Scottish Court of Session Decisions

SECOND DIVISION, INNER HOUSE, COURT OF SESSION
Lord Justice Clerk Lord Clarke Lord Bonomy	[2012] CSIH 27 CA14/11 OPINION OF THE LORD JUSTICE CLERK in the cause KIVUWATT LIMITED Pursuer and Reclaimer; against DANE ASSOCIATES LIMITED Defender and Respondent: _______

For the Pursuer and Reclaimer: Sandison, QC; Brodies LLP

For the Defender and Respondent: The Dean of Faculty; Delibegovic-Broome;

Semple Fraser LLP

16 March 2012

Introduction

[1] Lake Kivu lies between Rwanda and the Democratic Republic of Congo. It is estimated that about 50 billion cubic metres of methane are dissolved within the lower depths of the lake. If the methane can be extracted safely, it can generate electricity and reduce the risk of a release of methane into the atmosphere. This case relates to two projects to extract methane from the lake, for the purposes of which the Government of Rwanda has entered into contracts with the defender and the pursuer respectively.

[2] The pursuer's conclusion is in the following terms:

"For interdict against the defender, directly or indirectly, and whether through agents, employees or others, from representing, other than in proceedings pending before any court or tribunal, (i) that it is entitled to oust the pursuer from its participation with the Government of Rwanda and Electrogaz in the project for the development and operation of a power plant and a gas production plant at Lake Kivu, Rwanda, or (ii) that the pursuer and those who may assist it financially with that project have committed or participated in, or will commit or participate in, a legal wrong against the defender."

On 28 April 2011 the pursuer obtained interim interdict in those terms ex parte. By interlocutor dated 7 July 2011 Lord Drummond Young recalled the interim interdict. That is the interlocutor reclaimed against.

[3] The pursuer submits (i) that the Lord Ordinary erred in the exercise of his discretion; and (ii) that further facts have come to light that affect the balance of convenience, on which the Lord Ordinary's based his decision.

The Dane project

[4] The defender is incorporated in Scotland. In 2005, it entered into agreements with the Government of Rwanda to extract methane from Lake Kivu and generate electricity with it (the Dane project). Kibuye Power 1 Ltd (KP1) was incorporated in Rwanda to implement the agreements. The shareholders in KP1 are the defender and the Government of Rwanda.

[5] By letter to the defender dated 14 October 2005 IFC, a subsidiary of Standard Bank, referred to certain environmental and social impact assessments that had to be carried out in relation to Lake Kivu. These were necessary for the development of the Dane project, and would be relevant to any gas extraction project of that kind (Opinion, para [5]).

[6] In April 2006 an expert committee published a Report on Lake Stability for the benefit of those lending to the Dane project. It said that "the key gas processing concept was developed by Dane Associates Limited"; that a pilot plant would be installed and tested during 2006 and, if feasible, would be converted into a production platform; and that the plan was to continue installing new gas extraction plants offshore with associated power generation facilities onshore as the demand for power developed. There followed a description of the consequences of the extraction technology developed by the defender. The Lord Ordinary thought that this was a clear indication that the defender had developed a technology for the purposes of the project, with consequential intellectual property rights (Opinion, para [4]).

[7] Also in April 2006 COWI, a Danish engineering practice, published a Technical Evaluation Report relating to the Dane project.

[8] It appears to be common ground that KP1 failed to obtain funding and was unable to fulfil its contractual obligations. As a result, in 2007, the Government of Rwanda obtained from the Rwandan courts an order appointing an interim administrator to KP1. The administrator took over the management of the company. By this means, the Government of Rwanda took over the Dane project and in effect nationalised it without having to acquire the defender's shareholding in KP1. The defender avers that KP1's failure was caused by the failure of the Rwandan Government to provide agreed funding for the project, in material breach of its agreements with the defender and KP1.

The KivuWatt project

[9] The pursuer is incorporated in Rwanda. It is a subsidiary of ContourGlobal LP, a multinational business based in the United States. On 2 March 2009 it entered into agreements with the Government of Rwanda to extract methane from Lake Kivu and to generate electricity with it (the KivuWatt project).

