UKPC 45
Privy Council Appeal No 0020 of 2009
Pell Frischmann Engineering Limited
(1) Bow Valley Iran Limited
(2) Bow Valley Energy Limited
(3) P T Bakrie Interinvestindo
(4) Bow Valley International (Jersey) Limited
From the Court of Appeal of Jersey
JUDGMENT DELIVERED BY
26 November 2009
Heard on 13 and 14 July 2009
|Sir Sydney Kentridge QC
Ian Geering QC
Anthony De Garr
(Instructed by Olephant)
|Adrian Beltrami QC
(Instructed by Butcher
(Bow Valley Iran
|Adrian Beltrami QC
|(Instructed by Butcher Burns)
(Bow Valley Energy Limited (2))
(P.T. Bakrie Interinvestindo (3))
Adrian Beltrami (QC)
(Instructed by Bow Valley International (Jersey) Limited)
(1) July 1995 to October 1996: PFE invested time and money (with no involvement of BVE or Bakrie) in establishing good relations with NIOC and obtaining recognition as prequalified to bid for the Balal project.
(2) November 1996 to March 1997: BVE and Bakrie both entered into confidentiality agreements with PFE as prospective members of a consortium to undertake the Balal project; PFE submitted its final proposal (19 December 1996) and its final bid (12 March 1997) with some input of expertise from BVE and others; PFE entered into a conditional contract with NIOC, but with some unwelcome last-minute terms (19 March 1997).
(3) April to mid-June 1997: PFE could not comply with the condition (as to a $5m bond) imposed by NIOC; there were discussions as to buy-outs between the prospective consortium members; BVE and Bakrie had direct contact with NIOC at Kuala Lumpur (5 June 1997) and PFE alleged breaches of the confidentiality agreements.
(4) Mid- to end-June 1997: Mr Mirhadi of NIOC was in Calgary; NIOC sent an ultimatum (the "15-day letter") to PFE (16 June 1997); PFE and Monument Oil and Gas had unsuccessful meetings with NIOC in Teheran (22 June 1997).
(5) July 1997: PFE, BVE and Bakrie resumed buy-out negotiations while the 15-day period (slightly extended) ran out; the negotiations came to nothing (8 July 1997); NIOC entered into an agreement with BVE and Bakrie (28 July 1997).
The facts: (1) July 1995 to October 1996
(2) November 1996 to March 1997
1. 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 BVE 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 BVE.
2. BVE undertakes to treat all data provided to PFE by NIOC and subsequently sent to BVE, as confidential and BVE will enter into the same agreement with PFE as PFE with NIOC.
3. BVE 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. BVE 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. BVE will not use PFE advisors in Iran without the permission of PFE.
6. BVE undertakes not to approach NIOC directly on these projects without the express written consent of PFE.
7. It is the intention of PFE and BVE to enter into a joint venture agreement in the near future which will define the relationship of PFE, BVE and other participating parties, including Fallingbrook Commodities Limited."
"Two last minute developments in Tehran [which] 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 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$176m to US$172m and the remuneration fee from 52% to 49%."
In return PFE was offered some (imprecisely defined) concessions.
"Secondly, when the parties met again on 20 March, Dr. Pendered was faced with a requirement by NIOC for what was, in effect, a performance bond from [PFE] in an amount of US$5m. With little opportunity to take further instructions from London, Dr. Pendered signed the service contract [on behalf of PFE] adding in manuscript 'the contractor shall submit "bank guarantee" for the amount of US$5m in favour of NIOC.'"
The requirement for a bond of this character was understandably regarded as onerous. Dr. Frischmann described it as a "suicide bond". In the event, despite vigorous efforts PFE was unable to provide a bond from a bank of sufficient standing to be acceptable to NIOC.
(3) April to mid-June 1997
"We mention these two bilateral sets of communication with Bakrie, because both [PFE] and [BVE] 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."
"A constant theme of [PFE's] case was that from an early stage [BVE] and Bakrie had affected, in their dealings with [PFE] to be at arm's length, when in fact they were secretly working in association with one another, with a view to stealing [PFE'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 [BVE] and Bakrie were more closely associated with one another than [PFE] was with either of them or was ever likely to be."
"felt 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."
On 20 May Mr. Bakrie and Mr. Atalas of Bakrie came to Calgary. Over the next few days BVE and Bakrie engaged in vigorous negotiations with Dr. Frischmann, mainly by fax. On 22 May Dr Frischmann (completing a proforma supplied by BVE) asked for US$18m together with various contingent payments. On 23 May BVE faxed a counter-offer providing for staged payments, contingent on the project proceeding successfully, up to a maximum total of US$11.825m. BVE also offered to sell its interest on the same terms.
"I waited for you to contact me all day yesterday . . . NIOC has been very annoyed with continuous delays and the fax from Spain [about a bond offered by a bank which proved unacceptable to NIOC] annoyed them further".
