QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Munib Masri
|- and -
|Consolidated Contractors International UK Ltd & Another
(instructed by Simmons & Simmons) for the Claimant
Charles Aldous Esq, QC, Ms Helen Davies & Simon Birt Esq
(instructed by Herbert Smith LLP) for the Defendants
Hearing dates: 7th - 9th March 2006; 13th - 15th March 2006; 20th and 21st March 2006;
23rd March 2006; 27th and 28th March 2006; and 4th April 2006
Crown Copyright ©
Mrs Justice Gloster, DBE:
"This is to define the principles of participation of Munib Masri (MASRI) in CCC's interest in the Masila Block in Yemen.
Basic principle is for Masri to receive 10% of CCC's 10% interest or a 1% overall interest in the Block for Masri subject to the following conditions, payments and adjustments:
1. Masri is to pay 10% of Masila Block Development costs which are paid by CCC.
2. Masri is to pay 10% of Masila Operating costs assessed to CCC.
4. Masri shall pay 10% of CCC's share of Bonus and Training payments required under the Production Sharing Agreement (PSA).
In consideration for the payments and participation of Masri as described above, Masri shall be entitled to the following when and if received by CCC. (Based on actual net receipts by CCC, i.e. after payment of marketing and other costs).
A. 10% of CCC's share of Contractor oil entitlements under the PSA.
B. 10% of Development Cost Recovery received by CCC.
For the purpose of this agreement, the following priority shall be assigned to funds available for cost recovery:-
1. Operating Expenses.
2. Exploration Expenses.
3. Development Expenses."
i) which of the Defendants was party to the 1992 Agreement;
ii) whether Mr. Masri was in breach of the 1992 Agreement by not making payments other than US$ 1.5 million which he paid in December 1992; in particular, (i) whether Mr. Masri, as at the end of May 1993, was in breach of a payment obligation to meet cash calls; and (ii) whether Mr. Masri was in breach of an obligation to provide a bank guarantee in favour of the appropriate CCC company as at that date;
iii) whether any of Mr. Masri's payment obligations under the 1992 Agreement were cancelled and/or waived and/or postponed;
iv) if not, whether any such breach amounted to a repudiatory breach of the 1992 Agreement, entitling the relevant Defendant to terminate it;
v) if Mr. Masri was in repudiatory breach of the 1992 Agreement as alleged by the Defendants, whether such repudiation was accepted by the relevant Defendants;
vi) whether Mr. Masri's claim is barred in whole or part by limitation, beyond the admitted limitation to sums which it is claimed became due from CCUK on or after 18 February 1998 and/or from the other Defendants on or after 8 October 1998 in the Second Action or on or after 13 January 2000 in the First Action;
vii) whether, on the true construction of the 1992 Agreement,a) Mr. Masri's entitlements were limited to 10% of the defined oil and cost recovery entitlements of CCIC (as opposed to the entitlements of CC (Oil& Gas));b) whether to cater for the assignment of its interest to CC (Oil & Gas) the 1992 Agreement contained an implied term (as the Defendants contend) that CCIC would procure the assignment of its obligations under the 1992 Agreement to any assignee of CCIC's interest in the Concession;c) if so, whether Mr. Masri is now entitled to an order for specific performance of the obligation which the Defendants assert CCIC owed to procure that CC (Oil & Gas) would assume "CCC's" obligations under the 1992 Agreement;
viii) if, on the true construction of the 1992 Agreement, Mr. Masri's entitlements were indeed limited to 10% of the defined oil and cost recovery entitlements of CCIC, whether the Defendants are estopped from so alleging;
ix) whether, on the true construction of the 1992 Agreement, Mr. Masri had any entitlement to a 10% share of operating costs recovery.
Credibility of witnesses
The factual background leading up to the conclusion of the 1992 Agreement
"Because of Hasib [Mr. Sabbagh]'s knowledge of Yemen and his contacts, Occidental decided to seek, through CanadianOxy Petroleum Limited,… a concession in South Yemen in partnership with CCC."
i) The fact that earlier drafts of the Memorandum of Understanding dated 8 October 1985 and other letters were sent to Mr. Masri does not support the provision of any assistance by him or any role played by him in obtaining the Concession for CCIC. There is nothing in or attached to these documents asking Mr. Masri to do anything. There is nothing to suggest that Mr. Masri ever provided any comments on these documents, or advice in relation to them, or otherwise provided any assistance whatsoever.
ii) Mr. Lammam's evidence, which I accept, undermined the notion that Mr. Masri had a significant role in the obtaining of the Concession. Mr. Lamman himself approached the Ministry of Energy and Minerals of the PDRY, in relation to obtaining an oil concession in the Masila region back in May 1985. At the time, it was this Ministry and not any other part of the government of the PDRY that was responsible for the negotiations in relation to the Concession. Negotiations commenced by June 1985 and were lengthy and detailed. There was a break in the negotiations of a few months due to the political upheaval in the PDRY in January 1986. Once negotiations resumed, they resulted in the agreement of the PSA in September 1986. Mr. Lammam's evidence was strongly to the effect that Mr. Masri did not provide any assistance whatever in the obtaining of the Concession.
iii) Mr. Lammam's evidence was that Mr. Masri's visit on 22 July 1985 could have had nothing to do with the Concession at all. That was because the usual practice in the PDRY was that the President or Prime Minister would not take meetings alone, but would only do so accompanied by the relevant Minister, in relation to the subject matter of the meeting. But the Minister of Energy and Minerals did not attend Mr. Shoman and Mr. Masri's meeting with the Prime Minister, which would have been the case, had there been any intention to have any serious discussion of the Concession at the meeting. In fact, the only Minister that Mr. Masri and Mr. Shoman met was the Minister of Finance. The likelihood, therefore, was that the matters discussed related to the Bank's business in the PDRY. Moreover, if Mr. Sabbagh had wanted Mr. Shoman and Mr. Masri's assistance in relation to the obtaining of the Concession, he would no doubt have arranged for them to be at the meeting that Mr. Sabbagh had with the Minister of Energy and Minerals. However, this took place before Mr. Shoman and Mr. Masri arrived in the PDRY.
