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England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> IRT Oil and Gas Ltd v Fiber Optic Systems Technology (Canada) Inc [2009] EWHC 3041 (QB) (26 November 2009)
URL: http://www.bailii.org/ew/cases/EWHC/QB/2009/3041.html
Cite as: [2009] EWHC 3041 (QB)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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| IRT OIL AND GAS LIMITED |
Claimant |
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| - and - |
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| FIBER OPTIC SYSTEMS TECHNOLOGY (CANADA) INC |
Defendant |
____________________
Mr Philip Brook Smith QC (instructed by C A Taaffe) for the Defendant
Hearing dates: 10, 11, 12 and 13 November 2009
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Crown Copyright ©
- The Claimant ("IRT") entered into an agreement ("the Agreement") with the Defendant ("Fox-Tek") on 19 October 2005. IRT agreed to become the exclusive sales agent for Fox-Tek for the continent of Africa for a period of five years. In this action IRT claims against Fox-Tek damages for wrongful termination of that agreement in April 2007. IRT is a Nigerian company. Fox-Tek is a Canadian company, incorporated in Ontario. It is the subsidiary of an American company. The Agreement is stated to be governed by English law.
- Fox-Tek's products consist mainly of sensors, leads and monitors. The sensors are attached to pipes, and detect stresses and corrosion in pipelines and refineries in the oil and gas industries. Data is collected by portable monitors and transmitted back to Canada where it is analysed. Initially reports were generated, but the analyses are now made available over the internet. The products make possible continuous monitoring and reporting in real time, and so help the detection and prevention of failures which can be catastrophic. In 2005 the technology was new, and there were very few installations. There have been none of them in Africa to this day.
- The management of Fox-Tek has changed during the relevant period. Gary Jolly was Chairman from 1999 to 31 December 2006 and Chief Executive Officer ("CEO") from 1999 to 1 September 2006. Dr Zaghloul became CEO on 1 September 2006 and retired on 4 July 2008. He is a geologist with 34 years professional experience in Canada and internationally, and has held senior positions in substantial companies in the oil and gas industry. Sean Carr is an accountant. He had been Chief Financial Officer from 1 October 2007, and succeeded Dr Zaghloul as CEO after 4 July 2008. The Agreement was entered into by Gary Jolly, and the events giving rise to the termination of the Agreement occurred following the appointment of Dr Zaghloul. Don Morison was the Director of Operations for Fox-Tek throughout.
- Dr Zaghloul and Mr Carr gave evidence before me.
- IRT was set up in 2004 by Dr Obaseki. It is owned and controlled by himself and members of his family and is a vehicle through which he carries on business. Dr Obaseki obtained academic qualifications in geology and geophysics in the early 1970s and went on to pursue a very successful career in the oil industry in Nigeria. This culminated in his becoming Chief Executive Officer and Vice Chairman of the Board of the Nigerian National Petroleum Corporation ("NNPC") from 1999 until he retired in 2003. While with the NNPC Dr Obaseki held numerous other positions, including that of Special Envoy of the President of Nigeria to the President of Cote d'Ivoire and to the President of Cameron. Since his retirement from NNPC in 2003 he has held positions as Chairman of a number of companies.
- NNPC owns all the petroleum in Nigeria and grants right to oil companies (such as Shell and BP) to extract the oil. Dr Obaseki thus came to know a large number of people involved in the oil and gas industry at the highest levels both in Nigeria and internationally.
- IRT had been introduced to Fox-Tek by Mr Garry McCarron. He carries on business as a Management Consultant in Canada.
- On 31 July 2006 IRT entered into a Memorandum of Understanding with P-Lyne Energy (Nig) Ltd ("PLE"), part of the Sahara Group. The Sahara Group is based in Nigeria. It is a large oil and gas company, principally trading in crude and refined products. It also included thirteen operating companies, through one of which it operated bulk storage facilities to store refined products. PLE was recently established by the Sahara Group to enter the oil and gas service business. Its projects included the construction of the largest bulk storage facility in Africa, located in Lagos. Its staff numbered in the hundreds, most of whom were professionally qualified. PLE had representatives who were dealing with refinery managers. Mr Shonubi is the CEO of the Sahara Group, and he introduced Dr Obaseki to Mr Somolu. Mr Somolu was the Managing Director of PLE at that time. But he was succeeded by Mr Alistair Morrison.
- Alistair Morrison was an electronics engineer, trained by and working with the RAF until 1989. Since then he has worked in Nigeria with a number of companies involved in oil field services, including General Electric and Siemens. He had known Dr Obaseki for about ten years. PLE was in a position to provide to IRT engineers able to install Fox-Tek's products and to explain the technical matters and installation to prospective customers.
- Dr Obaseki, Mr McCarron and Mr Alistair Morrison gave evidence before me.
- There are two issues in the case, liability and damages. The issue on liability can be understood only by reference to the history of the dispute.
- On 13 May 2008 IRT brought this claim in England and obtained permission to serve Fox-Tek out of the jurisdiction. In its Particulars of Claim IRT alleged that a letter dated 27 April 2007 from Fox-Tek's lawyers, which purported to terminate the agreement for breach by IRT, was in fact a repudiatory breach of the agreement by Fox-Tek, which IRT accepted. IRT claimed as damages the sum of US$4.3m which it said was the amount of profit that it would have made during the three years remaining term of the agreement, namely until 19 October 2010, being the years 2007-8, 2008-9 and 2009-10.
- The procedural history was then as follows. On 3 July 2008 IRT obtained judgment in default in the sum of £2,191,280. On 2 December 2008 the Master heard Fox-Tek's application to set aside the judgment and made an order which included:
- The letter dated 27 April 2007 from Fox-Tek's lawyers followed one dated 13 March 2007 in which they had alleged a breach by IRT of its obligations under clause 4(a) of the agreement. Clause 4 is headed "Agents Performance Obligations". Clause 4(a) reads:
- The letter dated 27 April includes the following:
- The allegation in the last two sentences of that letter has developed. In particular, in the course of the proceedings IRT disclosed an agreement headed Memorandum of Understanding dated 31 July 2006 ("the MoU") entered into by IRT and PLE. The recital to the MoU recorded that IRT and PLE "have agreed to form a joint venture company (the "JV Co") to operate" the license granted to IRT under the Agreement.
- The Agreement includes in clause 15, under the heading "Termination":
- In the Defence Fox-Tek alleges that by entering into the MoU and working together with PLE, IRT had assigned, or purported to assign, the Agreement to another company IRTP-Lyne, which they had incorporated, as agreed in the MoU. Fox-Tek were thereby entitled terminate the Agreement under clause 15(2).
- That contention was based on a number of documents bearing the logo, or other forms of the words, "IRTP-Lyne". In particular, on 2 April 2007 Dr Obaseki had sent to Fox-Tek a copy of a document headed "Marketing and Strategy Plan", also dated 2 April 2007, in which it is stated:
- In the Reply IRT denied that a "JV Co" had ever been incorporated. Fox-Tek was unable to produce any evidence that iRTP-Lyne had been incorporated (or that any joint venture company had been incorporated). Evidence of searches in the Nigerian register of companies shows no such company having been incorporated. While Fox-Tek does not admit that to be the case, I find that it is the case that iRTP-Lyne was not incorporated.
