Legal briefing | Corporate & Commercial Disputes |

Attaching conditions to the provision of consent under a contract - the Commercial Court protects the parties’ bargain

Overview

Clauses which enable a party to a contract to request that its counter–party consent to the making of a change to the contract's terms often provide that such consent is not to be unreasonably withheld.

In Apache North Sea Limited v Ineos FPS Limited [2020] EWHC 2081 (Comm), the Commercial Court (Foxton J) provided helpful guidance on the extent to which a party can attach conditions to the granting of its consent without breaching the requirement not to withhold that consent unreasonably.

Foxton J found that INEOS FPS Limited's ("INEOS") demand for a revised tariff as a condition of agreeing to Apache North Sea Limited's ("Apache") request to amend the relevant part of the contract between them effectively amounted to an unreasonable withholding of consent to the amendment. He stated that INEOS's demand was "contractually impermissible" as it would result in Apache being deprived of its contractual right to transport hydrocarbons at the previously agreed tariff.

Further, in reaching this decision, Foxton J noted that while it may be legitimate for a party to attach conditions to its consent in order to genuinely protect a benefit derived from the contract in question, it will not usually be reasonable for it to do so where the condition imposed would result in the consent-providing party obtaining a benefit which was not "compensatory or mitigatory in nature" (as was the situation in the present case).

Factual background

The dispute between the parties concerned the construction of an agreement between them for the transportation and processing of hydrocarbons produced via Apache's interests in the North Sea Forties Field ("the TPA"). Pursuant to the TPA, the hydrocarbons in question are to be transported through the Forties Pipeline System ("the FPS"), which is controlled by INEOS (to whom Apache pays the tariff which was a key element of the dispute).

Attachment F to the TPA (in its current form) details Apache's estimated production profile in respect of the hydrocarbons up to the end of 2020. Relatedly, Clause 5.05(a) of the TPA states that if Apache "requires to … amend Attachment F" INEOS "shall not unreasonably withhold its consent to such increase".

Apache wished to set out its estimated production profile (which involved an increase) for the period from January 2021 to December 2040 and resultingly sought INEOS's consent to the necessary amendment to Attachment F. INEOS's position was that it would only provide the consent if Apache agreed to increase the tariff payable to INEOS under the TPA for the transportation and processing of the hydrocarbons.

The question before the court

To the extent relevant to this briefing, the issue before Foxton J was whether, on the basis of certain facts agreed by the parties, and certain assumptions put forward by INEOS, INEOS was acting unreasonably and / or non-contractually by withholding consent under clause 5.05(a) of the TPA to an amendment to Attachment F unless Apache agreed to increase the tariff payable to INEOS.

Foxton J's decision

Foxton J's judgment contains a careful examination of the relevant principles of interpretation when assessing contractual consent provisions. This involved the review of a number of cases, including the decision of the Supreme Court in the landlord and tenant case of Sequent Nominees Ltd v Hautford Ltd [2019] UKSC 47 and, in particular, the judgment of Lord Briggs therein. Foxton J accepted that Lord Briggs made clear that the principle that the court cannot replace the judgment of the parties with its own remains in place. However, he also noted that the Supreme Court's decision did not prevent a court from considering the operation of a clause in the context of the contract as a whole, which is "an exercise not limited to looking at the terms of the consent provision in isolation…but also at the other terms of the contract of which it forms a part".

Here, Foxton J highlighted the fact that the TPA is an agreement of indefinite duration (unless terminated in accordance with the relevant provisions, which was not the case here), that Apache is both entitled and obliged to tender hydrocarbons to be transported on the FPS for as long as it remains in force and that the terms of Attachment F do not qualify or override that entitlement / obligation. Taking that into consideration, Foxton J noted that it was "clear that INEOS cannot require an increase in the tariff as a condition of agreeing to the amendment of Attachment F" as such a requirement amounts to a fundamental change to the nature of the parties' bargain by removing Apache's rights / obligations in this regard.

Foxton J noted however that the mere fact that the imposition of a condition might provide the consent–giver with "an entitlement to something it did not previously have does not automatically render the condition illegitimate", especially in circumstances where that condition removes a "legitimate concern on the part of the consent-provider in relation to the consequences of providing consent, with the result that the benefit obtained is compensatory or mitigatory in nature". Foxton J noted by example in this context Sargeant v Macepark (Whittlebury) Limited [2004] EWHC 1333 (Ch), in which Lewison J referred approvingly to the example of a landlord who makes the assignment of a lease to a financially weak assignee conditional on the requirement that the assignee's obligations are guaranteed or that they put up a rent.

Conclusion

Foxton J's decision provides helpful guidance to parties on the nature of the conditions which a consent-giver can impose before granting consent. It should prevent parties from opportunistically seeking to rewrite a bargain which had previously been reached. The decision also confirms that when construing a consent clause, the court will not do so in isolation, but will examine it in the context of the entire contract. 

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