iv) Mr. Masri's evidence did not address the contents of his meeting with the Prime Minister (which he described as having been brief), nor was he able to explain how the meeting was said to have assisted CCC, or what he in particular brought to the meeting (rather than simply being there as the assistant of Mr. Shoman). He kept no note of the meeting (contrary to his normal meticulous practice of keeping notes). Nor was there any evidence as to how that meeting did have any material bearing on the award of the Concession to CCIC and CanOxy. Indeed, as Mr. Ba Jamal (the current Prime Minister of Yemen) said in his evidence, Mr. Al-Attas subsequently opposed the grant of the Concession to CanOxy/CCIC when the matter was put before the meeting of the Politburo in December 1985.
v) Furthermore, the Defendants put forward evidence from several prominent individuals from the Ministry of Energy and Minerals of the PDRY ("the Ministry"), who were involved in the negotiation of the PSA during 1985-6, and who testified in their statements to Mr. Masri's lack of involvement in obtaining the Concession. Although three of these witnesses were tendered for cross-examination, Mr. Masri chose not to require them to be called. The first of these witnesses was Hussain Al Rashid Jamal Al Kaf, who was Director General of the Petroleum and Mineral Board of the Ministry, and head of the negotiating committee on behalf of the Ministry in relation to the Concession, in 1985 and Deputy Minister for Energy and Minerals after January 1986. His evidence was that the PDRY was very keen to encourage foreign investment in oil exploration at this time and he was sent to London to make presentations to attract oil companies. Mr. Lamman approached the Minister of Energy and Minerals who, in turn, referred Mr. Lamman to Mr. Al Kaf. Mr. Al Kaf confirmed that CCIC was a company which was well known to him at the time and was well respected within the PDRY. Detailed negotiations took place between Mr. Al Kaf's committee and CCIC and CanOxy. As a result of the political unrest in January 1986, the negotiations were halted, but Mr. Al Kaf approached Mr. Lammam in March 1986 to ask whether they could recommence the negotiations. This process resulted in the relevant agreements being concluded in September 1986. Mr. Al Kaf was involved in the negotiations from the start to the finish and he confirmed that Mr. Masri played no role in assisting to obtain the Concession on behalf of CCIC and CanOxy. In cross-examination, Mr. Masri accepted all of Mr. Al Kaf's evidence, other than the suggestion that Mr. Masri had not played a role in obtaining the Concession. However, Mr. Masri agreed that he played no role at any time during the negotiations, and accepted that Mr. Al Kaf was involved throughout and that, if Mr. Masri had been involved, Mr. Al Kaf would have been aware of it. The second witness was Mubarak Omar Bamahmoud, a leading member of the negotiating committee representing the Ministry in 1985-6, and also Deputy Director General for the Department of Petroleum Exploration. His evidence was to the effect that Mr. Masri had no involvement at all in the negotiations and he had not even heard of Mr. Masri's name until his name was put to him for the purpose of these proceedings. Again, Mr. Masri accepted that he had no involvement with Mr. Bamahmoud. The third witness was Mohammed Abdo Rageh, one of the members of the negotiating committee on behalf of the Ministry in 1985-6. His evidence was to the effect that the principal negotiator on behalf of CCIC was Mr. Lammam; to the best of his knowledge Mr. Masri had no involvement at all in any of the negotiations; and he said that he had never heard of Mr. Masri until Mr. Lammam contacted him in relation to this dispute in 2001. Again Mr. Masri accepted this as correct.
i) The Contractor (i.e. CanadianOxy and CCIC) was given the exclusive right to conduct petroleum operations in the Masila area, or Contract Area (as defined), during the term of the PSA. (Article 3.3). The Contractor was to provide all technical and financial resources required for the petroleum operations and was to carry out such operations at its sole cost and risk. The Contractor was to look only to the share of production from the Contract Area payable to it pursuant to Article 9 of the PSA to recover its costs and make its profit (Article 3.4.)
ii) The Contractor had six years in which to explore the area and to declare "Commercial Discovery" ("the Exploration period"), and in the event that no Commercial Discovery was made by the end of that period, the PSA was to terminate. In the event of Commercial Discovery, the term of the PSA was to continue for 20 years after the date of Contractor's declaration of first Commercial Discovery in the Contract Area (Article 4). "Commercial Discovery" was defined in clause 1.3 of the PSA as follows:"1.3 'Commercial Discovery' means a discovery in the Contract Area of an accumulation or accumulations of Petroleum which Contractor, after assessing the quantity and the quality of Petroleum present, the place and the depth of its location, the required investments, costs and prices prevailing in the world market, decides to be worthy of being developed and exploited and which Contractor commits itself to develop and produce under the terms of this Agreement."
iii) Article 9 of the PSA set out the provisions for the Contractor's recovery of costs and expenses and allocation of oil production in excess of cost recovery as follows:Clause 9.1 dealt with cost recovery:"Subject to the auditing provisions of this Agreement, Contractor shall recover all costs and expenses not excluded by the provisions of this Agreement or the Accounting Procedure in respect of all the Exploration, Development and related operations hereunder of the extent of and out of a maximum of forty percent (40%) per annum of all Crude Oil produced and saved and out of a maximum of fifty percent (50%) per annum of all Gas produced and saved. Such Crude Oil and/or Gas to which Contractor is entitled for the purposes of recovering its costs and expenses is hereinafter referred to as "Cost Recovery Petroleum". Such costs and expenses shall be treated and recovered separately from the applicable Cost Recovery Crude Oil or Gas, as the case may be, in the following manner:(a) All Operating Expenses, incurred and paid after the initial Commercial Production, which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil is made, shall be recoverable in the Financial Year in which such Expenses are incurred.…(b) Exploration Expenditures, including those accumulated prior to the commencement of initial Commercial Production shall be recoverable on a straight-line basis at the rate of twenty-five percent (25%) per annum of the amount of the original Expenditures starting in the later of the Financial Year in which such Expenditures are incurred or paid or the Financial Year in which initial Commercial Production commences.(c) Development Expenditures, including those accumulated prior to the commencement of initial Commercial Production, shall be recoverable on a straight-line basis at the rate of sixteen and sixty seven hundredths [sic.] percent (16.67%) per annum of the amount of the original Expenditures starting in the later of the Financial Year in which such Expenditures are incurred or paid or the Financial Year in which initial Commercial Production commences.(d) To the extent that in a Financial Year costs, expenses or expenditures recoverable under paragraphs (a), (b) and (c) above exceed the value of all Cost Recovery Petroleum for such Financial Year, the excess shall be carried forward for recovery in the next succeeding Financial Year or Years until fully recovered, but in no case after termination of the Agreement."
