QUEEN'S BENCH DIVISION
Royal Courts of Justice
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: 19th September 2006; 30th November 2006; 1st December 2006;
Additional written submissions: 28th February 2007
Crown Copyright ©
Mrs Justice Gloster, DBE:
i) The 1992 Agreement was made on 6 November 1992 between Mr Masri on the one hand and both CCIC and CC (Oil & Gas) on the other. It provided for Mr Masri to benefit from a 10% share of CCC's 10% interest in the Masila Oil Concession in South Yemen. The interest was essentially a proportionate share save that the 1992 Agreement provided for CCC to retain a full 10% of Operating Cost recoveries without accounting to Mr Masri for any part of those recoveries.
ii) By mid-November 1992, the parties reached an understanding that Mr Masri would benefit from the syndicated loan in that, once it was received, he would not have to provide actual funds in respect of his share of that part of development costs which the loan covered.
iii) The understanding about the syndicated loan did not include any term requiring that Mr Masri provide a guarantee before he could benefit from the loan.
iv) From November 1992 to February 1993, CCC made cash calls on Mr Masri, which Mr Masri did not pay, save for a single payment of US$ 1.5 million. In not paying, Mr Masri acted in breach of contract.
v) After 15 February 1993, CCC made no further cash call on Mr Masri. The reason for this was that an agreement was reached that Mr Masri need not pay further amounts, and that the US$ 1.5 million would be returned to him, provided that Mr Masri provided a bank guarantee in favour of CCC.
vi) Mr Masri did not want to tie up such unencumbered funds as were at his disposal either by paying the cash calls or by providing a guarantee and this is why he was repeatedly requesting the return of his funds and relief from having to pay his share of development costs.
vii) By April/May 1993, Mr Masri's consistent failure to pay cash calls amounted to repudiatory breach of the 1992 Agreement.
viii) In or about late May 1993, Mr Khoury decided to waive Mr Masri's continued failure to pay his cash calls and put up a guarantee, and instead to accede to the suggestion to debit Mr Masri's continuing obligations to a running account, together with interest thereon, with a view subsequently to reaching some sort of amicable compromise to bring Mr Masri's interests in both the Concession and CCC's North Yemen projects to an end. The principal reason for the waiver was that Mr Khoury did not wish to upset or fall out with Mr Masri.
ix) Even if there had been a decision on the part of CCC to terminate the 1992 Agreement, this was never communicated to Mr Masri.
i) the parties to the 1992 Agreement were Mr Masri, CCIC and CC (Oil & Gas);
ii) the 1992 Agreement remained in existence;
iii) Mr Masri was not entitled to share in operating cost recovery; and
iv) (as was common ground) the claim was time barred in respect of any sums accruing due before 8 October 1998.
i) I ordered CCIC and CC (Oil & Gas) to pay 2/3 of Mr Masri's costs of the liability trial, and all the costs of the other defendants.
ii) I gave directions for a two-day hearing, to deal with all the issues of principle as to quantum.
iii) I indicated that I would not order an interim payment on account of damages in a substantial sum before resolving the issues of principle in relation to quantum. Through counsel, Mr Masri accepted that the issue of an interim payment should be deferred pending such resolution. The interim payment application was not referred to in the Order as drawn up by the parties, but it should have been formally adjourned to the quantum hearing.
iv) I ordered that the costs incurred to date were to be assessed, but payment was to be stayed pending CCC's application for permission to appeal to the Court of Appeal and any subsequent appeal.
v) I also ordered that the sum of £350,000 paid into Court by Mr Masri as security for the Defendants' costs was to remain pending CCC's application for permission to appeal and any subsequent appeal.
vi) At the hearing, Mr Masri offered to provide a bank guarantee to support his repayment of any interim payment ordered on account of damages. This offer became irrelevant in the event because of the view which I took that the issues of principle as to quantum needed to be determined before interim payment. Immediately after the ruling was given on staying any payment of costs or the payment of monies out of Court, I stated that the ruling would be different if a guarantee were proffered in respect of those items, saying "I would make an interim order for payment of costs, and I would not make a stay if there was a guarantee."
vii) I refused CCC's application for permission to appeal.
Issues of principle to be determined at the quantum hearing
i) Whether CCIC (as well as CC (Oil & Gas)) is liable as a judgment debtor.
ii) What was the duration of the running account and when would the parties be entitled to be paid out thereunder.
iii) The method for calculating interest in relation to the balances standing at any time to the credit of the running account: in particular whether on a simple or compound basis.
iv) The appropriate rate of interest to be applied to sums due to each respective party in the taking of the account.
v) The extent to which the Claimant is entitled to receive the benefit of the syndicated loan in the taking of the account.
