Cadogan Petroleum Holdings Ltd v Global Process Systems LLC

JurisdictionEngland & Wales
JudgeMr Justice Eder
Judgment Date15 February 2013
Neutral Citation[2013] EWHC 214 (Comm)
Docket NumberCase No: 2011 FOLIO 1030
CourtQueen's Bench Division (Commercial Court)
Date15 February 2013

[2013] EWHC 214 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Eder

Case No: 2011 FOLIO 1030

Between:
Cadogan Petroleum Holdings Ltd
Claimant
and
Global Process Systems LLC
Defendant

Paul Stanley QC and Andrew Legg (instructed by Byrne and Partners LLP) for the Claimant

Michael Bools QC (instructed by Herbert Smith Freehills LLP) for the Defendant

Hearing dates: 5 – 7 February 2013

Mr Justice Eder

Introduction

1

For almost 60 years, students of law have debated the example posed and considered by Denning LJ in Stockloser v Johnson [1954] 1 Q.B. 476, 491:

"…..Suppose a buyer has agreed to buy a necklace by instalments, and the contract provides that, on default in payment of any one instalment, the seller is entitled to rescind the contract and forfeit the instalments already paid. The buyer pays 90 per cent. of the price but fails to pay the last instalment. He is not able to perform the contract because he simply cannot find the money. The seller thereupon rescinds the contract and retakes the necklace and resells it at a higher price. Surely equity will relieve the buyer against forfeiture of the money on such terms as may be just…."

2

At heart, that is what the present dispute is about – although the court is here concerned not with a necklace but rather two Gas Plants originally constructed by the defendant ("GPS") in their fabrication yard in Mafraq, Abu Dhabi and intended for shipment to and use in Ukraine. The Gas Plants are currently still situated in Abu Dhabi where they have been — effectively "mothballed" – since 2009, almost 4 years ago. It is common ground that GPS appear to have been pro-active to ensure that the main equipment has been preserved in good condition and that the plants are in good shape.

The Gas Plants

3

The Gas Plants are very large structures properly described as "gas stripping plants" each comprising of a number of different inter-connecting components such as separators, heaters, compressors, pipes, tanks and pumps. They utilise what is referred to as the "Joule-Thomson effect" with a capacity of up to 100 mmscf/d each (design capacity was 70 mmscf/d and 650 tonne/d condensates). As built, they were designed for (i) a high pressure reservoir (the richest feed having a methane content of 73.6% and fed to the plant at high pressure (138 barg)); (ii) a low temperature environment (including a comprehensive heating system to permit operation in severe winter conditions in Ukraine which would be largely redundant in hotter climates); (iii) "sweet gas service" with the result that the plants cannot cope with other than trace levels of hydrogen sulphide or "lethal sour service"; (iv) an onshore application; and (v) the preparation of the waste water and condensates for trucking.

The Settlement Agreement dated 15 October 2009

4

The present dispute arises out of a Settlement Agreement dated 15 October 2009 (the "Settlement Agreement"). The background to that agreement is most conveniently summarised in the recitals:

i) GPS originally agreed to sell two gas condensate plants to two companies for use in Ukraine. Sale and purchase contracts both dated 16 July 2008 were entered into by GPS and two wholly owned subsidiaries of Cadogan Petroleum Holdings Ltd ("Cadogan"), LLC Astroinvest Ukraine ("Astro") and Usenco Ukraine ("Usenco").

ii) Those contracts were both "rescinded" by agreements dated 9 April 2009 (Astro) and 29 May 2009 (Usenco).

iii) By the same agreements, which rescinded the 16 July 2008 contracts (in the case of Usenco, as amended), GPS and Cadogan entered into two contracts for the "manufacture and delivery of equipment for the construction of complex gas treatment plant[s]" in the territory of the Poltava Region (Astro) and Lviv (Usenco).

iv) By 29 May 2009, therefore, GPS and Cadogan had agreed that GPS would manufacture and supply, and Cadogan would buy, the two Gas Plants (with Cadogan selling those plants on to Astro and Usenco).

v) By July 2009 a series of disputes had arisen between the parties. In particular:

a) Those parties referred to as the "Claimants" (including Cadogan) alleged that GPS and Global Process Systems Inc. ("GPS Inc") were liable for various alleged secret commissions (referred to in Recital O);

b) the Claimants also alleged that the business of SonicGauge and/or various shares in SonicGauge were held on trust for Cadogan and that the GPS Parties were liable to pay damages and/or equitable compensation (Recital O); and

c) GPS maintained that Cadogan had accepted the Gas Plants and that, title having passed to Cadogan, it was liable to pay the outstanding balance of the purchase price (Recital Q).

Two sets of proceedings (the "English Proceedings" and the "GPS Proceedings") were commenced.

5

The Settlement Agreement was intended to resolve the three issues set out above, as reflected in Recitals (U) and (W):

(U) It is in the commercial interests of the Parties to settle the English Proceedings and the GPS Proceedings and to resolve and release all claims between the Claimants and the GPS parties, and by this Agreement the Parties, on and subject to the terms set out below, have agreed to do so; and GPS LLC has agreed to repurchase the Gas Plants from Cadogan Holdings for the price and on the terms set out below.

(W) Cadogan Holdings and GPS LLC have also agreed that in the events set out below they will incorporate a new company with a view to securing, developing and exploiting the use of sonic gauge technology from QinetiQ Limited.