iv) Oil produced in excess of that allocated for cost recovery was dealt with in clause 9.3, which provided that the Contractor (i.e. CanadianOxy and CCIC) would share the remaining oil with the Ministry in proportions which varied depending upon how much was produced, so that the Ministry's proportion would vary between 66.7% and 80%, with the remaining 20% to 33.3% of profit oil going to the Contractors:"The remaining Petroleum, i.e., the Petroleum remaining after deducting the Cost of Recovery Petroleum from the total Petroleum produced and saved, shall be taken and disposed of separately by Ministry and Contractor in the following proportions:…"
[as summarised in the following table:]
|Production up to 25,000 barrels per day:||66.7%||33.3%|
|Additional production between 25,000 and 50,000 barrels per day:||70%||30%|
|Additional production between 50,000 and 100,000 barrels per day:||72.5%||27.5%|
|Additional production between 100,000 and 150,000 barrels per day:||75%||25%|
|Additional production between 150,000 and 250,000 barrels per day:||77.5%||22.5%|
|Additional production which exceeds 250,000 barrels per day:||80%||20%|
"… That portion of the total petroleum produced and saved to be taken and disposed of by Ministry pursuant to this Section shall include production the value of which equals Contract's liability for PDRY income taxes."
v) Article 11 contained obligations on the Contractor to pay a signature bonus and additional production bonuses to the Ministry once the Concession reached particular milestones in production.
vi) Article 20, especially in Articles 20.3 to 20.5, also contained provisions obliging the Contractor to provide for and meet the expenses of a training programme for Yemeni personnel.
vii) Article 24 governed assignment and provided that the agreement was not to be assigned to unrelated parties without the consent of the Government of PDRY. Thus Article 24.1 provided:"Neither Ministry nor Contractor may assign to a person, firm or corporation not a party hereto, in whole or in part, any of its rights, privileges, duties or obligations under this Agreement without the prior written consent of Government. However, either Ministry or Contractor shall be free to assign its rights, privileges, duties and obligations under this Agreement to an Affiliated Company or Appended Unit upon giving prior written notice to Government for such intention. Any assignee shall be as qualified as the assignor with respect to its technical and financial competence."
Article 24.2 went on to provide that Government consent to any assignment to a non-affiliated third party should not be arbitrarily withheld and imposed conditions on such assignments.
i) CanadianOxy bore 5% of what would otherwise have been CCIC's 40% share of exploration costs and expenses up to the date of Commercial Discovery (which in the event was 18 December 1991), with the result that CCIC was responsible for only 35% of costs and expenses until that date; and
ii) CanadianOxy was to bear the first US$ 22.5 million of the costs and expenses incurred in fulfilling the obligations under the PSA, subject to a reimbursement by CCIC of US$ 4,375,000 (representing 35% of the costs above US$ 10 million) after the first US$ 22.5 million had been incurred.
"2.25% of total shares and this leaves CCC 17.75%. In this case he has to pay C.C.C. immediately US$ 1,977,163 and continue paying his share of all expenses during exploration and development."
"1% of concession:-
(a) In this case C.C.C. would bear all the expenses of exploration. If oil is found commercially Munib Masri would share in 1% of the development cost."
Occidental Peninsula 18%
"Masila Oil Concession
On Wednesday August 19, 1992, the following was agreed between Said Khoury and Munib Al Masri concerning CCC's 10% share of the concession.
1. Munib will receive the benefit of 1% of the concession from CCC and 9% will remain for CCC.
2. Munib will participate in 1% of the development costs and he will recover the amount from the sale of oil as per the agreement with the Government. Charge interest until we receive the loan from the bank then actual will be charged."
3. CCC will pay 10% of all other expenses and are entitled to all recoveries receivable from exploration expenses."
"It seems we will never get the loan before end of December, at least. So please send your share until end of October as requested before by Mr. Jamal Nakhleh."
i) Mr. Nakhleh's personal assistant's correspondence log records that the letter was sent.
ii) The letter was addressed to Mr. Masri at EDGO, P.O. Box 926647 in Amman, Jordan; this was the address from which Mr. Davies, of EDGO, corresponded with Mr. Nakhleh on 22 November 1992; other letters sent to that Amman address were received which Mr. Masri confirmed that he did receive.
iii) Mr. Masri received later correspondence referring to this letter but never questioned what the earlier document was.
iv) Mr. Nakhleh's fax to Mr. Masri dated 30 November 1992, of which Mr. Masri appears to have taken multiple copies, also referred back to his 24 October 1992 fax, albeit there was a typographical error which referred to it as "My memo dated 24.11.92". Again, there was no demur from Mr. Masri as to his receipt of this letter.
v) The assertion that Mr. Masri did not receive the 24 October 1992 cash call at the time was only made after it had become apparent (in interlocutory proceedings) that the Defendants were relying on this document to demonstrate that Mr. Masri knew, before 6 November 1992, that it was CCIC that was the CC Group entity requesting payment of cash calls from him (in the context of the identity of the proper contracting party, which was an issue at the summary judgment and jurisdiction stage). Indeed, in Paragraph 18 of the original Particulars of Claim Mr. Masri had specifically relied upon, and referred to, this written request dated 24 October 1992.
vi) It is also likely that the payment request was the cause of Mr. Masri again pressing Mr. Khoury for a written agreement.
