Jersey Unreported Judgments

[2007]JRC105A

royal court

(Samedi Division)

31^st May 2007 

Before     :

H. W. B. Page. Esq., Commissioner and Jurats Le Breton, and Morgan.

 

 

Advocate J. P. Speck for the Plaintiff.

Advocate N. M. Santos Costa for the First Second and Fourth Defendant.

Third Defendant was not represented.

judgment

the COMMISSIONER:

 

CONTENTS

 

PART 1   -  INTRODUCTION

 

PART 2   -  OCTOBER 1996 TO MID-MARCH 1997

 

PART 3   - THE SERVICE CONTRACT & THE PERFORMANCE BOND

 

PART 4   - APRIL 1997

 

PART 5   -  MAY 1997

 

PART 6   -  JUNE 1997: BOW VALLEY CONTACTS WITH NIOC

 

PART 7   - JUNE 1997: PELL FRISCHMANN NEGOTIATIONS WITH MONUMENT & NIOC

 

PART 8 - NEGOTIATIONS WITH BOW VALLEY & BAKRIE RENEWED

 

PART 9  - MONDAY 30^TH JUNE TO SUNDAY 6^TH JULY 1997

 

PART 10 - WEEK BEGINNING 7^TH JULY 1997

 

PART 11 - CONCLUSIONS AS TO CONSPIRACY

 

PART 12  - BREACH OF CONTRACT

 

PART 13  - BREACH OF CONFIDENCE

 

PART 14  - WITNESSES AND DOCUMENTS

 

PART 15 -  LIMITATION

 

PART 16 -  SUMMARY OF CONCLUSIONS

 

 

PART 1

 

INTRODUCTION

 

The dispute

1.        The dispute in this case concerns an off-shore oil field in Iran, known as Balal, and the circumstances in which the National Iranian Oil Company ("NIOC") came to award the contract for its development to the Second Defendant, Bow Valley Engineering Limited ("Bow Valley") and the Third Defendant ("Bakrie") in late July 1997.  The Plaintiff ("Pell Frischmann") alleges that these two companies, between them, contrived to "steal" the contract from Pell Frischmann and claims damages on various bases, alternatively an account of profits derived from the contract, and also compensation for the use of technical and cost-related information generated by Pell Frischmann.  Bow Valley denies wrong-doing of any kind and claims that, in any event, the contract proved to be financially disastrous.  Bakrie, being outside the jurisdiction, has evidently taken the view that it can safely disregard the proceedings and has not sought to defend them.

2.        One of the curiosities of the action is that it was only started in January 2004, long after the material events and that, until then, Pell Frischmann had not registered any complaint about what happened back in 1997.

3.        Pell Frischmann's case can be summarised as follows.  In 1996 it pre-qualified as a prospective bidder for the contract to develop Balal and another oil-field, Soroosh. In the course of so doing it had been obliged by NIOC to sign a confidentiality agreement covering information provided by NIOC.  In October 1996 Pell Frischmann was introduced to Bow Valley as a potential source of funding, and in November 1996, at Pell Frischmann's request, Bow Valley in turn signed a confidentiality agreement designed, among other things, to protect information supplied to Bow Valley by Pell Frischmann for the purposes of their discussions pending signature of a joint venture agreement and to prevent Bow Valley making any independent approach to NIOC.  A little later, a similar agreement was signed by Bakrie.  In the event, despite negotiations over the course of the next six months or so involving Pell Frischmann on the one hand and Bow Valley, and at a later stage Bakrie, on the other, no joint venture agreement was ever concluded.  In March 1997 Pell Frischmann was invited to sign a Service Contract with NIOC for development of the Balal Field, Soroosh having fallen out of the picture by then.  In April, Bow Valley introduced Bakrie as a potential source of funding and, shortly thereafter, these two embarked on a plan to obtain control of the project for themselves to the exclusion, or substantial exclusion, of Pell Frischmann.  Towards the end of May 1997, having engineered a situation in which there was still no concluded joint venture agreement and in which negotiations over an offer by Pell Frischmann to sell its interest in the project to them had failed, Bow Valley and Bakrie approached NIOC direct, in breach of their respective Confidentiality Agreements, and in due course wrongfully secured the award of the Balal Contract for themselves without Pell Frischmann.

4.        Bow Valley's case, equally shortly, is that the idea that there was some conspiratorial intention to steal the Balal contract from Pell Frischmann is a fantasy and that nothing of the kind occurred; that repeated, bona fide endeavours on its part to reach agreement with Pell Frischmann on the terms of either a joint venture basis or a buy-out of Pell Frischmann's interest were defeated by unrealistic demands on the part of Pell Frischmann; that those efforts included a joint venture proposal under which Bakrie, part of an Indonesian group, would fund the entire costs of the project, which was rejected by Pell Frischmann; that the impact of U.S. sanctions against Iran during this period had the effect of severely limiting the sources of potential finance for projects in that country; that despite repeated efforts by Pell Frischmann to find alternative partners for the development of Balal (another oil company partner in place of Bow Valley and another source of funding in place of Bakrie) it was never able to do so; that NIOC, eventually became disillusioned with Pell Frischmann, revoked the exclusive status that it had originally conferred on Pell Frischmann as its preferred bidder, and offered the contract to Bow Valley and Bakrie; that there was, by that stage, nothing to stop them from lawfully taking up that offer.  Nor, they contend, was there anything improper in the use that they made of technical and cost-related material originally generated by Pell Frischmann. 

The National Iranian Oil Company ("NIOC")

5.        Throughout the time with which we are concerned, NIOC was the state agency responsible for managing oil and gas resources on behalf of the Islamic Republic of Iran.  Its precise status in relation to the Iranian Ministry of Petroleum is immaterial for present purposes and, except where otherwise stated, we use the term "NIOC" to cover both representatives of NIOC itself and officials in the Ministry.

Pell Frischmann

6.        Pell Frischmann is one of the largest and most highly regarded engineering consultancy groups in the United Kingdom, having started life in 1926.  By 1995/6 the group's turnover exceeded £139 million.  It had net assets of £45.5 million.  It employed over 2,250 people (in the United Kingdom, India and the Middle East, principally Abu Dhabi, Dubai and Sharjah).  A significant proportion of the Group's business was with government bodies.  During the 1980s it had worked on some of the largest and most innovative subsea development projects in the North Sea.

7.        By 1996, Pell Frischmann had also acquired expertise in oil field development studies, the design and engineering of platform topsides and deck structures, the design of subsea and water and gas injection production systems, management of the detailed design, construction and commission phases of development projects, the assessment of capital and operating cost projections, and providing advice on contractual arrangements between oil companies and specialist subcontractors. 

8.        The chairman of the group was Dr Wilem Frischmann CBE, and the managing director of Pell Frischmann Engineering Limited was Dr. John Pendered.

Soroosh and Balal

9.        In late June 1995 NIOC published an invitation to tender for the development of a number of gas and oil-related projects, including Soroosh and Balal.  Dr Frischmann was keen to develop Pell Frischmann's business by extending it into the oil sector beyond the North Sea and, in particular, into the Middle East.  He saw this as a unique opportunity for Pell Frischmann, as the usual developers for projects of this kind had been deterred from bidding by reason, among other things, of the United States' embargo on trade with Iran at that time. 

10.      Both Soroosh and Balal were largely off-shore projects, of which Pell Frischmann had had considerable experience in the North Sea, though not in the Arabian Gulf.  Additional skills, including those involved in oilfield operations, which Pell Frischmann did not have, would have to be found and it was envisaged that the project would be undertaken by a consortium that would include an oil company.  An outside source of finance would also be required.  Finance was particularly important since, under the "buy back" form of contract promoted by NIOC, the contractor needed to finance the development of the field up to achievement of full oil production. Upon completion the finished installations were to be handed over to NIOC.

11.      On 5^th September 1995 Pell Frischmann concluded a short joint venture agreement with an Australian company by the name of Eastern Petroleum under which the two would work together on a 50:50 basis to try to secure the award of the Soroosh Contract. Neither party was, however, prepared to finance it, either separately or together. In mid-November Dr. John Pendered attended a three-day seminar in Tehran organised by NIOC.  Eleven oil companies were represented, but only one other UK contractor. Background information on each of the projects was made available, including, in the case of Balal, a study of reservoir potential by Arco and a development concept by John Brown.  Potential bidders were given a questionnaire to be completed by 1^st January 1996.  In Pell Frischmann's case the completed questionnaire, as returned on 21^st December 1995, spoke of Pell Frischmann's intention "to form a consortium of suitable international and Iranian companies when the exact scope of work is established" and indicated interest in "Implementation & Financing" of three projects, Soroosh, Balal, and another. 

12.      Correspondence over the ensuing weeks suggests that at that stage NIOC was more interested in Pell Frischmann as a potential source of finance rather than project implementation, their preference in the latter respect being for a largish oil company.  Either way NIOC wanted more information about Pell Frischmann's financial capabilities. On 15^th March 1996, Pell Frischmann signed a confidentiality agreement with NIOC.

13.      By April 1996 Dr. Frischmann had been introduced to a potential source of such funding in the form of Fallingbrook Commodities Limited ("Fallingbrook"), whose managing director was Mr. Philip Cox. On 2^nd April 1996 the two companies signed a confidentiality agreement and Pell Frischmann wrote to NIOC saying that it proposed to bid for the Balal and Soroosh projects "in a joint venture consortium headed principally by [Pell Frischmann] and [Fallingbrook] in order to assure the necessary finance for the projects."  On 26^th June 1996 Pell Frischmann wrote again enclosing a proposal for development of the Balal field, saying: "Our proposal is submitted jointly by ourselves, Fallingbrook Commodities Ltd and the Industrial Progress and Development Company of Iran Ltd acting as a Consortium to undertake the proposed Project."  The Chairman and Manager of this last-mentioned company was Mr. Manoochehr Mohandes, of whom we shall have more to say later: at this stage it is unnecessary to say more than that he was, in effect, Pell Frischmann's principal local representative in Iran.

14.      In August 1996 representatives of NIOC held a series of meetings in London with prospective developers, including Pell Frischmann.  The following month Mr. W.H. Fraser of Hamilton Fraser, Engineering and Management Consultants of Sunbury-on-Thames travelled to Tehran at Dr. Frischmann's request to attend a further series of meetings with NIOC. Mr. Fraser and Dr. Frischmann had known one another for some years.  The following extracts from Mr. Fraser's diary give something of the flavour of how matters stood at that time:-

"Sun 15 Sep:  9.00 am: Commercial meeting with NIOC......Statement made that Mr. Mohandes was our greatest asset. Real concern expressed that they had received no formal confirmation of our Finance Package and urged that it was now critical since our competition had finance in place.  A letter is now requested from our bank conforming [sic] that funding is available with any conditions requested.......Mon 16 Sep: 9.00 am NIOC Technical Meeting.....Half day meeting during which we learned that our bid proposal was minimalist compared to the others. A number of the contractors had visited NIOC twice to gain further knowledge of the project and had visited the offshore sites. We noticed that one of our competitors had a team of approx. 10 at their meetings...We confirmed our serious interest on being asked if we "really were serious". They confirmed that we would receive a final scope of work within the next four weeks approx. and advised that we had a lot of catching up to do."

15.      Dr. Pendered accepted that Pell Frischmann's submission was not particularly impressive.

PART 2

 

OCTOBER 1996 TO MID-MARCH 1997

 

Bow Valley; Confidentiality Agreements; submission of Bid.

16.      It is at this point, in October 1996, that Bow Valley enters the story.  The name "Bow Valley" was well known in the oil industry, Bow Valley Industries Limited having been co-founded and developed by one Daryl ("Doc") Seaman, who was something of a legendary figure in the Calgary-based oil industry in Canada.  Mr. Seaman had sold out in 1994 but had retained the name and in July 1996, together with other investors, had announced the launch of a new oil-related enterprise using the name "Bow Valley".  As one local press report put it at the time, "Like the phoenix, Bow Valley Energy Inc. is rising from the ashes."  In the event, the new operating company so far as the events with which we are concerned was Bow Valley Energy Limited, an Alberta corporation.  (At a later stage, subsequent to the award of the Balal contract to Bow Valley and Bakrie in July 1997, Bow Valley's interest in the contract was assigned to the First Defendant, Bow Valley Iran Limited, and the finances of the project were routed through the Fourth Defendant, Bow Valley International (Jersey) Limited).  At first, Bow Valley had two full time executives, Mr. Walter DeBoni and Mr. Rod Blair, both of whom had extensive oil industry experience.  It had a small amount of office space in Calgary and modest cash resources.

17.      The precise chain of events by which Bow Valley and Pell Frischmann made contact with one another is unclear but Fallingbrook appears to have played a part in the introduction.  At all events, Mr. DeBoni and Mr. Blair met Dr. Frischmann and Mr. Cox (of Falling brook) at Pell Frischmann's offices in London on 11^th October.  An exchange of letters expressing tentative mutual interest followed and plans were made for Mr. Fraser, representing Pell Frischmann, to visit Bow Valley in Calgary.  On 28^th October, Dr Frischmann wrote to Mr DeBoni, asking for confirmation that it had "the necessary financial strength with Fallingbrook" for the project and for a letter of support from Bow Valley's bankers.  Mr DeBoni replied on 29^th October.   Acknowledging the uncertainties that had to be addressed before either party could commit to a binding agreement, he enclosed a draft letter confirming Bow Valley's interest in participating in a bidding consortium for the two projects and confirming its "capability to provide the requisite financial resources with respect to any participating interest acquired in the project".  He also mentioned the possibility of inviting the participation of a major Indonesian conglomerate with which Bow Valley was associated: though not named at this point, this was in fact Bakrie.

18.      On 1^st November, in anticipation of a visit by Mr. Fraser to Bow Valley in Calgary, Dr. Frischmann sent Mr. DeBoni a draft confidentiality agreement for his consideration and signature.  With one amendment (the deletion of a clause dealing with respective roles of Pell Frischmann and Bow Valley in the project, which Mr. DeBoni thought better left to a joint venture agreement), this was duly signed and returned by Bow Valley on 5^th November and was countersigned by Pell Frischmann the following day.  The Agreement was in these terms:

"CONFIDENTIALITY AGREEMENT

FOR SOROOSH AND BALAL FIELDS IN THE PERSIAN GULF

This agreement is made on the 1st of November 1996 between Pell Frischmann Engineering Limited ("PFE") of the one part and Bow Valley Limited ("BE") of the other part.

WHEREAS

PFE has acquired the right to tender for the buy back contracts with NIOC for the Soroosh and Balal fields in the Persian Gulf and BE is actively seeking oil and gas production interests worldwide.

IT IS HEREBY AGREED:

1.        PFE has received certain data from NIOC regarding the Soroosh and Balal fields which NIOC regard as confidential and PFE have entered into a confidentiality agreement with NIOC in respect of such data. A copy of the confidentiality agreement is attached and will form part of this agreement and should be signed by BE.

2.        BE undertake to treat all data provided to PFE by NIOC and subsequently sent to BE, as confidential and BE will enter into the same agreement with PFE as PFE with NIOC.

3.        BE will work on the Soroosh and Balal project exclusively with PFE and undertakes not to carry out any work on its own or with other parties.

4.        BE undertakes that all information received from PFE will be kept strictly confidential and will not divulge same to any third party without the express written consent of PFE.

5.        BE will not use PFE advisors in Iran without the permission of PFE.

6.        BE undertakes not to approach NIOC directly on these projects without the express written consent of PFE.

7.        It is the intention of PFE and BE to enter into a joint venture agreement in the near future which will define the relationship of PFE, BE and other participating parties, including Fallingbrook Commodities Limited."

19.      On 2^nd December Bakrie signed a similar Confidentiality Agreement, the only difference being that it did not include any equivalent of the clause 7 of the Bow Valley agreement.

20.      Further meetings between Pell Frischmann and Bow Valley took place in November and December, notably:- meetings between 6^th and 8^th November in Calgary attended by, among others, Mr. Fraser (for Pell Frischmann), Mr. DeBoni and Mr. Blair and others (for Bow Valley), and Mr. Cox (Fallingbrook); a meeting on 8^th November in London between Mr. Seaman and Dr. Frischmann; a meeting on 14^th November at Durrants Hotel in London attended by Dr. Frischmann, Mr. DeBoni and Mr. Blair; and a series of meetings in the first half of December, at which time Mr. Blair was based at Pell Frischmann's offices in London and was engaged on an almost daily basis in working, mainly with Dr. Pendered, towards preparation of the bid package for the Soroosh and Balal projects.

21.      The upshot of this collaboration was that on 19^th December 1996, a joint bid was dispatched to NIOC by Pell Frischmann from its offices in London.

22.      The bid included a "Technical Proposal" and a "Commercial Proposal".  The former consisted, among other things, of a section headed "Composition of Consortium", reading as follows:

"It is proposed that the Development of the Balal Field will be undertaken by a Consortium comprising of Pell Frischmann Engineering Ltd working in association with Bow Valley Energy Ltd, Industrial Progress and Development Company of Iran and other Iranian consultants and contractors.  Particulars of Pell Frischmann and Industrial Progress and Development Company of Iran were provided in our previous proposal and in earlier pre-qualification submissions, and we have not therefore resubmitted such material in the present proposal.  In our previous proposal, we indicated that we intended to involve an oil company within the Consortium to provide necessary expertise and experience in reservoir management and oilfield operations.  Since our initial proposal we have therefore enlarged our Consortium by bringing in Bow Valley Energy Ltd of Canada to considerably strengthen our capability for successfully executing the Project."

23.      This was followed by a "Corporate Summary" of Bow Valley, the final paragraph of which referred to the fact that Bow Valley had entered into "an Agreement of Association with a large Indonesian conglomerate to jointly evaluate exploration and development opportunities in Indonesia, North Africa and the Middle East": this was Bakrie.

24.      This description of the Consortium was, in turn, followed by a section headed "Master Development Plan".  The invitation to tender had required the contractor to produce such a plan, based on information provided by NIOC relating to the reservoir, geology of the field and the existing facilities, and on concepts for the project drawn up by NIOC.  The Master Development Plan prepared and submitted with the December 1996 Bid consisted of some thirty-five pages of text divided into ten sections together with a  number of "Conceptual Drawings" and equipment lists prepared by Pell Frischmann relating to the wellhead and production platforms, respectively.  The "Introduction" described the Master Development Plan as having been prepared by Pell Frischmann, Bow Valley and others.  As regards the Commercial Proposal, which consisted of some dozen pages of text and various attachments, Section 2.0 provided as follows:

"Since the submission of our original proposal we have entered into negotiations with a number of major international banks and contractors with respect to establishing a commitment to provide the required funding for the project.  Following efforts we are now confident that the Pell Frischmann Consortium can secure the finance required.  In this connection we are pleased to attach a letter of support from The Sumitomo Bank Limited, dated 12 Dec 1996 confirming that it will be in a position to source the required debt finance.  In addition, Bow Valley Energy plans to finance a portion of the capital required for this project in the Canadian and European equity markets.  Accordingly, we are pleased to also included in this respect two letters, one from a financial institution in Canada and one from a Canadian institution operating in the United Kingdom."

25.      The letter from The Sumitomo Bank ("Sumitomo") referred to itself as financial advisers to the "Pell Frischmann Consortium" and said that, on the understanding, inter alia, that the consortium would provide equity capital of some US$ 40 million, it was "highly confident" that it would be able to source the necessary debt finance.  And, as regards the two letters from Canadian institutions, Midand Walwyn of Toronto, the largest independent investment bank in Canada, and Middlefield International Limited, a specialist in oil and gas finance in London, both expressed confidence that Bow Valley would be able to raise its share of the necessary equity by a private placement or an initial public offering of shares.

Discussion

26.      Taking stock at this point, the position in summary was as follows.  No joint venture agreement had been signed between Pell Frischmann and Bow Valley.  At the meeting at Durrants Hotel on 14^th November, Dr. Frischmann had roughed out, in manuscript, a draft agreement; subsequently a series of typescript drafts had passed to and fro; and by mid-December the parties appear to have been close to agreement.  In the event, however, nothing was ever agreed in writing, let alone signed, either then or at any later stage.  Over the entire nine-month course of their relationship, between October 1996 and July 1997, the 1^st November 1996 Confidentiality Agreement was the only formal agreement ever signed.

27.      To a large extent the inconclusive state of the terms of the joint venture at the time of the initial bid-submission was the result of the short timescale available within which to work up an agreed bid package.  On 7^th November NIOC had issued a revised "scope of work" and had called for bids by 10^th December, a deadline that was subsequently extended to 22^nd December 1996, but which remained tight.

28.      But it was also, crucially, a consequence of substantial unresolved uncertainties as to how exactly the project would be funded in terms of equity capital and loan finance.  Bow Valley expected to raise a substantial portion of the former (up to US$35 million had been discussed), but Pell Frischmann was expected to contribute as well; and the extent of the necessary total equity was by no means always clear.  Writing to Dr. Frischmann on 18^th December, with the latest draft of their proposed joint venture agreement, Mr. DeBoni said

"Even though the structuring of the financing is not finalized at this point in time, we fully expect that equity capital will be required from both Pell Frischmann and Bow Valley.  We are prepared to advance our share of such equity in the manner laid out in the draft agreement";

and in a fax to Mr. Jay Alatas of Bakrie on 20^th December, Mr. DeBoni wrote "We are uncertain at this point of the amount of equity financing required".

29.      So far as debt finance was concerned, approaches had been made to a number of banks and other financial institutions, but with only limited and tentative success.  Only on 12^th December had Mr. Anthony Sykes of Sumitomo Bank, with whom Dr. Frischmann had been negotiating for some weeks, finally issued a comfort letter to Pell Frischmann saying "we are highly confident that, subject to the structure of the project and the terms of the agreement to be finally agreed and entered into between the NIOC and Iranian Authorities and the Consortium, we shall be in a position to source from the capital markets the remaining debt finance necessary to implement the project"; this was said to be on the basis of the bank's examination of the available project documentation and on the understanding that the consortium would provide equity capital of some US$40 million, that export credit facilities would be available to cover the procurement of capital goods and services equivalent in value to approximately one third of the project's debt financing requirement, and that Iranian banks would be prepared to provide Iranian rial funding equivalent to approximately one third of the project's debt financing.

30.      The speed with which events moved in the two months or so preceding the 19^th December bid submission and the precarious nature of the financial backing for the project is also illustrated by developments in this period concerning Fallingbrook.  By 18^th November Dr. Frischmann was expressing dissatisfaction with his previous joint venture partner.  Writing to Mr. Cox he complained that Fallingbrook had failed to provide the project finance that had been promised; acknowledged that it had introduced Pell Frischmann to Bow Valley "who do not have the finance  but are attempting to raise it"; suggested "If you cannot raise the finance, as a principal in your own right, but have to rely on other peoples balance sheet [sic], I suggest your 50% interest that is in our joint venture should be shared with Bow Valley"; but, nonetheless, still held the door open for Fallingbrook if it could come up with a proposal in time to meet the then-deadline of 10^th December.  Further exchanges took place, to no avail, and on 5^th December Dr. Frischmann wrote again to Mr. Cox, suggesting that Fallingbrook's failure to deliver bona fide financial support had put Pell Frischmann's bid submission in jeopardy and obliged it to initiate its own efforts to secure finance.  He gave formal notice that, unless Fallingbrook provided a definitive financing package underwritten by a reputable bank by 10^th December, he would consider their April joint venture agreement was no longer in force (the deadline for bids had by then been put back to 22^nd December, but Dr. Frischmann needed to have Fallingbrook's proposal by 10^th December for it to be of any use).  Precisely how matters were finally resolved between Pell Frischmann and Fallingbrook is unclear, but the latter played no part in the final bid submission and to all intents and purposes dropped out of the picture from that point onwards so far as relevant to the issues that we have to decide.

31.      Bakrie had been told about the project by Bow Valley shortly after Bow Valley had first been approached and had been invited to consider participating.  On 2^nd December or thereabouts, it had signed a confidentiality agreement with Pell Frischmann similar to that signed by Bow Valley.  A draft form of Agreement of Association of some kind between Bow Valley and Bakrie had evidently also been discussed, though not at that stage concluded. But Bakrie, itself had, as at 19^th December, made no formal commitment to any involvement.

32.      Mr. Mohandes's company, Industrial Progress and Development Company of Iran Limited ("IPDCI"), was still named as one of the participants in the bid.

January, February & early March 1997

33.      NIOC, for its part, remained less than satisfied with certain aspects of the consortium's bid. On 31^st December 1996 Mr. Rahimi had written to Dr. Frischmann requesting, by 19^th January 1997, "necessary supporting documentation to indicate your company's ability to finance [the Soroosh and Balal projects]" and "a list of all your partners in the above projects".  Dr. Frischmann replied on 8^th January summarising the position as regards funding as follows:

"Since the submission of our original proposal, and the discussion of this with NIOC, Pell Frischmann have entered into negotiations with a number of major international banks and contractors with respect to establishing a commitment to provide the required funding for the project.

Following these efforts we are now confident that Pell Frischmann and Bow Valley .....can secure the finance required. Letters in support of this position were included within our Commercial Proposal, and we are pleased to attach these also to this letter.

In particular, we draw your attention to the attached letter of support from The Sumitomo Bank Limited, dated 12 December 1996, confirming that it will be in a position to source the required debt finance.

In addition to this debt finance, Bow Valley Energy Ltd plans to finance a portion of the capital required for this project in the Canadian and European equity markets. Accordingly, we also attach two further letters, one from a financial institution in Canada and one from a Canadian financial institution operating in the United Kingdom, both of which confirm this matter.

We have also discussed these projects with Bank Melli Iran in both Tehran and London, and based on these discussions, we are pleased to attach a letter from Bank Melli Iran confirming their willingness to support the financing of the Iranian portion of the work."

34.      In response to NIOC's request for more information about the composition of the consortium, Dr. Frischmann said that the intention was that the projects would be undertaken by Pell Frischmann "working in association with" Bow Valley and IPDCI, but that the consortium would also include "representation from our major supporting bank."  Particular emphasis was placed on the fact that, since the time of Pell Frischmann's original proposal, its capabilities had been considerably strengthened by the introduction of an oil company in the form of Bow Valley with the necessary expertise and experience in reservoir management and oilfield development that Pell Frischmann's earlier proposal lacked.

35.      In the latter part of January 1997 a NIOC "task-force" arrived in London for further discussions with bidders and on 23^rd January a meeting took place at Pell Frischmann's offices attended by representatives of NIOC, Pell Frischmann, Bow Valley and IPDCI.  Negotiations with the NIOC team over the draft terms of a contract ("The Service Contract") for the Balal field - not Soroosh - then ensued, with NIOC expressing concern in particular that it should have an assurance, among other things, that the capital cost given in the consortium's bid was a "ceiling price", and wanting a reduction in the remuneration fee payable to the consortium.

36.      NIOC still wanted further comfort about Sumitomo Bank's ability to raise the necessary finance, and on 31^st January, in response to a request from Dr. Frischmann, Mr Sykes supplied a further draft letter accompanied by a caveat saying that, with his current state of knowledge of the shape of the project and the proposed contract, it would be hard for me to make it any stronger".  In the event, after a degree of re-drafting suggested by Dr. Frischmann, the final form of the letter to NIOC dated 31^st January, said

"We wish to confirm that, subject to the satisfaction of the banks with all the necessary project and loan documentation (and, in particular, the Service Agreement which you are in the process of negotiating with NIOC) and to the satisfactory completion of the Bank's credit approval procedures, financing would be arranged to support your bid for the Balal Field development".

But NIOC's concerns evidently remained.

37.      At about the same time as the Sumitomo Bank letter was dispatched, Dr. Frischmann asked for a letter from Bow Valley confirming its commitment to provide equity finance. On 30^th January, Mr. DeBoni replied, transmitting yet another re-draft of a proposed letter-agreement between Pell Frischmann and Bow Valley and adding:

"The equity funding formula is changed from the last draft since we are, at this time, undertaking only one project. The dollar amount has been reduced to half the amount at each level in the funding formula.  I assume that this agreement, once signed, will provide you with the evidence you require with respect to Bow Valley's commitment to fund its proportionate share of the equity required for the project and that a separate letter is not required.  Please let me know if a separate letter is required for either the banks or for NIOC."

38.      On 3^rd February Pell Frischmann returned to NIOC an initialed copy of the draft Service Agreement signifying agreement to its terms subject to a limited number of amendments as incorporated and enumerated in the covering letter.

39.      The cautious terms of Sumitomo Bank's letter of 31^st January evidently did little to re-assure NIOC: in a fax to Dr. Pendered on 18^th February, Mr. Mohandes reported, among other things,

"Your financing is questioned, there are too many ifs and buts in the Japanese bank letters, they need a very strong letter."

Shortly afterwards it emerged that the Bank had considerable reservations of one kind or another about the whole matter.  In a letter to Pell Frischmann dated 20^th February in response to a request from Dr. Frischmann for an indication of how Sumitomo Bank saw the financing of the project being structured, the Bank said that a great deal of work would be necessary before it would be possible to formulate a formal financing proposal; that there were concerns about the effect of US sanctions and the possibility Sumitomo infringing US law that would have to be examined; that further "due diligence" would be required, and sight of the signed service contract and other project documentation would be necessary before the matter could be taken much further.

40.      On 27^th February, Pell Frischmann was informed that its presence in Tehran was required as soon as possible. Dr. Frischmann made immediate arrangements for Dr. Pendered and Mr. Alex Dorr to leave for Tehran on 1^st March.  He also arranged for Dr. Pendered to be armed with a Power of Attorney on behalf of Pell Frischmann to sign the Service Contract for the development of the Balal Field.

41.      This development prompted Bow Valley to write to Bakrie, following up recent discussions in Jakarta, with a view to "firming up our financing package in the near future".  The letter continued:

"As things stand, we foresee our consortium raising USD 25-30 million in equity and approximately USD 150 million in debt. Could you please advise if Bakrie Interinvestindo would be interested to provide a portion of the equity (amount to be determined) along with USD 50 million in debt financing to earn a one-third interest in the Balal project.  Although we have not yet confirmed the terms of this proposal with the Pell Frischmann Group, we would like to use it as a starting point in our discussions with them."

42.      At much the same time, Sumitomo Bank supplied a further letter addressed to Dr. Frischmann and intended, no doubt, for transmission to NIOC, dated 5^th March.  Having referred to their short earlier letter of 31^st January, the letter said

"Since our earlier letter we have been able to make some progress in our discussion over the last month and to review the key documentation currently available. We remain confident that - given appropriate terms and conditions - financing can be arranged to support this transaction. A formal commitment must await the satisfactory completion of the credit approval procedures of our bank and of other banks participating".

43.      Shortly afterwards on 11^th March, the Bank wrote to Dr. Frischmann at some length to reiterate its interest in acting as financial adviser to the consortium, having by then received a favourable legal opinion on the matter of US sanctions. The letter proceeded to set out the scope of work envisaged and the level of remuneration that Sumitomo would be looking for. Negotiations over the terms of Sumitomo's brief continued thereafter.

44.      In March NIOC requested re-submission of bids from Pell Frischmann/Bow Valley, and also from Petronas and Premier, showing different remuneration fees amortised over 3 years, 1½ years and 1 year, the revised figures to be submitted by 12^th March.

45.      On 6^th March, Dr. Pendered, responding to various requests for further information required by NIOC wrote:

"Further to our meeting with Your Excellency on the 2^nd March 1997, we are pleased to confirm that finances for the project are now in place subject to contract".

46.      This assurance involved more than a degree of poetic licence, given the actual state of affairs, as more correctly stated in Dr. Frischmann's letter to Mr. Robert Kipps of I.E.P. on 11^th March, in which he said

"We are still in the process of trying to raise finance for the Balal Offshore Development..."

47.      On 10^th March Bakrie wrote to Bow Valley confirming its willingness to arrange a loan of US$50 million and to put up participating equity, but required in return to be formally recognised and named as a member of the consortium.  Dr. Frischmann was immediately copied in on this letter and wrote the same day to Mr. Atlatas welcoming Bakrie "to join our consortium with Bow Valley", though Bakrie's role was "to be defined at a later stage", and asking him to address a letter direct to Pell Frischmann confirming that "you will be participating in the equity investment to be advised by Sumitomo Bank as required for Balal and provide a loan of $ 50 million for the project".  It was proposed that the letter would be included with the revised tender submission to be delivered on 12^th March.

48.      On 11^th March, Bakrie obliged with a short letter direct to Pell Frischmann saying

"Further to your fax dated March 10, 1997, we are pleased to join the Balal Project.  We herewith confirm that we are in a position to arrange US$50 million loan and to put the equity as required for proposional share of the project" [sic].

The following day, 12^th March, Pell Frischmann in turn wrote to NIOC:

"Bow Valley, our proposed partners for the Balal Offshore Development, are working with one of the largest group of companies, Bakrie Inter Investindo Co Ltd in Indonesia on oil and gas projects. Bakrie have expressed great interest in joining us as a partner/investor if we are successful in obtaining the contract for the Balal Field.  We would like to inform NIOC that at a Board Meeting yesterday, it was agreed that we would formally invite Bakrie to join us.  In our view having Bakrie as a partner/investor will strengthen our team for the Balal Field and will enable us to seek further opportunities for projects in the oil and gas sector in Iran."

PART 3

 

MARCH 1997:

THE SERVICE CONTRACT & THE PERFOMANCE BOND

 

The Service Contract

49.      On 12^th March the consortium's revised bid was duly submitted as requested, and on 19^th March Dr. Pendered was eventually invited to sign a formal "Service Contract for Balal Field Development between NIOC and Pell Frischmann" dated 19^th March. 

50.      However, two last minute developments in Tehran were to have a lasting impact on the future of the consortium's involvement with the project.  The first was a request, at a meeting with the Iranian authorities on 19^th March, for a reduction in both the Capital Cost and the Remuneration Fee.  This was relayed to Dr. Frischmann in London who then engaged in negotiations by telephone with Mr. Jalilian of NIOC and eventually, the same day, agreed to reduce the Capital Cost from US$ 176 million to US$ 172 million and the Remuneration Fee from 52% to 49%.  In return he sought a reduction in the amortisation period from three years to one, agreement that the water injection wells would be carried out after First Production, and confirmation that all crude produced under the Early Production Scheme would be made available to Pell Frischmann.  On receipt of agreement to these terms, Pell Frischmann would, he said, instruct Dr. Pendered to sign the Service Contract.  A draft response agreeing to these conditions was drawn up by Dr. Pendered the following day, evidently in the hope that NIOC would have been prepared to reply in those terms; but, in the event, no such written confirmation was received either before Dr. Pendered signed the Service Contract or at any later stage.  In fact, the figures finally accepted by Pell Frischmann and inserted in the Contract (in manuscript, by Dr. Pendered) were reduced further still to US$169,000,000 for the Capital Cost and US$ 78,585,000 for the Remuneration Fee.

51.      Secondly, when the parties met again on 20^th March, Dr. Pendered was faced with a requirement by NIOC for what was, in effect, a performance bond from Pell Frischmann in an amount of US$5 million.  With little opportunity to take further instructions from London, Dr. Pendered signed the Service Contract on behalf of Pell Frischmann adding in manuscript "The Contractor shall submit "Bank Guarantee" for the amount of Five Million US Dollars (US$ 5,000,000) in favour of NIOC".  According to Dr. Pendered, he understood that NIOC had agreed to leave open the possibility of further discussion of the wording (some room for "manoeuvre", as he put it).  But, judging by the evidence of both Dr. Frischmann and Dr. Pendered, news of this came as an unwelcome shock to Dr. Frischmann back in London, to put it mildly.  Although the possibility of being required to provide such a guarantee was something that had been mentioned in discussions with NIOC at an earlier stage, it seems not to have been a requirement that had featured in recent discussions or in drafts of the Service Contract, and was not something that had been agreed with Bow Valley and Bakrie.

Discussion

52.      Pausing again, at this point, the following points need to be emphasised:

(i)        There was still no concluded agreement between the proposed joint venture partners.

(ii)       While Pell Frischmann had signed the Service Contract, NIOC had not.  Nor had any formal announcement of the award of the Contract been made.

(iii)      The Service Contract itself was in the name of Pell Frischmann alone.

(iv)      Commencement of Development Operations was to be within 3 months of the "Effective Date" of the Contract, the latter being defined as the date on which the Contract "after being duly signed by both N.I.O.C. and the Contractor, is approved by the Board of Directors of N.I.O.C." Approval by the NIOC Board was expected before the end of the month.

(v)       The operative part of the "Bank Guarantee" required by NIOC as appended to the Service Contract and  again by Dr. Pendered was in these terms

"Now the condition of this guarantee is such that in the event that [NIOC] notifies our Bank in writing that Pell Frischmann Engineering Ltd has failed to commence Development Operations within 3 months of the Effective Date of the Agreement as per Clause 3.2 of the Contract we undertake to honour our guarantee for (.........) forthwith upon receipt of the aforesaid written request and pay the above mentioned sum to [NIOC] without the necessity of any proceedings whether judicial, administrative or otherwise to be instituted by [NIOC]".

(vi)      This was a form of instrument commonly known as an "on demand" performance bond, archaic in its wording, but not uncommon in the construction industry and potentially draconian in the risk to which it exposed the donor: Dr. Frischmann described it as a "suicide" bond. In a memorandum addressed to Dr. Pendered dated 21^st March Mr. Mohandes had reported that he understood the Bank Guarantee to be required by NIOC within the next eight days.

(vii)     Arrangements for financing the project remained inconclusive: in particular, no agreement with Sumitomo Bank had been signed.

Mr. Mohandes

53.      It is also convenient at this point to say something about Mr. Manoochehr Mohandes and his relationship with Dr. Frischmann.  They had first met some years previously at a time when Mr. Mohandes had been a political prisoner of an earlier regime in Iran, and he and his family had been generously befriended by Dr. Frischmann.  By the time of the events with which we are concerned, he appears to have been a well-established figure in the oil and gas industry in Iran, being among other things the Manager of the Kharg Island terminal on the Gulf.  He did not give evidence in the case but had a gift for writing colourful memoranda giving Dr. Frischmann and others at Pell Frischmann the benefit of what he claimed to be the latest intelligence from a network of contacts, and complaining with regularity about lack of information from, and action by, Pell Frischmann.  Dr. Frischmann, in his evidence, suggested that it was always difficult to know how much of this to believe, but it is plain that he valued his services sufficiently to use them throughout the relevant period.  Both sides relied on his written communications for some, though different, purposes, but discounted them on other occasions.

54.      Be that as it may, by late February Mr. Mohandes was obviously becoming restless about the basis of his retainer and on 24^th February he wrote to Dr. Frischmann making reference to the fact that it was he who had first introduced the Balal and Soroosh projects to Dr. Frischmann, to the support services that he had provided, and also to the fact - according to him at least - that his presence had been "a key  factor in the contract being awarded to PFE" (which on any view was, at that point, jumping the gun a little).  Against this background, he wanted a 6% shareholding in the Service Contract at no cost to himself, an annually renewable consultancy contract at a rate of US$ 190,000, and reimbursement of pre-contract services from late 1995 to March 1997 of US$ 160,000.  He also spoke of consultancy contracts with "various Iranian parties" who had used their influence to secure the contract for Pell Frischmann at a cost of US$300,000.  How much truth there was in his claim to have incurred expenses of the kind described is, for present purposes, neither here nor there; nor is the final outcome of the ensuing negotiations between Dr. Frischmann and Mr. Mohandes (which, in any event, is less than clear).  What matters in the light of subsequent negotiations between Pell Frischmann, Bow Valley and Bakrie is that Dr. Frischmann accepted that Pell Frischmann did have certain accrued financial obligations to local agents in Iran, the precise nature and extent of which, however, he was reluctant to share with Bow Valley and Bakrie in advance of the conclusion of a joint venture agreement.  

The Performance Bond (or Bank Guarantee)

55.      With the prospect of development operations possibly being expected to start in a little over three months' time, the need for Pell Frischmann to bring its joint venture arrangements to fruition assumed a new urgency.  Apart from the introduction of Bakrie as a prospective additional member of the consortium in March, little had happened on that front in the period of almost two months since Bow Valley's letter of 30^th January enclosing the then-latest re-draft of an agreement.  There was also the matter of the bond.

56.      On 24^th March, Dr. Frischmann wrote to Mr.DeBoni and Mr. Blair confirming discussions held the previous day.  After making a number of specific comments on Bow Valley's draft, Dr. Frischmann continued

"In addition to the above, could you please explain urgently, how and when your equity would be available.  It is likely that we would need to demonstrate to banks, subcontractors with possible export credit arrangements, that the company has been capitalised. In addition, we have the most urgent matter of raising the $5 million Bond, which we may need to send to Iran in the next 10 days.  If you could demonstrate to insurance companies and Banks that the company is capitalised, the obtaining of the Bond will be simplified.  I am conscious of the fact that we have made promises to Bakrie, but in my view we should try to agree our arrangement first. We could then invite Bakrie to visit us in London later this week."

57.      Three interweaving themes dominate events relating to the provision of the bond during the weeks following Pell Frischmann's signature of the Service Contract.  First, Pell Frischmann's coming-to-terms with the unconditional, uncompromising effect of the instrument that it had undertaken to provide and related attempts (largely unsuccessful, in the event) to negotiate amended, more accommodating terms with NIOC.  Secondly, attempts to find an institution prepared to provide it that was acceptable to NIOC.  And thirdly, pressure from NIOC to make the bond available quickly and its unwillingness to confirm the award of the Service Contract to Pell Frischmann unless and until an appropriate bond was in place.

58.      At the same time as writing to Bow Valley on 24^th March, Pell Frischmann dispatched copies of the bond wording to a number of third parties who, it was hoped, might help.  These included Griffiths & Armour, Lewis and Peat Holdings Limited and one General de Vire.  The onerous nature of the bond was evidently brought home to Pell Frischmann in a fax the same day from Griffiths & Armour, Pell Frischmann's insurance brokers,  pointing out that the bond wording "is, in fact, on demand, and whilst we can suggest changes it is, in our opinion, extremely unlikely that the National Iranian Oil Company will accept these".  They explained that, before the matter could be taken further with insurers, a variety of information would be required, including the most recent Pell Frischmann accounts.  At that stage the brokers could do no more than suggest that the premium might be of the order of 5 - 15% of the total bond value: in other words, between US$250,000 and 750,000.  On any view it must have been plain that Griffiths & Armour were unlikely to be able to procure a suitable bond at short notice.

59.      Writing again on 2^nd April, Griffiths & Armour reported that their inquiries in the market had resulted in advice that the alternative of a conditional bond was highly unlikely to be acceptable to the Iranians; that the placing of a bond of this kind would entail "a parent company guarantee"; and that the premium would be likely to be at least 10% of the bond value.  Notwithstanding this advice, Pell Frischmann immediately faxed to Tehran, for NIOC's consideration, a less uncompromisingly-worded draft, providing for the bond to become payable only after written notice of default coupled with failure on the part of Pell Frischmann to remedy the situation within 30 days and exclusion of any claim on the guarantee in the event of failure as a result of force majeure.  This, as predicted by Griffiths & Armour, was unacceptable to NIOC, and after further negotiations over the ensuing two weeks Pell Frischmann was eventually obliged to accept wording substantially in the terms originally required by NIOC (though with an amendment adding a further limit to the duration of the guarantee).  In short, the required bond remained an unconditional one, automatically payable on demand by NIOC in the event of development operations not starting on time and continuing until satisfactory completion of 10% of the work or commitment by Pell Frischmann of 10% of the capital cost. Lewis and Peat, writing some weeks later also counselled caution, having regard to the unconditional nature of the guarantee sought by NIOC.

60.      Bow Valley and Bakrie, for their part, made it clear that there was no question of either of them putting their company's assets at risk backing such a bond without a concluded joint venture agreement; but, subject to that, Bakrie was prepared to arrange the necessary bond through its bank.

Joint Venture negotiations with Bakrie

61.      We return to the last week in March 1997. Dr. Frischmann's letter of 24^th March had harked back to the earlier draft agreement between Pell Frischmann and Bow Valley at the end of January.  But on 26^th March he gave Mr. Blair, who was still in London, a copy of a new joint venture agreement which he had drafted and which included Bakrie as a party; he also dispatched a copy to Mr. DeBoni in Canada.

62.      Shortly after this Mr. Alatas of Bakrie arrived in London for discussions on 27^th March with Dr. Frischmann, Mr. Fraser and Mr. Sarch (a colleague of Dr. Frischmann, of whom more later) on behalf of Pell Frischmann and Mr. Blair on behalf of Bow Valley.  A further meeting between Mr. Sarch, Mr. Alatas and Mr. Blair took place early on Friday 28^th (Good Friday) at Durrants Hotel, following which Mr. Blair left London.  Pell Frischmann had by then instructed Fladgate Fielder, London Solicitors, and they had produced a new draft three-party agreement entitled "Framework Agreement" for consideration, though exactly at what point this was distributed is unclear.  Mr. Sarch suggested in evidence that during the course of these meetings Bow Valley appeared to be unable or unwilling to come up with their share of the necessary equity.

63.      Following Mr. Blair's departure, Mr. Sarch suggested that Mr. Alatas should hold further discussions with Dr. Frischmann. Arrangements were made for this to take place at Dr. Frischmann's house in Richmond on the morning of Sunday 30^th March (Easter Day) before Mr. Alatas's departure from Heathrow. No written record of this meeting was in evidence, but it is clear that a significant part of the discussion revolved around possible alternative arrangements were Bow Valley unable or unwilling to provide its share of the equity.  Dr. Frischmann suggested in evidence that Mr. Alatas had told him that Bow Valley had no money of its own, as if this were an unexpected revelation.  But there was nothing new in this: Pell Frischmann was well aware from the outset that Bow Valley's own cash resources were limited and that its share of any equity was going to have to be raised in the market.  At all events, it seems that one alternative discussed was that Bow Valley's participation would be reduced to a 5% "carried interest".

64.      It is also plain that over the course of the next week or so written and telephone communications took place between Mr. Alatas following his return to Jakarta and Mr. Sarch in London (to which Bow Valley was not a party) following up this idea. These included,

(i)        a telephone conversation between Mr. Sarch and Mr. Alatas on 31^st  March 1997;

(ii)       a letter from Mr. Alatas to Dr. Frischmann later the same day confirming its proposals as follows:

"1. If Bow Valley comes up with what we agreed in the recent meeting London [sic], the scenario will be identical as agreed, except that we want to have 30% from the portion of oil sales. 2. If Bow Valley is not able to come up with the equity, we agreed to give 5% carried interest and the remaining share we may work out between us. 3. We raise the necessary fund for the project, with the following conditions .........4.  Regarding performance Bank [sic], our Bank will write a letter to NIOC to confirm the availability of performance bond immediately after the contract between Pell-Frischmann and NIOC has been signed. 5. We expect that our agreement will be signed this week, before the 5^th April 1997.  The points discussed above are strictly confidential and subject to the contract between parties."

One of the specified conditions of Bakrie's third point was that procuring the necessary finance would require "corporate guarantees" from each of the three parties in order to cover the possibility of NIOC failing to make the payments provided for in the Service Contract, unless "political risk insurance" could be obtained, in which case such guarantees would not be necessary.  Dr. Frischmann faxed a copy of his draft of the proposed three-way joint venture agreement to Mr Alatas with amendments in Dr. Frischmann's hand reflecting such an arrangement;

(iii)      a faxed reply from Mr. Sarch saying that he had been to see Dr. Frischmann and

"We thought it would be of great advantage if we used the scenario that Bow Valley do not come up with their money and we would jointly agree to give them a 5% carried interest in order to progress matters as quickly as possible. We have amended the draft frame work agreement, with the suggestion that BAKRIE provides Bow Valley's equity";

(iv)      a letter from Dr. Frischmann to Mr. Alatas on 1^st April saying

"You should now have received a copy of the letter from Bow Valley in response to our discussions and negotiations last week in London. We enclose herewith a copy of our reply and as you will see, they have not really moderated their position from last Thursday night.  We will keep you informed of any response we have from them. In the meantime we look forward to hearing from you as to the latest position with your chairman, Mr. Nirwan";

(v)       two telephone conversations between Mr. Sarch and Mr. Alatas on 4^th April followed by a faxed letter from Mr. Sarch to Mr. Alatas saying

"Further to our two telephone conversations this evening (London time), I have spoken briefly with Bill Frischmann, who is very pleased that Bakrie wish to proceed quickly with this venture. I do need to speak with him at length and to the lawyers in London, to revise the Framework Agreement to reflect the new position between PFE and BII [Bakrie] I will fax you as soon as I have a draft, which contains the wishes of the parties and is appropriate to expedite the transaction" (emphasis added);

(vi)      two further faxes from Mr. Sarch to Mr. Alatas later the same day, one transmitting a quotation for war risk insurance, the other a revised draft Framework Agreement between Pell Frischmann and Bakrie to the exclusion of Bow Valley saying he hoped that it

"sets out a basis which is acceptable to Bakrie so that we can proceed immediately with the transaction. Please bear in mind that we need the Perfomance Bond Guarantee for NIOC as soon as possible and I would be obliged if you would let me know the full name and address of the bank that you propose will provide it. I do hope that we can progress the paperwork as rapidly as possible. Please call me either at the office or at home at any reasonable time";

(vii)     a fax from Mr. Sarch to Mr. Alatas on 7^th April, following another telephone call or other communication saying that he was pleased to hear that he had received "the fax which is now with your Chairman, Mr. Nirwan D. Bakrie"; this enclosed a further copy of the proposed bi-lateral agreement and asked for confirmation that the name and address of the bank that would be providing the performance bond was as set out in Mr. Sarch's fax (PT Bank Nationale, Jakarta). 

65.      It is also plain that, at much the same time, various communications were taking place between Bow Valley and Bakrie to which Pell Frischmann was not party, notably,

(i)        a telephone conversation between Mr. Blair and Mr. Alatas on 1^st April in which Mr. Alatas made reference to two alternatives for a reduced participation by Bow Valley, the first being the 5% carried interest proposal (which Mr. Blair evidently understood Mr. Alatas to say had been suggested by Dr. Frischmann), and the second (suggested by Mr. Nirwan Bakrie) under which Bakrie would fund Bow Valley's one-third equity contribution in return for Bow Valley reducing its interest to 12 ½ % and giving Bakrie an option to buy 5 million Bow Valley shares at a specified price;

(ii)       two telephone calls between Mr. Alatas and Mr. Blair on 2^nd April 1997, following telephone conversations between Mr. Alatas and, respectively, Mr. Sarch and Dr. Frischmann;

(iii)      a fax from Mr. Blair to Mr. Alatas on 2^nd April 1997 saying that Mr. DeBoni had just advised him that "he could possibly reserve $1.5 million (Canadian) worth of Bow Valley shares for the Bakrie Group under our new private placement"; and a letter from Mr.DeBoni to Mr. Alatas the same day enclosing copies of the "Agreement of Association" which, it seems, had been executed earlier in the year.

66.      We mention these two bi-lateral sets of communications with Bakrie, because both Pell Frischmann and Bow Valley accuse one another in these proceedings of bad faith and deceitfulness in conducting these private discussions with Bakrie: in truth, neither side was alone in having such discussions.

