Whessoe Oil and Gas Ltd and Another v William Jon Dale
| Jurisdiction | England & Wales |
| Judge | Mr Justice Akenhead |
| Judgment Date | 29 June 2012 |
| Neutral Citation | [2012] EWHC 1788 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-12-80 |
| Date | 29 June 2012 |
[2012] EWHC 1788 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Akenhead
Case No: HT-12-80
Edward Brown (instructed by Edwin Coe LLP) for the Claimants
Martin Bowdery QC (instructed by Simons Muirhead & Burton) for the Defendant
Hearing date: 25 June 2012
The Defendant seeks to strike out the First Claimant's Particulars of Claim and seek summary judgement against the First Claimant on the basis that they disclose no reasonable grounds for bringing the claim or otherwise as amounting to an abuse of the Court's process.
The Factual Background
These facts are primarily culled from the pleadings, amplified in part by two witness statements of Mr Dale and two reports prepared by a Mr Sickles. The findings in this judgement are not intended to bind any final trial judge.
By a Claim Form (issued in the Queen's Bench Division General list) and Particulars of Claim, the First Claimant, Whessoe Oil and Gas Ltd, ("WOGL") and the Second Claimant Cleveland Bridge UK Ltd ("Cleveland") have brought claims against the Defendant in respect of alleged breach of contract and statutory duties imposed on the Defendant under the Companies Act 2006. The claims are for damages and equitable remedies.
WOGL and Cleveland are members of the Al Rushaid Group of companies, said to be a leading Saudi owned group of companies operating in the oil and gas industries, construction, engineering, manufacturing, trading, real estate and technology sectors. Each claimant company is a specialist within that sector: WOGL specialises in designing and building low temperature and cryogenic storage and handling facilities for the hydrocarbon and petrochemical industries; Cleveland specialises in structural steel fabrication and construction, particularly for bridges and large commercial and industrial buildings.
The claims concern breaches of contract and duty by the Defendant arising out of an Engineering Procurement and Construction Contract between WOGL and its joint venture partner, Volker Stevin, with Dragon LNG Limited to design, execute and complete the construction of facilities for a liquefied natural gas import terminal at Milford Haven in Wales for a fixed price of approximately £184.7 million ("the Dragon LNG Project"). It is the Claimants' case that Mr William Dale the Defendant, as Managing Director, managed all the key areas of the operation, including project management, engineering, construction, project engineering, legal affairs and subcontracting. As such, it is said that Mr Dale had complete autonomy in all areas of project management including sub-contracting. His breaches are said to have arisen out of his management of those areas, for which he is accountable to the Claimant companies. The Claimants assert that the Dragon LNG Project was a commercial disaster for WOGL that would have resulted in insolvency if it were not for the provision of additional funds from its Saudi shareholders.
The total value of the claim which is the subject of the application to strike out/summary judgment is said to be £50.6 million. The Claimants also claim for equitable compensation or an account of profits made by the Defendant as a result of breach of his director's duties. The Claimants suggest that they are not required to elect between the remedies of damages and an account of profits until liability has been established.
Mr Dale was employed by WOGL as its Managing Director since 2004 although in January 2009 his employment was transferred under TUPE arrangements to another Al Rushaid group company, Project Services International Ltd ("PSI"). It is common ground that his employment was terminated in 2010. He issued proceedings in the Queen's Bench Division in March 2011 against PSI for damages for wrongful dismissal, outstanding salary, payment of bonus and other claims. That led to the service of a Defence and Counterclaim in July 2011 amended in October 2011 in which issue is taken in relation to termination or dismissal and almost verbatim the Counterclaim is the same as the Particulars of Claim in the current proceedings. It is perhaps surprising that PSI felt able itself to advance any counterclaim in those terms.
The Particulars of Claim plead materially two duties pursuant to the Companies Act 2006 in breach of which is later pleaded:
"12.1 A duty to act in the way that [Mr Dale] considered, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole (pursuant to section 172 (1), having regard to the matter is set forth in section 172 (1) (a)—(f)…
12.3 A duty (pursuant to section 174) to exercise reasonable care, skill and diligence that would be exercised by a reasonably diligent person…
12.3.1 the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by [Mr Dale] in relation to the company, and
12.3.2 the general knowledge, skill and experience that [Mr Dale] has or had at the material time."
