Strand, London, WC2A 2LL
B e f o r e :
| Ashborder BV & Ors
|- and -
|Green Gas Power Ltd & Ors
Mr Richard Adkins QC and Mr David Alexander (instructed by Norton Rose) for the Defendants
Hearing dates: 17-28 May 2004 and 9-15 June 2004
Crown Copyright ©
|Summary of background facts||6-77|
|The Security Documents|
|The Facility Agreement||112-126|
|The Earn-In Agreement||136-141|
|The Direct Agreement||147-154|
|The moral high ground||155-160|
|Fixed or floating charge||161-191|
|Ordinary course of business||192-227|
|Transfer to Cabot of 41% of PEDLs 11 and 12||228-286|
|Transfer of 10% interest in Original Licences||287-308|
|Sale of the OGL Shares and the After-Acquired Licences||309-368|
|Transfer of 90% interests to E&P in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43||369-441|
|Wrongful interference with the Drilling Rig and the Equipment||442-448|
|Summary of conclusions||448|
Mr Justice Etherton:
Summary of the background facts
"I supported the implementation of generally accepted oil industry practices to safeguard Octagon's principal assets. This was done by farm-outs or the acceptance of a dilution of our interests in licences where value could be achieved. It was also done by the relinquishment of licences which had limited potential or upon which payments had to be made for which the company did not have the funds. Putting it another way, the position was continually assessed by reference to the risk/reward of licences and other assets as well as the financial position of the company and the best steps taken to protect what at any given moment in time were thought to be the more valuable licences."
"I have seen many examples where a company will have an interest in a licence whether it is in the UK, or anywhere in the world, it has either a licence or a lease or some arrangement with the government, or just is a service agreement or a contract with the government where they may start with a 100 per cent interest in a licence.
They will then as a result of work they do, they may well decide, on the balance of risk and reward, that if they were to themselves go on to drill commitment wells, which they have an obligation to drill for a government and spend money, that perhaps it is better to share the risk with somebody else. This is usually called a farm-in where the other partner comes and is prepared to drill a well or pay money to government whether it is promotes or bonuses paid to government. So it is a very well known principle throughout the oil industry on a worldwide business where the partners then decide we can now become two partners, they may have 50/50 each, in the licence and they are in partnership on an individual basis for that particular licence. They do not create necessarily a company where they are shareholders, they have undivided business interest in that licence and they then have a joint operating agreement exactly as we have had in this case, and under that agreement that is the principal binding agreement which allows them then to finance their interest separately.
One of them might be chosen to be a partner, the operator, the operator usually does this because he is in the best position, he has the most knowledge, he then operates on behalf of the new partnership. It is not intended that the operator should take any incremental benefit out of it, he is merely an operator there on behalf of the other partners and he merely takes a fee for providing that service. So that is a farm-in, it is a worldwide exercise to share risk." (Transcript 28 May 2004 pp.89-90).
|110. Clause 37 of the 1995 Model Clauses (applicable to all the other Licences) provided as follows:||110. Clause 37 of the 1995 Model Clauses (applicable to all the other Licences) provided as follows:|
|"37.-(1) The Licensee shall not, except with the consent in writing of the Minister and in accordance with the conditions (if any) of the consent do anything whatsoever whereby, under the law (including the rules of equity) of any part of the United Kingdom or of any other place, any right granted by this licence or derived from a right so granted becomes exercisable by or for the benefit of or in accordance with the directions of another person."|
The Security Documents
The Facility Agreement
" the exploration, evaluation, preparation, development and operation of any vent, vent well, gob gas, conventional coal bed methane, evacuation, extraction, transportation, conversion, generation and transmission assets or projects related to the Specified assets and any electricity which may be generated utilising them."
