Monde Petroleum SA v Westernzagros Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Salter |
| Judgment Date | 28 June 2016 |
| Neutral Citation | [2016] EWHC 1472 (Comm) |
| Docket Number | Case No: 2013 Folio 308 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 28 June 2016 |
[2016] EWHC 1472 (Comm)
Mr Richard Salter QC
Sitting as a Deputy Judge of the High Court
Case No: 2013 Folio 308
CL-2013000595
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice. Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Stephen Cogley QC and (instructed by Candey Limited) appeared for the Claimant
Mr Thomas Sprange QC and Ms Ruth Byrne (of King & Spalding International LLP) appeared for the Defendant
Hearing dates: 11, 12, 13, 14, 18, 19 April 2016
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
| Section | Heading | Paragraph numbers |
| A | Introduction | 1 – 23 |
| B | The background to the CSA | 24 – 47 |
| C | The express terms of the CSA | 48 – 54 |
| D | Subsequent events | 55 – 115 |
| E | The termination of the CSA | 116 – 153 |
| F | The nature of the relationship with Bafel Talabani | 154 – 176 |
| G | Issue 1: Was Monde induced by WZL to conclude the Termination Agreement by misrepresentation? | 177 – 222 |
| H | Issue 2: Was Monde induced by WZL to conclude the Termination Agreement by Duress? | 223 – 224 |
| I | Issue 3: If Monde was induced to execute the Termination Agreement by misrepresentation or duress, is Monde nevertheless estopped from denying the validity of the Termination Agreement? | 225 – 230 |
| J | Issue 4: Was it the common intention of the parties, on exercising the Consultancy Agreement, that they would enter into a long term agreement for the mutual benefit of both parties (as Monde contends); or was the Consultancy Agreement intended by the parties to be a 'trial run', with a long term relationship being possible only if Monde proved to be a capable and valuable consultant to WZL (as WZL contends?). | 231 – 241 |
| K | Issue 5: Was it an implied term of the Consultancy Agreement that, amongst other things, WZL would not exercise any right to terminate under Clauses 10.2 and/or 10.3 in bad faith and/or in any manner which unconscionably deprived Monde of its accrued and/or future rights arising under that Agreement and/or only for a proper purpose (as Monde contends); or did the Consultancy Agreement contain no such implied terms (as WZL contends)? | 242 – 276 |
| L | Issue 6: Was WZL entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.2 of the Consultancy Agreement, such that the Termination Notice was effective in any event? | 277 – 318 |
| M | Issue 7: If as at 16 March 2007 WZL was not entitled to terminate the CSA under Clause 10.2, was it nevertheless entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(i)? | 319 – 323 |
| N | Issue 8: If the answer to question 7 is 'no', was WZL nevertheless entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(ii)? | 324 – 330 |
| O | Issue 9: If the answer to question 8 is 'no', was WZL nevertheless entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(v)? | 331 – 333 |
| P | Issue 10: Did WZL serve the Termination Notice in bad faith and/or unconscionably because in doing so it intended to deprive Monde of the monthly remuneration under the Consultancy Agreement and of the profits arising from WZL's future oil exploration and production in Kurdistan, such that in serving the Termination Notice WZL breached the implied terms of the Consultancy Agreement? | 334 – 344 |
| Q | Issue 11: If the answer to questions 6 – 9 are all 'no', and the answer to question 10 is 'yes', such that in serving the Termination Notice on 16 March 2007 WZL committed a repudiatory breach of the Consultancy Agreement, has Monde suffered loss? | 345 – 358 |
| R | Issue 12: Is Monde entitled to rescind the Termination Agreement, or is it barred from doing so on grounds of impossibility of making restitution and/or delay and/or estoppel and/or because Monde subsequently affirmed it and/or because of the intervention of the rights of third parties? | 359 |
| S | Summary | 360 – 379 |
| T | Consequences | 380 |
Mr Salter QC:
(A) Introduction
A.1 The dispute in outline
This action arises out of the scramble by Western companies, in the period following the fall of Saddam Hussain, to exploit the natural resources of the Kurdistan region of Iraq. As Christopher Clarke LJ noted in Excalibur Ventures LLC v Texas Keystone Inc1, at the relevant time Kurdistan was one of the last largely unexplored inland regions where there were prospects of discovering oil.