PART 4

 

APRIL 1997

67.      As regards communications between Pell Frischmann and Bow Valley themselves, these early days of April following the meetings in London  saw a robust exchange of letters between the two, the first being from Mr. DeBoni on 1^st April.  Having reviewed the matter with Mr. Blair, newly back from London, and also the new draft Framework Agreement, he wrote to Dr. Frischmann with a series of comments on that draft, emphasising in particular three unresolved issues "impacting the overall economics of the project": the continuing absence of any written acknowledgment by NIOC of the concessions said to have been agreed with NIOC at the time of signature of the Service Contract in return for the reduction in the Capital Cost and the Remuneration Fee, the fact that firm capital cost estimates for the major offshore structures were unlikely to be available before the performance bond would have to be put in place, and the as-yet unknown availability of political risk insurance (which would have a significant influence on debt-finance for the project).  Provided these could be resolved and provided his other comments on the draft agreement were acceptable, Mr. DeBoni thought that it should be possible to get a formal agreement in place in the near future.

68.      In his reply the same day, Dr. Frischmann said, in response to the three specific concerns outlined by Mr. DeBoni, that while Mr. Mohandes had arrived in London with a letter from NIOC on the subject of the contractual concessions, it contained unacceptable conditions; that "we have all been aware for some time that firm Capital Costs are not available at this point and NIOC are now pressing for the Bond in order to sign the contract" (in fact, as we have seen, Dr. Frischmann was still negotiating with NIOC over the wording of the bond); and that endeavours were currently being made to obtain a quotation for political risk insurance. As regards Mr. DeBoni's comments on the draft Framework Agreement, he was surprised, he said, that Mr. DeBoni's letter gave the impression that the Bow Valley Board had not yet discussed the draft Framework Agreement in detail; he complained that Mr. DeBoni's comments reflected Mr. Blair's negotiating position during the previous week's meetings in London "which I made clear to him were not acceptable to us"; Mr. Mohandes, he said, had warned that NIOC were expecting delivery of the bond that week and without it "will lose patience with us".  With his letter he enclosed a revised version of the Framework Agreement.

69.      Mr. DeBoni, in turn, replied immediately and at length. It was difficult, he said, to obtain Board approval "when we still do not know the terms of the deal with NIOC".  The last presentation to the Board had been on the basis of  a Capital Cost of US$ 17.6 million and  Remuneration Fee of 52%. Since then these figures had been negotiated down to US$ 169 million and 46.5%, in return for certain concessions from NIOC; but Dr. Frischmann's letter (reporting that NIOC's letter confirming these was unacceptable) suggested that the value of the contract had been further eroded. This point apart, his difficulty with Dr. Frischmann's proposals was that they reflected "a prospective allocation of risk which is not, in our view, equitable or acceptable". In particular they involved an unacceptable imbalance between, on the one hand, the assumption of the bulk of the financial risk (by Bow Valley and Bakrie) and, on the other, project control  (as to which Dr. Frischmann was insistent on unanimity of decision-making) and responsibility for cost over-runs (which, under Dr. Frischmann's proposals, would fall principally on Bow Valley and Bakrie).

70.      Mr. DeBoni also objected strongly to the introduction into the latest draft of a new Clause 11.9 without any reference having been made to this in Dr. Frischmann's letter.  The effect of this clause was, in short, to provide for "all contractual arrangements entered into by PFE in connection with the services contract" to be transferred if possible to the new joint venture company and to require Bow Valley and Bakrie to indemnify Pell Frischmann against all claims that might be made against Pell Frischmann under such arrangements.  To expect Bow Valley and Bakrie to agree to such a provision when they had no knowledge of or control over such arrangements was, protested Mr. DeBoni, unacceptable.  He also insisted that there should at the very least be a cash contribution of US$3 million from Pell Frischmann towards shareholder equity or loans: Dr. Frischmann had been equally adamant that the work that Pell Frischmann had already put into the project represented a capital contribution by his firm of this order.  Mr. DeBoni concluded by saying that the proposal put forward by Bow Valley the previous day represented appropriate terms for a joint venture, that Bow Valley was not prepared to sign a "bad" agreement with NIOC or with its partners that would compromise future relationships and the success of the project, and that Bow Valley remained hopeful that a balanced and reasonable resolution of these matters could be achieved. His letter was copied to Bakrie.

71.      On 2^nd April Dr. Frischmann addressed a short letter to both Bow Valley and Bakrie saying "Further to our discussions with Jay Alatas, I have amended the Draft Framework Agreement which is my understanding of what was agreed between Bow Valley and Bakrie and communicated to me over the telephone by Jay Alatas.  Please confirm your agreement to this."  But Mr. DeBoni's response flatly rejected the suggestion that the revised document was consistent with discussions between Bow Valley and Bakrie.  Nor, he said, did it address "the principles of shared partnership risk outlined in our letter to you yesterday".  Nor, again, would Bow Valley be comfortable to proceed with a "devalued contract without concrete evidence of the NIOC concessions" and with Bow Valley and Bakrie taking all the risk.  He was not prepared to recommend the terms of the Framework Agreement as revised by Dr. Frischmann to his Board of Directors. 

72.      Dr. Frischmann replied on 3^rd April:

"Thank you for your fax received this morning. I must disagree with your comments regarding the NIOC Service Contract, although it was necessary to reduce the bid I have been promised concessions in respect of the timing of the water well drilling and also the availability of oil from early production to be made available to repay the costs.  From what you say, it seems that you do not like the deal any more. It does seem regretful that we appear to have reached the end of the road.  I feel that your position is so far apart that there is little hope of you meeting my position on a mutually acceptable basis.  This is unfortunate as we have been through such long and lengthy discussions.  I am hoping that you may change your mind but must now consider alternatives.  Please reconsider.  In any event, I do hope that on some future occasion we may be able to do some business together."

73.      The same day Fladgate Fielder sent Mr. Sarch a copy of a redrafted Framework Agreement, the only parties to which were Bakrie and Pell Frischmann, owning 57.5% and 42.5% of the equity, respectively.  All reference to Bow Valley, as such, had been expunged,  although it referred at one point to the possibility of each party transferring an equal proportion of its holding to "a third party shareholder" so as to give that party 5% of the issued share capital.

Jakarta meetings

74.      On 4^th April 1997, notwithstanding Mr. DeBoni's stance the previous day, Mr. Blair felt moved to make one further effort in order to prevent negotiations foundering completely.  Having spoken to Mr. Sarch earlier in the day he sent him a fax saying that he had consulted Bow Valley's board of Directors and believed "that everyone involved shares a genuine aversion towards forfeiting this opportunity with NIOC in view of the time and resources expended"; that Bakrie's debt financing was clearly an important element of the project and that, in order that there should be no misunderstanding, Bow Valley had decided to travel to Jakarta that week-end; that subject to the necessary undertakings by Bakrie's bankers, Bow Valley would be prepared immediately to present a counter proposal to Pell Frischmann and would provide bank guarantees for its share of the equity funding requested.  It would be valuable, he suggested, if Pell Frischmann could also send a representative to Jakarta.

75.      The Bow Valley minutes of that board meeting (which show Mr. Blair as having been present for only part of the meeting) record, under the heading "Review of Balal Agreement", Mr. DeBoni having advised that Bow Valley had not yet been prepared "to commit to" the project as the concessions from NIOC had not been received, and having given "an overview" (semble Mr. Blair's presentation) "as to the current position of the parties on equity contribution, the status of project financing, the requirement of a performance bond, political risk insurance and management of the project."  They also record discussion of

"a collateral agreement with Bakrie...wherein Bakrie would provide financing to the corporation [Bow Valley] or in the alternative purchase a partial interest from the Corporation on the basis of a $5 million note";

the suggestion of the board that talks be held first with Bakrie to define the terms of such an agreement and secondly with Pell Frischmann to define the terms of a three-party joint venture; and the consensus of the board that Mr. DeBoni should

"continue to direct discussions with the parties with a view to concluding an arrangement whereby  Bow Valley would utilize a $5 million loan from Bakrie to retain a 12½% interest in the project and, if possible, secure an option to increase that interest at the time of the initial public offering."

This appears to have been a variant of the second alternative mentioned by Mr. Alatas to Mr. Blair in their telephone conversation on 1^st April.

76.      Mr. Sarch left London for Jakarta on the evening of 8^th April and arrived in Jakarta on of 9^th April 1997.  He either took with him, or subsequently received by fax, the Fladgate Fielder bi-lateral agreement between Pell Frischmann and Bakrie that had been faxed to Bakrie on 7^th April before Mr. Sarch left.

77.      The Bow Valley team consisting of Mr. DeBoni, Mr. Blair and Mr. Cummings (Bow Valley's legal adviser and Company Secretary), had arrived two days earlier.  A copy of their latest draft of the tri-partite Framework Agreement, following discussions with Bakrie, had been faxed to Dr. Frischmann on 8^th April (while Mr. Sarch was in transit) under cover of a fax-sheet headed "FROM: BAKRIE/BOW VALLEY" in Mr. Cummings's hand . A further copy was supplied to Mr. Sarch on his arrival on the 9^th April. So far as Bakrie were concerned, the draft now showed the contracting party as "Bakrie Minarak Company Ltd." of Calgary, Alberta ("Barrie Minarak") in place of "Bakrie Interinvestindo Co. Ltd. of Jakarta."  It seems that by this point Bakrie had decided that it needed a presence in Calgary and had established - or was on the point of establishing - a subsidiary there with a Mr. John Burns as President and Chief Executive and offices in the same office block as Bow Valley .

78.      By this stage, too, Pell Frischmann had changed solicitors (so far as Balal was concerned, at least) from Fladgate Fielder to Norton Rose and had arranged for a representative from Norton Rose's Jakarta office to join Mr. Sarch at the forthcoming discussions.  On the evening of 9^th April, London time, Dr. Frischmann faxed a revised version of the tri-partite agreement to Norton Rose's London office for onward transmission to Jakata: this reproduced Bakrie Minarak as the contracting Bakrie party. 

79.      Meetings between all three parties, simultaneously, took place on two occasions, both at the Shangri-La Hotel.  The first, which was little more than an introductory affair, was on the evening of 9^th April following Mr. Sarch's arrival: Bakrie was represented by Mr. Burns, and a copy of the latest Bow Valley/Bakrie draft agreement was handed over to Mr. Sarch, who was accompanied by Mr. Hounslow of Norton Rose.  The following day the same people met again: Mr. Sarch let it be known that the Bow Valley/Bakrie proposed agreement was unacceptable.  The discussion evidently went badly and ended acrimoniously.  One of the principal stumbling blocks was the question of control of the project: Pell Frischmann was adamant that decision making must be by unanimous vote, while Bow Valley and Bakrie were equally insistent that it should be by majority. Neither was prepared to back down.

80.      At some point Mr. Sarch handed over a copy of the Pell Frischmann draft that Dr. Frischmann had sent to Norton Rose (amended slightly, perhaps, in conjunction with Norton Rose) following which the meeting broke up, the parties having agreed to meet again at 1.00 pm: whether, in the event, this ever happened is unclear. 

81.      At about 11.45 am Mr. Sarch composed a manuscript report on events so far and faxed it to Dr. Frischmann in London:

"Herewith copy of "Framework Agreement" provided by Bow Valley.  Obviously of no use to us. 

I have with me Daniel Hounslow - we met with Walter [DeBoni], Rod [Blair] and Bow Valley lawyer [Mr Cummings].  Having reviewed the Framework Agreement that you and I drafted and adapted - Daniel and I decided to give a copy to each of the other side - Bakrie being represented by John Burns.

Note Jay [Alatas] said he would be at the first meeting but did not come - he appears to leave it all to John Burns.  We are going to meet Burns and the Bow Valley trio [at] Bakrie's office at 1 pm to see how they like "our" agreement.  So far they are still difficult about Majority Voting - at least on small decisions ... without a very detailed shareholders agreement, all must be unanimous.

I expect to meet Mr Bakrie and do hope some real solution will be reached.  John Burns said Bakrie would provide all the "Bank Money" - I am pressing on this and of course the first Bank Guarantee and the shareholders funds and interim funding to start the project prior to full shareholders agreement and set up of "New Company".  Note: until "New Company" exists, it cannot do anything - it does not exist as a legal entity therefore only the parties making the agreement can give any guarantees or any commitment to provide funds.

I have spoken to John Burns about doing the deal PFE and BII?(BMC) [Bakrie, Jakarta or Bakrie Minarak] only he wants, I think, for BV to withdraw, if they must, not for BII [Bakrie] to push them out.  However 3 way deal is still being negotiated.

We will all be at Bakrie's office - (Jay's) to hope reach some real deal.  I will phone you a.s.a.p. of any progress."

82.      One of the repeated themes of Pell Frischmann's conspiracy case is that they were "ambushed" at the meeting on 10^th April by Bow Valley and Bakrie's refusal to agree to a regime of unanimous voting. It was suggested by Advocate Speck on behalf of Pell Frischmann that this was the first time that the idea of majority voting had been suggested to Pell Frischmann or that Bow Valley had appealed to petroleum industry standards in this respect. But this is incorrect on both points.  It is true that Dr. Frischmann's first attempt at a three-party agreement on 26^th March had stipulated that voting on all decisions should be unanimous and that that provision had been reproduced in the Fladgate Fielder first draft agreement which was distributed sometime prior to Mr. Blair's departure from London on Good Friday, 28^th  March.  This, after all was the first occasion on which it had become necessary to address the question of voting where there were three parties rather than two.  And it is true that Mr. DeBoni had not objected to the clause in question (Clause 3.4) in his first letter to Dr. Frischmann of 1^st April. But Mr. DeBoni had taken issue with Dr. Frischmann fairly and squarely on the subject in his second letter that day:

"In addition to the concerns expressed above, it would appear that we face fundamental differences in the way business is conducted in the oil industry as contrasted with your industry.  In the petroleum industry, if one party is asked to bear the total burden of financial risk as you advocate, the party undertaking such risk would have complete control of the project. It would be very unusual for any joint venture to proceed on the basis that unanimous agreement is required on all decisions where there is a disproportionate sharing of financial risk".

83.      The suggestion that the section of Mr. Blair's note of his telephone conversation with Mr. Alatas reading "Unanimous Agreement - Nirwan will revise to majority approval before agreement is signed in Jakarta" is evidence of some collusive agreement between Bow Valley and Bakrie to trap Pell Frischmann at the last moment is also unsustainable.  In the first place, it is no more than a cryptic note by Mr. Blair of what he was informed by Mr. Alatas  that Mr. Nirwan Bakrie had said - or was understood to have said.  And, in the second place, there is nothing in its wording that necessarily implies a concerted intention of Bow Valley and Bakrie to entrap Pell Frischmann: taken at face value, it does no more than reflect the fact that Mr. Bakrie was not prepared to agree to any other basis of voting - for good reason, as is evident from later Bakrie documents to which we come shortly.

84.      The Bow Valley/Bakrie proposed version of the joint venture agreement faxed from Jakarta to Dr. Frischmann in London on 8^th April had, moreover, stipulated that all decisions should be governed by majority vote "excepting those matters which will require a unanimous vote as set forth in the Shareholders Agreement" (Clause 3.4) - which plainly represented an attempt to reach a compromise of sorts on the issue.  The idea that Bow Valley and Bakrie had sprung majority-voting on Pell Frischmann for the first time on 10^th April, having previously agreed to unanimous voting is, therefore, not well founded.  Other matters apart, the use of the word "still" in Mr. Sarch's fax to Dr. Frischmann on 10^th April ("So far they are still difficult about majority voting - at least on small decisions.....") makes it clear that this was not a new issue.

85.      Following the break-up of the morning meeting on 10th April Mr. Sarch spoke to Mr. Burns (in the absence of Bow Valley) about the hoped-for deal between Pell Frischmann and Bakrie; but, as Mr. Sarch's report to Dr. Frischmann records, "he [Mr. Burns] wants, I think, for them to withdraw if they must, not for BII [Bakrie] to push them out."  At some point Dr. Frischmann also spoke to Mr. Alalas by telephone.  From Jakarta Mr. Sarch travelled on to Bali, but subsequently returned briefly via Jakarta on the way home. Meanwhile the Bow Valley team returned to Calgary, as, at some stage, did Mr. Burns.

Bakrie's 15^th April proposal

86.      On Tuesday 15^th April Mr. Burns wrote to Dr. Frischmann at some length with a new proposal, the essential elements of which were as follows:

(i)        Bakrie would finance the entire project without the need for any capital contributions by either Pell Frischmann or Bow Valley, in return for a one-third share in the Remuneration Fee.

(ii)       Pell Frischmann would be treated as having earned a one-third "carried" interest in the project.

(iii)      Bow Valley would be solely responsible for the management/ development of the project.

(iv)      No management or financing fees or pre-investment costs of any kind would be chargeable to the project by any participant.

(v)       Any cost over-run would  come out of Bow Valley's one-third share of the Remuneration Fee, and, in the event of that being exhausted, out of Pell Frischmann's one-third share of that fee.

(vi)      All revenue (after meeting operating costs and expenses) would be used first to pay all Bakrie loans, and then by distribution to the three shareholders.

The letter acknowledged that the proposal was significantly different from that discussed as a possibility in Jakarta, but continued :

"I think you will agree that the changes are being dictated by the absence of an agreement between BVE and PFE and the uncertainty as to the amount of required financing.  In addition, in my experience, accountability for the project is diminished where there is a sharing of the role of project manager.  Bow Valley has had extensive experience in offshore oil and gas projects and, in my opinion, is better suited to manage this project.[...............]

I am sorry that I was not aware of the incomplete nature of the construction costs estimate when we spoke last week, but this is as a result of being invited on after the project was developed.  As you are aware, financing is critical to the project and in this respect, BMP requires the same type of completion guarantee as any commercial lender.  However, because of our financial commitment we must have a high degree of confidence that the project will be completed within the costs estimate set by NIOC or we cannot proceed.

I believe that these revised terms and conditions of BMP participation are quite straight forward and businesslike.  For these reasons and in view of the time constraints imposed on the project, we would appreciate a reply by fax within 24 hours.  If these terms are acceptable to you and to Bow Valley, I will ask Mr. C.J .Cummings to prepare a shareholders agreement and to organize an offshore jurisdiction for the joint venture company."

87.      A draft of this letter had been faxed by Mr. Burns to Mr. DeBoni earlier the same day with the following comment:

""Draft" for your consideration and comments. There is an old saying, about the nose of the camel which appears very true in this instance. Have sent copy to Jim [Cummings] as well."

It appears that a small number of changes were made to the draft by Mr. Cummings before the final version was dispatched.  Mr. Burns's comment about the nose of the camel, is something to which we return shortly.

88.      On 16^th April Mr. DeBoni replied to Mr. Burns, saying that Bow Valley  would be willing to entertain Bakrie's proposal subject to three points.  First, that the costs of war risk insurance should be borne by Bakrie; secondly that Bow Valley should only be required to cover half of any capital cost overruns and that this should in any event be limited, at most, to its one-third share of the Remuneration Fee; and thirdly that, subject to agreement of the foregoing, Bow Valley would be prepared to confirm a fixed price for the project on or before 25^th April.  Bow Valley also proposed that provision be made for the secondment of Pell Frischmann and Bakrie staff to the operating company under mutually acceptable terms.

89.      Pell Frischmann responded expressing disappointment that the terms proposed were very different from those previously discussed and asking Mr. Burns to come to London for discussions "if you are interested in the project"; protesting that if a fixed price for the project was to be a critical issue for either Bow Valley or Bakrie "it has certainly been left to a very late stage" and that "it must have been the view of Bow Valley that the design level achieved and the tender we submitted have been carried out to sufficient accuracy for them to have agreed our tender".  The letter continued

"What is most important for you to understand, and what has been made clear to Bow Valley and Bakrie Group for many weeks, is that NIOC are waiting for us to submit the Bank Guarantee, which I made clear to you when I spoke to you on the telephone, in Jakarta last Thursday.

A senior Managing Director of NIOC is traveling to London today or tomorrow to discuss the availability and collection of the Bank Guarantee. It is our view that unless we make available the Guarantee in the next few days, NIOC will give us notice of Non-Performance and award the Service Contract to a competing party.

If Bakrie Group are seriously interested in the Balal project, interim arrangements will be needed between all parties so that the Bank Guarantee can be given to NIOC. We have been trying to negotiate to soften the on demand Guarantee and I enclose the latest communication dated 15^th April from NIOC containing the text they require".

90.      In an internal Bakrie memorandum addressed to Mr. Burns, Mr. Joesril Hainim referred to this correspondence noting that some of the points differed from those discussed previously.

"We do hope that we will have a positive response from Pell Frischmann, although I doubt it.

Michael Sarch came into our office on his way back from Bali to the UK. He was trying to discuss this matter with me.  But I told him that you are authorized to discuss this matter with Bow Valley and Pell Frischmann.  I think he had a hard time with Frischmann".

91.      Some days later, Mr. Burns replied to Mr. Hainim:

"You are correct in noting that BV will be responsible for the development (construction) of the project.  On our return, Walt advised that PF and BV do not have a firm bid for the construction of the platform nor the drilling of the wells.  I was not aware of this and from a financing viewpoint is extremely risky.  Once we start this project, there is really no way Bakrie could stop contributing funds and I believe quite strongly that we must have a cap on our financing or we could lose all our share (and perhaps a great deal more) of the fee very quickly.  This we cannot accept.

Also, as you are aware, BVE and PFE do not get along well together.  If PFE was to be responsible for construction of the platform and BE was to be responsible for drilling the wells, I fear that Bakrie would be continually in the position of trying to assign responsibility for the total project costs.  This would place Bakrie in the untenable position of not being able to recover any costs overruns.

Therefore, on my return, I drafted a new agreement which assigned responsibility for the entire project to BVE and placed stiff penalties against them for non performance.  I also eliminated any fees that would be paid to any of the partners by the project.  I think that Nirwan was quite clear that the total cost could not exceed $169 million and inclusion of the PFE fee (or any other up-front fees) effectively added the total of these costs to the project which are non recoverable from the remuneration fee.  Finally, I separated those items that are more properly dealt with in a shareholders agreement from the costs and fee allocation agreement.  I copied you on this letter agreement.

As you have seen, PFE have sent three replies to my letter. None of these deals with the problem and I suspect that Wilem is trying to avoid it. Attached is my reply. Incidentally, I have reviewed all of my replys [sic] with Walt, Rod and Jim before they were sent.  I have also heard from one of the Bow Valley Board that he is in agreement with the concept and with the separation of the capital commitment from the administration of the company.

I imagine that Wilem will send you and Nirwan a copy of his reply as he has done in the past.  I will call you on Wednesday morning (your time) and we can discuss it further."

92.      Mr. Burns's reply to Dr. Frischmann was as follows:

"Thank you for your letter of April 16.  In reading it over, I am concerned that you have neither accepted nor rejected our offer to provide financing for the project under certain terms and conditions all related to the ability of the operator to complete the project on time and on budget.  Although Bow Valley and yourselves may have decided to tender the project in advance of completing the detailed engineering, I'm sure you will agree that most project lenders would require, as a minimum, a firm assurance of project costs.

We see no need for additional discussion on this point.  As stated in the reply by Bow Valley, they are committed to provide a fixed price for the project by April 25, 1997.  After that, and on the assumption that have agreement on the Bakrie proposal, I believe that we should get together to finalize the decision to proceed.

You will have received a copy of the Bow Valley reply wherein they have accepted the Bakrie proposal subject to a pre determined sharing of capital cost overruns.  Bakrie now requires an affirmative response from Pell Frischmann after which we can supply the bank guarantee.

We believe that our proposal represents an attractive economic package for all of the parties.  It recognizes and places a value on each of the participant's contributions towards the project in what we believe to be an equitable manner.  In view of the time constraints which you have described we require an immediate reply."

93.      Dr. Frischmann's reply to Mr. Burns did not address the Bakrie proposal as such, but set out a 19-point counter-proposal of his own, which included, among other things, the following.  That each of the three parties should provide equity capital of US$3 million, but in the case of Pell Frischmann its expenditure to date was to count as its contribution; that Pell Frischmann was to be appointed "for design and engineering" and was to be paid for this at normal commercial rates; that all decisions were to be "by unanimous agreement, except as provided for in the shareholders agreement to be negotiated"; that "Any overrun or savings of the budget will be entirely a matter of agreement between BMP [Bakrie] and BE, since the management will be entirely assigned to BE, PFE will not be responsible for such overruns.  PFE will receive a minimum profit of one third of the remuneration fee, as defined in the Service Contract";  that Bakrie  was to produce a draft form of Bank Guarantee in the form required by NIOC in their letter dated 15^th April and make such guarantee available "as soon as possible but not later than Sunday 27^th April"; and that it would be "PFE's responsibility to inform BMP and BVE of arrangements made with Iranian advisors etc and it will be BMP, BVE and Newco responsibility to deal with such appointments.  In the shareholders agreement Newco, BVE and BMP will indemnify [Pell Frischmann] against all claims against PFE under such arrangement"; and that profit from oil trading arrangements would be split as to 45% to Pell Frischmann and the rest between Bakrie and Bow Valley.

94.      On 21^st April, Mr. Burns wrote again emphasising that until Bakrie received Pell Frischmann's agreement to its proposal "there is little utility in expending further resources in this project"; that they were sympathetic towards Bow Valley's complaint that it would be punitive to require Bow Valley alone to carry the risk of any costs overrun and, accordingly, proposed a revised formula by which Bow Valley would take the risk of one half of any overrun up to the amount of their share of the remuneration fee, Pell Frischmann take the risk of one third of any overrun and any amount not absorbed by Bow Valley up to their [Pell Frischmann's] share of the remuneration fee, and Bakrie would take the risk of one sixth of any overrun and any amount not absorbed by Pell Frischmann.  "In conclusion", wrote Mr. Burns,

"Bakrie is still of the view that the Balal project is viable and that the parties should proceed.  We believe that the offer Bakrie has tabled represents a fair and equitable arrangement for each of the three parties. Since Bakrie are offering to provide 100% of the financing, we will require (as would any project banker) that certain conditions be met.  What we are proposing to you represents Bakrie's firm and final offer.  We must therefore request either a positive or negative response prior to 12:00 noon Calgary time on Tuesday, April 22, 1997.  We look forward to your decision."    

95.      Commenting on this letter in a fax to Mr. DeBoni the same day, Mr. Blair wrote:

"Wilhem called Jim at his home at 7:00 a.m. this morning and is clearly concerned about delivering a bank guarantee before the deadline NIOC have given him (apparently April 27^th).  I don't know if he will be able to swallow all of Bakrie's proposal, particularly the proposed sharing of capital costs overruns, but I feel we should hold out for this in view of the uncertainties inherent in the project.  John agreed that Bakrie would share part of the risk of cost overruns, but only after a lengthy discussion and some assistance from our corporate lawyer in revising John's draft letter!  I feel that one of us should phone Wilhem in advance of the deadline for P.R. purposes.  If you have any comments could you fax them to my home tonight (294-0283).  If I don't hear from you, I'll perhaps try to call him early tomorrow morning."

96.      The following day, 22^nd April, Dr. Frischmann wrote to Mr. Nirwan Bakrie (copying in Mr. Burns) saying

"For many months I have been in discussion and negotiations with your Group.

I have received offers ranging from substantial equity money plus a $50m subordinated loan.  Although I have tried to reach a business like and realistic deal with your various people - J. Alatas, J Hainim and now John Burns.  Mr. Burns has completely ignored my proposals sent to you and to him on 18^th April. 

If you wish to invest in this project may I suggest you telephone me.  I am confident that this is a good business opportunity".

He also wrote to Mr. Burns (copying in Mr. Bakrie, Mr. Hainim and Mr. DeBoni) saying

"Further to your letter of the 21^st April, we made a proposal to you on the 18^th April to which you have not responded".

97.      Mr. Burns's reply, also dated 22^nd April, was courteous but succinct:

"Thank you for your letters concerning Bakrie participation in the proposed Balal project in Iran.  Unfortunately, since you have not accepted the conditions under which Bakrie would be prepared to finance the project, we must decline to participate.  We appreciate that Bakrie was considered as a possible partner for this project.  As such, Bakrie has attempted, in good faith, to define our participation in terms of financing the project and reach agreement with you on these terms.  I regret that this was not possible to do.  We wish you every success on the Balal project."

98.      It is apparent, however, that at some stage in the course of 22^nd April Dr. Frischmann and Mr. Burns spoke on the telephone in an attempt - unsuccessful, in the event - to bridge the gap between them.  In a fax to Mr. Hainim the next day Mr. Burns summarised the points that he and Dr. Frischmann had still been unable to agree.  These included Dr. Frischmann's insistence that the $3 million that he claimed to have spent so far be treated as Pell Frischmann's capital contribution to the project (notwithstanding, said Mr. Burns, that it had previously been made clear to Dr. Frischmann that this was a "deal breaker"); his requirement that Pell Frischmann be retained to do the design and engineering (when Newco, Bakrie and Bow Valley would want to appoint whoever was best qualified on a competitive basis); his insistence on unanimous decisions (when it had also been made clear to him in Jakarta that this, too, was a "deal-breaker"); Dr. Frischmann unwillingness to agree to Pell Frischmann contributing to any cost overrun (Pell Frischmann having negotiated the terms of the contract, including the capital costs and the remuneration fee, it was, in Mr. Burns view, only fair that they should share the burden to some extent); Dr. Frischmann's insistence that unquantified liabilities to Pell Frischmann's Iranian advisers be treated as project costs (which was unacceptable to Bakrie); and Dr. Frischmann's requirement that Pell Frischmann receive 45% of the oil trading profits ("Wilem and I discussed this point from Jakarta, but in the context that BVE would be a minority only.  At that time, I had no problem with a 55-45 split.  He has now taken that arrangement out of context and applied [it] to the arrangement where BVE is a full partner.  This was not acceptable to me or to BVE").

99.      Dr. Frischmann also had a telephone conversation with Mr. Blair on 22^nd April. Subsequently, Mr. Blair wrote, referring to Bakrie's intention to withdraw from the project and asking about Pell Frischmann's plans for alternative finance.

100.   At this point, Mr. Blair appears to have arranged for Mr. Burns to meet Mr. Seaman.  In a fax to Mr. Hainim dated 24^th April, Mr. Burns reported that they had met that afternoon.

"Rod arranged the meeting and, as I had not met Seaman, it was very timely.  We reviewed the negotiations that had taken place and I believe that Doc was supportive of our position.

He then asked if there was any compromise position that we could take in order to restart the negotiations.  I suggested that I would be willing to speak to Nirwan [Bakrie] about inclusion of the $3 million in start up costs that PFE had incurred, thus increasing the project costs to $172 million.  Rod had suggested that perhaps Nirwan could reply to PFE letter of April 22 along the line that are attached.  I certainly don't mind calling him if we all agree that it will help.  If you get a chance could you discuss this with Nirwan and fax me at the office.  I will get it tomorrow and proceed as you wish".

The accompanying draft letter was a short one in friendly terms inviting further discussion.

Discussion

101.   A constant theme of Pell Frischmann's case was that from an early stage Bow Valley and Bakrie had affected, in their dealings with Pell Frischmann, to be at arm's length, when in fact they were secretly working in association with one another, with a view to stealing Pell Frischmann's contract.  As we make plain elsewhere, the suggestion that they had such intent is unfounded.  But quite apart from that, it is hard to accept that Dr. Frischmann was really unaware that Bow Valley and Bakrie were more closely associated with one another than Pell Frischmann was with either of them or was ever likely to be.  Bow Valley had introduced Bakrie in the first place because it had had dealings with Bakrie in the past.  The December 1996 bid had made specific reference, in the Bow Valley "Corporate Summary" section of the Master Development Plan, to the fact that Bow Valley had entered into "an Agreement of Association with a large Indonesian conglomerate to jointly evaluate exploration and development opportunities in Indonesia, North Africa and the Middle East", which Pell Frischmann knew to be Bakrie.  Pell Frischmann knew perfectly well that Bow Valley's team had arrived out in Jakarta ahead of Mr. Sarch to hold discussions with Bakrie and that all proposals presented to Pell Frischmann in Jakarta and immediately following were for the most part proposals in which Bow Valley and Bakrie concurred.  The fact that Bakrie Minarak's Calgary office was in the same building as Bow Valley's was no secret.  Nor was the fact that, at the time when Bakrie's 15^th April proposal was advanced, Mr. Cummings was acting for both Bow Valley and Bakrie: towards the end of that letter Mr. Burns had written "If these terms are acceptable to you and to Bow Valley, I will ask Mr. C.J. Cummings to prepare a shareholder agreement and to organize an offshore jurisdiction for the joint venture".  In any event, Dr. Frischmann's protestations about collusive conduct by Bow Valley and Bakrie sit uneasily with his own attempt to contract a bi-lateral agreement with Bakrie.   

  

102.   Dr. Frischmann's rejection of the Bakrie proposal contained in its letter of 15^th April (as amended on 21^st April) appears to us to be nothing short of perverse. Consider how matters stood at that stage from Pell Frischmann's perspective:

(i)        It had been endeavouring to put together a workable consortium for the development of the Balal Field for some eighteen months.

(ii)       Together with Bow Valley, it had bid for the project in December 1996 without having worked out the terms of their joint venture agreement.

(iii)      Having insisted on retaining the sole right to deal direct with NIOC, it had got itself in the position of having been selected as NIOC's preferred bidder on the back of a proposal that named Bow Valley as the member of the consortium with the requisite oil and gas experience, and had welcomed Bakrie as a member of that same consortium as prospective source of finance (and possible influence in helping to secure the Balal contract) - still without terms having been agreed.

(iv)      It had signed a contract with NIOC but had not yet received any corresponding level of commitment from NIOC.

(v)       It had had been out-manoeuvered by the Iranians in being forced to concede substantial price reductions at the last moment without the agreement of their prospective co-venturers.

(vi)      It had also - again at the last moment and without the agreement of Bow Valley or Bakrie - committed itself to producing an on-demand Bank Guarantee for US$5 million.

(vii)     In the course of trying to fulfill that obligation it had unsuccessfully argued with NIOC over the wording of the guarantee in an attempt to modify the severity of its terms and had ended up turning, for its provision, to a source (General de Vire's Panamerican Finance Bank Corporation) whose credentials were anything but well known and which was self-evidently unlikely to be acceptable to NIOC (paragraphs 121 to 130 post).

(viii)    It had been searching for a financial institution to provide the necessary debt finance for months, without success; one problem being the reluctance of many institutions to become involved with a project in Iran, in some cases because of the risks inherent in investing in that country at that time, others for fear of the possible impact on them of the U.S.  Iran-Libya Sanctions Act which had been signed into law in 1996. At the point in time with which we are concerned, the third week of April 1997, Dr. Frischmann was still desperately trying to find a backer (the record shows him having been engaged around this time in discussions with a number of potential sources including Sumitomo Bank, ANZ Bank, Monument Oil and Gas plc, British Gas, Vitol SA, AGIP, Enterprise Oil, and Guinness Mahon - all, in the end, to no avail).

(ix)      Time was now becoming seriously critical.

103.   Looking for financial backers reflected only one strand of Dr. Frischmann's thinking at this time: he was also contemplating selling his interest altogether.  In a letter dated 14^th April to a contact in Switzerland, Mr. Pat Stavenhagen, he had written:

"We have been looking for investors to share with us the equity required and the profits that will arise from the development.

A number of events have occurred over the last weekend, including the possible boycott by the European Union, and we would be pleased if you would look into the possibility of finding somebody in Switzerland who would be willing to buy and take over the Contract from us."

What exactly the other "events" were, was not spelt out.

104.   It was against this background that Bakrie came up with an offer to finance the entire project and a formula that would give Pell Frischmann a one-third interest without having to make any further capital contribution.  Certainly, it involved a less prominent role for Pell Frischmann; but it is one of the harsh realities of business that more often than not he who pays the piper calls the tune - or, at least, does so to a large extent.  Mr. Speck repeatedly made great play of Mr. Burns's "camel's nose" fax of 15^th April, suggesting (on the basis of an internet search) that the reference was to the story of the camel which first persuades its master to let it put its nose into the tent in order to keep warm, but which then, by degrees, insinuates more and more of its bulk into the tent until, eventually, its master is forced out into the cold and the camel has the shelter to itself: a clear indication, he submitted, of nefarious intent on the part of Bakrie and Bow Valley.  But, like all fables, there are, no doubt, different versions and different interpretations: is it a tale of guile on the part of the camel, or of weakness on the part of its master, or merely of relative muscle-power and load-carrying capacity?  And what exactly did Mr. Burns have in mind when he made reference to the old "saying" on this particular occasion?  In the absence of any other clear indication the most straightforward explanation appears to us to be that it was intended to be no more than a commentary on the fact that Bakrie had come into the project relatively late in the day, but had now become, on one view, the leading player.  To suggest that this passing, jocular (if somewhat smug) reference can only be explained on the basis that it reflects some sinister intent is wholly unconvincing.

105.   Warming to this theme, Dr. Frischmann repeatedly complained in the course of his evidence that Bakrie's 15^th April proposal was unacceptable because it represented a collusive attempt by Bakrie and Bow Valley to try to force him out of "his tent".  And Mr. Sarch, when he came to give evidence, said in terms that the objection from Pell Frischmann's point of view was the "loss of control" the proposal would entail.  But what both men seemed to be unwilling or unable to accept was that it was fanciful to think that Pell Frischmann was going to be able to retain its former pre-eminent position in any consortium given the course that events had taken.  Given the circumstances outlined above, bargaining power had, inevitably, moved away from Pell Frischmann and in favour of any institution that was prepared to provide finance on the scale required at such short notice. 

106.   The point was succinctly put in a letter to Dr. Frischmann dated 8^th May from Mr. Robert Kissin of Lewis and Peat Holdings Limited (an off-shoot of Guinness Mahon) whom Dr. Frischmann had consulted in the course of his search for funding:

"As you may be aware, the exploration and production companies are presently inundated with proposals from all parts of the world.  With so many offers on the table these companies can well afford to cherry-pick the opportunities, and they certainly take their time in assessing political risk and return evaluations.

Against this background, and bearing in mind the critical time-table which you are facing, we have considered unconventional sources of financing for this project.  The parties with whom we have discussed this project are not so concerned about the magnitude of the equity required, but they are anxious to know what the possible deal could be.  We are unable at this time to answer that question.

Accordingly, we now need an indication from you as to what you have in mind. 

It would seem to us that you may have to cede up to 80% of the equity for an investor/financier to come into a deal such as this." (Emphasis added).

107.   This advice, eminently sound as it plainly was, seems, however, to have made little impact on Dr. Frischmann.  Several of his letters to financial institutions in the immediately ensuing days spoke only of a possible 50:50 joint venture with Bow Valley: in none did he set out, or even hint at, the what "the deal" might be.

108.   What Bakrie was offering, would, of course have left Pell Frischmann with 33 1/3 % interest. And subsequent events would show this to be significantly better than anything else that was ever on offer from any other quarter.

109.   How, then, is Pell Frischmann's rejection of Bakrie's 15^th April proposal to be explained?  The answer lies in a combination, as we see it, of a number of factors. First, a complete blind spot on Dr. Frischmann's part as to the vulnerability of his position: a stubborn refusal to recognise the commercial realities of how things stood.  Secondly, an impulsive dislike and distrust, by then, of Bakrie and of Mr. Burns in particular.  And thirdly, an unrealistic belief in his ability, even at that stage, to negotiate a better deal with someone else.  We have already touched sufficiently on the first.  The other two require some elaboration.

110.   As regards Bakrie and Mr. Burns, part of the problem seems to have been that following his discussion with Mr. Alatas at his house in Richmond on the morning of Sunday 30^th March, Dr. Frischmann had pinned his hope on securing a bi-lateral agreement with Bakrie (reducing Bow Valley to a 5% carried interest, as recounted earlier) and had been irritated to find, when Mr. Sarch went out to Jakarta for the meeting in early April, that Bakrie were reluctant to follow this up unless and until Bow Valley chose to drop out. And in part, he was annoyed by the sudden appearance on the scene of Mr. Burns as the chief voice and negotiator for Bakrie in place of those to whom he, Dr. Frischmann, had previously been talking.  Speaking, in the course of his evidence-in-chief, of his general feelings following the Jakarta meetings, he said:

"Very unhappy. Disappointed, frustrated.  I was in the wrong camp, under the wrong tent, being pushed out of my tent. Just generally very disappointed. I could have quarrelled with them but I tried not to."

He was, he said, disappointed not to have been contacted by Mr. Nirwan Bakrie.  And, as regards Mr. Burns,

"No, I had never heard of him.  I tried to find out who he was and I could not. He tried to speak to me and I refused to speak to him.  I sent him the message: "I do not normally speak to gangsters".  I was very upset."  "I think Mr. Burns phoned me several times, my memory is, and I have asked him, "Would you please kindly send me your c.v. so I know who I am speaking to."

In the event, explained Dr. Frischmann, he subsequently received a call from Lord Rothschild, who spoke favourably of Mr. Burns.  Then a little later, commenting on the position following Mr. Burns's letter of 15^th April, Dr. Frischmann's reply and Mr. Burns's reluctance to come to London for further talks, Dr. Frischmann was asked by Mr. Speck where that left Pell Frischmann:

"A. On the dry.  Q. What were your options?  What could you do going forward?  A. I was determined then to look for other possible partners for the venture.  I was even more than ever determined to do it without Bakrie.  But, I mean, I still thought I would possibly do it with Bow Valley, but under no circumstances I wanted Bakrie any more.  A guy whom I have never heard of, no one knows except Lord Rothschild, who is a very important man - I did ask Lord Rothschild if he please could tell me something about John Burns.  Which did not sound very nice to ask him.  So I had no idea who Mr. Burns was.  Nobody heard of him or knew him in Canada......" "The man would not listen, the man would not talk. He treated me like I was a servant" (referring to a telephone conversation with Mr. Burns when he was in Jakarta). 

It is difficult to avoid the conclusion that there was also an element of wounded pride at work here: a sense of having been slighted by the failure of Mr. Bakrie and Mr. Alatas to receive his emissary, Mr. Sarch, on the latter's visit to Jakarta.  But, one is bound to ask, might Mr. Bakrie, for his part, possibly have considered it less than proper for Dr. Frischmann not to have come himself, and to have sent instead someone who had no formal standing of any kind in the Pell Frischmann organisation? 

111.   As to the third factor, Dr. Frischmann evidently had a high regard for his own skill as a negotiator; and a recurrent theme of his evidence was the use of analogies with the game of chess to describe events and attitudes.  Two examples will suffice for present purposes.  Speaking of a letter from him to Mr. Jalilian following Pell Frischmann's signature of the Service Contract in March and responding to a question from Mr. Speck as to what was going on there, Dr. Frischmann said

"What I am trying to do is trying to play a very simple chess game that I will give him some concession and he gives me much more valuable concessions.  If you want me to explain it in terms of figures, I am happy to do so.  Q. No, that is fine.  A. It is very clever.  It is very, very clever in my view.  I will explain that you negotiate with people from Iran .. ......So what I am trying to do is say "Fine, you can have the money off but please give me the following three concessions. " Can I tell you that is a clever way to negotiate, if I may say so."

And speaking again about how he viewed the situation following Bakrie's withdrawal he said

"A. I thought we would have some weeks to try to find another company     who would put up equity.  I was praying that Sumitomo would stay in and if the worst happened, we would do the contract with General De Vire.  I did have - the end game was not there for me but it would have been better to have found an equity of somebody who valued the oil and wanted the contract.  I was going to try. Q. In fact we can see that you continued to talk at least to Bow Valley. A. Yes, because I was not sure what part Bow Valley were playing in these letters.  Q. You can see 2868, that is a fax the following day, 23^rd April from Mr. Blair to you.  He asks for your proposals?  A. I think I was quite pleased to receive this letter.  I mean, the General has accepted in principle that Bow Valley would have a part.  May I say to the court that when I was a poor student in London, I played chess for money and if I lost I did not have food that day, and I thought it was still possible to win.  I still had queen playing with me and I hoped I would have luck to be able to achieve it.  I was not as desperate - I still thought the end game was not here."

112.   But the impression that we are left with, from this and innumerable other passages in Dr. Frischmann's evidence and from the documentary record, is that he could never resist the temptation to try one more negotiating ploy, one more move on the board, in order to out-manoeuvre his opponent, with the consequence that he invariably pushed his luck too far and the deal was never consummated.  On one view, the whole Balal saga could be viewed as a sad tale of recurrent lost opportunities in this vein: of Dr. Frischmann's inability to conclude a deal with Eastern Petroleum, with Fallingbrook, with Bow Valley, with Bakrie, with Monument and a host of others.  (Nor, for that matter, did he ever secure written confirmation from NIOC of the three concessions of which he boasted in the passage cited above.)  On any view, in rejecting Bakrie's 15^th April offer, he was in fact playing a far riskier game than he appears to have been prepared to recognise.  The truth of the matter is that he had no clear commitment at that time from anyone else: only a Micawber-like hope that something would turn up.

PART 5

 

MAY 1997

113.   Bow Valley evidently was not hopeful that anything would now come of the Balal project.  On 9^th May, there was a meeting of the Bow Valley Board attended by, among others, Mr. Seaman, Mr. DeBoni, Mr. Peltier and (as Secretary) Mr, Cummings.  The only mention of Iran occurs under the heading "Annual Meeting Update" was in these terms: 

"The presentation materials for utilisation at the Annual Meeting [due to take place on 13^th May] were reviewed together with the draft Operational Overview.  Mr DeBoni indicated that the Iran materials may be deleted as it appears unlikely that a transaction will ultimately be effected.  Accordingly, Iran may be dealt with in a generic context."

114.   But, as noted earlier, discussions between Bow Valley and Pell Frischmann were not entirely dead.  The documentary record shows, among other things, the following:-  a telephone call between Mr. Blair and Dr. Frischmann on 25^th April concerning alternative sources of funds (including discussions with one Stephen Probyn of Probyn & Co.); the transmission by Dr. Frischmann to Mr. Blair on 7^th May of "Cash flows as promised" (in all probability the same "latest cash flow for the Balal Field" as that referred to by Dr. Frischmann as being enclosed with his letter to Mr. Probyn on 30^th April); the copying by Pell Frischmann to Bow Valley on 12^th May of a letter from Credit Suisse/First Boston dated 7^th May referring to a recent meeting with Dr. Frischmann, Mr. Sarch and Mr. Mohandes concerning the location of "a suitable equity partner".

115.   Difficulties envisaged by the author of the Credit Suisse/First Boston letter included "timing and the extent to which you may be prepared to give something away in the interests of getting an equity partner on board"; the inability of Credit Suisse/First Boston itself to help as a source of bank lending "due to our lack of country risk availability"; the possibility that it might take "months rather than weeks to get this type of financing off the ground" (although it could help that a precedent had been set by WestLB in connection with the Soroosh Field).  "Ultimately", the writer concluded,

"your course of action may well be determined by the approaching guarantee expiry date and you should therefore continue to evaluate all options open to you.  You should also consider your response to a worst case scenario to avoid the financial damage that would arise from having to pay out under the guarantee.  I realize though that this may be painful to you."

116.   At the same time Dr. Frischmann was writing to a number of other companies that he saw as potential sources of finance, in terms that spoke expressly of some sort of consortium between Pell Frischmann and Bow Valley and of capital contributions by one or both of them:- to London Electricity, for example, on 8^th May ("We are heading a consortium which includes Bow Valley Energy Limited for the development of the Balal Field...."); to ANZ Investment Bank on 8^th May (enclosing information about Bow Valley and adding "I also confirm that Bow Valley Ltd and ourselves could make available US$20 m as equity if this is essential"); to Credit Suisse on 12^th May ("We have, as you know, been in discussions and negotiations with Bow Valley Energy Limited of Canada, regarding an equity investment and we consider they can provide about US$20-25 million for this purpose.  We are considering a joint venture in which we would share profits 50%/50%"; to ANZ again on 13^th May (in the same terms as the letter to Credit Suisse the previous day); to Royal Bank of Scotland on 14^th May ("We are heading a consortium which includes Bow Valley Energy Limited, Canada for the development of the Balal Field.  We have been in discussion with Bow Valley regarding an equity investment and we consider that they can provide about US$15 million for this purpose.  We are considering a joint venture with them in which we would share profits 50%/50%"; to KPMG ("I also enclose a simple overview of the Balal Field and a Technical Memo which was prepared by ourselves and Bow Valley Energy Limited"); to BB Aval Berliner Bank on 15^th May (in similar terms, as regards "a consortium which includes Bow Valley Energy Limited, Canada" and the expectation that Bow Valley could provide "about US$ 15 million".)

117.   The difficulty faced by Dr. Frischmann in trying to find a financial backer was neatly encapsulated in his letter to Mr. Kersey of London Electricity already referred to:

"We have met with several oil companies in the UK, including British Gas, and many major banks but unfortunately most larger organizations have an American division and they are therefore concerned about political problems.  If Sir Bob [Reid] could possibly think of companies outside the American field of influence who could join us as investors, we would be most grateful to hear from him".

118.   Canadian press reports around mid-May began to speak of the Balal contract having been awarded to a consortium of Bow Valley and Pell Frischmann, and of the U.S. State Department's intention to investigate the project with a view to seeing whether it fell foul of the U.S. Iran-Libya Sanctions Act of 1996.  Writing to Dr. Frischmann on 14^th May, Mr. Blair enclosed a copy of one such article and spoke of having received numerous calls from U.S. and Canadian news services "following the conference in Isfahan" (an energy conference at which NIOC announced the letting of a contract for the development of the Balal field.)  "In addition", said Mr. Blair, "we received another call yesterday from our External Affairs Ministry in Ottawa giving us advance notice that we could expect a visit from the U.S.Consulate."  And the following day Mr. DeBoni wrote to Dr. Frischmann attaching material given to Bow Valley by the US Consul General during a visit from him the previous day in the course of which he had emphasised the determination of the USA to enforce the Iran - Libya Sanctions Act and had indicated that the US government viewed the transgressions of the Iranian government as serious.  "We would be interested" said Mr. DeBoni "in hearing the results of any contact that has been made with Pell Frischmann by the US government."

119.   On 12^th May Mr. DeBoni had written to Dr. Frischmann thanking him for the  copy of his letter to Credit Suisse:-

"As you outlined, we have several possibilities for financing the project but continue to be faced with a "chicken and egg" situation in respect of securing firm commitments.  It appears to us that this situation will persists unless there is a change in U.S. policy toward Iran.  As mentioned previously, I arranged a meeting last Friday with the other Bow Valley Directors; it was the unanimous view of our Board that Bow Valley would not commit funds to a project such as Balal unless all the required financing was firmly in place.  We believe that to do so would be most imprudent given the general risks inherent in E&P projects and the additional geopolitical risks associated with doing business in Iran.

Regarding geopolitical risks, we again received a call from our Ministry of External Affairs in Ottawa last week to discuss the sensitivity of the Iranian situation following the trial in Germany.  In addition, we have received a number of enquiries over the past couple of days from the U.S. news services and we have been advised that the U.S. State Department is monitoring developments closely.  Our feeling is that this increased scrutiny will make raising finance even more difficult.

It is our view that if Pell Frischmann and Bow Valley are to proceed with the Balal project, the best solution would be to involve the Bakrie group as they have offered to provide one hundred percent of the required financing on a non-recourse basis; in addition, as a non-western company, they would deflect much of the potential political fallout."

120.   Mr. DeBoni then went on to say that he was enclosing a proposed "Terms Sheet" setting out the basis of a possible agreement between the three parties. Bakrie, he said, had "indicated a willingness to move forward on this basis". He suggested a meeting in London. As before, the bed-rock of the proposal was an undertaking by Bakrie to finance the entire project. Two days later, on 14^th May, Mr. Blair and Dr. Frischmann discussed the proposal by telephone, following which Mr. Blair wrote listing what he saw as the outstanding matters still requiring clarification or resolution.