Issue i): Which of the Defendants was party to the 1992 Agreement
i) On its face, the November 1992 Agreement purports to be an agreement with CCUK, whose notepaper is used, featuring the 'CCC' logo in the top left hand corner.
ii) The November 1992 Agreement was drafted by a director of CCUK, Mr. Brawley.
iii) Only CCUK could have had the Agreement typed onto CCUK notepaper at CCUK's offices. There is no suggestion on the Defendants' side that Mr. Khoury acted with some impropriety in procuring that that took place.
iv) Accordingly, the Defendants' case that Mr. Khoury did not have authority to contract for CCUK is irrelevant. CCUK permitted Mr. Khoury to appear to do so. In other words, CCUK held out Mr. Khoury as having such authority.
v) The Defendants' acceptance during the course of the trial of Mr. Masri's role as a hidden partner contradicted their principal contention that the Agreement could only have been made with the party who owned the interest in the Concession. However, submitted Mr. Hapgood, the 1992 Agreement did not need to be with the party which held the interest, because the interest was not being formally assigned or transferred to Mr. Masri; the arrangement was a purely economic one; Mr. Masri was being put in the economic position of holding 10% of CCC's 10%; thus any CCC entity was capable of making and carrying out such an agreement.
vi) The Defendants' contention that the agreement had to be with the CCC entity which held the interest is inconsistent with Mr. Khoury's failure to mention the fact that he had just signed an Assignment of the interest from one company (CCIC) to another (CC (Oil & Gas)). If it had been necessary for the agreement to be with the entity holding the interest, then the effect of assignment would not have been left to be covered by an implied term, but would have been mentioned expressly, given the fact that such an assignment had only just been made.
vii) Upon the basis of the evidence received at trial as to the operation of CCC as a group, the Defendants could not realistically contend that the phrase 'CCC' denoted CCIC, rather than any other company in the group. The phrase was used to refer to the group as a whole, or to any company in the group, without any bias in usage in favour of any one company or another, as was accepted by Mr. Brawley in his oral evidence, when he withdrew any suggestion in his statements that "CCC" was a deliberate choice by him to indicate CCIC; and as was also accepted Mr. Lammam and Dr. Jallad.
viii) The evidence at trial established that Mr. Khoury had actual or at least apparent authority to contract on behalf of CCUK. Contrary to the evidence put in for CCUK when it had earlier sought summary judgment on this point, Mr. Khoury did indeed have the largest office in CCUK's offices (equal with that of Mr. Sabbagh). Mr. Brawley agreed that, as an employee and director of CCUK, he had no difficulty taking instructions from Mr. Khoury; that he signed agreements for CCIC without any formal authority to do so; and that he would likewise not have had any complaint if Mr. Khoury had signed an agreement for CCUK.
ix) The evidence at trial established that the CCUK employees, Messrs Brawley and Glance, were very active indeed in managing the Concession on behalf of CCC. Much of the correspondence was done on CCUK notepaper. An outsider could easily be forgiven if he had wrongly come to believe that CCUK was the CCC entity which held the Concession.
x) Given that it had become common ground that the assignment from CCIC to CC (Oil & Gas) had taken effect in equity, as between CCIC and CC (Oil & Gas) before the November 1992 Agreement was made, if the Agreement did have to be with the legal person who owned CCC's interest, that person was CC (Oil & Gas).
xi) Although, in their opening submissions, the Defendants said it was important to consider the role of CCUK within the CCC group, since Mr. Masri's evidence was that he did not understand anything about the structure of the CCC group, such matters are not available as aids to construction of the November 1992 Agreement.
i) From the outset the CCC share of the Concession had been owned by CCIC, which was the party to the PSA (and defined in the PSA as CCC); that, although as between CCIC and CC (Oil & Gas), the October 1992 assignment might well have been effective as an equitable assignment, until such time as the requisite notice was given it had no effect as regards the other parties to the PSA. At the time of the 1992 Agreement, the company which remained the party to the PSA, and hence held the interest in the Concession remained CCIC.
ii) He further submitted that the express references in the 1992 Agreement to "CCC's interest in the Masila Block" and the "basic principle" being stated to be for Mr. Masri "to receive 10% of CCC's 10% interest or a 1% overall interest in the Block" indicated that the clear intent was to confer upon Mr. Masri all the benefits of a share of the interest held in the Concession (on condition that Mr. Masri complied with the remaining terms of the agreement). Further, the payment obligations to Mr. Masri expressed in the latter part of the agreement are all only said to fall due "when and if" the relevant sums are received by "CCC" and are to be "based on actual net receipts by CCC". The party that was most obviously in a position to discharge this type of obligation was the party that was actually due to receive the sums in question i.e. the entity that held the interest in the Concession. Similarly, the payment obligations imposed upon Mr. Masri were expressed by reference to the sums "which are paid by CCC" or "assessed to CCC" or which are required of "CCC" under the PSA. Accordingly, he submitted that this type of accounting mechanism clearly points to the counterparty to the agreement being the party that was actually due to make such payments at the time of the 1992 Agreement. Moreover, the terms "Masila Block Development costs", "Masila Operating costs", "Bonus and Training costs", "Contractor oil entitlements" and "Development Cost Recovery", which define the sums payable by either party under the 1992 Agreement, are all terms that are to be found in or are derived from the PSA, to which express reference is made in the 1992 Agreement. The obvious inference is that the counterparty to the 1992 Agreement was the party to the PSA, namely CCIC, which was defined in the PSA as "CCC".
iii) He relied upon the fact that, although the 1992 Agreement was set out on the letterheaded paper of CCUK, the terms of the agreement do not contain any reference to CCUK, which has never owned the interest in the Concession. The fact that it was recorded on the CCUK letterhead, he argued, reflected no more than that the CCUK letterhead was to hand in the office of CCUK, which is where Mr. Khoury and Mr. Masri happened to be when they agreed to enter into a written agreement. He pointed to the limited and separate role of CCUK within CCC, and the fact that its principal activity was the provision of services to companies within CCC, the most common services provided by CCUK being administrative services and the provision of staff to advise or acquire professional advice as required for specific projects.
iv) He further referred to the fact that, although CCUK also operated a small number of construction contracts, it did not conduct any oil and gas operations such as those in the Concession. Whilst two CCUK employees, namely Mr. Brawley and Mr. Glance, were obviously actively involved in managing CCIC's (and subsequently CC (Oil & Gas)'s interest in the Concession), as Mr. Brawley explained, in doing so they were acting on behalf of CCIC (and subsequently CC (Oil & Gas) and not CCUK.
