08 Mar 2018

When non-binding dispute resolution was first mentioned as a MER initiative by the influential Wood Review, it looked odd and counter-intuitive. What could be gained by an additional dispute resolution forum and one that was non-binding at that? In the wake of the Energy Act 2016, the Strategy and the Dispute Resolution Guidance from the Oil and Gas Authority (OGA), matters are becoming clearer.

Non-Binding Dispute Resolution (NBDR) enables a MER Party (the vast majority of which are oil companies) to refer a dispute [1] with another MER Party or non MER Party (such as a drilling company) to the OGA for non-binding resolution, if the dispute relates to the principal objective or a matter under a licence. This is perhaps the only place where supply chain companies are impacted by MER legislation but a supply chain company cannot itself refer a dispute to the OGA for non-binding resolution.

The NBDR provisions are set out in Part II, Chapter 2 of the Energy Act 2016 and specify that once the OGA accepts a reference (or has decided unilaterally to consider a dispute), it is bound to consider the dispute properly, to draw up a timetable for its work of analysis and to issue a recommendation for resolution; it may also give directions to MER Parties while the resolution is pending. However, the OGA is not bound to accept a reference; its obligation is to decide whether to reject, adjourn or accept it and, if accepted, issue its recommendation for resolving it.

The OGA's Dispute Resolution Guidance, published in accordance with section 21(2) of the Act, duly puts some important flesh on the bones of the procedures to be followed in order for the OGA to make its decision as to whether to reject, adjourn or accept the NBDR reference:

  • it will not normally accept a dispute resolution reference "without evidence of the failure of meaningful commercial negotiations" (paragraph 11). NBDR is a last, not first, resort
  • it will only consult with stakeholders other than the parties if the issue is of broad industry interest (paragraph 18)
  • any MER Party considering making a reference should make sure that all other involved parties and the OGA are clearly informed of this intention in good time; this early warning should clearly delineate the problem, ensure that the dispute reaches the attention of senior management and give the OGA time to consider resource planning and whether the matter is suitable for NBDR. Parties are also encouraged to agree all possible factual matters beforehand (paragraphs 36–38)
  • any reference must be communicated to the OGA and to the other parties to the dispute in the form of Annex 1 to the Guidance (paragraph 39)
  • when it receives the Annex 1 reference, the OGA will nominate a dispute resolution manager, who will most probably be from a separate part of the OGA from that which may have worked on the dispute subject matter pre-reference. The official will then write to the other parties requesting certain information such as: details of parties involved; description of any negotiations and a summary of the dispute - this information is compellable (vis-à-vis MER Parties) under section 24(1)(a) and is normally required within 15 working days (paragraph 40 
  • whilst the Act provided that a dispute should be sufficiently material to the fulfilment of the principal objective to be accepted for NBDR, paragraph 48 provides that whilst an "increasing measure of value or quantity" will make the consideration of a dispute more likely, an important issue can still be sufficiently material even if great value or quantity are not present.

If the OGA accepts the reference, it is bound to issue a recommendation which must be the one which it considers will enable the dispute to be resolved in a way which "best contributes to the fulfilment of the principal objective whilst having regard to the need to achieve an economically viable position for the parties to the dispute".

It is this balancing of the need to fulfil the principal objective (maximising the economic recovery of UK petroleum (principally through the use of technology and collaboration between MER Parties) with the need to achieve an economically viable position for the parties to the dispute which could be said to sit at the heart of NBDR.

It is also important to note that whilst the OGA's responsibility/power to set a timetable[2], to direct a certain course of conduct during adjournment[3] and/or whilst the dispute is being considered[4], to provide information[5] and to attend meetings[6] are enforceable and appealable[7] orders (vis-à-vis MER Parties), the ultimate product of NBDR, the section 23(4) recommendation, is not binding and therefore not appealable though it may be subject to judicial review.

That said, whilst the recommendation may not be enforceable per se, in practice it might be hard for a MER Party to disregard a recommendation, especially if it is published by the OGA.[8] Furthermore, the OGA may well decide that failure to follow a recommendation amounts to a violation of the Strategy and, if that is so, the failure may be sanctionable - although any such Strategy sanction would be a new and distinct process.

In contrast, the OGA is not given power to enforce any of its orders against non-MER Parties - not even those orders dealing with timetables, conduct, requests for information and attendance at meetings; a non-MER Party cannot be compelled to participate in the NBDR process.

The Non-Binding Dispute Resolution process will not be suitable for every dispute. For instance, the Guidance states that the mechanism is not suitable for disputes concerning contractual interpretation (paragraph 46). It is also unlikely that the OGA will attempt to resolve cases where there is disagreement as to the underlying facts which would be more suitable for the courts. However, where a dispute concerns a MER objective, a reference (or indeed the threat of a reference) to the OGA may be a useful tool to exert leverage to achieve a more favourable outcome.  

[1] While dispute itself is not defined, a qualifying dispute means a dispute which relates to a qualifying issue and where at least one party is a relevant party. A qualifying issue means either: (a) an issue "relevant to the fulfilment of the principal objective" or (b) an issue relevant to offshore licence activities, but (c) not a dispute which is the subject of an application (for third party access) under section 82 of the Energy Act 2011.

A relevant party means any party listed in section 9A(1)(b) of the Petroleum Act 1998 and for the purposes of this article we refer to relevant parties as MER Parties – broadly UKCS licence holders and operators, owners of upstream petroleum infrastructure and owners of upstream installations.

The principal objective is the objective of maximising the economic recovery of UK petroleum.

[2] section 21(5)(a)

[3] section 21(5)(b)

[4] section 23(3)(b)

[5] section 24(1)

[6] section 25(1)&(2)

[7] there is a right of appeal if these orders are shown to be "unreasonable" section 26(2)(b))

[8] before any publication, the OGA must give every MER Party the right to be heard section 23(7)