Apache North Sea v INEOS FPS Limited [2020] EWHC 2081 (Comm)

Consent Which Shall Not Be Unreasonably Withheld

Case Summary

The Claimant was a trader of hydrocarbons.

The Defendant owned and operated the Forties Pipeline System in the North Sea.

The court was asked to determine the proper construction of an agreement between the parties for the transportation and processing of hydrocarbons (“the TPA”).

An attachment to the TPA (“Attachment F”) set out the Claimant's estimated production profile.

The Claimant wished to revise Attachment F. Clause 5.05(a) of the TPA provided that:

If the Claimant "requires to ... amend Attachment F", then subject to there being "Uncommitted Capacity" the Defendant "shall not unreasonably withhold its consent to such increase".

The Defendant had stated that it would consent to the amendment only if the Claimant agreed to revise the tariff payable under the TPA.

The court held that the Defendant was acting unreasonably and non-contractually by withholding consent on the basis that what the Defendant insisted on was in fact a fundamental revision of the parties' bargain.

The Judgment can be accessed here.

Advice for Drafting Consent Clauses in Contracts

Most shipbuilding and construction contracts contain clauses which require one party to obtain consent from the other and that “consent cannot be unreasonably withheld or delayed” (“consent clauses”).

Before entering into a contract which contains consent clauses, the parties should ask themselves:

Under what circumstances would a party want to withhold consent and what reasons for withholding consent would be considered reasonable and hence legitimate?

A contract should always be drafted such to capture the intention of the parties. Therefore, if the circumstances and reasons for withholding consent are known beforehand, then they can be drafted into the contract to prevent future disagreement.

If the party that would need to obtain consent under the contract wishes to contractually prevent the other party from making consent conditional on a contract variation, then the former can always insist on the consent clause being drafted such to exclude that possibility.

However, this is unlikely to make good business sense because if the party that is required to give consent has no means to protect a legitimate commercial interest or be compensated for any inconvenience by way of insisting on a contract variation, then it may be left with little alternative but to withhold consent, which is precisely the opposite of what the requesting party would have wanted to happen.

In good business relationships there is always a certain amount of give and take. Allowing the consenting party some room to impose reasonable and relevant conditions in order to grant consent is arguably more prudent.

For parties that want the wording of the boiler plate clause to explicitly reflect how it appears to operate under English law, then the clause could be amended as follows:

“consent cannot be unreasonably withheld or delayed, or made subject to unreasonable or unrelated conditions.

Authored by Michael Dickin