v) He relied upon the fact that Mr. Khoury's evidence was that he intended to contract on behalf of CCIC, rather than on behalf of any other member of CCC, and that, at the time he signed the 1992 Agreement, Mr. Khoury was not even an authorised signatory of CCUK. He submitted that, although the subjective intent of one party uncommunicated to the other is not usually admissible to assist in the identification of the parties to a contract, where the issue is on whose behalf did an agent act in entering into a contract, the intention of the agent is plainly relevant and admissible: Bowstead & Reynolds on Agency, Seventeenth Edition, at paragraph 8-074 and National Oilwell (UK) Ltd v Davy Offshore Ltd  2 Lloyd's Rep 582 at p 597, per Colman J.
vi) In contrast, he submitted, this principle did not extend to evidence adduced by the other contracting party as to its uncommunicated subjective belief or understanding as to the identity of the party on whose behalf an agent was acting: Shogun Finance Ltd v Hudson  3 WLR 1371 per Lord Phillips at paragraphs 123-125 and Lord Walker at paragraph 183 and Chapman v Smith  2 Ch 97, per Parker J at p 102. Mr. Masri's evidence that that he did not know which member of the CC Group held the interest in the Concession at the time of the 1992 Agreement and that his intention was to contract with CCUK, was therefore irrelevant, even if correct (which the Defendants disputed). In any event, Mr. Masri did not suggest that he understood that CCUK was the party which held the interest in the Concession or was party to the PSA. In fact, by the time of the 1992 Agreement, Mr. Masri had not only received the 24 October 1992 cash call from CCIC, but also had received at least one other document showing that CCIC held the interest in the Concession, namely the farm out proposal dated 15 March 1991 which Mr. Masri acknowledged was an important document which he read at the time.
vii) He further relied upon the fact that it was notable that, prior to serving his proceedings in June 2004, Mr. Masri had never suggested or implied that CCUK was involved in the Concession, nor had he ever demanded any sum of money from CCUK in relation to the Concession.
Issue ii) whether Mr. Masri was in breach of the 1992 Agreement by not making payments other than US$ 1.5 million which he paid in December 1992 and by not providing a guarantee
Issue iii) whether any of Mr. Masri's payment obligations under the 1992 Agreement were cancelled and/or waived and/or postponed
Issue iv) if not, whether any such breach amounted to a repudiatory breach of the 1992 Agreement, entitling the relevant Defendant to terminate it;
Issue v) if Mr. Masri was in repudiatory breach of the 1992 Agreement as alleged by the Defendants, whether such repudiation was accepted by the relevant Defendants;
The understanding reached in November 1992
"it was agreed orally between Mr. Khoury and the Claimant, at the time of signing the 1992 Agreement, that the Claimant's obligations to pay development and operating costs would be satisfied initially from the proceeds of the Syndicated Loan, and subsequently from production revenue."
"It had always been agreed orally that the Claimant's funding obligations under the written terms of the 1992 Agreement would be satisfied by the Syndicated Loan."
In other words, Mr. Masri's contention was that he would not have to pay any cash whatsoever for development costs. Mr. Masri expressly asserted this in his first statement served in September 2004 with one limited exception, namely that he might be asked to pay cash calls, pursuant to the 1992 Agreement, until the syndicated loan was in place. However, in cross-examination Mr. Masri had to accept that there was "no doubt" that if the syndicated loan was insufficient, he was clearly going to have to pay his share of the development costs, which he also accepted could be substantial. Mr. Masri repeatedly referred to the arrangement with Mr. Khoury in terms such as the following:
"It was a mirror. Whatever their obligation was, I will meet it. If they do not pay it, I do not pay it. If they paid it, I will pay it. I have to pay it."
Moreover it was clear from his re-examination, in answer to questions from the Court, that Mr. Masri was talking about the actual payment of cash, and not just the creation of a running account to which his obligations would be debited on a rolling basis. Mr. Khoury's evidence, which I accept, was that he had repeatedly told Mr. Masri to pay the cash calls and that he had always been "after him to pay the cash". The requirement for Mr. Masri to pay his share of any cash calls that exceeded the amount of the syndicated loan was also confirmed by Mr. Khoury in the course of his oral evidence.
"As instructed by the President, CCC will waive all bank guarantees required from Mr. Munib Al Masry for the operations in North Yemen and the Masila Oil Concession."
Profits and losses will be settled on a personal basis between the President and Mr. Munib Al Masry based on returns submitted to the President by the Group Accounts.
The President might instruct the payment back of US$ 1,500,000 – paid by Mr. Munib Al Masry.
Mr. Fawzi Kawash to note.
Mr. Miran Shamlian to note."
[There was a manuscript "OK" arrowed to the US$ 1.5m.]
I deal with that issue further below.
Was there any waiver of, or estoppel in relation to, Mr. Masri's payment obligations, was he in repudiatory breach of contract, and was there any decision to accept such breach?
"(1) I am pledging my share for the syndication.
(2) I am trying my best
The maximum I can transfer 1.5-2.00
Hopefully before the 20th
(3) As soon as we sign the agreement and withdraw funds he wants the money back
(A) I have
notreceived anyone payment on a/c of profits.
"As the syndication agreement is not expected to be finalized before the end of March 1993, kindly arrange to transfer the amount due from you to [CCIC's account at the Bank, in London]".
Mr. Masri did not do so. In my judgment that was a breach of the 1992 Agreement.
"Telephone conversation. Feb 24th 93. Our meeting in London with Abu Tawfic [Mr. Khoury]
The week later -
Agreed that no need for us to sign or pay our 10%. … US$ 2,961,475.74.
They CCC will pay and then we will settle – since we talked about the farmout money – CCC received – did not pay our share (25% - 15%) to Pecten. CCC (Abu Tawfic) said they will pay even the 1.5 million back to us since they are receiving some money back.
i) that, going forward, there would be no need for Mr. Masri to pay (as distinct from bear) his share of development costs or to meet cash calls made on him; rather, CCC would pay those costs, and then, at a later date, Mr. Masri and CCC would 'settle', in the sense of taking of an account at some later stage, when Mr. Masri would be debited with his share of the development costs;
ii) that, accordingly, no more cash calls would be made on Mr. Masri;
iii) that he would be re-paid the US$ 1.5 million that he had already paid.
