Taqa Bratani Ltd & Ors v Rockrose UKCS8 LLC

Where a sophisticated commercial agreement gives participants an unqualified power to discharge an operator on notice, the power takes effect according to its terms. It requires only the stated notice and voting majority. It does not require reasons, justification, good faith, or consideration of joint-venture interests. A Braganza-type constraint applies to a contractual discretion involving assessment or a choice among options, not to a simple election whether to exercise an absolute right. A relational contract does not automatically carry a duty of good faith. Terms may be implied only where necessary for business efficacy or obvious, and never where inconsistent with express terms. Later industry practice and regulatory material cannot alter the construction of an earlier agreement unless the contract contemplates a changing regulatory regime.

The claimants, non-operator participants in four joint operating agreements and a unitisation and unit operating agreement, sought declarations that notices terminating the defendant’s role as Operator of several North Sea oil and gas fields were valid and effective.

The defendant accepted that the contractual procedures had been followed but argued that the termination provisions were impliedly qualified by duties of good faith, rationality, and loyalty arising from contractual discretion or the alleged relational nature of the agreements. It also challenged the claimants’ motivations, the agreement capping transition costs, and their treatment of potential pension liabilities. The central issue was whether the express termination rights were absolute or subject to the alleged implied constraints.

Claim succeeded. The court held that the termination notices were valid and effective.

1. Construction of the termination provisions. Clause 19.1(a), and the equivalent provisions in the other agreements, conferred an absolute right to discharge the Operator on the specified notice, subject only to the required voting majority. The decision was binary. It involved no evaluative or adjudicatory exercise and required no justification. The contrast with clause 19.1(b), which specified conditions for immediate termination, reinforced that conclusion. The agreements also expressly provided that the parties were not partners and could act according to their own perceived interests.
2. Implied constraints. The principles in Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Limited [2015] UKSC 72, and the related authorities, meant that a term could be implied only where necessary for business efficacy or obvious, and not where inconsistent with an express term. The distinction identified in Mid Essex Hospital Services NHS Trust v Compass Group UK [2013] EWCA Civ 200 was decisive. Braganza-type controls concern a contractual decision-maker exercising a discretion involving assessment or a range of options. They do not govern a simple election to exercise an absolute contractual right. The reasoning in Reda v Flag Limited [2002] UKPC 38, Lomas v IFB Firth Rixon [2012] EWCA Civ 419, and TSG Building Services Plc v South Anglia Housing Limited [2013] EWHC 1151 (TCC) supported that conclusion.
3. Relational contracts and context. Even if the agreements were relational, that did not create an automatic duty of good faith. Any implication depended on the particular contractual language and the necessity test. Later regulatory material and alleged industry practice did not assist with construing agreements made many years earlier and did not justify implying terms.
4. Alternative findings. The court made findings in case its primary conclusions were wrong, expressly stating that they were unnecessary to the decision. Assuming implied constraints existed, the claimants had acted on genuine commercial and operational concerns. The transition-cost cap was not improper. The alleged pension liability under section 75 of the Pensions Act 1995 did not establish a breach: the evidence did not show that acceleration was likely or material to the decisions.

The judgment records that the expedited first-instance trial was ordered by Carr J on 20 August 2019.