"19.1.6 Disposal of assets: It will not dispose of any of its Assets or any interest in any of its Assets (including, without limitation the Specified Assets) without the consent of the Agent or as permitted pursuant to the Power Purchase and Emissions Credit Agreement or the Earn In Agreement. It will also procure that none of its Subsidiaries will dispose of that subsidiary's Assets. This does not apply to disposals in the ordinary course of its or a Subsidiary's business, or to disposals of obsolete or unused Assets on an arm's length basis or as waste, or where such Assets are replaced with Assets of substantially the same nature and value, or to disposals up to a maximum net sale proceeds of £50,000 in any one year. For these purposes, a lease is treated as a disposal. Receipts from sales or disposals to which the Agent consents shall, unless the Agent otherwise agrees or they have been used in the purchase of replacement Assets, be applied in repayment of the Loan."
""Assets" of any person means all or any part of its present and future business, undertaking, property, assets, revenues, Rights (including any right to receive revenues), and uncalled capital, wherever situated."
""Specified Assets" means the petroleum, coal bed, methane gas and other hydrocarbon assets to which the Licences relate."
"Carry on business: It will carry on its business in the exploration, evaluation, preparation, development, operation, evacuation, extraction and transportation of the Specified Assets for use in the generation of electricity (alternative uses for the methane gas will be permitted subject to the prior written consent of the Agent, such consent not to be unreasonably withheld) and will procure that no substantial change is made to the general nature of the business of the Company, the Borrowers or the Group."
"19.1.11 Operating Agreements: It will:
c. not amend, waive or modify or concur in the amendment or waiver or modification of or cancel, terminate, suspend or surrender any Operating Agreement or the Earn In agreement in any material respect without the prior written consent of the Agent, such consent not to be unreasonably withheld;
d. not agree to the transfer by a person of that person's obligations under an Operating Agreement or the Earn In Agreement without the prior written consent of the Agent, such consent not to be unreasonably withheld;
e. maintain in full force and exercise all of its rights under the Operating Agreements and the Earn In Agreement;
g. without limiting (d) above, not agree to the appointment or replacement of the Operator, the Contractor or any Sub-Contractor or any new operator, contractor or sub-contractor without the prior written consent of the Agent such consent not to be unreasonably delayed: and
"19.1.17 Consents and Licences: It will:
i. obtain, maintain in full force and effect and comply with applicable Consents in relation to the Specified Developments and the Specified Assets except to the extent that failure to do so would not have a Material Adverse Effect;
iv. not abandon or relinquish any Licence or take any action which would permit an Agency to revoke, suspend or withdraw a Licence except to the extent that such abandonment, relinquishment or action would not have a Material Adverse Effect."
""Material Adverse Effect" means a material adverse effect:
a. on the financial condition of a Borrower or a Guarantor, as the case may be, or
b. on the ability of a Borrower or a Guarantor, as the case may be, to perform and comply with their respective obligations under the Finance Documents."
"3.1.3 by way of first fixed charge:
ii. all its present and future Investments
vi. the benefits of all Consents vested in the Company: and
3.1.4 by way of first floating charge, its undertaking and all its Assets, both present and future (including Assets expressed to be charged by Clauses 3.1.1, 3.1.2, and 3.1.3 or assigned by Clause 3.2)."
"3.2.5 the benefits of all Consents vested in the Company."
The floating Charge created by Clause 3.1.4 shall rank behind all the fixed Charges created by or pursuant to this Debenture but shall rank in priority to any other Security hereafter created by the Company, except for Security permitted by Clause 4.1 to rank in priority and except for Security ranking in priority in accordance with Clause 9.3.5."
"3.4 Creation of Fixed Charge
If the creation or purported creation of the fixed charges pursuant to Clause 3.1.2 (vi) over any of the Company's rights in respect of any Consent breaches any term of the relevant Consent and as a result of such breach any person seeks or is likely to seek to repudiate or cancel the relevant Consent or commences or is likely to commence proceedings for breach, repudiation or cancellation, the Trustee will release the relevant Consent from the fixed charges to the extent necessary to avoid a breach of that Consent."
The Company shall not (and shall not agree to) assign to any Person all or part of the benefit of any Project Agreement or any interest therein or any of the revenues or proceeds thereof or make or concur in (whether by a single transaction or in a number of related or unrelated transactions and whether at one time or over a period of time) any sale, transfer, lease out, lend or other disposal of (whether outright, by a sale-and-repurchase or sale-and-leaseback arrangement, or otherwise) any of its Assets except for any such disposal permitted by Clause 19.1.6 of the Facility Agreement and not prohibited by any other Finance Document."