Mr. Masri contends that the reason for this arrangement was the fact that CCC had not paid Mr. Masri his share of the farm-out money; the argument was that, if Mr. Masri had indeed been granted an interest in the Concession in 1985, then he had a valid claim to a share in CCC's profits from the farm-outs because they diluted his share in the Concession, which claim to a share of the farm-outs was something Mr. Masri reminded Mr. Khoury on a number of occasions. In support of Mr. Masri's version of events, Mr. Hapgood pointed to the facts that the 24 February conversation took place after the cash call for the February development costs was made on 15 February 1993; that a cash call for the March development costs, payable by CCC to CanadianOxy at the end of February, would in the ordinary course of events have been made on Mr. Masri, in late February or early March; but no such cash call was made. Accordingly, argues Mr. Hapgood, by far the most probable explanation for this is that, following the conversation between Mr. Masri and Mr. Khoury, Mr. Khoury instructed Mr. Nakhleh to stop sending cash calls, and instead to maintain an internal record for Masri with interest being charged on the basis recorded in Mr. Nakhleh's notes.
"Q. Why did you not make a cash call for the February development costs?
A. Because Mr. Masri was not paying money. So I told Mr. Khoury. He said, "He will not pay money", so I stopped sending him the cash calls.
Q. Is it right that Mr. Khoury told you not to send any more cash calls?
A. Of course. Everything I do is with the blessing of Mr. Khoury."
Syndicated Bank loan 50,000,000
Edgo share 10% US$ 5,000,000
Please expedite issuing of your guarantee in our favour with a validity up to 31/12/94.
Whenever, this guarantee is established, we will refund to you US$ 1,500,000 received value 17/12/92. Your prompt action will be appreciated and please keep us informed."
However, I do not accept that, at this stage, there was any agreement that, going forward, he would not have to pay cash calls in respect of his share of development costs, and that his liability would simply be debited to a running account.
"A. What I remember, and I will tell you now what I remember, he was supposed to pay before the development costs. I was after him. In the end he paid 1,500,000. I was after him --- he was after me "Please .." – I think he started amounts after that, I do not remember exactly: "Please, I need the money, pay them back to me, pay them back to me". And I waited and waited and waited, then I decided that the man is worried or afraid because the indications were not so good for this project. So in the back of my mind, I decided that he does not want, especially when I asked him at a certain time, several times, by talking to him and by telephone, to give us his share of the guarantee, and which he did not, so I sent him the 1,500,000 with, in the back of my mind, that the man is not interested at all.
It was in our agreement, he has to pay or his contract is cancelled, and it is cancelled because he did not pay. And I have been after him, "Please pay, please pay, please give your – to the banks, your guarantee". He did not fulfil. When he does not fulfil an agreement, definitely he is out."
We considered him as out of this concession. He did not fulfil his responsibilities"
I do not remember the date – but after he refused to give the guarantee, after he asked for the 1.5 million. Instead of adding more, because the expenses were more, he did not pay and he was not ready to give the guarantee. This must be after that, when I got fed up.
Q. You say you got fed up.
Q. What rights did you think Mr. Masri then had ?
A. No rights. He did not fulfil his obligations."
"A. It was clear, from [Mr. Khoury's] instructions, that our relation with Mr. Masri is no more in force, "You do not chase him for any money, you do not chase him for any guarantees, you keep for me, because I will settle with him personally, you keep a set of records in order that when I sit with him, I will try to give him something and close the subject.
I knew that it is final. Mr. Khoury told me, 'Forget about him, do not ask him for any guarantees, do not chase him'.
"Q. .... He did not say to you that the relationship is at an end?
A. This is what he said. He said, 'Forget about Mr. Masri', okay? 'Do not keep any, except a record that will help me to deal with Mr. Masri'. What does this mean?
Q. Right. I will tell you what our case is. What it means is that Mr. Khoury was contemplating, at this time, opening up negotiations with Mr. Masri to bring Mr. Masri's participation in Yemen to an end by agreement.
A. To me the instruction was very clear, which I understood from Mr. Khoury, and this is why I did not have anything to do with the case until he came -- Mr. Masri came in 1995. 'Our relation with Masri is ended, do not chase him, do not ask him for any guarantees, I will deal with him personally on the profit and loss. Just keep me a record in order for me to know where we have reached in order for me to offer him something'
Q. Am I right in understanding that you are saying that it was your inference, from what Mr. Khoury told you as recorded here, that the agreement was at an end ?
A. No, this is what I understood from Mr. Khoury conveying to me, and I wrote it this way, but I understood it means that our relation with Mr. Masri, the official relation, is no more valid; "I will deal with him personally, when I decide, and when I decide, and not based on any agreement even". He will decide – Mr. Khoury will decide how much he will pay. He will not even refer to the agreement of November.
My answer is the way I put it is what I meant, that Mr. Khoury told me, "Everything is at an end with Mr. Masri from now on I will deal within him personally"
"SUBJECT: MR. MUNIB AL MASRY
As instructed by the President, CCC will waive all bank guarantees required from Mr. Munib Al Masry for the operations in North Yemen and the Masila Oil Concession.
Profits and losses will be settled on a personal basis between the President and Mr. Munib Al Masry based on returns submitted to the President by the Group Accounts.
The President might instruct the payment back of US$ 1,500,000 – paid by Mr. Munib Al Masry."
The Defendants submit that the words "on a personal basis" in the second paragraph of this note are particularly significant and belie any suggestion that at this time Mr. Khoury or Mr. Nakhleh regarded the 1992 Agreement as ongoing. They rely on Mr. Khoury's explanation when questioned about this paragraph of the note:
"Q. So you are contemplating that there is still in existence an agreement, namely the November 1992 agreement, under which Mr. Masri might have to bear losses ?
A. He might have to pay what ?
Q. He might have to bear losses.
A. No, no, no.
Q. You see you are not saying here, "I might instruct an ex-gratia payment, i.e. going only one way, in Mr. Masri's favour". You are saying that if there are losses, you might have to discuss Mr. Masri contributing to them.
A. What I am telling an employee of mine 'Forget about it. If there are losses or profits, I will deal with Mr. Masri on a personal way.' I did not tell him if there are losses, he has to pay. Of course, I had in mind he will never pay. So I have just to give him something if we succeeded."
