Premier Oil UK Limited v Shell International Trading and Shipping Company Limited

Where commercial parties refer a dispute to a referee or expert, the court may construe the contractual limits of that decision-maker’s authority. It may review a determination that departs from agreed principles or procedures. However, the court should ordinarily allow the decision-maker to complete the task before giving a pre-emptive ruling. Exceptional circumstances are unnecessary, but there must be a real dispute, and advance intervention must be just and convenient. A party’s concern that the decision-maker may err, or that evidence may later make a challenge difficult, will usually be insufficient. The court should also respect the agreed dispute-resolution mechanism and avoid re-writing it. On the facts, the parties’ disagreement about the referee’s possible approach was hypothetical. Specific guidance was therefore refused.

Premier and Shell sought directions concerning the jurisdiction of a referee appointed under pricing provisions in two crude-oil sale contracts. Platts had materially changed the methodology for the Urals Assessment following European sanctions on Russian oil. The parties could not agree an alternative source of price information or terms of reference.

Both parties accepted that the referee’s task was limited to determining an alternative source of price information, but disagreed about the extent of the court’s proper advance guidance. The central questions were whether the court should construe the referee’s powers before the determination and, if so, what guidance should be given.

1. Jurisdiction and governing principles. The court applied ordinary contractual construction to the clauses referring the dispute to a referee. An expert or referee must apply agreed principles and procedures. A determination contrary to them is outside the decision-maker’s authority and may be reviewed by the court, notwithstanding provisions making it final and binding, subject to the contract’s wording.
2. Advance intervention. The court has discretion to determine construction issues before the referee acts. Exceptional circumstances are not required. The dispute must be real rather than hypothetical, and advance determination must be in the interests of justice and convenience. The court will ordinarily be reluctant to intervene because the referee may resolve the dispute without further proceedings, and the later determination may provide useful expert reasoning and context.
3. A party’s evidential difficulty in proving that the referee exceeded his authority is ordinarily not a sufficient reason for a pre-emptive ruling. The parties accepted the agreed decision-making process with its attendant evidential consequences.
4. The court should avoid re-writing the parties’ dispute-resolution mechanism. Detailed guidance may inadvertently restrict a referee in a manner not required by the contracts.
5. Here, the disagreement arose from the parties’ apprehensions about what the referee might do. There was no evidence that he would misunderstand or exceed his mandate. It was therefore hypothetical and it was not just and convenient to decide the detailed construction questions in advance. The court refused Shell’s proposed declarations.
6. The only declarations made were that the referee’s powers under the Schiehallion Contract were prescribed and circumscribed by clause 8.4, and those under the Clair Contract by clause 8.2.