The Bond: further developments

121.   By this stage, mid-May, the matter of the bond had still not been resolved.  One, General R. Renault de Vire, appears to have been ready and willing to provide the requisite bond at short notice (a series of four similar but varying versions of such an instrument, each dated 25^th March 1997 having been produced, but not transmitted, at that stage, to NIOC).  The General was a business acquaintance of Dr. Frischmann who, by this point, was to some extent already familiar with the Balal project, having been approached by Dr. Frischmann earlier on with a view to contributing to the financing of the project and having indicated a willingness to support the project to the extent of £50 million in a letter dated 30^th January 1997.  He appears to have operated in part, at least, from an address in London, and to have described himself as President of The Panamerican Finance Bank Corporation of Barcelona. If we describe him as something of an elusive figure in this story, it is only because on the evidence that we heard and saw it was difficult to get any real feel for the nature of his Bank and its standing, not least because of Dr. Frischmann's inability to supply NIOC with details.

122.   On 10^th April NIOC wrote to Pell Frischmann attaching the wording that they required, adding "The Bank Guarantee must be issued from a first class bank acceptable by NIOC".  Dr. Frischmann replied suggesting certain alterations, and the following day NIOC responded with their final requirements, having adopted some but not all of Dr. Frischmann's suggestions.

123.   Some two weeks later, on 25^th April, Dr. Frischmann wrote to NIOC informing them that "a Spanish/European bank" had agreed to issue the necessary guarantee; that this would be available in London on 28^th April and would be brought to Tehran by Mr. Mohandes as soon as a flight could be arranged.  At the same time, Dr. Frischmann signed a letter addressed to "The Manager, Panamerican, Corporation, Barcelona" authorising the Bank to issue the necessary guarantee in favour of NIOC, (1) undertaking to indemnify the Bank against any consequential liability, (2) undertaking to re-imburse it for any payments made to NIOC, and (3) authorising "you at your discretion to comply with any request for payment made by NIOC, provided that no notice to the contrary has been received" (emphasis added).

124.   When eventually produced, the bond was an elaborate affair, covered, as Mr. Mohandes described it in his fax to Dr. Frischmann from Tehran on 1^st May, "by stamps and red dots".  But NIOC's immediate reaction, as Mr. Mohandes reported in the same fax, was to ask "point blank if the bank [Panamerican Finance Bank Corporation] was a real bank and not a bogus corporation". He could only suggest that the Central Bank of Spain be asked to confirm its credentials.  NIOC, Mr. Mohandes reminded Dr. Frischmann, had specified in a letter of 10^th April that they would require a guarantee from a first class bank.

125.   Five days later, on 6^th May, Dr. Frischmann again wrote to the Manager of the Bank, this time as follows:

"We hereby request you with immediate effect and under our sole and absolute responsibility not to make any payment under any circumstances in connection with the above-mentioned Guarantee Number 010211 dated 25 April 1997 to the National Iranian Oil Company, Tehran, Iran or any agent or representative of them. Reasons will follow" (emphasis added).

126.   On 7^th May, in a letter addressed to Dr. Frischmann, NIOC informed him that it had not been able "to locate the existence of the Panamerican Finance Bank Corporation"; stating that, unless and until verification of its status was received or a fresh guarantee was obtained from an approved bank, the Service Contract could not be considered operative.  A list of those banks acceptable to NIOC in relation to oil agreements and letters of credit was enclosed. Responding the same day, Dr. Frischmann informed NIOC that he had contacted Panamerican, who had assured him that they had not received any communication from NIOC; that Panamerican "is a very private and confidential bank and they do not normally give information to third parties"; and that NIOC should write direct to them, in which case they would supply the necessary information.  The response from NIOC, on 8^th May, was entirely predictable: "[P]lease be informed", it said, "that it is not NIOC's policy to work with private and confidential banks".  The request made in their letter the previous day was repeated. Dr. Frischmann replied saying "At your insistence, we have taken up your request with a number of the banks listed in your fax and we have been promised a reply on Monday 12th or Tuesday 13th May 1997". 

127.   In an outspoken fax to Dr. Frischmann on 9^th May, Mr. Mohandes warned that NIOC was upset by Pell Frischmann's failure to provide a guarantee in line with their letter of 10^th April (from a first class bank) and that if an acceptable guarantee was not forthcoming by the time of the next board meeting Pell Frischmann was liable to be disqualified and the contract given to "one of the four candidates already in Iran".  (In the earlier part of this message Mr. Mohandes referred to a major Energy Conference taking place in Isfahan at this time, attended by " 8 Petroleum Ministers [and] 40 oil companies, including Petronas and Premier, two of the other bidders for Balal.)

"NIOC is very upset, because PFE failed to supply the bond on 1^stApril as promised and the bond supplied was not in line with NIOC letter No. BBP-186 of 10 April.

One person was asked to locate the bank in Barcelona, but there was no bank.  I tried my own resources, tried a few lies, spun a number of tales, Safavi has tried through his Spanish connection and the Iranian Embassy, he did not get anywhere.

I believe that today is PFE's last chance, the "delay tactics" is not going to work any more, and I believe that up to now NIOC had been very tolerant.............

If the project is beyond your capacity and capability, I suggest you should try to get out gracefully. ..........the last thing in the world is that I don't want to be disgraced by being disqualified because of your business tactics. 

I am still maintaining a speaking relationship with the team members and I am continuously in contact with Safavi, if I can help to clear the situation to day do not hesitate to call."

128.   Undeterred, Dr. Frischmann wrote again to NIOC on 10^th May saying that at long last Panamerican had provided some information concerning dealings that it had had with NIOC in 1972 in connection with a letter of credit.  He suggested that NIOC would be able to look up the transaction in their files  and continued:

"We are having discussions with a number of Banks on the NIOC approved list but difficulties are arising as they are not willing to accept the wording requested by NIOC. Can I ask you once again to please accept our Bond No 010211 in the form it was sent to you to save us embarrassment, time and further expense."

129.   On 13^th May, Mr. Mohandes reported to Dr. Frischmann how NIOC had reacted:

"I called Jalilian yesterday after noon, he had seen the fax, he was not very happy, I let him blow his top and then I told him about the credentials of the bank, he calmed down and told me try to get it finalized to day or tomorrow. He said he did not want to be contacted personally and all correspondence should go to Rahimi and copied to him.

Please send a fax to Rahimi copied to Jalilian and give him the following information not later than 11.30 London time today:.........Please try to build up a strong case, in case you don't want to give them all the answers, let me have the full detail and we shall verbally tell them and ask them not to check it for some reason or other."

130.   On 14^th May, NIOC replied, tersely, to Dr. Frischmann's fax rejecting his further request:

"In reply to your letter dated 10 May 1997, we kindly, once again refer you to our last letter dated May 8,1997 in which we clearly advised you the NIOC's policy as regards to your instance.

Therefore, we are not in a position to accept your L.O.G. No. 010211 as it is. Your immediate action as per our letter dated May 8, 1997, is necessarily required"

and followed this up with a further fax, the next day, from Mr. Rahimi saying that a bank guarantee acceptable to NIOC was required "immediately".

Dr. Frischmann's invitation to Bow Valley to buy out Pell Frischmann.

131.   On 15^th May Dr. Frischmann replied to Bow Valley's letter of 12^th May as follows:

"Thank you for your fax dated the 14^th May. As I explained to you on the phone yesterday, I am under tremendous pressure from NIOC to have the Bank Guarantee confirmed by an International Bank acceptable to NIOC.

The term sheet you sent dated the 10^th May 1997 and your latest letter takes us a few steps forward, but there are still matters outstanding. If you and John Burns would like to come to London for detailed discussions, I would welcome that.

In the light of your proposals, I still have difficulty to understand why you want Pell Frischmann Engineering to be involved with you.  I believe that the bi-party agreement you have with Bakrie seems much easier to arrange and operations would be much simpler for you.

During our last two telephone calls, I told you that it seems to me sensible for Bow Valley to make an offer to buy me out and then make your arrangements with Bakrie.

As I told you yesterday, I believe time is getting very short and therefore I am discussing with other parties the possibility of selling them our interest, but it would far more sensible for you to buy out our whole interest." [Emphasis added].

132.   Following a further telephone discussion the same day Mr. Blair wrote saying that he thought

"The potential exists for reaching some form of transfer agreement among the three parties, it currently feels as if time is conspiring against us.

In addition, the specter of U.S. sanctions, and the associated attention this is attracting form the media, complicates matters.  Our view is that the possibility of sanctions cannot be taken lightly and we are in the process of attempting to clarify our position with the Canadian Government.

We have not yet been able to contact the Bakrie group in Indonesia to determine their reaction and that of their Government to recent U.S. statements." 

Representatives of Bakrie, he said would be in Calgary on 20^th May and Bow Valley would take the opportunity to discuss Dr. Frischmann's proposal with them then.  In the meantime, he suggested, Dr. Frischmann might seek an extension of several days from the Iranian authorities.

133.   In an internal Bakrie memoranda to Mr. Alatas, dated 15^th May, Mr. Burns, having made reference to the article in the Calgary Herald, continued:

"Don't think that the concern expressed in the news will amount to much. Walt and Rod went to see the U.S. trade representative this afternoon to provide him with an update.  I don't think it will affect BMP at all."

Having also reported that Mr. Blair had said that he did not think there would be much point in either Bow Valley or Bakrie going to London unless Dr. Frischmann were to agree to the "term sheet" in principle, he wrote:

"Frischmann raised the concept of buying him out but Rod [Blair] did not encourage this.  He felt [that] Frischmann would want an inflated value and that NIOC would not take too kindly to someone obtaining a contract and then flipping it to make a profit; "

And with a second memorandum he enclosed more press clippings on possible U.S. sanctions and reported:

"Rod had a long discussion again [sic] today and the end result is that Frischmann would like us to make him an offer.  During our discussion on this, I mentioned that I thought we should not buy him out entirely as we would risk the anger of NIOC which would be primarily directed at Frischmann but would also fall to us for agreeing to let him broker the contract, Walt agreed with this.

I really feel at this late date, Frischmanns [sic] only option is to sign the agreement that we sent him yesterday and get on with the project.  Otherwise Walt will not proceed nor should we."

134.   On 16^th May Dr. Frischmann wrote to Mr. Blair saying  "Your latest letter, dated 14th May, does not deal with our request to you to help us with our Bond.  Could you please contact me as soon as possible to let me know whether you are prepared to help us." Mr. Blair's reply on 20^th May (after the intervening public holiday in Canada) was that he had not realised that Dr. Frischmann was waiting for a further response on this subject, but that Bow Valley's position was that they would not commit additional funds to the project without a firm agreement.   He went on to confirm that "the Bakrie principals" were due to arrive in Calgary that afternoon and that they would be discussing the buy-out proposal put forward by Dr. Frischmann.

135.   Meanwhile, Dr. Frischmann's discussions with Monument and ANZ were continuing. On 19^th May, Dr Frischmann had written to ANZ saying he believed that Monument, ANZ and Pell Frischmann "would form a perfect combination to carry out this exciting development".

136.   In short, therefore, all within the space of a matter of days, Dr. Frischmann was more or less simultaneously calling on Bow Valley for help with the bond as if they were partners in a joint venture, writing to possible sources of funding referring to a "consortium" which included Bow Valley, inviting Bow Valley to make an offer to buy out Pell Frischmann's interest in Balal, and trying to conclude a deal with Monument and ANZ.

137.   On 20^th May, Mr. Nirwan Bakrie, Mr. Setiano, Mr Alatas and Mr. Hainim of Bakrie arrived in Calgary and were entertained by Mr. Burns and Mr. Powell of Bakrie Mianak at the Ranchmen's Club.

138.   Over the course of the next three days, 21^st to 23^rd May, Bow Valley and Bakrie, on the one hand, and Pell Frischmann, on the other, exchanged proposal and counter-proposals as to the terms on which Pell Frischmann's interest might be bought out, to no avail.  In essence, Dr. Frischmann wanted staged cash payments totaling US$18 million plus 10% of the Remuneration Fee up to a maximum of US$10 million, and 25% of the profits from the sale of crude; and Bow Valley/Bakrie were prepared to offer US$5 million cash, 12 ½ % of the Remuneration Fee up to a maximum of US$6,825,000 and no share in crude oil sales.  Alternatively, said Mr. DeBoni in a letter dated 23^rd May, it "would be prepared to sell its interest in the Contract to Pell Frischmann on the same terms offered to you."  The letter concluded

"In view of the time constraints faced by all the parties involved, we will hold the foregoing offer open until 19:00 hours Tuesday, May 27, 1977 (London Time).  If no agreement is reached by that time, our offer to purchase your interest will expire and we will be obliged to inform our major shareholders and the Iranian authorities accordingly".  

139.   The deadline specified by Bow Valley came and went without any response from Pell Frischmann, and by letter dated 27^th May, Mr. DeBoni wrote to Dr. Frischmann confirming that the offer contained in Bow Valley's letter of 23^rd May was no longer available.

140.   It was not until 2^nd June, almost a week later, that Dr. Frischmann eventually replied rejecting the Bow Valley/Bakrie proposal.

141.   But by then, events in both camps had taken new directions, relations between the two having, to all intents and purposes, foundered. Certainly, it appeared to be common ground at the trial that any prospect of working together as a joint venture was now at an end. From here onwards, as will be seen, Pell Frischmann's involvement with the Balal Field moved towards its demise with the inevitability of a Greek tragedy.

142.   The land-mark events over the course of the next six weeks or so would be as follows:

(i)        on 27^th May Bow Valley would write to NIOC and shortly afterwards receive an invitation to meet Dr. Hosseinian in Kuala Lumpur, and on 5^th June Bow Valley and Bakrie would meet Dr. Hosseinian and other representatives of NIOC in Kuala Lumpur;

(ii)       on 16^th June, NIOC would give Pell Frischmann formal notice that it had 15 days (i.e. until Tuesday 1^st July) within which to produce the required performance bond, final financing agreement and joint venture agreement, failing which NIOC would "be left with no alternative but to take the appropriate action which might be deemed necessary";

(iii)      meanwhile, Pell Frischmann would continue to pursue its negotiations with Monument (and others) with a view to Monument (and ANZ or UBS) replacing Bow Valley and Bakrie as Pell Frischmann's partners in the Service Contract, and   representatives of Monument, accompanied by Mr. Dorr and Dr. Pendered of Pell Frischmann  would hold discussions with NIOC in Tehran on 23^rd and 24^th June (as a result of which, inter alia, the deadline for Pell Frischmann's response would be extended to Friday 4^th July) - discussions which would, in the event, come to nothing;

(iv)      on 25^th June discussions about a possible buy-out of Pell Frischmann's interest by Bow Valley and Bakrie would be re-activated by Dr. Frischmann, having made no progress since the unsuccessful round of negotiations at the end of May and continue over the course of the next 10 days or so, without ever reaching any final conclusion;

(v)       on 7^th July, NIOC would give Pell Frischmann notice that the latter had failed to secure the necessary financing that NIOC was no longer under any obligation to award the contract to Pell Frischmann and was negotiating with other interested companies;

(vi)      on 8^th July, NIOC would inform Bow Valley and Bakrie that NIOC would be willing to award the contract to them on certain conditions; and on 28^th July, a contract would be signed between NIOC and a consortium of Bow Valley and Bakrie (without Pell Frischmann).

We turn now to examine the events of this period in more detail.

PART 6

 

LATE MAY / JUNE 1997

BOW VALLEY/ BAKRIE CONTACTS WITH NIOC

 

27^th - 31^st May 1997

143.   On 27^th May, Mr. DeBoni sent a fax to Mr. Kamarianakis, the Second Secretary (Commercial) in the Canadian Embassy in Tehran thanking him for copies of articles from the Iranian newspapers.

"As I have indicated to several media people that have called us on the Balal project, "the news of the award of the Balal contract is greatly exaggerated." The contract has not been signed yet and we continue discussions with Pell Frischmann. Bow Valley was instrumental in identifying financing for the entire project but we are still attempting to make an appropriate joint venture agreement with Pell Frischmann before proceeding.  It is possible that such an arrangement will not be made and that either Pell Frischmann or ourselves will proceed without the other party or the project will be awarded to another company.  The issue should be settled within the next day or two.

We have been in contact with Foreign Affairs in Ottawa and have fully apprized them of the situation and we will continue to do so.  In the event that our arrangements with Pell Frischmann do not materialize, we will in any event wish to pursue other projects in Iran and would plan on speaking with NIOC.  We would contact the embassy before proceeding along this line."

144.   The same day, 27^th May, Mr. DeBoni wrote to Dr. Hosseinian in the following terms:

"Re:    Balal Buy-Back Project

I am writing to inform you of the status of our Company's position relative to the Balal buy-back project.

As you may be aware, Bow Valley Energy Ltd in good faith worked with Pell Frischmann Engineering Ltd to submit a bid to NIOC for development of the Balal field.  Bow Valley also introduced Bakrie Interinvestindo Co. Ltd to Pell Frischmann for the purpose of assisting with project financing.  Since our Company is associated with Bakrie (part of a large Indonesian conglomerate) in investigating oil and gas opportunities in other countries, Pell Frischmann agreed that having them as a partner would strengthen our bid.  Pell Frischmann therefore advised you by letter dated March 12, 1997 that Bakrie would be joining our consortium.

Recently we have read press reports that a contract for the Balal project may be awarded by NIOC to Pell Frischmann and Bow Valley subject to that consortium being able to raise financing.  In addition, numerous reports have circulated that we may be subject to U.S. sanctions upon such an award. 

We wish to provide clarification of our position on both of these issues.  Firstly, Bow Valley and Bakrie are together able to provide the expertise needed to optimally develop the Balal offshore oilfield along with all of the financing required.  Secondly, both Bow Valley and Bakrie stand prepared to undertake such a project in the face of U.S. sanctions.

Unfortunately, Bow Valley and Bakrie have been unable to reach an agreement with Pell Frischmann that would, in our judgement, allow for the project to proceed in accordance with international petroleum industry practice.  We trust you will appreciate that we cannot continue to invest our shareholders' funds on Balal under these circumstances.  At the same time, we wish to guard against the possibility of our actions being negatively construed against the Islamic Republic of Iran.

Please be assured that Bow Valley and Bakrie remain ready and able to undertake an oil and gas development project in Iran.  We had sincerely hoped that the Balal project would provide the first step toward establishing a long term investment and business relationship with NIOC and your Government.

Representatives from our Company and the Bakrie group could be available on short notice to travel to Tehran to discuss any of the foregoing and to explore other business opportunities with you.  We would be most pleased to hear from you in this regard."

145.   It is suggested by Pell Frischmann that Bow Valley had first made direct contact with NIOC with a view to acquiring the Service Contract in place of Pell Frischmann a month or so previously.  The assertion is based mainly on two documents.  The first takes the form of a typed but unsigned letter dated 22^nd April from Mr. DeBoni to His Excellency Dr. Hosseinian at NIOC bearing the notation "DRAFT" in Mr. Blair's distinctive hand and showing a number of manuscript changes, also by him.  It reads (omitting the alterations) as follows:

"   It is with sincere regret that we must inform you that Bow Valley Energy Ltd. will be unable to participate in the Balal buy-back project.

    As you may be aware, Bow Valley worked jointly in good faith with Pell Frischmann Engineering Ltd. to submit a bid to NIOC for the Balal project. Unfortunately, our Company has been unable to reach an agreement with Pell Frischmann that would, in our judgment, ensure the success of the Balal field development and we therefore feel compelled to withdraw.

    This decision, made in concert with our Indonesian associate Bakrie Interinvestindo Co. Ltd, was extremely difficult as Bow Valley and Bakrie had hoped the Balal project would provide the first step toward establishing a long term investment and business relationship with the Islamic Republic of Iran.

    We trust you will appreciate the difficulty with which this decision was taken and we deeply regret any convenience this action may cause NIOC and its representatives.  We believe it is better, however, to withdraw prior to signing a contract than to embark on a venture in which the participants are not in harmony.  Please be assured of our capability to carry out such projects and of our good intentions as evidenced by the time and resources expended by our company on the Balal bid.  We trust that our decision will not in any way compromise our future relationship with NIOC". 

146.   Bow Valley says that this remained, at this stage, no more than a draft, and that it was not until 27^th May that it first wrote to Dr. Hosseinian.  And there is certainly nothing conclusive to show otherwise.  A Bow Valley fax-transmission legend at the top seems to show that it was forwarded to someone or other on 30^th April, but the recipient is not identified and most likely would have been Bakrie.  It is improbable that Bow Valley would have thought it politic to dispatch a letter to someone of Dr. Hosseinian's eminence bearing a date eight days prior to transmission.

147.   The second document relied on by Pell Frischmann in this respect is a faxed report by Mr. Mohandes to Dr. Frischmann dated 1^st May which opens in these terms:

"On arrival I went to NIOC and handed over the Bond to Rahimi, he photo copied the cover letter and signed a receipt for it.  Then I went and had a half an hour meeting visit with Mr. Jalilian, he said he was happy that we have the bond and added that, he was concerned that Bow Valley is no longer with you, he said that you had no experience in the oil industry, he commented that he personally would not raise the issue, but others may do. I explained that no company is willing to work in Iran with a rate of return less than %25, we undertook this project in good faith, however, other business persons think on the rate of return rather than good faith.  I told him that you have been talking to various companies. At the same time I emphasized that there are other expertise in Iran which are superior to Bow Valley, the companies that will be working with us are those who are already working with NIOC OFFSHORE."

(As is evident from the later paragraphs of this same report, NIOC's relief at having received the Bank Guarantee handed over by Mr. Mohandes was short-lived when they realised that it was from the Panamerican Finance Bank Corporation; they wanted details of that company's credentials, and taxed Mr. Mohandes as to whether it was a real bank and not a bogus corporation.)

148.   Pell Frischmann suggests that the source of the information that "Bow Valley is no longer with you" could only have been Bow Valley itself and that that too suggests that a letter in the terms of the draft of 22^nd April was, indeed, probably sent to Iran at this time.  But the terms in which Mr. Mohandes makes reference to this state of affairs, appears to us to be equally consistent with  the source of the information having been Mr. Mohandes himself, or Dr. Frischmann, or someone else from Pell Frischmann: other considerations apart, Mr. Mohandes registers no surprise that NIOC has been told this; and when one comes, at a later stage, to communications between Bow Valley and NIOC from 27^th May onwards, there is nothing there that reflects any direct contact between them over a month previously. 

149.   Pell Frischmann also draws attention to the fact that at around this time, Mr. DeBoni and Mr. Peltier of Bow Valley had had a meeting with Mr. Kamarianakis in Calgary (as indeed was the case) and that the most likely subject of conversation was that of approaching NIOC and of obtaining the contract for Bow Valley and Bakrie.  But, while it is plain from the existence of the 22^nd April draft letter that some in Bow Valley were thinking, at that time, of writing direct to NIOC along the terms of that draft, it is not in the least surprising that that particular course should have been one option under consideration if the end of the line had indeed been reached - as it must have looked to be very possible.  In those circumstances, it would have been entirely understandable that Bow Valley, having invested a huge amount of time and energy in the project and having put their name on the line as a non-U.S. oil and gas company that was willing to be involved in development projects in Iran, would have wanted to try to preserve the goodwill of NIOC with a view to being invited to participate in other, future projects and equally natural that they should have been talking to Mr. Kamarianakis.

150.   Of course, it is possible that news of Bakrie's letter of 22^nd April withdrawing from the project may have filtered through to NIOC via Mr. Kamarianakis and diplomatic channels. Equally possible - more so, in our view - is that source of the information on which Mr. Jalilian based his understanding that Bow Valley was no longer involved was Mr. Mohandes himself in his conversation with Mr. Rahimi at the time when he handed over the Bank Guarantee.  But there is certainly nothing in any of this evidence that compels one to conclude that Bow Valley deliberately told NIOC that it was no longer involved, much less that it did so with some Machiavellian intention of stealing Pell Frischmann's rightful contract.  Why should they do that at the same time as they were proposing to try to re-open negotiations with Pell Frischmann?

151.   One thing, at least is clear: the telephone records disclosed by Bow Valley show no telephone calls made or faxes sent to Iran between 12^th March and 27^th May. 

152.   Returning to Mr. DeBoni's letter of 27^th May, the following day a copy was sent to Mr. Kamarianakis in the Canadian Embassy in Tehran under cover of a fax from Mr. DeBoni:

"We have not made any progress with Pell Frischmann in trying to reach an appropriate agreement and we need to move forward without them.  Together with our Indonesian partners, Bakrie, we would like to pursue other opportunities in Iran as soon as possible.  We cannot consider at this time attempting to undertake the Balal projects without Pell Frischmann due to confidentiality and exclusivity provisions between our companies.

We would appreciate it if the Canadian Embassy can assist in securing an invitation for Bow Valley and Bakrie to meet with NIOC to further these goals.  Please let us know if there is anything else we should do to promote this meeting."

153.   On 28^th May, Mr. Blair wrote to Mr. Alatas:

"Following our discussion by phone yesterday, we met with John Burns to review our letter to the deputy Minister, Dr. M.H. Nejad Hosseinian.  I believe that John forwarded a copy of this letter to you, but I will also send a copy.

We have heard nothing further from Pell Frischmann.

We agree completely with your thinking that we should make every effort to move forward quickly, particularly in view of the recent election results in Iran.   With this in mind, do you feel it would be appropriate to prepare a brief letter expressing support for Bakrie's involvement in Iranian projects and ask Mr. Abda'oe to send it to Dr. Nejad Hosseinian (and perhaps to other officials also) on Pertamina letterhead?

We have already sent a copy of our letter to the Canadian Embassy in Tehran, along with a cover letter asking them to speak to the Iranian authorities on our behalf.  In addition, we intend to follow up through any other contacts that become available to us.  Please let me know if you feel there is something more we could be doing at this stage."

....

154.   The faxed reply from NIOC was swift (having been received sometime on or before 29^th May).  It was signed by Mr. Mirhadi as "Advisor to Minister & Deputy Vice Minister", and informed Mr. DeBoni that Dr. Hosseinian would be in Kuala Lumpur from 3^rd to 7^th June and "available for your proposed clarification [sic] meeting on the issues concerned". Mr. DeBoni replied with the names of those who would be representing Bow Valley (Mr. DeBoni and Mr. Blair) and those from Bakrie (Mr. Nirwan Bakrie, Mr. Setiano and Mr. Alatas) and indicating their availability for a meeting on 5^th and, if necessary, 6^th June. They sent a copy to Bakrie saying

"We see their letter as a very positive development" and suggesting that Bakrie might wish to get Pertamina ( the Indonesian state oil company) to write to Iran to the effect that it understood Bakrie and Bow Valley to have been invited by NIOC to discuss potential involvement in oil and gas projects in Iran and would be in favour of Bakrie expanding their business activities in Iran. At much the same time, they dispatched a copy of NIOC's letter to Mr. Kamarianakis at the Canadian Embassy in Tehran with the comment "I'm not sure if you had any influence on His Excellency, but the response to our fax was very quick!"

155.   In an undated internal Bakrie memorandum addressed to Mr. Setiano (presumably written to brief the latter in advance of the Kuala Lumpur meetings) Mr. Burns summarised his understanding of the history of the project prior to his involvement and of subsequent developments:

"I arrived on the scene and was told that Bakrie was going to finance the project. I told the Bow Valley Board we could not finance the project unless their [sic] was some sort of completion guarantee at the price of $169 million.  In other words, I wanted to be assured that Bakrie's one third share of the fee would not be subject to any deduction of any kind.  In addition, the $169 million would be the extent of Bakrie exposure and any costs overruns would have to be absorbed entirely by the other partners.

At this point, the negotiations began to go sour and, after much correspondence between Bakrie and PFE (copy to Nirwan) we withdrew from the project.  During these negotiations we kept Bow Valley informed.

At one point during the discussions, PFE proposed that PFE and Bakrie do the project and cut out Bow Valley.  After we withdrew, PFE proposed that PFE and Bow Valley combine to develop the project.  In both instances we each declined; Bow Valley because they did not have the financing, Bakrie because we do not have the technical expertise to develop an offshore oil project.

Copies of the most recent correspondence and [sic] NIOC attached.  I view the letter from Mirhadi as very positive."

156.   Other documents around this time relied on particularly by Pell Frischmann include a series of notes by Mr. Blair of telephone conversations with one, Mr. Ahmadi, who had been part of the NIOC delegation which came to Pell Frischmann offices on 23^rd January.  Late on 28^th May, Mr Blair retrieved a voice message from Mr. Ahmadi asking him to call him in Iran "as a matter of "some urgency".  Mr Blair's note of their subsequent conversation contained the following:

"[Mr Ahmadi] had seen our fax sent the day before to H.E. Nejad Hosseinian.

He told me that his group could ensure that the Balal contract would be awarded to Bow Valley/Bakrie.

I advised him that the situation regarding Balal was unclear to us, and we wished to avoid placing either our Company or the Iranian Government in an embarrassing position

I advised him also that we did not know what Pell Frischmann's intentions were as he had not responded to our last two letters sent by fax.

Ahmadi expressed the view that Pell Frischmann was unable to raise the money necessary for the contract and had been "playing around" for the last nine weeks.

He said that he was not part of the group that had been working for Pell Frischmann but had been called in to do language interpretation on a few occasions.

I told him we were not willing to proceed on any project in Iran without obtaining a clear understanding from the Iranian Government.

He repeated that we would need assistance from within Iran, both to secure the contract and to manage the project. ...

I suggested that perhaps he could call me at my office in the morning to discuss matters further".

At about midday, Mr Ahmadi called Mr Blair again:

"Ahmadi called again at around noon.

I advised him that we had received a fax overnight from H.E. Nejad Hosseinian inviting us to a "clarification" meeting - based on his reaction, it seemed that he was not aware of this fax.

I told him we were planning to meet H.E. Nejad Hosseinian in S.E Asia next week.

Ahmadi said it was his view that we should first meet with his group (in London) before speaking with Nejad Hosseinian so that we would have a better overview of what may be required and how his group could help us.

He stressed there would be no obligation at such a meeting to make a commitment toward using the services of his group.

He also said that he appreciated we may already be involved with another Iranian group, and if this was the case his group would try to make an arrangement with one of the other bidders - he indicated his group had invested a considerable amount of time and money into these projects and would make every effort to realize value from their work.

I volunteered that we were not, in fact, dealing with any Iranian group and did not intend to make commitments to anyone until after we had reached an understanding with the Iranian Government - I indicated that an arrangement with his group may prove feasible depending on the advice of the Government.

I told him also that any decisions we made would have to be taken jointly with our Indonesian partner.

We spoke at some length about the financial terms of the Balal contract.  I had told him the previous day that our Company was not impressed with the way the contract had been unilaterally renegotiated with a reduction in value of US$21 million.  I continued in this vein by stating that the project could potentially cost much more than the contract ceiling, particularly if it were managed by companies without experience in offshore oilfield development projects.

Ahmadi stressed again that he felt it would be valuable for us to meet in person and asked if I could re-route my flight through London - I told him I felt this may not be logistically feasible, but agreed to discuss the situation again by phone tomorrow."

And on 30^th May there was third conversation:

"May 30, 1997

Ahmadi called again to check on my travel plans.

I advised him that it appeared to be logistically impractical to attempt to travel to London prior to meeting with the deputy minister.

Ahmadi expressed disappointment with this development and indicated that it would be "better for us" if we could meet with his group prior to our meeting with Nejad Hosseinian.

I told him that I felt under the circumstances we were obliged to first clarify our position with the Government regarding projects in Iran, but certainly [...] did not preclude the possibility of utilizing his services subsequently."

157.   On 29^th May, Mr. Mohandes sent two faxes to Dr. Frischmann.  The first read:

"This morning I was informed by my colleagues that Bow Valley have contacted Dr. Nejathhusseinian in NIOC, offering to do the Balal project directly without PFE. Please advise if Bow Valley have informed you of such action".

And the second, headed "Most Urgent" read as follows:

"I waited for you to contact me all day yesterday after the fax that I sent you in the morning. NIOC has been very annoyed with continuous delays and the fax from Spain has annoyed them further. [A reference to confirmation of the bond provided by Panamerican Finance Bank].

I had expected you would call me after receiving my Fax, Late afternoon I called your office and finally your home and left a message with your wife.

Yesterday through grapevine I heard that Bow Valley have approached NIOC directly and have stated that they agree to all terms and conditions discussed previously with PFE, they have produced evidence of total financing and agreed to provide a Bond immediately.  I understand that they have informed you too about their proposal. 

This morning at a meeting in NIOC, the Chapter D Committee Bow Valley's proposal was reviewed, since their name was in the original list the proposal was approved, next Monday it will be raised and processed in the NIOC Board and BV will be invited to meet and sign contract immediately.

So today and tomorrow are your last in this game.

Please let me know how you are going to proceed."

How much of this was well-founded, is impossible to say. But on any view, no such invitation was issued by NIOC to Bow Valley and Bakrie at this stage.

158.   On 31^st May, Mr DeBoni addressed a letter to Dr. Frischmann  in the following terms:

"Bow Valley is proceeding to conclude the documentation for its initial public offering in the Canadian markets which I anticipate should be announced shortly.  We would appreciate your confirmation that there are no debts or other obligations outstanding between our companies and that any agreements between us have terminated.

If you would like to be included on the President's list for the IPO, please advise as soon as possible and we will send you the appropriate documents when they are available.  We would be pleased to extend the same offer to senior members of your team who have worked with us on the Iranian project".

159.   Mr Cummings's diary entry for that day, read "Meeting with W. DeBoni re letter to W. Frischmann to terminate all obligations", and it was put to him in cross-examination by Mr. Speck that the purpose of the letter was to try to secure release from the Confidentiality Agreement that Bow Valley had signed in November the previous year, thereby clearing the way for Bow Valley to approach NIOC directly.  This Mr. Cummings denied.  The reason for it, he said, was that Bow Valley was, at that time "in a box", meaning that it was wanting to press ahead with its planned IPO, but was concerned that it had had a variety of dealings with Pell Frischmann in connection with Balal:

"Worse yet, what happens if Dr. Frischmann puts up the guarantee?  Where are we?  We have offers, counter-offers, a long litany of documentation out in the background and at this juncture I do not think Bow Valley even considered the confidentiality.  They were out. This was "Let us out, we are going ahead with the IPO".  That offer to sell Dr. Frischmann - our interest to Dr. Frischmann by the same terms as we had offered him, that got nowhere.  Bow Valley was in a box.  They could not go forward with an IPO and they could not seem to conclude a transaction".

160.   Mr. DeBoni and Mr. Blair, he added, were coming under increasing pressure from the board at this time, some of the members of which were becoming a little tired "of a deal about to be done and then thwarted at the last moment". In short, the letter was, he said, designed as a quick "catch-all" so as to enable Bow Valley to draw a line under anything to do with Dr. Frischman and to get on with the IPO: "We wanted to terminate anything that we had ever had to do with the entire transaction at that point". Asked whether he ever had the confidentiality agreement in mind, he replied "No, I do not recall specifically thinking about the confidentiality agreement at all.  I just have no recollection, I am sorry."  But, while we can accept what Mr. Cummings says about the need for such confirmation for IPO disclosure purposes, it is difficult to believe that it was no part of the purpose of this letter to try to obtain, among other things, confirmation that Bow Valley owed no further obligations to Pell Frischmann under the Confidentiality Agreement.  On the other hand, as an attempt at a "trick", if that is what it was (as Mr. Speck suggested), it appears to us to have been a very clumsy one, which Dr. Frischmann was most unlikely to fall for, as indeed he did not.

Kuala Lumpur

161.   On 1^st June Mr Kamarianakis wrote from the Canadian Embassy in Tehran thanking Mr DeBoni for his recent faxes "keeping us appraised [sic] of the situation:

 "I have arranged to meet with Mr Mirhadi (Mr Nejad Hosseinian's deputy) tomorrow to discuss these issues further and will provide you with a report following this meeting.  For your information, Mr Mirhadi who will also be in Kuala Lumpur with Mr Nejad Hosseinian, was the former head of Kala Naft's Calgary (Kala Naft is the procurement arm of NIOC office and is very familiar with the Calgary oil scene)".

Two days later, he wrote again:

"Had a meeting with Mr Mirhadi yesterday in his offices at NIOC.  We discussed the Balal contract and he stated that preliminary contract assignment has been given to PFE.  He stated that this limits their ability to discuss the awarding of Balal to other parties.  NIOC must continue to work with PFE unless and until they drop out in which case, they would most likely revert to the number 2 candidate.  However, depending on the legal aspect of your [Bow Valley/Bakrie] relationship with PFE, there may be room to manoeuvre [sic].

As background, when the buy-back agreements were first tendered there were two tracks which bidders followed: the technical bid -which was evaluated by the technical committee; and the commercial bid - which was evaluated by the financial committee.  These processes were/are mutually exclusive until the point when the committees ranked the bids and they were sent to senior management for a decision. Future bids will most likely follow a similar path.

NIOC through Mr. Nejad Hosseinian and Mr. Mirhadi (his deputy) have primary responsibility for buy-back projects.  As well, Mr. Jallilian (head of NIOC Offshore) is also a key player with these projects and is definitvely worth cultivating.  Assuming Balal is no longer available, there exists other potential buy-back projects in Iran.  In particular, there are offshore development projects available on the Iranian portion of the Straits of Hormuz.

Mr Mirhadi had very little knowledge of your firm and asked me pointed questions about your experiences, expertise, etc.  I answered that I was unfortunately unaware of all of your previous experiences but recommended you as a bona fide, reputable, Canadian oil company with top-notch senior management and technical experts.  I also mentioned some of the background which you and Mr Peltier provided me during our meeting in Calgary 6 weeks ago.  I can tell you to expect questions concerning previous experience, projects, etc.  They are also very interested in the reasons behind the change between yourselves and PFE.

Please let me know whether there is anything else which you require and I look forward to hearing from you soon or perhaps meeting with you in the near future". (Emphasis added).

162.   Early on the morning of 5^th June the planned meeting in Kuala Lumpur duly took place.  The Iranians were represented by Dr. Hosseinian and Mr. Mirhadi, Bakrie by Mr. Nirwan Bakrie, Mr. Setiano, Mr. Alatas and Mr. Burns, and Bow Valley by Mr. DeBoni and Mr. Blair.  Notes of the meeting, entitled "Summary Minutes", written up by Mr. Blair some little while after the meeting itself consist of three closely-typed pages of typescript. According to these, Mr. Blair opened with expressions of general interest on the part of Bow Valley and Bakrie in undertaking oil and gas projects in Iran on a long term basis and then moved on to an explanation of how each had become involved in the Balal project in conjunction with Pell Frischmann, the failure of their joint venture negotiations and of subsequent negotiations to buy out Pell Frischmann's interest, and Pell Frischmann's notification that it was trying to make "a competing arrangement with other parties.  "In view of the foregoing", the notes read

"Bow Valley and Bakrie believed it was important to meet personally with the Iranaian authorities to clarify their position, and thereby attempt to avoid an embarrassing situation for the Iranian government and for their own corporate management teams.  Bow Valley and Bakrie appreciated the opportunity to state directly and unequivocally that the reason the Balal contract had not been progressed was not due to: (i) financing, (ii) technical capability, or (iii) U.S. sanctions, but rather soley due to the inability of the three parties to come to terms on a joint venture agreement." 

Mr. Bakrie and Mr. Sentiano then spoke about Bakrie's experience, its interest in expanding its business activities in Iran, given the strong relationship between Indonesia and Iran, and messages of apology from Dr. Baharudin, Pertamina's Director of General Affairs who had unavoidably been prevented from attending the meeting. According to Mr. Blairs' notes, Mr. DeBoni then spoke briefly, emphasisng that Bow Valley's interest in the Balal project was as a stepping stone to a long term relationship with NIOC, and that if it had proved possible to reach an agreement with Pell Frischmann the project would by then be underway.

163.   Mr. Mirhadi then responded on behalf of NIOC welcoming interest in future projects but saying that they saw the immediate priority as progressing Balal. From this point onwards, the discussion appears to have been led by Dr. Hosseinian.  We quote:

"H.E. Nejad Hosseinian stated it was NIOC's view that Pell Frischmann did not have the technical capability to handle the Balal project on their own as they are primarily a consultancy firm.  He further expressed his view that without the support of an operating company such as Bow Valley, Pell Frischmann would not have received the approval of NIOC's technical team.

H.E. Nejad Hosseinian asked what issues were preventing a joint venture agreement with Pell Frischmann.  Nirwan Bakrie and Walter DeBoni outlined the following outstanding issues:

-   Disagreement over the structure and governance of the joint venture.  In particular, BowValley and Bakrie had insisted on voting procedures in accordance with international standards.

-   Disagreement over the sharing of remuneration fees in the event of capital costs overruns.

H.E. Nejad Hosseinian asked how long it would take to draw up an appropriate joint venture agreement.  Jay Alatas responded that one week should be sufficient since the agreement that had been proposed [semble, that proposed by Bow Valley and Bakrie] was based on international petroleum standards and many of the issues had already been discussed and resolved by the three parties.

H.E. Nejad Hosseinian then asked the question, "What can we do", to clear up the situation?  He continued by suggesting the following solution:  Upon returning to Iran, NIOC would write to Pell Frischmann requesting that they provide within fifteen days the following:

-  Evidence of a bank guarantee from a recognized bank.

-  A copy of a joint venture agreement between Pell Frischmann and the consortium parties which had been introduced to NIOC by Pell Frischmann.

In addition H.E. Nejad Hosseinian said NIOC would send a copy of this letter to Bow Valley and Bakrie so that they would be aware of NIOC's directives.

Walter DeBoni and John Burns expressed appreciation on behalf of Bow Valley and Bakrie for the meeting and NIOC's suggested solution.  The meeting adjourned shortly thereafter."

164.   Pell Frischmann suggests, first and foremost, that Mr. Blair's notes were a deliberately "sanitised", misleading version of events prepared at a time when Bow Valley must have realised that Pell Frischmann would be bringing legal proceedings against it and that these notes might have to be disclosed. Mr. Blair accepted that he had prepared his Summary Minutes sometime after the meeting itself from rough contemporary manuscript notes: as he said in evidence, it is not easy to take a full note when you, yourself are actively engaged in the discussion.  He denied the suggestion that they were not a genuine and fair record.  The fact that the original manuscript version was no longer available appears to us to be unremarkable, given that it may well have been discarded once the typed version had been completed.  And the idea that the final notes were deliberately "sanitised", stripped of anything vaguely incriminating, is wholly at odds with Pell Frischmann's innumerable complaints that the notes reveal statements which, they say, represent half-truths, falsehoods, remarks made to NIOC which were derogatory of Pell Frischmann and breaches of confidentiality by Bow Valley, little or none of which would be expected to have been there if the document had been prepared for the purpose suggested by Pell Frischmann.  To examine, seriatim, the numerous points at which, according to Pell Frischmann, the informed reader can detect signs of deliberate falsification would not be justified: overall we consider the thesis wholly improbable and unpersuasive.  But Pell Frischmann's very first point may be taken as giving a flavour of the general theme.  The heading itself, "Breakfast meeting in Lula Lumpur. At the Invitation of H.E. M.H. Nejad Hosseinian", is said to have been deliberately crafted to give a misleading impression of how the meeting came about, which was not at the request of the Iranians but of Bow Valley.  This, of course, is self-evidently true on the face of the contemporaneous correspondence.  But, at the same time, respecting the proper courtesies in these matters, what Bow Valley had done, as we have seen earlier, was to send a message to Mr. Kamarianakis in the Canadian Embassy in Tehran saying "We would appreciate it if the Canadian Embassy can assist in securing an invitation for Bow Valley and Bakrie to meet with NIOC to further these goals."  And an invitation to meet the Minister is what they got.  To head up the minutes in the way that Mr. Blair did hardly seems a matter to occasion raised eye-brows - much less, material on which one can properly hang a charge of wilful deceit.

165.   To our mind there is, in any event, another very good reason why it is improbable that these Summary Minutes are anything other than a genuine attempt to give a fair account of the meeting; and that is that Bow Valley must have recognised that a copy of the document might, one day, find its way to NIOC itself, or, given the extreme delicacy of the political situation at that time, to the Canadian authorities.  Why else the repeated, elaborate references to "H.E. Nejad Hosseinian" rather than simply to "the Minister" or "Dr. Hosseinian", as would have been perfectly adequate for an internal record that was not expected to be seen by anyone other than Bow Valley and Bakrie ?

166.   That said - and on the basis that Pell Frischmann's blanket charge of falsity is rejected, as it is - there are four particular passages relied on by Pell Frischmann as recording statements deliberately made by Bow Valley with a view to disparaging Pell Frischmann in the eyes of NIOC, and thereby encouraging NIOC to terminate its relations with that company and to look favourably on Bow Valley and Bakrie as suitors more worthy of NIOC's hand.

167.   The first of these is the section of Mr. Blair's notes reading "Bow Valley and Bakrie proposed a joint venture arrangement wherein they would provide all of the finance and the technical expertise in return for each party receiving a one-third share of the remuneration fee".  This, it is said, was demeaning of Pell Frischmann in as much as it failed to give due credit for the part played by Pell Frischmann on the technical side (and, incidentally, false in that Bow Valley and Bakrie would never have been able to perform all the engineering work themselves).  But, as a short-hand, one-sentence summary of the overall effect of the 15^th April proposal - to which it was, plainly, referring - it is difficult to say that it is unfair. 

168.   The second is a passage in which Mr. Blair records himself as saying, in his account of negotiations between Pell Frischmann and Bow Valley/Bakrie "After failing to reach agreement on these proposed terms, Pell Frischmann suggested that Bow Valley and Bakrie buy out its interest in the contract".  This, submits Pell Frischmann, was deliberately calculated by Bow Valley and Bakrie to elicit the very reaction from NIOC that they had predicted some weeks earlier as probable: that "NIOC would not take too kindly to someone obtaining a contract and then flipping it to make a profit" (Mr. Burns's words in his fax to Mr. Alatas on 15^th May, relaying Mr. Blair's sentiments).  The point, we accept, gives pause for thought.  But, in truth, it can equally well be explained on the basis that it had been made clear to Bow Valley and Bakrie in advance of the meeting that NIOC were very interested to know the reason for the falling out of Pell Frischmann and Bow Valley/Bakrie (one of the points made by Mr. Kamariankis in his 3^rd June fax to Mr. DeBoni) and reference to the buy-out negotiations was a necessarily candid part of the story.  Nor do the notes of the meeting attempt to hide the fact that Bow Valley and Bakrie had willingly responded to Pell Frischmann's suggestion ("Bow Valley and Bakrie made a buy-out offer to Pell Frischmann ......."), a move that Mr. Burns had also foreseen as likely to incur NIOC's displeasure in relation to Bow Valley and Bakrie as well as Pell Frischmann - though more so in the case of the latter ("During our discussion on this [that is, a discussion between Mr. Burns and Mr. Blair in mid-May] I mentioned that I thought we should not buy him out entirely as we would risk the anger of NIOC which would be primarily directed to Frishmann but would also fall to us for agreeing to let him broker the contract.  Walt [Mr. DeBoni] agreed with this": see Mr. Burns's second faxed message to Mr. Alatas on 15^th May.) 

169.   The third offending statement, again by Mr.Blair, was "While these protracted negotiations were being carried out, Pell Frischmann advised Bow Valley that they were also trying to make competing arrangements with other parties". The suggestion here appears to be that this was intended to convey the impression of under-hand behaviour by Pell Frischmann and that it was not emphasised to NIOC that Pell Frischmann had warned that it considered itself entirely free to negotiate with others in this way. But, here too, we think that this is to read too much into this part of the note.  There was no attempt to give NIOC the impression that Pell Frischmann had undertaken such discussions without telling Bow Valley and Bakrie (although the detail was not known to them) and Mr. Blair was not telling NIOC anything that it did not already know.  As we shall see, shortly, Dr. Frischmann had already informed NIOC of its intention to replace Bow Valley with Monument Oil and Gas.  

170.   The fourth statement said to have been deliberately derogatory of Pell Frischmann is that of Mr. Bakrie and/or Mr. DeBoni in which (as recounted in Mr. Blair's notes) one or other of them - or possibly both, the position is unclear - told Dr. Hosseinian that one of the obstacles to concluding a joint venture agreement with Pell Frischmann was that Bow Valley and Bakrie "had insisted on voting procedures in accordance with international standards".

171.   This strikes us as falling into a somewhat different category from the other passages of which complaint is made. Whether the point was in fact explained more fully than the note suggests, we do not know.  But taking the passage at face value it undoubtedly can be read as implying that Pell Frischmann was unwilling to operate by such "international standards" or was unfamiliar with them and, therefore, as constituting a slight on either their professional competence or their experience of standard international contract practices.  Nor is it obvious why it should have been necessary to put the matter in quite this way, with the reference to "international standards", rather than simply saying that it had not been possible to reach agreement on voting procedures in relation to the management of the project.  It is difficult, therefore, to avoid the conclusion that either, at best, this was an irresponsible observation, or, at worst, that it was indeed deliberately designed to portray Pell Frischmann in a poor light.

172.   On a fair reading of the Summary Minutes as a whole, however, it is impossible to detect any concerted attempt by Bow Valley and Bakrie to use the occasion of this meeting to denigrate Pell Frischmann and thereby try to encourage NIOC to abandon any further attempt to contract with them.  We return to this later in the light of other events that we come too shortly.

173.   Following the conclusion of this meeting Mr. Blair flew on to Jakarta in the Bakrie private jet. It was suggested to him in cross-examination that he had been accompanied by Dr. Hosseinian and/or Mr. Mirhadi but this he firmly denied.  His main reason for going on to Jakarta was primarily to discuss another project (known as Berigin), though he also had dinner with Mr. Burns while he was there and would, he said, most likely have discussed Balal.  The suggestion that there was a further meeting between Bow Valley/Bakrie and representatives of NIOC in Jakarta appears to have been based on an erroneous reference to Jakarta rather than Kuala Lumpur in a later document.     

Mr. Mirhadi in Calagry

174.   The next occasions on which there is evidence of any direct contact between Bow Valley or Bakrie and any representative of NIOC is some two weeks later when Mr. Mirhadi was in Calgary.  The first occasion on which Mr. Blair or anyone else from Bow Valley, at least, had actually met Mr. Mirhadi was at the meeting in Kuala Lumpur on 5^th June.  But on 13^th June, Mr. Mirhadi flew to Calgary and appears to have remained there on an extended visit until at least 11^th July. Pell Frischmann look on this state of affairs with undisguised suspicion, and suggest, in effect that he was working hand-in-glove with Bow Valley and Bakrie throughout this period with a view to bringing about Pell Frischmann's removal from the Balal contract and its award, instead to Bow Valley and Bakrie.  In part this thesis is based simply on Mr. Mirhadi's presence in Calgary at this critical time.  But it also depends on a series of entries in Mr. Blair's diary for this period which show a not inconsiderable number of occasions on which there was contact of one kind or another between Mr. Mirhadi and Bow Valley/Bakrie. These occasions included, in particular, a lunch on Thursday 26^th June attended by Mr. Seaman, Mr. DeBoni, Mr. Blair and Mr. Mirhadi (in a fax to Mr. Flood, another director of Bow Valley on 24^th June, Mr. Blair had written "...one of the officials we met in Kuala Lumpur is in Calgary this week, so Doc, Walter and I are planning to have  lunch with him on Thursday"); a further lunch with Mr. Mirhadi on 2^nd July attended by Mr. Blair (it is not known whether anyone else was present); and a further meeting on 8^th July when Mr. Mirhadi was the principal guest of Bakrie at the Calgary Stampede Rodeo.  There also appears to have been a number of telephone calls between Mr. Blair and Mr. Mirhadi, largely in the first week or so of July.