Issue i) Whether CCIC (as well as CC (Oil & Gas)) is liable as a judgment debtor.
"In my judgment, the correct analysis, given the facts which I have set out above, was that Mr. Khoury, as the controlling shareholder in the CCC group, with Mr. Sabbagh's blessing, had the necessary actual authority to enter into the 1992 Agreement on behalf of whichever one or more company, or companies, within the CCC group was the appropriate corporate entity to agree to grant Mr. Masri an interest in the Concession. It was simply not a matter that concerned Mr. Masri or Mr. Khoury which precise corporate entity was the appropriate corporate entity; as far as they were concerned, Mr. Khoury was agreeing on behalf of "CCC" and that was enough. If the issue about the about the identity of the contracting party or the Assignment had been raised at the meeting, and they had had explained to them that, as became common ground during the trial, the legal title to the interest in the Concession was in CCIC, but that, because of the Assignment, and the fact that no notice of it had been given, the beneficial interest in the Concession was now with CC (Oil & Gas), it is inconceivable that they would have said anything other than "well, in that case, of course, the contract is entered into on behalf of both companies, both the legal and the equitable owners." In my judgment that is preferable to the analysis, as pleaded at paragraph 29 of the Amended Defence, that some term is to be implied that to the effect that CCIC was obliged, in the event that it assigned its interest under the PSA, to procure that the assignee assumed CCIC's obligations under the 1992 Agreement so that the assignee would undertake to pay a share of its own revenue from the Concession to Mr. Masri. The reality is that, at the time of the 1992 Agreement, the interest in the Concession had already been assigned in equity to CC (Oil & Gas). The effect of my conclusion on this issue on the limitation defences will, as I have said, fall to be considered on another occasion."
Conclusion on Issue i)
Issue ii): what was the duration of the running account and when would the parties be entitled to be paid out thereunder?
"In my judgment the evidence, on proper analysis, shows that, although as I have held, CCC was entitled to determine the 1992 Agreement, Mr. Khoury never in fact decided to do so. Instead, in or about late May 1993, he decided to waive Mr. Masri's continued failure to pay to his cash calls and put up a guarantee, and instead to accede to the suggestion, which no doubt emanated from Mr. Masri, that he should debit his continuing obligations to a running account, together with interest thereon, with a view subsequently to reaching some sort of amicable compromise with Mr. Masri for bringing his interests in the Concession (and in North Yemen) to an end".
"Accordingly, I hold that, on the evidence, there was no acceptance by CCC of Mr. Masri's repudiatory breach of the 1992 Agreement, in the sense of there being no decision on CCC's behalf to terminate it. On the contrary, in my judgment, CCC waived those breaches and decided to proceed on the basis that no further cash calls would be made on him, and his obligations and entitlements under the 1992 Agreement would be debited to a running account."
I should have included the words "or credited" after "debited".
Issue iii) The method for calculating interest in relation to the balances standing at any time to the credit of the running account: in particular whether on a simple or compound basis.
Issue iv) The appropriate rate of interest to be applied to sums due to each respective party in the taking of the account.
Alleged agreement as a result of previous course of dealings
What was a reasonable rate of interest? Simple or compound?
i) before the May 1993 arrangement was made:
a) the fact that in relation to North Yemen, Mr Masri was charged interest at the rate charged to CCC by Arab Bank on the financing of the North Yemen projects;
b) the fact that in mid-November 1992, in relation to the Concession, Mr Nakhleh recorded an instruction from Mr Khoury that interest was to be charged to Mr Masri "until we receive the loan from the bank then actual will be charged."
c) the fact that the JOA provided at clause 6.2(b) for interest to be paid if cash calls were paid late, at a default rate of US$ 7 day LIBOR plus 5%, compounded monthly;
d) the fact that the syndicated loan agreement provided for interest to be paid by CC (Oil & Gas) to the banks at the rate of LIBOR plus 1.5%;
ii) after May 1993:
a) when Mr Nakhleh instructed his staff "as instructed by the President" to keep a record for Mr Masri's account in August 1993, the rate of 5% was amended to 4.5% (per 360 day "year"), for the entire period from 30 April 1992 to 31 July 1993;
b) the fact that when settlement talks took place on 27 November 1995, CCC presented figures to show the capital value of Mr Masri's stake in the Concession. For this purpose, they estimated future cash flows to which were applied a variety of discount rates from 6% to 10%, even though it was in CCC's interest to apply the highest arguable rate;
c) CCC instructed Arthur Andersen to value Mr Masri's stake, which resulted in the report of 21 February 1996. In their report, Arthur Andersen assumed that CC (Oil & Gas) would pay interest on borrowings from the CCC group at the rate of 6.6% per annum, and applied a discount rate of 16% per annum to convert cash flows into a present value.
