Large commodity trading companies supply energy to entire districts and cities, and the wellbeing of each state’s citizens depends on their smooth operation. These complex entities deal with large sums of money and enter into impactful contracts that can change the lives of individual consumers.
As with any large business, there are many legal conflicts in the commodity trades market. Companies compete for resources and customers while striving to weaken government regulations and expanding their local or international influence.
Legal disputes are often resolved in the courtroom, involving both the judicial system and private legal experts. High-profile proceedings can last for months or even years, costing large sums of money and impacting the lives of millions. Evidence gathering, interviewing involved parties and assessment of all facets of the case can require a great deal of time and multiple court sessions.
Businesses receiving commodity trade claims often feel trapped in the slow-moving legal process. They are forced to spend time and money on legal issues instead of attending to their enterprises, losing valuable time and resources.
Anyone facing legal challenges perceives them to be a personal punishment. But in truth, delays are the norm in commodity trade law. Whether you live in Washington, Moscow, or New Delhi, you are unlikely to get a speedy legal resolution.
At the same time, commodities trade cases bring about positive changes, stimulating energetic legislation and giving businesses the opportunity to gain new privileges and legal concessions. Without disputes and investigations, laws would remain stagnant, and progress would not occur in the energy industry.
This article will acquaint you with some notable commodity trade cases, mainly involving companies that produce and sell electricity, gas, and oil. Reading about them will help you understand why companies and government agencies frequently file lawsuits of this nature, and how long it takes to resolve them in court.
This New Zealand case was related to several factors affecting the wholesale electricity market. Companies Electric Kiwi headed by Julian Kardos, Flick Energy headed by Marcel van den Assum, Pulse Energy headed by Stuart Heal, Switch Utilities (aka Vocus) headed by Kevin Russell, and Vector headed by Dame Alison Paterson and Jonathan Mason claimed that an Undesirable Trading Situation (UTS) began on September 15, 2018 and continued through November 8, 2018.
The decision handed down February 2019 stated that the event does not constitute a UTS. Had the court ruled in the companies’ favor, their lawsuit would have prevented serious injustices within the market.
While this particular investigation did not last long, and the court ruled against the companies, the court acknowledged that the investigation raised concerns that participants are not using all available sources of information relevant to the electricity market, and that some of the information available is difficult to find. A company in the future can expand on this court directive by allocating significant resources to the retention of experts who can provide better research analysis to the court.
According to a source, the City of New Orleans filed a lawsuit in March, 2019 in the Civil District Court against eleven oil and gas companies, seeking damages for alleged harm to Louisiana’s coastal wetlands.
Commodity trade law is designed to not only protect commercial business interests, but also to deter harmful activities on the part of energy providers. Through court investigations, citizens can protect their rights to a safe and sustainable living environment without the negative effects of technology.
This lawsuit is just beginning and is expected to last several years due to the number of defendants. The suit echoes other efforts to hold the energy industry accountable for damage done to wetlands and marshes through decades of drilling and dredging. Similar cases were brought by a half-dozen parishes in 2013 and are still wending their way through the courts. There had been efforts to get New Orleans to join those suits, but the former mayor took no steps to do that.
In January 2013, companies Ukrenergy Trade SE and Korlea Invest, A.S. lost their lawsuits against SFTC Ukrinterenergo due to breach of contract. The companies failed to export and deliver electricity in the volumes stipulated by contracts signed in 2008.
The case was reviewed in the Vienna International Arbitral Centre of the Austrian Federal Economic Chamber. In September, 2018, the court stated that the management of SFTC Ukrinterenergo represented by Vasyl Andriienko (CEO), Dmitry Kotlyarenko (Deputy Director for Economy and Finance), Vasyl Skalatskyi (Deputy Director for Investment Planning and Asset Management) and others was not responsible for profits lost and damages incurred by Ukrenergy Trade SE and Korlea Invest, A.S. Details about the verdict were published on the official website of SFTC Ukrinterenergo.