[10] On 6 May 2010 the Rwandan Ministry of Infrastructure issued a Request for Proposals for a methane gas concession tender. This related to the further development of the methane reserves in Lake Kivu. It said that the Government of Rwanda had financed the design and construction of a pilot plant gas extraction and power generation facility, that an independent monitoring group had been recruited to evaluate the activities in Lake Kivu in order to ensure the lake's stability, and that COWI had been retained to support the final design, implementation and supervision of the project.

[11] Counsel for the defender informed the Lord Ordinary that the Pilot Plant had been constructed by KP1, and that the independent monitoring group and COWI had been involved in the defender's project, carried out through KP1. On this basis, counsel submitted, the defender was justified in believing that the technology that it had developed was being used in the KivuWatt project.

[12] On 7 February 2011 the Rwandan newspaper, the National, reported that the African Development Bank (ADB) had approved a loan of $25 million to the pursuer's project. It described the project as involving gas extraction using a floating barge. It said:

"The KivuWatt project is based on the Government's pilot project (KP1) ... which established the existence of commercial quantities of gas concentrations in the lower resource zone in Lake Kivu. KP1 also confirmed the viability of gas extraction and treatment using a floating barge".

With the article there was a photograph of KP1's barge.

The arbitration

[13] In January 2010 the defender requested arbitration in the International Court of Arbitration on its claims against inter alia the Government of Rwanda and KP1. It sought inter alia reimbursement of the expenses incurred by the defender in the Dane Project, compensation for breach of contract, punitive damages for the use of the defender's intellectual property and an order requiring the Government of Rwanda and the administrator of KP1, among others, to:

"avoid taking any further steps that may potentially cause any additional ... losses and/or damages to [the defender], including ... any further activity and progress in developing the concession and the existing methane gas to power Pilot Plant, until final judgment ..."

The request for arbitration has since been amended to seek an order for implement of the agreements between the defender and the Government of Rwanda. The arbitration request refers to the KivuWatt project as a "blatant violation" by the Government of Rwanda of its commercial and contractual commitments to the defender.

The respondent's letters to FMO and ADB

[14] On 23 March 2011 a firm of lawyers in Israel, Gideon Fisher and Co, wrote to the Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV (FMO) on behalf of the defender in the following terms:

"Re: Warning notice to desist from involvement in Methane Gas Projects in Lake Kivu, Rwanda

At the request of our client, Dane Associates Ltd. ("Dane"), we write to you in the following connection:

1. Our client was surprised to learn recently of your Bank's involvement in the KivuWatt Project, given the unresolved disputes between the Government of Rwanda and our client, and the possible impact of these disputes on the KivuWatt Project. Dane has asked us to point out that KivuWatt and its parent company in New York, Contour Global, were put on notice some 2 years ago as to the existence of these disputes and their nature ...

2. As you are no doubt aware, Dane entered into a set of exclusive contracts with the Government of Rwanda and a long-term, commercial relationship, interaction, mutual engagement and collaboration concerning professional work and projects in Lake Kivu, Rwanda. These projects include the extraction and exploitation of gas from the lake; transportation and usage of the extracted gas for the purpose of electricity generation; and operation and maintenance of the gas production facilities and power stations (hereinafter collectively: 'the Dane Project').

3. The Government, by its various acts and omissions, committed several fundamental breaches of the contract signed with our client, including its arbitrary and unlawful termination of the contracts and of the Dane Project.

4. Since summarily ejecting our client from the Dane Project and effectively expropriating our client's rights without compensation, the Government has continued to violate its contractual and other obligations by making illicit use of patented technology developed by and on behalf of the Dane in connection with the Dane Project. Our clients have reason to believe that this patented technology, in whole or in part, is being used in the development of the Kivu Watt Project, in which your Bank is currently one of the principal lenders.

5. We attach for your attention ... a copy of a newspaper article that appeared recently in the New Times, an English-language newspaper published in Rwanda, in connection with the KivuWatt Methane Gas Project.

6. We have noted from the attached newspaper article that the KivuWatt Project is based on the KP1 Pilot Plant. This Pilot Plant was designed and built by Dane, acting through [KP1], the Rwandan Project Company ... owned 70% by Dane and 30% by the Government. Dane continues to be the beneficial owner of 70% of the equity share capital of KP1.