175.   It is easy enough to portray all this as indicative of conspiratorial goings on.  But it is necessary to see it in the context of certain wider considerations.  While the timing of his visit may still be seen as more than just a coincidence, there is nothing surprising about Mr. Mirhadi's presence in Canada.  He had lived and worked in Calgary for some two years in the early 1990's as head of Kala Naft, NIOC's procurement office there.  And at the time in question he had a married daughter living in Calgary.  (Over a year later, he retired from NIOC, emigrated to Canada and subsequently became a consultant to Bow Valley).  Mr. Blair, who evidently came to know Mr. Mirhadi quite well in time, gave evidence that he believed that he understood that the main purpose of his visit at this time was to visit his daughter, but he also thought it likely that he was there to learn more about Bow Valley and in particular how they were likely to respond to the latest threats of US sanctions against Iran.

176.   So far as this last subject is concerned, the moral and (possibly) legal threat remained very real.  On 17^th June, Mr. Blair received a letter from United States Senator Alfonse M. D'Amato warning Bow Valley against signing any agreement with NIOC for development of the Balal Field on the basis that to do so would (he asserted) violate the letter as well as the spirit of the Iran-Libya Sanctions Act, would fuel the growing support in Congress for extension of the scope of that Act and would render Bow Valley a "pariah company known for supporting rogue states".  A letter in very similar terms was sent to Dr. Frischmann two days later. And The Financial Post of 25^th June carried an article by its Washington Bureau Chief reporting these warnings from Senator D'Amato.  As a consequence, Bow Valley was in frequent touch with the Canadian Ministry of Foreign Affairs at this time, copies of the D'Amato letter being faxed to it by Mr. DeBoni (as well as to other members of the Bow Valley board of directors).   

177.   Against this background, it is therefore not so surprising, perhaps, that Mr. Mirhadi was to be found in Calgary at this time.  All other considerations apart, the fostering of relations with Canada and with Canadian companies interested in undertaking projects in Iran at a time when U.S. sanctions were deterring so many from investment or other involvement in Iran must have been a fairly important policy objective.  And, within that wider objective, establishing good relations with Bow Valley would no doubt have seemed a sensible thing to do, if only to help fortify Bow Valley's resistance to the pressure coming from the United States.  

178.   Both Mr. Blair and Mr. DeBoni, for their part, strenuously denied any improper discussion of Balal with Mr. Mirhadi, or indeed anything other than fairly casual reference to that particular subject at any time prior to 8^th July (on which occasions Mr. Blair was seated next to Mr. Mirhadi at the Calgary Stampede Rodeo and the matter was openly discussed).  The main purpose of much of Mr. Blair's discussions with Mr. Mirhadi was, he said, to try to lay the foundations of a long-term relationship with NIOC and to establish confidence in Bow Valley; and the lunch on 26^th June was designed primarily as a chance to introduce Mr. Mirhadi to Mr. Seaman.  Apart from that, and the matter of U.S. sanctions, their conversations had, for the most part, concerned either Mr. Mirhadi's daughter's employment following completion of her Master's degree in genetics and a common interest - together with Mr. Blair's close friend, Dr. Baker - in the furtherance of tolerance and understanding between the Christian and Muslim faiths.  He described Mr. Mirhadi as extremely intelligent, with two degrees from US universities, and a good and precise command of the English language.

"...and in all my dealings with him I have found him to be nothing but professional, a man of high integrity.  A man that takes his personal faith very seriously and his - he is also someone who is very skilful at conducting and representing the group or the country that he is representing.  The discussions that he had with me were always very careful and very circumspect.  So I find all this - all this conspiracy thing almost beyond belief.........But in any event I would like to dispel at this point any thought that Mr. Mirhadi was somehow conveying information illicitly to Bow Valley".

179.   The chronological spread of contacts between Bow Valley/Bakrie and Mr. Mirhadi at this time also needs to be noted.  The first entry in Mr. Blair's diary concerning Mr. Mirhadi while he was in Calgary does not occur until 20^th  June ("Tel. M. Mirhadi 270-7123") and the second not until 25^th June, both of which might well have been for the purpose of arranging and confirming an invitation to the lunch with Doc Seaman on 26^th June. And if that is right, it was almost two weeks after Mr. Mirhadi's arrival in Calgary and ten days after NIOC sent its 15-day letter to Pell Frischmann on 16^th June before he first met anyone from Bow Valley face to face and had anything more than a fleeting conversation.  It is, moreover, only from 2^nd July onwards that references in Mr. Blair's diary to Mr. Mirhadi become at all frequent (2^nd, 4^th, 6^th , 7^th , 8^th  and 11^th July).

180.   The only reference in Mr. Blair's diary for this period to any other representative of the Iranian government or NIOC is on 19^th June, when there is mention of "Minister Hashemi".  This occurs as a note against an entry indicating that Mr. Blair had either met or had a telephone conversation with Mr. Kamariankis of the Canadian Embassy in Tehran.  But as this is shown as having occurred hard on the heels of a telephone conversation between Mr. Blair and various people in the Ministry of Foreign Affairs, and an entry earlier in the day makes reference to the drafting of a response to Senator D'Amato's letter, any involvement of Minister Hashemi is as likely to have concerned that letter and Bow Valley's reaction to it as anything to do with what Pell Frischmann was or was not doing following NIOC's 15-day letter. 

181.   The only other (indirect) source of information concerning NIOC that Bow Valley had was Mr. Mohandes during the final days of the saga in early July, of which we have more to say later.

PART 7

 

JUNE 1997

PELL FRISCHMANN'S NEGOTIATION

WITH MONUMENT & OTHERS, AND WITH NIOC.

182.   Following the failure of the buy-out discussions between Pell Frischmann and Bow Valley/Bakrie at the end of May, Pell Frischmann appears to have informed NIOC that it had a new joint venture partner (which proved in due course to be Monument) and there was discussion about signing a new contract.  This much, at least, is suggested by the terms of a fax from Mr. Mohandes to Dr. Frischmann dated 27^th May which includes the following:

"1. Changes of Contracts: Please fax name of the new company that you want to replace PFE in the contract.

 2. New partner: NIOC does not know who your partner is, they require their credentials and a resume of the company faxed ASAP at the same time as item 1..........

3. Signing the new contract: Mr. Jalilian will be out of the country from 8 to 10 June, therefore the new contract can not be signed officially before 11 June, however as soon as the Bond is certified you will receive an official notification about the awarding the contract by fax, and the transference of contract to NIOC OFFSHORE."

183.   However, in a post-script marked "PRIVATE", Mr. Mohandes spoke candidly to Dr. Frischmann:

"C. I don't know what game you are playing, if it is delay tactic, everyone is aware, NIOC will not sign any contract unless the Bond is supplied and satisfies their requirement.  If you want some informal meeting with NIOC, they may spend the time or may not.  I would like to know what you are planning to achieve".

184.   So far as the bond was concerned, the position remained as unsatisfactory as ever. In a second message to Dr. Frischmann on 27^th May Mr. Mohandes wrote

"You promised them to contact NIOC on 12^th or 13^th in your last fax, two weeks has passed and still nothing is heard from you.  I have been regularly questioned by NIOC, and the consultants that PFE is asking for information, I have run out of excuses, please let us know what your problem is.  The Petroleum minister is returning from China to night and I am concerned"

185.   Two days later Mr. Mohandes reported to Dr. Frischmann (as noted earlier) that "NIOC has been very annoyed with continuous delays and the fax from Spain annoyed them further"; that he had heard that Bow Valley had approached NIOC directly and had said that they agree to all terms and conditions discussed previously with Pell Frischmann; that Bow Valley had produced evidence of total financing and had agreed to provide a bank guarantee immediately; that that morning (namely 29^th May) a committee of NIOC reviewed Bow Valley's proposal and, "since their name was in the original list, the proposal was approved; next Monday, it will be raised and processed in the NIOC board and BV will be invited to meet and sign contract immediately".  There is good reason to be cautious about hearsay evidence reported by Mr. Mohandes. For the moment we concentrate on simply recording events as they appear to have unfolded and may have some bearing on the nature and extent of contacts between one or other of the parties and NIOC.

186.   The "fax from Spain" appears to have been a letter addressed to Bank Melli in Tehran over the signature of two directors of The Panamerican Corporation International and The Panamerican Finance Bank Corporation saying that they had been required to inform Mr. Rahimi, through their Bank, "that we are now negotiating the confirmation of our Guarantee Number 010211 dated 25^th April .........through one of the Banks approved by NIOC, subject to certain alterations of the text." The letter was transmitted via the Bankers Association of Spain.

187.   On 29^th May Dr. Frischmann, writing to Mr. Andris Blankenburgs of Monument Oil and Gas, referred to what be understood to be successful discussions between Monument and ANZ Investment Bank, and emphasised the urgency of forming a joint company to carry out the project:  "It is very important that we agree heads of agreement between Monument and ourselves and inform NIOC of our joint company and ask agreement to sign the Service Contract and offer to confirm the Bank Guarantee in the name of the new joint company."

188.   On 2^nd June

(i)        Dr. Frischmann received a letter from Mr. Andris Blankenburgs, New Business Manager of Monument confirming his company's interest in Balal following meetings with Pell Frischmann and ANZ Investment Bank the previous week; the establishment of a team to evaluate the project with a view to presenting a recommendation to Monument's board of directors; a list of "important questions and issues which Monument will need to investigate before finally committing to the development of Balal (including agreement on the terms of a Joint Operating Agreement based on standard oil industry term and conditions"); and plans for  further meetings with ANZ and for a three-man team from Monument to visit Tehran as soon as possible.  The letter concluded

"I hope that we can make enough progress in the next two weeks with all these issues to be able to take the $5.0 million bond required by NIOC during this first visit.  If we are then able to make enough progress with NIOC during the visit then we would hope to be able to exchange the bond and begin the contract".

 

(ii)       Dr. Frischmann wrote to Dr. Rahimi of NIOC

"We are experiencing difficulties in finalising our arrangements with Bow Valley Energy Limited and are now having detailed discussions in London with Monument Oil and Gas plc, a leading oil and gas company.......It is our intention to send a team consisting of personnel from our office and from Monument Oil and Gas to visit NIOC in Tehran next week, as we understand that several days this week are public holidays in Iran.  If such visit is convenient to you, would you please let us know......."

.......

(iii)      in a separate letter to Dr. Rahimi, Dr. Frischmann informed him that the Panamerican Finance Bank Corporation, through the Bankers Association of Spain, had that day faxed Bank Melli asking them

"to inform NIOC that our Bank Guarantee No. 010211 would be Confirmed by one of the banks approved by NIOC, subject to NIOC's agreement to the alteration of the text.  The same text was previously sent to NIOC on the 25^th April 1997.

We would be pleased to have NIOC's agreement to the alteration of the text so that the Bank Guarantee, duly Confirmed, can be delivered to NIOC".

The accompanying letter from The Panamerican Finance Bank Limited was dated 2^nd June and in simila , but not identical terms, to the previous version ("...we are making arrangements for our Guarantee .........to be confirmed").

(iv)      Dr. Frischmann responded belatedly to Mr. DeBoni's letters of 21^st and 27^th May concerning the buy-out negotiations, saying

"I am sorry that you have decided to discontinue discussions but you must realise that the proposal in your letter dated 23^rd May was wholly unrealistic in the light of Pell Frischmann's past and future role in the project.  However, we still believe that it may be possible to reconcile our differences and would be willing to continue discussing possible structures with you.

I note from your letter of 23^rd May that if agreement cannot be reached you intend informing the Iranian authorities of this development.  I do not know exactly what you have in mind in this respect, but I am sure that I do not need to remind you that under the terms of our agreement dated 1^st November 1996, you are precluded from any further involvement in the Soroosh and Balal field projects once our co-operation comes to an end and are also subject to confidentiality provisions."

189.   On Friday 6^th June Dr. Frischmann and Mr. Sarch met Mr. Iain Patrick, Commercial Director of Monument and later that day wrote to him by way of an "aide memoir of our discussions", confirming that arrangements would be made for a team from Monument to visit Tehran after 14^th June.  The intention was that Monument would take with them the bank guarantee/bond and that they would "jointly negotiate with NIOC any items in the Service Contract which you require amending".  In conclusion he said

"I am leaving tomorrow for our family house in Majorca and I can be reached on telephone/fax number 00 34 71 691 905 or mobile number 0370 730766.  I hope that while I am away your office and Michael can agree Heads of Agreement.  I have arranged to return to the UK Wednesday afternoon and will be in London all day on Thursday 12^th June to meet Tony Craven-Walker to sign the Heads of Agreement."

At much the same time Dr. Frischmann's secretary dispatched to Mr. Mohandes completed visa application forms for the Monument and Pell Frischmann teams who were expected to visit Tehran.

  

190.   Writing to Mr. Christopher Shepherd of ANZ Bank the same day, in response to a fax from the latter with its latest proposal for securing finance for the project with Pell Frischmann and Monument, Dr. Frischmann explained that he had been out of the office for most of the day in discussion with Monument, had not had a chance to consider Mr. Shepherd's letter and could not therefore agree his draft terms.  "As you know", he wrote, "I am going away for two weeks holiday in Majorca and I will contact you on my return".  He did not invite Mr. Shepherd to speak to Mr. Sarch while he was away or offer his telephone numbers in Majorca.  Plainly he was keen to put further discussions with ANZ on hold at this point (possibly at the instigation of Monument who may have been more interested in using UBS).

191.   Other correspondence around this time also shows Dr. Frischmann either negotiating with, or expressing interest in arrangements with, companies other than Monument and ANZ Bank.  These included Berliner Bank, Professor Akrami, Unexim Bank in Geneva, UBS and, in particular, Gulfstream Resources in the Middle East, who appear to have been introduced by Mr. Kissin of Lewis and Peat and with whom Dr. Frischmann had evidently met on 2^nd June.  Writing to Dr. Frischmann on 4^th June, Mr. Kissin had reported that Gulfstream had put forward a proposal by which they would undertake "all the funding for the project" and the equity would be split as to 85% to Gulfstream and 15% to Pell Frischmann.  They were, he said, ready to sign a contract immediately and would be prepared to meet that Saturday if Dr. Frischmann were ready to negotiate around these terms.  Dr. Frischmann replied the same day, saying that Pell Frischmann were looking for a deal which would give them reimbursement of their investment to date on signature of an agreement and not less than 40% of the profit after recovery by Gulfstream of its investment (being the complete funding of the project) together with interest.

192.   By this time, Sumitomo Bank had withdrawn from any possible involvement in Iran, having been alarmed, said Dr. Frischmann, by press reports of court proceedings in Germany concerning the murder there of a number of Iranian dissidents and various other Iran-related stories:

"That was very bad news.......So you know, everybody was concerned about the behaviour of the Iranian Government and to my disappointment the [board] of Sumitomo in Japan thought that Sunitomo should not support the Iranian Government by helping to raise money for the scheme. Influences that were not under my control, nothing to do with me, quite frightening."  

193.   On 10^th June Mr. Blair wrote to Dr. Frischmann as follows:

"With reference to your letter dated June 2, 1997, we wish to assure you that it is not our intention to pursue the Balal project on our own. Similarly we believe Pell Frischmann will honour it obligations to Bow Valley arising from the certainty that our consortium would not have been selected by NIOC for negotiations on the Balal contract without the participation of an operating oil company.

Following our letter to you dated May 23, 1997, we advised NIOC that we have been unable to proceed on Balal due to the inability of the consortium members to finalize a joint venture agreement.  The main purpose of our letter to NIOC was to minimize potential embarrassment to the Iranian Government, the Canadian Government, and our own corporate management which could result if we were perceived to not be proceeding on account of U.S. sanctions.

As you may be aware, upon receipt of our letter, H.E. Nejad Hosseinian immediately requested a meeting with Bow Valley and the Bakrie group in Kuala Lumpur.  We complied with that request on June 5, 1997 and advised him that we were unable to proceed with the Balal project under the current circumstances.

From your letter (and our earlier discussion by telephone) it is evident that the parties involved have significantly different perceptions of value relative to the Balal contract.  I also note from you letter, however, that you retain some optimism that a resolution might be achieved between our companies.  While I too hold out hope that an accommodation may be possible, support for the project among our directors has been eroded by the lack of an agreement and the requirement to finalize disclosure documentation for our initial public offering.

Walter DeBoni is away this week but if you have any immediate interest in discussing this matter further, I would be glad to hear from you and would try to effectively present any new initiatives to our directors now in Calgary."

194.   Pell Frischmann responded with two letters dated 12^th June, both signed by Mr. Sarch on behalf of Dr. Frischmann (the latter still being, it seems, in Majorca).  The first dealt with the question of a buy-out, but simply referred back to Pell Frischmann's letter of 22^nd May in which Dr. Frischmann had put forward his buy-out proposal and suggested that this was something that "deserves your consideration and a realistic response."  That, of course, left the matter in exactly the same position as it had been three weeks earlier.

195.   The second, longer, letter sought to register a protest that Bow Valley and Bakrie had been in direct contact with NIOC:        

"Your letter of 10 June contains a clear admission that Bow Valley has been in breach of at least clause 6 of the agreement which it signed on 1^st November 1996.  I do not accept that your professed wish to avoid embarrassment to the Iranian Government provided any excuse for an approach being made without our involvement or approval.

Please send me, by return fax, a copy of the document you describe as "our letter to NIOC" and any other letters or communications between Bow Valley, Bakrie and any of the Iranian authorities and full notes of discussions which have taken place.  We need this information so that we may satisfy ourselves that you and/or Bakrie have not been using the excuse to communicate with them as a means of furthering other plans regarding Soroosh, Balal and Amak and any other fields in Iran that we discussed, and that you have not made use of confidential information or data acquired in the course of our co-operation.  Further that you have not prejudiced our existing opportunity and future relationship and standing with NIOC and the Iranian authorities.

We must ask you to give us your unqualified undertaking that you will not make further contact with NIOC or in any other way breach the agreement which you have entered into with us".

196.   A similar letter was sent by Dr. Frischmann to Mr. Alatas at Bakrie, with a copy to Mr. Nirwan Bakrie, a few days later on 16^th June (signed, this time, by Dr. Frischmann himself).

197.   Meanwhile, Pell Frischmann's negotiations with Monument were not going according to plan. Dr. Frischmann's letter of 6^th June had suggested that progress was being made towards a deal under which Monument would fund the entire project in return for 75% of the profits (after recovery of its investment) and Pell Frischmann would receive 25% together, on signature of the agreement, with the recovery of US$3million, representing its expenditure on the project to date. Alternatively, part of such US$ 3 million could be "left in by PFE as equity" with a corresponding pro-rata upward adjustment in Pell Frischmann's share of the profits.  Exactly what discussions took place between Monument and Mr. Sarch during Dr. Frischmann's absence in Majorca is unclear, but it is plain that the Heads of Agreement that Dr. Frischmann had hoped would be ready to sign on Thursday 12^th June did not materialise.  In a letter to Dr. Frischmann on 13^th June, Mr Blankenburgs told him that Monument had come to the conclusion that they "could not proceed on these terms".  Instead he proposed a rather more complex formula based on what he described as "a 90% participation" by Monument, though the terms were a little more favourable to Pell Frischmann than that figure alone would suggest.  The letter went on to reiterate that there were important issues still to be resolved before Monument could commit itself.  Monument's proposed visit to Tehran was also taking on a new purpose:

"Monument is now planning to send a team from [sic] to Tehran on Friday 20 June for discussions with NIOC about other (non-Balal) projects Monument is pursuing in Iran.  I have also spoken to John Pendred today and if we can reach a commercial agreement over the next few days, then it may make sense to travel with John and possibly Alex Dorr to discuss Balal with NIOC as well".

198.   On Monday 16^th June, ten days after Bow Valley/Bakrie's meeting with Dr. Hosseinian and Mr. Mirhadi in Kuala Lumpur, Mr. Rahimi of NIOC dispatched what became known as the 15-day letter addressed to Dr. Frischmann.  It was also prominently shown as being copied to Bow Valley:         

"SUBJECT: BALAL BUY-BACK PROJECT

DEAR SIR,

WE REFER TO YOUR FAX NO: WWF/ 1495 - GKC DATED JUNE 2/1997  AND WRITE TO INFORM YOU THAT UNLESS WE RECEIVE THE FOLLOWING DOCUMENTS FROM YOUR END WITHIN 15 DAYS FROM THE DATE HEREOF, NIOC SHALL BE LEFT WITH NO ALTERNATIVE BUT TO TAKE THE APPROPRIATE ACTION WHICH MIGHT BE DEEMED NECESSARY.

A - LETTER OF GUARANTEE AS PER NIOC'S INSTRUCTION BASED ON THE EXACT PROPOSED TEXT AND ISSUING BANK.

B - YOUR FINAL FINANCING AGREEMENT.

C - YOUR FINAL J.V AGREEMENT WITH THE CONSORTIUM PARTNERS PREVIOUSLY INTRODUCED TO NIOC.

D - REGARDING YOUR REQUEST FOR 75% OF EARLY PRODUCTION OF OIL PRODUCED UP TO COMPLETION OF DEVELOPMENT PLAN, THERE IS NO OBJECTION AND IT CAN BE ALLOCATED."

199.   In a fax the same day from Mr. Mohandes he informed Dr. Frischmann that there had apparently been a meeting concerning Balal on Sunday (that is, the previous day)

"and a lot of people got angry with another.  It seems that NIOC management has become very irritable with the lack of progress. In the meeting this was concluded that you are unable to fulfill your contractual commitments. I understand to day you are going to get a letter giving you 15 days grace (final), after the said period the project will be awarded to another company.  On the subject of wording of the bond, in view of the continuous delays and the adverse atmosphere, it was decided that the request was just another way of creating delays, and finally it was referred to the minister himself who said no to changes."

200.   Other considerations apart, it is easy to see that NIOC might well have been less than happy with plans for the impending visit from the Pell Frischmann/Monument team. In his letter to Mr. Rahimi of Monday 2^nd June Dr. Frischmann had said that he intended to send such a team to Tehran "next week".  If Mr. Mohandes's fax to Dr. Pendered of 9^th June is to be believed, because of the short notice special arrangements for the issue of visas for the party had then been made on the authority of Dr. Nejad Hosseinian in the expectation that they would arrive on 13^th June ("I had told NIOC that you are planning to arrive in Iran on 13 June.  Since Dr. N. has issued such instruction, I can surmise everything is fine and we should not expect any problems.  Are you still planning to arrive on 13 June?").  But then, on 10^th June Dr. Pendered had written to Mr. Rahimi, with a copy to Mr. Jalilian asking for facilities for Mr. Lindsay Kaye (one of the Monument team) "to urgently visit NIOC Offices in order that he can inspect relevant (original) data relating to the Balal reservoir (and other similar fields for comparison).  The data "which he requires access to" was then described.  It included, not only information concerning Balal, but also "Salman" and "Other Analogue Arab Formation Fields in Production (for comparison with Balal", and in the latter two cases requested "selection of well logs and core data, reservoir maps and cross sections, production records and well histories (completions, work-overs etc) for individual wells and for the field as a whole".  The opportunity to make this visit was requested "at the earliest possible date - if possible in the period 14/15/16 June 1997".  Mr. Kaye would be accompanied in the NIOC offices by Mr. Mohandes and it was anticipated that the process of inspection would take 1-2 days. An application had been made for a visa for Mr.Kaye.  Mr. Rahimi's "urgent faxed confirmation of your agreement" was requested.

201.   Mr. Mohandes, to whom a copy was faxed, reported back the following day saying that the NIOC team were out of town and that the earliest a reply could reasonably be expected was  Saturday 14^th, that he thought it a faux pas to ask for sight of data on other fields ("PFE has not been awarded the contract yet, how can you ask for classified information on other fields which is not related to Balal"), that it would take at least five working days to read the material requested, and that he thought it unlikely that such a visit could be arranged before 17^th or 18^th June.  Finally, he wrote

"5. Please ask Bill to call me, so far NIOC has looked at Monument en passant, they have not been officially told about PFE's plans, they are waiting to learn. 6.  The answer to your questions on Early Production and the wording of the Bond will be sent on Sat.  I did not press them for quick reply, I thought may be you need a few extra days."

202.   Nor, as far as we can see, had NIOC, at the time of issuing the 15-day letter, received any further correspondence from Pell Frischmann telling them how negotiations with Monument had progressed since Dr. Frischmann's letter of 2^nd June.  That only happened, and then only in the briefest of terms, two days later when Dr. Frischmann replied to NIOC's letter of 16^th June. It is, perhaps, not in the least surprising that NIOC should, at this point, have decided to put Pell Frischmann on formal notice that matters could not be left to drift indefinitely.  It would not be unreasonable to assume that they had been willing to defer doing so in the light of the possibility of a joint venture being concluded between Pell Frischmann and Monument, but, with things evidently moving more slowly than expected and Monument now wanting to conduct an extensive trawl through reservoir data, they felt that a clear indication of growing impatience was in order.   

203.   Dr. Frischmann and Mr. Mohandes evidently spoke on the telephone shortly after the receipt by Pell Frischmann of NIOC's letter, and noted, among other things, the fact that it had been copied to Bow Valley.  In a message to Dr. Frischmann the following day Mr. Mohandes wrote:

"Further to our discussion of yesterday, through a very confidential source I learned that when Dr. N. [Dr. Hosseinian] met Bow Valley reps., B.V. stated that PFE did not have more than $2MM capital and will not be able to raise the capital to do the project and provide the Bond, also they stated that BV were the only experienced member of the team except an Iranian named.  Mohandes and are prepared to handle the project on their own.

Dr. N. told them the only way that they would consider them would be in association with PFE.  That was the end of the meeting.  Now I can understand why the fax was copied to BV."

204.   Also on 17^th June, Bow Valley wrote to Pell Frischmann rejecting Pell Frischmann's complaint about direct contact with NIOC: 

"We acknowledge receipt of your letter dated June 12, 1997 in respect of the Balal Project.

I wish to point out that Bow Valley has not only assisted Pell Frischmann significantly on the Balal Project, but has honoured each and every obligation undertaken to you.  Consequently, we find your comments more than a little inappropriate.

You were duly informed that Bow Valley was notifying NIOC that we could not proceed at this time by reason of our inability to reach agreement with Pell Frischmann on the terms of a joint venture.  As Pell Frischmann utilized the name of Bow Valley on the Balal tender, NIOC perceives us to be jointly responsible for the actions of our consortium, and we have both the right and the obligation to advise them of corporate decisions which may affect their Country.  Moreover, and as you are well aware, NIOC previously wrote to us directly regarding financing of future projects in Iran, and our letter to them also addressed that possibility.

In all of our communications with NIOC, we have indicated that Bow Valley would only proceed with the Balal Project if agreement were reached with Pell Frischmann.

Our relationship does not extend to projects other than Balal and Soroosh, and we neither require nor solicit any contracts or approval of Pell Frischmann as to the appropriate conduct of business in Iran.  Furthermore, the directors and officers of Bow Valley will not allow the unilateral actions of Pell Frischmann to compromise its corporate standing and reputation in the international petroleum industry.

If Pell Frischmann wishes to salvage the Balal Project, we remain willing to conclude an arrangement with you but certainly not under the terms that you have proposed.  If you do not wish to proceed, your unequivocal and forthright advice to that effect is in order and would be appreciated".

205.   Mr. DeBoni was in London at the time when the copy of NIOC's letter was received by Bow Valley in Calagry. In a fax message forwarding a copy to him the same day Mr. Blair said "Walt, attached is a copy of NIOC's letter received today - This should serve to adjust PFE's attitude somewhat!"

206.   On 18^th June Dr. Frischmann replied to NIOC, thanking Mr. Rahimi for his letter and saying:

"We are pleased to inform you that we have made good progress with Monument Oil & Gas Plc in respect of the possible Joint Venture for the development of the Balal field in substitution for Bow Valley Energy Ltd. This has become necessary, as we informed you on 2^nd June, because despite several months of detailed negotiations with Bow Valley it has proved impossible to reach agreement." (Emphasis added.)

Monument, he said, had written confirming their intention of arriving with the Pell Frischmann representatives on Saturday 21^st June and meetings were requested with Dr. Hosseinian,  Mr.Jalilian, and NIOC technical and legal people, if possible between 21^st and 23^rd June:

"We are hoping to receive NIOC agreement in principle for the inclusion of Monument Oil & Gas as our joint Venture partner, following our visit to Tehran.  Following NIOC's agreement it would be our intention to submit with Monument Oil & Gas Plc, the documents you requested in your letter of the 16^th June."

      

207.   On 19^th June Mr. Blankenburgs of Monument wrote to Mr. Rahimi introducing his company and requesting meetings "to discuss Monument's possible participation in Iranian Field Development Buy Backs and the Balal Field with Pell Frischmann in particular."  As regards Balal itself, said Mr. Blankenburgs, "I can confirm that we have reached an understanding about Monument's possible participation in Balal with Pell Frischmann, subject to our discussions with you, your department and NIOC about this and other projects."      

208.   But much of the letter was devoted to emphasising Monument's current activities in Iran and Turkmenistan, future co-operation with NIOC generally, and oil swap arrangements in particular.  The strong impression given by the letter is that Monument saw the forthcoming visit as a valuable opportunity to discuss future relations with NIOC at least as much as a chance to secure participation in the Balal project.  Mr. Mohandes evidently felt much the same way.  Writing to Dr Pendered he said

"........Jalilian has questioned Monument.  The first step should be to give presentation to Jalilian and get NIOC to approve them.  NIOC normally investigate a company before accepting them.

Reading Monuments letter to NIOC, I am concerned that we are going to get adverse reaction.

If monument wants to talk other business with NIOC why didn't they ask for visa directly, their letter indicates that Balal is a minor issue of their visit." 

Also on 19^th June, Dr. Frischmann received the letter from U.S. Senator D'Amato to which we have already referred.

209.   Recognising, we suspect, that a deal with Monument was far from assured, Dr. Frischmann also appears to have been in contact with Crescent Petroleum around this time. In a fax from Mr. Mohandes to Dr. Frischmann on 19^th June he reported having received a message from a Mr. Kiani that

"CRESCENT PETROPLEUM in association with ENTERPRISE are now prepared to support you one hundred percent....If you do not reach any understanding with Monument for any reason, or they are not accepted [by NIOC] on Saturday, I am supposed to pass a message and arrange a meeting.  Alternatively you may wish to contact Kiani right now...".

And a letter from Crescent a few days later makes reference to a meeting with Dr. Frischmann the previous week and Crescent's interest in proceeding further with the project.

210.   But quite apart from an oil company partner in place of Bow Valley, Pell Frischmann still needed a source of project finance.  Negotiations with UBS were continuing but had not yet come to fruition and it was at this point, therefore, that Dr. Frischmann evidently decided that it would be prudent to re-establish a dialogue with ANZ Investment, some two weeks after he had stalled further discussions with them just before he left for Majorca.  Writing to Mr. Shepherd on 20^th June he referred back to his letter of 6th June, said that he had retuned early from his holidays for discussions with Monument who had expressed interest in Balal but with whom Pell Frischmann had not reached agreement, enclosed a copy of NIOC's 15-day letter and mentioned the forthcoming discussions in Tehran.  He had, he said, been hoping for a more detailed proposal from ANZ after several weeks of meetings and discussions, and asked Mr. Shepherd to reconsider his draft letter of 6^th June and to confirm that ANZ would become "provider/arranger of the debt" required for the development of Balal and would "commit to underwrite the debt at this stage, but of course you would have the right to syndicate the debt as you wish".  "You will see from the letter from NIOC dated 16^th June", he wrote, "that we have been given 15 days to commit ourselves fully and now we have a very short time left.  If your Bank can help, I am confident that we can agree the appointment of ANZ to act for us, and we will also attempt to convince Monument that we should appoint you to act for both of us".

211.   Mr. Shepherd's response was a blunt rejection of the suggestion that ANZ had at any stage committed themselves to underwriting the debt finance, as opposed to arranging it, and a protest at Dr. Frischmann's failure to respond earlier to what ANZ believed to be a fair proposal based on their meeting with Pell Frischmann on 5^th June:  "You did not respond with any counterproposal for two weeks and it is now inappropriate to once again discuss a commitment to underwriting".  ANZ remained willing, he said, to act as an advisor to Pell Frischmann or to a Pell Frischmann/Monument consortium and to be involved as an arranger of debt finance.  "At this stage we believe that it is appropriate to consider the former option as, despite your offer to do your "utmost" (as you stated at our last meeting) to convince Monument to accept the latter, an unsolicited telephone call from Monument suggested that they would not welcome such a proposal."    

212.   The Pell Frischmann/Monument delegation eventually arrived in Tehran on Saturday 21^st June. It consisted of Mr. Patrick, Mr. Burdon and Mr. Blankenburgs from Monument and Mr. Dorr and Dr. Pendered from Pell Frischmann. Detailed reports of the visit are contained in notes by Mr. Dorr and Dr. Pendered (who were joined in all of them by Mr. Mohandes).  According to Mr. Dorr's notes, informal discussions on the flight to Tehran had confirmed that Monument would need to complete their "due diligence" and review the financing before committing themselves to the project, and would also need to assess potential problems arising from U.S. sanctions "and the possible repercussions thereof on existing debt finance for projects elsewhere".  At a meeting between Pell Frischmann and Monument on 22^nd June Monument had also confirmed that no bond would be issued until the financing arrangements were in place and had been "cleared through the Banks Credit Committee" (probably a reference to UBS). Monument also estimated that the bank would probably need "4-8 weeks for their own engineering assessment, apart from any financing considerations per se" and that Monument itself would need two to three weeks to complete their own due diligence.

213.   On reporting this to Dr. Frischmann by telephone after the meeting, Dr. Frischmann was (according to Mr. Dorr's report) far from pleased:

"...you [Dr. Frischmann] expressed your view that you did not understand why they still needed due diligence and thought they would issue the bond as promised.  I advised you that this was contrary to my impression following my own discussions with them.  You also advised me that, in view of this, you now wished to exclude Monument from the meeting with NIOC, which seemed [semble, to Mr. Dorr] inappropriate since the whole purpose of the visit was to present Monument's credentials, get them accepted as a partner, give them insight into NIOC's methods of operations and meet their key staff".

Mr. Dorr's advice prevailed and the meetings, attended by Monument as planned, went ahead: first, with representatives of NIOC on the technical and legal sides sometime on 22^nd or 23^rd June; then with Mr. Rahimi on the afternoon of 23^rd June; then with Mr. Jalilian later the same day; and finally with Dr. Hosseinian on 24^th June. In between there were further discussions between Pell Frischmann and Monument. 

214.   In the course of the first two meetings, finance was identified as the main unresolved issue; Monument explained, that they would not be able to commit themselves to the project and that they would not be in a position to issue a bond within the 15-day deadline, even on the basis that a further three months for completion of financing might be allowed by NIOC; Mr. Rahimi explained that the deadline had been imposed by the Minister and could not be altered; and a suggestion by Mr. Patrick that the bond be issued "subject to financing" (meaning, presumably, on the basis that it was only to be effective if and when financing was secured) was rejected by NIOC as unacceptable.  Some scepticism on the part of NIOC was also expressed as to why Monument needed more reservoir data, though it seems that permission for Mr. Kaye to look at the data requested was, in the end, granted (he eventually arrived on 1^st July).

215.   At the meeting with Mr. Jalilian (following briefings by members of the NIOC team involved in the earlier meetings), Dr. Pendered rehearsed the various factors that had prevented Pell Frischmann completing arrangements for the contract since 21^st March.  These included (according to Dr. Pendered's own notes) "the fact that PFE were unable to reach a satisfactory agreement with Bow Valley and with Bakrie; the impact of the German Court Case (particularly on financial institutions); and the ongoing impact of the US sanctions (on both financial institutions and potential partners)".  He also explained that a number of oil companies had declined to become involved on the ground that the project was too small if taken in isolation in relation to other opportunities and the risks presented by US sanctions on their other interests.  Mr. Patrick explained that Monument needed more time to complete its own assessment of the position; that it would not be prepared to finance the project from its own equity; that external finance would, therefore, be required and that this would take some time to put in place (being deliberately vague as to precisely how long this might be).  Mr. Jalilian, for his part (according to a combination of Dr. Pendered's report and that of Mr. Dorr), stated that the continued delay was causing him and NIOC considerable embarrassment; that NIOC "had honoured their agreement and had not negotiated with any other party", and would still like Pell Frischmann to do the job; but that several others had, however, expressed their willingness to enter into the Contract (he implied on the same terms as those signed by Pell Frischmann).  Monument, he confirmed, was acceptable to NIOC.  But, because of "political and other pressures" the deadline could not now be changed and, if Pell Frischmann did not meet that deadline, NIOC would consider itself free of any obligation to Pell Frischmann and would start negotiating with others.

216.   Following this meeting, Mr. Dorr telephoned Dr. Frischmann and reported what had happened.  The relevant passage of his subsequent written report to Dr. Frischmann reads:

"I briefed you after this meeting, when you advised me that you would drop Monument, if there was no bond issued by Friday, and issue the bond yourself".

That written report then goes on to refer to discussions later that day between Mr. Dorr and Mr. Patrick concerning Dr. Frischmann's expectation that Monument might issue a bond themselves if necessary.

"He [Mr. Blankenburgs] said that, although initially during the meeting with you [Dr. Frischmann], he had said a bond could be issued, this was based on statements made at the time by yourself, and information to be received from you, which subsequently were not forthcoming.  Following receipt of your [Dr. Frischmann's] letter*, he telephoned you to say that the condition regarding that point was not acceptable.

You advised me later that evening that you wished me to have a meeting with Crescent and that the Bond you referred to earlier would be in PF's name, but backed by a third party, which would require the association with Monument to be discontinued.  I advised you that I thought it was inappropriate to start discussions with another party unless Monument had been advised, to preserve our credibility with them, and indeed the client.  As such it was agreed that we would not pursue this, and Mr. Mohandes subsequently told me that you would talk to Crescent yourself in London".

(* It is not evident to what letter this was a reference.)

217.   The meeting with Dr. Hosseinian the following day was arranged by Mr. Rahimi at Pell Frischmann's request "partly", as Dr. Pendered's report put it, "as a courtesy, but also in response to the fact that that Rahimi's team were clearly not authorised to discuss any extension of time".  By then, Mr. Patrick and Mr. Burdon had returned to London and those present at the meeting were Dr. Hosseinian, Mr. Blankenburgs, Mr. Dorr, Dr. Pendered and Mr. Mohandes.  Dr Pendered opened the meeting with an account of the history of the difficulties that Pell Frischmann had faced similar to that given to Mr. Jalilian the previous day.  Mr. Blankenburgs then made a brief presentation about Monument and its strategies for the Caspian region and Iran.  Questioned by Dr. Hosseinian about Monument's current position in relation to Balal, his response was similar to that given to Mr. Jalilian, with particular reference to the need to arrange finance and the time that this would take. Dr. Hosseinian's response was evidently fairly uncompromising.  According to Dr. Pendered's written report:

"At this point, Dr Nejad Hosseinian's attitude changed from polite and patient listening to that of clearly being very annoyed and giving a very firm statement of NIOC's position.

He stated that NIOC had come to realise that they had made a serious mistake in initiating a contract with PFE alone.  PFE were only an engineering company and NIOC should have insisted in having all the parties of the proposed Joint Venture sign the contract.  (i.e. They now realised that an Oil Company operator was essential for the execution of the Contract.)

He again stated that NIOC had honoured its agreement in holding the position open until this time.  He stated that many parties had expressed interest in taking the contract for this project - Iranian, British, Chinese.  He stated that Bow Valley had confirmed that they would be prepared to take the contract.

He turned directly to Andris Blankenburgs and stated that NIOC would be happy to receive a bid from Monument.  It was up to Monument whether they did so with PFE and that NIOC would be happy to receive this directly from Monument.  He stated that Monument did not need PFE.  PFE was only an engineering company and that Monument could select any such capable company as they required...

Dr Nejad Hosseinian stated that PFE had wasted NIOC's time for long enough.  They had been set a dead-line.  This dead-line would not be extended and beyond this dead-line NIOC would be free to take whatever action (with other parties) that they saw fit.  Dr. Nejad Hosseinian stated that the dead-line did not just apply to the submission of a Bank Guarantee.  As stated in their fax, they also required by the deadline the joint venture agreements with whoever PFE chose to work and also detail of the financing arrangements.  In response to questioning, he accepted that the financing proposal needed to be sufficiently detailed and positive at this stage, but need not necessarily be in completed detail (which he accepted would take further time to arrange)."

218.   Mr. Dorr's report was shorter:

"JP apologised for the delays incurred so far and Monument presented their corporate background and intention for Iran.  Mr. Hosseinian advised, in a pointed manner, that issue of the bond alone would not be sufficient and he would require to be satisfied on all three points of the letter, ie the bond, the jv agreement and a firm indication of finance availability.  He also mentioned that he considered it now to be a mistake that a contract had been signed with PFE; he blamed his team for this and said that they should have signed with the jv, or preferably with an oil company.

He addressed AB directly and told him that, as far as he was concerned, Monument was acceptable and they could approach NIOC directly if they so wish, either with or without PFE.  He also said that he did not consider it was essential to use PFE as their capabilities were available from a large number of consultants and contractors.  According to him there are a number of companies lined up, ready to sign, with finance arranged, including Bow Valley.  He felt he had been misled by PF with promises that had not been honoured (he did not specifically mention the bond issued.)".

219.   One thing that Pell Frischmann did achieve, at the initiative of Mr. Mohandes, was an extension of the deadline by Dr. Hosseinian from Tuesday 1^st to Friday 4^th July having regard to the preceding week-end, when it would be difficult to deal with banks.

220.   Mr. Dorr's report ended

"Again we briefed you on the above, plus feedback from AB that Bow Valley had been visited by a representative from NIOC and allegedly stated that they were no longer pursuing the project.  We also received subsequent feedback that the extension of the deadline had been passed to NIOC's appraisal team. You confirmed that there was no need to request NIOC to return the bond already delivered."

221.   Mr. Dorr's report did not, on this occasion, record Dr. Frischmann's reaction to this final telephone "briefing."  But he can not have been a happy man.  Apart from securing NIOC's 'acceptance' of Monument as a potential partner and a short extension of time, the visit had achieved little as far as Pell Frischmann was concerned, while the opportunity for Monument to talk to NIOC about their own interests in the region generally had, no doubt, been of value to them.  Pell Frischmann's efforts to secure a significant relaxation of the deadline imposed by NIOC had failed.  His company had been roundly rebuked by the Minister in front of Monument.  If he was not previously aware that there was little chance of Monument making a firm commitment there and then, by the conclusion of the meetings he can have been under no illusions that anything was going to happen very quickly.  (On the face of Mr. Dorr's account of his telephone briefings to Dr. Frischmann from Tehran, there had proved to be a very considerable gap between Dr. Frischmann's expectations of the position that Monument would take and the more cautious approach adopted when it came to the Tehran discussions themselves - particularly as regards the issue of a bond and the need for more time to complete Monument's due diligence.  But, in the absence of more evidence than was before the court of what discussions had taken place between Dr. Frischmann and Monument in the week between Monument's letter of 13^th June and their team's departure for Tehran on 20^th June, it is impossible to do more than guess how it was that this gap came about.)

Discussion

222.   Pell Frischmann claims that Dr. Hosseinian's uncompromising stance at the meeting on 24^th June reflected the "chilling" effect of Bow Valley's success in sabotaging Pell Frischmann's reputation at their own meeting with the minister in Kuala Lumpur earlier in the month.  But this is wholly implausible.  Dr. Hosseinian had every good reason to have been disenchanted with Pell Frischmann by the time of the meeting on 24^th June: reasons that had nothing whatever to do with Bow Valley or Bakrie.  Pell Frischmann had bid for, and been awarded, the Service Contract as part of a consortium without, as it turned out, having agreed terms with its partners; it had given the impression that the necessary finance was available when it was not; it had repeatedly pressed NIOC to accept a performance bond from a 'bank' which was not among those on the NIOC-approved list and which was so private that no-one could readily establish its credentials; it had dropped Bow Valley as their prospective oil-company partner in favour of Monument and asked for NIOC's formal approval of this substitution.  It had then requested meetings in Tehran with NIOC and asked, belatedly, for special facilities for Monument's Mr. Kaye to have wide-ranging access to reservoir data (as noted earlier).  But when Dr. Pendered and Mr. Dorr eventually arrived in Tehran with the Monument team, it had rapidly become evident that they were still a long way off agreement on the terms of any joint venture, and that Monument was certainly not going to be lodging any bond or bank guarantee in the immediate future.  Pell Frischmann had then asked for a meeting with the Minister, only to try to persuade him to extend a deadline that Mr. Rahimi and Mr. Jalilian had already made clear was not going to be changed. And to add insult to injury, the leading member of the Monument delegation had by then already left for London.     

PART 8

 

NEGOTIATIONS WITH BOW VALLEY & BAKRIE RENEWED

223.   On Wednesday 25th June, the day following the conclusion of Pell Frischmann's unpromising meetings with Monument and NIOC in Tehran, and (we have no doubt) in response to these developments, Dr. Frischmann telephoned Mr. DeBoni in Calgary.  There is no documentary record on either side of what was said and the conversation as such was touched on only en passant during the oral evidence.  But the timing of the call and the terms of the ensuing correspondence suggest that Dr. Frischmann's main purpose was to attempt to re-activate earlier negotiations about a possible buy-out by Bow Valley/Bakrie of Pell Frischmann's interest in Balal, and in that it was successful.  There is no indication of Dr. Frischmann having said anything about events in Tehran in the immediately preceding days. On the contrary, speaking of the events of 25^th and 26^th June, Mr. Blair said in evidence 

"......we really had nothing back from Wilem that was meaningful until just right at the end of June. .. ..........But the things that spurred this forward were twofold.  One the letter from NIOC but, secondly - and we only found out this subsequently and I only saw it in writing as recently as yesterday and the day before - was that he had dispatched his people to Tehran and they had had meetings with NIOC on 23^rd and 24^th and clearly they did not work out very well so he was quite keen to get back to us and see if he could not do something.  I mean, this was a pretty unusual way to do business but this was the background to it."

224.   On 26^th June Mr. DeBoni wrote to Dr. Frischmann saying that, having spoken to Bakrie, they were prepared to make a revised offer "for an assignment of the entire interest Pell Frischmann may have in the Balal Contract".  The essence of it was an offer to Pell Frischmann of (a) a cash payment of US$3 million on NIOC's execution of the Service Contract and official notice of Bakrie's novation as a party, and (b) a 12 ½ % royalty of profits derived from the Remuneration Fee (net of Capital Cost overruns not covered by changes in the scope of the works and net of bank charges not recoverable under the Contract).  Commenting on the offer, Mr. DeBoni wrote:

"Our offer reflects the reality that recent pressures related to the U.S. sanctions have made it more difficult and more costly for us to secure project financing.  In addition, our Iran advisors point out that the large reductions which were negotiated in the Remuneration Fee and Capital Cost have significantly compromised the value of the Contract. Should you find our offer acceptable, we would be prepared to move forward immediately to finalize documentation with you and provide the requisite bank guarantee to NIOC."

The offer would be held open, he said, until the 19.00 hours, London time, on Monday 30^th June.

225.   Asked by Mr. Costa, on behalf of Bow Valley, why Bow Valley had made this revised offer, Mr. DeBoni said "This is - we felt our last possibility of reaching an agreement with Dr. Frischmann. We felt that the time was short and after expiry of NIOC's 15 days, that we would both lose the Balal contract.....we were convinced in our own minds that NIOC would go to the number 2 bidder."

226.   Dr. Frischmann replied the next day thanking Mr. DeBoni for "dealing with this matter so quickly as I am sure you know that we have been given limited time by NIOC".  He referred to the revenue that he foresaw as flowing from the right to sell 75% of crude oil derived from an "early production system": these, he said, had dramatically improved the cash flow from the development and the profit potential.  On that basis he said that he would be prepared to assign Pell Frischmann's interest against a total cash payment of US$ 12 million: US$ 3 million on NIOC's assignment of the Balal Contract to Bow Valley and Bakrie, followed by further payments of US$ 4 million and US$ 5 million 18 months and 3 years and 3 months thereafter, the deferred payments to be guaranteed by an acceptable bank or covered by letters of credit.  In conclusion, he said "If you find these terms acceptable, we need to move forward immediately. I am going away tomorrow morning [Friday 27^th June] to Majorca, but would be willing to travel back to London on Monday to meet with you here to conclude the contract for the transaction.  If possible please give me a ring today".

227.   A brief fax from Dr. Frischmann also dated 27^th June, giving the numbers for his telephone and fax lines in Majorca and contact numbers for Mr. Sarch, makes reference to a telephone conversation with Mr. Blair, suggesting that the latter had called as requested.

228.   On Sunday 29^th, Mr. DeBoni replied to Dr. Frischmann's letter of 27^th June with a counter offer of US$ 7.5 million to be paid as to US$3 million on execution of the Service Contract by NIOC, US$ 2 million 3 months after achievement of either Early Production or First Production, and US$2.5 million 12 months after achievement of First Production.  Apart for the amount of the two deferred payments, the crucial difference was that these payments were geared to performance rather than fixed periods of time. Mr. DeBoni explained that Bow Valley attached less value to the possibility of Early Production than Pell Frischmann evidently did, and also added that they did not regard what Dr. Frischmann had said about assurances from NIOC that they would be entitled to 75% of any crude derived from Early Production as affecting their assessment of the economics of the project because "we had understood from our earlier discussions that we would be entitled to 100 percent".  He suggested that documentation be handled by fax and courier (rather than trying to meet in London) having regard to "the logistical difficulties associated with current travel commitments": as Mr. DeBoni explained his opening paragraph, in Canada they were in the middle of a long public holiday week-end.  This counter-offer would remain open until 1900 hours, London time, on Wednesday 2^nd July.

229.   Dr. Frischmann replied on 30^th June proposing payments of US£3 million on execution of the Service Contract, and payments of US$3 million and US$4.5 million at 18 and 30 months, respectively, after that. A sequence of further offers and counter-offers continued to be exchanged between the two sides over the course of the following week. 

Discussion

230.   This is an appropriate place to consider another of Pell Frischmann's allegations.  A central plank in its conspiracy case is that Bow Valley/Bakrie's negotiations with Pell Frischmann from the time of the Jakarta meeting in April onwards were conducted in bad faith, with no genuine intention of trying to reach an agreement with Pell Frischmann, the object being quite the opposite: to oust Pell Frischmann from Balal and to acquire the contract exclusively, or almost exclusively, for themselves.  In relation to the period following the break-down of the buy-out discussions at the end of May, and throughout June, this allegation assumes a sharper focus, particularly following the meeting between Bow Valley/Bakrie and NIOC in Kuala Lumpur on 5^th June and even more so in the light of the issue of NIOC's 15-day letter on 16^th June, the allegation being that throughout this period Bow Valley and Bakrie deliberately dragged their feet, so far as further negotiations with Pell Frischmann were concerned, in the knowledge that time was running out for Pell Frischmann and that if they just sat tight the contract would be theirs. 

231.   The way in which Pell Frischmann put its case can be illustrated conveniently by reference to some of the passages of its written closing submissions.  First, dealing with the lead-in to Bow Valley's letter of 26^th June making a fresh offer to buy out Pell Frischmann, the following statement is made:

"It will be recalled that the state of the buy out negotiations were that the last offer was made on 23^rd May.  Bow Valley had informed Pell Frischmann on 27^th May - the day that it wrote to the Minister - that it had withdrawn from negotiations.  Pell Frischmann had written on 2^nd June to invite further negotiations.  When invited to suggest terms on 10^th June, on 12^th June Pell Frischmann had resurrected its offer of 22^nd May.  That offer was roundly rejected by Bow Valley on 17^th June.  On 25^th June, Mr Blair drafted a new offer to go to Pell Frischmann.  This was to be Bow Valley's first serious step in negotiations for over a month." (Paragaph 415. Emphasis added).