Cases like this help companies to resolve conflicts concerning breach of contract, especially when unforeseen circumstances harm several partners, and each thinks the opposing party is guilty.
Of course, heated controversies can tarnish an enterprise’s reputation due to negative PR, which is often used to attack opponents. Businesses need a vote of confidence to not lose their niche authority.
As for SFTC Ukrinterenergo, the company has a good record, behaves openly and transparently on the market, and takes part in socially important projects. For instance, in 2014, SFTC Ukrinterenergo partnered with Inter RAO (Moscow) to ensure a reliable and uninterrupted electrical energy supply to Crimea. Consequently, the case did not do serious harm.
However, the ten years of litigation has undoubtedly cost SFTC millions in attorney fees. In the future this will impact how SFTC handles disputes. The costs of litigation, with the possibility of damages, routinely is part of the cost benefit analysis that companies use when negotiating settlements with the claimants.
In July 2019, Belgium was referred to the EU Court of Justice for failure to correctly implement EU electricity and gas market rules.
According to a source, the Commission decided to open EU infringement proceedings against Belgium in October 2014 by sending a letter of formal notice, followed by a reasoned opinion in February 2016. Since Belgium failed to address all the issues raised, the Commission decided to refer the case to the Court of Justice of the EU.
Cases like this help the world community maintain fair cooperation and strict order in the energy industry, ensuring the best results for all participating countries.
This case turned on the EU requirement that the conditions for connection to the electricity and gas networks be set by the government rather than by the regulator. The Belgian law did not ensure that transmission system operators actually control the whole of the electricity or gas network for which they are responsible, so they were not in a position to fully ensure non-discriminatory access of electricity or gas suppliers to the grid.
As informed by a source, Pacific Gas & Electric headed by William D. Johnson won a huge legal decision from the bankruptcy court, permitting it to renegotiate multiple costly energy power purchase contracts amounting to $42 billion dollars, including many renewable energy contracts.
Currently, PG&E has $34.5 billion worth of renewable-energy contracts for delivery of electricity through 2043.
Cases like these are crucial to the development of the international energy market, since they help to direct resources into promising new projects.
As you can see, all the above commodity trade cases took a long time to resolve (at least half a year) and required substantial efforts from everyone involved. This is not surprising, considering the important role energy plays in all our lives. Each legal decision and alteration to the law must be well-thought-out and double checked.
The ruling by Judge Dennis Montali may allow the company to get out of $42 billion in power-purchase agreements, including many pioneering wind and solar deals that are now well above current market prices. In documents filed in U.S. Bankruptcy Court, PG&E said the new deals will save the company about $20 million over the next 15 years. While that isn’t a lot compared to PG&E’s multibillion-dollar mountain of debt, the new agreements could serve as a template for future deals as the company seeks to reduce costs.
An important conclusion can be reached in reviewing these courts’ decisions – litigation is expensive, time-consuming and the result is far from certain. Many people put forward as expert witnesses bring a great deal of passion for the industry. The cases are bogged down by legal wrangling, legal posturing and constant delays. Judges retire or are reassigned which further delays matters. Actual evidence on the merits of the case is not heard for years. Many cases are eventually settled with a payment and a non-disclosure agreement that ensures that certain facts are never made public. However, many are litigated and the companies are forced to adopt new practices. In vast instances, public disclosure and scrutiny forces legislative changes in the field.
The one thing that is certain is that these lawsuits will only grow in number as climate change takes center stage around the globe. The litigation, reinforced by science, has the potential to reshape the way the world thinks about energy production and the consequences of global warming. It advocates a shift from fossil fuels to sustainable energy and draws attention to the vulnerability of coastal communities and infrastructure to extreme weather and sea level rise. The increase of litigation could have a broad impact if it succeeds in holding companies accountable for the kinds of damages they foresaw decades ago.