"Q. I am coming to the question. I just want to take you back to your paragraph 35. Can we continue? However, if Mr. Masri decided he did not want to provide a guarantee and continued to plead for the return of his money. On 1st June 1993 I acquiesced and asked Mr. Nakhleh to return the 1.5 million to him on the understanding that he would repay the money with interest when he had more funds."
Q. You understand what you are saying there; you acquiesced, you acceded, to a request from Mr. Masri. There is no question of the 1992 agreement being ended, is there?
A. In the back of my mind, the agreement was ended. I did not want -- first of all, to the contrary of what you are saying, at the beginning, I was a friend of Mr. Masri. I did not want to hurt the feeling of Mr. Masri and tell him that he did not fulfil – 'you did not honour your agreement'. So let us forget about it now, and I thought within a short period, if he goes and gives the guarantee, then I might ask him to come back. But in the back of my mind he was finished.
Q. 'I acceded to that position'.
A. No, no. I never agreed to that.
MRS JUSTICE GLOSTER: You see, it says: 'However, Mr. Masri decided he did not want to provide a guarantee and continued to plead for the return of his money. On 1st June 1993 I acquiesced and asked Mr. Nakhleh to return the 1.5 million to him on the understanding that he would repay the money with interest when he had more funds.' Do you see that?
A. Yes, yes.
MRS JUSTICE GLOSTER: What is being said, by Mr. Hapgood, is that the words 'I acquiesced' mean, and what you were saying was, that you went along with Mr. Masri's decision that he did not want to provide a guarantee and his request for the return of the money, and you agreed that he should not have to provide a guarantee and could have his money back.
A. I do agree, except that -- to everything except this 'acquiesced'. I did not mean 'acquiesced' by that, as he explains it. What I meant, I asked Mr. Nakhleh to return the 1.5 million to him with the understanding, with the understanding, that if he come and pay the money or give the guarantee, I will bring him back. This was in the back of my mind.
MRS JUSTICE GLOSTER: What about in the front of your mind? Did you agree with Mr. Masri that he could come back in if he repaid the money with interest? Is this something that you discussed with Mr. Masri?
A. I told him. I told him, 'Munib, if you pay your money or you give a guarantee, within a short period we reconsider your situation'.
A. You see, I am talking with something in the back of my mind. When I might have told him 'forget', but forget for the time being. I have the feeling, at that time, that Mr. Masri is not interested, that Mr. Masri is out. And Mr. Masri being a friend, I thought that when we finish the job and he is out, I will reconsider giving him something for -- to start and remind you from the beginning. I said it is not a right to Mr. Masri, it is a gift given to him, in fact a gift given to Mr. Shoman, not to Mr. Masri. Now, still to keep this good relation, I was planning to give Mr. Masri something at the end for two reasons: first this is our habit, and I prove it to you with money, and the other partner; and secondly, knowing that Mr. Masri will go to Shoman and start asking things, Shoman would come to me, and usually my partner does not refuse Shoman.
Q. Can I put the question again? You are agreeing with me that on the evidence you are giving just now, it would have been pointless for CCC to be doing calculations of the value of Masri's interest in the concession?
A. There are two things for you to keep in mind. One thing, the Riyadh concession and his share in the concession. There was no right for him for anything. There was another consideration which I took and I mentioned it before: always, always, Masri was a friend, Shoman was behind Masri. I wanted at the end to keep Shoman and Masri happy. Shoman, even if I did not want to make him happy, Mr. Sabbagh would. They have been great friends, they have been doing favours for each other. I am still doing it up until now. I cannot tell you what I have done to the Arab Bank recently, which nobody could have done it for him.
We always do favours to the Shomans.
Q. I will answer that question: if, for nothing else, then to make interest run, because you were charging Mr. Masri interest on these development costs.
A. I told you before, I was planning, after we finish everything, if we make any money, to go and pay Mr. Masri a little amount, just to please Shoman, not him, because Shoman will be after me and this is not the first time when Shoman contact me, 'Please, Said, we should help Masri'.
Q. If you thought that Mr. Masri was abandoning his interest in the concession, why did you not simply write to him and say, 'My dear Munib, I am getting the strong impression that you have lost interest in the concession. Could you please confirm this to be the facts and we will go our separate ways?'
A. You see my relations with him were friendly relations.
MRS JUSTICE GLOSTER: Were friendly relations?
A. Were friendly relations. I did not want to touch his feeling, so I did not write him.
Q. Now do you understand the concept of terminating an agreement because the opposite party is not fulfilling his obligations?
A. Yes, of course.
Q. In the context of your long relationship with Mr. Masri and your friendship and the common bond between you over the Palestinian cause, it would have been a very drastic step for you to terminate the 1992 agreement against Mr. Masri's wishes, would it not?
A. It could be, yes.
Q. It would have been unthinkable, would it not?
A. Yes, I would feel bad about it.
Q. Your position in 1993 was that you were not going to terminate the 1992 agreement, but you might sit down and discuss a settlement with Mr. Masri to buy him out?
A. If I remember, there was something like that.
Q. That is what happened, is it not, because you moved on in 1994 to discussing an amicable settlement --
A. Yes, yes.
Q. -- and a consensual termination of the whole Yemen partnership, both the North Yemen construction contracts and the South Yemen concession?
Q. It is not your evidence that you, in your own mind, went through a process of reasoning, of saying, 'I am now terminating the 1992 agreement'. You never did that, did you?
Q. And you would never have done such a thing, even if it had been on the horizon, without first giving Mr. Masri an opportunity to put things right if you felt he was in breach of the agreement. That is correct, is it not?
A. I did, but verbal, not in writing.
Q. And you would never have taken such a drastic step as termination without writing to Mr. Masri to explain why you were taking that step?