7. In recent months, the Government has been attempting to sell the Pilot Plant to third parties, despite its lack of any legal right to do so. Our client reserves its rights to take such legal action as may be deemed necessary against any third parties involved in the expropriation of its property and other rights.

8. You will recall that the Pilot Plant was initially financed by funds provided by FMO in December 2005. Following the unilateral and unlawful termination of the Dane Project by the Government, and the failure of the terms of the Grant Agreement with your bank to materialize, your Bank submitted a demand to the project company, KP1, to repay the amount of the Grant ...

9. The aforementioned breaches of contract by the Government, our client's unlawful expulsion from the Dane Project and expropriation of our client's property, are now the subject of major litigation between the parties.

10. After a long and fruitless attempts at reaching an amicable settlement of disputes, we recently filed on behalf of our client a detailed Request for Arbitration with the International Court of Arbitration attached to the International Chamber of Commerce as in Paris, in accordance with the arbitration agreement signed by the Government with our client ...

11. Within the aforementioned proceedings, our client challenges the Government's rights in the Dane Project and, inter alia, the Government's rights to enter into any agreement relating to the Project with any other entity, and the matters referred to in this letter will form part of these proceedings.

12. In light of the above, you are respectfully advised to consider your further participation in the KivuWatt Project, as well as in any other Lake Kivu Methane Gas Extraction Projects, or in any other project for investment connected directly or indirectly with KP1 or with any of its assets, so long as the disputes concerning the Dane Project remain unresolved.

13. We hereby notify you that our client reserves its right to initiate legal proceedings against any third party whose acts or omissions contribute to the encroachment of our client's rights in the Dane Project and/or increase our client's damages resulting from the illegitimate alienation of its property.

14. You are respectfully requested to bring this letter to the urgent attention of your Bank's board of directors and credit committee, as well as such other organs of the bank as may be relevant in light of the seriousness of the situation outlined above.

15. Nothing stated in this letter, or not stated herein, shall prevent our client from raising any additional or different claims and/or arguments, and all our client's rights are hereby reserved".

The pursuer avers that on the same date Gideon Fisher wrote to ADB in similar terms.

This action

[15] The pursuer avers that the letters to FMO and ADB contained two deliberate misrepresentations; namely (1) a misdescription of the defender's claims against the Government of Rwanda that wrongly suggested that the defender was entitled to oust the pursuer's participation in the KivuWatt project; and (2) a false representation that the defender was entitled, and intended, to raise proceedings against the pursuer and anyone financing it. It claims that these letters constituted an attempt either to cause the pursuer loss by unlawful means (OBG Ltd v Allan [2008] 1 AC 1, at paras [45]-[63]); or verbally to injure the pursuer (Argyllshire Weavers Ltd v A Macaulay (Tweeds) Ltd, 1965 SLT 21), the loss or injury being caused by the denial of finance by FMO and ADB.

The submissions before the Lord Ordinary and his decision

[16] Before the Lord Ordinary the defender represented that the KivuWatt project was an attempt to appropriate the defender's intellectual property rights in the relevant technology. The defender produced copies of patent applications in Israel, Rwanda and the DRC relating to the extraction of methane gas from lake water (Opinion, para [3] et seq).

[17] The defender submitted that until the arbitration was concluded, it was impossible to reach a definite view on the validity of the defender's claims. A party to such proceedings was entitled to give notice of them to third parties whose interests might be affected. Such notice might involve a threat to take proceedings against the third parties. That was legitimate, provided that the allegations were made in good faith. The defender's documentary evidence appeared to show that it had some basis for its contention that its rights in the Dane project were being used for other such projects at Lake Kivu. If the defender's claims were well founded, its right to redress might involve a remedy against others who had benefited from its work (para [21]).

[18] The pursuer submitted that the letter of 23 March 2011 was clearly designed to deter investors from taking part in the KivuWatt project in the hope that this would persuade the Government of Rwanda to reach a settlement with the defender. That ruled out good faith on the defender's part (para [22]).

[19] The Lord Ordinary considered that the letter to the FMO, when read as a whole, made clear that legal action was threatened only to the extent that it amounted to a vindication of the defender's contractual and proprietary rights in the Dane Project. The defender did not claim a monopoly over gas extraction from Lake Kivu or a right to prohibit the pursuer's participation in the KivuWatt project as such (paras [11]-[13]).