The Earn-In Agreement
"AND OCL AND OCRL HEREBY CONFIRM THAT effective as of the date hereof and until such time as the assignments and transfers referred to in Clause 3 below are effected or until E&P have forfeited their rights by going Non-Consent, OCL (providing E&P continues to abide by the terms of this Clause 2), will hold a ten percent (10%) interest in each of the Licences on trust for E&P and carry out E&P's instructions in connection with that interest with regard to all decisions taken under the relevant JOA and OCL and OCRL shall abide by all the terms thereof. "
"3.1 Immediately following the Commencement of Drilling of one (1) Well on each Licence in which E&P has participated, OCL shall assign to E&P a ten percent (10%) legal and beneficial interest in and under that Licence and a corresponding interest in and under the JOA for that Licence.
3.2 OCL shall apply for approval from the DTI for such assignments, and until such approval is obtained shall continue to hold the assigned interests in trust for E&P in accordance with clause 2.7 above."
"16.4 Non-participation in Payments. A Party that desires not to pay its share of a rental, minimum royalty, or similar payment shall notify the other Parties in writing at least sixty (60) days before the payment is due. Operator shall then make the payment for the benefit of the Parties that do desire to maintain the Licence. In such event, or in the event that a Party does not pay its share of a rental within 30 days of the due date for the rental and having received due notice to pay by the Operator or in the case of the Operator by the other Participating Parties, the Non-participating Party shall assign to the Participating Parties, upon their request, the portions of its interest in the Licence maintained by the payment. The assigned interest shall be owned by each Participating Party in proportion to its Participating Interest. The assignment shall be made in accordance with Article 26 (Successors and Assigns)."
The Direct Agreement
"9.1 Each Counterparty will give the Trustee at least 90 days notice prior to:
9.1.1 exercising any right to rescind, cancel or terminate an Operating Agreement to which it is a party;
9.1.2 suspending performance of its obligations thereunder; or
9.1.3 exercising any other rights granted to it (whether pursuant to such Operating Agreement or otherwise at law) in respect of any default, insolvency or winding-up of or by a Borrower under an Operating Agreement;
(together "Enforcement Action").
9.2 Each Counterparty confirms that it will not take any Enforcement Action and will continue to perform its obligations under the Operating Agreements to which it is a party if, within 90 days of notice given pursuant to Clause 9.1:
9.2.1 such default or situation is either (i) cured or remedied, or (ii) if not capable of cure or remedy, the event or circumstances giving rise to the right to terminate is not continuing; or
9.2.2 the Trustee has delivered a notice to the Counterparty pursuant to Clause 10.1 below of its intention to join an Additional Party or substitute a Substitute Party for the Borrower; or
9.2.3 the Trustee is conducting bona fide negotiations to acquire or dispose of the Borrower's interest in the Operating Agreement in question and in the Specified Assets and Specified Developments and within a further 30 days has delivered a notice to the Counterparty pursuant to Clause 10.1 below of its intention to join an Additional Party or substitute a Substitute Party for the Borrower; or
9.2.4 alternative arrangements are being made by the Trustee which are reasonably satisfactory to the Counterparty."
The moral high ground?
Fixed or floating charge?
"In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or a floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or tenancy. The court must construe the grant to ascertain the intention of the parties: but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford  AC 809, 826 per Lord Templeman. So here: in construing a debenture to see whether it creates a fixed or a floating charge, the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder."
"(2) I again remind myself that the company was not trading in shares and no one has suggested it did. The essential nature of its business cannot, in my judgment, be ignored. The shares in CCL were not part of the company's circulating capital and it did not need to sell them, to deal with them, or to substitute them as part of its ordinary business as a management consultant, nor to improve or assist its cash flow as part of that business. The shares were not part of a fluctuating body of assets which changed from time to time in the ordinary course of the company's business."
"I certainly do not intend to attempt to give an exact definition of the term "floating charge," nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge. (1.) If it is a charge on a class of assets of a company present and future; (2.) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3.) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with."
