Rosserlane Consultants Ltd and Another v Credit Suisse International
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Peter Smith,Peter Smith J,MR JUSTICE PETER SMITH |
| Judgment Date | 20 February 2015 |
| Neutral Citation | [2015] EWHC 384 (Ch) |
| Docket Number | Case No: HC1200030 |
| Court | Chancery Division |
| Date | 20 February 2015 |
[2015] EWHC 384 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
The Honourable Mr Justice Peter Smith
Case No: HC1200030
Jeremy Cousins QC, Edward Cohen, Peter Head&Ian Higgins (instructed by Gordon Dadds LLP) for the Claimants
Helen Davies QC & Alec Haydon (instructed by Herbert Smith Freehillls LLP) for the Defendant
Hearing dates: 20??#x02013??31 October, 3??#x02013??13, 17??#x02013??21 November & 10??#x02013??12 December 2014
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 | Paragraph |
| INTRODUCTION | 1 |
| THE CLAIMANTS | 7 |
| THE DEFENDANT | 9 |
| ENTRY INTO CONTRACTUAL RELATIONSHIPS WITH THE DEFENDANT | 12 |
| ARRANGEMENTS WITH DEFENDANT | 13 |
| TERMS OF JVA | 14 |
| TERMS OF THE LOAN AGREEMENT | 21 |
| TERMS OF THE SECURITY AGREEMENT | 24 |
| TERMS OF PARTICIPATION AGREEMENT | 28 |
| MANDATORY SALE | 29 |
| ARRANGEMENTS WITH CSS | 39 |
| SUMMARY OF CLAIMS | 44 |
| IMPLIED TERM | 47 |
| FACTUAL OBSERVATIONS | 51 |
| INPLIED TERM ??#x02013?? THE LAW | 58 |
| TERM IMPLIED FROM PARTICULAR RELATIONSHIP | 61 |
| A GENERAL DUTY | 112 |
| CONCLUSION ON IMPLIED TERM ISSUE | 125 |
| THE CLAIMS | 130 |
| REPORTS | 135 |
| RPS REPORTS | 138 |
| DEALING WITH THE BANK | 142 |
| NEGOTIATIONS WITH THE BANK | 148 |
| STRUCTURE OF THE PARTICIPATION AGREEMENT | 154 |
| THE FIRST M&A PROCESS | 155 |
| BAKU MEETING | 166 |
| EVENTS POST TRIGGER NOTICE | 172 |
| ALLEGED BREACHES OF DUTY | 187 |
| FAILURE TO CONTACT RUSSIANS | 191 |
| GAZPROMNEFT | 194 |
| CONSEQUENCES OF FAILURE TO CONTACT THE RUSSIANS | 206 |
| SITE VISITS | 216 |
| OTHER RUSSIAN BIDDERS | 243 |
| BSG | 245 |
| AUTUMN 2007 | 251 |
| FEBRUARY 2008 | 256 |
| CONSIDERATION OF WITNESSES | 265 |
| CLAIMANTS' LAY EVIDENCE | 267 |
| THE BANK'S WITNESSES | 277 |
| THE EXPERTS | 280 |
| VALUATION EXPERTS | 284 |
| DAMAGES ??#x02013?? LOSS OF A CHANCE | 309 |
| CALCULATION OF LOSS | 315 |
| CONTRIBUTORY NEGLIGENCE | 317 |
| ALTERNATIVE ASSESSMENT | 340 |
| LIMITATION AND THE INDEMNITY | 342 |
| INDEMNITIES | 343 |
| THE LOAN AGREEMENT | 358 |
| LIST OF ISSUES | 366 |
| OVERALL CONCLUSION | 368 |
| AGREED LIST OF ABBREVIATIONS | |
| AGREED DRAMATIS PERSONAE | |
| SUMMARY OF BIDS |
INTRODUCTION
1. This judgment arises out of the trial of the action in this case.
2. The dispute arises out of the sale of a 51% stake in the Shirvan Oil Company ("Shirvan") in Azerbaijan.
3. A list of abbreviations and a Dramatis Personae is attached to this judgment. The Claimants were the owners of CEG which held the above 51% stake.
4. Shirvan operated a well established oilfield in Azerbaijan known as the Kurovdag oilfield ("Kurovdag").
5. That was operated under a joint venture agreement ("JVA") dated 21st December 1995 with SOCAR the State Oil Company of Azerbaijan Republic.
6. The JVA was entered into initially between SOCAR and Whitehall (a Scottish Limited Partnership and the predecessor to CEG). On 28th January 2002 Whitehall changed its name to Caspian Energy Group and from 29th December 2003 Whitehall's interest in the JVA and Shirvan became invested in CEG. On 5th November 2004 CEG and SOCAR entered into a production sharing agreement ("PSA") which was intended to replace the JVA. This never occurred; the PSA was never implemented and was formally terminated by a written agreement dated 7th September 2007.
