Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd, Bow Valley Energy Ltd, P.T. Bakrie Interinvestindo and Bow Valley International (Jersey) Ltd
| Jurisdiction | UK Non-devolved |
| Judge | LORD WALKER |
| Judgment Date | 26 November 2009 |
| Neutral Citation | [2009] UKPC 45 |
| Docket Number | Appeal No 0020 of 2009 |
| Date | 2009 |
| Year | 2009 |
| Court | Privy Council |
[2009] UKPC 45
Lord Phillips
Lord Rodger
Lord Walker
Lord Mance
Lord Clarke
Privy Council
Appellant
Sir Sydney Kentridge QC
Ian Geering QC
Anthony de Garr
Robinson QC
(Instructed by Olephant)
Respondents
Adrian Beltrami QC
Matthew Parker
(Instructed by Butcher Burns)
(Bow Valley Iran Limited (1))
Respondent
Adrian Beltrami QC
Matthew Parker
(Instructed by Butcher Burns)
(Bow Valley Energy Limited (2))
Respondent
(Not represented)
(P.T. Bakrie Interinvestindo (3))
Respondent
Adrian Beltrami (QC)
Matthew Parker
(Instructed by Bow Valley International (Jersey) Limited)
Introduction
This appeal is concerned with the unfortunate outcome of a plan for a joint venture between the parties to the action. They hoped to conclude a profitable contract with the National Iranian Oil Company ("NIOC") for the development of an offshore oilfield known as the Balal field. The inception of the plan was marked by the signature of confidentiality agreements in November and December 1996. It ended, in acrimonious and disputed circumstances, in July 1997. However this litigation was not commenced in the Royal Court of Jersey until 5 January 2004.
The claimant in the litigation was Pell Frischmann Engineering Limited ("PFE"), an English company. Its head office was in Manchester Square, London. Its chairman was Dr Willem Frischmann, who came to England as a refugee after the Second World War. He was described by the Royal Court as "a man of huge energy, exceptional engineering talent and considerable entrepreneurial flair." However the Royal Court was also quite severely critical of his judgment in the course of the negotiations for the joint venture.
There were four defendants, three of them companies in a Canadian group engaged in the oil industry and based in Calgary: Bow Valley Iran Limited (a Jersey company), Bow Valley Energy Limited (an Alberta company—"BVE") and Bow Valley International (Jersey) Limited (a Jersey company). They were the first, second and fourth defendants and are the only active respondents to this appeal. The third defendant and third respondent, which has not taken any active part in the litigation, was an Indonesian company called P T Bakrie Interinvestindo ("Bakrie"). Mr Bakrie was its Chairman and Mr Atalas was its CEO. At the inception of the plan for a joint venture Bakrie was seen as the principal source of finance.
PFE's claim alleging conspiracy, deceit, inducing breach of contract and breach of confidence was heard in the Royal Court over 35 days (between March and July 2006) by Mr H W B Page QC sitting as a Commissioner with Jurats Le Breton and Morgan. They gave judgment on 31 May 2007. It was a very long judgment, running to 445 paragraphs. The Royal Court rejected entirely PFE's allegation of a dishonest conspiracy between the defendants to deprive PFE of the benefit of all the time, trouble and expense which it had occurred in pre-qualifying for the Balal contract and securing an exclusive position of preferred bidder. It rejected the claims for breach of contract on the strength of its finding at an implied term limiting the duration of the defendants' obligations. But it found that BVE and Bakrie were liable to PFE for breach of confidence, and awarded £500,000 damages (for which all the defendants were jointly and severally liable).
PFE appealed to the Court of Appeal and BVE cross-appealed as to quantum and interest. The Court of Appeal (the Honourable Michael Beloff QC, Mr P D Smith QC and Mr G C Vos QC) heard the appeal between 31 March and 2 April 2008 and gave judgment on 3 September 2008. On the appeal the Court of Appeal differed from the Royal Court as to the construction of the confidentiality agreements, finding that the defendants were in breach of their express terms, (as well as being in breach of an equitable obligation of confidence), but held that the award of £500,000 damages was still appropriate. This sum was awarded as "Wrotham Park damages" (see Wrotham Park Estate Co. Ltd v Parkside Homes Ltd [1974] 1 WLR 798). The Court of Appeal rejected PFE's appeal on the allegations of conspiracy, deceit and inducing breach of contract. It dismissed the cross-appeal as to interest. The result of the appeal was therefore broadly neutral, and this was reflected in the Court of Appeal's costs order.