Ordinary course of business
"In referring to a provision in a bankruptcy act having reference to a purchase "in good faith and for valuable consideration and in the ordinary course of business" Rich J in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463, at p 477 said of the last requirement:
" it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation."
That in our view is the usual meaning of the words "ordinary course of business"; in this case it is to be applied to the particular business of Harper by reason of the use of the words "carrying on its business"."
"In my opinion, in order to enable the debenture-holder to insist on payment of his debentures in such a case as this he must shew, either that the act complained of is ultra vires, or that, to use the language of Lord Macnaghten, "the undertaking has ceased to be a going concern," or that the terms of the debenture which he holds give him the express right to veto or negative the operations which the company are proposing to carry out within their powers.
In my opinion, the facts in this case do not support any of the above positions. There is nothing in the debenture to prevent the company from carrying out this particular operation, if it is, as I hold it to be, within the memorandum of association; and in my opinion Farwell J. ought to have declined to give the plaintiff and the dissenting debenture-holders he represents any special rights in respect of the 16,800l. brought into court, and ought to have treated them as having the same rights as the debenture-holders who had assented."
"In this case North J., on an interlocutory motion, granted, on March 21, 1899, an injunction until the hearing, restraining the defendants from carrying out a sale of all their assets to the defendants De Friese and Borax Consolidated, Limited, without first making due provision for the payment of the debenture-holders whose assent to such transfer had not been obtained.
No previous authority is cited for such a finding when, as in the present case, the company is only doing what is plainly authorized by the memorandum of association, and a substantial and independent business has throughout remained to be carried on."
"The principle by reference to which it is to be determined whether a subsequently created interest is held free of a floating charge is clear. The reason why the charge is not fixed but floating is that, if it were fixed, the company could not, in a practical sense, continue to carry on business: subsequent interests created by it in the course of its business might be held to be subject to the prior equitable charge. Therefore, for example, where it is provided that the charge is a floating charge, or where the intention that it be such appears from the terms of the charge: United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 at 681-2, 686; or where it is the intention of the parties that the company continue to deal with the charged asset as part of a continuing business: Illingworth v Houldsworth  AC 355; the company will be entitled, while the charge continues to float, to deal with such assets free of it. The test conventionally adopted for determining whether what the company has done is within this principle is: was it done by the company in the ordinary course of business? Mr Grieve, for the bank, submitted that the transaction of 8 September 1982, was not such.
The transaction was, as Mr Grieve submitted, an extraordinary one. But, within this principle, "ordinary" is not to be confined to what is in fact ordinarily done in the course of the particular business of the company. Transactions will be within this principle, even though they be, in relation to the company, exceptional or unprecedented. Thus, in Willmott v London Celluloid Co (1886) 34 Ch D 147, a fire had destroyed most of the company's business and the insurance moneys were taken by the directors on a garnishee in respect of debts due to them personally: it was held that they took them free of the equitable charge. In the Borax Company litigation  1 Ch 326, the company joined with other companies in selling the whole of its assets (excluding certain of its securities) for shares in a new holding company. The Court of Appeal accepted the finding that, in holding shares in the holding company, the company did not "cease to be a going concern": at 337, 339; cf at 342. And Re H H Vivian & Co Ltd  2 Ch 654, a company having three businesses, or branches of a business, sold one: it was held to pass free of the charge."
"It was urged that this was a "floating" security. That term only expresses what is more fully expressed in the conditions indorsed on the debentures, viz., that the company shall, notwithstanding the debentures, be at liberty to carry on its business, and in the ordinary course of such business to dispose of the property, as if the debentures did not exist. That is the ordinary meaning of the term "floating security." It does not mean that there is not to be a charge, and an immediate charge, on the property, but merely that, notwithstanding the existence of the charge on all the property, including the real property, of the company, power is reserved to dispose of the property if in the ordinary course of carrying on the company's business it becomes necessary to do so. The charge is none the less a charge because such a power is reserved. In the case of In re Florence Land, &c., Co., Ex parte Moor , already referred to by the Master of the Rolls, I observe that Jessel, M.R., said, with regard to this kind of security, that it was intended to be "a security on the property of the company as a going concern, subject to the powers of the directors to dispose of the property of the company while carrying on its business in the ordinary course.""
