Commonwealth Oil And Gas Company Limited V. Nicholas Wilson Baxter+eurasia Energy Limited
| Jurisdiction | Scotland |
| Judge | Lord Reed |
| Neutral Citation | [2007] CSOH 198 |
| Court | Court of Session |
| Docket Number | CA5/07 |
| Date | 14 December 2007 |
| Published date | 14 December 2007 |
| OUTER HOUSE, COURT OF SESSION [2007] CSOH 198 | |
| CA5/07 | OPINION OF LORD REED in the cause COMMONWEALTH OIL & GAS COMPANY LIMITED Pursuers; against (FIRST) NICHOLAS WILSON BAXTER and (SECOND) EURASIA ENERGY LIMITED Defenders: ________________ |
Pursuers: Keen, Q.C., Munro; Brodies
Defenders: Currie, Q.C., Lindsay; McGrigors
14 December 2007
Introduction
[1] This case concerns an agreement, described as a Memorandum of Understanding, entered into between the second defenders (whom I shall refer to as Eurasia) and the State Oil Company of the Azerbaijan Republic ("SOCAR"), under which Eurasia were granted an exclusive right, for a period of twelve months, to negotiate with SOCAR on the terms of a possible further agreement relating to the exploration and development of an oil exploration block in Azerbaijan ("the Eurasia block"). In the event, the Memorandum of Understanding expired without any further agreement being concluded. In their pleadings in these proceedings, the pursuers (whom I shall refer to as COGCL) maintain that the conclusion of the Memorandum of Understanding was the result of the diversion by the first defender (whom I shall refer to as Mr Baxter) to Eurasia of a valuable commercial opportunity. They contend that, in identifying and procuring that opportunity, and in failing to bring it to COGCL, Mr Baxter acted in breach of a fiduciary duty owed by him as a director of COGCL. They further contend that, since Mr Baxter was a substantial shareholder in Eurasia, one of their directors, their president and their chief executive officer, Eurasia knew that Mr Baxter had secured the Memorandum of Understanding on their behalf in breach of his fiduciary duties to COGCL.
[2] In the summons, COGCL seek in the first place an account of the profits accruing to Mr Baxter personally by reason of his breach of fiduciary duty. They further seek a declarator that Eurasia held the Memorandum of Understanding and any profits flowing from it on constructive trust for COCGL, together with an account of those profits. At the conclusion of the proof, however, as explained below, counsel for COGCL stated that those conclusions were no longer insisted in, since it was accepted that no profits had in fact been derived from the Memorandum of Understanding. COGCL continued however to insist in their alternative conclusion for damages against Mr Baxter and Eurasia jointly and severally, on the basis that, if Mr Baxter had brought the opportunity to enter into the Memorandum of Understanding to the attention of COGCL, they would have pursued that opportunity and entered into the Memorandum of Understanding, either on their own account or through the medium of a corporate vehicle incorporated for that purpose. Had COGCL entered into the Memorandum of Understanding, it was maintained, there was a substantial chance that they would have successfully negotiated and entered into a further agreement for the exploration and development of the Eurasia block. In those circumstances, it was argued, a liability in damages existed by reason of Mr Baxter's breach of fiduciary duty and Eurasia's knowing receipt of a commercial opportunity brought to them in breach of Mr Baxter's fiduciary duty.
[3] In response, Mr Baxter denies having acted in breach of fiduciary duty, and Eurasia deny being under any liability in damages to COGCL. The grounds on which they maintain those positions are considered in detail below. Matters on which the evidence focused included the circumstances in which Mr Baxter became a director of COGCL, and the responsibilities - if any - which he was expected to discharge; the nature of COGCL's activities; whether the conclusion of the Memorandum of Understanding arose out of Mr Baxter's performance of any duties he might have had as a director of COGCL; and whether the opportunity in question was one which he knew, or ought reasonably to have known, might have been exploited by COGCL (as distinct, possibly, from another company in the same group of companies).