- Fox-Tek's case therefore developed again. In a letter dated 30 January 2009 their solicitors alleged that (a) by sending to Fox-Tek documents referring to iRTP-Lyne, IRT represented to Fox-Tek that iRTP-Lyne existed as a company; (b) whether or not such a company was incorporated, Fox-Tek relied on its existence as a company in reaching its decision to terminate the Agreement, as set out in the letter of 27 April 2007; and (c) in the light of the foregoing IRT is estopped from contending that iRTP-Lyne was never incorporated. The parties agreed that this point need not formally be pleaded in a Rejoinder.
- The alleged assignment or purported assignment to iRTP-Lyne (based on the alleged estoppel) is now the only point relied on by Fox-Tek to justify the purported termination of the Agreement by the letter dated 27 April 2007.
- Fox-Tek did not know about the MoU when the letter of 27 April 2007 was written, but its case is that where a party gives a wrong reason for refusing to perform a contract, he may subsequently justify his refusal if there were at the time facts in existence which would have justified his refusal, even if he did not then know them. See Chitty on Contracts 30th edn para 24-014 and the cases there cited.
- The issue on liability is: Was Fox-Tek justified in terminating the Agreement on the ground that circumstances surrounding the MoU had given rise to an assignment or a purported assignment.
- The defence of assignment is not easy to grasp. It is not alleged that there was a representation by IRT that it had assigned the Agreement to a third party. The alleged representation, and so the estoppel, is confined to the existence of the company called iRTP-Lyne. On the footing that iRTP-Lyne is thus to be treated as an existing company, the case is that the assignment (or purported assignment to it) is to be found on the basis of the MoU and the conduct of IRT and PLE in working together pursuant to the MoU.
- Fox-Tek did not contend before me that they were justified in terminating the Agreement by reason of the breach by IRT of any term other than that relating to assignment. But Fox-Tek contend that in assessing damages the court must have regard to the fact that, as Fox-Tek say, IRT would have been in breach of the Agreement, justifying a termination of it by Fox-Tek, soon after the purported termination of 27 April. Thus the whole relationship between the parties is relevant to the issues in the case.
- In addition to the terms already cited, the relevant terms of the Agreement include:
- The subject matter of the Agreement is set out in a schedule which reads:
- On 7 September 2005, before the Agreement was entered into, there was a meeting at Fox-Tek's offices attended by Mr Jolly, Dr Obaseki and Mr McCarron. Dr Obaseki explained to Mr Jolly that IRT was a small company which would engage engineers in Nigeria and 'partner' with other organisations to carry out the responsibilities that it would undertake. He made clear to Mr Jolly that many in Africa have been sold products which did not work in tropical conditions, or were not fully supported. He referred to what he called a history of technology dumping. Mr Jolly confirmed that Fox-Tek would be willing to make presentations to potential customers in Africa. He said that there was a fully functioning monitoring system used by Saudi Aramco in Saudi Arabia.
- On the same date as the meeting Mr McCarron produced a document headed 'Statement of Principles', which he sent to Mr Jolly and Dr Obaseki. It included the following:
- On 22 and 23 September Don Morison sent to Dr Obaseki information in the form of a plan for the installation of a pipeline monitoring system and a description of the training and skills that would be required for personnel to install or supervise the installation of the FP Products.
- Mr McCarron dealt with the negotiations for the Agreement which was entered into on 19 October 2005. At the signature meeting in Toronto on that date Mr Jolly told Dr Obaseki that Fox-Tek's resources were all being absorbed at that time by Saudi Aramco, and that it would be some 6 to 8 months before Fox-Tek had concluded matters in Saudi Arabia, and so be able to offer support to IRT.
- On 21 December 2005 Fox-Tek sent to Mr McCarron four brochures in PDF format. He also asked Mr McCarron to keep Fox-Tek informed of customers to whom the brochures were sent and of sales calls. The brochures were double-sided tri-fold A4 sheets with a brief technical description of the technology. One was for the Natural Gas Processing Industry, one for the Pipeline Industry, one for the Power Generating Sector and one for the Refining Industry.
- In February 2006 the first difficulties between the parties appeared. Mr McCarron e-mailed Mr Jolly as follows:
- Mr Jolly replied:
- Mr McCarron spoke to Mr Jolly at about this time to arrange for Fox-Tek to send technicians to Ivory Coast, and to suggest that Mr Jolly go to Ivory Coast himself. He appeared to Mr McCarron to be reluctant to do so, and suggested the customers visit Bahrain.
- Dr Obaseki had spoken to the Minister for Oil and Gas in the Ivory Coast and to the CEO of the Ivory Coast refinery about Fox-Tek's products. He had a good relationship with them since his work at NNPC. They asked for a presentation by Fox-Tek, and to follow this up with a visit to an up and running facility to see the technology working. It was on this visit to Ivory Coast that Dr Obaseki had travelled with Mr Shonubi and discussed what became the MoU with PLE. The advantage to IRT was that PLE would share with IRT the burden of establishing a market for Fox-Tek's products, and would benefit from the contact which PLE enjoyed with refineries. It was envisaged that a new joint venture vehicle would be formed under the name IRTP-Lyne, which would carry out the work of installation and maintenance of Fox-Tek's products.
- Dr Obaseki did not regard Mr Jolly's response as satisfactory. He and Mr McCarron considered that prospective customers should not have to put themselves out to accommodate Fox-Tek. His prospective customers in Ivory Coast did not wish to go to Bahrain. Dr Obaseki understood that what Fox-Tek was envisaging did not include a meeting with Fox-Tek's technical people. In addition, Saudi Arabia has a dry climate very different from that of much of Africa, in particular of West Africa including Ivory Coast.
- While the evidence as to the sales by Fox-Tek at this time is not detailed, I find that the installations that Fox-Tek had at this time which were working were very few. Dr Zaghloul spoke of two Aramco installations, one of which was a pilot. He also spoke of one in Canada, which was also a pilot. The first installation was always designated a pilot.
- On 31 July 2006 IRT and PLE entered into the MoU. As noted above, it recorded (in Recital D and clause 1.3) the agreement of the parties to form a joint venture company.
- The MoU also provided that the parties would negotiate a more definitive agreement between them ("the Joint Venture Agreement") and that the MoU would automatically terminate on the execution of the joint venture agreement. The recitals referred to the exclusive rights of IRT to market Fox-Tek's products (defined as "the License"). The MoU makes no mention of how any profits or costs were to be shared, except to the limited extent set out in clause 4.4. Substantive provisions included:
- After the exchange of e-mails in February, nothing further happened between IRT and Fox-Tek until 9 August 2006 when Mr McCarron e-mailed Mr Jolly to propose a meeting in Toronto. He wrote:
- Mr McCarron again spoke to Mr Jolly, who seemed pleased with the development between IRT and PLE.
- Dr Zaghloul succeeded Mr Jolly as CEO on 1st September 2006. Upon his appointment Dr Zaghloul reviewed all of Fox-Tek's sales agency agreements. There were five, including IRT. Two voluntarily withdrew, saying that they had been unable to make any sales.