PFE's further appeal to the Board is concerned primarily with the quantum of the Wrotham Park damages, although it also seeks to challenge the lower courts' dismissal of the claims for conspiracy and inducing breach of contract. It is therefore necessary to go into the facts in some detail, even though their Lordships have not been asked to depart from any of the concurrent findings of primary fact made by the courts below.
The troubled course of the negotiations can be summarised in five stages.
The facts: (1) July 1995 to October 1996
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(1) July 1995 to October 1996: PFE invested time and money (with no involvement of BVE or Bakrie) in establishing good relations with NIOC and obtaining recognition as prequalified to bid for the Balal project.
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(2) November 1996 to March 1997: BVE and Bakrie both entered into confidentiality agreements with PFE as prospective members of a consortium to undertake the Balal project; PFE submitted its final proposal (19 December 1996) and its final bid (12 March 1997) with some input of expertise from BVE and others; PFE entered into a conditional contract with NIOC, but with some unwelcome last-minute terms (19 March 1997).
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(3) April to mid-June 1997: PFE could not comply with the condition (as to a $5m bond) imposed by NIOC; there were discussions as to buy-outs between the prospective consortium members; BVE and Bakrie had direct contact with NIOC at Kuala Lumpur (5 June 1997) and PFE alleged breaches of the confidentiality agreements.
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(4) Mid- to end-June 1997: Mr Mirhadi of NIOC was in Calgary; NIOC sent an ultimatum (the "15-day letter") to PFE (16 June 1997); PFE and Monument Oil and Gas had unsuccessful meetings with NIOC in Teheran (22 June 1997).
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(5) July 1997: PFE, BVE and Bakrie resumed buy-out negotiations while the 15-day period (slightly extended) ran out; the negotiations came to nothing (8 July 1997); NIOC entered into an agreement with BVE and Bakrie (28 July 1997).
In July 1995 NIOC published a notice inviting pre-qualification for tenders for a number of oilfield projects, including Balal and Soroosh (another field in which PFE was interested). At that time the United States of America was imposing sanctions against Iran and negotiations with NIOC involved political as well as financial risks. The financial risks arose from the structure of the commercial arrangement. The successful contractor was to construct an oil well and bring it into production, with ownership of the well being vested in NIOC. The capital cost was to be paid by the contractor and reimbursed (with interest) over three years but only up to a stipulated maximum, and only after "first production" (production averaging 16,000 barrels of crude oil a day) had been achieved. The contractor was also to receive a remuneration fee (a percentage of the capped cost) after achieving "further additional production". (In this opinion all references to $ are to United States dollars).
PFE successfully went through the pre-qualification procedure. It went to a lot of trouble, and incurred substantial expenditure, in doing so and in formulating first- stage proposals for the project (submitted to NIOC on 26 June 1996). PFE had a great deal of engineering expertise but did not have expertise in drilling oil wells. It needed a partner with that sort of expertise. BVE appeared to be a suitable partner. It was a new venture set up by Mr Daryl ("Doc") Seaman, described by the Royal Court as "something of a legendary figure in the Calgary-based oil industry." BVE had plenty of expertise in oil drilling but limited financial resources. At a meeting in London on 11 October 1996 PFE and BVE decided to work towards a joint venture in developing the Balal field (and another field, Soroosh, which dropped out of the narrative at an early stage).
(2) November 1996 to March 1997
A confidentiality agreement between PFE and BVE was signed on 1 November 1996. It was quite short and can be set out in full:
"WHEREAS:
1. PFE has acquired the right to tender for the buy back contracts with NIOC for the Soroosh and Balal fields in the Persian Gulf and BVE is actively seeking oil and gas production interests worldwide.
IT IS HEREBY AGREED:
1. PFE has received certain data from NIOC regarding the Soroosh and Balal fields which NIOC regard as confidential and PFE have entered into a confidentiality agreement with NIOC in respect of such data. A copy of the confidentiality agreement is attached and will form part of this agreement and should be signed by BVE.
2. BVE undertakes to treat all data provided to PFE by NIOC and subsequently sent to BVE, as confidential and BVE will enter into the same agreement with PFE as PFE with NIOC.
3. BVE will work on the Soroosh and Balal project exclusively with PFE and undertakes not to carry out any work on its own or with other parties.
4. BVE undertakes that all information received from PFE will be kept strictly confidential and will not divulge same to any third party without the express written consent of PFE.
5. BVE will not use PFE advisors in Iran without the permission of PFE.
6. BVE undertakes not to approach NIOC directly on these projects without the express written consent of PFE.
7. It is the intention of PFE and BVE to enter into a joint venture agreement in the near future which...
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