Oil rights court battle

Posted: 17th December 2013

PumpjackIn a case which illustrated the enormous scale of some of the litigation tackled by the Commercial Court, a dispute over oil rights in Kurdistan gave rise to a hearing spread over six months and closing submissions which exceeded, by about 30,000 words, the length of the King James version of the Old Testament.

A company had argued that it was unlawfully cut out of a deal which had entitled it to a share in four oil exploration ‘blocks’ in Kurdistan, one of the largest unexplored inland regions where there were prospects of discovering oil. The country was estimated to have oil reserves of about three times the total amount of Brent North Sea oil.

The company relied upon an agreement by which it and other companies (the alleged joint venturers) had agreed to collaborate in bidding for production sharing contracts (PSCs) from the Kurdistan Regional Government of Iraq. Although the company had not in the event been a party to any of the PSCs signed, it nevertheless argued that it was entitled to an indirect interest in profits from the ventures.

In suing the alleged joint venturers, the company relied upon various causes of action, including alleged interference with contract, interference with business relations, breach of fiduciary duty and fraud by misrepresentation and concealment. It valued its breach of contract claim at over $1.75 billion.

In a judgment that ran to more than 1,400 paragraphs, the Court dismissed the company's claims. It found, amongst other things, that the collaboration agreement had not given rise to or recognised any entitlement to indirect interests in the PSCs.

The Court also found that one of the alleged joint venturers had not been a party to the agreement and that the company in any event did not have the financial resources or technical ability to meet its obligations thereunder within a reasonable time frame. The company had been in material breach of the agreement and had repudiated it.

The company had not been prevented from raising finance by any wrongful act of the alleged joint venturers, who had owed the company no fiduciary duties and had not been guilty of any fraud. Even if the collaboration agreement had entitled the company to an indirect interest in the ventures, the Court noted that it would not have granted an order of specific performance. The final nail in the coffin of the company’s case was the Court’s ruling that, even had breaches of contract been proved, only nominal damages would have been awarded.