The High Court has handed down an important judgment concerning the role of the Oil and Gas Authority as a specialist regulator, issues of statutory interpretation and the proper approach to expert evidence in judicial review.
The Court dismissed the judicial review claim, which was brought by three individuals against the Oil and Gas Authority (“the OGA”) and the Secretary of State.
The OGA is required to have a Strategy to enable the principal statutory objective of “maximising the economic recovery of UK petroleum” (“MER”) to be met (s.9A of the Petroleum Act 1998). In February 2021, the OGA’s new Strategy came into force, which included new obligations relating to the UK’s ‘net zero’ target. The Strategy requires that relevant actors in the UK’s offshore oil and gas production industry, in meeting the principal objective, take appropriate steps to assist the Secretary of State to meet the Government’s net zero target (e.g. by supporting carbon capture and storage projects).
The Claimants’ judicial review concerned specific wording in the Strategy, namely its definition of “economically recoverable” petroleum. The challenge was brought on two bases:
Ground 1: The Claimants argued that there was an error of law / frustration of statutory purpose in that the pre-tax approach in the Strategy proceeds on the basis of an incorrect definition of the principal objective in s.9A of the 1998 Act.
Ground 2: The Claimants argued that the adoption of the Strategy, including the definition of “economically recoverable” / the pre-tax approach, was irrational.
The Court dismissed the claim. In so doing, she reviewed the “long history” of the term MER, dating back to the mid-1980s; and observed that by 1993 a pre-tax approach to MER had developed. She considered the Review of oil and gas recovery from the UK Continental Shelf by Sir Ian Wood in 2014, which pointed to “myriad significant benefits from MER UK” and recommended the creation of a new, independent regulator (the OGA).
The grounds of challenge
As to Ground 1, the Court held that it is for the OGA to determine how to assess “economic recovery”, subject only to the Wednesbury test of unreasonableness. The relevant statutory provision is “couched in imprecise terms … in all the circumstances hallmarking the exercise as one to be done by reference to the authority’s specialist understanding and judgment.” The Court further noted that it will afford considerable deference to the regulator’s expert view; and that it is highly unlikely that Parliament intended the Court, rather than the expert regulator, to determine the best method of economic assessment.
In the alternative, the Court found that the Claimants had not discharged the burden of showing that the OGA’s pre-tax wording was not the intended statutory approach. If necessary, the Court would have concluded that the OGA’s wording represents the correct approach to MER having regard to the relevant background – such as the Wood Review.
As to Ground 2, the irrationality challenge was also rejected. The Court held that the argument that climate change concerns can only rationally be accommodating by adopting a different approach to assessing MER “departs from a long-held method of economic assessment”, and there is “simply nothing which would justify this conclusion”. Further, the argument that the OGA is legally required to “undermine (or limit)” MER would “effectively override” s.9A of the 1998 Act.
The Court also considered two reports relied upon by the Claimants as expert evidence, concluding that they did not comply with CPR Part 35. The Court held that CPR Part 35 applies with full force to judicial review claims. The Court also observed that,
“the application to rely on expert evidence and the maintenance of reliance on that evidence right up to and at the hearing has undoubtedly increased the costs of all parties. This is highly undesirable and contrary to the overriding objective. Parties taking this course can expect to be visited with costs consequences.”
The full judgment is available here.
Kate Gallafent QC, Jane Collier and Rachel Jones acted for the First Defendant, instructed by Oil and Gas Authority Legal.