[20] The interdict sought was directed towards representations concerning the KivuWatt project. It followed that for the pursuer to succeed, the defender's representations regarding its rights in the Dane Project must amount to misrepresentations or threats in relation to the KivuWatt Project. Certain statements in the letter clearly had a bearing on the KivuWatt Project. Nevertheless, all such statements were aimed at protecting the defender's rights in the Dane Project. In the Lord Ordinary's opinion, the fundamental problem for the pursuer was that the defender was doing no more than asserting that it had unresolved claims arising from its rights in the Dane Project and that it reserved the right to make claims against anyone who infringed those rights. If those assertions were made in good faith, they could not be said to be misrepresentations (para [14]).

[21] The Lord Ordinary considered that it was impossible at that stage to hold conclusively that the statements in the letter of 23 March 2011 were made in good faith, although several considerations supported that view. He concluded therefore that the pursuer had made out a prima facie case, although not an especially strong one (para [23]). He therefore decided the question before him on the balance of convenience.

[22] The Lord Ordinary thought that three considerations tipped the balance of convenience in favour of the defender. The first was that the pursuer's case lacked any particular strength. The second and decisive consideration was that the validity and strength of the defender's contentions could readily be tested in the course of due diligence by any potential investor. The defender's letter was sent to major investment banks. It was inconceivable that they would commit money to a project without a thorough investigation of matters such as the entitlement to the necessary intellectual property rights. In the present case, elaborate investigations had been carried out on the behalf of investors when the Dane project was proceeding (para [24]). The third consideration was that it was within the pursuer's power to refute the allegations in the letter if it had the evidence to do so. It also had to be borne in mind that the defender had an interest in protecting its own rights. In the Lord Ordinary's view, the letter of 23 March 2011 was calculated to achieve that end (para [25]).

Subsequent information and events
[23] Since the date of the Lord Ordinary's interlocutor, the parties have ascertained that the defender does not hold a Rwandan patent for its extraction process and that it does not hold an Israeli patent, its application for it being now the subject of proceedings in the courts of Israel. There appears to be a dispute as to the nature and extent, if any, of the intellectual property rights held by the defender under the law of DRC. There is a clear conflict of fact on the question whether the KivuWatt project involves the use of the plant and the technology of the defender and of KP1.

[24] It remains uncertain whether the defender, if it were to succeed in the arbitration, would be restored to the Dane project and could thereby oust the pursuer from participation in the KivuWatt project.

[25] The pursuer avers that to enable the KivuWatt project to proceed, it has arranged loan facilities as at August 2011 from the Emerging Africa Infrastructure Fund, the FMO, the ADB and the Belgian Investment Company for Developing Countries NV/SA. These facilities amount to $91.25 million. The total funding required for the project is $142 million. The funding gap will be met by private participants in the scheme from the sale of minority equity interests and investment guarantees.

Submissions on the reclaiming motion

[26] The pursuer submits that the Lord Ordinary failed to recognise that the defender had engaged in a campaign to deter potential investors from being involved in the KivuWatt project. It had done so in a manner that far exceeded a reasonable statement of any legitimate concern that it might have about the Rwandan Government's handling of the Dane project.

[27] The defender had shown no basis in primary fact for its belief that the KivuWatt project would infringe the defender's intellectual property rights. It relied simply on its belief that no other suitable technology had been developed. It was unreasonable for the defender to rely on the article in the National when it had made no enquiries with the writer to verify what he had written. The Rwandan Government's Request for Proposals was not addressed to the pursuer, as was evident from its terms, and had nothing to do with the KivuWatt project. Further, the defender had failed to explain the basis for its claim that the Government of Rwanda could be prohibited from continuing the KivuWatt project with the pursuer.

[28] The pursuer now relied on documents that evidenced the development of its own gas extraction technology. There was a lack of evidence of the defender's intellectual property rights. In the absence of this evidence the Lord Ordinary had understated the strength of the pursuer's case.

[29] In addition, the Lord Ordinary's assessment of the balance of convenience was flawed. His expectations as to investors' due diligence was over-optimistic, particularly since the basis of the defender's claim that it could prevent continuation of the KivuWatt project had not been explained. The Lord Ordinary was also mistaken in expecting the pursuer to satisfy investors of the unsoundness of the defender's complaints. That would require the pursuer to prove a negative.

