Vitol E&P Ltd v New Age (African Global Energy) Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Moulder |
| Judgment Date | 22 June 2018 |
| Neutral Citation | [2018] EWHC 1580 (Comm) |
| Docket Number | Case No: CL-2016-000656 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 June 2018 |
[2018] EWHC 1580 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Moulder DBE
Case No: CL-2016-000656
Simon Rainey QC (instructed by Herbert Smith Freehills LLP) for the Claimant
Vernon Flynn QC & Adam Woolnough (instructed by Gresham Legal) for the Defendant
Hearing dates: 14, 15 and 17 May 2018
Judgment Approved
This case arises out of a financing fee side letter entered into between the claimant and the defendant.
Background
The claimant is a company within the Vitol group of companies. Historically the claimant held a portfolio of proprietary exploration and production assets in West Africa. The defendant is an oil and gas company engaged in exploration, appraisal, development and production.
In 2013 the claimant entered into an agreement with the defendant whereby the claimant's “non-core” assets in Cameroon and Nigeria were transferred into the defendant's African portfolio in consideration for a minority stake in the defendant and a seat on the defendant's board.
The defendant indirectly owns a 25% share in the licence in respect of the offshore area of hydrocarbon reserves named Block Marine XII. In order to enable the defendant (through its subsidiaries) to meet capital commitments in respect of its participation in Block Marine XII, the defendant sought funding from the claimant.
On 21 January 2015 the claimant, together with two other shareholders of the defendant, and the defendant entered into a US$50 million shareholder loan agreement (the “Bridge Loan Agreement”) pursuant to which the claimant lent US$15 million (of the US$50 million) to the defendant. A facility agreement dated 4 February 2015 (the “Facility Agreement”) was concluded between the claimant, the defendant and the two subsidiaries of the defendant through which Block Marine XII is held pursuant to which a loan facility of US$45 million (the “Facility”) was made available.
The Facility Agreement was a secured loan with a term of five years. The Facility Agreement contemplated that the defendant would enter into a further “reserves based” facility agreement defined as the “RBL Facility”. Under clause 17.2 of the Facility Agreement the claimant agreed to negotiate with the lenders under the RBL Facility the terms of an intercreditor agreement (the “Intercreditor Agreement”) and that such agreement between the claimant and the RBL lenders would be reached within 365 days of the date of the Facility Agreement, which period was extended to 455 days if a term sheet relating to a proposed RBL Facility was signed within 365 days (the “Intercreditor Negotiation Period”). With effect from the date of execution of the RBL Facility and in accordance with such an Intercreditor Agreement, the RBL lenders would then be the primary beneficiary of the security package granted by the defendant and the claimant would rank behind the RBL lenders.
There was also a financing fee side letter also dated 4 February 2015 executed between the claimant and the defendant in connection with the Facility Agreement (the “Side Letter”).
Throughout the negotiations of the Facility Agreement the claimant and the defendant were represented by Herbert Smith Freehills LLP (“Herbert Smith”) and Clyde & Co. LLP (“Clyde & Co”), respectively.
It is common ground that pursuant to clause 3.1 of the Side Letter the defendant agreed to pay a financing fee (the “Financing Fee”) of US$2 per BBL in respect of each of the first 22,500,000 barrels of crude oil lifted from the Block Marine XII asset following the date of the Facility Agreement and that the Financing Fee could be reduced to US$1 per BBL in certain circumstances.
On 23 August 2016 the claimant invoiced the defendant's subsidiary in the sum of US$63,716 representing a Financing Fee of US$2 per BBL on 31,858 barrels of crude oil. The defendant disputed the invoice on the basis that the Financing Fee had been reduced to US$1 per BBL. The defendant subsequently remitted the sum of US$31,858 to the claimant. The claimant now seeks through these proceedings recovery of the difference of US$31,585 and a declaration that the Financing Fee payable by the defendant under the Side Letter is US$2 per BBL.
Evidence
I heard oral evidence from Mr Egan, for the claimant. Mr Egan was directly involved in the negotiation and execution of the Side Letter and the Facility Agreement.
