Excalibur Ventures LLC v Texas Keystone Inc. and Others

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeLord Justice Christopher Clarke
Judgment Date13 Dec 2013
Neutral Citation[2013] EWHC 2767 (Comm)
Docket NumberCase No: 2010 FOLIO 1517

[2013] EWHC 2767 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Christopher Clarke

Case No: 2010 FOLIO 1517

Between:
Excalibur Ventures LLC
Claimant
and
(1) Texas Keystone Inc.
(2) Gulf Keystone Petroleum Limited
(3) Gulf Keystone Petroleum International Limited
(4) Gulf Keystone Petroleum (UK) Limited
Defendants

Simon Picken QC, Timothy Kenefick, Jessica SutherlandandKeir Howie (instructed by Clifford Chance) for the Claimant

Michael Crane QC, Tamara OppenheimerandRichard Power (instructed by Jones Day) for the 1 st Defendant

Jonathan Gaisman QC, Harry MatovuQC, Richard WallerQC, Richard EschwegeandNicola Timmins (instructed by Memery Crystal) for the 2 nd, 3 rd and 4 th Defendants

Hearing dates: October 15 th— 18 th, 22 nd, 23 rd, 30 th and 31 st; November 1 st, 5 th— 8 th, 12 th— 15 th, 19 th– 21 st, 23 rd, 26 th– 30 th; December 3 rd– 7 th, 10 th– 13 th, 17 th– 19 th; 2012; January 14 th– 17 th, 21 st– 25 th, 28 th– 31 st; February 1 st, 4 th, 5 th, 15 th, 25 th– 28 th; March 1 st, September 10 th2013.

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Index

Introduction

1 – 4

The dispute in summary

5 – 9

The parties and those behind them and their witnesses

10 – 81

The Oil & Gas Industry in Kurdistan

82 – 101

The history prior to the Collaboration Agreement

102 – 188

The Collaboration Agreement

189 – 205

The issues arising under the Agreement

206 – 209

Does the Collaboration Agreement recognise indirect interests?

210 – 253

Was Gulf a party?

254 – 306

Conclusion

307

Alternative contractual claims

308 – 341

The history following the Collaboration Agreement

342 – 1340

The claim in deceit, fraudulent representation and fraudulent concealment

591 – 618

Impossibility

635 – 636

Assignment

652 – 696

Deemed withdrawal

697 – 704

Condition precedent

1095 – 1096

Material breach

1097 – 1113

Anticipatory breach

1114 – 1120

Prevention

1121 – 1134

Alter ego

1135 – 1154

Breach of fiduciary duty

1155 – 1195

Excalibur's other non contractual claims

1196 – 1223

Could Excalibur ever have raised the money in time

1341 – 1415

Remedies

Specific performance

1416 – 1468

The adequacy of damages and the assessment date

1421 – 1440

Ready, willing and able?

1441 – 1447

Giving effect to the interest

1448 – 1457

Laches

1458 – 1465

Damages

1469 – 1474

Summary

1475

Lord Justice Christopher Clarke

Introduction

1

In 2007 Kurdistan was one of the last largely unexplored inland regions where there were prospects of discovering oil. Excalibur Ventures LLC ("Excalibur"), the claimant, contends that it has been unlawfully cut out of a deal under which, in the events which have happened, it became entitled to an interest in four blocks in Kurdistan, one of which — the Shaikan block — has been found to have very large quantities of oil — something like three times the amount of Brent North Sea oil.

2

The foundation of Excalibur's claim is a Collaboration Agreement ("the Collaboration Agreement") of 16 February 2006 under which the parties agreed to collaborate in bidding for petroleum blocks in Iraqi Kurdistan. In Kurdistan the form which concessions take is that the Kurdistan Regional Government of Iraq ("KRG") enters into a Production Sharing Contract ("PSC") with one or more companies.

3

The Collaboration Agreement is expressed to be between Excalibur and Texas Keystone Inc ("Texas"), the first defendant. Excalibur claims that Gulf Keystone Petroleum Ltd ("Gulf"), the second defendant, was also a party to that agreement (either because Texas executed it as Gulf's agent or because Texas was the alter ego of Gulf) or became one by assignment.

4

In the event, Excalibur accepted not being a party to any PSC to be entered into as a result of a successful bid. On 6 November 2007, after a series of proposals (as opposed to a formal bid), a PSC was entered into between the KRG on the one hand and (i) Gulf Keystone International Ltd ("Gulf International"), the third defendant, a Gulf subsidiary; (ii) Texas; and (iii) Kalegran Ltd ("Kalegran") on the other in respect of the Shaikan block. Kalegran is a Cypriot company wholly owned by MOL Hungarian Oil & Gas Public Company Ltd ("MOL"), a public oil and gas company listed on the Budapest Stock Exchange, whose largest shareholder is the Hungarian State.

