LIDW2026: Energy Trading Volatility and Long-Term Liabilities

London International Disputes Week 2026 featured two thought-provoking discussions on the legal challenges facing the energy sector.

The first, co-hosted by CMS and Twenty Essex, focused on Energy Trading Disputes: Risk and Market Volatility, and featured Phillip Ashley (CMS), Michael Ashcroft KC (Twenty Essex), Asya Jamaludin (CMS), Stuart Amor (FTI Consulting) and Christina Anderson (Eni Trade & Biofuels).

The second, focused on Long-Term Liabilities in the Energy Sector, was co-hosted by Clyde & Co LLP and One Essex Court and featured Mark Walsh (Clyde & Co), Laurence Emmett KC (One Essex Court), Angela Flaherty (Clyde & Co) and Emma Jones (One Essex Court).

Both events were conducted under the Chatham House Rule. Accordingly, this article summarises the themes discussed without attributing any views or comments to individual panellists.

A.      Energy Trading Disputes: Risk and Market Volatility

1.       Introduction

The panel opened with an overview of the scale and evolving structure of global energy markets, which the International Energy Agency estimates at approximately $10 trillion per year. Panellists noted that geopolitical developments, including Russia's invasion of Ukraine, the growth of Asian energy demand and the US shale revolution, have significantly reshaped global energy flows. Recent disruptions in the Gulf region and the closure of the Strait of Hormuz were highlighted as examples of events capable of triggering substantial contractual and trading disputes across energy supply chains.

Against this backdrop, the panel examined how market volatility translates into legal disputes. A particular focus was the dramatic increase in war-risk insurance costs and freight rates, prompting parties to revisit contractual risk allocation.

Traders are increasingly seeking liability caps on such premiums and express subrogation waivers, a trend sharpened by the Supreme Court's decision in Herculito Maritime Ltd v Gunvor International BV (The Polar) [2024] UKSC 2. With vessels stranded, contracts terminated and hedges unwound, panellists anticipated counterparties taking harder commercial positions and pursuing disputes more readily. This has contributed to a rise in force majeure declarations, with practical challenges centring on notice requirements, causation, and whether disruption is genuine or a pretext for exiting a poor deal.

2.       Force Majeure, Frustration and Foreseeability

Force majeure under English law can only arise from the contract, making the specific wording of each clause the starting point. The Burntcopper Ltd t/a CDU v ITCA Ltd [2014] case was cited as instructive: the court held that “unforeseen circumstances” must not have been foreseen by either party, rejecting the remoteness of damage test in favour of giving the words their ordinary meaning.

Panellists noted two limitations on this decision: (i) the judgment did not address how probable an event must be to qualify as unforeseen, and (ii) the assessment of the foreseeability should be at the time of the event rather than at contracting phase, a proposition that it was found arguably wrong by the panellists. Even without an express foreseeability requirement, courts are unlikely to apply broadly worded clauses to events clearly foreseeable at contracting. On frustration, where a supervening event was reasonably foreseeable, the most plausible inference is that the parties assumed the risk, leaving no room for the doctrine to operate.

3.       Portfolio Trading, Source Obligations and Evidential Challenges

Unless a contract specifies the cargo source, disruption to one supply source will not ordinarily excuse performance. The seller may need to source elsewhere, even at significantly higher cost. The broader the portfolio, the harder it becomes to argue that a single disruption has prevented performance altogether. In Mercuria Energy Trading SA v Onex DMCC [2026] EWHC 130 (Comm), the court rejected arguments that "typicals" in a fuel oil contract created binding quality warranties, illustrating that what a trader believes it is selling may not align with what the contract requires. This distinction bears directly on whether performance is impossible or merely more expensive.

Contracts increasingly require sellers to exhaust portfolio-wide options before invoking force majeure, creating acute evidential challenges around the disclosure of sensitive proprietary trading data, to be managed through confidentiality rings or, in complex cases, physical data rooms.

4.       Commercial Strategies, Benchmarks, Losses and Damages

Panellists highlighted two strategies testing contractual boundaries: the Venture Global arbitrations, where conflicting outcomes arose from allegations that commissioning delays were deliberate to enable spot sales during the 2022 price spike; and instances of sellers paying liquidated damages of around 20% of contract price rather than performing, where spot prices had risen beyond that threshold. Panellists highlighted that the primary/secondary obligation distinction is critical here. If a take-or-pay clause is construed as a primary obligation, payment discharges it entirely and no breach arises. If it is a secondary remedy for breach, buyers may pursue injunctions (Sky Petroleum v VIP Petroleum [1974]; AB v CD [2015]) or argue that broadly worded limitation clauses do not cover cynical breach (A Turtle Offshore SA v Superior Trading Inc [2008] EWHC 3034). On benchmarks, Standard Chartered PLC v Guaranty Nominees Ltd [2024] EWHC 2605 established that courts will imply terms to preserve contracts where pricing mechanisms fail, though outcomes remain uncertain and fact-dependent. The emerging Mercuria v Baltic Exchange case raises the novel question of whether index publishers owe market participants a duty of care.

Finally, on hedging losses, Rhine v Vitol confirmed that internal hedging is disregarded for damages purposes. External hedges may be relevant where causally linked to the breach concluded the panellists. The 2015 BP General Terms and Conditions no longer expressly exclude hedging losses, unlike the 2007 version, and parties wishing to exclude such claims should ensure specific and express wording to that effect.

