The Covid-19 crisis is impacting most industries and, in the case of the oil & gas sector, its effects are being compounded by unprecedented slumps in demand and prices.  Many participants in the industry are facing challenges that are likely to result in disputes in the near-term. With English law one of the laws of choice for contracting across the industry, it is timely to revisit a selection of recent English law decisions that are likely to be relevant to the oil & gas sector and the sorts of disputes that typically arise between the industry’s players.

At a time of unprecedented uncertainty, the decisions are an apt reminder of the considered approach taken by the English courts in applying English law principles, all of which contributes to the deserved reputation of the English law and jurisdiction as being certain and predictable.

The decisions summarised below address the following questions:

  1. To what extent can parent companies be found liable to third parties for the actions of their foreign subsidiaries vis-à-vis those third parties?
  2. Is the right to remove an operator an unqualified one?
  3. How to determine the law of an arbitration agreement where an agreement appears, or is, silent on the issue?


To what extent can parent companies be found liable to third parties for the actions of their subsidiaries?  The Vedanta v. Lungowe cases and related recent decisions.

The series of Vedanta judgments are the latest in a string of recent English court decisions exploring the extent to which a parent company, incorporated or resident in the English jurisdiction, owes a duty of care to third parties in respect of the actions of its subsidiary companies, even where a subsidiary, or its actions, are located in a foreign jurisdiction.


Relevant facts of the case

The claimants in the case were a group consisting of 1,826 Zambian citizens.  Their claims arose out of an allegation that the claimants’ health and farming activities had been damaged by repeated discharges of toxic matter from a copper mine owned by a Zambian-incorporated public company, Konkola Copper Mines plc (“KCM”).  A UK incorporated and domiciled company, Vedanta Resources plc (“Vedanta”), was the ultimate parent of KCM, albeit not on a wholly-owned basis as the Zambian government held a significant minority stake in KCM.

The case brought included claims against KCM and Vedanta under Zambian common and statutory laws, and against Vedanta on grounds of English law negligence.  The justification for the latter was, in summary, that Vedanta had sufficiently intervened in the management of KCM and the mine to the extent that it had assumed a duty of care towards the claimants sufficient to establish an action in negligence against Vedanta for breach of that duty of care.

Vedanta and KCM challenged jurisdiction and the ability of the claimants to seize the English courts in bringing their claims.  Given the jurisdictional objection, the Vedanta judgments to date have focused on this jurisdictional issue.  The latest instalment in the case is a decision of the UK Supreme Court handed down last year.  The Supreme Court ruled that jurisdiction had been established by the claimants, opening the way for a trial on the substantive issues to proceed before the High Court, including the key issue of whether Vedanta did owe the alleged duty of care.  The matter is now proceeding before the High Court, and is at an early stage.


The issue of a duty of care

That judgment of the High Court on the matters of substance in dispute is thus hotly anticipated.  In seeking to assert jurisdiction, however, the claimants were required to demonstrate that their pleaded case disclosed a real triable issue.  The judgment of the UK Supreme Court therefore offers some useful commentary on the question of the duty of care.

The Supreme Court confirmed that the alleged duty of care in question did not require the establishment of a new category of common law negligence.  In short, it stated that there is nothing special about the parent/subsidiary corporate relationship in the context of the law of negligence.  Rather, the usual principles of whether a party owes a duty of care to another in respect of the actions of a third party should apply when assessing the issue in that context.

While differing on some immaterial aspects, the Supreme Court endorsed the view taken in the earlier judgments of the English High Court and Court of Appeal that whether Vedanta had incurred a duty of care would likely depend upon a careful examination of the facts and documents. In these earlier judgments, the courts were referred to various matters on that question as part of their assessment as to whether there was a serious issue to be tried.

These included that Vedanta had:

  • provided financial support to KCM
  • released various public statements emphasising its commitment to address environmental risks and technical shortcomings in KCM’s mining infrastructure
  • exercised control over KCM, per the witness evidence of a former employee
  • provided health, safety and environmental training across its group companies
  • published a sustainability report which emphasised how the board of directors of the parent Vedanta company had oversight over its subsidiaries and
  • entered into a management services agreement with KCM, under which it was obliged to provide various services to KCM, including related to the training of KCM employees.

While those courts were only tasked with assessing whether the evidence was sufficient to demonstrate a serious triable issue (and so were not required to determine the question of whether a duty of care on the part of Vedanta existed) the decisions illustrate the extent to which the courts will undertake a systematic, careful and considered review of the facts.



The Vedanta decisions must be read in their proper context.  They considered the issue of the parent’s duty of care only in the context of establishing jurisdiction, and so the anticipated decision of the English High Court on the substance of the dispute will be more instructive.