A. Of course. He knows. There are obligations which he is not fulfilling". (emphasis added)
Was there any communication of acceptance of repudiatory breaches of contract?
i) returning the US$ 1.5 million to Mr. Masri in mid June 1993, at a time when Mr. Masri was well aware that, due to his failure to provide the repeatedly requested guarantee, he was not entitled to the benefit of the syndicated loan and therefore owed several million dollars in cash calls, leaving aside his share of further development costs which by then CCIC/CC (Oil & Gas) had paid ;
ii) coupled with their failure at any time thereafter to make any demand of Mr. Masri in respect of his share of those increasing development costs, in circumstances where, on his own admission, Mr. Masri was well aware that the development costs had already exceeded the amount of the syndicated loan and were moreover increasing substantially in amount. Indeed, as at February 1993, Mr. Masri had been told that CCIC's share of development costs had reached over US$ 44 million.
"In Amman – Had a meeting (2/6) with Hasib and he blew his top. Talked to him and told him he is wrong. He wants to settle and come up with the solution – I left it up to him. Mr. Shoman as usual he insisted that the deal was for both North & South Yemen and the share is 25% - and he told Hasib to take care of the situation."
Issue vi) whether Mr. Masri's claim is barred by limitation
"agreed with Mr. Sabbagh to terminate your relation with us regarding the contracts in Yemen starting from the beginning of next year, i.e. 1995 and close your account up to that date in order to safeguard our relationship with you because we have been sustaining losses there since the start of the war there, and we believe this conflict is going to drag on for some time…".
The letter, in other words, looks forward to what will happen, rather than back. I have already held above, in relation to the previous issue, that it did not amount to an acceptance, or a communication of an acceptance, by CCC of any repudiatory breach on the part of Mr. Masri. Nor, even if the letter could be characterised as an anticipatory repudiatory breach on the part of CCC, was it treated as such by Mr. Masri. He replied with a letter dated 12 January 1995. In relation to South Yemen, he reminded Mr. Khoury that the shares had been allocated and confirmed on Mr. Khoury's own instructions (by the 1992 Agreement) and stated that he, Mr. Masri, had fulfilled all his financial and banking obligations. He offered to meet to arrive at an amicable solution and to fulfil any obligations due from him. Mr. Masri's notebook suggests that he handed the letter to Mr. Sabbagh at a meeting on 19 January 1995 and discussed "finalis[ing] the situation" with him. Mr. Masri also noted a calculation of the value of his stake in the concession.
"It has been 8 months since my big brother [Mr. Sabbagh] spoke and it also has been about 6 months since your letter to me (and my reply to it) in which my brother [Mr. Sabbagh] asked me to terminate our partnership in Yemen and to which you, [Mr. Khoury], also requested in your letter. I agreed to this request in all good faith, but to this date I have as yet not received your proposal towards the termination of my partnership that started with you in Yemen 10 years ago.
I would be thankful if you wrote to me in this regard, and if we met to finalize this issue in a manner that is satisfactory to all and protects our friendship and unique relationship, while also recognising everyone's just rights."
Again, in my judgment, this letter cannot be characterised as an acceptance by Mr. Masri of any repudiatory breach on the part of CCC.
"on the condition that Mr. Masri participates in the cost and expenses of developing the concession proportionally with his share. Unfortunately, Mr. Masri did not fulfil any of these obligations in spite of all the reminders we sent him, bearing in mind that these expenses exceeded the sum of 100 million dollars".
Issue viii) if, on the true construction of the 1992 Agreement, Mr. Masri's entitlements were indeed limited to 10% of the defined oil and cost recovery entitlements of CCIC, whether the Defendants are estopped from so alleging;
Issue ix) whether, on the true construction of the 1992 Agreement, Mr. Masri had any entitlement to a 10% share of operating costs.
i) such a provision between these parties, against the background of their earlier agreements, would have been unusual; that it could have been included, but one would have expected to find express words to state it, not a hidden result of a proper understanding of the undefined term 'Contractor oil entitlements under the PSA'; and
ii) the need for an express term to give effect to the asymmetrical treatment of operating expenses and recoveries is emphasised by the 2nd paragraph of the Agreement, which states the 'basic principle' of a 1% overall interest subject to the following conditions, payments and adjustments. Such an asymmetry would have been an 'adjustment' and should have been expressed as such.
i) The 1992 Agreement does not include any express entitlement to Operating cost recovery.
ii) The 1992 Agreement not only deals separately with Mr. Masri's requirement to pay Development and Operating costs, but specifies in terms the two items which (on condition that he paid the sums due from him) Mr. Masri was to be entitled to payment; namely "A. 10% of CCC's share of Contractor oil entitlements under the PSA and B. 10% of Development Cost Recovery received by CCC". The inclusion of the second of these items separately from the first plainly demonstrates that it was not intended that the phrase "contractor oil entitlements" in sub-paragraph A would encompass the proceeds of all cost recovery oil to which the Contractor was also entitled under the PSA, in addition to the profit oil. Indeed, had that been the intention, submitted Mr. Aldous, there would be have been no purpose whatsoever in the inclusion of sub-paragraph B. If this were the correct interpretation the only way to give any effect to sub-paragraph B would be to conclude that this entitled Mr. Masri to double Development Cost recovery, which would be commercially nonsense.
iii) Moreover, the remainder of the 1992 Agreement only served to reinforce this point. In particular, if the phrase "contractor oil entitlements" is to be interpreted as meaning both profit oil and the proceeds of cost recovery oil under the PSA, there would have been no conceivable purpose in specifying the order in which cost recoveries received under the PSA were to be applied for the purposes of the 1992 Agreement. By contrast if paragraph A is taken to refer to CCC's profit oil under the PSA paragraph B and the remainder of the agreement specifying the order of cost recovery have a clear and obvious purpose.
iv) Finally, submitted Mr. Aldous, in the light of the manuscript amendment that was made before the 1992 Agreement was signed, removing any obligation on the part of Mr. Masri to contribute to CCC's internal costs, if the agreement were to be construed as entitling Mr. Masri to a 10% share of all recoveries received by CCC under the PSA including in respect of cost recovery oil, the effect would in fact be to confer a considerable premium on Mr. Masri. The result would be that his return under the 1992 Agreement would far exceed the return of CCIC on an equivalent 1% share, notwithstanding that it was CCIC and not Mr. Masri who was actually a party to the PSA and JOA, and who as a result incurred considerable cost in managing the interest in the Concession. All such management costs would have been to Mr. Masri's benefit, as well as being to the benefit of CCIC.