Paragraphs 16 to 22 of the Particulars of Claim are entitled "Breaches of contract and duty in relation to the Dragon LNG Project". Paragraph 18 explains that the "total costs to Dragon…of the Dragon LNG Project should have been approximately £184.7 million, in relation to which WOGL was budgeted to make a profit of £19.3 million. In fact the total cost was £364.9 million. WOGL had to contribute £36.7 million to the cost overrun. As a consequence instead of making a profit of £19.3 million it made a loss of £31.3 million (as at December 2008), and negative variance of £50.6 million). Paragraph 19 asserts that the:
"principal cause of the cost overrun was the subcontracting cost of the Dragon LNG Project. The subcontracting was done by WOGL (under the control of the Defendant) and Volker Stevin. Further from about September 2007, the Defendant formed a steering committee with his counterpart at Volker Stevin (Rene Postulart) in a belated attempt to control the future costs of subcontracting on the Dragon LNG Project."
Paragraph 21 pleads the breaches of the terms pleaded at paragraphs 12.1 and 12.3 (set out above):
"20.1 The Defendant failed to arrange the organisational structure of WOGL and/or the joint venture so that it provided an adequate system of checks and balances and so that there was a system of adequate control over subcontractors and subcontracting expenditure;
20.2 The Defendant failed to ensure that appropriate contracts were in place with the various subcontractors, having regard to the fixed price EPC contract that WOGL had entered into for the Dragon LNG Project. As at 19 October 2007, approximately 70% of the subcontracts were 'reimbursable' contracts, meaning that the contracts effectively allowed subcontractors to charge for all labour, materials, equipment and transportation on an unlimited basis;
20.3 The Defendant failed to adequately control or supervise the subcontractors and the work that they undertook on the Dragon LNG Project (or to procure the control or supervision of the same);
20.4 The Defendant failed to adequately supervise or control expenditure on subcontractors (or to procure the control or supervision of the same). For example, the subcontracts for the mechanical works and fabrication of the inner tank and external pipework were on reimbursable contracts under which labour costs were charged on an unlimited hourly basis. The Defendant failed to implement and operate a proper system of checks to ensure that timesheets submitted for work to be charged actually reflected hours that had been worked by subcontract labour (or to procure the implementation or operation of the same);
20.5 The Defendant failed to take any or any appropriate remedial measures to try to bring the Dragon LNG Project under control. For example, even after difficulties were apparent, nearly 2.5 years into the project, the Defendant continued to hire subcontractors on reimbursable contracts."
In Paragraph 21, WOGL pleaded in the alternative breaches of express terms pleaded in Paragraphs 10 and 11 of the pleading which were specific terms of the service agreement into which Mr Dale had entered with WOGL. They do not add very much, if anything. Paragraphs 22 to 29 relate discretely to various other alleged breaches which WOGL or Cleveland pursue against Mr Dale which he does not seek to strike out.
Paragraph 29 is entitled "Loss and damage":
"By reason of matters aforesaid, WOGL and/or Cleveland have suffered loss and damage. The best particulars that they can provide prior to disclosure and/or the provision of any further information herein are as follows:
29.1 WOGL has suffered loss and damage of £50.6 million as a result of the cost overrun on the Dragon LNG Project…"
Paragraph 30 is entitled "Other relief":
"Further or alternatively Cleveland and/or WOGL are entitled to an account or equitable compensation in relation to the losses that they have suffered as a result[sic] of the Defendant's breaches."
The Defence (served on 6 September 2011) which was a more detailed document running to some 20 pages set out up a number of the material facts upon which Mr Dale relied. For instance he alleged in Paragraph 7 that he did not have complete autonomy and did not manage directly all the key areas of the operation of the Dragon LNG Projects in that he appointed staff and delegated substantial areas of the management of the project to others. He avers in Paragraphs 8 and 9 to the fact that there were other very substantial oil or gas related projects in and around Milford Haven which in effect made it more difficult and costly to...
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