The dispute in summary

5

Excalibur contends that, although it is not a party to the Shaikan PSC, the Collaboration Agreement entitles it to an interest in it. Any such interest would necessarily be indirect. The principal remedy which it claims is specific performance of the Collaboration Agreement, so as to give effect, in such manner as the Court may determine, to its indirect interest in Shaikan. It also claims similar relief in respect of three other blocks:

i) Akri-Bijeel, which was the subject of another PSC of 30 October 2007 between the KRG and Kalegran and of an acreage swap of 31 December 2007 whereby MOL (the bidder) exchanged a 20% interest in Akri-Bijeel for a 20% interest in Shaikan;

ii) Sheikh Adi; and

iii) Ber Bahr.

The PSCs in respect of Sheikh Adi and Ber Bahr were signed in 2009.

6

Alternatively Excalibur claims damages from Texas and Gulf in contract, including various claims in the alternative to its primary contractual claim, and under five non-contractual headings (interference with contract, interference with business relations, breach of fiduciary duty, fraud by misrepresentation and fraud by concealment). It puts its damages at over US 1 $ 1.75 billion in respect of Shaikan alone. All the defendants contend that Excalibur is not entitled to any relief against any of them.

7

Gulf claims, inter alia, that it was never a party to the Collaboration Agreement, and that it was entitled to bid for Shaikan (and any other block) without reference to Excalibur. Both Texas and Gulf contend that, by deciding that it did not need to be on the PSC, Excalibur in effect gave up on any rights under the Collaboration Agreement, which does not, they say, confer or recognise any indirect interests. Even if it might have been entitled to an indirect interest, Excalibur could not raise the necessary finance for the bonuses payable under the Shaikan PSC within any commercially acceptable timeframe, so that it was in material breach of its obligations under the Collaboration Agreement, or renounced them. It was, in any event, neither ready nor able to fulfil those obligations within such a timeframe, so that, on both counts, it is disentitled to any such interest.

8

The closing submissions in the present case exceed by about 30,000 words the length of the Old Testament (in the King James version). They have 9,214 footnotes helpfully hyperlinked to the documents and the transcript. I do not intend to deal in this judgment with all the material referred to, facts asserted, or arguments made. If and insofar as I do not do so that does not mean that I have ignored them. I have read the entirety of the submissions more than once and reread a very substantial proportion of the referenced material. This judgment contains such findings of fact as I consider it necessary to make and my conclusions thereon in the light of the submissions made.

9

Many, but by no means all, of the facts are not the subject of serious dispute. In this judgment I have made extensive use of the framework and content of Volume 2 of Gulf's final submissions (which contains a detailed narrative history) and, in particular, its summary or citation of documents and evidence, but with many variations, additions, omissions, qualifications and substitutions of my own. I have done so because I have found it a reliable summary of relevant parts of the enormous quantity of documentary material and the oral evidence of both sides. Wherever I have made use of the text from that source (whether in original or altered form) I have checked the relevant references to satisfy myself that the citation is accurate and not incomplete.

The parties and those behind them

Excalibur

10

Excalibur, the claimant, is a Delaware corporation. It is the corporate vehicle of Mr Rex Wempen ("Mr Wempen"), who founded it in April 2003, and his brother Eric Wempen. Under an Amended and Restated Operating Agreement of 6 January 2008

("the Operating Agreement"), which replaced the original agreement of 1 May 2003, he is its sole Manager and in complete control. The company has no shares and consists only of membership interests — 75% in the case of Rex and 25% in the case of Eric Wempen 2.
11

Excalibur has no working capital; and no Board. It never had any formal management or investment team (as opposed to people on whom it might be able to call on to work on different projects). It had no employees in any sense after 2004. The Operating Agreement provides that Excalibur shall not hold annual meetings of members: clause 5.7.2. It is not an oil company and has no track record in respect of oil exploration or production, nor any oil and gas expertise. It is, in essence, a nameplate for the Wempen brothers, who have no relevant management experience.

12

Excalibur has not prepared financial statements or any other financial information since 2005. It is not required to do so. The only set of accounts located (for 2003) shows Total Assets of $ 6,739, and a trading loss of $ 5,935 against revenue of $ 146,799. In 2006 Excalibur had no income. Excalibur did not maintain management or similar accounts 3. The bank...

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