- On 21 September Dr Zaghloul met Mr McCarron. Dr Zaghloul states that during this meeting Mr McCarron suggested that Dr Obaseki had not done anything to promote Fox-Tek since the Agreement had been signed. Mr McCarron states that Dr Zaghloul said that he intended to meet with Fox-Tek's agents and review their performance, but that he did not suggest to Mr McCarron that he was concerned with IRT's performance. I prefer the evidence of Mr McCarron. It was not the case that Dr Obaseki had done nothing. It is implausible that Mr McCarron would have said something which was both untrue and against his own interest. There is no contemporaneous document which supports Dr Zaghloul's account, as I think there would have been, if it had been correct. Mr McCarron said the opposite in an e-mail of the same day, and Dr Zaghloul would have pointed out to him that the e-mail was inconsistent with what he had said at the meeting, had that been the case. However, I accept that Dr Zaghloul did ask for a plan of what IRT proposed to do.
- On 21 September 2006 Mr McCarron e-mailed Dr Zaghloul. He wrote in positive terms about Dr Zaghloul's appointment and about the work that Dr Obaseki had done in "putting in place the foundation for a successful business model to represent Fox-Tek and its products in Africa". That was a reference to the discussion he and Dr Zaghloul had had about the Sahara Group. Mr McCarron had asked for presentation materials to be sent and he noted that in the e-mail, and the plans for a meeting to be held in the future.
- On 22 September 2006 Dr Zaghloul replied. He also wrote in positive terms, both about the meeting he had had with Mr McCarron and the forthcoming meeting with Dr Obaseki and the representative of the Sahara Group. His e-mail had as attachments a number of documents. One was a note of topics and other matters for the forthcoming meeting. There was to be a demonstration of Fox-Tek's products to Dr Obaseki's associate and Dr Zaghloul expected to learn of the capabilities of IRT under this arrangement. There were six pages of technical documents attached.
- Mr McCarron had identified Dr Obaseki's new associate as Mr Somolu and on 25 September 2006 he sent to Fox-Tek, for visa purposes, the title and address of Mr Somolu. He was the Managing Director of PLE. On 28 September 2006 Mr Jolly, in his capacity as Executive Chairman of Fox-Tek, wrote to the Canadian Trade Commissioner in support of the visa applications Dr Obaseki and Mr Somolu were to make. Mr Jolly described Mr Somolu as Dr Obaseki's "joint venture partner".
- On 2 October 2006 Mr McCarron e-mailed to Dr Zaghloul. He said that IRT was working on a presentation for the forthcoming meeting to include an "accurate financial estimate". This is the first reference to the topic of detailed documentation to be supplied to Fox-Tek, the inadequacy of which (in Dr Zaghloul's view) ultimately led to the letter of termination in April 2007. Mr McCarron asked Dr Zaghloul for guidance on costs. He noted that from discussions with Mr Jolly he had understood that installation costs were heavily influenced by site characteristics "eg exposed elbows in a refinery v buried pipeline in remote areas". No documentation provided to IRT by Fox-Tek up to this time had included any financial information. The inadequacy (in Dr Obaseki's view) of the information of this kind provided by Fox-Tek to IRT became the basis of complaint by Dr Obaseki to Fox-Tek.
- Dr Obaseki had decided that the best way forward would be to establish an installation, preferably in Nigeria, which could be used as a "reference point" for other prospective customers. That is to say an installation which prospective customers in the area could visit. He understood that Fox-Tek could not provide him with support in the first six to eight months. But in the meantime he spoke to a number of managers of oil refineries about Fox-Tek's products, both in Nigeria, and in particular in Ivory Coast. Dr Zaghloul's evidence is that he too considered that such reference points were required in each territory.
- On 12 October Dr Zaghloul responded to Mr McCarron's request of 2 October for more information. His e-mail is headed 'Numbers for Business Plan' and states that the attachment "gives a feel for pricing". The attachment is a 10 page document which is a template for a proposal to be made to a customer by a sales representative on behalf of Fox-Tek. The template has been completed so that the addressee is identified as "Sample Nigerian Pipeline Company", and some parts of the template have been completed with imaginary information about this imaginary customer, and about the goods and services to be provided to it. It also includes a list of benefits to the customer. Pricing information is given under the heading "Pro-Forma Budgetary Quotation Price Details", on the assumption that the supply is to be by Fox-Tek. The "total installed price" is made up of ten items and amounts to US$130,102. The "total recurring costs for one year" is made up of three items and amounts to US$26,537. The two sub-totals make a total of US$156,639. Commenting upon these figures in the e-mail, Dr Zaghloul stated that these figures were "net to us" and IRT should add its mark up, in addition to taxes, shipping and the like. Dr Zaghloul also notes that the prices do not include any work carried out by IRT's "employees or sub-contractors" (if they do the work instead of Fox-Tek), or any excavation or other work carried out by third party contractors.
- The planned meeting eventually took place on 7 December 2006. It was delayed in part by reason of the visit Dr Zaghloul made to Saudi Arabia in November. The meeting was attended by Dr Zaghloul and Don Morison (Fox-Tek's Director of Operations) on Fox-Tek's side. By this time Mr Somolu had left the Sahara Group suddenly, and Alistair Morrison took his place at the meeting at a day's notice. Dr Obaseki, Alistair Morrison and Mr McCarron attended on IRT's side.
- What was said at that meeting is disputed, but it seems to me that the differences are in large part a matter of emphasis. It is common ground that the presentation or business plan contemplated in the e-mails of 2 and 12 October were not forthcoming from IRT and that Dr Zaghloul said something about that. According to Dr Zaghloul's witness statement he was disappointed that nothing had happened since September, and he said to Dr Obaseki that he was insisting on satisfactory performance by all Fox-Tek's sales agents. What he said was likely to have been, in my view, by way of complaint, but it was not a major issue. The IRT side agreed to put forward the plan that Dr Zaghloul wanted. The IRT witnesses all understood that the plan was to be presented at the next meeting which they discussed as being in about April. Dr Zaghloul states that he required it immediately. I find that he did not make that requirement. He would have referred to that in one of the immediately following e-mails had he done so.
- It is also common ground that Alistair Morrison was at the meeting because PLE were to assist IRT in its role under the Agreement, and that Dr Obaseki introduced him. Dr Obaseki explained that PLE would provide both marketing and technical support. Alistair Morrison himself explained to Dr Zaghloul what PLE and the Sahara Group were and what they did, including that they had offices up and down Africa which would support the marketing efforts. Dr Zaghloul states that he was not surprised by the involvement of PLE because sometimes third parties are well placed to assist sales agents. It is plain, as Mr McCarron states, that at the meeting Dr Zaghloul made no issue of the relationship between IRT and PLE. There was a demonstration of the products to Alistair Morrison. The meeting was a lengthy one.
- It is common ground that Dr Obaseki asked for further marketing materials, but Dr Zaghloul said these were documents that had already been provided, and that Dr Obaseki did not specify what he wanted. Dr Obaseki states that he again raised with Dr Zaghloul the issue of marketing material that would spell out the benefits of Fox-Tek's products to prospective customers, rather than simply described the technical matters.
- Mr McCarron and Alistair Morrison state that at the meeting a number of other matters were discussed. These included the staff that IRT were to recruit, and that Fox-Tek's technicians would visit Africa by arrangement to make presentations. It was confirmed that Fox-Tek's systems were now fully installed in Saudi Arabia and that that site would be available to prospective customers to be inspected by prior arrangement. I accept this account of the meeting.