The history of the case
[4] It is convenient at this point to say something about the history of the case. The action originally proceeded at the instance not only of COGCL but also of their parent company, Arawak Energy Corporation ("Arawak"). The defenders included not only Mr Baxter and Eurasia but also a company named Interact Ltd ("Interact"). Mr Baxter was alleged to have acted in breach of a fiduciary duty owed to Arawak (of which he was at one time a director, as explained below), as well as a fiduciary duty owed to COGCL. The breach of fiduciary duty was said in each case to consist not only of the diversion of the opportunity to enter into the Memorandum of Understanding, but also the misuse of information confidential to Arawak and its subsidiaries, including COGCL. Mr Baxter was in addition alleged to have acted in breach of obligations of confidentiality imposed upon him by two contracts with Arawak, referred to below as the first and second consultancy agreements. The confidential information in question was said to include information which Mr Baxter received as a director of two other companies in which COGCL had at the time a minority shareholding, namely Commonwealth Gobustan Ltd ("CGL") and Gobustan Operating Company Ltd ("GOC"). It was also alleged that Interact was a corporate vehicle through which Mr Baxter had undertaken to provide consultancy services to Arawak under a contract between Arawak and Interact, and that his diversion of the Memorandum of Understanding opportunity to Eurasia constituted a breach of that contract.
[5] In February 2007 the summons underwent considerable adjustment. The averments relating to the misuse of confidential information as an aspect of breach of fiduciary duty were deleted, together with the averments of breach of confidence and the averments of breach of contract by Interact. Averments were introduced alleging, for the first time, that Mr Baxter had been given the task, as a director of COGCL, of finding new business opportunities in Azerbaijan. The proceedings were then abandoned insofar as they proceeded at the instance of Arawak. They were also abandoned insofar as they were directed against Interact.
[6] In June 2007 a proof before answer was allowed. It was understood that the issue to be resolved at that stage was whether Mr Baxter was under a duty to account to COGCL by reason of a breach of fiduciary duty, and whether Eurasia held the Memorandum of Understanding and any profits flowing from it as constructive trustees for COGCL, and as such were equally under a duty to account. As I have explained, after evidence had been led (indeed, during the course of the closing submissions on behalf of Mr Baxter and Eurasia), counsel for COGCL departed from the conclusions for an accounting and for a declarator of constructive trust, since it was accepted that the Memorandum of Understanding had expired without any profits being derived from it. The court was invited instead to make findings that there had been a breach of fiduciary duty by Mr Baxter, and also a breach of duty by Eurasia, giving rise to a liability in reparation. In the event that the court made such findings, it was submitted that the case should then be put out for a hearing with a view to deciding which pleas should be sustained or repelled and determining future procedure. Counsel for COGCL envisaged that, if the court found that there had been a breach of fiduciary duty, a proof on damages would then be appropriate, possibly after some amendment of the pleadings bearing on that issue. If the court found that there had been no breach of fiduciary duty, then decree of absolvitor would be appropriate.
[7] Counsel for Mr Baxter and Eurasia was content that the court should proceed on that basis, subject to two points. First, counsel wished to reserve his position as to whether any breach of duty by Mr Baxter gave rise to a liability in reparation until the court had made findings as to the nature of any such breach of duty. Secondly, counsel maintained that Eurasia were in any event under no liability in reparation. I understood counsel for COGCL to be content that the relevancy of any claim for damages against Mr Baxter should be reserved at this stage, but that the relevancy of the claim against Eurasia should be determined. It was also agreed that the plea of no title to sue should also be reserved, that plea being directed to the question whether the losses claimed had been suffered by COGCL as distinct from other companies.
[8] As this summary of the history of the case indicates, the case is concerned with a complex network of relationships between different companies and individuals. It is necessary to keep in mind the different types of relationship - some arising by virtue of directorships, others under contract - and also the different companies involved. In relation to the latter point, a feature of the evidence was the lack of attention paid to the distinct identities of different companies, although separate corporate personality was freely used to create "vehicles" which could be used for commercial purposes.
The witnesses
[9] It is appropriate next to say something about the witnesses led at the proof. They were:
1. Mr Baxter, who was led by counsel for COGCL as his first witness.
2. Mr Alastair McBain, the president and chief executive officer of Arawak and a director of COGCL, CGL and GOC.
3. Miss Magdalena Bujnowska, the corporate secretary of Arawak.
4. Mr James Coleman, Q.C., a corporate lawyer practising in Canada, and the chairman of Arawak.
5. Mr Jay Scott, a former director of COGCL, CGL and GOC.
6. Mrs Susan Baxter, who is married to Mr Baxter.
[10] Mr Baxter was an impressive witness, who took care to be accurate in his evidence, and was precise as to the clarity or otherwise of his recollection. It is unfortunate that he was led in advance of COGCL's own witnesses, with the...
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