"I can imagine circumstances in which the severance of the part of a business might be considered necessary for the orderly conduct of a business for its reconstruction, for its survival. Such may, in particular facts, amount to a dispersal of assets which could be said to be in the ordinary course of business. It may be that even a transmogrification of the owner of the business into a new entity may involve dealing with the assets of a business in a way that could be regarded as not affecting the operations carried on otherwise than in the ordinary course of business. But I cannot see that a plan made between the proprietor and one other interested party to dissemble the various aspects that go to make up the entity of a business in order to bring it to an end in a way best calculated to serve those who have an interest in its assets can be labelled in its execution as dealing with those aspects in the ordinary course of business. It was put that the dealing with assets in the ordinary course of bringing a business to an end can be characterised as being in the ordinary course of business. I am not persuaded that this could be so but it is not necessary to decide that here."
"The difficulty of the plaintiff is that it cannot be denied that generally it is true to say that a debenture-holder who takes a floating charge on the undertaking and property of a company cannot complain of anything which is done by the company intra vires and in the ordinary course of business; and Farwell J., following North J., has, in effect, held that the sale or amalgamation agreement of the company with De Friese was intra vires and in ordinary course of business, because he has held that, notwithstanding the sale, the company has not ceased to carry on business. This decision may be right or may be wrong, but it cannot be discussed because there is no appeal by the plaintiff against it." [my emphasis]
"There are difficulties in drawing upon formulations in different words of statutory tests and treating them as applicable in all circumstances. Such difficulties are increased where those formulations originate in different legal or factual contexts. This is particularly so where the test is essentially one of fact in any event. For these reasons, as presently informed by the argument in this case, their Lordships do not adopt any particular formulation. Nor is it necessary for this case to make any comprehensive statement, suitable for all cases, of the criteria for determining when a transaction is to be held to have taken place in the ordinary course of business for the purpose of section 266 and the corresponding section in the Act of 1993."
"We have been referred to quite a number of authorities on this topic. For my part I find helpful, and would approve, the statement of Street CJ in Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 730, where he said:
'In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company's assets. It is in a practical sense their assets and not the shareholders' assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.'
In the present case, therefore, in my judgment Mr Dodd was guilty of breach of duty when, for his own purposes, he caused the £4,000 to be transferred in disregard of the interests of the general creditors of this insolvent company. Therefore the declaration sought in the notice of motion ought to be made as against Mr Dodd."
"This is an appeal from a decision of Vice-Chancellor Bacon. The ground on which the case was argued on behalf of the Plaintiff before the Vice-Chancellor was that the payment of the insurance moneys to the Defendants in respect of their claims against the company must be treated as a fraudulent preference within the 164th section of the Companies Act, 1862, which provides that any act relating to property which would in bankruptcy be a fraudulent preference of the creditors shall be considered as such in the winding-up of a company, so that money recovered under a claim on account of fraudulent preference would be recovered for the general creditors as if it had been recovered by the trustee in bankruptcy, and that therefore the moneys so paid to the Defendants must remain subject to the security of the Plaintiff. The Vice-Chancellor held that the section did not apply, and dismissed the action so far as it related to this claim. I think he did so rightly, because the section is only intended to apply in the case of a winding-up and for the benefit of the general creditors. Here the Plaintiff is seeking to enforce his claim independently of the winding-up. And in the case of Ex parte Cooper it was decided that the doctrine of fraudulent preference is not to be taken advantage of by a mortgagee, but only for the benefit of the whole body of creditors. That was a bankruptcy case. The 164th section relates only to a case similar in all respects to that which arises in bankruptcy. I think, therefore, that the decision of the Vice-Chancellor was right on that point."
"There was also some suggestion in argument that because the transaction may have given Esanda a preference over other unsecured creditors in the event of a subsequent liquidation, it could not be within the course of the dealer's business. This would appear to be an irrelevant consideration. In Re Quality Camera Co Pty Ltd  NSWR 1330 McLelland J held that although payments made by a company which had given a floating charge over its assets and later became insolvent were void as preferences against the liquidator they nevertheless fell within the licence of the mortgagor and were valid against the receiver."