That said, the Vedanta decisions are a reminder of the English court’s preparedness to explore whether a parent company owed the relevant duty of care in respect of the actions of a subsidiary that is otherwise ‘distant’ from the parent within the corporate structure of a group.

On this issue, the Vedanta decisions reflect two earlier judgments of the English courts.  In the case of Okpabi v. Shell, 40,000 Nigerian farmers and fishermen brought a comparable action against Shell in respect of allegations of pollution involving one of Shell’s Nigerian subsidiaries. Similarly, in the case of AAA v. Unilever, Unilever faced a claim brought by current and former employees of one of its Kenyan subsidiaries involved with a tea plantation.  In those cases, the evidence put to the courts to establish the duty of care upon the parent company included:

  • the parent issuing mandatory policies, standards and manuals to apply to subsidiaries
  • the imposition by the parent of mandatory design and engineering practices
  • a system of supervision and oversight within the parent to ensure the implementation by the subsidiary of the parent’s standards
  • financial control by the parent over the subsidiary
  • a high level of centralised direction and oversight by the parent of the subsidiary’s operations in relation to security
  • consolidated group accounts indicating that the parent and group companies operated as a single economic entity and that the parent had ultimate responsibility for the management, general affairs, direction and performance of the business as a whole
  • a group’s system of risk management in which it was stated that responsibility for establishing a coherent framework for managing risks rested with the parent board
  • a governance framework document indicating a move away from decentralised management across the group to a single executive management team and
  • a press release and published crisis management document setting out procedures for national managers to adopt and implement in respect of crisis management situations.

In both cases, the claimants were unsuccessful in establishing the requisite duty of care (although the Okpabi case is pending appeal to the UK Supreme Court). However, the decisions equally demonstrate the approach the English courts will take to carefully considering the evidence as to whether the parent company had ‘inherited’ a tortious duty of care as a result of its interventions into the business and operations of the relevant subsidiary. The Vedanta trial on issues of substance will likely offer further guidance as to the levels of intervention necessary to risk of triggering the imposition of a duty of care upon the parent.

Still, the risk to parent companies must not be overstated. As recognised by Sir Geoffroy Vos’s judgment in Okpabi, it would be surprising if a parent company were to go to the trouble of establishing a network of overseas subsidiaries with their own management structures if it intended itself to assume responsibility for the operations of each of those subsidiaries.

While the Supreme Court in Vedanta was careful to avoid setting out a test for what level of intervention would be sufficient to impose a duty of care, it did offer some theoretical examples where such a duty might be found.  They include:

  • where the parent has in substance taken over the management of the relevant activity of the subsidiary in its place or jointly with the subsidiary’s management.
  • where the parent had given relevant advice to the subsidiary about how it should manage a particular risk and
  • the taking by the parent of active steps in relation to group-wide policies, through training, supervision and enforcement.

The court suggested that the omission by a parent to exercise supervision and control of subsidiaries in the way held out within the parent’s published materials might also establish a duty of care.

Taken together, these examples may distinguish between a parent merely taking steps to ensure mechanisms are in place and a parent seeking to exercise control over a subsidiary. Put another way, a distinction might be drawn between a parent determining the management of a subsidiary issue or just empowering that subsidiary to determine such management itself.

Whether the requisite duty of care can be established is highly fact-sensitive and so will depend upon the relevant circumstances of each case. It is, therefore, difficult, and likely will remain so even after the Vedanta case, to draw out clear-cut rules on the issue.

The Vedanta case is a timely reminder of the potential risk for parent companies as regards the actions of their subsidiaries. This ought, at the very least, prompt parent companies to pause for thought when engaging with the management of subsidiaries or implementing policies for them. Corporate structures and concepts of limited liability alone are insufficient to wholly ring-fence a parent from liabilities attributable to the actions of subsidiaries flowing up the corporate chain. The judgments are, therefore, advisable reading to any corporate group in the oil & gas industry given the typical model of establishing jurisdictional or project-focused special purpose and joint venture subsidiary vehicles when conducting business operations.


An unqualified right to remove an operator?  TAQA Bratani v. Rockrose

Recent judgments of the English courts have demonstrated their willingness to adopt a stricter and narrower approach in applying English law principles of contractual interpretation and construction.  The case of TAQA Bratani v. Rockrose  is a good example of this in the context of an oil & gas transaction. The decision demonstrates the English courts giving effect to the express terms of joint operating agreements and neither supplementing those agreements with implied terms, nor fettering the exercise of their express contractual rights.


Facts of the case

The dispute arose principally in connection with four joint operating agreements (the “JOAs”) pursuant to which Rockrose (formerly Marathon Oil) was appointed as operator in respect of five oil and gas blocks in the Brae Fields in the UK’s North Sea.  Around the time of Marathon Oil’s acquisition by Rockrose, the non-operator participants voted unanimously to terminate the appointment of Marathon Oil (as it then was) as the operator on the blocks, to be replaced by a TAQA entity, and then gave notice of the same in accordance with the JOAs.