For the defendant I heard evidence from Mr Lowden, the chairman of the defendant and until June 2017 also the chief executive officer. Mr Lowden's evidence was that his primary focus was on the high level issues rather than on the detail of each draft. His evidence was that the defendant's CFO, Mark Akers and an employee of the defendant, Mr Stoopin, were involved in negotiating the documents on behalf of the defendant. Neither Mr Akers nor Mr Stoopin were called to give evidence.
Issues
In summary the following issues are in dispute:
i) The construction of clause 3.1 of the Side Letter;
ii) Whether the defendant is estopped from advancing its contended construction of clause 3.1 of the Side Letter;
iii) If the true construction of clause 3.1 of the Side Letter is as the defendant contends, does this accurately reflect and give effect to the common understanding of the parties or has there been a mistake on the part of both parties? Should the court exercise its discretion to grant rectification?
iv) Alternatively, if the defendant did not share the understanding of the claimant, but intended clause 3.1 to have the construction for which it contends, did the claimant make a unilateral mistake of which the defendant was aware such that rectification of the Side Letter should be granted?
The construction of clause 3.1 of the Side Letter
Clause 3.1 reads:
“The Parent shall pay, or procure the payment of, to [the claimant] an amount equal to US$2 per BBL in respect of each of the first 22,500,000 BBLs of Crude Oil won and saved from Block Marine XII following the date of the Facility Agreement, which OpCo is entitled to receive or in respect of which OpCo is entitled to the proceeds, within 10 Business Days of the due date for payment in respect of the relevant BBL of Crude Oil (the “Payment Due Date”) (the “Financing Fee”) provided that, if the Intercreditor Agreement is not executed by the relevant parties by the end of the Intercreditor Negotiation Period, the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, following the date of prepayment in full and provided that the Final Discharge Date has occurred, within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL.”
“Final Discharge Date” is defined in the Facility Agreement as:
“the first date on which all Liabilities under the Finance Documents have been fully and finally discharged to the satisfaction of the Agent… and the Finance Parties are under no further obligation to provide financial accommodation to any Transaction Party under the Finance Documents.”
The question of construction arises in relation to the circumstances in which the reduction to US$1.00 per BBL will occur and therefore the construction of the proviso:
“provided that, if the Intercreditor Agreement is not executed by the relevant parties by the end of the Intercreditor Negotiation Period, the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, following the date of prepayment in full and provided that the Final Discharge Date has occurred, within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL”
The claimant's case in essence is that the fee is reduced if
i) no Intercreditor Agreement has been executed by the end of the Intercreditor Negotiation Period; and
ii) the Facility is prepaid out of the proceeds of the RBL Facility; but
iii) only if repayment (confirmed by the occurrence of the Final Discharge Date) has occurred within 10 business days of the expiry of the Intercreditor Negotiation Period.
The defendant accepts that the fee is reduced:
i) if the Intercreditor Agreement had not been executed by the end of the Intercreditor Negotiation Period; and
ii) the Facility is prepaid out of the proceeds of the RBL Facility;
but asserts that the reduction in the fee occurs irrespective of when the Facility is repaid; such reduction taking effect within 10 business days following the expiry of the Intercreditor Negotiation Period.
The dispute between the parties on the construction therefore centres on whether the phrase “within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL” means that once the Facility has been repaid, the reduction of the fee occurs at a point in time falling “within 10 Business Days following the expiry of the Intercreditor Negotiation Period” or whether the correct interpretation of the language is that the fee reduces only if prepayment of the Facility (and the Final Discharge Date) has occurred within 10 Business Days following the expiry of the Intercreditor Negotiation Period. On the claimant's interpretation, this involves the court finding that the punctuation has gone awry and the comma inserted before the phrase “within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL” is in the wrong place.
Relevant legal principles
The most recent decision on construction relied upon by the...
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Grammar and Punctuation
...40–41. 24 See Austin v Bell Canada , 2019 ONSC 4757, rev’d 2020 ONCA 142; Vitol E&P Ltd v New Age (African Global Energy) Ltd , [2018] EWHC 1580 (Comm); m 184 m Chapter Three: Grammar and Punctuation Read that English document aloud, and you’ll be left breathless: no pauses. The basic princ......