The non-binding dispute resolution process, and sanctions provisions, provided for in the Energy Act 2016 give teeth to the MER Strategy. If a MER Party, or the OGA, considers that another MER Party has failed to comply with any binding principle of the Strategy, that MER Party, or the OGA, can instigate non-binding dispute resolution procedure pursuant to Part 2 Chapter 2 of the Energy Act 2016.
Additionally, the OGA can also address any failing to comply with the Strategy in sanctions proceedings pursuant to Part 2 Chapter 5 of the Energy Act 2016.
References to Sections below are references to the Energy Act 2016.
Non-binding dispute proceedings
Where a dispute arises in relation to the Strategy a MER Party shall be entitled to refer the dispute to the OGA when the dispute relates to the "fulfilment of the principal objective" (to maximise economic recovery of UK petroleum), or otherwise relates to "activities carried out under an offshore licence" (Section 19). Pursuant to Section 22, the OGA can also consider a dispute on its own initiative (without referral).
Where a dispute is referred to the OGA, and/or the OGA elects to act, the OGA then issues a timetable and directions (Section 23) and issues a request for information and/or a meeting (Section 24/25), before then issuing a non-binding recommendation (Section 23(2)(b)). The non-binding recommendation will prescribe the proposed course of action – to remedy the party's failure or otherwise prevent the same. The OGA has the power to publish non-binding recommendations.
Whilst there is no right to appeal any recommendation (as it is non-binding) it is thought that the recommendation would be subject to Judicial Review in the usual ways.
The OGA may issue a Sanctions Notice where the MER Party has failed to comply with:
- The MER Strategy;
- A term or condition of the offshore licence (Section 42(3)(b)); or
- Another requirement made by OGA under the Energy Act (Section 42(3)(c)).
Before issuing a Sanctions Notice, the OGA first goes through an information gathering exercise – starting with the issue of a Sanction Warning Notice pursuant to Section 49(2). In the event that the OGA issues a Sanctions Warning Notice there is then a period for the respondent to make representations (Section 49(3)(d)) before the Sanctions Notice is then either issued, amended or discontinued (Section 49(7)).
A Sanctions Notice will prescribe one or more of the following:
- The enforcement of the relevant associated requirement/action (Section 43(1-4));
- The application of a financial penalty (Section 44(1-3));
- The removal of the field Operator (Section 48(1-9)); and/or
- The revocation of the associated petroleum licence (Section 47(1-8)).
However, where the affected MER Party disputes the alleged failing, or the sanction imposed, it can seek to appeal the sanction by requiring the matter to be referred to the Tribunal (Section 51/52). A referral to the Tribunal may be made on the grounds that the MER Party didn't actually fail to comply with the Strategy, or against the specific sanction being imposed.
Of the four possible kinds of sanctions, the most controversial may be the enforcement notice. The Energy Act says little about it. See Section 43. How can sanctioned parties actually be made to comply with an enforcement notice? Will there be some kind of enforcement mechanism or will the OGA's only recourse be resort to the other sanctions, such as financial penalties, licence revocation or operator removal?
MER Strategy disputes
The MER Strategy contains no specific provision on dispute resolution. If a MER Party has a dispute with the OGA it can certainly attempt to resolve it through non-binding dispute resolution as described above. However, the MER Party is not obligated to take this route (and neither is the OGA). As a general principle, disputes between MER Parties and the OGA are to be resolved in the regular courts. Is a violation of the MER Strategy by a MER Party (or the OGA) actionable in damages? Possibly. Does the Central Obligation create a MER duty between MER Parties? Possibly.
The dispute resolution process, and sanctions provisions, provided for in the Energy Act 2016 give teeth to the Strategy. These teeth enable the OGA to enforce Operator and co-venture party compliance with the MER Strategy.
Depending on the specific failing, and the relevant governing agreements, it appears possible that if one or more of the MER Parties fails to comply with a binding principle of the Strategy, it could also potentially give rise to an actionable legal claim (for damages or otherwise). Regular courts may well become involved in interpretation and enforcement of the MER Strategy.
How can Bond Dickinson help?
The Oil and Gas Team at Bond Dickinson have carried out a thorough review of the Strategy and is well placed to guide you through these changes and the impact it will have on your business.