Monde Petroleum SA v Westernzagros Ltd, Court of Appeal - Commercial Court, June 28, 2016, [2016] EWHC 1472 (Comm)

Resolution Date:June 28, 2016
Issuing Organization:Commercial Court
Actores:Monde Petroleum SA v Westernzagros Ltd
 
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MR RICHARD SALTER QC Monde Petroleum SA

Sitting as a Deputy Judge of the High Court v

Approved Judgment Westernzagros Ltd

1

Neutral Citation Number: [2016] EWHC 1472 (Comm)

IN THE HIGH COURT OF JUSTICE Case No: 2013 Folio 308

QUEEN'S BENCH DIVISION CL-2013-000595

COMMERCIAL COURT

Royal Courts of Justice. Rolls Building

Fetter Lane, London, EC4A 1NL

Tuesday 28 June 2016

BEFORE:

MR RICHARD SALTER QC

Sitting as a Deputy Judge of the High Court

BETWEEN:

MONDE PETROLEUM SA

Claimant

- and -

WESTERNZAGROS LIMITED

Defendant

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Mr Stephen Cogley QC

(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

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...................................

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.

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Index

MR SALTER QC:

(A) Introduction

A.1 The dispute in outline

  1. 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 Inc [2013] EWHC 2767 (Comm) at [1]. See also Pearl Petroleum Co Ltd and others v Kurdistan Regional Government of Iraq [2015] EWHC 3361 (Comm), [2016] 4 WLR 2, the background facts of which relate to the exploitation of gas fields in Kurdistan., at the relevant time Kurdistan was one of the last largely unexplored inland regions where there were prospects of discovering oil.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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 km² to 2,120 km², 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.

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  11. The dispute between the parties therefore has two parts: (1) can Monde impeach the Termination Agreement and, in consequence, claim damages for loss of its rights under the CSA; and (2) if so, did those rights have any or any substantial value?

    A.2 The specific issues to be tried

  12. By order dated 22 May 2015, Burton J directed that there be a split trial, and that the following issues (and related matters set out in the Statements of Case) should be heard first:

    Execution of the Termination Agreement

  13. Was Monde induced by WZL to conclude the Termination Agreement by misrepresentation?

    a. Did Mr Bafel Talabani represent to Monde that if it signed the Termination Agreement WZL [intended to] I have changed the wording of this sub-issue to accord with the amended pleading in paragraph 80(b) of the Re-amended Particulars of Claim. enter into a New Agreement under which Monde would be offered the right or opportunity to share in the profits arising from WZL's oil exploration and production in Kurdistan and/or in some other way enable Monde to benefit substantially from such oil exploration and production?

    b. Did Mr Bafel Talabani represent to Monde that it would have to sign the Termination Agreement before payment of the outstanding invoices and success fee then due under Schedule B to the Consultancy Agreement, and before WZL entered into the New Agreement?

    c. If he made the representations as alleged by Monde, did Mr Bafel Talabani do so on behalf of WZL?

    d. If Mr Talabani made any such representation(s), were they false?

    e. Did Monde rely on such representations if made in executing the Termination Agreement?

    f. Was it reasonable for Monde to rely on such representations if made in executing the Termination Agreement?

  14. Was Monde induced by WZL to conclude the Termination Agreement by Duress?

    a. Did Mr Bafel Talabani threaten that WZL would not pay Monde USD700,000 invoiced by Monde under the Consultancy Agreement unless Monde signed the Termination Agreement?

    b. If he made the threats as alleged by Monde did he do so on behalf of WZL?

    c. If so, would non-payment of the USD700,000 invoiced by Monde have amounted to a breach of the Consultancy Agreement?

    d. Even if non-payment of the USD700,000 invoiced by Monde would have amounted to a breach of the Consultancy Agreement, could a threat of non-payment amount to improper and illegitimate pressure amounting to duress causing the execution by Monde of the Termination Agreement?

    e. Prior to these proceedings, did Monde protest in relation to the duress, if proven?

  15. 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?

    Execution of the Consultancy Agreement

  16. 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...

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