Rockrose did not dispute that the non-operator participants had exercised the relevant contractual procedures under the JOAs correctly.  Rather, Rockrose argued that the purported termination of its role as operator was invalid and of no effect on the grounds that the unqualified power to terminate relied upon by the participants was either, on its proper construction, not unqualified or was otherwise subject to, and fettered by, implied terms.


The key issues considered

The court was asked to determine whether the express and unqualified right of the non-operator participants under the JOAs to terminate Rockrose’s appointment as operator was:

  1. subject to an implied term that the unqualified right could not be exercised in an arbitrary, capricious, perverse or irrational way (sometimes referred to in shorthand as a “Braganza duty” resulting from the Supreme Court’s decision in Braganza v. BP Shipping Limited); and/or
  2. subject to similar qualifications arising from a separate implied duty of good faith, drawing upon the seminal decision in Yam Seng Pte v. International Trade Corp. In Yam Seng,  it was held that such a duty might arise in a ‘relational contract’, being contracts that required a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involving expectations of loyalty not expressly stated under the contract.

The High Court found that the express terms of the JOAs ought not to be qualified in the manners or to the extents argued by Rockrose. In short, the express language was found to be clear, and the JOAs intended to confer an unqualified right to terminate the operator role.

Dealing with the alleged Braganza duty, the court held that the duty had no application to unqualified termination provisions in expertly drawn complex commercial agreements between sophisticated commercial parties.  If it did, there might be no contractual termination provision that would not arguably attract a Braganza duty qualification.

In respect of the Yam Seng implied duty of good faith, the court was prepared to accept that a joint operating agreement arguably constitutes a relational contract of the sort envisaged in Yam Seng.  However, it was clear that not all such relational contracts would attract an implied duty of good faith.

In the present case, the court found that, on its proper construction, the parties had expressly legislated in the JOAs for an unqualified right of termination. Thus it was impermissible to imply a duty to qualify what the parties had expressly agreed. To do so would breach the ‘cardinal rule’ under English law that an implied term must not contradict any express term of the contract in question. Rockrose’s arguments, therefore, failed.



The TAQA Bratani decision offers an excellent rehearsal of English law principles applicable to contractual interpretation and construction and the implication of terms into a contract, drawing out the relevant tests for each and their application to agreements like the JOAs.  It is a decision that will help reduce the scope for a party to argue for the implication of similar terms and duties to qualify express rights, offering a number of conclusions in this regard:

  • Joint operating agreements have no special status that requires them to be interpreted differently. The usual English law principles of contractual interpretation will apply.
  • The freedom of parties to agree terms of their choice is of paramount importance. Where there is a “sophisticated and professionally drafted and negotiated agreement between well-resourced parties”, the courts will generally be slow to imply terms.
  • Despite joint operating agreements arguably being of the kind of ‘relational contract’ envisaged in the Yam Seng decision, this does not automatically result in an implied duty of good faith arising and the usual test for implying terms into a contract applies.

That all said, the court in TAQA Bratani reached its conclusions based on the express terms of the JOAs. This decision should, therefore, serve as a reminder to contract drafters to ensure that the contract expressly reflects the agreement reached between contracting parties.



A law unto itself? How to determine the law of an arbitration agreement where an agreement appears or is silent on the issue? The Kabab-Ji and Enka decisions

Flexibility, neutrality and finality are but a few of the many characteristics that make arbitration the dispute resolution method of choice for businesses in the oil & gas sector.  The agreement to arbitrate is a “contract within a contract” which should be looked at separately from its host contract.  Its separable nature means that the law governing the arbitration agreement may not be the same as the law governing the host contract.

Despite this important fact, many contracts do not expressly state the law that is to apply to the arbitration agreement, notwithstanding its fundamental importance to any dispute referred to arbitration under that agreement. The English courts have recently handed down two decisions that help bring clarity to the question of how the courts should determine what law applies to an arbitration agreement where no express, or any, choice was made.


The facts of the cases

In the Kabab-Ji v. Kout Food case, a franchise distribution agreement had been entered into between Kabab-Ji (“KJS”) and Al Homaizi (“AHFC”). Following a corporate restructure, AHFC became a subsidiary of Kout Food Group (“KFG”).  A dispute arose under the franchise distribution agreement, and KJS commenced arbitration against KFG and not AHFC.  The issue was whether KFG had become a party to the arbitration agreement due to the restructure.  That question depended on the law found to govern the arbitration agreement.  If KFG had not become a party, there was no jurisdiction to pursue the dispute in arbitration against KFG.