THE CLAIMANTS
7. The Claimants are respectively Rosserlane Consultants Limited a limited company registered in the Isle of Man and Swinbrook Developments Limited a limited company registered in the BVI. At all material times the Claimants have been ultimately owned by Doctor Zaur Leshkasheli ("Dr L") and his family interests. Rosserlane and Swinbrook were formerly the general partner and limited partner respectfully in CEG a limited partnership registered in Scotland.
8. The key individuals at CEG for the purposes of these proceedings in addition to Dr L were Vugar Akhundov (CFO), Joel Steinhart (a consultant to CEG through his firm Granite Management Ltd) and Eric Stuppard (the Finance Manager).
THE DEFENDANT
9. The Bank Defendant is an unlimited liability company and an indirect wholly owned subsidiary of Credit Suisse Group AG. The Bank's team was led by Peter Firmin a director of the Bank's Fixed Income Division ("FID").
10. Although not a party to the proceedings Credit Suisse Securities (Europe) Ltd ("CSS") was also engaged to act as a Financial Adviser to Dr L and CEG. Its M&A team included Vadim Benyatov the then head of CSS's Emerging Markets Group for the Former Soviet Union ("FSU"), Igor Ukrasin a Director and Victoria Pavlova a Vice President.
11. I will set out further in this judgment the structure of the various documents entered into between the parties in order for the position to be clearly understood.
ENTRY INTO CONTRACTUAL RELATIONSHIPS WITH THE DEFENDANT
12. By December 2006 CEG was in a position that its then existing lenders were putting pressure on it to repay or refinance its indebtedness with them. CEG's only asset was its interest in Kurovdag. In order to raise finance to repay that existing borrowing it would need to borrow monies. It was the expectation that any monies so lent would be secured on CEG. It was equally contemplated that the monies so advanced would be relatively short term to enable CEG to realise its 51% in Shirvan.
ARRANGEMENTS WITH DEFENDANT
13. Accordingly the Claimants borrowed $127m from the Defendant in December 2006 to replace its existing borrowings. They entered into a number of other agreements. First there was an agreement dated 14th December 2006 as amended on 14th May 2007 and 14th December 2007 between CEG and various other parties and the Bank dealing with the "equity upside" of a sale of CEG or related assets ("the Participation Agreement"). The claim arises under this agreement. On 13th December 2006 the Claimants retained CSS to act as their advisors in respect of the disposals of the assets/stock of CEG ("the M&A Agreement"). Third the parties entered into a security agreement ("the Security Agreement") on 14th December 2006 whereby the Claimants granted security over their interests in CEG to the Defendant.
TERMS OF JVA
14. The documents set out the basis upon which the oil could be removed from Kurovdag in collaboration with SOCAR. Under article 3 an Administration Board was established which comprised 6 members 3 appointed by CEG and 3 by SOCAR. The Board was thus deadlocked potentially in case of a dispute.
15. Article 4 set out the subject of the activity of the partnership funds and other funds. SOCAR's share was 49% and CEG's in effect is 51%. There were restrictions on transferring shares under article 6 which involved giving a transfer notice to the other party which has an option to acquire the shares.
16. The laws of the Azerbaijan Republic applied to the JVA except such cases when the laws were contradictory, incomplete or absent when the legislation of Great Britain would be applied (article 24).
17. Of significance were the respective obligations of SOCAR and CEG. In particular the latter was required to provide the financial funds to the JVA (article 5.3 (f)). It was the case that SOCAR believed CEG did not provide sufficient funding as required to develop Kurovdag.
18. The JVA could be terminated if the JVA ceased to exist or by mutual consent or on insolvency or if either party cannot or does not wish to fulfil the material obligations of the agreement (article 28). The agreement was effective for 30 years subject to mutual extension.
19. In effect it was CEG's rights under the JVA which were to be marketed.
20. The PSA was not as an attractive arrangement but as it was never implemented it does not significantly feature in this dispute.
TERMS OF THE LOAN AGREEMENT
21. The Loan Agreement is dated 14th December 2006 and was amended on 14th May 2007. CEG was the borrower and other companies of the same group as the Claimants were brought in as were CSS acting as a security agent.
22. Under clause 2 the Defendant advanced two loans to the Claimants. First was $150m second was a further $12m to be used by the Claimants under a drilling plan loan. As will be seen subsequently the Claimants obtained the drilling loan but did not use it for drilling and failed to repay it back when the Defendant required it to be paid back having discovered it had not been used for the purpose for which it was supposed to be. As I have said above the failure to invest by CEG was clearly a source of concern (to put it mildly) of SOCAR. The final repayment date in respect of each loan as defined was 14th December 2007. In addition to the loan CEG was obliged to pay interest on that final repayment date at a margin of 7% above LIBOR. That interest was to be paid on the final repayment date (clause 5.1). The loan agreement was covered by English law and a dispute was to be resolved in the Courts of England and Wales (with an option on the part of the Agents (as defined) to have the matter dealt with instead by arbitration (clause 30)).
23. The loan agreement was varied by a deed dated 13th December 2006 ("the Deed of Amendment") the relevant variation being an extension of the Final Repayment Date to 15th February 2008 and for the payment of a fee in connection with such an extension. A fee for this modest extension of two months was $10m (clause 7.2 as amended). That was...
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