- On 8 December 2006 Dr Zaghloul resent by e-mail the pricing document he had previously sent to Mr McCarron. This time he copied in Dr Obaseki and Alistair Morrison. Included in that document were, as before, brochures which set out the benefits of using Fox-Tek's systems (there is a heading in those terms) and there are diagrams and illustrations which show how the systems work, and the sort of graphs and other data which are produced. This does seem to me to have gone some way to meet Dr Obaseki's requests.
- On 14 December 2006 Don Morison e-mailed Alistair Morrison in positive terms. He attached documents setting out a rough outline of the training installers and engineers would receive, and job descriptions of the engineering and technical personnel who would need to be recruited. He ended by saying that information should be enough for PLE to get started.
- On 25 January 2007 Mr McCarron wrote to Dr Zaghloul's assistant passing on another request from Dr Obaseki for marketing materials. Mr McCarron explained that he had had a call from Dr Obaseki saying that he was sending letters to various contacts in Nigeria, Ghana, Ivory Coast and elsewhere and he wished to enclose appropriate materials. There is no comment by Dr Obaseki or Mr McCarron as to the materials which Dr Zaghloul had in fact provided both before and after the meeting. However, Dr Zaghloul's assistant replied saying that they were low on supplies and were in the process of revamping all the literature.
- On 30 January 2007 Alistair Morrison wrote to Mr McCarron to ask him to remind Fox-Tek that they were to send PLE brochures and CDs on their product. Alistair Morrison had about four engineers in mind to devote to Fox-Tek's products. But the technology was new and he needed what he called a 'guinea pig' plant, that is an installation in a facility which worked well and could be used as an example or point of reference to develop sales.
- Mr McCarron replied saying that he was stopping at Fox-Tek's office to pick up some things, including marketing material. These things included a letter of the same date that Dr Zaghloul's assistant wrote to Dr Obaseki, as he had requested, in support of his visa application for his next visit to Canada. At the 7 December meeting this next visit was planned for March or April 2007. The letter includes the sentence "I found our last meeting in December 2006 to be very productive". It bears Dr Zaghloul's signature. Dr Zaghloul states that it is an electronic signature placed on the letter by his assistant and did not reflect his views as at 30 January 2007. He states that he was by then annoyed that he had not received the business plan that had been discussed since October and that he telephoned Mr McCarron to complain. It was as a result of this that Mr McCarron was to visit Fox-Tek's offices to pick up further material that he requested. Little turns on who called who first, but I think it probable that it was Mr McCarron who first arranged to call at Fox-Tek's offices on 30 January.
- However, by then there is no doubt that Dr Zaghloul was annoyed. On the findings that I have I am unable to understand why Dr Zaghloul's attitude towards IRT changed at this point. If he had really wanted to make sales in Africa, it might have been expected that he would have been encouraged by the involvement of PLE. But I do not have to find what Dr Zaghloul's motives were. From that point the relationship between the parties deteriorated rapidly and did not recover.
- Late on 30 January 2007 Dr Zaghloul e-mailed Mr McCarron and Dr Obaseki. He referred to the discussion he had had that day with Mr McCarron. He said he was concerned by the lack of progress or communication since the 7 December meeting and that he believed he had sent all the documents that had been discussed on that occasion. He added, without further explanation:
- Dr Obaseki replied saying he had not received the promised materials, and that Mr McCarron was to visit Fox-Tek's office to collect them and deliver them to Dr Obaseki in London.
- On 31 January 2007 Dr Zaghloul said that the materials had been sent digitally. He added:
- Dr Obaseki replied:
- Dr Zaghloul replied:
- Dr Obaseki considered that the tone and language used by Dr Zaghloul had now become quite inappropriate for the relationships between their two companies, which was not, as Dr Obaseki put it, a relationship of master and servant. I accept Mr McCarrons statement that the meeting between himself and Dr Zaghloul on 30 January and Dr Zaghloul's e-mail were the first occasion on which Dr Zaghloul had even hinted that he might not be happy with IRT's performance.
- On 1st February, the next day, Mr McCarron e-mailed to Dr Zaghloul that he had spoken to Dr Obaseki, that he and Dr Obaseki were planning to meet, and that he would get back to Dr Zaghloul after that discussion. Mr McCarron did not get back to Dr Zaghloul and Dr Zaghloul e-mailed him on 12 February asking if there was any news. The next day, 13 February 2007, Don Morison sent to Mr McCarron an e-mail. He attached the PDF documents that he had sent before.
- On 14 February 2007 Mr McCarron replied to Dr Zaghloul's e-mail of 12 February, with apologies for the delay. He told Dr Zaghloul that he and Dr Obaseki had discussed the proposal to revise the Agreement, and they both thought the best approach was to address it when they all next met, which was to be in late March or April. He added:
- On 14 February 2007 Dr Zaghloul replied that Fox-Tek had no prospects in Africa. In the next four weeks Dr Zaghloul decided to terminate the Agreement. He e-mailed Mr McCarron on 13 March saying he had still not heard from Dr Obaseki and that he would be away until mid-April on a business trip. He said he could not meet Dr Obaseki again until he had seen some progress and added that he would request legal counsel to look into this agreement. The legal counsel was sent a copy of the e-mail. On the same day counsel sent to IRT a formal notice of default.
- On 19 March 2007 Dr Obaseki e-mailed to Dr Zaghloul suggesting a meeting in London and saying he thought they both had the progress of Fox-Tek as their primary objective. Dr Zaghloul responded that he required that Dr Obaseki should provide a "market development plan" at his earliest opportunity, and that he was willing to meet only after that had been provided.
- On 24 March 2007 Dr Obaseki responded with a long letter, and said the workplan was under preparation. The letter was conciliatory in tone. He set out his view of the history of the relationship. He mentioned the importance of prospective customers being able to visit an existing installation. He recalled that when he had asked for this in February 2006 for prospective customers in Ivory Coast Fox-Tek had not obliged, and that Fox-Tek had been unwilling to visit Ivory Coast. He referred to what he called the "partnership agreement" with PLE to market the products and said that the Sahara group was itself a prospective customer. He referred to letters written to potential clients in Ghana and Ivory Coast, and two letters have been disclosed. They had been drafted, and were sent, by Alistair Morrison. The Sahara Group had their own contacts with the refinery in the Ivory Coast, in addition to Dr Obaseki's contacts with that refinery.
- On the same day he sent an e-mail attaching the workplan. It is an eight page document. Under progress to date it lists the meetings and letters previously referred to. In addition it mentions contacts with West Africa Gas Pipeline Company. That is a company of which Dr Obaseki was Chairman. It was explained that approaches to refineries in Nigeria could not be made until the then current issue of whether they should be privatised had been resolved. Approaches were being made by PLE's offices in Cameroon, Senegal and Equatorial Guinea. Initial contacts with refineries in Benin would be completed by the first half of 2007. Meetings were expected with prospective customers in North Africa in April and May. There was a list of refineries with their capacities, but no specific information relating to the technology they were currently using to monitor pipelines.
- Dr Zaghloul's response on 27 March was that the notice of default still stood. He said the marketing plan was a list of refineries in the African continent and their throughput.