B.      Long-Term Liabilities in the Energy Sector

1.       The Scale and Shape of Environmental Contamination Claims

Panellists opened by framing liabilities at large as those extending beyond project documents, such as those arising from environmental contamination or inadequate remediation. Group claims over toxic emissions from a Zambian copper mine (Vedanta) and oil spills in the Niger Delta (Okpabi) were used as illustrative, noting that some contamination is detected within hours (as with oil spills, per Jalla v Shell) while other instances surface only decades later. Panellists also pointed to a recent BBC report on historic pipeline pollution in Nigeria, and the Supreme Court's climate-related decision in Finch, as signs of growing public scrutiny of energy projects when it comes to environmental exposure.

Panellists highlighted the striking claimant numbers in recent group actions: roughly 15,000 in Vedanta, over 40,000 in Okpabi, and more than 600,000 in the Mariana Dam litigation against BHP. They noted that English procedural tools, such as consolidated proceedings, Group Litigation Orders, and representative actions, can make such claims manageable. Panellists observed that for claimants, group actions ease cost-sharing and funding, while for defendants the risks include reputational damage, aggregated exposure, inconsistency across statements to regulators and insurers, and knock-on claims against suppliers or indemnifiers.

2.       Jurisdiction and the UK Parent Company Strategy

The discussion moved to the strategy of suing UK parent companies in England for breach of a duty of care recognised under the foreign law, with the overseas subsidiary joined as a necessary party. Panellists suggested several drivers behind this approach: the parent's deeper pockets, confidence in the English judiciary's experience with complex group litigation, doubts about obtaining substantial justice in the local jurisdiction, and the reputational pressure of being sued at a company's headquarters. They noted Vedanta settled shortly after its jurisdiction ruling, while Okpabi continues, with preliminary issues on Nigerian law decided last year. Panellists also pointed to the Mariana Dam case, where parent companies were pursued in England based on their degree of control over the dam's operation, with the claim succeeding under Brazilian law principles of strict liability.

3.       Historic Contamination and Limitation

Historic contamination was pointed as a serious issue, specially when is only discovered decades later, by which point records are patchy and the original polluter may be dissolved or insolvent. Panellists cited R (National Grid Gas plc) v Environment Agency [2007] UKHL 30 as a cautionary illustration: coal tar buried at a gasworks resurfaced decades later beneath housing. The Environment Agency carried out the remediation works itself, then sought to recover the costs. With the original polluters dissolved and the Agency unwilling to pursue the homeowners, only National Grid (a private company descended from the once-nationalised gas industry) remained as a possible payer. But the House of Lords held its inherited liabilities pre-dated the contamination duty, so it wasn't liable either.

Limitation laws add a further hurdle, since late-discovered contamination risks falling outside the standard six-year period. Panellists pointed to two possible extensions: section 14A of the Limitation Act 1980 (three years from the date of relevant knowledge, limited to negligence claims), and section 32 (suspension where contamination was deliberately concealed).

According to panellists, this connects to the Supreme Court's recent rejection of a "continuing nuisance" in Jalla v Shell. Claimants argued that oil remaining on their land kept the nuisance alive indefinitely, resetting the limitation clock daily. The Court rejected this approach: the nuisance arose once, when the oil first reached the land, not on an ongoing basis just because it hadn't been cleaned up. Panellists noted this narrows one route to extending liability for old contamination. However, they suggested that repeated discharges or an ongoing source of pollution could still support a different analysis, a question being tested separately in Okpabi.

4.       Insurance Coverage Gaps

Panellists flagged a key insurance gap: public liability policies typically cover damages only, i.e, fault-based compensation for harm, and not statutory debts. In Bartoline v Royal & Sun Alliance, after a factory fire contaminated nearby watercourses, the Environment Agency carried out the cleanup and billed the company for it. The court held this was a statutory debt, not damages, so the public liability policy didn't cover it.

The panellists clarified that broader policies do exist, such as operators' extra expense cover for well leaks or environmental impairment liability (“EIL”), but these typically require discovery and reporting within weeks, a poor fit for contamination surfacing decades later. Insurers' reluctance to underwrite such long-tail exposure and low limits means that EIL cover is rarely purchased. Panellists also noted that the North Sea OPOL regime offers an interesting partial solution as a no-fault, industry-funded scheme, but it is limited to active scheme members, offering nothing for historic or dormant assets.

5.       Indemnities Between Industry Participants

The final segment turned to indemnities, defined as the contractual arrangement letting one industry participant pass a liability to another (e.g. insurers, co-venturers of a joint operating agreement, sellers under transfer agreements, etc.). This creates a three-way relationship: claimant sues a defendant, who in turn looks to its indemnifier to cover the loss.

The core problem identified by panellists is the mismatch: the indemnity's scope may not match the underlying claim (often due to cut-off dates in transfer documents), and the two disputes may sit in different forums. This leaves the defendant exposed to paying the claimant first, then fighting separately to recover.

Panellists discussed two remedies available before liability crystallizes: specific performance, forcing early payment from the indemnifier; and the rarer quia timet jurisdiction, ordering a fund set aside in advance. Panellists noted that this mismatch can hand claimants leverage, encouraging the defendant and its indemnifier to blame each other rather than present a unified front.

Panellists ended on a cautionary note: where the indemnified and indemnifying parties' interests diverge, for instance, in disputes over when contamination occurred, claimants can exploit that mismatch, encouraging the two sides to blame each other rather than presenting a unified defence.