232.   But this gives anything but a fair impression of what had actually happened.  The fact of the matter is that the deadline of 27^th May for acceptance of  Bow Valley's offer of 23^rd May had come and gone without any response from Dr. Frischmann; he had not replied (rejecting the proposal) until six days later on 2^nd June; the parties had appeared at that stage to have reached an insoluble  impasse; further limited exchanges between the two sides over the next three weeks had resulted in nothing more than a re-iteration by Pell Frischmann of its offer of 22^nd May, and a clear statement by Bow Valley that if Pell Frischmann wanted to take things further it was up to Dr. Frischmann to take the initiative: "If Pell Frischmann wishes to salvage the Balal Project, we remain willing to conclude an arrangement with you but certainly not under the terms you have proposed." In short, neither side was prepared to budge.

233.   Meanwhile Dr. Frischmann had spent the past month or so conducting negotiations with other possible partners, including Monument and showing no sign of wishing to have anything further to do with Bow Valley and Bakrie.  Against this background, to describe the drafting of a fresh proposal by Bow Valley on 25^th June as "Bow Valley's first serious step in negotiations for over a month" is wholly tendentious; it also ignores the circumstance which prompted the fresh proposal from Bow Valley and Bakrie, namely Dr. Frischmann's telephone call to Mr. DeBoni following news of the unpromising meetings with Monument and NIOC in Tehran.  One might equally well describe that call as "Pell Frischmann's first serious step in negotiations for over a month".        

234.   Elsewhere in its submissions Pell Frischmann speaks of Bow Valley and Bakrie having "dragged their feet" and of them "delaying and obstructing" the negotiations (paragraphs 421 and 422).  And when it comes to Bow Valley's response to Pell Frischmann's letter of 27^th June, the following is said:

"The day it received Pell Frischmann's letter, Mr Blair telephoned Mr Peltier: no documents have been disclosed as to this conversation.  Later, Mr Burns, Mr Colbourne, Mr Cummings and Mr Blair had a discussion and reviewed the Pell Frischmann offer and drafted a reply  (this was faxed to Mr DeBoni with a request to discuss: no documents have been disclosed as to this discussion).  Mr Blair telephoned Mr Hainim in the evening: no documents have been disclosed as to this conversation.

Saturday 28^th June was another heavy day for Mr Blair.  Mr DeBoni telephoned him first thing in the morning.  Mr Blair then telephoned Mr Seaman and then Mr Peltier; he also spoke to Mr Burns: no other documents dealing with the contents of these four conversations have been disclosed.  As mentioned above, Mr Seaman was only contacted when there is something of importance to discuss.  

Later, Mr Blair telephoned Mr DeBoni and sent him a fax.  The fax was sent to the Radisson Suite in Toronto (fax number 416 242 9888) and was sent at 2.47 pm and concerned the question when Bow Valley should send its reply to Pell Frischmann's 27^th June offer.   It will be recalled that the reply was ready to go out on 27^th June and that, at Mr Blair's suggestion in his covering fax, they delayed actually sending it until Sunday 29^th June.  They thereby slowed down the negotiations: to use a phrase which Mr. Sarch used later in July, they were playing for time.  Bow Valley and Bakrie both knew that for Pell Frischmann time was going to be called at the end of [the] 15 day period, when they would be invited to sign the Balal contract.  Pell Frischmann did not know this: Bow Valley and Bakrie both knew that Pell Frischmann was in that state of ignorance.

Bow Valley's reply was ultimately sent on Sunday 29^th June (just before 8 pm London time).  It imposed a time limit of 19.00 hours Wednesday, 2^nd July, 1997 (London Time) and contained the following: "We regret that we have lost a couple of days in responding as we are in the middle of a long holiday weekend in Canada".  This was a multi-million dollar contract. When Bow Valley needed to act swiftly, such as when they dropped everything in order to meet the Minister in Kuala Lumpur, they did so. In any event, the documents show that the weekend had no part in Bow Valley's delay in responding."   (Paragraphs 430 to 433).

235.   The impression sought to be given is of a web of intrigue and calculated procrastination.  But once again such characterisation of the evidence is, with respect, a nonsense.  The position could not be plainer.  Dr. Frischmann got a written response to his telephone call to Mr. DeBoni (on Wednesday 25^th June) the very next day. Having sent off his counter-offer on Friday 27th he also received a telephone call from Mr. Blair that same evening.  The Canada Day holiday weekend in Canada was beginning and people were no doubt starting to disperse here and there: Mr. DeBoni, for a start, appears to have been in Toronto.  The number of telephone calls that Mr. Blair had to make almost certainly reflects no more than the need to consult as many members of the Bow Valley board of directors as possible as well as Bakrie.  Faxing copies of Dr. Frischmann's letter to Mr. DeBoni at "The Radisson Suite, Toronto Airport", together with a suggested form of reply as discussed with Mr. Cummings, Mr. Colbourne and Mr. Burns (but not, as yet with others) Mr. Blair wrote "Walt, Could we discuss at the attached by phone (294-0283) at your convenience.  I would like to fax our response by Monday morning" (emphasis added).  And the following afternoon, having spoken to Mr. Seaman, Mr. Peltier and Bakrie again, he sent a further fax to Mr. DeBoni (to the same destination) saying "My feeling is that we should go with the offer as outlined in the draft sent to you on Friday, and try to fax it to PFE around noon tomorrow, Calgary time.  I am going out to play golf this evening, but should be back around 10.30 p.m. If you are still up, please give me a call - otherwise, I'll call you at 8:30 a.m. tomorrow, Toronto time" (emphasis added again).

236.   To suggest, as Pell Frischmann does, that Bow Valley's response was ready to go out on Friday 27^th June and that, at Mr Blair's suggestion in his covering fax, they deliberately delayed sending it until Sunday 29^th June is, on every count, simply not warranted.  It is plain that the response was not "ready" on Friday 27^th.  For a start, although it had been faxed to him at the address given, there is no evidence that Mr. DeBoni saw and approved it that day.  It is plain that neither Mr. Seaman nor Mr. Peltier was contacted until the following morning. Neither of Mr. Blair's covering messages suggested that the reply be "delayed".  His first fax to Mr. DeBoni on the Friday simply said "I would like to fax our response by Monday morning", no doubt anticipating that it might be difficult to contact everyone who needed to be consulted much before then; and his fax second, on Saturday afternoon 28^th June, simply reflected the logistics of the situation, given that he plainly anticipated that it might be Sunday morning before he was able to speak to Mr. DeBoni, in whose name the letter would be sent.  Nor is the absence of any Bow Valley documentary records of the conversations referred to - a matter to which Pell Frischmann alludes repeatedly - something that we find surprising, let alone suspicious:  Mr. Blair plainly had his work cut out trying to contact everyone, and no doubt had better things to do on a holiday weekend than sit around making meticulous file notes of every telephone call with his colleagues. 

237.   Contrary to Pell Frischmann's case, the natural reading of these documents against the background of the circumstances in which they came into existence suggests that, far from deliberately delaying Bow Valley's response, Mr. Blair was anxious to get it off as soon as he could, and that, all in all, he did well to succeed in dispatching it when he did.

238.   The truth of the matter, as Dr. Frischmann himself revealed when being examined in chief by Mr. Speck, was that if anyone was trying to slow things down it was Dr. Frischmann.  Asked by Mr. Speck about his counter-offer of 30^th June, he said

A.  "I just tried it on. I just wanted to see what would happen.  Try on.  Tried to negotiate slowly.  Q.  "But of course the problem with negotiating slowly, Dr. Frischmann, is did you consider you had the luxury of time?  A.  I have learnt something in life.  If you are in doubt, take time.  I just wanted to have one more move of the chess piece.  Not threatening them.  I just wanted to be sure that was their ultimate figure." 

239.   The allegation of lack of bona fides on the part of Bow Valley and Bakrie in their negotiations and absence of any genuine intention to try to reach agreement is also diametrically at odds with other contemporaneous documents.  This is not to say that Bow Valley and Bakrie did not welcome NIOC's imposition of the 15-day deadline: they clearly did. But as a spur to Dr. Frischmann to moderate his negotiating stance, not as a means of depriving him of the Balal contract. 

240.   The first document is a fax from Mr. Blair to Mr Burns and others at Bakrie on 10^th June enclosing with a copy of his letter to Dr. Frischmann the same day and commenting "Hopefully this will help to condition his reaction to NIOC's letter", that clearly being a reference to the expected but as yet un-issued 15-day letter.  The letter to Dr. Frischmann from Mr. Blair, was largely concerned with justifying Bow Valley/Bakrie's direct contact with NIOC, but toward the end he had added

"From your letter (and our earlier discussions by telephone) it is evident that the parties involved have significantly different perceptions of value relative to the Balal contract.  I also note from your letter, however, that you retain some optimism that a resolution might be reached between our companies.  While I too hold out hope that an accommodation may be possible, support for the project among our directors has been eroded by the lack of an agreement and the requirement to finalize disclosure documentation for our initial public offering."

It was, no doubt, to this passage that his comment to Mr. Burns was directed. And the meaning of that comment, as we see it, can only have been that he hoped that his letter would have the effect of inducing Dr. Frischmann to adopt what Bow Valley and Bakrie would regard as a more realistic assessment of the value of his interest in the Balal project buy-out and would cause him to think it sensible to return to the negotiating table when the letter from NIOC landed on is desk.

241.   In the same vein, when sending a copy of NIOC's letter (as received by Bow Valley direct from NIOC that morning) to Mr. DeBoni on 16^th June, Mr. Blair commented "This should serve to adjust PFE's attitude somewhat".  Again, the meaning is clear: "This should help to persuade Pell Frischmann to re-open negotiations with us."  What else could it mean? Encourage him to walk away from the contract and leave the field clear for Bow Valley and Bakrie?     

242.   There was every good reason why Bow Valley and Bakrie should want to reach an agreement with Dr. Frischmann.  The contract was in Pell Frischmann's name.  If Bow Valley and Bakrie had ever harboured any idea of trying to persuade NIOC to revoke its award to Pell Frischmann (and, while there may have been some hard-liners in either camp who would have liked to do that, we find no evidence of any considered decision, or attempt, to do so), it can only have been very short-lived.  By the beginning of June, NIOC had made it abundantly clear that they would continue to work with Pell Frischmann unless and until it dropped out: this was the clear message that Mr. Kamarianakis had been given by Mr. Mirhadi in their meeting on 2^nd June, and which had been relayed to Mr. DeBoni in Mr. Kamarianakis's fax of 3^rd June,

"We discussed the Balal contract and he stated that preliminary contract assignment has been given to PFE.  He stated that this limits their ability to discuss the awarding of Balal to other parties.  NIOC must continue to work with PFE unless and until they drop out in which case, they would most likely revert to the number 2 candidate.  However, depending on the legal aspect of your relationship with PFE, there may be room for maneuver" [sic] 

and nothing that had occurred at the Kuala Lumpur meeting suggested otherwise. Mr. Mohandes's understanding was in part at least the same: referring to the meeting between Bow Valley and Dr. Hosseinian  in a fax to Dr. Frischmann dated 17^th June, he wrote: "Dr. N. told them the only way they would consider them would be in association with PFE. That was the end of the meeting.  Now I can understand why the fax was copied to Bow Valley". The imposition by NIOC of a time-limit for conclusion of an agreement was going to, and did, operate as a spur to both parties to sort out their differences or face the risk of both losing the Balal contract altogether.    

PART 9

 

MONDAY 30^TH JUNE TO SUNDAY 6TH JULY 1997

 

Monday 30^th June

243.   On Monday 30^th June: Mr. Blair forwarded Dr. Frischmann's latest offer to Mr. DeBoni (who was still in Toronto), commenting "This is only marginally better than their previous (June 27th ) proposal............You will note too that they are still tying the payments to time rather than production which is unacceptable".

Tuesday 1^st July

244.   On 1^st July Dr. Frischmann received a further fax from  Dr. Rahimi:

"This is to inform you that while we emphasize on the subject of our letter No.BBP240 dated 16 June 1997, we draw your kind attention to the following points:

1         Upon submission of the "Bank Guarantee" as per bank guarantee form which has already been sent to you, according to the determined date, we expect the contract that have already been agreed to be signed not later than July 10,1977.

2.        The necessity of having signature of "Monument Oil and Gas PLC" (which has been introduced as your partner in this contract) on contract simultaneously.

3.        The documents confirming your joint cooperation (PFE and Monument) concerning implementation of this contract shall be submitted to NIOC not later than July 10,1997."

245.   Exactly what prompted this message is not clear.  We can only assume that it resulted from some further exchange between Pell Frischmann and/or Monument and NIOC. Negotiations between Pell Frischmann, Monument and ANZ Investment Bank were still active and Mr. Lindsay Kaye of Monument was arriving in Tehran that afternoon in order to examine reservoir data and was planning to remain until the Thursday, 3^rd July.

246.   Having received this fax from Dr. Rahimi, Dr. Frischmann dispatched a copy to Mr. Shepherd at ANZ Investment Bank under cover of a letter (copied to Monument) requesting Mr. Shepherd to telephone and adding "You will see that they insist that we provide the Bank Guarantee by Friday 4th July and sign the Service Contract by Thursday 10th July.  To enable us to structure a deal with Monument we need a letter from ANZ which, I hope, will make a commitment from ANZ."

247.   At much the same time Dr. Frischmann also sent a copy of Dr. Rahimi's fax to Mr. Blair at Bow Valley with the two references to Monument blanked out.  It was still a public holiday in Canada and in his accompanying letter, Dr. Frischmann apologised for disturbing Mr. Blair at home.  His letter set out a further counter-proposal in response to Bow Valley's letter the previous day, amounting to US$12.5 million in total, and then continued:

"We have received a communication from NIOC this morning (copy attached with names deleted for reasons of confidentiality putting further pressure on us to deal with the Bank Guarantee and also to sign the Service Contract no later than 10^th July.

In view of the urgency, and if you would like to do a deal, it would be advisable to conclude this today.  We must also determine the method by which you will raise the Bank Guarantees and agree with you the procedure for the payments

In the spirit of goodwill we strongly urge you to consider how we can best consummate the deal between us as we are under pressure from other parties but would like, if all is equal, to reach agreement with Bow Valley ". 

248.   Later Mr. Blair and Dr. Frischmann spoke at some length by telephone. Giving evidence of this conversation, or at least, a conversation between the two of them at some point at about this time, Mr. Blair said that Dr. Frischmann had spoken of Bow Valley and Bakrie being in a horse race - a race, in effect, with other companies - to be Pell Frischmann's partner in the Balal project. Bow Valley, Mr. Blair said, had heard rumours of such potential competitors previously, but this was the first time that it had really registered with him that Dr. Frischmann was serious about this.  He remembered the conversation because he was shocked at the sugestion and because it was a holiday weekend:  "I remember thinking to myself.  "What am I doing putting in all this work, dealing with someone who would do business like this?"".  That said, Dr. Frischmann was clearly making no secret of the way he saw things at this stage. 

Wednesday 2^nd July

249.   On 2^nd July yet further proposals and counter proposals winged their way between Pell Frischmann and Bow Valley.  Among other things, Dr. Frischmann wanted Bow Valley's agreement that Pell Frischmann's name would be deleted from the contract and that the terms of any deal would be kept strictly confidential and not disclosed to any third party "which includes NIOC, without the express consent of PFE".  Bow Valley's response to this was to say that they thought that NIOC might well demand evidence of any agreement concerning the deletion of Pell Frischmann's name and that such confidentiality might therefore be inappropriate in the case of NIOC.  

250.   Meanwhile, Dr. Frischmann wrote to Mr. Rahimi attaching a letter from ANZ Investment Bank addressed to Dr. Frischmann referring to the fact that they were "urgently reviewing the possibility of arranging debt finance for the Balal oil project" but before making their offer they required "certain information and confirmations" including confirmation from the Iranian Ministry of Finance or the Reserve Bank of Iran that they had given approval for the "monetarisation of oil."  This letter from ANZ Investment Bank was, no doubt, produced in response to Dr. Frischmann's request to Mr. Shepherd the previous day.  Mr. Rahimi replied, more or less immediately, that buy-back projects such as Balal were governed by special legislation and confirmation of the kind sought was not necessary - "as you have been informed in our previous meetings".  Dr. Frischmann then forwarded this reply to Mr. Shepherd saying "I do hope that we can have an offer from ANZ Investment Bank today, if possible, so that we can make the necessary arrangements with Monument."

251.   However, at some point later that same day a meeting evidently took place at Pell Frischmann's Manchester Square offices, between Pell Frischmann and Monument attended also, possibly, by ANZ Investment Bank and Crescent Oil, though who exactly was present in addition to Dr. Frischmann and Mr. Patrick, the Commercial Director of Monument, is unclear.  What is clear is that the parties failed to reach agreement on the terms of a joint venture for the development of Balal.   Mr. Patrick's letter to Dr. Frischmann the following day expressed disappointment, saying that he respected Dr. Frischmann's "decision to accept a competing proposal last night"; withdrawing Monument's proposal and noting "that neither Pell Frischmann nor Monument have any obligation to the other with respect to Balal."  In his reply, Dr. Frischmann expressed regret: "we were too far apart"; but went on to remind Monument that they had undertaken not to pursue the Balal project without Pell Frischmann and asking for the return of information supplied by Pell Frischmann to Monument.  

Thursday 3^rd July

252.   On the morning of 3^rd  July, Mr. Sarch wrote to Mr. DeBoni:

"Bill Frischmann is away from the office for part of the day due to a long standing invitation from one of our major banks to attend a luncheon at Wimbledon [This, we note, was "Wimbledon fortnight"].  In order to progress matters in view of the extreme time constraints, I enclose herewith a draft form of agreement which was prepared by Norton Rose.  Bill Frischmann will be returning to the office a little later and will be in touch with you regarding the outstanding matters". 

At some point late on 2^nd or early on 3^rd July, Bow Valley had also received a first draft buy-out agreement drawn up by Norton Rose on behalf of Pell Frischmann and on Thursday 3^rd July and Mr. Cummings had started to review it.  Later that day, Mr. DeBoni faxed a copy of Mr. Cummings's detailed comments to Dr. Frischmann noting that the underlying fundamental difference between the parties was the "trigger point" for operation of the agreement and the payment of the initial tranche of money by Bow Valley/Bakrie: Pell Frischmann wanted this to be execution of the agreement, whereas Bow Valley thought it should be approval by NIOC of the assignment.   

253.   That evening, following further conversations between them, Dr. Frischmann wrote to Mr. DeBoni reminding him of the terms of NIOC's letter of 16^th June and the documents that had to be received by them before the expiry of the deadline - which, as we have seen, had been extended from 1^st July to 4^th July by Dr. Hosseinian at the end of his meetings in Tehran with Pell Frischmann and Monument on 24^th June.  He enclosed a further draft of the proposed buy-out agreement that had been received from Norton Rose and also - importantly -  "the text of a draft letter which I would like to send to NIOC tomorrow morning.  If you agree to the text, all three of us could sign the letter or alternatively we could send separate similar letters to NIOC".  The text of the draft letter, which was addressed to Mr. Rahimi and dated 4^th July, opened with a paragraph referring to NIOC's letter of 16^th June and saying "we are pleased to confirm that we have now signed an agreement with Bow Valley/Bakrie for the Balal Service Contract and it is agreed that they will take charge, finance and execute the Service Contract".  It went on, among other things, to tell NIOC that it would be receiving the requisite bank guarantee "either today, 4^th July or 5^th July" and to say that Bow Valley and Bakrie would be visiting Tehran next week with a view to finalising and signing the necessary documentation before 10th July.

254.   Mr. DeBoni replied, sending back a copy of Dr. Frischmann draft letter to Mr. Rahimi marked up with a number of amendments (which included, among other things, revised wording concerning the bank guarantee - "It is expected that the guarantee in the form you require should be available within two days") and adding:

"We will be sending NIOC a parallel letter which will provide the same basic information.  We will call you at approximately 14:00h London time on July 4, 1997, American Independence Day: an auspicious occasion for up [sic] to sign an agreement on Balal!"

255.   Bow Valley's letter to NIOC appears to have been dispatched late in the evening of 3^rd July (Calgary time).  It was addressed to Dr. Hosseinian and copied to Mr. Rahimi and Mr. Jalilian.  It opened with expressions of appreciation for the meeting in Kuala Lumpur and continued:-

....

"Following the Kuala Lumpur meeting, our company and Bakrie have been making a concerted effort to finalize an arrangement with Pell Frischmann and we believe we are very close to bringing this matter to a positive conclusion and we should have an agreement in place within the next day or two.

Under the terms of our arrangement with Pell Frischmann, Bow Valley and Bakrie would be required to post the Bank Guarantee with NIOC.  This we are fully prepared to do, following execution of the appropriate documentation with Pell Frischmann.  In anticipation of securing this documentation, and in view of the timing considerations, we are proceeding to set up a Bank Guarantee which we hope to have in place within one or two days.  We will keep you or Mr. Rahimi informed on a regular basis on our progress in this matter

Please be assured of our best intentions to move forward with the Balal Project upon finalizing an arrangement with Pell Frischmann".

Friday 4^th July

256.   On Friday, 4^th July, Mr. Burns, on behalf of Bakrie, also wrote to Dr. Hosseinian.  He referred to Bow Valley's letter the previous day and confirmed that Bow Valley and Bakrie were "close to finalizing an arrangement with Pell Frischmann on the Balal Contract". As regards the provision of a bond, he wrote

"We were in the process yesterday of setting up a Guarantee with a Canadian bank; unfortunately, they belatedly expressed concerns because of the US sanctions.  Our plan now is to use a Bank Guarantee through one of the European or Japanese banks located in Jakarta but we will not be able to effect this until after the weekend when the banks reopen.

We would greatly appreciate your consideration in allowing us until the first of the week to post this bank guarantee.  We can assure you that we will expedite this process as soon as the banks in Jakarta reopen for business".

257.   Mr. Blair then sent a fax to Mr. Nirwan Bakrie:

"Nirwan, it appears we are very close to finalizing an agreement with Pell Frischmann.  The matter of the bank guarantee is still outstanding, however, and John Burns has written to NIOC requesting more time.  John has asked that I fax a copy of his letter to you in Jakarta; he will follow up with you by phone.  I think we are almost there!"

Further drafts of the proposed buy-out agreement were faxed to Bow Valley by Norton Rose.

258.   At some point in the course of this day, Friday 4^th July, Dr. Frischmann left London for Majorca.  According to his evidence, and Pell Frischmann's case, he had reached an oral agreement with Bow Valley the previous evening as to the commercial terms of the buy-out and, together with Mr. Sarch had "carefully briefed" Norton Rose.  Mr. Sarch, he said, had been left to supervise completion of the necessary legal documentation.

259.   Before he left, Dr. Frischmann wrote to Dr. Rahimi.  It was not, however, a letter in anything remotely like the terms of the draft that he had sent Mr. DeBoni the previous day.  For a start it had nothing whatever to do with the state of play as regards negotiations between Pell Frischmann and Bow Valley/Bakrie. Instead it said this:

"Up to yesterday we had continued to negotiate with ANZ Investment Bank and had hoped that they would provide the finance required. 

We wrote to NIOC on the 2^nd July, and you kindly replied on the same day.  [This was the correspondence about the "monetarisation" of oil.]  A copy of your reply was sent to ANZ but unfortunately, to our great disappointment they could not underwrite the finance required.

As you are aware, we started working on this project in 1995 and all along our intention has been to work in Iran and raise international finance for this project.  I am sure you are aware of our expenditure, time and effort expended on this project.  This was for involvement in most of the Iranian infrastructure but with pride that we can deal with a country such as Iran, being one of the largest in the Middle East.  We believe that Iran is one of the strategically based growing countries in the Persian Gulf.

We have dealt with at least 15 international banks and I thought you might like to see a copy of a letter dated the 19^th June from Union Bank of Switzerland who state they need three months to raise the finance.

In addition, we would like to inform you that we have been encouraged by British officials to pursue this project.

We are confident that if given more time by NIOC to pursue this project with energy and determination we could achieve our goals."

The fax was copied to Mr. Jalilian.  (It shows at its foot a notation indicating that it was accompanied by a one-page enclosure, which was presumably the letter from UBS referred to in the text.  This is not to be found in the trial bundles and must, we think, have been something other than the UBS letter of 19^th June addressed to Monument, which is in the bundles, but runs to three pages.  But, in any event, NIOC would have known that Dr. Frischmann's discussions with ANZ Investment Bank, to which he referred, were part and parcel of his discussions with Monument.)

260.   It is impossible to reconcile a letter in these terms with the discussions between Dr. Frischmann and Mr. DeBoni the previous day, let alone Pell Frischmann's case that a deal with Bow Valley and Bakrie had been concluded; and it is difficult to avoid the conclusion that, contrary to Pell Frischmann's case, Dr. Frischmann did not wish it to be thought that he had made an agreement with Mr. DeBoni at that stage, and that his preference remained to make a deal with Monument, Crescent and ANZ Investment Bank if he possibly could.

261.   Some indication of what was happening so far as these other potential partners is concerned is afforded by a manuscript fax message dated 4^th July addressed to Dr. Frischmann by Mr. David Grassick of Crescent reading

"Attached is an explanation of our proposal for the Balal Development together with illustrative cash flows for the two options and a Heads of Agreement. I hope these clarify the proposal" (emphasis added).

The accompanying documents in the trial bundle consist of two sheets of cash-flows and a one-page proposal (although the fax cover sheet suggests that the transmission consisted of seven pages in total).  The Proposal opened as follows:

"Further to our telephone conversation earlier today, I am writing to clarify, by example, the proposal for participation in the Balal Development which we made to PFE on 2 July 1997" (emphasis added, again)

and the following paragraphs appeared at the end:

"As you are aware, the proposal above was made to PFE the day before yesterday and because PFE rejected it, it was subsequently withdrawn through a letter from Monument. That said, if PFE were to accept unequivocally by midnight 4 July 1997 (BST), I feel that I would be able to get Monument's as well as Crescent's agreement to it. The above must be kept confidential to PFE, Crescent and Monument and it and its contents must not be divulged by PFE to any other parties without the consent of Crescent and Monument".

Although the fax itself is dated (Friday) 4^th July and the author of the "Proposal" appears to have expected a response from Pell Frischmann at latest by midnight that same day, the fax-transmission legend suggests that it was not actually sent until early on the Saturday morning, and the Pell Frischmann office stamp suggests that it was not processed until the following Monday 7^th July.  But, on any view, the italicised phrases in the quotations set out above suggest that discussions between Pell Frischmann, Crescent and Monument were still alive - as indeed further letters addressed by Mr. Sarch to Monument and to Crescent the following Monday, 7^th July confirm.

262.   It is also very difficult to imagine how Dr. Frischmann could have thought that a letter in these terms would produce anything other than an unfavourable reaction from NIOC, let alone how he could have brought himself to send it knowing that Bow Valley would or might be writing to NIOC with news of a completely different kind: as regards the latter point, we can only assume that Dr. Frischmann had not expected Bow Valley to write so quickly.

263.   At all events, we have little doubt that this letter must have sealed Pell Frischmann's fate as regards Balal.  Looking at the matter from NIOC's perspective, on opening their offices on Saturday 5^th July (the Friday had been a non-working day, and the preceding day had been a holiday as we can see from one of Mr. Mohandes's messages concerning Mr. Kaye's visit to inspect reservoir data), they - or at least Mr. Rahimi and Mr. Jalilian - would have found two wholly inconsistent faxes: one from Bow Valley telling them that they were on the verge of an agreement with Pell Frischmann, and one from Pell Frischmann making no reference to any such negotiations and asking for substantially more time in which to find a banker-partner for the project.  Given Dr. Frischmann's stated preference, until recently, for keeping the prospective deal with Bow Valley/Bakrie confidential from NIOC, it may well be that this was the first that NIOC had heard of these negotiations from Dr. Frischmann at least; after all, NIOC's fax of 1^st July plainly proceeded on the premise that Pell Frischmann had introduced Monument as its partner in the Balal contract in place of Bow Valley/Bakrie.

Saturday 5^th & Sunday 6^th July

264.   There is nothing in the way of contemporaneous correspondence or internal memoranda giving any indication of events over these two days apart from a single-sheet document headed "Term Sheet - Balal Project, July 5, 1997, For Joint venture Between Bow Valley Energy Ltd. (BE) and Bakrie Minarak Petroleum Company Limited (BMP)", prepared by Mr. Blair.  Pell Frischmann attempts to piece together a detailed re-construction of events in the Bow Valley camp from entries in Mr. Blair's diary and Bow Valley telephone records (together with an entry in Dr. Pendered's diary) and suggests that this reveals all manner of conspiratorial goings-on.  But the only conclusions that can fairly be drawn from these and the events of the immediately preceding and subsequent days appear to us to be as follows:-  There were a number of telephone and other discussions among the Bow Valley people, including, very possibly, a meeting on the Friday evening (though whether this was or was not a formal board meeting is less than clear).  It is more than likely that there were also telephone conversations with Bakrie and arrangements made for Mr. Alatas and Mr. Setiano to fly in from Jakarta.   Given the events of the preceding days this is hardly surprising. Mr. Blair and Dr. Pendered spoke by telephone about visas for the Bow Valley personnel who were expected to visit Tehran.  Mr. Blair also asked Dr. Pendered for certain documentation on project costs for presentation to the Bow Valley board, but Dr. Pendered was unsure about passing this on without higher authority. Mr. Blair had a number of telephone conversations with Mr. Mohandes in the course of the weekend and also one with Mr. Mirhadi on the Sunday (having also spoken to him on the Friday).  He also spoke to Mr. Sarch. There is nothing particularly remarkable about any of this other than the telephone calls with Mr. Mohandes.  

265.   Mr. Blair told the court that he received a telephone call from Mr. Mohandes on Saturday 5^th July. (The two had met back in April when Mr. Mohandes had spent some weeks in London waiting for the performance bond to carry back to Tehran).  The gist of this call, said Mr. Blair, was, "that he was distraught with how he felt Wilem had handled the situation"; "that he expected there would be a fax sent from NIOC within the next day or so (that was how it was expressed), that was intended to deal with Pell Frischmann's position in the Balal contract" - a strongly worded fax; and that Mr. Mohandes was "very troubled by Wilem Frischmann's dealings with him personally".  He spoke about the meetings that Monument had had with Pell Frischmann in Tehran. It was arranged that they would speak again later in the weekend, with the benefit of a conference call so that Mr. DeBoni could hear what Mr. Mohandes had to say. The following day, it appears that Mr. Mohandes telephoned again hoping to speak to Mr. Blair, but he was unavailable. The resulting written message of whoever took the call reads: "Letter to Frischmann does not necessarily take him out of the bidding process but he has been told [that] since he can't deliver others will be invited too." These conversations with Mr. Mohandes were, said Mr. Blair, the first occasion on which Bow Valley received any specific information that such a fax would be sent shortly.

266.   But Bow Valley were not the only people to whom Mr. Mohandes spoke at this time.  It appears from Dr. Pendered's diary that Mr. Mohandes also spoke to him on the Sunday.  The entry reads:

"Retendered the project - Done it. Selective invitations - Not PFE.  Bow Valley sent fax - problems of Canadian Bank [a reference to the bank guarantee]. Safavi carpets as gifts. Safavi angry.  Invite Bow Valley, Monument.  Safavi knows Bow Valley payment terms.  PFE to pick up old Bond."

Dr. Pendered did not dispute in evidence that, among other things, this note appeared to reflect Mr. Mohandes telling him that the project had been re-tendered, that there had been selective invitations [to prospective bidders for the Service Contract], and that Pell Frischmann was not one of them.  ("That is what that is saying, yes.").

267.   Dr. Pendred also gave evidence to the effect that there had been telephone calls on 6^th July from Mr. Mohandes alerting Pell Frischmann to the fact that a fax would be coming from NIOC.  Asked by Mr. Costa when he first became aware that Pell Frischmann had lost 'exclusivity' he answered "Probably when I saw that fax [the fax that arrived on 7^th July], although I think there had been phone calls before that - the preceding day from Mr. Mohandes that that fax was going to be sent."    

PART 10 

WEEK BEGINING MONDAY 7^TH JULY 1997

Summary

268.   The position at the beginning of this week was, therefore, in summary, this:-  the NIOC deadline of 4^th July had expired;  Pell Frischmann and Bow Valley had received indications from Mr. Mohandes that NIOC would shortly be sending a fax to Pell Frischmann concerning the Service Contract; Pell Frischmann had also received information from Mr. Mohandes that, as he understood it, Pell Frischmann was not among those now in contention for the Balal project, and had been or would be asked to collect the Panamerican Finance Bank bond/guarantee previously lodged with NIOC; the final terms of the buy-out agreement between Bow Valley/Bakrie had yet to be resolved; Mr. Alatas and others from Bakrie had arrived in Calgary; negotiations between Pell Frischmann and Monument/Crescent/ANZ Investment Bank were still live; Dr. Frischmann himself was in Majorca - and was to remain there, it seems, for most of the week, leaving Mr. Sarch and, to a lesser extent, Dr. Pendered to deal with things in London.

NIOC's fax to Pell Frischmann of 7^th July

269.   On 7^th July Mr. Rahimi dispatched a fax addressed to Dr. Frischmann in the following terms:

"THANK YOU FOR YOUR FAX DATED 4^TH JULY 1997.

CONSIDERING THAT YOU HAVE FAILED TO SECURE THE FINANCING REQUIREMENTS OF BALAL PROJECT WITHIN THE RESPIRE [SIC] ALLOWED AND EXTENSION THEREOF BY NIOC, WE ARE HEREBY INFORMING YOU THAT NIOC IS NO LONGER UNDER ANY OBLIGATION TO AWARD THE CONTRACT TO PFE FOR BALAL PROJECT.  IN THE MEAN TIME, NIOC IS CURRENTLY NEGOTIATING FOR BALAL PROJECT WITH OTHER INTERESTED COMPANIES".

The fax to which this message was a response was, it should be noted, Dr. Frischmann's letter of 4^th July in which he had referred to discussions between Pell Frischmann and ANZ, Monument and others (not Bow Valley and Bakrie).

270.   The fax-legend at the head of NIOC's fax of 7^th July shows that it was transmitted at 15:26 Tehran time, which means that it would have been received in Pell Frischmann's offices just before mid-day (or, on Pell Frischmann's calculations, at about 12.26 pm).  The Pell Frischmann office distribution stamp shows that it was to be given to "WWF + 1" and was also copied to Dr. Pendered by fax at 13:13 (his office being in a different building).  Dr. Pendered accepted in evidence that he would, in all probability, have seen it soon after that, and that he would almost certainly have checked that it was being attended to, in Dr. Frischmann's absence, by Mr. Sarch or someone else.  Mr. Sarch was adamant that he, himself, did not see the fax until some hours later and had no knowledge of it when, during a telephone conversation with Mr. Cummings at about 4.10 pm London time that day, the latter asked whether any letter from NIOC had been received at Pell Frischmann.  Given the fact that Pell Frischmann had been warned that a letter was coming, the critical nature of the situation generally and Mr. Sarch's own evidence that he was working in Dr. Frischmann office for most of that day, we find it difficult to accept Mr. Sarch's evidence on this matter - even allowing for the possibility of some interval of time between the arrival of the fax in Pell Frischmann's general office and its delivery to Mr. Sarch.

271.   At 7.47pm Mr. Sarch had a further telephone conversation, this time with Mr. Blair. On any view he had the fax in his possession by then.  According to his own evidence he was not asked by Mr. Blair about any such message and did not mention it, as (he said) he wanted to talk to Dr. Frischmann about it first - something that he had not managed to achieve at that point; he had arranged for it to be faxed to Dr. Frischmann first thing the following morning and had subsequently discussed it with him; he had then called Bow Valley, confirmed that the fax had been received and read the fax over the telephone.  But whatever, the accuracy or otherwise of Mr. Sarch's recollection of these matters, the fact of the matter is that it was not until 9.02 pm on the evening of Tuesday 8^th July that a copy of NIOC's fax was eventually faxed by Mr. Sarch to Bow Valley.

272.   Meanwhile (still on Monday 7^th July),

(i)        Mr. Sarch had written to Mr. Blair emphasing the importance of Bow Valley/Bakrie putting the bank guarantee in place.

(ii)       Norton Rose, at Mr. Sarch's request, had written to Mr. DeBoni with the latest draft of the proposed buy-out agreement saying that their client, Pell Frischmann, was keen to sign the agreement the same day.

(iii)      Mr. DeBoni, for his part, had replied pointing out that the latest draft agreement failed to take account of a number of points previously discussed, and emphasising that no funds would be released until the agreement had been finalised. Under the heading "NIOC letter" he wrote:

"We understand that you have received a letter from NIOC within the last day regarding your status in the Balal Contract.  We request a copy of this letter.  A copy of the letter sent to NIOC by Bakrie is attached for your information". (Bakrie's letter of 4^th July to which we have made reference earlier).

(iv)      Mr. Blair had asked Dr. Pendered for, and had received, certain project costs in order to present to the Bow Valley board the following day and had prepared a briefing memorandum for the board attaching this information and commenting

"We continue our efforts to conclude an agreement with Pell Frischmann and we are down to a couple of "deal-breaker" items to which PFE must agree or we are not prepared to sign the agreement with them.  The Bank Guarantee, we believe, has been put into place by Bakrie but the Guarantee will not be transmitted to NIOC until after the PFE agreement is in place.  In addition, we have had several discussions with Bakrie with respect to the arrangements between us and we will provide an update at the meeting tomorrow.  We believe that an acceptable arrangement can be made with Bakrie in the next day or so."  

273.   While all this was going on, Mr. Sarch was in active communication with both Mr. Iain Patrick of Monument and Mr. David Grassick of Crescent concerning Balal, taking his instructions, it would seem, from Dr. Frischmann in Majorca.  In a letter to Mr. Patrick, dated 7^th July, Mr. Sarch explained that he was sending him a copy of a letter that had been sent (by Mr. Sarch, at Dr. Frischmann's request) to Crescent in response to Mr. Grassick's proposal of 4^th July.  This, he suggested, "expresses in a very simple way a deal which could be acceptable to all".  The essence of the proposal contained in the letter to Mr. Grassick was that Crescent/Monument would fund the entire project; that Pell Frischmann would recover US$3 million, representing costs said to have been incurred to date, and that profits, after recovery by Crescent/Monument of their costs, would be split 25% to Pell Frischmann and 75% to Crescent/Monument.  Mr. Sarch concluded "If an agreement can be reached between us along the lines indicated above and a suitable Bank Guarantee be provided to NIOC then perhaps we can proceed with a deal today" (i.e. Monday 7^th July).

Tuesday 8^th July

274.   On the morning of 8^th July in Tehran (shortly before mid-night on 7^th July, Calgary time) a fax in the following terms was sent by Mr. Rahimi of NIOC to Mr. DeBoni:

SUBJECT: BALAL BUY BACK PROJECT

WITH REFERENCE TO YOUR FAX DATED JULY 3^RD, 1997, REGARDING YOUR INTEREST IN THE ABOVE PROJECT, SINCE THE TIME FOR PFE COMPANY TO SUBMIT THE REQUIRED GUARANTEE HAS EXPIRED.  THEREFORE, NIOC IS UNDER NO OBLIGATION TO AWARD THE CONTRACT FOR THE DEVELOPMENT OF BALAL FIELD TO THE SAID COMPANY [.]  CONSIDERING THAT BOW VALLEY AND BAKRI [sic] COMPANIES HAVE PARTICIPATED ALONG WITH PFE IN THE ABOVE TENDER FROM THE BEGINNING AND HAVE SHOWN THEIR INTEREST IN UNDERTAKING IMPLEMENTATION OF THE ABOVE PROJECT, WE WOULD LIKE TO INFORM YOU THAT NIOC IS WILLING TO AWARD THE CONTRACT TO A JOINT VENTURE OF BOW VALLEY AND BAKRIE PROVIDED THAT THE TERMS OF THE CONTRACT AGREED AND  BY PFE ARE EXACTLY ACCEPTED BY YOUR JOINT VENTURE WITHOUT ANY CHANGES.  IN THIS CASE, PLEASE SUBMIT THE FOLLOWING DOCUMENTS IN TEN (10) DAYS FROM THE DATE HEREOF TO NIOC AT TALEGHANI AVE, MINISTRY BUILDING, INTERNATIONAL AFFAIRS, 10^TH FLOOR, FARHAD RAHIMI.

1)  BANK GUARANTEE FOR THE SUM OF FIVE MILLION US DOLLARS (AS ATTACHED FORMAT) FROM ONE OF THE BANKS ACCEPTABLE TO NIOC ACCORDING TO THE ATTACHED LIST.

2) THE DOCUMENTs CONFIRMING YOUR JOINT COOPERATION (BOW VALLEY AND BAKRI) CONCERNING IMPLEMENTATION OF THIS CONTRACT."

275.   Meanwhile, in London:-

(i)        At 8.15 am Dr. Frischmann's secretary sent a fax message to Dr. Frischmann in Majorca asking him to call Mr. Sarch before 9.30 am after reading "the fax" - which Mr. Sarch said was the fax received from NIOC the previous day.

(ii)       Mr. Sarch wrote to Malaysian Mining Corporation ("MMC") with a proposal for a joint Balal operation between Pell Frischmann, MMC and Northern Petroleum  in terms almost identical to those put to Crescent and Monument the  previous day. Again, it was suggested "an almost immediate agreement" might be possible.  "Unfortunately time is running out and although we do understand that you would prefer a more leisurely pace, circumstances dictate that a deal must be done very soon".

(iii)      At about 4.00 pm (9.00 am Calgary time), Mr. Sarch and Mr. Blair spoke on the telephone, and -according to Mr. Sarch - he told Mr. Blair about the previous day's fax from NIOC and read it to him.

(iv)      At 6.21 pm Norton Rose wrote to Mr. DeBoni, with copies to Mr. Cummings and Mr. Sarch, responding to various points on the previous draft raised by Mr. DeBoni and enclosing what they referred to as "the agreement in final form". The letter finished

"Pell Frischmann  will, as Michael Sarch has already made clear to you, require the escrow letter also to be signed and for the funds to be transmitted to us, Norton  Rose, on the signing of the agreement. Pell Frischmann require this to be done today".

The "funds" in question, were the first stage-payment of US$3 million that would become due to Pell Frischmann under the agreement on fulfilment of certain conditions.

(v)       Shortly after 9.00pm (London time), the letter received by Pell Frischmann from NIOC the previous day was eventually faxed to Bow Valley, accompanied by a letter signed by Mr. Prabhu on behalf of Dr. Frischmann.

(vi)      Almost immediately after sending that letter, a faxed a copy of NIOC's fax was sent from Pell Frischmann to Norton Rose.  

276.   The terms of the Pell Frischmann letter, addressed to Mr. DeBoni, were as follows:-

"Further to Michael Sarch's conversation earlier today, our understanding of the position with NIOC is that they are extremely disappointed not to have received the required Bank Guarantee that was promised.  John Burns wrote to them with the explanation regarding the Canadian Imperial Bank; however, he also promised to let them have the Bank Guarantee on Monday July 7^th, and when the Bank Guarantee did not arrive, they issued the attached letter.

The letter makes it clear that we are still in the running although we do not have exclusivity.  It is our belief that we can still finalize the contract provided we can immediately produce the Bank Guarantee in the form required by NIOC.  We understand that they would much prefer to conclude the deal with us, and therefore it is essential that we conclude the agreement between us and approach them with a unified front to achieve our goals.

Finally, PFE, Bakrie and Bow Valley should visit Iran as soon as possible to conclude the Service Contract.  Please note that in addition to the Bank Guarantee, NIOC requires two more documents, viz, a letter to confirm that we have a simplified joint venture agreement in place and also the confirmation from a bank that the finance is available.

I look forward to hearing from you,

P.S.  Dr Frischmann is presently in Majorca; he has suggested that you phone him upon receipt of this letter." 

277.   We neither saw nor heard any evidence that would support the claim in this letter that, at this point, NIOC "would much prefer to conclude the deal with us".  Nor does NIOC's 7^th July letter "make it clear that we are still in the running", and that it was only "exclusivity" that Pell Frischmann had lost.  That, it is true, seems to have been the construction put on it by Mr. Mohandes according to a note of a telephone message left by him for Mr. Blair on the evening of 7^th July:  "Letter to Frischmann does not necessarily take him out of the bidding process but he has been told since he cant deliver, others will be invited to"; but quite how that is to be reconciled with Mr. Mohandes's earlier conversation with Dr. Pendered is not obvious.

278.   No communication from NIOC other than this 7^th July fax appears to have been received by Pell Frischmann from NIOC at this time: certainly, nothing inviting Pell Frischmann to re-bid for the contract.  The only other item of correspondence between the two was a short letter, signed by Mr. Sarch on Dr. Frischmann's behalf, addressed to Mr. Rahimi, three days later on 10^th July, saying

"We have been negotiating with Bow Valley and Bakrie for some very considerable time.  They undertook to provide a Bank Guarantee as mentioned in their letter to you of the 3^rd July 1997.  However, they have so far failed to produce it.  We are hopeful that matters will be concluded shortly and will be most grateful if NIOC could bear with us for a few more days so that we will be able to reach the desired objectives".

The letter made no direct reference to Mr. Rahimi's fax as such and offered no explanation of what had become of Pell Frischmann's negotiations with Monument and others.  There is no evidence of NIOC having replied to this, or, indeed, of them having had any further correspondence with Pell Frischmann at all.

279.   In reality, Mr. Mohandes's understanding of the position as conveyed to Dr. Pendered on Sunday 6^th July appears to have been correct: NIOC were no longer interested in negotiating with Pell Frischmann.  

280.   In Calgary, that morning:-

(i)        NIOC's fax to Bow Valley and Bakrie had arrived overnight and would have been available in Bow Valley's office at the beginning of the working day.  

(ii)       At 9.30 am a Bow Valley board meeting took place at Mr. Seaman's offices (a few blocks away from Bow Valley's own premises).

(iii)      At 10.17 am Mr. Blair's secretary appears to have faxed a copy of NIOC's letter to Mr. Burns.

(iv)      From about 1.00 pm or so, Bakrie hosted a lunch at the Calgary Stampede Rodeo at which Mr. Mirhadi was their guest, as was Mr. Blair and possibly others from Bow Valley, though Mr. DeBoni was not present.

(v)       The minutes of the Bow Valley board meeting show those present at the meeting as Mr. Seaman, Mr. DeBoni, Mr. Peltier, Mr. Blair for part only of the time, and Mr. Cummings (as Secretary).  The sole matter under consideration appears to have been Balal and, in particular, (a) the prospective buy-out agreement with Pell Frischmann, as to which Mr. DeBoni is recorded as having told the board that "acceptable legal documentation of assignment with Pell Frischmann appears to have ben negotiated", and (b) the terms of an associated Financing Agreement between Bow Valley and Bakrie, which the board wanted to see finalised before the conclusion of the agreement with Pell Frischmann.  The minutes record the meeting as having resolved "that the Company be authorized to proceed with the Balal Service Contract, the Pell Frischmann Engineering Agreement and the Financing Agreement with Bakrie on the terms set forth on these minutes."  Whether the members of the board had at that stage seen or been informed of the fax from Mr. Rahimi to Mr. DeBoni is not entirely clear.  On balance we think it probable either Mr. DeBoni or Mr. Blair would have seen it and reported its receipt to the board, though the minutes themselves make no mention of it.

281.   At all events, at that stage of the day at least, the receipt of that fax appears not to have deflected Bow Valley from its intended course of pressing on with arrangements for conclusion of the buy-out agreement with Pell Frischmann.  That was plainly what had been contemplated at the board meeting and that was, equally plainly, what Mr. DeBoni had in mind when his reply to Mr. Rahimi was transmitted at 2.36 pm (while, it seems, Mr. Blair was at the Rodeo)  saying that Bow Valley were "very close to fulfilling our legal commitments to Pell Frischmann Engineering Ltd which would free our company and Bakrie Minarak Petroleum Company Limited to proceed."

282.   This letter was, of course, the first communication that Bow Valley had had from NIOC since Bow Valley's fax of 3^rd July and was specifically said to be in response to that fax, in which Bow Valley had said that, together with Bakrie, they were "very close" to concluding an agreement with Pell Frischmann and expected it to be in place within a day or two.

283.   Meanwhile, at the Rodeo, Mr. Blair was - he said in his evidence - seated next to Mr. Mirhadi, who was the principal guest.  He remembered the occasion well, he said, because it was the first occasion on which he had discussed the Balal project in any detail.  (Although he did not say so in terms, it is easy to see that Mr. Blair may have felt justified in doing so in the light of Mr. Rahimi's fax addressed to Mr. DeBoni, though he did so, to use his own words, "with no small amount of trepidation".)  The essence of Mr. Blair's evidence, which we accept, was that while he could not recall the exact terms of their conversation, and Mr. Mirhadi was "very careful", Mr. Blair had talked about recent events and Mr. Mirhadi, in turn had left him with the impression that NIOC were tired of dealing with Pell Frischmann, that they no longer felt under any obligation to that firm, that this was "quite a final thing in NIOC's mind, and that there would be no obstacle to Bow Valley and Bakrie proceeding without Pell Frischmann.

284.   That afternoon, in Calgary:-

(i)        At about 11.10 a.m. Mr. Cummings's office received a call from Norton Rose in London asking Mr. Cummings to call back.

(ii)       At about 11.21 a.m. Norton Rose's letter, with its peremptory "requirement" by Pell Frischmann that the buy-out agreement be signed and and funds deposited with them "today" arrived (both in Bow Valley offices and also those of Mr. Cummings to whom it had been copied).

(iii)      Soon after 2.00 pm Pell Frischmann's letter and the accompanying copy of NIOC's fax of 7^th July arrived.

(iv)      At 2.46 pm (presumably while Mr. Blair was at the Rodeo) a letter from Mr. DeBoni to Mr. Rahimi was faxed from Bow Valley's offices.  Mr. DeBoni thanked him for his letter and continued:- 

"It is our firm intention to move forward with the project and are very close to fulfilling our legal commitments to Pell Frischmann Engineering Ltd which would free our company and Bakrie Minarak Petroleum Company Limited to proceed.

As you requested, the fax number for the Canadian office of Bakrie Minarak Petroleum Limited is (403) 216-5135.  We have taken the liberty of forwarding a copy of your fax to Bakrie this morning."

(v)       Following receipt of the copy of NIOC's fax, Mr. Cummings called Norton Rose and spoke to Mr. Sinclair and possibly Mr. Lloyd Williams (Pell Frischmann suggest that Mr. Cummings's diary shows this call as having been made at about 3.00 pm Calgary time; but that is not a correct reading of the relevant entry, which simply appears as one of a number of items gathered together under Mr. Cummings' file reference for Bow Valley).  

285.   Mr. Cummings' evidence was that having initially been pleased to see Mr. Rahimi's fax to Mr. DeBoni, believing it to be confirmation of NIOC's readiness to approve the proposed buy-out agreement with Pell Frischmann, he was then shocked to see Pell Frischmann's letter with the copy of the fax sent by Mr. Rahimi which seemed to indicate that Pell Frischmann had lost exclusivity of the Balal contract and that NIOC considered themselves free to deal with other parties.

"I guess it was kind of a shock. We received one letter that says we are welcome to the Balal Field and that we have the blessing of NIOC to take over the field and in this letter they are removing exclusivity and they are going to deal with other parties and so I think - was mystified and I dare say it was an unusual development......"