- Versions of a document with the title "Marketing Strategy and Plan" dated 27 March and 2 April were prepared. On 2 April Dr Obaseki sent to Dr Zaghloul the version of that date in PowerPoint format. It is this document that contains the reference to the "new company called iRTP-Lyne" mentioned in para 19 above. Under the heading "iRTP-Lyne has undertaken a number of activities to advance this strategy" the third item reads:
- On 3 April 2007 Dr Zaghloul e-mailed Dr Obaseki asking for copies of the correspondence sent to prospective customers. Dr Obaseki and Alistair Morrison both replied the same day saying that henceforth Alistair Morrison would be Dr Zaghloul's primary contact, and describing him as "the CEO of IRTP-Lyne whom you met … during our last visit to Fox-Tek's office in Canada". Dr Zaghloul responded the next day asking for an explanation of the relationship between IRT and IRTP-Lyne. This exchange was copied by Dr Zaghloul to Mr Doyle, the signatory of the lawyer letter of 13 March.
- On 17 April Alistair Morrison e-mailed Dr Zaghloul to inform him that the SIR refinery in the Ivory Coast had expressed interest and that the Managing Director wished to hold a meeting in Abidjan from 7 to 11 May. Further, the Managing Director of the Tema Oil Refinery in Ghana wanted a meeting, but he was more flexible on dates. Alistair Morrison reminded Dr Zaghloul, as was the case, that he had indicated at the meeting in December 2006 that he would wish to support an initial meeting in the region by having Fox-Tek in attendance. He asked for details of who would attend, and when, and offered help with visas. Dr Zaghloul replied the same day repeating his request for an explanation of the relationship between IRT and IRTP-Lyne, and saying he would like "an opportunity to pre-qualify the customers by having a telephone conference call or other dialogue with them before committing resources to attend".
- On 18 April Dr Obaseki e-mailed to Dr Zaghloul another long letter in a conciliatory tone. It included the following explanation:
- The response of Fox-Tek was the letter of 27 April 2007 set out in para 15 above. The letter gives no explanation for the statement concerning the arrangement described in Dr Obaseki's e-mail of 18 April, namely that "The Agreement clearly does not contemplate or permit such an arrangement". The only reference to a clause of the Agreement alleged to have been breached is clause 4(a) cited in para 14 above. There is no reference to clause 15(2) set out in para 17 above, nor could there have been on the basis of the information then available to Dr Zaghloul or Mr Doyle. And as Mr Brook Smith acknowledges, the Agreement specifically contemplates that IRT would engage independent contractors, in that clause 4(c) provides that IRT shall bear the cost.
- Following this purported termination of the Agreement by Fox-Tek under clause 4(a), there was an exchange of e-mails between Alistair Morrison and representatives of prospective customers in West Africa with a view to setting up meetings with SIR. This came to nothing.
- Mr Brook Smith points in particular to clauses 1.2, 4.1 and 4.2 of the MoU set out in para 41 above. He submits that they contemplated that there would be an assignment, and he adds that assignment was prohibited under the Agreement without consent. It is a possible interpretation of the MoU that it contemplated an assignment to JV Co of IRT's rights under the Agreement. But clause 4.3 of the MoU must also be taken into consideration: the JV Co would "not act or omit to act in any manner whatsoever that could jeopardise or otherwise adversely affect IRT's right to the License". There is nothing in the MoU by which the parties agreed to act without the consent of Fox-Tek. It would have completely defeated their own purposes to have done so.
- As a matter of the construction of the MoU, I can see nothing whatever to support the contention that it amounted to an assignment or a purported assignment.
- Mr Brook Smith submits that it must be inferred that there was a further agreement, by reason of the conduct of IRT and PLE which is described above. He submits that the effect of such an agreement would have been the assignment which the MoU aimed for, or that it would at least have been a purported assignment.
- Mr Brook Smith devoted much time in cross-examination in exploring what steps were taken pursuant to the MoU by Dr Obaseki and Alistair Morrison. There is no doubt that both considered that IRT and PLE were carrying out the MoU, at least up to a limited point. What they were not doing was proceeding to the next stage required by the MoU, namely the Joint Venture Agreement and the formation of the JV Co. But what they actually did does not seem to me to take the matter any further. There is still nothing in their conduct that could even arguably be said to be an assignment or purported assignment. Dr Obaseki's account of matters to Dr Zaghloul on 18 April (para 79 above) was explicit on this point, and, as I find, wholly accurate.
- It follows in my judgment that there is nothing whatever to support the case that there was an assignment or purported assignment. This would be so whether or not a JV Co had in fact been incorporated. The incorporation of a JV Co would not, of itself, complete an assignment or purported assignment. An assignment, and so a purported assignment, requires an agreement between the assignor and assignee. There is no evidence before me of any suggestion of a JV Co having entered into an agreement with IRT, or of a representation by anyone that that event had occurred.
- It follows in my judgment that the case on estoppel can lead nowhere.
- The representation which it is alleged gives rise to the estoppel is the representation made in March set out in para 76 above in the phrase "new company called iRTP-Lyne", taken together with the appearance of a logo 'iRTP-Lyne' on the plans sent to Dr Zaghloul.
- The first requirement of a representation that is to give rise to an estoppel is that it must be clear and unequivocal. I am prepared to assume, so far as it goes, that there was such a representation that iRTP-Lyne existed as a company. But it goes no further than that. There is no representation whatsoever that it became the assignee of IRT's rights. The representation as to that is the exact opposite, as clearly set out by Dr Obaseki in his e-mail of 18 April.
- It is not possible that Fox-Tek could have relied on the representation in deciding to terminate the Agreement. As I have already commented in relation to the lawyer's letter (para 80 above) what is said to be the representation could not possibly give rise to a basis for termination. On the contrary, as Dr Zaghloul said about the point at the meeting in December, it was not surprising that IRT should enter into an arrangement with PLE.
- Fox-Tek also relied on a number of subsidiary points related to the MoU, which Fox-Tek only discovered in the course of these proceedings. It is said that there must have been disclosure of the Agreement to PLE in breach of clause 16 and that that there was a breach of clause 14 requiring disclosure. There is no substance in any of these points. I have found no breach, and in any event the breaches alleged are not arguably material breaches such as could justify the termination of the Agreement.
- It has been necessary to recite the history of the relationship between the parties at some length because it is submitted for Fox-Tek that IRT would have breached clause 4(a) of the Agreement (para 14 above) and that damages are to be reduced accordingly.
- There is nothing in this point at all. Dr Zaghloul was entitled to ask IRT for the business plans that he did ask for, but the provisions of such plans was not itself a contractual requirement. Speaking of his own management style Dr Zaghloul said in evidence that it was "my way or highway". But that is not what the Agreement provided. In some circumstances the failure to provide to Fox-Tek a plan, or an adequate plan, might be evidence of a breach of clause 4(a). But that is not this case. While I make no such finding, I am prepared to assume in Fox-Tek's favour that there may well have been more that IRT could, or even should, have done, or have done sooner, at least after the meeting in December 2006. But Fox-Tek has to establish that IRT would have breached the Agreement at some time after April, when the termination occurred. By that time, as I find, Dr Obaseki and Alistair Morrison were making efforts to perform the Agreement, and Fox-Tek have come nowhere near to persuading me that as from that date IRT was likely to be in breach of clause 4(a).
- In my judgment the only real issue in this case is damages.