"The appellant's argument that the objective observer could see that at the time the challenged transaction took place the business was bound soon to come to an end does not require the conclusion that the transaction was not in the ordinary course of business but rather the opposite. This point was made by Lord Blackburn in a bankruptcy case: Tomkins v Saffery  LR 3 AC 213 at 235.
"Now I think you must say that it is not with a view to give an undue preference, if a man makes a payment to a creditor in the ordinary course of business. Supposing a bankrupt, although knowing that he is very likely to stop payment next week, struggles on and makes a payment without being particularly asked; supposing he pays his debts and sends his money to meet his bills on those days on which they become due, and does other things so as to keep himself alive and in good credit for the time; that would not have been undue preference I think, because those payments were not made "in favour of" certain creditors as against others, but were made in the hope a desperate hope perhaps that if he were able to keep himself alive something might turn up in his favour. Nor do I think it would be an undue or fraudulent preference if there was a demand upon him, and a yielding to that demand, by making a payment which might not otherwise have been made so soon."
Everything mentioned by Lord Blackburn in that paragraph was regarded by him as being "in the ordinary course" of the trader's business."
"An application to set aside a voidable preference can be made only by a liquidator or administrator and in the absence of a liquidation or administration order cannot be made at all: see section 239(1) of the Act of 1986. It cannot be made by an administrative receiver. This is so provided by the relevant legislation because a payment or other transaction in the course of business binds the debenture holder even if its effect is to prefer another creditor: see Willmott v. London Celluloid Co. (1886) 34 ChD 147. Cotton L.J. pointed out, at p. 150, that the preference section, then section 164 of the Companies Act 1862, was "only intended to apply in . . . a winding up and for the benefit of the general creditors." It was thus established long before 1986 that any sum recovered from a creditor who has been wrongly preferred enures for the benefit of the general body of creditors, not for the benefit of the company or the holder of a floating charge. It does not become part of the company's assets but is received by the liquidator impressed with a trust in favour of those creditors amongst whom he has to distribute the assets of the company: see In re Yagerphone Ltd.  Ch. 392. The actual ratio in that case was that the payment of a debt due to an unsecured creditor prior to the crystallisation of the floating charge bound the debenture holder. The liquidator submits that the last paragraph of Bennett J.'s judgment in which he stated that the money received by the liquidators was impressed in their hands with a trust for the general body of creditors was obiter and wrong. The passage in question may strictly have been obiter but in my judgment it follows logically from the ratio and I agree with it.
It follows, in my judgment, that a claim to set aside a voidable preference is not a claim to realise or get in any asset of the company. That must be so whether the preference took the form of the payment of a debt or the grant of a security. The only difference is that in the latter case the claim wears a greater semblance of being a claim to get in the assets of the company because the assets comprised in the security belong to the company. But in truth the claim is not to get in the assets comprised in the security but to set aside the security."
Transfer to Cabot of 41% of PEDLs 11 and 12
" if you consider what happened with 11 and 12: at the 31st March, at that point in time we were going to lose both licences. We were actually going to lose our very best licences and where all the major value of the company was situated. We could not find anybody to fund it, if you like, except for quality drilling and Cabot Energy.
Now, that frankly was very beneficial for us, and by doing that, we preserved our assets. Enron were very pleased that we did that. If we did not do that, then we would have lost basically our major asset and we really would have had a problem. Now the fact is we entered into a joint venture, that joint venture at the time was the fact that for £250,000, if we paid £250,000 by 31st December 2002 we would have kept 100 per cent of the licences. The fact is that we were not able to pay because we were not funded by 31st December 2002.
However, we had every expectation that we would be funded and that we would not have to, if you like, release the 41per cent to Cabot which is also why we had a significant time period. It was during this time period that we had an offer from Scottish and Southern which finally unfortunately collapsed."
(Transcript 24 May 2004 pp.177-178).
"He told me that he had had to resort to selling an interest in the Hickleton and Nottinghamshire licences in order to get them drilled to keep the licences. When asked who he had done this deal with he said "a combination of companies" and it was "rather complicated" and that he "didn't have the details with him". He was extremely evasive (I told him so). This would be in contravention with our agreement as we have security over all assets."