And later, in cross-examination,

"It was my legal advice to my client, Bow Valley: these letters are inconsistent.  You advise them, we asked them for their permission, approval, which would simplify the transaction, allow us to get it done.  We got a very encouraging response, encouraging for Bakrie, encouraging for Pell Frischmann, encouraging for Bow Valley; and then we receive a letter saying that exclusivity is gone and that the other companies are being invited in.  My advice on the second letter is: "Gentlemen, you have a problem.  They are not referring here to Bow Valley and Bakrie."  They were advised that Bow Valley and Bakrie were shortly going to conclude the transaction on, I believe the 3^rd and 4^th.  You get a positive response:  "We are there, we are home."  Then we get a letter, of which we are not aware, that removes the very essence of what we were trying to acquire, it was an exclusive right.  When that was gone and the government opens up a national asset to all comers, we have problems.  By this juncture we know there are other people hanging around - it is a tough business - who can grab it as quickly as they can.  So if you open up the field to all competitors, there is nothing left to buy and that was my advice to my clients."   

286.   Describing his telephone call to Norton Rose, following sight of NIOC's fax to Pell Frischmann of 7^th July, Mr. Cummings went on to say:-

 "I indicated that I had received the draft agreement [the latest draft of the buy-out agreement] and they asked how it was going and I said: "I have stopped reviewing it.  We received a letter from NIOC that the service contract is gone". And they were very - there was quite a silence on the other end of the line.  They were, I think, a little bit shocked.  They said: "Are you telling us that there is a letter that has been received by you that has removed the exclusivity of this contract?" I said, "yes".  I said do you not have it? They said: "We will revert to you, we are going to get instructions."  I said "Give me a call back", and they never called back.  It was the last time that I ever talked to them."

287.   It was shortly after that conversation that a copy of Mr. Rahimi's fax of 7^th July to Dr. Frischmann was faxed from Pell Frischmann's offices to Norton Rose, the clear inference being that that was the first time that Norton Rose had had sight of it.

288.   Mr. Cummings was challenged by Mr. Speck on his evidence that he had, initially at least, viewed the fax from NIOC addressed to Bow Valley and Bakrie as doing no more than conveying NIOC's approval of the proposed buy-out agreement in response to Bow Valley's letter of 3^rd July.  He suggested that, on the contrary, Mr. Cummings (and others in Bow Valley) knew this to be confirmation that Pell Frischmann had lost its exclusive right to the Balal contract and that NIOC was willing to award the contract to Bow Valley and Bakrie without Pell Frischmann.  But Mr. Cummings was adamant that that was not the way he had read that fax when he first saw it, prior to seeing the NIOC's 7^th July fax to Pell Frischmann (which was only received by Bow Valley from Pell Frischmann late on 8^th July, Calgary time), and it seems to us that his evidence on the point is entirely plausible.  First, because, as already pointed out, the letter opened with a specific reference to Bow Valley's letter of the 3^rd July saying that, together with Bakrie, they were close to an agreement with Pell Frischmann.  Secondly, because the way in which the Bow Valley board conducted themselves at the meeting that morning appears to be consistent with such an interpretation of the letter.  And thirdly, because Pell Frischmann, in its own pleaded case, had claimed that this, indeed was the effect of this letter:

"....the Buy Out Terms included a term which provided that Bow Valley and Bakrie would only be required to make any payments to Pell Frischmann if (inter alia) NIOC awarded the Development Contract to Bow Valley and Bakrie.  If NIOC decided to award the contract to some other party, Pell Frischmann would receive nothing. 

It is specifically denied that Pell Frischmann had nothing to sell to Bow Valley and Bakrie: it retained all the rights referred to in paragraph 12 above.  Moreover, in the NIOC Second Fax [that is, the fax to Bow Valley and Bakrie], NIOC offered the Development Contract to Bow Valley and Bakrie.  This was the very objective of the Buy Out Terms. In fact the Second NIOC Fax made it clear that the principal condition necessary for the Buy Out Terms to take effect would be satisfied." (Amended Reply, dated 18^th January 2006, paragraphs 24.2 and 24.3.  Emphasis added).

289.   If nothing else this last point suggests that, there was, at least, an element of ambiguity in NIOC's fax to Bow Valley and Bakrie which could have led to it being read in the way that Mr. Cummings says he took it.  And it is understandable that, faced with the two NIOC faxes in quick succession, Bow Valley and Bakrie might have been uncertain at first as to NIOC's precise intention. 

290.   Explaining his recollection of how this conversation and other developments affected Bow Valley's attitude towards the buy-out negotiations with Pell Frischmann, Mr. Blair said (in his evidence-in-chief)

"Well, in a couple of ways, I guess: one, Pell Frischmann had not been honest with us.  They were attempting to sell an interest in a contract that they no longer had any rights to; and secondly they had gone behind our backs to try and arrange a contract with a competitor company, all the while negotiating with us and pressing us to put in place a bank guarantee.  We had - Walter had received a blanket approval from the board a day earlier.  When I read through the board minutes, I question in my own mind a bit why he felt it necessary to get a formal approval at that stage.  I think that he had gotten down a track and the meeting had been scheduled and so he moved forward on that track. However, the events that transpired after that, that being receiving receipt of the fax from Norton Rose -- it would have been in the afternoon Calgary time, I think mid-afternoon Calgary time on Tuesday, 8th - the discussion that I had had with Mr Mirhardi, which indicated -- satisfied my concern that NIOC would be in a problematic, or felt that there was anything problematic from their standpoint if Bow Valley and Bakrie just moved forward.  We took all of those things on board.  We discussed them.  We met the following morning and decided that we did not owe Pell Frischmann anything at that stage.  He had nothing to sell.  He had behaved dishonestly with us and we had finally gotten to the stage, I think, where we were just fed-up with dealing with him and took the offer off the table and pressed forward."

291.   On 9^th July, Mr. DeBoni followed up his previous day's letter to Mr. Rahimi with a further letter in which he reiterated Bow Valley and Bakrie's pleasure at having the opportunity to proceed with the Balal project, and requesting his assistance in securing visas for a Bow Valley/Bakrie delegation "in anticipation of travelling to Tehran in the near future".

292.   There was also a conversation that day between Mr. Sarch and Mr. Cummings, on which Pell Frischmann placed some considerable reliance as an illustration of secretive behaviour by Bow Valley.  Mr. Sarch had, initially, endeavoured to contact Mr. DeBoni, Mr. Blair and Mr. Cummings, all without success.  Mr. Cummings had then returned his call. Subsequent to their conversation, Mr. Sarch evidently dictated an account of it which was subsequently typed up under the heading "Memo dictated by Michael Sarch at 19.15 hrs on Wednesday 9^th July 1997", though the copy in evidence appeared (from a manuscript note at the head) to be a later version updated on 10^th July. The opening paragraph of the memo says ".....we spoke for some while. I am rather confused by the information he gave me". And in his evidence, Mr. Sarch said that he found their conversation "strange and peculiar", "astonishing" - which was why he dictated his memo - something he did not normally do. By "strange", he seems for the most part to have meant that he found Mr. Cummings evasive in terms of providing information about what Bow Valley and Bakrie were doing (though this was also interwoven with his personal views of Mr. Cummings, a "strange" person) and how and when Mr. DeBoni or Mr. Blair would be available to talk to him; saying that he was not sure what Bow Valley and Bakrie were going to do and that he was just the lawyer.  The memo was largely a combination of statements attributed to Mr. Cummings and Mr. Sarch's own contribution to the discussion, but in a section recording his reflections after the call had ended Mr. Sarch noted

".....it seems Jim has made several proposals from payment to advisers, to Bow Valley having to pick up the PFE payments, to no deal at all, to Bakrie going ahead unilaterally even without Bow Valley.  Jim did say during this long conversation that everything had been agreed prior to the arrival of the letter, however he did not confirm that a Bank Guarantee was available nor where the money was coming from and whilst their [sic] obviously are trying to eliminate us or negotiate us down, one cannot form the opinion that they could perform to the satisfaction of NIOC either on their own, with us, or in any event."

The memo then goes on to make it clear that Mr. Sarch had subsequently reported the conversation to Mr. Lloyd Williams at Norton Rose and that the latter had advised Pell Frischmann to go to Tehran as soon as possible.  What was not evident was when and how news of this was conveyed to Dr. Frischmann or what his reaction to it was.

293.   But there is, in truth, little mystery about this conversation.  The purpose of Mr. Sarch's call was, quite obviously, to try to find out how Bow Valley and Bakrie had reacted to the receipt of the NIOC fax that Pell Frischmann had received on 7^th July.  Mr. Cummings in his evidence made it fairly plain that he considered that he was being "pumped" for information as to which he was in no position to respond and made no secret of the fact that he wanted to get Mr. Sarch off the telephone and that he was non-committal.  "Lawyers are very good at revealing nothing.  "I am merely the lawyer, Michael, I have no idea what is going on".  And I would not have any knowledge what was going on at that point".  There may have been a degree of exaggeration here, but for the most part this seems not implausible given the speed with which events were taking place, the fact that this conversation took place on a day on which there was understandably a good deal of discussion and debate going on in Calgary and Jakarta, and - as Mr. Cummings pointed out - there was no indication in his diary of him meeting with any Bow Valley executives that day.  He was in his own offices, not Bow Valley's, getting on with drafting the Framework Agreement with Bakrie "because whatever happened they were going to be needed."  "I certainly had no instructions of where things were going"

294.   One thing that did emerge from Mr. Cummings' evidence on this incident concerned Bakrie's reaction to the NIOC 7^th July fax.  The second paragraph of Mr. Sarch's memorandum read "Firstly, he [Mr. Cummings] said that Bakrie were extremely upset that the contract was now available to all comers and that they were unsure as to whether they wanted to go ahead at all", and while he did not accept the accuracy of much of Mr. Sarch's record of their conversation, he agreed that that passage did indeed reflect the position at that time, though not necessarily in quite such stark terms.  There had, he said, been little chance to discuss the position at length with Bakrie, because Mr. Alatas and Mr. Setiano had left with their wives for a brief visit to the mountains in Banff National Park on the previous day (impliedly, after the Rodeo); but he had got the sense, prior to them leaving, that it was thought that Mr. Bakrie - who was not in Canada - was going to be very upset: "....he had to be contacted and informed and we were back into the time zone difficulties, but there was not a happy bunch of campers around the office."  (It was suggested that Mr. Cummings's reference to Mr. Alatas being in the mountains was a fabrication; but his evidence on this was detailed and emphatic and there is no reason to doubt it; Mr. Blair's diary for 9^th July has an entry showing a meeting with Mr. DeBoni and Mr. Hainim of Bakrie that morning, but there is no indication of Mr. Alatas or Mr. Setiano having been present.)  The point is significant because it points up the fact that it was every bit as much Bakrie's as Bow Valley's reaction to the latest developments that mattered, and that their deliberations plainly had to involve Mr. Nirwan Bakrie with the attendant problems of communicating across an eleven-hour time difference - all of which would have contributed to a certain amount of delay in deciding how to proceed. 

295.   We suspect that Mr. Blair's recollection was at fault in suggesting that the final decision was made quite as quickly as the morning of the 9^th July.  His diary entry seems to record a meeting between only two of the Bow Valley directors, Mr. DeBoni and Mr. Blair himself together with Mr. Hainim of Bakrie (against which the word "Strategy" was written) and it appears not to have been until the following morning that there was a meeting with Mr. Seaman. Apart from Mr. DeBoni and Mr. Blair the other board members all had their own separate business interests and getting them all together at short notice was evidently not always easy.  And Bakrie, too, had to be consulted.  On the matter of timing, Mr. DeBoni's evidence was probably nearer the mark:  "We spent, I believe, the next two or three days considering our options and discussing where we should go from here" before deciding, finally "that we should accept the invitation from NIOC".  Up until the events of 8th July, there had not seemed to be any likelihood of Bow Valley and Bakrie alone being offered the contract.  They had always assumed that, if Pell Frischmann failed to secure the Balal Contract, NIOC would award it to one of the other original bidders, and had, accordingly, consistently endeavoured to reach an agreement with Pell Frischmann.  Now, for the first time, NIOC were indicating that they would be prepared to consider awarding it to Bow Valley and Bakrie without any involvement of Pell Frischmann.

296.   At the same time that these deliberations were going on within and between Bow Valley and Bakrie, back in London, Mr. Patrick of Monument replied, on 9^th July, to Mr. Sarch's letter of 7^th July

"Your proposal is essentially the same as that outlined in Bill Frischmann's letter of 3 July and, as we have said before, it is not supported by the economics of the project.  On the assumption that PFE still has exclusivity with NIOC on the Balal Field Development, and if you wish to discuss alternative ideas commensurate with the circumstances, we remain willing to do so".

Mr. Sarch replied the following day on behalf of Dr. Frischmann with a new counter-proposal (as set out in a fax to Mr. Grassick of Crescent, a copy of which was enclosed): it was essentially the same as before but this time with Pell Frischmann's share of the profits reduced to 15%.

297.   Replying a week or so later, Mr. Patrick wrote, among other things,

"I should mention that letters we have received recently from NIOC indicate that Pell Frischmann has not submitted a bank guarantee for the Balal Field within the time required and that NIOC considers that any rights to a Service Contract with NIOC which Pell Frischmann may consider it had have now lapsed. Unfortunately, we are obliged to conclude that your proposal in recent correspondence to assign an interest in Balal to Monument is no longer realistic.

NIOC has also indicated that it would like Monument to participate in the Balal development.  Should Monument be awarded an interest in Balal we would be willing (subject to NIOC concurrence) to offer PFE a working interest and (subject to compliance with NIOC bidding requirements) to offer PFE Balal engineering work."

298.   On Friday 11^th July Mr. DeBoni wrote to Dr. Frischmann:-

"We are in receipt of your fax dated July 8 attaching the letter you received from NIOC on July 7, 1997.  It is extremely unfortunate that Pell Frischmann did not advise Bow Valley and Bakrie earlier concerning NIOC's letter which clearly indicates that the Pell Frischmann bid group no longer has an exclusive right to conclude the Balal Contract.

Bow Valley received unsubstantiated information from Iran on July 6 that NIOC had written an important letter to Pell Frischmann in respect of the Balal project.

Accordingly, we contacted Pell Frischmann and were assured by Michael Sarch late in the afternoon of July 7^th (London time) that no such letter had been received.  On the strength of this assurance, Bow Valley and Bakrie ... continued to secure their Boards of Directors' approval to the terms and conditions we had negotiated in good faith.

When we subsequently received a copy of NIOC's letter, it became apparent that Pell Frischmann was not dealing in a forthright manner but rather trying to sell an interest in a contract to which they no longer had any legal right.

This came on the heels of your recent attempt to unilaterally cut Bow Valley out of the Balal project by making a deal with another oil company. 

You correctly understood NIOC's condition that your company would not be awarded an oil field development contract without being partnered with an operating oil company.

Bow Valley fulfilled this requirement for Pell Frischmann in good faith and at our own expense as we worked with you and your staff to prepare the bid documents, refine the cost estimates, secure project financing, and negotiate with the NIOC team in London. 

Consequently, we have great difficulty (as do the Iranian authorities) with your rationale in trying to sell Bow Valley's interest in the Contract without our approval and without offer of compensation.

Upon receiving NIOC's above-mentioned letter, we made further enquiries of our Iranian contacts.  We were advised that the Iranian authorities perceive that Pell Frischmann has tried to dictate to Iran which companies will comprise the Balal consortium; this perception was initially created when you chose to disregard NIOC's directive of June 16, 1997, and attempted to introduce a new partner to the Balal consortium to the exclusion of Bow Valley and BMP. 

More recently, we have been officially advised that a decision has already been taken in Iran that Pell Frischmann will not be part of any contract award by NIOC on Balal.

That being the case, and in view of your above-noted actions, Bow Valley and BMP have decided to cease any further efforts to reach an accommodation with Pell Frischmann relative to the Balal Project."

299.   On 16^th July Dr. Frischmann replied to Mr. DeBoni at length.  Among other things the letter included the following: 

"You say in your fax that Michael Sarch assured you on 7^th July that we had not received the letter you refer to from NIOC.  When Michael spoke to you he had not received the letter and had no knowledge of it.  The letter was sent by fax addressed to me and was received by us that afternoon.  I was away from the office that day and Michael only received the letter after he made enquiries within the office following his conversation with you.  We sent a copy to you the following day.

As regards the content of the NIOC letter of 7^th July, it really does no more than confirm what we all already knew i.e. that unless the bank guarantee was provided by 4^th July, our exclusive right to conclude the Balal Contract would be at an end.  It does not mean that NIOC will in fact award the contract to someone else provided we complied with their requirements regarding agreement between PFE, Bow Valley and Bakrie, financing and the Bank Guarantee as set out below in items (i) to (v).

You were well aware of the 4^th July deadline which was confirmed in NIOC's letter of 16^th June which they sent you.  Our considerable efforts during the week ending 4^th July were directed at reaching agreement with you and Bakrie in time to enable the bank guarantee to be issued on or before this date.  We had thought that you and Bakrie were likewise using your best efforts to achieve this same objective.

Although the fact that we had not signed an agreement and had the bank guarantee issued by 4^th July gave us (and presumably you) cause for some concern, we took comfort from the following:

a) NIOC had previously indicated to us that failure to provide the bank guarantee by 4^th July would mean that we no longer had an exclusive right to conclude the Balal Contract but we would be free to submit the bank guarantee after this date and, in practice, NIOC would probably conclude the Balal Contract with us;

b) The terms of our agreement had been substantially settled by close of business on the 4^th July and we were given to understand that Bakrie would obtain a bank guarantee in favour of NIOC on Monday 7^th July.  This was confirmed in Bakrie's fax of 4^th July to NIOC which you copied to us.

NIOC's fax of 7^th July restating their contractual position was hardly surprising in view of Bakrie's failure to follow up on what they had said in their fax of 4^th July and it remained our view that, upon receipt of the bank guarantee which Bakrie had agreed to provide, NIOC would conclude the Balal Contract with us.  This view was confirmed in a subsequent discussion between our representative in Tehran, Mr Mohandes and NIOC.

You refer in your fax to our making a deal with another oil company.  Given the time, effort and expense which we have invested in attempting in good faith to conclude an agreement with Bow Valley and Bakrie you should be in no doubt that our strong preference is to conclude a deal with you.  However, we have not given you any exclusivity undertaking and were, and remain, free to bring in another party if it appears to us that we will not be able to reach an acceptable agreement with you.  Any such party would of course have to be acceptable to NIOC and we have not tried to dictate to Iran in any way and would not presume to do so."

The letter then proceeded to urge Bow Valley to join with Pell Frischmann in trying to secure the contract together before it was too late and NIOC awarded it to others, and sought to warn Bow Valley off any direct contact with NIOC.

300.   In Calgary, also on 16^th July, there was a meeting of the board of directors of Bow Valley at 2.30 pm.  Much of the meeting was devoted to the forthcoming IPO. But item 6 of the minutes recorded the following, under the heading "Framework Agreement with Bakrie.":-

"The Board reviewed the business issues set forth in the Agreement with Bakrie and specifically considered the relationship with Pell Frischmann Engineering Ltd ("PFE") and the actions of that company in the context of its negotiations with the Corporation for the acquisition of the interest of PFE in the Balal Contract.  Mr DeBoni indicated that should the Corporation proceed to execute the Service Contract for the Balal Field with NIOC, absent agreement with PFE, that PFE would undoubtedly commence a lawsuit against the Corporation.  The Board considered the conduct of PFE in the negotiations and the consequences to the Corporation's standing and reputation within Iran should the Balal Project not proceed.

Resolution to Ratify the Framework Agreement with Bakrie and to execute the Service Contract with NIOC for the Balal Field be approved notwithstanding potential actions by Pell Frischmann Engineering Ltd."

The minutes make no reference to Dr. Frischmann's letter as such but it is reasonable to assume that its contents were known to the members of the board by the time that they met. 

301.   Bow Valley's own reply to this, on 25^th July, was short, dismissing Dr. Frischmann's letter as an obfuscation of the facts and an attempt to avoid responsibility for "your own misadventure". It referred to NIOC's letter of 7^th July to Pell Frischmann as having unequivocally removed the "exclusive right" of Pell Frischmann to the Balal project and described the consequence as "material to our negotiations and the business position of both Bow Valley and Bakrie".  It also voiced particularly severe criticism of Dr. Frischmann's assertion that Pell Frischmann was at liberty to bring in another party in substitution for Bow Valley.

"2. Your suggestion that you had not given any exclusivity undertaking to Bow Valley and were free to bring in another party is outrageous and inconsistent with both the oral and written record. NIOC's award of the tender was predicated on Bow Valley's background and expertise in offshore petroleum development. Your covert attempts to introduce another party in the place of Bow Valley cannot be construed as evidence of good faith or sound business practice.

3............................

4. If it were not for our Iranian contacts, we would not have learned of either the NIOC letter nor your subterfuge in attempting to introduce another party in substitution for Bow Valley.  While the standing of Pell Frischmann with NIOC appears to have been permanently compromised, the reputation of Bow Valley within Iran has also been seriously jeopardised by your reprehensible course of conduct.  Accordingly, we fully intend to take whatever steps [are] necessary (including dialogue with NIOC ) to restore and protect our corporate reputation and standing within Iran and the Middle East in order that we might preserve our ability to do business in this region."

302.   It was part of Pell Frischmann's case that this letter was a wholly spurious and  cynical attempt by Bow Valley to cast Pell Frischmann as the villain of the piece in circumstances where it was Bow Valley and Bakrie who had conspired to steal what was rightfully Pell Frischmann's contract. The allegation rested on the existence of a draft version of this letter bearing the date 17^th July, and a note in Mr. Cummings' handwriting indicating that it had been copied to Mr. Burns, presumably for consideration by Bakrie and an entry in Mr. Cummings' diary for that day under the heading "Bow Valley (Iran)" reading as follows (and reproduced here exactly as it appeared)

"TEL CONF GLEN CAMERON, J BURNS,

 D DATTANI INCORP AMENDMENTS,

 DRAFT REPLY TO P.F WHITEWASH,

TEL. CON STIKEMAN ELLIOTT, AMEND

 DOC EXECUTION".

(Stikeman Elliott were by that time advising Bow Valley on the proposed Framework Agreement between Bow Valley and Bakrie).  The allegation put repeatedly by Mr. Speck to Mr. Cummings, was that this whole letter was, as (he suggested Mr. Cummings diary entry recognised) a deliberate "whitewash" by Bow Valley of the true situation.  Not so, said Mr. Cummings: the word in question was a reference to his view of Pell Frischmann's letter of 16^th July: that was the "whitewash".  And that, as it seems to us, is exactly what the natural reading of the entry suggests, given the absence of any comma between "P.F" and "WHITEWASH" (as distinct from Mr. Cummings's clear use of commas elsewhere in this entry) and the position of the crucial word.  The entry does not say "DRAFT WHITEWASH TO P.F LETTER".  

303.   On any view, a number of points in Dr. Frischmann's letter of 16^th July call for comment.  First, explanation for the delay in copying NIOC 7^th July fax to Pell Frischmann would, inevitably, have sounded unconvincing to Bow Valley and Bakrie -as indeed, it does to us. Secondly, his dismissal of the NIOC fax as doing no more than confirming "what we all already knew" was disingenuous.  The idea that the loss of exclusivity by Pell Frischmann was of no great consequence was also one that Dr. Frischmann vigorously maintained in his evidence, when cross-examined by Mr. Costa:

"Q. Given what Bow Valley were buying, did you not think that they would want to know that you no longer had it to sell?

A. They apparently knew. 

Q. They knew?

A. you said it. 

Q Why did you not tell them then, is my question?

A. I think we did. We did the next day.

Q. You did the next day. But why did you not tell them on the 7^th?"

A. They would have found out on 7^th, 8^th or 9^th.  What difference does it make? 

Q. What if they had signed on 7^th, they would have signed without knowing it, would they not? 

A.  It would not matter. They would not have to pay us any money at all unless they got the contract. What does it matter? We would tell them. I have a problem with you."  

Mr. Sarch claimed much the same.  But, the fact of the matter is that, on signature of the buy-out contract, Bow Valley and Bakrie were simultaneously going to have to deposit US$3 million in an escrow account with Norton Rose and commit themselves to lodging a US$5 million bank guarantee with NIOC in Tehran within 24 hours.  And, in any event, the commercial materiality of whether Pell Frischmann did or did not still have "exclusivity" of the Service Contract (in the sense the NIOC were still holding the contract open for them and them alone) is self-evident.  The point was fundamental to the proposed buy-out agreement, as is clearly illustrated by Monument's letter to Pell Frischmann on Thursday 9^th July in which, having rejected Pell Frischmann's most recent proposal, they said that they would still be willing to continue discussions "on the assumption that PFE still has exclusivity with NIOC on the Balal Field Development" and their subsequent letter of 18^th July in which they described Dr. Frischmann's latest proposal as "no longer realistic" in view of the fact - as they had heard by then, but which had not been disclosed by Dr. Frischmann in his intervening counter-proposal on 10^th July -  that such exclusivity had been lost.  Thirdly, references in Dr. Frischmann's letter to the terms of the buy-out agreement having been substantially agreed on 4^th July and to Pell Frischmann's expectation that Bakrie would supply the requisite bank guarantee on the following Monday ignored the fact that the fully-fledged terms of the agreement were still being negotiated and no agreement had been actually signed.  Fourthly, Dr. Frischmann's protestation that "our strong preference is to conclude a deal with you", may have been true when this letter was written, by which time Pell Frischmann had been rebuffed once again by Monument, but that does not appear to have been the case on 4^th July when he had written to NIOC seeking more time to reach agreement with ANZ, Monument and others.  Fifthly, the claim that Mr. Mohandes had had a discussion with NIOC that week which had confirmed that NIOC would still have been willing to "conclude the Balal Contract with us" if the requisite bank guarantee had been delivered by Bakrie was unsupported by any evidence.

304.   The decision to sever relations with Pell Frischmann having been made, Bow Valley set about putting in place the documentation that would be required in order to conclude a contract with NIOC.  Among other things, Mr. Blair wrote to Mr. Rahimi on 16^th concerning the Bank Guarantee that Bakrie would be providing and the following day sent NIOC a copy of the executed Framework Agreement between Bow Valley and Bakrie.  (At about the same time that Bow Valley wrote to Pell Frischmann on Friday 11^th July making it clear that they were ceasing to take any further steps toward concluding a buy-out agreement with Pell Frischmann, it appears that steps were taken by those responsible for drawing up the Framework Agreement between Bow Valley and Bakrie to amend it so as to remove the provisions previously referring to Pell Frischmann.  Up until the previous day all the indications are that the agreement was being drafted by the lawyers on the basis that the Bow Valley and Bakrie buy-out might be still alive: as Mr. Cummings said, either way, an agreement between Bow Valley and Bakrie was gong to be required.)

305.   On Saturday 26^th July a Bow Valley/Bakrie delegation arrived in Tehran. It included Mr. Burns, Mr. DeBoni, Mr. Blair and Mr. Bryngelson.  On the following Monday, 28^th July, a Service Contract between NIOC, on the one hand, and Bow Valley and Bakrie, on the other, was signed.

Discussion

306.   Looking at the period of Saturday 5^th to Friday 11^th July, we have little doubt that the true position was this:-

(i)        that over the week-end of 5^th 6^th Bow Valley/Bakrie and Pell Frischmann were both uncertain and concerned as to how NIOC would react to the expiry of the dead-line; both had heard separately, via Mr. Mohandes, that a letter was due to be coming from NIOC but had not seen it;

(ii)       that in the course of that week-end, NIOC decided that they were no longer prepared to deal with Pell Frischmann on an exclusive basis - or, in all probability, at all; they did not  include them in the list of selected contractors who were going to be invited to re-bid; and they required Pell Frischmann to collect the performance bond previously lodged with them;

(iii)      that, at this point, NIOC had, indeed, decided to open the contract up to a number of other selected bidders: there is a consistent thread of evidence to this effect running through Dr. Pendered's contemporaneous note of his conversation with Mr. Mohandes, the terms of the telephone message left by Mr. Mohandes for Mr. Blair on 7^th July, the terms of the letter from Pell Frischmann to Bow Valley of 8^th July signed by Mr. Prabhu on behalf of Dr. Frischmann, and Monument's letter of 18^th July  in which they referred to letters recently received from NIOC, and Mr. Cummings's evidence;

(iv)      that, while Bow Valley and Bakrie may well have recognised that there was a risk that Pell Frischmann would lose its exclusivity, and, indeed, had heard rumours via Mr. Mohandes that this had  happened, they did not see NIOC's fax to Pell Frischmann until the afternoon of Tuesday 8^th;

(v)       that Pell Frischmann almost certainly deliberately delayed providing Bow Valley (or indeed Norton Rose) with a copy of NIOC's 7^th July fax until late on 8^th July, (London time), while urging Bow Valley and Bakrie to sign the buy-out agreement;

(vi)      that while doing this, Pell Frischmann were simultaneously trying to conclude a last-minute deal with Monument and Crescent, or, failing them, MMC;

(vii)     that Bow Valley and Bakrie had always supposed that their fate was inextricably linked, in NIOC's eyes, to that of Pell Frischmann, so that, if NIOC decided to discontinue negotiations with Pell Frischmann, the contract would go to the second bidder;

(viii)    that it was only in the course of Mr. Blair's conversation with Mr. Mirhadi at the Rodeo on 8^th July that Bow Valley first received any indication from any representative of NIOC that they would be willing to offer the Balal Service Contract to Bow Valley and Bakrie without any involvement of Pell Frischmann;

(ix)      that up until then Bow Valley and Bakrie had genuinely intended to conclude the buy-out agreement with Pell Frischmann and been working towards that end;

(x)       that the arrival of the two NIOC faxes, one addressed to Bow Valley and Bakrie and the other a copy of the one to Pell Frischmann, within a matter of hours of one another on 8^th July, coupled with the news of Mr. Blair's conversation with Mr. Mirhadi at the Rodeo, the fact that it was a holiday in Canada with the relevant people dispersed here and there and with Mr. Bakrie was in Jakarta, meant that it was only in the course of a multiplicity of discussions within and between Bow Valley and Bakrie over the course of the next day or two that a decision was reached as to how to proceed.

PART 11

 

CONCLUSIONS AS REGARDS

ALLEGATIONS OF CONSPIRACY

 

307.   We find no persuasive evidence, in the events of these final days or of any other period, of any plan by Bow Valley or Bakrie to steal the Balal contract from Pell Frischmann or otherwise to injure Pell Frischmann.

308.   In the first place, it is unnecessary to have resort to conspiracy theories in order to explain what happened.  And while conspiracies are by their nature secretive and can often only be proved by a process of gleaning of evidence, pains-taking reconstruction of detail, and inference from circumstantial material, when all is said and done the evidence in the present case simply does not support the existence of any conspiratorial intent to deprive Pell Frischmann of anything that was rightly theirs.

309.   Secondly, if Bow Valley and/or Bakrie ever harboured any thoughts of trying to persuade NIOC to let them have the contract in preference to Pell Frischmann, it can only have been very short lived: NIOC made it abundantly clear from Mr. Mirhadi's first conversation with Mr. Kamarianakis of the Canadian Embassy in Tehran that NIOC felt bound to continue to deal with Pell Frischmann unless and until they dropped out.  Thirdly, NIOC did in fact honour that commitment right up until the expiry of its extended deadline on 4^th July.  It was prepared to accept Monument as a partner to Pell Frischmann in place of Bow Valley; it made representatives available at the highest levels for discussion with a joint Pell Frischmann/Monument delegation over a period of several days in June; and it made arrangements for Mr. Lindsay Kaye to examine the reservoir data that he wished to see.  The only point on which it drew a line, for what appears to us to be very good reason, was in declining to extend the deadline beyond 4^th July for Pell Frischmann to lodge the specified performance bond, a joint venture agreement and evidence of funding. 

310.   Thirdly, for Pell Frischmann's conspiracy case to make sense, NIOC would have had to have been complicit in it.  This was not something that was ever pleaded. It was specifically disavowed by Mr. Speck as being part of Pell Frischmann's case, and we can well understand why Pell Frischmann would be anxious not to  make too much of any such allegation.  Nonetheless, the point is inescapable.  The case put by Pell Frischmann involved, among other things, the suggestion that the idea for the imposition of a dead-line was agreed between Bow Valley and Bakrie on the one hand and Dr. Hosseinian on the other at the meeting in Kuala Lumpur on 5^th June in order to put unfair pressure on Pell Frischmann, and the imputation of collusive goings-on with Mr. Mirhadi during his time in Calgary.  But it is difficult, to say the least, to square these allegations with the continuing indulgence shown by NIOC towards Pell Frischmann over the course of the weeks following the Kuala Lumpur meeting during which Pell Frischmann was trying to conclude an agreement with Monument and others.  Other matters apart, eleven days elapsed after the Kuala Lumpur meeting before NIOC issued its 15-day notice.  And, as Dr. Frischmann had pointed out to NIOC in his letter of 2^nd June, Monument was a major oil and gas company, with a London Stock Exchange listing and with capitalisation of £636 million.  There is every reason, therefore, to suppose that NIOC would have been more than happy to allow Pell Frischmann to substitute Monument for Bow Valley and Bakrie if Pell Frischmann could have reached an agreement with them.  As will be evident from the foregoing review of the events during June 1997, NIOC made it clear that Monument were entirely acceptable as far as NIOC were concerned (not least, no doubt, because they had had experience of Monument on other projects). 

311.   Then again, Pell Frischmann's case depended on the proposition that the imposition of the three conditions attached to NIOC's 15-day deadline meant that Bow Valley and Bakrie had Pell Frischmann "over a barrel", in that one of those conditions, the conclusion of a joint venture agreement, meant that Bow Valley and Bakrie were able to ensure that that condition was not fulfilled, simply by stalling negotiations with Pell Frischmann until time ran out. But that, too, is untenable given that it takes two to negotiate and given what actually happened:-

(i)        For a period of almost five weeks from 22^nd May until 26^th June, Dr. Frischmann plainly had little or no interest in any further negotiations with Bow Valley and Bakrie and was busy trying to negotiate a deal with Monument.  

(ii)       His only gesture towards re-opening negotiations with Bow Valley and Bakrie prior to 26^th June was his cursory repetition on 12^th June of the offer contained in his letter of 22^nd May, an offer which he conceded in cross-examination was a deliberately inflated one: "Yes, I think it was inflated.  It was the beginning.  When you play chess, you put your pawns forward. Yes it was an inflated value, I accept it, I wanted to have their reaction."  

(iii)      It was, moreover, an offer to which Bow Valley and Bakrie had already made a counter-proposal in their letter of 23^rd May. If Dr. Frischmann had been earnest about wanting to re-kindle discussions with Bow Valley and Bakrie on 12^th June, the natural place to have started would have been with a response to that last proposal from Bow Valley and Bakrie, not with the re-iteration, three weeks later, of an offer that he knew to be unrealistic and to which he had already had a response.  

(iv)      By the time that Dr. Frischmann contacted Bow Valley again on Wednesday 25^th June, with a view to re-starting discussions about a possible buy-out, NIOC's deadline - which had just been extended the previous day from Tuesday 1^st to Friday 4^th July - was little over a week away.

(v)       When he did make contact, it was still without any new quantified proposal on his part, so that it was left to Bow Valley and Bakrie to make a specific offer, which they did very promptly the following day.

(vi)      As already indicated there is no persuasive evidence that Bow Valley and Bakrie deliberately spun out the ensuing negotiations in order to ensure that the deadline of 4^th July expired without any agreement having been concluded. 

(vii)     In any event, Bow Valley and Bakrie were in no position to control events.  If Pell Frischmann had been more flexible in their negotiations with Monument, they might well have succeeded in satisfying NIOC's conditions within the requisite time-table: Dr. Frischmann plainly thought he was close to an agreement by the time that the Pell Frischmann/Monument delegation set off for Tehran on 21^st June.  And there was no guarantee (as we find) that the contract would necessarily be offered to Bow Valley and Bakrie rather than to the original No. 2 bidder if the deadline were to expire before the conditions were satisfied.

312.   Nor are we in the least persuaded that Bow Valley and Bakrie deliberately set out to diminish Pell Frischmann's standing in the eyes of NIOC or that their conduct at any stage did in fact have that result.  The particular passages in Mr. Blair's notes of the Kuala Lumpur meeting relied on by Pell Frischmann are minimal in the overall context of things and a slender peg on which to hang this serious allegation.  It would, moreover, have been a risky strategy for Bow Valley and Bakrie to adopt, given that they were primarily concerned with their long-term relationship with NIOC, that NIOC might not take kindly to an attempt to disparage a potential co-venturer who had been selected by NIOC as their preferred bidder for development of the Balal Field, and that Pell Frischmann had been dealing with NIOC for some considerable time and had well-established lines of communication with them.  (These almost certainly included established lines of communication with Mr. Jalilian.  Faxes from Mr. Mohandes to Dr. Frischmann spoke, on a number of occasions of communications with or from "J." and "A", and, although Dr. Frischmann professed not to know the identities of those in question, the strong probability must be that this was a reference to Mr. Jalilian.  And it was Dr. Frischmann's own evidence that he had had negotiations with Mr. Jalilian at the time of the final contract term negotiations in March.)  It must also have been apparent to Bow Valley and Bakrie that it was unlikely that the Minister and other senior NIOC officers would be so unsophisticated as to be influenced by anything said by people whom they had not previously met and of whom they knew little.

313.   In any event, it is plain that nothing that happened at the Kuala Lumpur meeting did in fact cause NIOC to cease to engage in a dialogue with Pell Frischmann as a prospective party to the Service Contract in a consortium with Monument.  The so-called "chilling" effect that the Kuala Lumpur meeting is alleged (by Pell Frischmann) to have had on relations between NIOC and Pell Frischmann, is fanciful: as already discussed, Pell Frischmann had by then given NIOC considerable reason to be less than pleased with its conduct.  But even then, NIOC remained willing to deal with Pell Frischmann, their only - and understandable - conditions being those spelt out in their fax of 1^st July. 

314.   In truth, responsibility for Pell Frischmann's failure to secure the Balal Field Service Contract lay not with Bow Valley or Bakrie or with NIOC, but with Pell Frischmann and Pell Frischmann alone.  More specifically it lay, for the most part, with Dr. Frischmann's unrealistic assessment of the commercial value represented by Pell Frischmann's selection as NIOC's preferred bidder for the project in circumstances where Pell Frischmann itself was unable or unwilling to make much of a financial contribution or to take much risk and where the impact of U.S. sanctions (and the widely reported murder of Kurdish dissidents in Germany) had drastically reduced the numbers of banks and other financial institutions willing to finance projects in Iran; with his predilection for brink-manship and tendency, again and again, to over-play his hand; and his inability, it seems, to recognise the extent to which his tactics were trying NIOC's patience.  In the end, time and NIOC's patience ran out and Pell Frischmann was left with nothing to sell.  In a sense, Monument's letter of 18^th July said it all: NIOC having taken the view that any rights to the Service Contract that Pell Frischmann might have had having lapsed, "we are obliged to conclude", they wrote, "that your proposal in recent correspondence to assign an interest in Balal to Monument is no longer realistic".

315.   Any possibility of Pell Frischmann rescuing the situation at the last moment was, moreover, almost certainly diminished by the absence of Dr. Frischmann from his London office for much of this period and by his continuing determination to ride two or more 'horses' right up to the end.  As regards the first of these points, he seems to have departed to Majorca on Friday 4^th July early (or possibly the previous evening) and not returned until Friday 11^th July, leaving Mr. Sarch to deal with matters, subject to consulting him by telephone, and occasionally by fax.  Dr. Frischmann explained in the course of his evidence that he had promised to have a holiday with his wife (to whom he had been married for many years) and felt bound to fulfill that promise.  But this clearly put him at one step removed from the centre of operations as far as Pell Frischmann was concerned, at a critical time, even though he was accessible by telephone and fax.  It is also a matter of note that at almost every critical juncture in this story Dr. Frischmann was not present to conduct matters in person, but had left them to be handled by his lieutenants: to Dr. Pendered on the occasion of the signing by Pell Frischmann of the Service Contract in Tehran in March; to Mr. Sarch at the meetings with Bow Valley and Bakrie in Jakarta in April; and to Mr. Dorr and Dr. Pendered on the occasion of the Pell Frischmann/Monument delegation to NIOC in June.  And now, at the very moment when NIOC's deadline was about to expire, matters were once again left to Mr. Sarch, notwithstanding that on each of the earlier occasions matters had not gone according to plan: there had been the problem of Dr. Pendered's last minute commitment to the provision of a US$5 million performance bond in March; Mr. Sarch had failed, in Jakarta, to secure the deal that Dr. Frischmann was hoping for; and the visit to Tehran with Monument in June had gone badly awry. 

316.   Equally surprising to our mind is that front-line responsibility for dealing with NIOC, Bow Valley and Bakrie, Monument and Crescent, and MMC was left, at this point, almost entirely to someone (Mr. Sarch) who held no formal position of any kind within Pell Frischmann.  He was not even an employee, let alone a director, but one of those who, like Mr. Fraser, appears to have been happy to help Dr. Frischmann from time to time, on the basis that they would be suitably recompensed if and when whatever the project was that they were working on came to fruition.  He was, moreover, someone who suffered from a degree of dyslexia as he, himself, mentioned on a number of occasions during his evidence, and who, to use his own words tended to "get very confused quite easily".

317.   As to the second point, it is difficult to be sure what Dr. Frischmann's real ambitions were by this stage.   As noted earlier, he had harboured thoughts about selling his interest in Balal as long ago as April, when he had written to a contact in Switzerland voicing concern about the impact of US sanctions within the European Union. Direct pressure on that subject had been brought to bear on Pell Frischmann in June by the receipt of the letter from Senator D'Amato.  Finding a source of funding and agreeing terms with consortium partners had proved elusive.  Mr. Fraser had made it clear that he would be reluctant to return to Tehran.  And Dr. Pendered was on the point of retirement from Pell Frischmann (though Mr. Sarch was, it seems, unaware of this).  All of this Dr. Frischmann must have had well in mind and may have encouraged him to think that selling out would be his preferred course.  But it is hard to understand why, if he was really bent on trying to salvage something with Bow Valley and Bakrie, he himself made no attempt, as far as we can see, to speak by telephone direct to anyone in Calgary as the events of the ensuing days unfolded.  On the other hand, his increasingly desperate proposals to Monument and MMC together with his letter of 4^th July to NIOC suggest that what he still wanted, really, was the chance to do a deal that would give Pell Frischmann a substantial, active role and profit-sharing interest in the project.  Then again, in some ways his departure to, and stay in, Majorca looks like the retreat of a lion to his den, knowing that the game was lost as far as any hope of ever winning the Balal contract and knowing that, with the loss of exclusivity, he no longer had anything of value to sell.  It may, of course be, that it is a mistake to assume that his thoughts and objectives were necessarily the same from day to day.  But, whatever the truth, NIOC could have been forgiven for finding his behaviour ambivalent and exasperating.  

318.   In short, we find

(i)        that there was no intent on the part of Bow Valley and Bakrie, individually or collectively, to "steal" the right to the Balal Contract from Pell Frischmann or to injure Pell Frischmann in any way;

(ii)       that no such injury was in fact caused by anything said or done by Bow Valley or Bakrie;

(iii)      that after 4^th July Pell Frischmann could not have obtained the Balal Contract because  there was no realistic prospect of it putting together a viable consortium within the foreseeable future, and because it was, in any event,  no longer acceptable to NIOC;

(iv)      that Pell Frischmann has no-one to blame but itself for its misfortune in losing the Balal Contract;

(v)       that Pell Frischmann's causes of action in conspiracy, deceit, malicious falsehood, and wrongful interference are groundless. 

PART 12

 

BREACH OF CONTRACT

 

The nature of the case and the damages claimed

319.   Pell Frischmann claims that even if its case in conspiracy fails, it still has causes of action against Bow Valley and Bakrie for simple breach of contract by reason of their entering into the Balal Service Contract with NIOC without Pell Frischmann's consent in breach (it is said) of the terms of their respective Confidentiality Agreements.  

320.   In essence the complaint has two main limbs: use of Pell Frischmann "confidential" information in breach of clause 4 of the Agreements; and working on Balal other than "exclusively with Pell Frischmann" and entering into the Service Contract in breach of clauses 3 and 6 respectively.

321.   Whether Bow Valley and Bakrie's conduct under these two heads did or did not constitute breaches of contract depends on whether the Confidentiality Agreements were or were not still in force and effect after 7^th July 1997.  Bow Valley contends that they were not.  In practice, however, that issue is academic in that

(i)        Pell Frischmann has, as we find in Part 13 below, a right of redress in respect of the first limb (use of "confidential information") irrespective of whether that use entailed a breach of the Confidentiality Agreement; but

(ii)       so far as the second limb is concerned, even if Bow Valley and Bakrie were in breach of the Confidentiality Agreements, the breaches were not causative of any loss to Pell Frischmann; and there is no justification in the present case for the award of Wrotham Park type damages for the fact that Bow Valley and Bakrie took the contract without Pell Frischmann's consent.

322.   Before going further it is necessary to be clear as to what exactly Pell Frischmann does and does not claim by way of redress.  Despite all the rhetoric about Bow Valley and Bakrie having "stolen" Pell Frischmann's contract, it is no part of Pell Frischmann's case in the end that, but for Bow Valley and Bakrie's wrongdoing, it would have secured the Balal contract for itself: given the history of this matter, this is hardly surprising.  Rather, it is said, by July 1997 Pell Frischmann's intent was simply to sell out its "interest" in the contract to Bow Valley and Bakrie for an appropriate price (Written Closing Submissions paragraph J.46.) 

323.   On that premise, Pell Frischmann then proceeds to claim that, but for the wrongful acts of Bow Valley and Bakrie, it would have entered into the buy-out agreement "which Bow Valley had, on its behalf and on behalf of Bakrie, negotiated with Pell Frischmann" (Written Closing Submissions paragraph J.3), and it claims the full US$10 million that would, it contends, have been paid under that agreement (what Pell Frischmann terms its "expectation loss").

324.   What Pell Frischmann does not do, however, is to suggest that it can bring a simple claim for damages for breach of that buy-out agreement by Bow Valley and Bakrie; the reason being, quite clearly, that it is recognised that no such agreement was ever concluded. 

325.   By way of alternative to its claim to damages for its "expectation loss" as described above, Pell Frischmann claims to be entitled to recover "the amount that it could reasonably have demanded, and which Bow Valley and Bakrie would have been willing to pay, as a price for releasing Bow Valley and Bakrie from their obligations to Pell Frischmann under the Confidentiality Agreements and for allowing them to proceed with the Balal project using Pell Frischmann's Confidential Information" (Written Closing Submissions, paragraph J.4).  Such payment would be based on Bow Valley and Bakrie's assessment of the potential value of  the Balal contract at the time of the wrong-doing; and, argues Pell Frischmann, the terms of the proposed buy-out agreement are the clearest possible indication of what Pell Frischmann's consent was worth to them at the time.  Pell Frischmann refers to this as its claim for "reasonable payment". In money terms it comes to the same thing as the "expectation loss" claim.  

326.   In the further alternative, Pell Frischmann claims damages representing the totality of its expenditure incurred but wasted in connection with the Balal project (the "wasted expenditure claim").  This was quantified by Pell Frischmann in its pleadings as £1,254,113 or US$2,257,404 converted at a rate of US$1.8: £1 sterling (though that total included some element of cost subsequent to July 1997).

327.   Pell Frischmann also submits that, in cases of conspiracy to injure, the English authorities suggest that "damages are at large" in the sense that courts will adopt a more indulgent approach towards a plaintiff when it comes to proof of loss, than would normally be the case and will be prepared to make inferences in a plaintiff's favour notwithstanding that he may not be able to prove loss to the usual standard.  But such considerations have no place in the present case, where, as we have found, there was no such conspiracy or intent to injure Pell Frischmann.

The expectation loss claim

328.   The claim that the sums that would have been payable under the buy-out agreement had it been concluded represent a "loss" to Pell Frischmann giving rise to a right to damages does not begin to be a viable one.  The truth of the matter is that, leaving aside the use made by Bow Valley and Bakrie of Pell Frischmann's "confidential" information (which we deal with in Part 13), the conclusion of the Service Contract between Bow Valley/Bakrie and NIOC did not, of itself, cause Pell Frischmann any loss whatsoever in any normal sense. Its assets and business interest were unimpaired by the contract between NIOC and Bow Valley/Bakrie.

329.   The fact that Pell Frischmann lost the Balal contract is, as we have held elsewhere, attributable entirely to its own conduct and not to anything done by Bow Valley or Bakrie: indeed, Pell Frischmann appears to recognise that to mount any damages claim based on the proposition that it would have won the Service Contract for itself would be hopeless.  And the loss of the opportunity to conclude the buy-out agreement, which is what Pell Frischmann does claim, was not something that flowed from any breach by Bow Valley or Bakrie of the Confidentiality Agreements (assuming for present purposes that there was a breach) but from the fact that the fundamental premise of the buy-out agreement had disappeared by 7^th July (if not before).  That premise, as appears from the recitals (C), (D) and (E) to the various drafts that passed to and fro, and as was otherwise common ground at the time, was that NIOC was willing to offer the Balal Service Contract on the same basis that it had done back in March 1997: in other words that Pell Frischmann still had, as far as NIOC was concerned, the exclusive "right" to that contract.

330.   That being so, the notion that once Bow Valley and Bakrie realised that such exclusivity had been lost they would, nonetheless, still have been willing to pay the sort of money contemplated by the draft buy-out agreement, is fanciful.  The prospective deal made commercial sense only as long as Pell Frischmann retained exclusivity, just as Monument made it clear in its letter to Mr. Sarch dated 9^th July that it remained willing to discuss terms "On the assumption that PFE still has exclusivity with NIOC" and, once it became evident that this was not the case, Mr. Patrick wrote to Dr. Frischmann to say that his most recent proposal to assign an interest in Balal to Monument was "no longer realistic".  The obvious  implications for Pell Frischmann of that loss of exclusivity is, we have no doubt, precisely why NIOC's 7^th July fax to Pell Frischmann was not copied to Bow Valley more promptly than it was; why Pell Frischmann was so insistent, via Norton Rose, on 8^th July that the buy-out agreement should be signed that day ("Pell Frischmann require this to be done today"); why Bow Valley heard nothing more from Norton Rose once Mr. Cummings had alerted them to the existence of NIOC's fax (which, it seems, they had not seen at that point); why Dr. Frischmann failed, in his letter to Monument on 10^th July, to disclose that Pell Frischmann had indeed lost its position of exclusivity (a state of affairs that Monument evidently only discovered subsequently); and why, other than Dr. Frischmann's letter of 16^th July 1997, no protest about Bow Valley and Bakrie's withdrawal from the buy-out negotiations was heard until Pell Frischmann brought the present action in January 2004. 

331.   This basis of claim is, in reality, little more than a roundabout way of trying to enforce a contract that was never concluded.