- The case on damages could hardly have been presented with less by way of documentation. Neither party adduced expert evidence. In the Particulars of Claim the pleading is that each sale would have averaged US$300,000. It is claimed that the Claimant would have earned a margin of one third on each sale, including its margin on installation costs and recurring and maintenance over a three year period. It is claimed that there would have been a total of 43 sales, 3 in 2007-8, 10 in 2008-9 and 30 in 2009-10. So the claim is one third of $12,900,000, which produces the figure of $4,300,000. In Further Information it is pleaded that these figures are supported by estimates given by Mr Jolly and by two press releases issued in June 2007 relating to sales in the Saudi region and to a subsidiary of Gazprom in Russia. Neither party referred me to these documents during the trial.
- In Dr Obaseki's first statement he states that he had anticipated that the majority of any profits would come from the continued maintenance and support of the products, rather than actual sales. He expected each refinery to buy a minimum of five products for each refinery. But he does not say what he meant by a product. This is important, because parts of the Products as defined in the Agreement, could be moved from place to place.
- There is one refinery in the Ivory Coast, one in Ghana and three in Nigeria. So he estimated that with five sales to each, that would produce a total of 25 sales. Once IRT had established the worth of the technology in refineries, there were other markets, such as gas plants, where he expected sales. He referred to the pricing information given under the heading "Pro-Forma Budgetary Quotation Price Details" in the document sent to IRT by Fox-Tek on 12 October 2006 (see para 51 above). He took the figure of $156,000 as the cost of installation of each product, before IRT's costs and mark up. He then calculated that the total costs to the customer per sale would be approximately $300,000 to allow for IRT's 30% margin arising from installation and operations support and maintenance. In another document the additional costs to the customer are given as about $80,000 (to include freight, insurance, customs and excise duties, local transportation and installation), giving a sub-total of $235,270. To this he added a mark up of 30% that is $70,716. What matters for the purposes of this claim is the mark up, and not the total price to the customer.
- The statement proceeds with Dr Obaseki estimating that there would be the total of 43 sales made up as in the Particulars of Claim, but the 30 include sales to gas plants in the third year. This calculation yields a claim of 43 x $70,716 = $3,040,788.
- In his second witness statement Dr Obaseki states that he anticipated profits for the remaining three years of the contract at $7,223,208. The increase is explained principally by reference to higher costs, and so mark up, on maintenance. The additional mark up (still at 30%) on maintenance charge is put at $648,000 per unit per year. There is an undated document in the bundle which gives the breakdown. The $648,000 is 30% of the costs of a team of 18 individuals with 11 different skills, for whom the annual charge is put at $2,160,000. It includes skills such as Project Manager, Engineer, Finance Supervisor and Accountant.
- There was a dispute as to when this document was prepared. Dr Obaseki said it was prepared shortly before the visit to Fox-Tek's offices on 7 December 2006, for the purposes of discussions between PLE and IRT. Mr Brook Smith submits on internal evidence that it must have been prepared for the purposes of the trial. For example it includes the words "The first year was projected to cover only Ivory Coast … and the third year was projected …" The past tense suggests a document prepared after the third year. In cross-examination Alistair Morrison said he had never seen this document before the trial. I am unable to accept Dr Obaseki's evidence on this point. Although the document contains no factual information, and identifies no sources, its date could be of some importance. If it represented the result of discussion between IRT and PLE, that might have lent it weight. As things are, I find that it is just a calculation.
- Alistair Morrison also includes passages on expected sales in his witness statement. He states that he expected sales to be achieved as per the Marketing Plan. This does not add anything to Dr Obaseki's estimates. Alistair Morrison's evidence does not assist IRT on the claim for damages. He was not even aware of the amount of the claim. But I do accept that the fact that PLE were incurring costs which they were bearing themselves lends support to the view that there would probably have been some sales in due course. Alistair Morrison was well placed to assess the market, and I accept his assessment that there was a good prospect that there would have been sales. He has been selling products and services in Africa for many years. The explanation he gave for the lack of detail in the Marketing Plan as to the requirements of prospective customers is that without the appropriate marketing literature, it was difficult to persuade prospective customers to devote the time that would be required for them to supply such information to IRT or PLE. I accept that there is force in this explanation.
- Mr Carr states in his evidence that from the time the Agreement was signed until March 2009 (a period of some three and half years) Fox-Tek recorded worldwide revenue of $1.4m (Cdn). A Canadian dollar was worth about 10% less than a US dollar. He states that this revenue was the fruit of Fox-Tek's sales team having devoted the whole of their time and effort to developing a distribution channel and educating customers. Profit margins for Fox-Tek were well above the 30% mark up that Dr Obaseki's calculations are based on.
- In oral evidence Mr Carr stated that the cost of the components required to make the products has fallen steeply since 2006. Whereas in the "Pro-Forma Budgetary Quotation Price Details" in the document sent to IRT by Fox-Tek on 12 October 2006 (see para 51 above), the total figure of $156,000 is given as the cost of installation of each product, before IRT's costs and mark up, today the corresponding figure would be about $50,000 (Cdn). He said, and I accept, that normally these Products do not require ongoing maintenance, and no more than one engineer would be required, and that person need not be engaged full time. One monitor (which costs about $35,000 (Cdn), and is thus the most significant element in the total cost) can handle 100 different sensors. The sensors it can handle need not all be on the same site. It is portable and can be moved around a site, and from site to site.
- Fox-Tek is a small company. A set of financial statements for its parent company is annexed to the Particulars of Claim. I have looked at it, but neither party referred me to it.
- Mr Brook Smith submits that the claim for damages is hopelessly overstated and vague. There are no contemporaneous (or other) documents on the overhead costs which IRT would have incurred in earning its mark up. These include the costs which Dr Obaseki was incurring on his travels, to Canada and elsewhere, of which he reminded Dr Zaghloul from time to time. In evidence Dr Obaseki said that of the 30% mark up, perhaps 20% would represent profit. There were only two letters to prospective customers disclosed for the hearing, both dated 14 March 2007. There were many criticisms to be made of the undated document with the calculations referred to by Dr Obaseki, quite apart from its disputed date. There was no evidence that there was any need for a team of full time employees to maintain the system. The Products needed little or no maintenance, other than the occasional change of a battery and other interventions which computer related hardware occasionally requires.
- IRT would have had to share any profits with PLE. There is no evidence of what that share would have been. The parties had not reached any form of agreement upon that. I find that the contribution to the venture that PLE were expecting to make, both in marketing and in supplying the necessary personnel, and given that PLE had also been bearing all its own costs, the share of any profits that it would probably have received from its co-operation with IRT would probably have been substantial, and not less than one half.
- Mr Brook Smith also makes the point that up to April 2007 no sales had been achieved. Dr Obaseki's response to that is mainly that the technology was new, and Fox-Tek were not giving the support that the Agreement required them to give, and which it had always been understood between the parties that Fox-Tek would give. There is no detailed evidence of what it was that led to there being no sale.
- In his speeches Mr Warwick did not advance any detailed argument on quantum. He did not have the materials upon which to do so. He submitted that the case falls within the principle discussed in Chitty on Contracts 30th ed para 26-007 and established by the cases there cited. It includes the following:
- In my judgment there is no evidential basis on which I can adopt the figures given by Dr Obaseki, other than his figure for a 30% mark up, which I would accept as reasonable. That is less than the figure which Mr Carr mentioned for Fox-Tek. And Alistair Morrison gave evidence that it is an acceptable figure for West Africa. On the other hand, it includes overhead costs, none of which have been identified, let alone allowed for in Dr Obaseki's calculations. It would follow that Dr Obaseki's calculations would have to be revised to apply that mark up, not to $156,000, but to $50,000 (Cdn). But even if that is done, there is no calculation that I can rely upon as to other costs that would attract a mark up (such excavation trenches and preparing sites in other ways) and no figures upon which I could make reliable findings for prospective sales over the three year period remaining under the Agreement. The fall in the price to $50,000 (Cdn) might be expected to result in more sales, but I have no evidence on this.