6

The Settlement Agreement comprised four main parts:

i) an agreement between all of the 8 parties to the agreement (defined as the "Parties") to compromise all of the disputes between them (Clauses 1 to 8, Settlement of proceedings and release of claims);

ii) an express agreement by the Parties that property in the Gas Plants was vested in Cadogan (Clause 9) and, in effect, a cross-release of all claims and liabilities (Clause 10);

iii) an agreement between Cadogan and GPS only for the sale and purchase of the Gas Plants (Clauses 11 to 22, Purchase and sale of the Gas Plants); and

iv) an agreement between Cadogan and GPS and GPS Inc in relation to SonicGauge (Clauses 23 to 30, Sonic Gauge).

The "Sale Agreement" between Cadogan and GPS

7

The focus of the current dispute is that part of the Settlement Agreement contained in Clauses 11–22 (Clauses 11–20 of which are referred to in Clause 22 as the "sale agreement") and which provides in material part as follows:

"Purchase and sale of the Gas Plants

11. Cadogan … agrees to sell and GPS … agrees to buy each of the Gas Plants, completion of such sale and purchase by the passing of property and payment of the agreed price to take place as provided in paragraphs 12 and 17 and 18 or 19 and 20 below (as the case may be).

12. GPS … will, within 30 days of the date of this Agreement, pay the sum of US$1,000,000 to Cadogan… as part payment of the purchase price for the Gas Plants (being a sum of US$500,000 in respect of each Gas Plant).

13. Pending passing of property in the Gas Plants to GPS … and payment of the total price:-

13.1. Cadogan …

13.1.1. authorizes and permits GPS … and confers upon GPS … the exclusive right to market the Gas Plants and offer them for sale with a view to a New Supply Contract being entered into;

13.1.2. authorizes and permits GPS … to carry out any work on or take any steps in relation to the Gas Plants (or any part of them) for the purpose of maintaining, preserving or protecting them;

13.1.3. will not itself seek to market the Gas Plants or otherwise endeavour to sell them or authorize anyone else apart from GPS … to do so, nor to take any steps which might hinder or interfere with the marketing of the Gas Plants by GPS…,

14. GPS … will use all reasonable endeavours to enter into a New Supply Contract relating to both Gas Plants within 10 months of the date of this Agreement …

17.1 GPS … will pay Cadogan … as the price for a Gas Plant so contracted to be sold a further US$ 18.75 million (making a total price for each Gas Plant of US$ 19.25 million including the payment made pursuant to paragraph 12 above; and making a total price of US$ 38.5 million if both Gas Plants are so contracted to be sold). Such further US$ 18.75 million for each Gas Plant contracted to be sold shall be paid as follows:-

17.1.1. as to US$9 million on or at any time before the earlier of

17.1.1.1. 6 months after entry into the New Supply Contract pursuant to which the Gas Plant in question is contracted to be sold; and

17.1.1.2. 21 days after GPS has received payments totalling US$9 million in connection with such New Supply Contract.

7.1.2. as to the balance of US$ 9.75 million on or at any time before the earlier of

17.1.2.1. 12 months after entry into the New Supply Contract pursuant to which the Gas Plant in question is contracted to be sold; and

17.1.2.2. 21 days after GPS having received payments totalling US$ 18.75 million in connection such New Supply Contract.

18. Property and risk in a Gas Plant so contracted to be sold will pass to GPS LLC immediately on the sooner of the following occurring:-

18.1. payment in full to Cadogan … of the US$ 19.25 million due for that Gas Plant; alternatively

18.2. delivery to Cadogan … of an irrevocable letter of credit of or a performance bond or a bank guarantee issued in favour of Cadogan … by a recognised bank with a Standard & Poor's rating of not less than A for payment of the purchase price or, if payment of part of the purchase price has already been made, for the outstanding balance of the purchase price;

19. If no New Supply Contract has been entered into in respect of a Gas Plant before the expiry period of 10 months after the date of this Agreement ("an unsold Gas Plant"), then...

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    ...forfeit any interest in the property and the instalments already paid. However, still more recently, Eder J in Cadogan Petroleum Holdings Ltd v Global Process Systems LLC [2013] 2 Lloyd's Rep 26 held the doctrine inapplicable to forfeiture of prepayments made towards the acquisition of pro......
  • Griffon Shipping LLC v Firodi Shipping Ltd and Another
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    ...article has been recently described by Eder J. (and I respectfully agree) as containing a most valuable analysis; see Cadogan Petroleum Holdings v Global Process Systems [2013] EWHC 214 (Comm) at paragraph 16. A clear statement of the principle that the recoverability of a payment made by t......
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    ...EWCA Civ 1567 at [12]-[14] (per Tomlison LJ); and, my own judgment in Cadogan Petroleum Holdings Ltd v. Global Process Systems LLC [2013] 2 Lloyds Rep 26 at [14]-[27]. I agree that these authorities provide general assistance to Mr Davies as to the underlying principles although ultimately,......
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    ...v Longbenton Foods Ltd (in administration) [2011] EWHC 1943 (Ch) at [75]; Cadogan Petroleum Holdings Ltd v Global Process Systems LLC [2013] EWHC 214 (Comm) at [32] and [34]). On the other hand, the distinction between sums that are payable prior to and upon breach has drawn poignant critic......
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