The reasonable payment claim

332.   The basis of this claim is the decision of the Brightman J. in the (English) case of Wrotham Park Estate Company Limited v. Parkside Homes Limited [1974] 1 WLR 798 and the subsequent decisions of the House of Lords in Attorney General v. Blake [2001] 1 AC 268, the Court of Appeal in Experience Hendrix LLC v. PPX Enterprise Inc. [2003] EWCA Civ 323, and the judgment of Peter Smith J. in WWF-World Wide Fund for Nature & Anor. V. World Wrestling Federation Entertainment Inc [2006] EWHC 184.  The decision in Wrotham Park was something of a novelty at the time, in 1974, and only received authoritative endorsement at the highest level with the decision in Blake in 2001.  The novelty lay in the decision of Brightman J. that he had jurisdiction to award a form of damages for breach of a covenant restricting development of certain land, despite the fact that the aggrieved plaintiff was unable to show that the value of the site had been diminished by "one farthing".  The damages awarded were the equivalent of the notional reasonable price that the defendant would have had to pay the plaintiff to have obtained his consent to the development.  It is unnecessary for this court to review the state of these authorities in detail, an exercise that was undertaken comprehensively by Peter Smith J. in WWF.  For present purposes it is sufficient to note that these cases, including WWF, appear to establish the following principles:

(i)        Although originally Wrotham Park type damages were thought only to be available in cases involving real property, it is now clear that the jurisdiction may also be exercised in any case where there has been a breach of a contractual undertaking not to do something but the plaintiff is unable to show that he has suffered loss as a result of that breach, and the circumstances are such that such a remedy is justified.

(ii)       The remedy is an exceptional one, designed to allow justice to be done in circumstances where, as a matter of discretion, a court thinks it right to make such an award.  As Peter Smith J. put it in WWF (at paragraph 137):

"What I derive from the judgments [that is the speeches of their Lordships in Blake] is that the Wrotham remedy is of general application in appropriate cases for any breach of contract.  It is also compensation and not restitution based.  It appears to be an exceptional discretionary remedy when the more traditional bases for compensating an innocent person for breach of contract would provide no or an illusory result.  It is not therefore a basis for damages that can be claimed as of right but is a remedy designed to fill what would otherwise be a gap and lead to an innocent person having a justified belief that the laws had failed him in dealing with a breach of contract i.e. in colloquial words the wrongdoer had "got away with it."

(i)             At the same time the jurisdiction is not to be exercised "in a way which leads a Defendant to believe that it is being punished for its wrongdoing" (WWF at paragraph 162).

(ii)            As to whether the circumstances in any particular case should be regarded as "exceptional", Lord Nicholls of Birkenhead said in Blake

"No fixed rules can be prescribed. The courts will have regard to all the circumstances, including the subject matter of the contract, the purpose of the contractual provision that has been breached, the circumstances in which the breach occurred and the circumstances in which relief is being sought. A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant from the defendant's profit-making activity".

See also the judgments of Mance LJ and Peter Gibson LJ in Experience Hendrix at paragraphs 27, 35, 36 and 58.

Depending on the circumstances, the appropriate relief may take the form of an account of profits, or, in most cases, an award of damages in an amount representing what the party in breach would reasonably have had to pay the other party in order to obtain his consent to the activity in question based on a notional arms length negotiation between the parties: WWF paragraph 146.

333.   Applying these principles to the present case, it is difficult to see on what basis the circumstances could reasonably be considered "exceptional" and to warrant any award of Wrotham Park type damages for Bow Valley and Bakrie's conduct in entering into the Balal Service Contract with NIOC in breach of clauses 3 and 6 of the Confidentiality Agreements (assuming that they were in such breach), as opposed to making use of Pell Frischmann's "confidential information."  As to the latter, Pell Frischmann is, as we have already made clear, entitled to compensation on equitable grounds independent of contract.  But the prohibition on Bow Valley and Bakrie dealing direct with NIOC and taking the Balal contract for themselves, is an altogether different matter.  The purpose of the Confidentiality Agreements at the time when they were made was to protect Pell Frischmann's position from unfair competition by those whom it had introduced to the project and with whom it had shared its "confidential information".  But by 7^th July that purpose had become devoid of meaning in that there was no longer the slightest chance of Pell Frischmann obtaining the contract for itself: as we found earlier, there was no prospect of it putting together the necessary consortium within the foreseeable future, and NIOC was no longer interested in having any dealings with it.  In other words, the original purpose of the Confidentiality Agreements had run its course and was spent. In those circumstances, to speak of Pell Frischmann having a legitimate interest in preventing Bow Valley and Bakrie from contracting with NIOC appears to us to be wholly artificial.  The case is altogether different, on its salient facts, from those of Wrotham Park, Blake and Experience Hendrix where the plaintiffs did have substantial interests of one kind or another the protection of which was entirely justifiable.  In the present case, once Pell Frischmann was out of the running, it made no difference to Pell Frischmann's business whether Bow Valley and Bakrie did or did not take the contract. 

334.   As to the circumstances in which the (assumed) breach of contract occurred (another potentially relevant consideration suggested by Lord Nicholls), it is not as if the opportunity to be appointed contractors for the Balal contract by NIOC had been secured by Pell Frischmann alone.  Both Bow Valley and Bakrie, the former in particular, had made major contributions to the award of the contract to Pell Frischmann in March 1997: without their involvement, Pell Frischmann would not have succeeded in securing any interest in Balal.  They had also invested considerable reputational capital in the project by their willingness to become involved in spite of the threat of US sanctions.  In that sense, they had a perfectly legitimate reason in taking on the contract in circumstances where Pell Frischmann had, effectively, ruled itself out.

335.   Finally, as to the circumstances in which redress was sought by Pell Frischmann under this head, (also suggested by Lord Nicholls as a potentially relevant factor), there is no satisfactory explanation of why Pell Frischmann waited almost six-and-half years before making any claim based on alleged breach of clauses 3 and 6 of the Confidentiality Agreements.  There was never any secret that NIOC had awarded the contract to Bow Valley and Bakrie towards the end of July 1997.  Mr. Mohandes had faxed Dr. Frischmann on 30^th July saying "Balal Project was awarded, signed and sealed on Monday 28 July 1997"; Mr. Sarch had copied this message on to General de Vire the same day saying

"Bill Frischmann is away in Majorca but we have just received the enclosed fax which I have spoken to Dr. Frischmann about.  He is most concerned and asked me to send it to you [.] from what I gather the project has been awarded to Bow Valley/Bakrie. Perhaps you could let me know if you have any confirmation",

and the following day Mr. Sarch had written to the General again saying

"Further to our telephone conversation yesterday, I have this morning spoken to Mr. Rahimi at NIOC understand that they are at an advanced stage of negotiations with another party, although I have no confirmation as to exact identity.  He said that it was too late for Pell Frischmann to proceed with the Contract but when I pressed him on that subject he did say the only chance would be to apply to a higher authority by which I presume he means the Minister.  If you have any further information from your side, I would be most grateful if you would call."

336.   By early August the award of the contract to Bow Valley and Bakrie was also being widely publicised in the press, and Dr. Frischmann can no longer have been in any doubt about the position.  Apart from anything else, on 8^th August 1997 he had been supplied by the American Embassy in London with a copy of a press release which made specific reference to "Canada's Bow Valley" having signed a new contract for the development of Balal which "replaces an earlier proposal submitted by the Canadian firm in conjunction with UK engineers Pell Frischmann".  The release then went on to refer to a number of other foreign firms that were believed to have been preparing at that time to submit competitive offers, including "the China National Petroleum Corporation, Cairn Energy PLC, Monument Oil and Gas and even Bow Valley's former partner Pell Frischmann"; to Pell Frischmann having been "left out in the cold"; and to the terms of the new contract being "essentially the same as those contained in the original Pell Frischmann/Bow Valley submission".

337.   The right to bring proceedings may not have been formally barred by January 2004 (a matter discussed later), but the launching of proceedings on this particular issue after having left the matter in abeyance for so long, for no evident good reason, is hardly compatible with a plea that the court should exercise its discretion to award damages of the exceptional nature involved in a claim of this kind.

338.   In any event, for the same reasons as those discussed in relation to the "expectation loss" claim, it is wholly unrealistic to suppose that the US$10 million that might have become payable under the buy-out agreement, had it ever been concluded, would be a fair guide to what would have been a reasonable price for Bow Valley and Bakrie to pay simply to obtain Pell Frischmann's release from clauses 3 and 6 of the Confidentiality Agreements.

339.   In summary, we do not consider that the circumstances as a whole warrant the award of any Wrotham Park type damages to Pell Frischmann in respect of any (assumed) breach of clauses 3 and 6 of the Confidentiality Agreements.  As regards any breach of clause 4, Pell Frischmann will be adequately compensated by an award for breach of confidence, as set out in Part 13 below, and nothing over and above that, by way of Wrotham Park type damages, is necessary in order to do justice.

The wasted expenditure claim 

340.   This fails on the simple basis that such losses were not the result of any (assumed) breach of clauses 3 and 6 of the Confidentiality Agreements, but the consequence of Pell Frischmann itself having destroyed any chance that it might otherwise have had of holding onto an interest in the Balal contract.

The breach issue

341.   In the absence of any viable potential claim in damages, it is, strictly, unnecessary to explore at length the question whether there was in fact any breach of clauses 3 and 6 of the Confidentiality Agreements by Bow Valley and Bakrie.  In recognition of the considerable attention devoted to the matter at the trial, it is right, however, that we say something, if relatively shortly, of what our conclusions would have been had it been necessary to decide the point.

342.   Pell Frischmann's case was simple enough: no joint venture agreement between the parties ever having been concluded, the Confidentiality Agreements remained in force without limit in point of time. 

343.   In answer, Bow Valley pleaded a number of reasons why this was not so.  The one that attracted most attention at trial, from both sides, was one that had first been canvassed by Crill Canavan  in correspondence in August 2005 and had only been formalised (and then in slightly different terms) by way of amendment in early 2006.  The argument, in short, was two-fold. First, that, although no agreement as to how the proposed joint venture would operate if and when the contract was awarded had been finalised, an agreement to submit a bid to NIOC had been concluded between Pell Frischmann and Bow Valley in December 1996.  This agreement, it was said, had superseded the pre-existing Confidentiality Agreement and had given rise to implied reciprocal obligations of exclusivity between Bow Valley and Pell Frischmann: promises, in effect, that neither would seek to win the project for itself without the other. Secondly, it was argued, Pell Frischmann's subsequent attempts to negotiate a deal with Monument without Bow Valley and Bakrie had amounted to a repudiation of that December agreement and that this repudiation had been "accepted" (to use the customary parlance of lawyers) by Bow Valley in its letter of 11^th July 1997, thereby terminating that agreement and ending any restriction on Bow Valley's and Bakrie's ability to contract with NIOC without Pell Frischmann.  

344.   In Bow Valley's pleadings and written submissions this December 1996 agreement was referred to by the somewhat cumbersome expression of "the joint venture to bid", although Bow Valley witnesses spoke of having formed "a bidding consortium" with, or being in "partnership" with Pell Frischmann.  Either way, the agreement was said to have arisen, one way or another, out of a combination of circumstances which may be summarised shortly as follows:- that Bow Valley had been working together with Pell Frischmann for some weeks with a view to submitting a bid for Balal (and, for that matter, for Soroosh); that in the course of their negotiations and attempts to raise finance, there had been mention on several occasions, both in correspondence and in joint submissions to third parties, of Bow Valley and Pell Frischmann having formed a "consortium" to bid for the project (together with Mr. Mohandes' company); that by 18^th December 1996 negotiations had almost reached finality and Mr. DeBoni had that day sent Dr. Frischmann a copy of "the latest draft of the proposed joint venture agreement", accompanied by a message in which he had said "As I indicated, it is important to Bow Valley that an agreement be put in place at this time"; that the very next day, Pell Frischmann had written to NIOC submitting a bid which was described in its covering letter as reflecting "the complete expertise and resources we have available to execute this project" and the title page of which read "Pell Frischmann Engineering Ltd in association with Bow Valley Energy Ltd (A Canadian Oil Company) and Industrial Progress & Development Co. of Iran and Other Iranian Companies."

345.   Alternatively, pleaded Bow Valley, Pell Frischmann

"held the bid rights attached to the bid on constructive trust for itself and Bow Valley, each with a 50% beneficial interest therein.  The trust arose because (if there was no joint venture to bid), Pell Frischmann acquired property (namely the rights attached to the acceptance of the bid) in circumstances in which it would be unjust and inequitable to allow it to treat such rights as its own. The parties' relationship thereafter being that of trustee and beneficiary, the terms contained in the Bow Valley Confidentiality Agreement were terminated by this trust."

346.   In the further alternative, submitted Bow Valley, there were implied terms of the joint venture to bid or the Confidentiality Agreement, as follows (summarising them to some extent, so far as material):

(i)        Any obligations under the joint venture to bid or the Confidentiality Agreement would only continue whilst Pell Frischmann tendered for the Balal project and (if successful) retained the right to the contract.  Conversely, if the tender were unsuccessful or if Pell Frischmann, having succeeded in being awarded the contract, were subsequently to lose it, then all pre-existing obligations between Bow Valley and Pell Frischmann would cease.

(ii)       If Pell Frischmann were to lose the contract by reason of its own default, then the joint venture to bid and the Confidentiality Agreement would terminate and any obligations thereunder would cease.

(iii)      During the joint venture to bid and the Confidentiality Agreement Pell Frischmann and Bow Valley would each act in good faith for their mutual benefit and in particular would not "negotiate with the other in bad faith", "knowingly mislead the other", "knowingly withhold material information from the other", "attempt or take steps to exclude the other", or act generally to the detriment of the other.

(iv)      To give notice of any breach of contract and take steps to remedy it within a reasonable time.

(v)       "If and to the extent that Bow Valley owed any obligations under the joint venture to bid and/or the Agreement [that is the Confidentiality Agreement], such obligations were mutual. Pell Frischmann had no entitlement to expect or require compliance by Bow Valley with obligations thereunder if it did not, in turn, equally comply with corresponding obligations."

347.   Various breaches by Pell Frischmann of these terms were then alleged. But the core of Bow Valley's case was contained in paragraphs 39(p) and 52 (c) of its Re-Re-Amended Answer.  In the former, speaking of the position following the events of 8^th July 1997, it was pleaded:

"By reason of (i) the fact that Pell Frischmann had (by its own default) lost any right to be awarded the development contract, (ii) Pell Frischmann's conduct in seeking covertly to replace Bow Valley by another joint venture participant [Monument], and (iii) Pell Frischmann's conduct in seeking to negotiate the buy-out agreement and not to disclose the fact that it had lost the rights to the development contract, Bow Valley took the view, acting in good faith, that it was no longer bound by such obligations (if any) as arose out of the joint venture to bid and or the Bow Valley Confidentiality Agreement".

And in paragraph 52 (c), it was pleaded that any obligation under those agreements was terminated on either 6^th or 7^th July 1997 by Pell Frischmann's loss of the right to develop Balal, or by Pell Frischmann's conduct as pleaded above, or

"was terminated on the acceptance by Bow Valley of Pell Frischmann's repudiatory breaches of contract, such acceptance being communicated by its letter dated 11^th July 1997".

348.   The contention that there was an implied term that, if Pell Frischmann was to lose the (previous) award of the contract, all obligations under the Confidentiality Agreement and/or joint venture to bid would terminate (as set out above), was also expressed, in Mr. Costa's written opening submissions, as a point of construction:

"Irrespective of whether PF acted in breach, however, it in fact lost the right to pursue the Balal project on 7^th July 1997.  On a true construction of the Joint Venture to Bid or Confidentiality Agreement, Bow Valley was thereby discharged of any reciprocal obligations to PF" (paragraph 165).

Similarly, in Bow Valley's written closing submissions, it was argued

"Even if the Confidentiality Agreement continued to apply to the relations between the parties, the obligation of exclusivity that it imposed can only (as a matter of construction) have continued to apply for so long as PFE retained the right to bid for the Balal project.  There would have been no commercial purpose in preventing Bow Valley from bidding for the project in a situation where PFE had already been excluded" (paragraph 424).

Moreover, as the next paragraph of Bow Valley's closing submissions asserted, it was not just a matter of Pell Frischmann having lost "exclusivity", but of having ruled itself out of any further consideration by NIOC as a possible candidate for the Balal contract.

349.   Pell Frischmann's riposte to these various arguments was, firstly, that the Confidentiality Agreements remained in force from beginning to end; and secondly that and these were the only contractual relationships that were ever entered into between Pell Frischmann and Bow Valley and Bakrie respectively, and that at no time did Pell Frischmann ever assume any legal obligation, reciprocal or otherwise, to either of them.

350.   So far as the first is concerned, Mr. Speck pointed to the fact that Dr. Frischmann had on more than one occasion specifically reminded Bow Valley of its obligations under its Confidentiality Agreement. In his letter of 2^nd June 1997 to Mr. DeBoni rejecting Bow Valley's latest buy-out offer, Dr. Frischmann had said

"I note from your letter of the 23^rd May that if agreement cannot be reached you intend informing the Iranian authorities of this development.  I do not know exactly what you have in mind in this respect, but I am sure that I do not need to remind you that under the terms of our agreement dated the 1^st November 1996, you are precluded from any further involvement in the Soroosh and Balal field projects once our co-operation comes to an end and are also subject to confidentiality provisions."

And in his letter to Mr. Blair on 12^th June Dr. Frischmann had accused Bow Valley of having breached clause 6 of the Bow Valley Confidentiality Agreement by communicating with NIOC and had demanded an assurance that there would be no repetition of this. In neither case, it was submitted, had Mr. DeBoni or Mr. Blair countered that the Bow Valley Confidentiality Agreement had long since ceased to be operative.  Reliance was also placed by Pell Frischmann on the fact that the recitals to the buy-out agreement drafted by Norton Rose that passed between the parties in the first week of July 1997 made specific reference to the Bow Valley and Bakrie Confidentiality Agreements without demur on the part of Bow Valley or Bakrie.

351.   These observations are correct as a matter of fact, but are not, of themselves, an answer to Bow Valley's case. Bow Valley does not deny that restrictive obligations of the kind originally contained in the Confidentiality Agreements continued right up until 7^th July.  What it says is that, as a result of the joint venture to bid agreement, Pell Frischmann became subject to corresponding, reciprocal obligations, and that it was when Pell Frischmann repudiated, or renounced, those obligations that Bow Valley and Bakrie became entitled likewise to treat themselves as freed from any restrictions of the kind to which they had previously been subject. 

352.   Mr. Speck poured particular scorn on Bow Valley's joint venture to bid argument, suggesting that this was nothing more than a lawyers' "construct", of recent invention: a "fabrication", no trace of which was to be found in the contemporaneous correspondence.  The expression "joint venture to bid" may well have been coined by Bow Valley's legal advisers and the argument that it embodied may have been one that emerged relatively late in the day.  But neither circumstance makes the argument a "fabrication".  At heart, all it was designed to do, if belatedly, was to try to give expression in legal terms to Bow Valley's belief that the co-operative act of submitting a bid to NIOC necessarily implied some level of reciprocity of obligation, notwithstanding that a full joint venture agreement had not been signed.  The basis of that belief, as articulated by Mr. DeBoni and Mr. Blair in lay terms, was that they viewed Bow Valley' relationship with Pell Frischmann as one of "partnership"; that Pell Frischmann's conduct in trying to establish a joint venture with Monument at the same time as negotiating a possible buy-out agreement with Bow Valley and Bakrie was an act of bad faith which was incompatible with that relationship; and that this justified Bow Valley and Bakrie as treating any pre-existing commitment to Pell Frischmann as terminated.  Bow Valley regarded Pell Frischmann's conduct as outrageous, as Mr. Blair put it, and it is not difficult to see why.  But formalising that outrage in terms of the breach of some specific legal right is less easy.

353.   Whatever the merits or otherwise of that joint venture to bid argument (which we touch on below), the short and compelling answer to the breach issue lies, we have little doubt, in the true construction of clauses 3 and 6 of the two Confidentiality Agreements.  The purpose of these clauses, as we have already noted elsewhere, was to protect Pell Frischmann's position as a prospective bidder for Balal, from competition from those to whom it had introduced the project and with whom it had shared information.  It can never, as we see it, have been the intention of the parties that the restrictions imposed by clauses 3 and 6 should extend to a situation of a kind as far removed from the circumstances contemplated at the time when the agreements were signed in late 1996 as that which actually occurred. 

354.   The circumstances envisaged at that time were, self-evidently, that either the parties would, "in the near future" (clause 7), conclude a formal joint venture agreement to govern their relationship in place of the Confidentiality Agreements or that they would part company, leaving Pell Frischmann alone to pursue the project with other possible partners.  No-one, we venture to suggest, foresaw a situation in which Pell Frischmann, Bow Valley and Bakrie would combine to secure the award of the Balal contract to Pell Frischmann some four months later without any joint venture agreement having been concluded; that agreement between the parties would continue thereafter to remain elusive; that, after almost four further months, NIOC would revoke the award of the contract to Pell Frischmann , through no fault of Bow Valley or Bakrie; and that Pell Frischmann would conduct itself in such a way as to destroy any realistic prospect of NIOC continuing to regard it as a candidate for Balal, thus ending any legitimate expectation by Pell Frischmann of ever being able to win that contract.  This, on any view, was a set of circumstances wholly outwith the four corners of the clause 3 or clause 6 of the Confidentiality Agreement, to which those provisions can have no application.  

355.   Although we have expressed the point a little more fully, this, in essence, is Bow Valley's construction/implied term argument.  The better and more satisfactory way of looking at the matter is, as we have indicated, approaching the issue as one of simple construction of the relevant contractual provisions on normal, well established principles; principles that enjoin a court to ask what the presumed intention of the parties must have been, in the light of the circumstances in which the agreement was originally made, and addressing that question at the point in time when (as it has been put) the ink was still wet on the paper. 

356.   Reverting to Bow Valley's (alternative) joint venture to bid argument, if it is legitimate to look at how the parties conducted themselves at the time, the following observations may fairly be made:- 

(i)        Writing to Dr. Hosseinian on 12^th March 1997 simultaneously with the submission of the revised bid for Balal, Dr. Frischmann said

"Bow Valley, our proposed partners for the Balal Offshore Development, are working with one of the largest group of companies, Bakrie Inter Investindo Co Ltd in Indonesia on oil and gas projects.  Bakrie have expressed great interest in joining us as a partner/investor if we are successful in obtaining the contract for the Balal Field.

We would like to inform NIOC that at a Board Meeting yesterday, it was agreed that we would formally invite Bakrie to join us.  In our view having Bakrie as a partner/investor will strengthen our team for the Balal Field and will enable us to seek further opportunities for projects in the oil and gas sector in Iran".

(ii)       In May 1997, Dr. Frischmann was writing to potential sources of finance describing Pell Frischmann as "heading a consortium which includes Bow Valley" (letters to London Electricity and to Royal Bank of Scotland dated 8^th and 14^th May respectively; although in other letters around that time he wrote in more tentative terms); and on 15^th May he wrote to KPMG enclosing what he described as "a simple overview of the Balal Field and a Technical Memo which was prepared by ourselves and Bow Valley Energy Limited."

(iii)      Although Bow Valley was not named as a party to the Service Contract signed by Dr. Pendered on behalf of Pell Frischmann on 19^th March 1997, that Contract made specific reference,  at various points, to the attached Master Development Plan (that being one of the essential elements of the Contract) and that Plan, as is described elsewhere in this judgment, made reference to a "Consortium" of Pell Frischmann and Bow Valley and to the fact that the Master Development Plan had been prepared by Pell Frischmann and Bow Valley.

(iv)      Replying on 19^th June 1997 to Dr. Frischmann's letter of 2^nd June (in which he had reminded Bow Valley about the terms of the Bow Valley Confidentiality Agreement) Mr. Blair wrote:

"With reference to your letter dated June 2, 1997 we wish to assure you that it is not our intention to pursue the Balal project on our own.  Similarly, we believe that Pell Frischmann will honour its obligations to Bow Valley arising from the certainty that our consortium would not have been selected by NIOC for negotiations on the Balal Contract without the participation of an operating oil company".

(v)       In Mr. DeBoni's reply to Dr. Frischmann's letter of 12^th June 1997 (in which he had again made reference to the Confidentiality Agreement), he said:

"As Pell Frischmann utilized the name of Bow Valley on the Balal tender, NIOC perceives us to be jointly responsible for the actions of our consortium........"

(vi)      On 23^rd June 1997, Mr. DeBoni wrote to Dr. Frischmann:

"We understand that you are seeking NIOC's approval to introduce new partners to the Balal consortium.  Could you please advise us of your intentions in consideration of your obligations to Bow Valley in this project.  We trust that you have informed any prospective new participants as to Bow Valley's contribution toward a successful bid on the Balal Project."

Dr. Frischmann never replied to this as such.  Instead, two days later he telephoned Bow Valley to re-open buy-out negotiations.

357.   So it would by no means be right to say that Bow Valley had not asserted, at the time, that some form of established, reciprocal relationship existed between Bow Valley and Pell Frischmann which disentitled the latter from contracting with NIOC without Bow Valley.

358.   One of the difficulties with accepting Bow Valley's joint venture to bid thesis as one that established a new legal regime with effect from 19^th December is that matters were at a relatively early stage at that point so far as Bow Valley was concerned. But, as the weeks went by and the combined efforts of Pell Frischmann and Bow Valley continued and developed to the point where, three months later, a revised bid had been submitted and accepted by NIOC, a more powerful case can be made that the earlier inchoate relationship had become one that necessarily imported reciprocal restrictive commitments that each would work on the project with the other to the exclusion of any other party, unless otherwise agreed.  If the matter is tested by asking the question "Would it have been open to Pell Frischmann, the day after the contract had been awarded, to have told Bow Valley that it was no longer required and that Pell Frischmann had found a more desirable partner?", common sense suggests that the answer to that question must be "Of course not." Pell Frischmann, by contrast, submits that the answer is "Yes", that it was not at any time under any obligation of any kind towards Bow Valley.  And for good reason, it was argued, in that the only person named as entitled to, and liable on, the Service Contract was Pell Frischmann - in other words, the contract was "Pell Frischmann's" alone. Moreover, Bow Valley had not contractually committed itself to the project in any way, as the minutes of the Bow Valley board meeting of 4^th April make clear:  "Walt DeBoni advised the meeting that as the concessions sought from NIOC had not yet been confirmed, the Corporation had not yet been prepared to commit to the Balal Development Project."  There was, suggested Pell Frischmann, nothing to stop Bow Valley from walking away from the contract at any time. Whether this last proposition is right may, however, be debatable.  If one asks the question, "Would Bow Valley have been entitled, on 20^th March 1997, to have told Pell Frischmann that it had changed its mind and no longer wished to be part of the Balal consortium, without incurring any liability to Pell Frischmann ?", it is by no means obvious that the answer is an unqualified Yes. 

359.   But, even if, the answer were Yes, that of itself does not appear to be necessarily inconsistent with the existence of reciprocal obligations of mutual exclusivity of the kind for which Bow Valley contends.  The implications of situations where parties have come together to pursue a project on a co-operative basis without having previously worked out the contractual terms of their relationship are infinitely varied and are often awkward and untidy when it comes to legal analysis.  The present case is no exception: the point is not any easy one, and, in view of our decision on the basis of the true construction of the Confidentiality Agreement, not one that it is necessary to decide.  But the better view is, probably, that, from the moment that the Balal Service contract was awarded to Pell Frischmann on 19^th March 1997, Pell Frischmann on the one hand and Bow Valley and Bakrie on the other were each bound to pursue the project exclusively with one another, unless and until otherwise agreed; that Pell Frischmann's subsequent attempts to contract with Monument was a repudiation of its obligation; and that that repudiation was accepted by Bow Valley and Bakrie by Bow Valley's letter of 11^th July 1997, thereby ending any restraint on Bow Valley and Bakrie from contracting with NIOC without Pell Frischmann.  This is not to say that these circumstances would also have brought about a release from the restrictions assumed by Bow Valley and Bakrie in respect of confidential information under clause 4 of their respective Confidentiality Agreements: different considerations apply there.

360.   Even if we are wrong in these conclusions and Bow Valley and Bakrie were in breach of their respective Confidentiality Agreements, it would be wholly artificial to speak of each one having procured the breach of the other (another way in which Pell Frischmann puts its many claims in tort). Each entity was well capable of making its own decision for itself and no doubt did.  

PART 13

 

BREACH OF CONFIDENCE

 

The Master Development Plan

361.   Irrespective of the failure of Pell Frischmann's principal claim for loss of the Balal contract, Pell Frischmann maintains that it has an independent claim for compensation for the wrongful use by Bow Valley and Bakrie of material generated by Pell Frischmann specifically for Balal.  This includes, in particular, material contributed by Pell Frischmann to the "Master Development Plan". 

362.   As explained at an earlier stage in this judgment, the December 1996 Balal Bid consisted in part of a "Technical Proposal" and in part of a "Commercial Proposal".  The former consisted, among other things, of a section headed "Composition of Consortium", followed by a section headed "Master Development Plan".  The invitation to tender had required the contractor to produce such a plan, based on information provided by NIOC relating to the reservoir, geology of the field and the existing facilities, and on concepts for the project drawn up by NIOC.  The Master Development Plan prepared and submitted with the December 1996 Bid consisted of some thirty-five pages of text divided into ten sections together with a  number of "Conceptual Drawings" and equipment lists prepared by Pell Frischmann relating to the wellhead and production platforms, respectively.  The "Introduction" described the Master Development Plan as having been prepared by Pell Frischmann, Bow Valley and others.

363.   The estimated Capital Cost given in the bid (on the first of two alternative bases, the "Base Case") was stated to be US$ 147,086,000.  This was based on the accompanying Master Development Plan and various quotations obtained from contractors and consultants. "Of necessity", said the proposal, "such quotations are based on preliminary information at this stage, and are thus subject to both further definition and clarification and to final negotiation with the potential suppliers in order to establish firm prices."  The proposal also included cash-flow projections, and proposed a Remuneration Fee of 60% of Capital Cost.

364.   Subsequently, in February 1997, a revised version of the Master Development Plan was prepared and it was this that formed part of the final bid submission made by Pell Frischmann in March that year, and became an integral component of the Service Contract signed by Pell Frischmann.  The estimated Capital Cost in the final submission had increased by then to US$ 176,586,000 but the costs contractually recoverable by the contractor were negotiated down by NIOC to a maximum of US$ 169,000,000.

Pell Frischmann's case

365.   Pell Frischmann's complaint is that Bow Valley and Bakrie misused information which, as between them and Pell Frischmann, was confidential.  The complaint relates to three main categories of information. In each case the misuse is said to give rise to a right, on the part of Pell Frischmann, to damages for breach of confidence.  The three elements normally required for success on such a claim are that the information is confidential in nature; that it must have been communicated in circumstances importing an obligation of confidence; and that there has been an unauthorised use of such information to the detriment of the person communicating it (Pell Frischmann in the present case): see the judgment of Le Cras, Lieutenant Bailiff, in Benest v. Langlois 1993 JLR 117 at 145-147 adopting the judgment of Megarry J. in the English case of Coco v. A.N.Clark (Engineers) [1969] RPC 41 at 47,48.  Pell Frischmann question whether, on a true analysis, detriment is a necessary ingredient of the cause of action; but even if it is not so in circumstances where an injunction is sought to prevent disclosure of confidential information, plainly there can be no award of damages, or at least no award of anything other than nominal damages, where no loss has in fact been caused: see the speech of Lord Keith of Kinkel in Attorney-General v. Guardian Newspapers (No. 2) [1990] 1 AC 109 at 255E - 256C (as cited, in fact, in Pell Frischmann's own submissions).

366.   As regards the first category of information in issue, the claim is based almost entirely on statements made or alleged to have been made by Bow Valley and Bakrie at the meeting with Dr. Hosseinian in Kuala Lumpur on 5^th June 1997, which are said to have been detrimental to Pell Frischmann and designed to further Bow Valley and Bakrie's plans to steal the contract for themselves and which should not, in any event, have been disclosed to NIOC.  We have already addressed this subject and concluded that no damage to Pell Frischmann resulted from anything said or done at that meeting.

367.   As regards the second category of information, that relating Pell Frischmann's dealings with NIOC, the material in question was identified as that contained or delineated in Trial Volume P8 and is said, in summary, to have comprised, first, the designs and drawings, costs estimates, cash-flow projections, equipment lists and other matters contributed by Pell Frischmann to the Master Development Plan; and, secondly, the US$169 million cost-recovery figure and the US$78,585,000 Remuneration Fee figure negotiated by Pell Frischmann with NIOC; also NIOC's requirements as to the US$5 million performance bond/bank guarantee.  Without this information, it is said, Bow Valley and Bakrie would not have been able to secure the Service Contract that they did on 28^th July 1997. 

368.   As regards the third category, "supplemental" information, the relevant material is said to consist of an audit report dated 13^th February 1997; a costs breakdown dated 12^th March 1997; cash-flow projections dated 1^st April and 2^nd May 1997; and a quotation for fabrication and installation of platforms and production facilities dated 13^th May 1997 and a subsequent price-reduction proposal dated 24^th May 1997.  This, it is said, was information that had been created by Pell Frischmann or (in the case of the last-mentioned items) had been obtained by Pell Frischmann and supplied to Bow Valley and Bakrie in confidence solely for the purpose of either the proposed joint venture between them or the buy-out of Pell Frischmann's interest in the project.

Bow Valley's answer

369.   Bow Valley rejects these claims on a number of grounds. First, so far as the Master Development Plan is concerned, it was said that much of the conceptual designs and related drawings produced by Pell Frischmann was straightforward and did not involve anything inventive or anything that could not have been done with the aid of a standard computer package. While that might be relevant to any assessment of damages or other compensation for unauthorised use of material, as discussed later, it does not mean that the information in question is incapable, in principle, of being the subject of a claim of the kind made by Pell Frischmann. As Mr. Speck pointed out, within a commercial context, information that is quite prosaic in nature may, in the right circumstances, be treated by the law as 'confidential' in the sense that it will be recognised as meriting protection from misuse. Instances illustrating this include information regarding the price negotiated for the purchase of a business (Murray v Yorkshire Fund Managers Ltd [1998] 1 WLR 951 at 954H and 956B); profit margins (Indata Equipment Supplies Ltd v ACL Limited [1998] FSR 248 at 258, 262 and Thomas Marshall Ltd v Guinle [1979] 1 Ch 227 at 248H-249A); the requirements of actual and potential clients or customers (Indata  at 263 and Thomas Marshall at 249A); details of negotiations (Thomas Marshall at 249A); and the identities and details of suppliers and their contacts (Saltman Engineering Co. Ltd v Campbell Engineering Co. Ltd (1948) 65 RPC 203; Thomas Marshall at 248H).

370.   Bow Valley's next submission was that once the Master Development Plan had been submitted to NIOC as part of the bid package any right to or in connection with it, or to any part of it, previously possessed by Pell Frischmann was lost and, in effect, vested in NIOC.  This submission rested in part on the fact that NIOC had warned bidders at the outset that the technical content of their respective bids would be compared with one another and used to produce a new scope of work against which bidders would be required to submit revised bids in a second round of tendering, thus ensuring that everyone was bidding on the same basis.  Dr. Pendered acknowledged that this was how he understood matters, and Dr. Frischmann accepted that this was the way that NIOC proceeded, though he did not like it and it would not, according to him, have happened in similar circumstances in the United Kingdom.  Mr. DeBoni and Mr. Blair both said that they understood the Master Development Plan drawings would, once submitted, have become the property of NIOC.  And Mr. Bryngelson of MER Engineering Inc., a Texan company specialising in sub-sea developments, agreed:

"This is a standard practice in the industry.  A host government, a major oil company, once you submit a bid package to them, you have bared your soul.  You have given them more information than you can buy.  And they are at liberty, they tell you so in the bid, they tell you so in the meeting, "all the materials submitted to us at this time belongs to us and we will do with it as we see fit.  You will not get this package back."

371.   And there was certainly other evidence in the contemporaneous documentation suggesting that this was indeed the basis on which NIOC, in practice, dealt with information supplied by bidders. (The fact that Pell Frischmann's name was excised from the title blocks of technical drawings prepared by them once the contract had been awarded to Bow Valley and Bakrie appears to have been consistent with such an approach).  So, submitted Mr. Costa, Bow Valley could not be in breach of any obligation to Pell Frischmann in agreeing to perform the Service Contract on the basis of material that belonged to NIOC.  Now, whether title to such material did or did not actually pass to NIOC automatically on the submission of a bid would presumably be a matter of Iranian law, and was not something that was explored in any depth. But, whatever the position may have been as between Pell Frischmann and NIOC, it does not necessarily follow that the legal relationship between Pell Frischmann and Bow Valley/Bakrie in respect of such material was the same. NIOC may have been free to do what it liked with it, but that state of affairs is by no means incompatible with a continuing right in Pell Frischmann to expect that Bow Valley/Bakrie would not use the material other than for the purpose for which it was originally supplied.

372.   In any event, said Mr. Costa, if and to the extent that the Master Development Plan did include confidential information, then that information was confidential to both Pell Frischmann and Bow Valley.  Both had contributed to it and the whole had taken on the nature of a joint plan.  On that basis, neither was entitled to use that information to try to cut the other out or to obtain alternative partners for the project.  But, it was argued, Bow Valley was released from any obligation of this kind when Pell Frischmann "chose to hawk round the document that both parties had created" over a period of some months between April and July 1997: "Once Bow Valley was released from its obligation of mutual exclusivity, there was no restriction upon it using any information created during the bidding process.".  This argument has a certain attraction about it, in that Pell Frischmann seems to have had little compunction about using the Master Development Plan, including those parts contributed by Bow Valley, as a basis for seeking partners other than Bow Valley and Bakrie.  In a  letter addressed to UBS dated 13^th June 1997 and copied to Mr. Sarch, Monument offered to let UBS have a copy of the Master Development Plan subject to signature of a confidentiality agreement and enclosed - without the need for any such agreement - copies of "the Balal Field Development submission" (a joint Pell Frischmann/Bow Valley document drawn up in November 1996), "the Capital Cost Estimate taken from the Master Development Plan", "correspondence between Pell Frischmann and Oil Industry Investment Company", and "correspondence between Pell Frischmann, CESE, Central Hispano Bank and Dragados".  Mr. Sarch, in his evidence, accepted that these materials had been supplied to Monument by Pell Frischmann, but insisted that Pell Frischmann did not consider itself under any constraint of any kind so far as showing Monument material generated by Bow Valley:

"Q. [Mr. Costa] And as far as negotiations with Monument are concerned, did you or Pell Frischmann have any difficulty in showing Monument all the information and data that was available?

A. Not that I remember. 

Q. Do you remember what you did show Monument at any given time? 

A. Whatever, I think, Dr. Frischmann thought was appropriate. 

Q. Did you feel that there are any constraints upon Pell Frischmann as to what it could and could not show Monument? 

A. No.

Q. You did not think there was anything that was confidential? 

A. No. 

Q. Why not? 

A. Because under the terms of their original confidentiality agreement, Pell Frischmann could move totally and utterly independently. 

Q. In your opinion, taken from that last comment, you did not think that Bow Valley had acquired any interest in this project at all; is that correct?

A. None whatsoever. 

Q. As far as you were concerned, Bow Valley was just along for the ride; is that right? 

A. They were just hoping to do a deal. They were having a look-see."

373.   Apart from anything else, Monument's, and one must assume Pell Frischmann's, willingness to pass on the Capital Cost Estimate and the correspondence with Central Hispano Bank and Dragados suggests that costs-related information was not regarded as particularly "confidential".  Indeed, Monument's own view, as expressed in its letter dated 18^th July to Pell Frischmann regarding information supplied to it by Pell Frischmann during their discussions was that nothing that they had been given was confidential:  "This material was derived from data made available by NIOC in the course of the tender process for Balal and Monument is not under any legal obligation which would preclude it from pursuing the Balal project with or without Pell Frischmann."

374.   But, superficially attractive as Bow Valley's argument here is, we cannot accept it.  The true position is that each side had supplied "confidential" information to the other which it was entitled to expect to be used solely for the purpose of their prospective joint venture. 

375.   Nor can we accept Bow Valley's contention that any obligation of confidence in respect of any Pell Frischmann material ceased when Pell Frischmann lost its exclusive entitlement to the Balal Service Contract.

376.   Finally, Bow Valley protest that Pell Frischmann itself seems to have been quite prepared to make use of confidential information concerning other parties (apart from Bow Valley), and submits that, on this ground alone, Pell Frischmann should be denied any relief against Bow Valley.  As an assertion of fact, there appears to be no denying that this happened.  Two specific examples will suffice to illustrate the point:  The first is a fax from Dr. Pendered sent to Dr. Frischmann on 3^rd March, shortly before NIOC announced its decision to award the contract to Pell Frischmann (on the basis of its bid with Bow Valley).  In that message, Dr. Pendered, who was in Tehran at the time, March 1997, set out a series of figures comparing the bid prices of what appear to have been the three main competitors bidding for the Balal contract at that time, namely Pell Frischmann, Premier, and Petronas, together with information as to indications given by Petronas as to its intentions as regards adjustments to its bid.  This was prefaced by the words "Best intelligence on current position is....".  This was forwarded by Pell Frischmann to Bow Valley. Asked about this by Mr. Costa in cross-examination, Dr. Pendered explained that the source of this information had been Mr. Mohandes and accepted that Pell Frischmann were trying to use it to their advantage. Dr. Frischmann, for his part, prevaricated at some length when taxed about this, suggesting among other things that the information was unreliable and that he could probably have got it out of the newspapers, but did not in the end deny that Mr. Mohandes would have been the source of it.  This, of itself, does not in our judgment constitute a defence to any claim that Pell Frischmann may otherwise have, but it does serve to suggest that access to information that might ordinarily be regarded as "confidential" was relatively easy to obtain once it had been lodged with NIOC and that little respect was accorded to it as between potentially interested parties.  The second illustration is a fax message to Bateman Project Holdings Ltd. dated 12^th May 1997, to which Dr. Pendered attached 7 pages of documentary material (possibly relating to arbitration procedure), and commented "This was proposed to us by NIOC for use with our [sic], but this is in fact an extract from Total's Contract.  Accordingly, please treat as STRICTLY CONFIDENTIAL."

377.   Here, again we do not consider such conduct to have the effect of disentitling Pell Frischmann to claim redress in respect of the misuse of information.  What it does do, however, as does Pell Frischmann's readiness to make use in its negotiations with Monument of Bow Valley-generated material, is to make it wholly inappropriate for Pell Frischmann to characterise Bow Valley and Bakrie's use of the Pell Frischmann information as any more morally reprehensible than what they themselves were prepared to do. 

Liability in the present case

378.   The correct analysis of the position appears to us to be this:

(i)        Certain information was undoubtedly made available to Bow Valley and Bakrie by Pell Frischmann for the specific purpose of the proposed joint venture between the parties for the development of Balal.  Such information was "confidential" to Pell Frischmann in the sense that it was of a kind to which, having regard to the circumstances in which it was made available, the law will afford protection or redress against misuse.

(ii)       This right arises as a matter of law independently of any specific contractual arrangement between the parties concerned, and is therefore unaffected by the question whether the Confidentiality Agreements were or were not still binding on Bow Valley and Bakrie by 28^th July. In practice, the nature of the protection so afforded in a case such as the present is the imposition of an obligation on the receiving party (Bow Valley/Bakrie) not to use the material in question for a purpose other than that for which it was supplied without the consent of the supplier (Pell Frischmann) or without paying a reasonable sum for its use.  Accordingly, where it is used without such consent or payment, the court will award the inured party compensation representing the fair value of that information to the offending party at the time when the misuse occurs: Seager v. Copydex Ltd [1967] 1 WLR 923, per Lord Denning MR at 931,932.  The alternative of an account of profits is always a discretionary remedy, and is not one that we consider appropriate in the present case.  The matter is discussed further in the section of this judgment dealing with Limitation.

(iii)      The protected information in the present case included those parts of the Master Development Plan consisting of the Conceptual Drawings and related equipment lists prepared by Pell Frischmann, representing as they did the product of skill and time on the part of Pell Frischmann and thus having commercial value.  To some extent it also included cost figures and projections produced by Pell Frischmann, though this represents a more modest corpus of material, the value of which is more difficult to assess, given the freedom with which Pell Frischmann appears to have been happy to give it to Monument and to permit Monument to pass it on to UBS without the protection of any confidentiality agreement, and given the other circumstances that we discuss below.

(iv)      It did not include those parts of the Master Development Plan contributed by Bow Valley or consisting of little more than information supplied by NIOC.  As to the former, sections 2 to 8 of the Master Development Plan were largely contributed, as Dr. Pendered accepted, by Bow Valley.

(v)       In as much as Bow Valley and Bakrie bid for and obtained the Service Contract signed with NIOC on 28^th July 1997 using information that had been generated by Pell Frischmann of the kind described above without Pell Frischmann's consent, they became liable to pay for that use.

379.   The next question is what the appropriate payment would be.  So far as the drawings and equipment lists were concerned, there was a certain amount of dispute between the parties and their respective witnesses as to the nature of these drawings and how much specialist skill and time would have been involved in their production.  The principal witnesses who gave evidence on subject were Dr. Pendered, Dr. Richard Lamb and, to some extent, Mr. Fraser, on behalf of Pell Frischmann; and Mr. Blair, Mr. Bryngelson of MER Engineering Inc. and Mr. Howard Keith of BP Exploration Company Ltd. on behalf of Bow Valley. On the basis of their combined evidence, we believe the following represents a fair summary of the position.

The Pell Frischmann drawings

380.   The drawings, which were stamped "Conceptual only", represented the first of several stages in the overall process of design and engineering of the finished structures, their principal purpose being to give a broad outline of how it was proposed to give effect to the client's requirements in terms of basic configuration, dimensions, layout and flows, and to serve as a reasonable, if unrefined, basis for estimating costs.  The usual subsequent stages of design were described by Mr. Keith in the following terms

"You usually start off with a good concept and go on to get a good front end engineering design ["FEED"].  Then that is used for tendering purposes to go out to do detailed engineering design.  You tend to want to get a lot of good definition in at the front end engineering design stage to be able to get a good price, to be able to go forward on the project into the detailed engineering and then into construction."

381.   As at 28^th July 1997, the design remained at the conceptual stage, and it was only thereafter that the FEED stage, which had been estimated in the Master Development Plan to take some four months, was contracted out by Bow Valley to others. 

382.   It was and is not uncommon for engineering consultants to have standard design templates that can facilitate the speedy production of such conceptual designs.  This is not, however, to say that the exercise of producing these drawings was merely mechanical or undemanding.  It involved assessments of the conditions in which the particular structures were to be built and certain levels of calculation of loadings, configurations, dimensions and the like: to this extent the description "conceptual", may suggest, to the uninitiated, a less important stage of design than is, in fact, the case.  This initial design stage would, accordingly, have been informed by the experience and skills at Pell Frischmann's disposal. And, while engineering firms may indeed have their own in-house templates, which make it unnecessary "to re-invent the wheel" each time (as it was put), these are jealously guarded and are themselves the product of experience and expertise. Speaking of the process of designing the "jackets" (one of the more important elements of the design) Dr. Lamb, who headed up the Pell Frischmann design team, said:-

"I should, perhaps, emphasise that there is no "standard" design or set of design for jackets.  There are many thousands of jackets all over the world, but each of those jackets has to be individually tailored to cater for all of the variables described above.  There are companies which have designed jackets to suit many different environments and, as one would expect, those companies maintain records of those designs.  However, they jealously protect the confidentiality of those designs.  In the industry, this information is treated as very confidential and, when it is shared with third parties, it is invariably protected by confidentiality agreements.  There are no designs in the public domain which Pell Frischmann (or anyone else) could have plucked "off the shelf" for the purposes of tendering for the Balal project.  Moreover, even if there had been, it would still have been necessary to exercise a substantial amount of skill and expertise to tailor that design to the particular requirements of the Balal project."

And Mr Fraser, in his affidavit, said:

"At McDermott we had many template designs for platforms all over the world. These templates were based on experience from facilities we designed and built. I should emphasise that these designs were not in the public domain and were valuable information and treated as confidential information by us. Where they were disclosed to third parties they were invariably the subject of a confidentiality agreement."

383.   Nonetheless, the conceptual-design stage was and is only a beginning, as Mr. Speck was quick to put to Mr. Keith when the latter suggested that the Pell Frischmann design had proved at a later stage (when Mr. Keith was working with Premier Oil) to be deficient in certain respects:

"Q. What I was trying to ask you was whoever's drawings they are [a reference to the fact that Pell Frischmann's name had been removed from the drawings by the time that Mr. Keith saw them], they are clearly identified as conceptual only, are they not?

A. Yes, I would say they were identified as being conceptual. 

Q. They therefore obviously contained only limited information, do they not?

A. They contained very limited information.

Q. By the time you saw the Master Development Plan, it was clear, was it not, that they were expressed to be preliminary and provisional design, was it not? 

A. Yes, these drawings are always preliminary.  They set - they are supposed to set out the basic concept."

As will be seen when we come to deal with Mr. Payne's audit report of 13^th February 1997, his view was that "the overall process design and associated equipment list has been taken in the main from the ARCO report of 94/95": this was a feasibility study on which NIOC had based its own Scope of Work requirements.  And, it has to be said, much of the descriptive text accompanying the Pell Frischmann drawings and Equipment Lists which was also said by Pell Frischmann to constitute "confidential" material, was banal and unspecific.

384.   The design of offshore structures for use in the comparatively shallow waters of the Balal Field was and is, moreover, less complex generally than it was for those in deep sea locations such as the North Sea, and would more closely have resembled those in the Gulf of Mexico; even in 1997, there were a great many off-shore structures in that area, and there would have been no shortage of experienced designers who could have produced an equivalent package of conceptual drawings in a relatively short space of time.

385.   Furthermore, as Dr. Lamb explained, if and when it comes to a contractor taking on design work carried out by someone else (as, for example, Bow Valley and Bakrie taking on Pell Frischmann's drawings), that contractor would not usually be willing to take that work at face value: to that extent, additional work, checking the design, would be required.  The fact that the design has been produced by an engineer of standing and experience would "most certainly" be relevant, he said. 

"However, what I would say is that whenever a firm is presented with a conceptual design done by others, the first thing you do is to put it through the ringer because you are going to run with this.  You have been handed this baton and no matter who has done it, the first thing you will do is check that you are entirely satisfied as to this particular baton you have been given works, obviously because the level of responsibility and liability increases as you go through the field development programme.  So any prudent engineer, no matter who had done the design would interrogate it very carefully."

He also accepted that there could be many good reasons why, when it comes to the more detailed engineering stage, there can turn out to be better ways of doing things than those originally envisaged.

386.   But, when all is said and done, and even if Bow Valley could have procured the necessary drawings at little or no cost from other consultants if time had permitted and they had been at liberty to do so (as Mr. DeBoni, Mr. Blair and Mr. Keith suggested would have been possible), the fact that the Pell Frischmann package of drawings was already there in July 1997 can only have been of significant value to Bow Valley and Bakrie.  Apart from anything else, they had had no option but to adopt the existing Master Development Plan if they wanted the contract with NIOC. 

387.   One of the difficulties that we face in assessing the appropriate compensation to be awarded to Pell Frischmann is that Pell Frischmann chose not to adduce any evidence of value or indeed to suggest any specific figure.  An amount of £1,256,113 (US$2,257,404 @ US$1.8:£1) was pleaded as representing the totality of Pell Frischmann's "wasted expenditure" (as one of several alternative claims arising from its main case that Bow Valley and Bakrie "stole" its contract), but that was said to encompass all of Pell Frischmann's costs wasted in the pursuit of the Balal contract and not just the value of the information under consideration here.  It was, moreover, a figure that was not fully scrutinised in the course of the trial, that aspect of Pell Frischmann's claim (the "wasted expenditure" basis of claim having been deferred by agreement to a later stage if and when it should become relevant).