- I adopt Mr Warwick's submission that I must do the best I can. While at this trial Fox-Tek's witnesses were far from boasting about their successes, perhaps for tactical reasons, I find that some sales have been achieved in Saudi Arabia, Russia, Canada and the United States. West and North Africa are important in the oil and gas industries. Any profit would have been primarily on sales and not, as Dr Obaseki had assumed in his calculations, on maintenance. The agency had some value. I have not been able to make any finding as to why Dr Zaghloul was determined to end it (as I find he was), but his complaint was that IRT were not making sales. He had been making that complaint from September 2006, at a time when he was not determined to end the Agreement, but to make it effective. The implication is that he believed that there were sales to be made. He said in evidence that all the agents of Fox-Tek did make sales, other than those who withdrew in 2006 and IRT. I find that, working with PLE, IRT was well placed to achieve any sales that were achievable. IRT stood a real chance of making some sales.
- In re-examination Dr Zaghloul put forward three reasons why he said IRT would not have made sales. I reject all of them The first was that IRT had not pursued the contacts with Fox-Tek's other agents which they ought in due diligence to have pursued. Dr Zaghloul stated this was one of the things discussed on 7 December 2006. But he accepted in response to questions from me that there had been no reference to any such point in his written statements or contemporaneous documents. I reject this evidence. Next he said that IRT had failed to identify the requirements of prospective customers. But I have accepted Alistair Morrison's explanation for that. It was in part a result of the Fox-Tek's lack of support in the period, in particular in the period after 7 December 2006. Finally Dr Zaghloul suggested that IRT were demanding too high a price from customers. This was pure speculation on his part. In any event, as he had pointed out earlier, the clause 3 of Agreement gave Fox-Tek effective control over the price that IRT could charge customers,
- I must put a figure on this chance. It is necessarily a round figure. I assess it at £50,000.
Mr Justice Tugendhat:
THE HISTORY OF THE PROCEEDINGS
"The judgment be set aside on the ground, and solely on the ground, of assignment or purported assignment by [IRT] of the … agreement …"
"Market Development: Make every reasonable effort and use proper means to determine the market potential for the Products in the Territory and to introduce potential Customers to [Fox-Tek]".
"Subsequent to the letter … dated March 13, 2007, you provided a list of refineries in Africa and their capacity. However, as indicated by Dr .. Zaghloul in e-mails to you, [IRT] has not provided a marketing plan for [Fox-Tek]'s products and services … Furthermore, your letter to Dr Zaghloul attached to your e-mail dated April 18, 2007 unequivocally states your intention to have IRTP-Lyne carry out your obligations of [IRT] under the Agreement as the result of a strategic alliance between [IRT] and IRTP-Lyne. The Agreement clearly does not contemplate or permit such an arrangement".
"(2) [Fox-Tek] may terminate this Agreement without notice or other act if (a) [IRT] assigns or purports to assign this agreement without the prior written consent of [Fox-Tek]; …"
"[IRT] formed a strategic alliance with [PLE] (a division of the Sahara Group) to develop the market – [IRT] and [PLE] have subsequently formed a new company called iRTP-Lyne for the explicit purpose of developing the market for Fox-Tek solutions…"
THE RELEVANT TERMS OF THE AGREEMENT
"3 Agent's Compensation
(1) [IRT]'s compensation is prepared on the basis that [Fox-Tek] shall prepare a quote for a Customer which will be reviewed by [IRT]. [IRT] will then make the formal quote to the Customer which shall include a mark up sufficient to compensate [IRT] for cost of doing business and providing a reasonable profit margin. [Fox-Tek] will ship products to the Customer, and invoice [IRT] for the agreed price to [Fox-Tek]. [IRT] will invoice Customer, and arrange for the installation and support of the product warranty for the Customer.
4 Agents Performance Obligations
4(a) [see above]
4(b) Direct sales of Products: [IRT] shall directly sell all Fox-Tek Products.
4(c) Expenses: Unless otherwise agreed to by [Fox-Tek] in advance, [IRT] will pay of its all expenses in carrying out its obligations pursuant to this Agreement including , without limitation, marketing research, telex, fax, telephone, postage. Agent travel, promotion, intra-Territory advertising, the cost of all personnel and independent contractors employed or engaged in the implementation of the marketing and the sales of the Products by [IRT] in the Territory during the Term…
4(g) Installation: [IRT] shall be responsible for the installation of all Products sold to Customers in the Territory in accordance with the installation procedures and specifications provided by [Fox-Tek] to [IRT]. [IRT] shall also be responsible for the provision of all after sales support and maintenance services to the Customers in the Territory.
5. Supplier's Obligations
(a) Sales Literature: [Fox-Tek] shall assist [IRT] by furnishing [IRT] with standard descriptive literature and standard information such as installation instructions, technical data and manuals as are necessary to sell install and service the Products. [IRT] shall be responsible for the expense of any reproduction and printing necessary to make the information suitable for use in the Territory. Special price lists or literature shall be the responsibility of [IRT].
(b) Referral of Inquiries: [Fox-Tek] shall work in good faith with [IRT] by referring all inquiries in the Territory to [IRT] for further action.
(c) Technical Support: [Fox-Tek] shall provide technical support to [IRT], by answering technical questions and supplying the means for technical demonstrations promptly.
(d) Other Sales and Marketing Support: [Fox-Tek] shall provide additional sales and marketing support to [IRT] on such terms as may be mutually agreed between [Fox-Tek] and [IRT]; for example, visits with the Agent to potential clients in the Territory: loan-out of supplier demonstration units; exhibitions at major international events taking place in the Territory: payment to [IRT] for special trips to [Fox-Tek]'s offices to discuss planning, materials, major sales, and other items.
14. Information.
[Fox-Tek] and [IRT] shall keep each other informed of all pertinent matters affecting the operation of this Agreement.
15. Termination.
(1) Either party may terminate this Agreement before the end of the Term if (a) either party is in default in any material respect in the performance of any of its obligations under this Agreement or otherwise commits any material breach of this Agreement and such default continues after thirty (30) days written notice from the non-defaulting party to the defaulting party stating particulars of such default…
(2) [see above]
16. Confidentiality
Each party shall … treat as confidential any all information learned by the other concerning the business or affairs of the other, and in particular [IRT] will (a) not disclose to any third party the terms and conditions of this Agreement…"
PRODUCTS
SENSORS
FT-3300 and FT-3400 Series Sensor Monitors
FT Sensors with leads/couplers (in lengths including but not limited to:
- 1,2,5,10,20 and 30 meters length; and
- Including but not limited to coated, ruggedized, and/or bare fibre types packaged in coil, oblong/rectangular, or else configurations: any of which are
- For regular or high-temperature applications).
Brillouin Sensors
INSTRUMENTS
FT1-3300 AND FT-3400 series ( including 8 channel, 50 channel , portable unit for walking inspection, and remote installation solar powered configuration with radio telemetry) with accuracy + 15 microns displacement.