[30] The defender submits that the Lord Ordinary was entitled to hold that any prima facie case was weak on the basis of the documentation produced. His assessment of the balance of convenience was a discretionary judgment with which the appellate court should only reluctantly interfere. The Lord Ordinary's observations regarding investors' due diligence and the ability of the pursuer to refute the allegations were sound. If the pursuer had developed its own technology to extract methane then it could readily demonstrate this. The Lord Ordinary's decision had been vindicated by subsequent events.

Conclusions
[31] It became apparent at the hearing in this case that there are conflicts between the parties on numerous factual issues, such as the nature and extent of the defender's intellectual property rights and the use, if any, that is being made of the technology and the equipment of the defender and KP1 in the KivuWatt project. There is also a conflict on questions of law arising from the letters of 23 March 2011, and in particular on the interpretation of them in the wider factual context. These are issues to try. It is not appropriate that we should attempt to resolve them at this stage. I should say, however, that notwithstanding the new information that the pursuer has produced, I share the view of the Lord Ordinary that the pursuer has tabled, at best, a weak prima facie case.

[32] There are other considerations that have a crucial bearing on the question of balance of convenience. The first of these is that FMO and ADB, the investment banks to whom the letters complained of were addressed, were not in the event deterred from funding the KivuWatt project. Both of them are now committed to participation in the funding of the agreed loan facility of $91.25 million. Second, there is no evidence that any prospective private funder or investor has been or would be deterred from participation in the KivuWatt project by the statements in the letters complained of. Finally, on the information before us I can see no reason why we should conclude that if any prospective private funder or investor were to learn of the representations made in those letters, he would be deterred from taking part in the project. On the contrary, the natural inference is, in my view, that such a person would take professional advice and make his own informed decision, just as, it seems, FMO and ADB have done.

[33] I should add that I would not in any event have favoured the granting of an interdict in the terms concluded for. The conclusion is far too wide. It would apply to any representations of the kinds described, no matter to whom they were made; and it would apply without any limit of time. Counsel for the pursuer suggested certain forms of words by which the scope of the conclusion might be restricted; but he did not in the event make a motion to amend.

Disposal

[34] I propose to your Lordships that we should refuse the reclaiming motion.

SECOND DIVISION, INNER HOUSE, COURT OF SESSION
Lord Justice Clerk Lord Clarke Lord Bonomy	[2012] CSIH 27 CA14/11 OPINION OF LORD CLARKE in the cause KIVUWATT LIMITED Pursuer and Reclaimer; against DANE ASSOCIATES LIMITED Defender and Respondent: _______

For the Pursuer and Reclaimer: Sandison, QC; Brodies LLP

For the Defender and Respondent: The Dean of Faculty; Delibegovic-Broome;

Semple Fraser LLP

16 March 2012

[35] I agree with your Lordship in the Chair that this reclaiming motion falls to be refused for the reasons given in your opinion.

[36] Apart from anything else, the court could never have allowed to remain in place, nor could have ultimately granted, on a permanent basis, an interdict in the terms sought, standing the width of its terms.

[37] I am, myself, highly doubtful as to whether the reclaimer has made out a prima facie case of any actual or threatened wrong. The most that can be said, at the interim stage, of what is relied upon by it, is that it discloses a very weak case. That consideration, taken together with the other compelling factors set out in your Lordship's opinion, clearly establishes that the balance of convenience lies against interim interdict, as sought, being granted.

SECOND DIVISION, INNER HOUSE, COURT OF SESSION
Lord Justice Clerk Lord Clarke Lord Bonomy	[2012] CSIH 27 CA14/11 OPINION OF LORD BONOMY in the cause KIVUWATT LIMITED Pursuer and Reclaimer; against DANE ASSOCIATES LIMITED Defender and Respondent: _______

For the Pursuer and Reclaimer: Sandison, QC; Brodies LLP

For the Defender and Respondent: The Dean of Faculty, QC; Delibegovic-Broome;

Semple Fraser LLP

16 March 2012

[38] For the reasons given by your Lordship in the Chair, I agree that the reclaiming motion should be refused.