388.   Asked by the Court how one might arrive at a price or estimate of value for the whole package of conceptual drawings, Dr. Lamb declined to speculate, saying that he was the wrong person to ask.  But, venturing, very cautiously, an order-of-magnitude estimate of how long it might have taken to produce them, he suggested somewhere of the order of 50 hours of his own time, twelve man-days for draftsmen of the drawings themselves, and a further three man days for work by Pell Frischmann's geotechnical department in assessing foundation conditions and earthquake risks. Given that he was plainly unprepared for questions in this area, it would be wrong to treat his evidence on this subject as giving more than a very rough indication of the time-scale likely to have been involved in the specific activities referred to.

389.   It is also self-evident that the more experienced and skilled the engineer, the faster he is likely to work, though Dr. Lamb was modest enough to accept that some other big engineering firms "who have equal if not better experience and knowledge than I have" could have produced the design as quickly as he had. On the other hand, while they had designed sections of off-shore structures before, Balal was the first occasion on which Pell Frischmann had designed a complete off-shore oil production platform: to that extent, they could not have had a complete template of their own and the process may indeed have taken somewhat longer than it would have taken others with greater experience.

Cost calculations, cash-flows and work programmes

390.   The first specific item relied on under this head is an internal "audit" report by Mr. Bill Payne of Pell Frischmann dated 13^th February 1997, a copy of which had been supplied to Bow Valley on 17^th March 1997.  The purpose of the three-page report was to high-light "potential uncontrolled contractual areas that need analysis prior to accepting the contract". Under the heading "Development Costs", Mr. Payne wrote:

"The cost estimates produced for the development phase have been derived from a number of sources, however the overall process design and associated equipment list has been taken in the main from the ARCO report of 94/95.  The greatest degree of uncertainty must be associated with the drilling and associated well development costs and the potential incremental costs for the abortive work associated with dry wells etc.

391.   Apart from this, the biggest risk lay, as he saw it, in "Hook-up and Commissioning" :

"If commissioning takes much longer than planned current estimate is very tight [sic], these costs have the potential to accelerate out of control."

Mr. Payne also foresaw significant risks in achieving  other programme and cost targets. In conclusion however, he considered capital cost estimates "tight but not achievable".  But "Well development costs are an unknown to Pell Frischmann staff, estimated costs in this area have to be underwritten by our partners."  A footnote added by Dr. Frischmann read

"This internal audit report is given to Bow Valley for information only and is neither warranted nor guaranteed in any way by Pell Frischmann Engineering Ltd, or directors or personnel of Pell Frischmann Engineering Ltd."

That footnote is dated 17^th March 1997 and was evidently added at the time when this report was faxed to Mr. DeBoni that day with a covering note from Dr. Frischmann saying "These are preliminary indicative figures and in no way are warranted by us."  In practice, of course, there was little opportunity for Bow Valley to digest this information before the Service Contract was signed by Dr. Pendered two days later.  One may also wonder how much a short report of this kind would have told Bow Valley that was not already evident to an oil company with directors of the experience that that company had.  But plainly Mr. DeBoni thought it sufficiently significant to warrant laying it before his board on 8^th July 1997.

392.   Pell Frischmann also claims to have spent some considerable time engaged in the production of costings and cash-flows. Dr. Pendered's evidence was that he had a team of perhaps six people working under him on the project for many months.  Some of these would have been engineers such as Dr. Lamb and the draftsmen engaged in producing the drawings and equipment lists already discussed; others would have been engaged in working on assessment of costs, exploring possible sub-contractors, obtaining quotes, and preparing cash-flows.  These included, in particular, a "Cost Breakdown by Country" dated 12^th March 1997 and certain cash flows dated 1^st April and 7^th May 1997.  It was estimated that Dr. Pendered himself had spent over 800 hours in total on the project, but he could not say what proportion of that was devoted to work of an engineering and cost-related nature, as opposed to discussions with NIOC, collaborative work with Bow Valley, negotiations with Monument and other prospective partners of Pell Frischmann and visits to Tehran.

393.   But it is important to keep this aspect of Pell Frischmann's claim in due proportion to other considerations.  Bow Valley also made a not insignificant contribution to the assessment of costs. Mr. Blair's evidence was that he himself spent some time on this.  In addition, Mr. Bryngelson of MER was engaged by Bow Valley, at Bow Valley's own expense, to help with projections of likely cost and the development of the parties' proposals for the project.

394.   Mr. Bryngelson's involvement took a variety of forms.  Shortly before the submission of the joint bid in December 1996, he produced an initial assessment of total capital costs for development of the Balal field dated 11^th December 1996 giving a figure of US$164,748,000.  On his own evidence, this was a very provisional estimate at that early stage; but, for better or worse, it formed the cost-basis of the parties' submission at that stage.  It was also one of the three documents that Mr. DeBoni placed before the Bow Valley board some seven months later, on 8^th July 1997, when seeking their approval of the proposed buy-out agreement with Pell Frischmann: so, provisional as it may have been at the time, it evidently continued to be of relevance.  He also helped explore proposals for an Early Production System (which, if feasible, had the potential to advance the point at which oil would begin to flow and to generate revenue), producing, among other things, a feasibility study dated 31^st January 1997 which was made available to Pell Frischmann as well as Bow Valley.

395.   Later, by agreement between Bow Valley and Pell Frischmann, Mr. Bryngelson spent some two weeks during March 1997, in Spain, liaising with Dragados Offshore SA ("Dragados"). Dragados was a Spanish company with whom Pell Frischmann had worked in the past, which had been approached by Dr. Frischmann partly as a potential sub-contractor for the detailed engineering and fabrication of the platforms, drilling rig and production facilities (which represented a major part of the overall costs of the project) and partly as a potential source of finance in conjunction with the Banco Central Hispano.  The first stage of Dragados' involvement was to produce more detailed cost estimates for these structures.  In this role, Mr. Bryngelson produced a number of Status Reports.  And during this period he also accompanied Dr. Frischmann and representatives of Dragados and Sumitomo Bank to a meeting with Banco Central Hispano on 15^th March 1997, the main purpose of which was to discuss the availability of export credit finance.  Finally, on 31^st March 1997, Mr. Bryngelson completed a report on his assessment of the capacity of Dragados and its subsidiaries to perform the requisite work, and on how it was progressing with its work of compiling the costs estimate requested by Pell Frischmann.  This was in advance of a presentation that Dragados was expected to make in London in early April.  Copies of Mr. Bryngelson's report were supplied both to Bow Valley and to Pell Frischmann.

396.   In the event, it was not until 14^th and 15^th April that Dragados met Pell Frischmann in London and not until the following day that  they were able to fax Pell Frischmann a copy of their "Budget Proposal" showing a total cost of some US$103 million.  This caused considerable disquiet at Pell Frischmann, given, as Dr. Pendered wrote in a fax to Mr. Gary Hudson of Dragados on 22^nd April, that this price was "far in excess of the order of magnitude overall price which you have previously indicated for this scope of work".  Dr. Pendered was also concerned at statements by Dragados in an earlier communication dated 19^th April emphasising that only very basic design had been possible in the available time: his reply the same day makes it plain that he had expected that Dragados would have developed the basic design contained in Pell Frischmann Conceptual Drawings to a more detailed level of engineering.

397.   But, if Pell Frischmann was unhappy, it is plain that by this stage so was Mr. Hudson of Dragados.  His concerns, evident from  his letters dated 24^th March and 26^th April, were that the costs of the exercise that they had been asked to carry out - borne entirely by Dragados - were already considerable and would be likely to be of the order of £100,000 by the time that the work was complete; that they had been prepared to undertake this commitment on a basis of "mutual exclusivity" but were anxious to have confirmation "that the matter of exclusivity is still in place and has not been, nor is anticipated to be, affected by your agreement with NIOC" (letter to Pell Frischmann and Bow Valley dated 24^th March); that arrangements for financing of the project as a whole appeared to Mr. Hudson to have changed fundamentally following the meeting with Banco Central Hispano, particularly as regards the provision of a guarantee by NIOC for any export credit finance and any guarantee by Sumitomo Bank of payments due to Dragados; and that he lacked information as to the status of the contract with NIOC and the arrangements between Pell Frischmann, Bow Valley and Bakrie.  Replying to Mr. Hudson's letter of 26^th April, Dr. Frischmann accepted that there had been an understanding with Dragados that they would have an exclusive agreement with Pell Frischmann until the end of April, but expressed disappointment with "the lack of progress that has been made between us and also the escalation in the price which you have given us".

398.   Despite these concerns on both sides, Dragados continued to work on the project and Pell Frischmann continued to consider how the projected costs might be reduced. Eventually, on 11^th June, Mr. Hudson wrote to Pell Frischmann enclosing his finalised Proposal.  At the same time, Mr. Hudson wrote expressing renewed concern that, whereas (according to him) it had originally been proposed that Dragados would be remunerated for its work "and that such data would become the property of Pell Frischmann", Pell Frischmann had subsequently "advised that such compensation would not be paid".  He also wanted some assurance that the project remained viable, given that as far as he could ascertain Pell Frischmann had not established the necessary arrangement with partners to allow the project to proceed. Consequent on the first of these points, the accompanying proposal contained the following stipulation:

"Use and Ownership of Data.  Until such time as Dragados Offshore is compensated for the design engineering and related data developed in support of this Proposal such design engineering and data remains the sole property of Dragados Offshore.  Pell Frischmann Engineering by accepting this Proposal for review accepts same on the basis that such data remains the property of Dragados Offshore and will not be disclosed to any other party or used by Pell Frischmann Engineering for the benefit of Pell Frischmann Engineering or any of its associates for any purpose until such time as Dragados Offshore has been compensated for or has received acceptable assurances and or agreeable terms."

399.   The Proposal also stated "This Proposal is submitted to Pell Frischmann Engineering on the full understanding that Dragados Offshore has been and remains the exclusive nominated contractor for the agreed scope".  But by that stage, that was wishful thinking.  Pell Frischmann had for some weeks been negotiating with alternative potential sub-contractors in the form of Consolidated Contractors International Company S.A.L. of Athens ("CCIC") and their associate National Petroleum Construction Company ("NPCC").  On 13^th May these companies had produced a "preliminary budget price" of some US$132.5 million for the platform complex, but had subsequently indicated by fax of 24^th May that they should be able to reduce this by 30%.  However, they needed, they said, "more details to be able to firm up our offer".  These two documents were among those laid before the Bow Valley board by Mr. DeBoni on 8^th July and constitute one of the elements of the Pell Frischmann claim for misuse of "confidential" information.

400.   Several points arise out of these events. First, in the absence of any evidence of Pell Frischmann having paid CCIC/NPCC for their work (and there is nothing in Pell Frischmann's pleaded particulars of Wasted Expenditure to suggest that this occurred), then, as with Dragados, the intellectual property represented by their submission to Pell Frischmann almost certainly continued to belong to CCIC/NPCC; and while Pell Frischmann, of course, would have expended a certain amount of time and effort supplying CCIC/NPCC with information, the material in respect of which Pell Frischmann now claim confidentiality did not represent their work-product in the same way as the conceptual drawings did, for example.  Secondly, although there is nothing to indicate that Pell Frischmann took matters any further with Dragados after mid-June, it is plain from the terms of a comparative review by Dr. Pendered dated 16^th May and addressed to Dr. Frischmann that Dragados's budget price submissions of April played a significant part in Pell Frischmann's evaluation of the subsequent quotation by CCIC/NPCC.  Dr. Frischmann can also be seen writing to Monument and ANZ enclosing correspondence with Dragados at around the same time. And as late as 13^th June, this correspondence with Dragados was still seen as sufficiently relevant for Monument to be passing it on to UBS.  Thirdly, it is also plain that some within Pell Frischmann were sceptical as to the value of CCIC/NPCC's figures.  Mr. Payne, in a memorandum dated 20^th May wrote: "In reference to the fax from CCIC SAL on the platforms and other components for the above field, it is almost impossible to make an form [sic] assessment on the accuracy of their proposals due to the almost total lack of backup information."

The US$169 million Cost Recovery; the US$78,585,000 Remuneration Fee; and the US$5 million performance bond

401.   These fall into a different category from the material so far discussed, in as much as they do not represent the outcome of any additional exercise of skill over and above what was entailed in preparation of the bid to NIOC, and Pell Frischmann's contribution to the Master Development Plan in particular. Certainly, they were the key financial elements of a pre-existing contractual package, the negotiation of which had involved Pell Frischmann.  But given that these were figures to which Bow Valley had committed itself as much as Pell Frischmann, and that each of these three figures involved either a disadvantageous departure from the figures proposed in the revised joint bid (in the case of the first two) or an unexpected additional financial burden in the case of the performance bond, it is difficult to attribute any great value to these particular items independent of the other materials already discussed.

Generally and Conclusion

402.   In the context of keeping things in proportion, a number of points of a general nature need, therefore, to be made, or re-emphasised: that the Master Development Plan was not the work of Pell Frischmann alone; that, quite apart from those parts of it for which Bow Valley was specifically responsible, it had also made a significant contribution on the assessment of costs of the whole project and of the platform complex in particular; that the offer by NIOC of the Service Contract to Pell Frischmann in March 1997 was the result of a joint effort and almost certainly would never have happened without Bow Valley's and Bakrie's  involvement; that the greater part of the development of detailed costing for the platform complex had been carried out by others, Dragados and CCIC/NPCC, at their own expense, and that any proprietary entitlement to the results of that work was almost certainly theirs rather than Pell Frischmann's; and that both the design and the costing of the project taken over by Bow Valley and Bakrie had, by July 1997, still not got much beyond a fairly preliminary stage.  As regards this last point, Mr. Bryngelson, in his evidence was scathing of the failure of both Pell Frischmann and Bow Valley to tackle the likely costs of the project in  rigorous detail, adding:  "That was the drawback to this whole situation. This bid, its only real [at]traction was a low price."  Invited by Mr. Blair over dinner on 26^th June 1997 to take "a piece of the action" (Dr. Frischmann having just re-opened buy-out negotiations with Bow Valley and Bakrie), Mr. Bryngelson had declined on the ground that he doubted the "viable economics" of the project.    

403.   That said, the fact remains that those aspects of the Master Development Plan for which Pell Frischmann was responsible, together, to some extent, with certain of the costings, cash-flows and the like prepared by them, must have been of significant value to Bow Valley and Bakrie when it came to responding at short notice to NIOC's offer to award the Service Contract to them. And in assessing the appropriate compensation to be awarded to Pell Frischmann, it is right to proceed on the basis that the value of the package as a whole was probably significantly greater than the sum of its parts.

404.   Looking at the matter in the round and doing the best that we can in the circumstances, we consider that a fair and proper value to put on the Pell Frischmann information in question, as at 28^th July 1997, is £500,000 (Five hundred thousand pounds) and that there should be an award of damages against the Second Defendant, Bow Valley Energy Limited in that amount.  Given that Pell Frischmann is an English company it appears to us that the award should be expressed in pounds sterling.

405.   We shall hear further submissions as to whether there is any good reason why judgment on this basis should not also be given against the two other Bow Valley defendants and against the Third Defendant.

PART 14

 

WITNESSES AND DOCUMENTS

 

Generally

406.   At the time of the trial, some nine years had elapsed since the events in question.  Not surprisingly, all witnesses of fact found it difficult sometimes to be sure exactly what happened and in what sequence; and almost all, at one time or another, gave evidence that was not entirely consistent with the contemporaneous documents, or left unexplained gaps in the story.  As tends to happen in cases involving voluminous documentation, the advocates and others representing the parties were more familiar with the detail of documents than the witnesses.  Again, as often happens, it is only at trial or shortly beforehand that the spotlight falls on the precise sequence of events, particularly on days when there has been a series of communications; in consequence, the documents in the trial bundles sometimes appeared in an order that did not reflect that sequence of events, making life that much more difficult for witnesses and, on occasion, the Court.

407.   It is a rare case in which every witness of possible relevance is called. Considerations of cost, willingness to appear, availability, and perceived usefulness usually dictate that some process of selection takes place.  In weighing the evidence in the present cases, we have been particularly conscious of the fact that we have had to address the events and issues without the benefit of oral testimony from any representative of two of the main participants, NIOC and Bakrie, or from Mr. Mohandes; not to mention other members of the Bow Valley board of directors, General de Vire, Mr. Prabhu (Dr. Frischmann's fellow director), or office staff on either side.  We say this as a matter of neutral observation and draw no inference adverse to either side from this state of affairs.

408.   It is also a near certainty in a case such as this that there will have been a myriad of oral communications of one kind that might have contributed to a more complete understanding of events if they had been recorded, or if the faculty of memory were less fallible than it is, but of which we heard nothing.  For the most part, however, the surviving documents tell the main elements of the story clearly enough.

409.   At the insistence of those representing Pell Frischmann, the evidence of the principal witnesses of fact was given orally without prior exchange of statements or affidavits.

The Pell Frischmann witnesses

410.   Dr. Willem Frischmann was born and brought up in the border area of Hungary and Czechoslovakia.  He came to England as a refugee shortly after the Second World War and studied in London.  After qualifying as a civil and structural engineer, he joined the practice of Mr Pell, and following the latter's retirement, became chairman of the Pell Frischmann Group.  Together with other members of his family, he is the majority shareholder of that group. More than anyone, he has been responsible for its success and reputation. In 1990 he was appointed CBE for services to engineering.  On any view, he is a man of huge energy, exceptional engineering talent, and considerable entrepreneurial flair.  He is also someone who appears to command considerable loyalty and respect among those who work for him.  This is reflected, not least, in the willingness of a number of people to work on the basis of little more than payment of their expenses in the short term but the promise of reward in the form of a share (not necessarily specified) of the profits of a project as and when they materialised.  In the case of Balal, Mr. Fraser and Mr. Sarch gave their time on this basis, as, possibly, did Mr. Mohandes and Mr. Savafi (though it is evident that in the course of 1997 there were serious disputes between these two and Dr. Frischmann on the subject of remuneration).

411.   At the same time, it was plain from the evidence of several witnesses from Pell Frischmann, as well as from Bow Valley, that Dr. Frischmann could be a difficult person to work with.  And from his performance as a witness in this court, both in examination-in-chief and under cross-examination, he appeared to be a man of volatile temperament, someone who is only comfortable when he is in command of a situation and getting his own way, capable of generosity, but quick to take offence.  A man, moreover, who liked to claim occupation of the Olympian heights of ethical, gentlemanly conduct, relegating others to the foothills, but completely blind on occasion to the inappropriateness of such a stance: his conduct on 6^th May 1997 in secretly countermanding the bond recently given to NIOC being but one example.  As regards "blindness", we have already referred elsewhere in this judgment to Dr. Frischmann's inability to see the realities of the situation in which he found himself in the wake of Pell Frischmann's signature of the Service Contract in March 1997, and we can only assume that, however successful a chess-player and negotiator he may ordinarily be, when it came to this particular project, his normal good judgement deserted him - as indeed it so plainly has done in his obsession with the idea that Bow Valley and Bakrie conspired to steal a contract that was rightly his.  

412.   We recognise that, for a man of Dr. Frischmann's years, to have spent the best part of six days in the witness box, must have been a stressful experience, that on occasion he had trouble hearing clearly, and that he felt passionately about what he conceived to be the justice of his claim.  But none of these factors excused the repeated emotional, pedantic and vociferous eruptions and diversions that quickly became the hall-mark of his testimony and were disruptive of the proceedings, let alone his gratuitously offensive references to "shadowy", "shyster" lawyers within or behind Bow Valley, to "cheats" and "gangsters".  Nor, do we accept for one moment Mr. Speck's submission, in closing, that Dr. Frischmann had been denied a fair opportunity to tell his side of the story by the way in which Mr. Costa had conducted his cross-examination, which, it was said, had resulted in Dr. Frischmann becoming disorientated and exasperated.  Quite the reverse: the pattern of Dr. Frischmann's evidence was, to a large extent, already set before Mr. Costa had even started his cross-examination. And while that cross-examination was conducted on what Mr. Costa described as a "topic" basis rather than wholly chronologically, there was nothing illegitimate about that (although, we accept, that when it came to the episode of the correspondence in early 1997 between Dr. Frischmann and Mr. Mohandes concerning the latter's remuneration, the documentation could and should have been better organised, if it was going to be used as a basis of cross-examination).  If any of the witnesses could reasonably have been expected to have a good command of the detailed history of events, it was Dr. Frischmann. He was plainly not lacking in mental agility.  Nor was there anything in Mr. Costa's cross-examination to begin to justify the imputations of unprofessional behaviour that Dr. Frischmann freely made on more than one occasion.  The effect of this, overall, was to make it quite impossible for Mr. Costa to test Dr. Frischmann's evidence in the way that he was entitled to on behalf of his clients, and to render much of that evidence of doubtful value.  In short, as a witness whose evidence was central to the case, he proved in practice to be his own worst enemy.

413.   Dr. Pended was, clearly, a talented and respected engineer in his own right.  He appeared to us to be honest and straightforward, but a little guarded, particularly as regards events following the signature of the Pell Frischmann/NIOC Service Contract in March 1997.  It was probably not long after that that he gave notice of his intention to move on from Pell Frischmann in July (as indeed he did), having made it plain that he found being sent to Tehran "at the drop of a hat" (to use Dr. Frischmann's own expression) unpalatable.  It may well also be that he felt somewhat bruised by the aftermath of having committed Pell Frischmann to the delivery of a performance bond in the terms that he did. Whatever the explanation, we found it difficult to reconcile his formal position as Managing Director of Pell Frischmann Engineering Limited with his lack of knowledge of Dr. Frischmann's dealings with General de Vire over the bond (of which he said he knew little) and the seemingly more important roles allotted by Dr. Frischmann to Mr. Sarch and to Mr. Dorr as regards commercial matters (in the case of Mr. Dorr, in relation to his visit to Tehran with Dr. Pendered and the team from Monument in June 1997, at least). 

414.   Mr. Fraser was another who was retained on a "consultancy" basis.  But his evidence was largely confined to events prior to the signature of the Pell Frischmann/NIOC Service Contract in March 1997 and, in so far as it concerned what Bow Valley was or was not saying about its ability to contribute to the financing of the project, was based solely on what he had been told by Dr. Frischmann.  He was not a witness of any great significance.

415.   By contrast, Mr. Sarch was an important witness, notably in relation to the events in Jakarta, Dr. Frischmann's attempts to establish a joint venture with partners other than Bow Valley and Bakrie, and the events of early July 1997.  Unfortunately we found him largely - and worryingly - inscrutable and unconvincing.  We were by no means sure that he told us everything that he might have done, and we are unable to accept, as credible, his explanation of the delay in forwarding NIOC's fax of 7^th July 1997 to Bow Valley.  At the risk of repetition, we also remained, to the end, baffled by the absence of any internal board resolutions or other document formalising Mr. Sarch's authority to represent Pell Frischmann and to commit it to potentially far-reaching obligations.

416.   Dr. Lamb was concerned solely with explaining the relevant process by which the Pell Frischmann conceptual drawings were produced and related technical matters.  He was entirely straightforward: an impressive witness and, no doubt, another talented Pell Frischmann engineer.

The Bow Valley witnesses

417.   Mr. DeBoni was Bow Valley's President and Chief Executive Officer from 1996 until 2002.  At the time of the trial he had, therefore, been away from Bow Valley for some four years.  He had worked for Bow Valley in its previous incarnation and had considerable experience of the oil industry.  He appeared to us for the most part to be an honest and straightforward witness, though occasionally somewhat defensive.  We have no hesitation in accepting his evidence on the core issues of fact on Pell Frischmann's case of conspiracy.  But we consider his assessment of the value to Bow Valley and Bakrie of the drawings and other materials contributed to the Master Development Plan as an aid to taking on the Balal contract in July 1997 as wide of the mark.

418.   Mr. Blair was Bow Valley's Vice President (Operations) between 1996 and 1999. In his case, therefore, he had been away from Bow Valley for some six years by the time that the matter came on for trial.  Nonetheless, he agreed to make his personal diaries for the material period available for disclosure to Pell Frischmann.  He was evidently a man of strong Christian belief and a particular interest in Muslim/Christian dialogue, an interest that he shared with a friend by the name of Dr. Baker (of whom we make further mention later).  The contemporaneous documents suggest that he was by nature a conciliator, always looking for harmony rather than confrontation. It appears, for example, to have been he who arranged for Mr. Burns to meet Mr. Seaman on 24^th April 1997 at a time when negotiations with Pell Frischmann appeared to be at an impasse.  His manner in the witness box was consistently calm and reflective and seemed to confirm the impression derived from the documents.  We had little doubt that he was truthful to the best of his recollection and we accept his evidence on the core issues of Pell Frischmann's case of alleged conspiracy.  As with Mr. DeBoni, we think he substantially undervalued the proper value to be attributed to the Pell Frischmann's package of materials that Bow Valley and Bakrie adopted when signing up to the Service Contract on 28^th July 1997.

419.   We found Mr. Cummings more difficult to read as a witness.  He was Corporate Secretary of Bow Valley at the material time, and also a partner in the law firm of Cummings Blackett Bretzloff Todesco.  When it came to his evidence, he was hampered by a severe throat infection which made it painful to speak for much of the time and caused him to lose his voice completely for a while.  Whether this had anything to do with it or not we cannot be sure, but he did not appear to be someone on whom we felt, instinctively, that we could confidently rely all of the time.  Both Dr. Frischmann and Mr. Sarch made it very plain that they did not trust him.  Part of our difficulty lay no doubt in the fact that, as Bow Valley's lawyer (and at one time Bakrie's too) he was obliged sometimes to tread a delicate line as to how far it was proper to disclose information that might be privileged.  A somewhat gruffness of manner may also have had something to do with it.  At all events, we felt obliged, in relation to areas of particular importance in the story, to approach his evidence with a degree of caution.  That said, he too made his diary available for inspection by Pell Frischmann, and we were satisfied, in the end, that his evidence was substantially truthful on all key aspects of the conspiracy case.

420.   Mr. Bryngelson's role was a limited one and, for the most part, has been sufficiently addressed already.  He was outspoken in his views of the way in which Dragados was being used (as he saw it) to do work for which it might never be paid and of the viability of the Balal project from a financial standpoint.  Bow Valley had planned to appoint him to manage the contract, but the threat of US sanctions put an end to that. We have no reason to doubt the veracity of his evidence, which was given in a forthright manner, punctuated by a number of colourful expressions in the linguistic currency in the Texan oil industry.  

The documents

421.   A major plank in Pell Frischmann's case was the submission that there had been extensive failures on the part of Bow Valley to make proper discovery of documents, and it was to be inferred from this that there had been a deliberate process of concealment of incriminating material: considerable time and effort was devoted to supporting this thesis.  Another plank was the contention that, of the documents that were disclosed, a number were fabrications designed to give a misleading impression of innocence. We were unimpressed by either suggestion.

422.   So far as discovery goes, we accept Pell Frischmann's complaint that Bow Valley's first listings of discoverable documents were inadequate.  We also accept that there are moments in the course of the story when, all things being equal, it might be expected that further documentary records of one kind or another would have come into existence and that, in an ideal world, these would have survived and have been located.  Experience tells one, however, that such expectations can sometimes be wrong, that documents get mislaid or thrown away, or that the discovery process simply fails, for one reason or another, to pick them up.  Bow Valley for its part insisted that it had made full and complete discovery.  We might have been readier to give weight to Pell Frischmann's suggestion were it not for the fact that, in the end, Bow Valley appeared to us to have given discovery of a very considerable number of documents, including in particular board minutes, telephone records, the entirety of Mr. Blair's personal diary for the material period, and, similarly, the entirety of Mr. Cummings' professional diary and fee notes and that those documents included a significant number of what Pell Frischmann contended were damning indications of guilty conduct on the part of Bow Valley and Bakrie (not that we agree).

423.   As already noted above, by the time of the trial Mr. Blair had long since ceased to be employed by Bow Valley and was under no obligation to make his personal diaries available for inspection by Pell Frischmann's lawyers. Nor was Bow Valley in any position to insist that he do so.  As it was, those diaries provided a meticulous record of meetings and telephone calls involving Mr. Blair throughout the relevant period ("record" in the sense of recording the happening of such events and the participants, and sometimes a brief short-hand reference to the subject-matter).  This, regrettably, became one of the main building blocks of Pell Frischmann's conspiracy case, in that it allowed Pell Frischmann to re-construct a detailed chronology of events, to high-light each and every occasion on which a meeting or telephone call had been noted but for which there was no documentary record: the inference being, it was suggested, that the original record must have been concealed - and for good reason.  Substantial portions of Pell Frischmann's submissions were, in consequence, replete with references to a diarised meeting or telephone call followed by a refrain to the effect that no documentary record had been disclosed.  But the impression of wholesale concealment sought to be given is an illusion.  There were, no doubt, hundreds and hundreds of conversations within and between Bow Valley, Bakrie and Pell Frischmann during the four months or so with which this case is chiefly concerned, only a handful of which ever got recorded in documentary form in the first place. 

424.   It is also important to keep a sense of perspective and fair balance between the parties.  With the same time and resources, Bow Valley could, no doubt, have constructed an equivalent critique of Pell Frischmann's discovery (though Dr. Frischmann's diary was of a very different nature from Mr. Blair's, consisting more of jottings of this and that, rather than definitive notes of when and with whom he had had a meeting or a telephone conversation.)  The number of internal Pell Frischmann memoranda in the trial bundles was extremely limited.  There were few records of the innumerable meetings and conversations that took place with prospective partners such as Monument and ANZ Investment Bank, other than correspondence.  And there were virtually no minutes of board meetings or the equivalent.  Such documents as these concerning Dr. Frischmann's dealings with General de Vire were minimal and in some cases were only obtained as a result of an application for specific discovery.  There were remarkably few records of communications to or from Dr. Frischmann on those occasions when he was at his holiday houses in Majorca and St Lucia (in the latter case, over the period when the December bid was finalised and negotiations were in hand concerning the terms on which it was being submitted). 

425.   As regards fabrication of documents, the suggestion made in a number of cases was that they had been created by Bow Valley for the purpose of putting a fair but false complexion on events, in the knowledge that litigation was likely to ensue: "window-dressing" as Mr. Speck put it.  We were wholly unconvinced that anything of the kind occurred.  Nothing about the circumstances of the documents or about their content suggests that they are anything other than genuine.  The submission appears to us to be but one example of the way in which, once a hypothesis of conspiracy has been advanced and adopted, it can all too often become self-fulfilling in that every action and inaction of the alleged conspirators appears laden with sinister significance.

426.   Three further, striking examples of this sort of approach can be given.  The first is the misconstruction put on Mr. Blair's comments in his faxes to Mr. Burns on 10^th June and Mr. DeBoni on 16^th June (see Part 8 above).  The second is the construction that Pell Frischmann sought to place on the word "WHITEWASH" in Mr. Cummings' diary entry for 17^th July 1997: an interpretation that was plainly a misreading of what Mr. Cummings had written.  The third is the somewhat obsessive but misguided significance attached to the not infrequent references to Dr. Baker in Mr. Blair's diaries.  Dr. William Baker, explained Mr. Blair, was a close friend with similar interests in Christian/Muslim relations, with whom he was in the habit of talking regularly.  He had some knowledge and experience of Iran but was not involved in any way with the Balal project. Despite assurances from Bow Valley to this effect, Pell Frischmann sought and obtained the leave of the court for a forensic examination to be carried out on a number of entries in Mr. Blair's diary which had been blanked out prior to disclosure. In the event, no more was heard of this and we can only assume that nothing of the slightest relevance was revealed.  

PART 15

 

LIMITATION

427.   The only context in which limitation is potentially relevant, in the light of our decisions on liability, is that of the misuse by Bow Valley and Bakrie of Pell Frischmann's confidential information.  If we are right in our conclusion that, while clauses 3 and 6 of the Confidentiality Agreements did not, on a true construction, bar Bow Valley and Bakrie from contracting with NIOC without Pell Frischmann, but the same did not apply to the obligations contained in clause 4 of those agreements, then the question arises whether it is open to a plaintiff to sue in Jersey for breach of an English law contract (it being common ground that that was the proper law of the Confidentiality Agreements) in circumstances where the action would be time-barred in the English courts (the limit there being six years) but which would not be barred here, where the relevant period is ten years. 

428.   For the purposes of this part of the discussion it is assumed that all relevant breaches occurred in July 1997.

429.   Mr. Costa accepts that, under English law, in circumstances of the kind described above, expiry of the applicable limitation period would extinguish the remedy but not the right.  But, he submits, where any remedy in English law has thus ceased to exist, a Jersey Court would, as a matter of private international law, dismiss any equivalent claim brought in Jersey.  As he put it, in his written submissions:

"It would be contrary to justice and public policy for the Jersey Court to uphold a claim governed by a system of law where the limitation period applicable to that claim under the system of that country has expired.  An English Court, if faced with a claim governed by Jersey law in respect of which the limitation period had expired under Jersey law, would dismiss that claim, even if the equivalent limitation period in England had not expired: see the Foreign Limitation Periods Act 1984.  It would be extraordinary if Jersey law required a Jersey Court to do otherwise" (paragraph 472).

430.   We are unable to accept this submission.  The position, as we see it is simple. Both English and Jersey law have long recognised a distinction between substantive rights, which are governed by the lex causae, and procedural matters, which are governed by the lex fori.  There is, therefore, in general, unanimity as to how such matters are to be approached and it is unnecessary to embark on any extended elucidation of the subject.  Equally, both jurisdictions traditionally regarded issues of limitation as being procedural and thus governed by the lex fori.  So far as Jersey is concerned, Mr. Speck cited two authorities in the 1890's in support of this state of affairs: Gore v. Gordon (1890) 214 Ex 95 and Pemberton et ux v. Westaway (18920 215 Ex 499. More recently, Crill, Deputy Bailiff said in Cooper v Reisch (Unrep.) 21^st October 1985:

"...we think this Court is unable to decide on the merits of this case or on the application until we know what is the true position in the United Kingdom; that was the place where the parties went to adjust their financial matters, that is the place which should decide what the final adjustment should be but if, because of the lapse of time, it is impossible for the High Court to do so, then we do not think Mr Cooper should be deprived of pursuing the matter here even if he has, in the words of Mr. Bailhache, been shopping round for the forum. The fact that we have a longer period of limitation is something which should not be held against a litigant, it is a fact of Jersey law and of which he is entitled, if he wishes, to take full advantage....."

431.   The only question for us is whether the enactment in 1984 of the English Foreign Limitation Periods Act 1984, which had the effect of making the lex causae the operative law as regards questions of limitation (except in certain circumstances), changes the position so far as Jersey Courts are concerned.  As Mr. Speck emphasised, the 1984 Act did not change the nature of limitation in English law: it merely changed a rule of English private international law.  In the absence of any equivalent legislative provision in Jersey there is no justification for introducing corresponding provisions by a side wind, and we therefore hold that if and in so far as Pell Frischmann has a claim for breach of clause 4 of the Bow Valley and Bakrie Confidentiality Agreements, the relevant period of limitation had not expired at the time when Pell Frischmann instituted its action in 2004.

432.   As to Bow Valley's alternative submission that any equitable claim by Pell Frischmann for breach of confidence (misuse of its "confidential information") is barred by limitation or by the doctrine of laches:-

(i)        Although it was common ground, again, that the lex causae was English law, considerations similar to those just discussed in relation to breach of contract apply: the relevant period of limitation in an action in the courts of Jersey will be that provided by Jersey law.

(ii)       In fact Jersey law does not specify any period of prescription in respect of a claim of this kind.  Mr Costa's suggestion that the period should be taken as three years by analogy with the position of a trustee under Article 53 of the Trusts (Jersey) Law 1984 (as amended) does not seem quite right.  Nor does Mr. Speck's submission that the relevant period should be taken as ten years because the nature of the claim involves the breach of a duty (of confidence) that "arises out of a contract".  That is by no means necessarily the case: the whole point of an equitable claim for breach of confidence is to provide a remedy for a wrong where there would not otherwise be one.

(iii)      The better view, in our opinion, is Mr. Speck's alternative submission that, in the absence of any specified period, the limitation period for a cause of action for breach of confidence is, indeed, ten years, but on the basis described by Birt, Deputy Bailiff in In re Esteem [2002] JLR 53, 142 at paragraph 257:

"We think that the time has come to hold that the 10-year period referred to by Le Geyt is a general period which should be taken to apply to all personal actions and all actions concerning movables, save to the extent that they have already been held to be subject to a different period, e.g. tort, actions concerning estates etc., or that some other period is, by analogy, clearly more applicable."

(iv)      As to laches, Mr Costa submitted that, as a matter of both English law and Jersey law, laches "will extinguish the right, not merely the remedy" (Closing submissions paragraph 483).  But that proposition, was not supported by any authority to that effect.  On the contrary, such (limited) English authority as was cited on behalf of Bow Valley in connection with laches generally, namely Snell's Equity, 31^st Edition, at paragraph 5-19 and In re Jarvis [1958] 1 WLR 815 speak of the subject in terms that suggest quite the opposite.  Snell speaks repeatedly in terms of the effect of laches on the pursuit of a "remedy" that might otherwise be available.  And Upjohn J.'s conclusion in Jarvis, applying the principle of laches was that the plaintiff "has not been sufficiently prompt in seeking her remedy".

(v)       It follows that, as with a claim for breach of contract, application of the doctrine of laches will probably be regarded in English law as a matter of procedure rather than substance (though the matter was not explored in any great depth).  The fact that an English court might consider a claim to be barred by reason of laches would not, therefore, extinguish the substance of the claim; and on an action for breach of confidence in the courts of Jersey it is for this court to give effect to any defence of laches or the equivalent that Jersey law may recognise.

(vi)      Mr. Speck submitted that there is no discernible indication of any Jersey court ever having applied this doctrine and that it is highly questionable whether it forms part of Jersey law. But even if the first part of this submission is correct (as to which, we express some surprise, but have conducted no independent research), we would need some persuasion that the second part can be right in a jurisdiction that is well accustomed to giving effect to considerations of equity or equite (though not necessarily exactly the same as those developed by English courts).  Whether it goes by the name of laches or something else, the idea that in certain circumstances, a plaintiff may be refused some particular form of relief notwithstanding that his claim is not time-barred appears to us, if nothing else, to be entirely compatible with a modern notions of justice.  As Snell puts it (as a matter if English law)

"Yet even if a claim to a legal right is not barred, a claimant who establishes it will not necessarily be entitled to any and every equitable remedy in aid thereof.  If he is entitled as of right to a final injunction, delay within the statutory period will not deprive him of it. But normally the court retains a discretion, governed by the doctrine of laches which is discussed below, to refuse an equitable remedy in aid of a legal right even though the right is subject to an express statutory period which has not expired; ...." (ibid. paragraph 5-18).

433.   As to this last point, given the minimal extent to which the subject was explored in the present case, we hesitate to express any precise formulation of the principle so far as Jersey law goes. But on the basis that some such principle does apply in these courts, it would not seem to us, on any view, to operate so as to bar Pell Frischmann's entitlement to damages or equitable compensation for misuse of its "confidential information".  Neither the nature of relief by way of damages, nor the scale of them in the context of the sort of corporate defendants of the kind involved here, nor the interval of time that elapsed between July 1997 and the initiation of proceedings in January 2004, appears to us to be such, individually or collectively, as to warrant depriving Pell Frischmann of its lawful entitlement to damages.  On the other hand, for the reasons discussed below, it appears to us to be wholly unconscionable that Pell Frischmann should be entitled to wait for six and a half years before claiming an account of profits made by Bow Valley from the use of such information.  

434.   In the case of Jarvis, mentioned earlier, a testator who died in 1941 had appointed two of his daughters to be his executors and trustees of his estate.  This included a tobacconist, confectioner and newsagent's business as carried on from certain leasehold premises.  The premises were badly damaged in the War and  business ceased until the premises were restored in 1944, at which point the defendant sister paid off the arrears of rent and started to carry on business there on her own account.  In 1951 the plaintiff sister, having shown no previous interest in that business, started proceedings against the other claiming, firstly, an account in respect of occupation rent payable by the defendant as constructive trustee of the leasehold premises and, secondly, an account of the business carried on there by the defendant.  Upjohn J. gave judgment for the plaintiff on the first claim, and but for the matter of laches would similarly have found for the plaintiff on the second.  In the event, however, he declined any relief to the plaintiff in respect of the profits of the business:

"In dealing with the business, the principles applying are quite different from those in the case of a specific asset, such as a renewed lease.  The principle was stated in Clegg v. Edmondston [(1887) 8 De G.M. & G. 787] by Knight Bruce L.J.: "A mine which a man works is in the nature of a trade carried on by him.  It requires his time, care, attention and skill to be bestowed on it, besides the possible expenditure and risk of capital, nor can any degree of science, foresight and examination afford a sure guarantee against sudden losses, disappointments and reverses.  In such cases a man having an adverse claim in equity on the ground of constructive trust should pursue it promptly, and not by empty words merely.  He should show himself in good time willing to participate in possible loss as well as profit, not play a game in which he alone risks nothing."  No doubt that was the case of a mine, which may be regarded as an exceptionally hazardous undertaking, and the delay which was held to be fatal in that case was ten years, four more than here; but, nevertheless, the principle as stated is of general application.

The plaintiff is seeking to say that the defendant has been a trustee for her of one moiety of this highly successful business, although she has never been at risk for one penny.   I have been referred to a number of textbooks and authorities on this question of laches, acquiescence and delay, but I forbear from referring to them, for in this realm of law each case depends so much on its own facts that the citation of other cases having some points of similarity does not really assist.  I do not overlook the circumstance that the plaintiff has said she could not afford a solicitor; but I have to try to do justice to both sides.  In my judgment, on the whole of the circumstances of this case in relation to the business the plaintiff by waiting until 1951, has not been sufficiently prompt in seeking her remedy, and this part of the action fails".

435.   On the face of things, as Mr. Costa submits, similar reasoning would seem to apply to the present case. On any view, the nature of the "business" involved in the development of the Balal Field more closely resembles the working of a mine than the running of small shop; and, on any view, Pell Frischmann has not put a penny of its own capital at risk at any stage. What Pell Frischmann does endeavour to do, however, is to justify the six and a half years' delay in starting proceedings, on the ground that, although it was widely reported that Bow Valley and Bakrie had been awarded the contract, it was not clear how they had achieved this, and that it was only in September 2003 when Pell Frischmann obtained sight of certain documents on the court file concerning the litigation between Bow Valley and Premier in the High Court in London that it had sufficient information to justify starting proceedings.  But we found this explanation less than satisfactory for a number of reasons.

436.   In the first place, according to Dr. Frischmann,  the critical - and indeed the only - item of information in the Premier litigation documents was the revelation that the contract price in the Bow Valley/ Bakrie contract was the same as that in the Pell Frischmann March 1997 contract, US$169 million:

"Only one point that was important is that the contract price was the same as in our contract, 169 million, and that is how it all started.  It was quite small information.   But I knew that they have - they have the same contract price that I spend weeks and weeks negotiating and agonised over and had sleepless nights to ensure that the price was correct."

That was as far as Dr. Frischmann's own evidence went, although Mr. Speck submitted that the consequence was that Pell Frischmann knew for the first time that Bow Valley and Bakrie must have made use of the Master Plan originally developed by Pell Frischmann and Bow Valley.  (In fact, if Pell Frischmann's pleading is correct, the key document in the court file was a copy of the Participation Agreement between Bow Valley and Premier and that contained a specific reference to the Master Plan as well as the capital cost figure of US$169 million).

437.   But, the story of how Pell Frischmann came to inspect the court file in question was left very vague.  It was said to have begun with a fax from Dr. Frischmann's friend Mr. Roland Shaw in February 2001.  Mr. Shaw had started Premier some years previously (Premier having subsequently been acquired by Amerada Hess and Petronas), and had noticed a reference in Premier's 1999 listing particulars to litigation between Bow Valley and Premier in relation to Balal. He wrote:

"You and I introduced Premier (Steve Lowden) to this deal and you brought in Bow Valley. Maybe there is some way you (and maybe me) could get a piece of this.  However maybe the suit has been settled - it was served on 24^th September 1999.  Maybe however worth a thought!"

The following day Mr. Shaw wrote again saying that he had learned that Bow Valley and Premier had reached a settlement out of court and attached a copy of the Premier Listing Particlars.  It was then said, in Pell Frischmann's written closing submissions, that

"As a result of this new information, Dr. Frischmann sought, and eventually obtained permission to examine the file held for the Premier proceedings held at the Commerial Court in London."

But this statement appears to be a little wide of the mark in as much as the only evidence available suggests that it was not until September 2003 that any attempt was made to obtain access to the court file: a letter from Mugerwa & Co., London solicitors acting for Pell Frischmann, to the Commercial Court registry dated 17^th September 2003 certainly appears to suggest that the first approach to the Court was only made earlier that month and there was no evidence of any earlier attempt or of any reason why the matter was not pursued more promptly. 

438.   In the second place, there was evidence that suggests Pell Frischmann could never have been in much doubt that the Service Contract between NIOC and Bow Valley/Bakrie must have been based, to some extent at least, on the Master Development Plan. Apart from anything else, given the speed with which the contract had been put in place, it was almost inevitable that this was the case.  In a note in his diary for 12^th July 1997 concerning a conversation that he had had with Mr. Mohandes and Mr. Fraser, Dr. Pendered wrote:

"Bow Valley got contract. 2 weeks - Iran" and "Press Release - start drilling in 12 months.  Bakrie - finance not yet in place. Same terms. Pell Frischmann withdrew. WWF proceeding with action against Bow Valley". (Emphasis added).

And, as already noted elsewhere, a press report provided to Dr. Frischmann by the American Embassy in London in early August 1997 had reported that the terms were believed to be the same as those in the Pell Frischmann/NIOC contract.  Even assuming, in Dr. Frischmann's favour, that he was later unable to obtain any useful information from Mr. Mohandes or Mr. Safavi, and that a request made on his behalf to the Alberta Securities Commission for disclosure of the Bow Valley/Bakrie Service Contract got nowhere (because Bow Valley had requested that it be kept confidential), it is difficult to accept that he did not have sufficient information to justify instructing lawyers, at the very least, to challenge Bow Valley and Bakrie's conduct: if nothing else, on Dr. Frischmann's view of things, there had been the clearest possible breach of clauses 3 and 6 of the Confidentiality Agreements, and there was good reason to suspect that there had also been a breach of clause 4.  

439.   In the third place, it is plain from an entry in Dr. Frischmann's own diary for 31^st July 1997 that he believed Bow Valley and Bakrie to have conspired together, and was contemplating seeking legal advice from a Canadian law firm.  And Dr. Frischmann's own evidence was that he did, indeed, seek advice and was told that he had a very good case but he needed more facts. But apart from that, and Dr. Frischmann's evidence about the court file in the Bow Valley/Premier litigation in London, we were offered little explanation for the delay in issuing proceedings.  Mr. Costa showed Dr. Frischmann a letter addressed to him by Mr. Ryan of Norton Rose dated 17^th December 1997, which read:

"As I have not heard from you since you advised you have put litigation against Bow Valley on hold, I take this opportunity to present an interim account for services rendered by ourselves and Macleod Dixon in Canada............I look forward to hearing from you should you decide to progress this matter further."

    Mr. Costa then put to Dr. Frischmann

"I am suggesting to you that on 17^th December 1997 you yourself put litigation against Bow Valley on hold and that was nothing to do with the fact that you needed more information.  That is what [I] suggest to you. Do you agree?", to which Dr. Frischmann answered "No, it is not true". Mr. Costa's question was, with respect, less than satisfactory in that it elided two different propositions and was also incorrect in suggesting that the letter suggested that Dr. Frischmann had put the matter of possible litigation on hold on 17^th December 1997 rather than at some earlier point in time (which, on a natural reading, was what the letter implied).  One cannot, therefore, blame Dr. Frischmann entirely for his perfunctory response.  And left to his own devices, he might have said more had not Mr. Speck earlier firmly indicated that it would not be appropriate to waive privilege.  But the fact remains, firstly, that this letter gives a clear indication that Mr. Ryan, at least, was under the impression in December 1997 that any question of litigation had been "put on hold", and, secondly, that no satisfactory explanation was offered for the very long interval that elapsed before proceedings were instituted: a period, moreover, in which not a single letter of protest or reservation of Pell Frischmann's rights was written either to Bow Valley or to Bakrie.

440.   We are left with a sense that there is more to the story than Pell Frischmann has chosen to reveal.  It is, of course, Pell Frischmann's right not to waive privilege. But, in the absence of full and candid explanation, it cannot expect a court to be sympathetic to a claim for the equitable remedy of an account of profits in circumstances where it has allowed the project to run for six and a half years, at no risk to Pell Frischmann itself, without putting Bow Valley and Bakrie on notice of its intention to do make such a claim.  Whatever the reason, and we can only speculate, that is not a course that we find in any sense fair.

441.   But, in the same way that Upjohn J. in Jarvis drew a distinction between the plaintiff's claim for rent of the shop and her claim to a share in the profits of the business, so we would distinguish Pell Frischmann's right to damages for breach of confidence from its claim for an account of profits. In our judgment, Pell Frischmann's delay ("laches", or the equivalent) is a bar to the latter, but not to the former, as to which different considerations, more akin to the plaintiff's claim in Jarvis for the use of the premises apply.

PART 16

 

SUMMARY OF CONCLUSIONS

442.   Pell Frischmann succeeds on its claims for breach of confidence against the Second Defendant, Bow Valley Energy Limited, and is entitled to recover damages of £500,000 (five hundred thousand pounds sterling) together with such interest as may be appropriate.

443.   We shall hear submissions on a future occasion as to whether there is any good reason why judgment in an equivalent amount should not also be entered against the First and Fourth Defendants, and also against the Third Defendant.  We shall also hear argument as to the date(s) from which interest should run and the appropriate rate (if this cannot be agreed).

444.   All other claims by Pell Frischmann fail. 

445.   All other consequential matters, including costs and the precise terms of any judgment to be entered, will be the subject of a hearing at a later date when the parties and their advisers have had an opportunity to consider this judgment fully.

Authorities

Wrotham Park Estate Company Limited v. Parkside Homes Limited [1974] 1 WLR 798.

Attorney General v. Blake [2001] 1 AC 268.

Experience Hendrix LLC v. PPX Enterprise Inc. [2003] EWCA Civ 323.

WWF-World Wide Fund for Nature & Anor. v. World Wrestling Federation Entertainment Inc [2006] EWHC 184.

Experience Hendrix at paragraphs 27, 35, 36 and 58.

Benest v. Langlois [1993] JLR 117 at 145-147.

Coco v. A.N. Clark (Engineers) [1969] RPC 41 at 47,48.

Attorney-General v. Guardian Newspapers (No.2) [1990] 1 AC 109 at 255E - 256C.

(Murray v Yorkshire Fund Managers Ltd [1998] 1 WLR 951 at 954H and 956B).

(Indata Equipment Supplies Ltd v ACL Limited [1998] FSR 248 at 258, 262 and 263.

Thomas Marshall Ltd v Guinle [1979] 1 Ch 227 at 248H-249A).

Saltman Engineering Co. Ltd v Campbell Engineering Co. Ltd [1948] 65 RPC 203.

Thomas Marshall at 248H.

Seager v. Copydex Ltd [1967] 1 WLR 923.

Gore v. Gordon (1890) 214 Ex 95.

Pemberton et ux v. Westaway (1892) 215 Ex 499.

Cooper v Reisch (Unrep.) 21^st October 1985.

Foreign Limitation Periods Act 1984.

Trusts (Jersey) Law 1984.

In re Esteem [2002] JLR 53, 142.

Snell's Equity, 31^st Edition, at paragraph 5-19 and In re Jarvis [1958] 1 WLR 815.