Fox-Tek Brillouin instrument.
Fox-Tek–Ware analysis and alarming softwear.
Fox-Tek modelling and technical support services (quoted on a daily or fixed price basis)".
THE CHRONOLOGY OF EVENTS
"This document serves to summarize the discussions held on September 7, 2005 between the parties and provide the basis for revising the suppliers' standard Agency Agreement to reflect the desired business relationship between the parties.
General Principles
As per the discussion on September 7, 2005, both parties acknowledge that the business relationships between Fox-Tek and Dr. Obaseki will be very different that any current relationship between Fox-Tek and any of its agents. In general, Fox-Tek will be inviting Dr. Obaseki to assume far greater responsibility and exercise far greater control of the marketing, sales, installation service and support of Fox-Tek's solutions than has been done previously. Notwithstanding, this will remain a very collaborative venture for both parties who have who have recognised the necessity and value of such collaboration as it relates in particular to a successful introduction of Fox-Tek's systems in Nigeria
In that vein, following are some general points reflecting the conversation of September 7, 2005.
Services:
As per the discussion on September 7, 2005 Dr. Obaseki will assume responsibility for all service provision in the markets defined including conducting site surveys for the purpose of proposing solutions, as well as installing, maintaining and providing other support to local customers.
Marketing and Sales Strategy:
Dr. Obaseki will assume responsibility for market development, sales process management and after sales follow-up. It was agreed that particularly in the early stages, Fox-Tek will participate in occasional sales calls with prospective customers to support Dr. Obaseki's sales activities and help close the initial deals. It is expected that as Dr Obaseki's team gains experience, Fox-Tek's participation in such sales activities will be reduced significantly.
Similarly Fox-Tex will be prepared to attend the Nigeria Oil & Gas (NOG6) 2006 in Abuja, Nigeria or other such events to support Dr. Obaseki's sales and marketing campaigns, if both parties agree on the value of such participation.
Order Fulfilment:
Fox-Tek will be responsible for producing and supplying the products as specified in technical proposals. Dr. Obaseki shall attempt to secure local supplies of fiber optic cable, so as to avoid freight charges for shipping cable to Africa.
Knowledge Transfer:
Dr. Obaseki shall assemble a team or teams as required to support the installation maintenance and support of delivered solutions. It is desirable that Dr, Obaseki's team include an electrical or mechanical engineer and a number of technicians. Fox-Tek will provide training and other knowledge transfer to Dr. Obaseki's team as required to properly conduct site assessments, utilize the equipment being sold, pull fiber optic experience pulling and handling fiber optic cable. Such skills are expected to be available in Nigeria and elsewhere, however short term augmentation of Dr. Obaseki's team may be necessary to mitigate any risks in this area, similar to the use of experienced Filipino resources in Saudi Arabia.
Product Pricing:
Fox-Tek will establish a standard price schedule that defines the pricing of its products to Dr. Obaseki. Dr Obaseki shall then mark up the product at his own discretion as required to cover marketing, sales and other delivery costs and to provide a profit margin".
"In Ivory Coast Dr. Obaseki was meeting with the Oil Minister and with the Head of the Refinery. They are interested in the FO solutions and indicated a desire to have a visit from FO to give them a presentation. After that they would likely want to do a site visit, however as you would expect would prefer a visit to a commercial (as opposed to a pilot or test) installation. Dr Obaseki said that for a visit to Abidjan ( Ivory Coast) he would prefer to have FO meet a couple of other prospective clients as well to get the most bang out of the investment…"
"Perhaps they could consider joining us in Bahrain next week, they could speak to Saudi Aramco. If they are senior enough within their country's oil ministry, perhaps Aramco will allow them to visit one of the refineries where we have installations….."
"1.1 This MoU shall cover the basic framework and intentions of the Parties as it relates to the marketing, sales, installation and all after sales services to be provided by the JV Co …
1.2 … the JV Co shall have the sole and exclusive right to operate the License in Africa … for the duration of the joint venture…
4.1 It is the Parties' intention that the JV Co shall provide sales, marketing, installation and all after sales services in respect of the Product
4.2 IRT shall grant the JV Co the exclusive right to operate the Licence in terms of the foregoing clause 4.1 and shall do everything in its power to maintain the License in full force and effect to ensure that the JV Co enjoys the benefits of IRT's right to the License.
4.3 The JV Co shall expressly undertake to observe and comply with all terms of the License and shall not act or omit to act in any manner whatsoever that could jeopardise or otherwise adversely affect IRT's right to the License.
4.4 [PLE] hereby undertakes to provide, at the expense of the JV Co, full technical support to the JV Co."
"… Dr Obaseki has entered into a JV with a group in Nigeria called the Sahara Group to help market and support your systems. They want to come to Toronto for a visit … I am assuming it will be in September".
"I would like you to consider a revision to our agreement that gives you rights in Nigeria and another country of your choice, as I find the agreement encompassing all of Africa impractical".
"It is somewhat concerning the lack of reviewing of the material provided to you and reflects the lack of commitment."
"Lack of commitment might not be generous for all expenses till date has been totally ours as a front end investment. Ordinarily and from experience you should have borne at least those incurred in Toronto. We are equally anxious but lack of commitment is certainly not generous. As soon as we receive the materials we will invite you to visit".
"I do not want this to be a pissing contest. As I discussed with you on many occasions, I am an upfront person and do not have time for playing games or playing with words. I am committed to the success of our agreement. I would like you to consider revising it please".
"It is worthy of some discussion. If in the meantime you have any prospects in Africa, the agreement was structured at Dr Obaseki's request to allow you to sell direct. Dr Obaseki will also be sending an e-mail to you in the next few days providing some information on what they have been working on".
"IRT Oil and Gas formed a strategic alliance with P-Lyne (a division of the Sahara Group) to develop the market - IRT Oil and Gas and P-Lyne have subsequently formed a new company called iRTP-Lyne for the explicit purpose of developing the market for Fox-Tek solutions…"
"IRT is in a strategic alliance with P-Lyne for the purpose of marketing Fox-Tek's products in the African continent. The choice of P-Lyne was based on its strong presence and its affiliates in several African countries. For the avoidance of doubt however, IRT remains the exclusive agent of Fox-Tek in Africa in terms of our agreement with you, and that agreement has not been assigned to P-Lyne or any other party. I believe this strategic alliance was clearly explained to you during my December 2006 visit … I am the Chairman of this alliance and Mr Morrison is the Managing Director … we feel that the day to day business of marketing your products as contemplated by our agreement is best handled by the extremely competent, capable and experienced Mr Morrison … kindly explain exactly what you mean when you say you want to 'pre-qualify' the customers being introduced to you …"
AN ASSIGNMENT OR PURPORTED ASSIGNMENT
WOULD IRT HAVE BREACHED THE AGREEMENT?
DAMAGES
"The fact that damages are difficult to assess does not disentitle the claimant to compensation for loss resulting from the defendant's breach. Where it is clear that the claimant has suffered substantial loss, but the evidence does not enable it to be precisely quantified, the court will assess damages as best it can on the available evidence. … if … there was only a chance that the claimant would … make a profit, the court will discount damages to reflect the likelihood … that the profit would have been received… the courts will always attempt to assess the amount of the loss".