"I should be grateful if you would provide me with details of the sale of half of your licence interest that you described to me on the telephone this morning as we would need to agree any such sale given our security over the assets."
" As has been notified a joint venture agreement has been entered into to drill a well on the Nottinghamshire Licence in order that it does not terminate on 31 March 2002 in accordance with the Licence commitments. This only involves the third party drilling the well. We have made no arrangements with any third party concerning provision of cash. "
"However, as mentioned before, PEDLs 11 and 12 are by far the most important Licences and we cannot relinquish any interest in these "
Bearing in mind the context of the letter of 17 June 2003, and all the other circumstances, I do not consider that the letter is a secure evidential base for the inference which Mr Moss seeks to draw.
"Q. It says Cabot Energy Limited funded and drilled wells. What other wells did it fund, Mr Garratt?
A. I cannot remember, it certainly funded and drilled the Dinnington number one well.
Q. This is just a blatant lie, Mr Garratt, is it not?
A. No, I do not remember the details.
Q. What other wells did it fund?
A. I do not recall.
Q. It is just untrue, is it not? Mr Garratt, this is untrue, is it not?
A. I do not recall, I am sorry, I do not recall precisely what the situation was."
"Andrew Marsden said that that was best solution and that Octagon should try to do that because Enron would not provide the funds."
Transfer of 10% interest in the Original Licences
Sale of the OGL Shares and the After-Acquired Licences
"In view of the above and the company's limited funds it was agreed, following discussions with the other shareholder in Octagon Gas, that the company sell its total shareholding in Octagon Gas for the sum of £60,000 to the other shareholder in Octagon Gas on the basis that the £60,000 received from the other shareholder is paid to Octagon Gas to partially extinguish the temporary borrowings."
Transfers of 90% interests to E&P in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43
"16.1 In accordance with the provisions of the JOAs executed pursuant to the Earn In Agreement; and/or
16.2 In the ordinary course of the business of Octagon CBM and/or Octagon Resources."
"Information was provided on E&P at the time of signing the Enron Agreements. It is a UK company which will use some of the existing consultants that Octagon has used on the Licences in addition to expertise from the USA. Some of the US personnel have worked in the UK on UK onshore Licences."
Wrongful interference with the Drilling Rig and the Equipment
Summary of conclusions
i. the transfers to Cabot of 41% of PEDL 11 and PEDL 12 were not within the ordinary course of OCL's business;
ii. the transfers to E&P of a 10% interest in EXL 273, EXL 284 and PEDL 12 were expressly permitted by clause 19.1.6 of the Facility Agreement and, accordingly, clause 4.2 of the Debentures; but the transfers to E&P of a 10% interest in PEDL 10, PEDL 11, PEDL 13 and PEDL 43 were outside the terms of the Earn-In Agreement and were not in the ordinary course of the business of OCL or OCRL within clause 19.1.6 of the Facility Agreement;
iii. the transfers to OGL of the After-Acquired Licences were not in the ordinary course of the business of OCL or OCRL and were not otherwise permitted by clause 19.1.6 of the Facility Agreement;
iv. the sale to Cabot of the OGL Shares was not in the ordinary course of the business of OEL;
v. the transfers to E&P of 90% of EXL 273, EXL 284, PEDL 10, PEDL 11, PEDL 13 and PEDL 43 were not in the ordinary course of the business of OCL or OCRL and were not otherwise permitted by clause 19.1.6 of the Facility Agreement;
vi. Greenpark is not precluded, by any consent given on behalf of the Enron Lenders, or by any estoppel, from asserting its rights in respect of those assets the disposals of which were not permitted by clause 19.1.6 of the Facility Agreement;
vii. none of the Defendants are entitled to repayment of any sums expended by them in relation to the Licences and the OGL Shares, as a condition of the enforcement by Greenpark of its property interests pursuant to my findings;
viii. Greenpark has wrongly interfered with OGL's rights in respect of the Drilling Rig and the Equipment, and must deliver up the same to OGL.