notice. Additionally, questions of fairness arose – in circulating a draft of its proposed decision and inviting comment, there was a suggestion that the OGA had already reached a provisional conclusion. Even if the OGA wished to consult with third parties before reaching its decision and conducting a final meeting with the Claimants, it could have done so in a neutral way rather than taking the approach it proposed. Ultimately, the consequence to the OGA of the injunction being granted was a question of delay, and that could have been avoided had the OGA adopted a more objectively neutral approach.

Therefore, the balance of convenience test was met in favour of the Claimants. However, the Court also expected the Claimants to undertake to commence judicial review proceedings within three days of the date of the judgment, and to ask for that application to be dealt with on an expedited basis.

Implications

This is a rare example of a challenge to the OGA’s exercise of its broad discretion in how it exercises its considerable powers, and an unusual test of the application of the dispute resolution provisions contained in the Model Clauses. The OGA’s actions and decisions have potential to cause significant commercial impact on a Licensee, for example in disseminating confidential or commercially sensitive information (including as to the OGA’s concerns about particular actions or activities) and in associated potential reputational risk. The OGA has always indicated that it is alive to those risks, and following this decision it may be even more cautious to ensure that the processes it adopts are fair and that its communications are framed objectively and in neutral terms, particularly where it is communicating with third parties.