i) the only reasonable rate of interest to apply to the running account was to apply to both sides of the account the same variable borrowing rate based upon the syndicated loan rate of US$ Libor + 1.5%; and
ii) given the agreed position of the experts, namely that, if the rate is to be calculated according to normal commercial practice, because the running account contains monthly movements in credits and debits, monthly compounding is appropriate, interest should be compounded on that rate with monthly rests.
i) Mr. Masri had not been prepared, or able, to put up funds when he was repeatedly required to do so under the 1992 Agreement in the period October 1992 to February 1993, apart from the US$ 1.5 million which he said he was trying his best to arrange and which he continuously asked to have returned.
ii) In order to support the guarantees that he had to provide in relation to the North Yemen projects, Mr. Masri had to arrange blocked funds as security. Similarly, in order to obtain a guarantee in late 1992 and early 1993 to support his proportion of the syndicated loan (absent a formal share in the Concession), the evidence was that he would have had to put up funds in a blocked deposit, which he was not willing to do. It appears that banks (notably the Arab Bank, of which he was a Director) were not prepared to lend or afford other financial facilities to Mr. Masri on an unsecured basis.
iii) Mr. Masri was not able, or was not prepared, to provide a guarantee to support his proportion of the syndicated loan.
iv) As the Court held at the hearing on 19 September 2006, Mr. Masri had a history of holding his assets in ways which would make it difficult to enforce any judgment debt if legal proceedings had to be taken to enforce his debt, including: (a) Mr. Masri did not own in his own name the house in which he resided in London; and (b) funds which Mr. Masri claimed were his were largely held in a bank account in Switzerland in the name of Sociedad Deberana S.A., a bearer share company, which has since been wound up.
v) Other assets, such as his shares in the Arab Bank, were also liquid assets which could not be relied upon as continuing to be held by Mr. Masri so as to constitute potential assets against which to enforce the debt. In fact, by the time that it was agreed to enter into the running account, Mr. Masri had recently divested himself of the vast majority of his shares, transferring 42,000 of his 51,820 shares to his immediate family. It appears that this took place on 2 March 1993.
vi) Although at trial Mr. Masri placed great weight on the value of his holding in the EDGO group of companies, no clear and consistent explanation of his holding or the structure of the EDGO group was ever provided. His holding in the EDGO group was not an asset against which enforcement could have been assured – not least because of the uncertainty of the identity of the company in which he held a share (whether a BVI company or a Luxembourg company), the nature and rights attaching to such share, and the extent (if any) to which it gave indirect rights to the underlying assets in any EDGO subsidiary.
vii) In any event, the evidence at trial was that EDGO would not have been able to provide any funds or assets to enable Mr. Masri to meet his cash calls or support a guarantee, with the exception of the US$ 1.5 million which was paid, but the return of which was immediately, and repeatedly, sought.
viii) The amounts of money that Mr. Masri kept in bank accounts in London were insignificant by the standards of the amounts he was indebted to CCC in the running account.
Issue v) The extent to which the Claimant is to receive the benefit of the syndicated loan in the taking of the account.
"Mr. Khoury and Mr. Masri reached an understanding regarding the syndicated loan to the effect that Mr. Masri would be able to benefit from it in order to cover his share of the development costs, in the sense of not having to provide actual funds in respect of his proportionate share of the cash calls made on CCIC in respect of development costs."
"express understanding between Mr. Masri and Mr. Khoury that Mr. Masri's account would be charged with his proportion of the actual interest due on the syndicated loan"
there is nothing to indicate that such an arrangement as to interest was the subject of any express agreement between Mr. Masri and Mr. Khoury. Paragraph 58 of the Judgment held that this note was added around mid-November 1992, as a result of Mr. Khoury having explained to Mr. Nakhleh that an understanding had been reached with Mr. Masri in relation to the syndicated loan. However, there is nothing to indicate that the note as to how to deal with the interest was anything other than an internal CCC decision (between Mr. Khoury and Mr. Nakhleh) as to how to deal with the interest.