The claimant in this action, ("Monde") is a British Virgin Islands company run by Mr Yassir Al-Fekaiki ("Mr Al-Fekaiki"). Mr Al-Fekaiki is a British national of Iraqi origin, whose father was, until his death in 1997, a prominent Iraqi politician and one of the leaders of the opposition to Saddam Hussain.
The defendant ("WZL") is a Cypriot-registered company with its headquarters in Calgary, Canada. Until late 2007, it was a wholly-owned subsidiary of Western Oil Sands Inc ("WOSI"), a Canadian oil and gas company whose principal business was an oil sands project in Athabasca, Alberta. In 2007, WZL was "spun out" of WOSI and became the sole asset and 100% subsidiary of WesternZagros Resources Limited, a Canadian company whose shares are traded on the TSX Venture Exchange in Toronto.
In early 2006, WZL was attempting to negotiate with the Sulaymaniyah administration of the Kurdistan Regional Government ("the KRG") an exploration and production sharing agreement (an "EPSA"), with a view to exploring for oil and developing oil production in that province of that region of Iraq.
On 23 April 2006, WZL and Monde entered into a written Agreement for Consulting Services ("the CSA"). The services under the CSA were to be provided by Mr Al-Fekaiki, and were intended to assist WZL to conclude its EPSA negotiations successfully. Monde's reward for these services was to take the form of monthly
fees, success fees payable on the achievement of certain specified milestones, and an option to acquire (in certain events) a 3% working interest in the EPSA. That option was to vest only upon the occurrence of the final milestone.On 4 May 2006, an EPSA ("the May 2006 EPSA") was executed between the KRG and WZL, but was never formally ratified by the KRG. Over the following months, the KRG required amendments to be made to the May 2006 EPSA. Those amendments had the effect of reducing WZL's contract area from 3,700 km 2 to 2,120 km 2, and of revising the fiscal terms to make them more favourable to the KRG and less favourable to WZL. An amended and restated EPSA ("the February 2007 EPSA") was executed on 26 February 2007 and was formally ratified by the KRG a few days thereafter.
On 16 March 2007 WZL served a Termination Notice on Monde, intending to bring the CSA to an end. On 18 April 2007 WZL and Monde executed a Termination and Release Agreement ("the Termination Agreement"). Under the Termination Agreement, in consideration of the payment by WZL of USD 700,000 (a sum to which Monde asserts that it was already contractually entitled), Monde agreed that the CSA was at an end, and WZL and Monde released each other from all further liabilities. It is common ground that, at that point, Monde's 3% option under the CSA had not vested.
The present action was begun on 4 March 2013. In broad summary, the claims and defences raised in it are these. Monde claims that its signature to the Termination Agreement was procured by misrepresentation and/or economic duress. The relevant misrepresentations are alleged to have been made on behalf of WZL by Mr Bafel Talabani ("Bafel"). Bafel is the son of His Excellency Jalal Talabani, who was President of Iraq from April 2005 to April 2014. At the material time, Bafel was Commander of the KRG's Counter Terrorism Group. Monde asserts that Bafel represented to Mr Al-Fekaiki in the course of a series of telephone conversations between 14 and 18 April 2007 that, if Monde agreed to sign the Termination Agreement, WZL would not merely pay the USD 700,000 for which Monde had invoiced WZL (which WZL otherwise intended to withhold), but would also enter into a new agreement (to replace the 3% option in the CSA) under which Monde would be given the chance to share in the profits arising from WZL's oil exploration and production in Kurdistan. The relevant duress is alleged to have been the threatened withholding, in breach of the CSA, of the USD 700,000.
On that basis, Monde seeks to set aside the Termination Agreement and/or to claim damages. Monde also asserts that the Termination Notice was invalid and that, by serving it, WZL committed a repudiatory a breach of the CSA, entitling Monde to substantial damages for the loss of its rights under the CSA, including its 3% option.
WZL denies making any misrepresentations or exercising any duress to procure the Termination Agreement. In particular, it denies that Bafel had any authority to act or speak on behalf of WZL, and says that Monde is in any event estopped from denying the validity of, or has ratified, the Termination Agreement. WZL also says that, even if Monde were to succeed in its claims relating to the Termination Agreement, Monde would be unable to prove any or any substantial loss. That is because, on WZL's case, the Termination Notice was itself effective to bring the CSA to an end, or (if that be wrong) WZL would have been entitled to serve a further notice. In either event, no further payments would have become due to Monde under the CSA, and Monde's 3% option would never have vested.
The dispute between the parties therefore has two parts: (1) can Monde impeach the Termination...
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