Apache North Sea Ltd v Ineos FPS Ltd

A contractual consent provision must be construed in the context of the agreement as a whole. It does not ordinarily permit the consent-provider to nullify or substantially rewrite a specific contractual right conferred elsewhere. Whether consent is unreasonably withheld is generally a factual question, but construction determines the scope of the contractual power. A condition may legitimately protect or compensate an interest impaired by the requested consent. It cannot ordinarily require the counterparty to surrender an existing contractual entitlement. Where a transportation agreement required the shipper to tender its total production and fixed the applicable tariff for the duration of the agreement, consent to an updated production profile could not be conditioned on a fundamental tariff increase.

The claimant produced hydrocarbons from fields in the North Sea and was entitled under a transportation and processing agreement to use the defendant’s pipeline system. The claimant sought to amend its production profile so that it extended from 2021 to 2040. The defendant would consent only if the contractual tariff was increased.

The court determined two preliminary issues: whether that condition was contractually permissible, and whether the price and terms on which the defendant acquired the pipeline system, or its knowledge at acquisition, were relevant to the assessment of unreasonable refusal.

1. First preliminary issue. The defendant was acting non-contractually by withholding consent to the amendment of Attachment F unless the claimant agreed to increase the base tariff.
2. The agreement was of indefinite duration, subject to its express termination provisions. The claimant’s obligation to tender its total production of Shipper’s Pipeline Liquids, and its entitlement to have that production transported at the contractual tariff, did not end merely because the existing Attachment F stopped at 2020.
3. The FMQ and Attachment F regulated quantities and production estimates. They did not impose the substantial time limit for which the defendant contended. The agreement expressly addressed Additional and Spot Quantities and identified only limited circumstances in which alternative transportation arrangements were available.
4. The tariff provisions, including escalation, the operating-cost option and the termination right, showed that tariff was a central part of the parties’ bargain. The consent power could not be used to require the claimant to surrender that right as the price of amending the production profile.
5. The court accepted that a condition may be legitimate where it protects or compensates a contractual interest impaired by the requested consent. That principle did not assist the defendant because the proposed condition impaired an existing right rather than protecting one.
6. Second preliminary issue. The acquisition price and terms, and the defendant’s knowledge when acquiring the pipeline system, were irrelevant. The novation was intended to place the defendant in the predecessor’s contractual position, and acquisition economics could not alter the parties’ substantive rights under the agreement.