In the Enka v. Chubb case, the insurer, Chubb, commenced proceedings in the Moscow Arbitrazh Court against Enka (and other parties) seeking damages as subrogated insurer in connection with sums it had paid out under a policy in respect of a power plant’s fire damage. Enka sought an anti-suit injunction from the English High Court on the grounds that an arbitration agreement existed that covered Chubb’s claim and so required the dispute to be arbitrated. Chubb argued that the law of the arbitration agreement was Russian law, pursuant to which law its claims, (said to be tortious claims), fell outside the scope of the arbitration agreement.


The issue of the law governing the arbitration agreement

In both of the Kabab-Ji and Enka cases, the disputing parties disagreed as to the law applicable to the arbitration agreement.  In both cases, what law was found to govern the arbitration agreement would have a material effect upon the issues that were in dispute.

When assessing that question, the English court has for many years applied a three-stage test required by English common law conflict of laws rules.  That test is often referred to as the Sulamerica test given its detailed consideration in the case of Sulamerica v. Enesa. That test sets out a cascade of three questions to be considered, which can be summarised as follows:

  1. Is there an express choice of law by the parties?
  2. If not, is there an implied choice of law by the parties?
  3. If not, with what system of law does the arbitration agreement have its closest and most real connection?

In practice, however, the approach of the English court in applying the Sulamerica test has been inconsistent where no express choice of law had been made by the parties.  Should it be implied that the parties intended the law governing the arbitration agreement to be the same law chosen by them to govern the host contract?  Or, is the better answer that the parties’ express choice of the seat for arbitration (in the Kabab-Ji case, Paris; in the Enka case, London) should also stand as their implied choice for the law governing the arbitration agreement?  Further, how, if at all, does the third stage of the test assist beyond the second in selecting between the governing law or the law of the seat being the relevant applicable law?

The Enka decision has clarified that there is now “a strong presumption” that, in the absence of an express choice, the parties impliedly chose the law of the seat of the arbitration as being the law governing the arbitration agreement.  While only a presumption, “powerful countervailing factors” would need to be demonstrated to reach a different conclusion.  Thus, in Enka, English law was found to govern the arbitration agreement leading the court to issue the anti-suit injunction requested to prevent Chubb from pursuing its claim in Moscow.

The Kabab-Ji decision demonstrates the extent to which the English court will use the tools of contractual interpretation and construction available to it in its pursuit of assessing whether an express choice had been made by the parties under the first step of the Sulamerica test.

In Kabab-Ji, the operative clause at Article 1 of the agreement stated:

“This Agreement consists of the foregoing paragraphs, the terms of agreement set forth herein below, the documents stated in it, and any effective Exhibit(s), Schedule(s) or Amendment(s) to the Agreement or to its attachments which shall be signed later on by both Parties.  It shall be construed as a whole and each of the documents mentioned is to be regarded as an integral part of this Agreement and shall be interpreted as complementing the others.”

The governing law clause at Article 15 then stated that “This Agreement” was governed by English law.  The arbitration agreement itself stipulated Paris as the seat of any arbitration.

Despite the franchise distribution agreement appearing silent on the question of the law governing the arbitration agreement, the Court of Appeal concluded that, properly construed, Articles 1 and 15 provided for an express choice of English law to govern the arbitration agreement.  It reasoned, in short, that those articles read together demonstrated a clear intention that the entire franchise distribution agreement would be governed by English law.

In contradiction to the findings of the tribunal in the underlying arbitration, the English court, applying English law, found that KFG had not become a party to the arbitration agreement and that the arbitral tribunal therefore had no jurisdiction in respect of the issues in dispute.



At the contracting stage, parties often give little thought to the question of what law should govern the arbitration agreement.  The Kabab-Ji and Enka decisions are good examples of how that question may be critical to the outcome of a dispute between parties referred to arbitration.

The Enka decision in particular is a welcome one to settle the debate that has been ongoing for many years as to the proper law of the arbitration agreement where no express choice has been made.  It was recently announced that the Enka decision is to be appealed to the UK Supreme Court, so time will tell if the Court of Appeal’s analysis and conclusions are upheld.  Even if they are, the scope of the court’s helpful clarification in the Enka case must not be overstated, as the Kabab-Ji decision illustrates well just how far the English courts may be prepared to go in seeking first to find an express choice of law by the parties.  That Enka was decided after Kabab-Ji may have had a bearing upon the court’s reasoning within Kabab-Ji.

Given the prevalence of the use of arbitration within the oil & gas industry, these decisions offer some comfort and certainty as to how the English courts will approach the issue in question. However, these decisions underline that the best approach and practice will always be for the parties instead to take the time at contract drafting stage to ensure that they have expressly stated which law is to govern specifically the arbitration agreement between them


This article was written by our Senior Paralegal Ronan D’Cruz



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