On 31 May Mr De Boni wrote to Dr. Frischmann asking (perhaps disingenuously) for confirmation "that there are no debts or other obligations outstanding between our companies and that any agreements between us have terminated." Dr Frischmann replied on 2 June indicating that he was willing to keep negotiating, and insisting that the confidentiality obligations were still in force.
"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 [PFE's] innumerable complaints that the notes reveal statements which, they say, represent half-truths, falsehoods, remarks made to NIOC which were derogatory of [PFE] and breaches of confidentiality by [BVE], little or none of which would be expected to have been there if the document had been prepared for the purpose suggested by [PFE]. To examine, seriatim, the numerous points at which, according to [PFE], the informed reader can detect signs of deliberate falsification would not be justified; overall we consider the thesis wholly improbable and unpersuasive."
"On a fair reading of the summary minutes as a whole, however, is it impossible to detect any concerted attempt by [BVE] and Bakrie to use the occasion of this meeting to denigrate [PFE] and thereby try to encourage NIOC to abandon any further attempt to contract with them."
(4) Mid-June to end-June 1997
"I have run out of excuses, please let us know what your problem is."
This was two days before the fax (already mentioned) about NIOC's being annoyed at PFE.
"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 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 amongst our directors has been eroded by the lack of an agreement and the requirement to finalise disclosure documentation for our initial public offering."
PFE wrote two letters in answer, both dated 12 June. One simply repeated PFE's offer of 22 May. The other, longer letter, complained of breaches by BVE of the confidentiality agreement. On 16 June Dr Frischmann sent a similar letter to Bakrie.
"We…..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 JV agreement with the consortium partners previously introduced to NIOC.
D – regarding your request for 75% of early production of oil produced up to the completion of development plan, there is no objection and it can be allocated."
"if [PFE] wishes to salvage the Balal project we remain willing to conclude an arrangement with you but certainly not under the terms 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."
On 18 June Dr Frischmann wrote to NIOC saying that he was making good progress with Monument. The following day Monument wrote to NIOC about a meeting. The Royal Court commented (para 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."
At about the same time ANZ Investment Company, which had been in discussions with PFE about providing finance, made clear that it did not regard itself as committed to the project.
"JP [Dr Pendered of PFE] apologised for the delays incurred so far and Monument presented their corporate background and intentions 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 they should have signed with the JV or preferably with an oil company.
He addressed AB [Mr Andris Blankenburgs of Monument] 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 [BVE]. He felt he had been misled by PFE with promises that had not been honoured (he did not specifically mention the bond issued)."
All PFE achieved from the Tehran visit was an extension of the 15-day period from 1 July to 4 July 1997.
"[PFE] claims that Dr Hosseinian's uncompromising stance at the meeting on 24 June reflected the "chilling" effect of [BVE's] success in sabotaging [PFE's] reputation at their own meeting with the minister in Kuala Lumur earlier in the month. But this is wholly implausible. Dr Hosseinian had every good reason to have been disenchanted with [PFE] by the time of the meeting on 24 June: reasons that had nothing whatever to do with [BVE] or Bakrie. [PFE] 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 [BVE] as their prospective oil company partner in favour of Monument and asked for NIOC's formal approval of this substitution."
The judgment went on to record PFE's discomfiture at the meeting in Teheran.
(5) July 1997
"Our offer reflects the reality that recent pressures related to the US sanctions have made it more difficult and more costly for us to secure project financing. In addition, our Iran advisers point out that the large reductions which were renegotiated 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 finalise documentation with you and provide the requisite bank guarantee to NIOC."
"There was every good reason why [BVE] and Bakrie should want to reach an agreement with Dr Frischmann. The contract was in [PFE's] name. If [BVE] and Bakrie had ever harboured any idea of trying to persuade NIOC to revoke its award to [PFE] (and, while there may have been some hard-liners in either camp who would have like 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 [PFE] unless and until it dropped out . . . 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."
"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 [BVE] 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 [BVE] to write so quickly.
At all events, we have little doubt that this letter must have sealed [PFE's] fate as regards Balal. Looking at the matter from NIOC's perspective, on opening their offices on Saturday 5 July . . . they – or at least Mr Rahimi and Mr Jalilian – would have found two wholly inconsistent faxes: one from [BVE] telling them that they were on the verge of an agreement with [PFE] and one from [PFE] making no reference to any such negotiations and asking for substantially more time in which to find a banker-partner for the project."
"In the course of that weekend [5-6 July 1997] 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."
The Court of Appeal concurred in this (para 137):
"We are ad idem with the Royal Court in concluding that it was Pell Frischmann's own fault that it lost its exclusivity, and any hope of obtaining the Balal contract."
In reaching this conclusion the Court of Appeal had to deal with a new issue as to whether the NIOC had agreed (at some time before 5 June 1997) to make the terms of the bond less stringent: the Court concluded that the evidence for this was "of very poor quality".
"Indisputably, the message in the 7 July fax was that Pell Frischmann had lost the service contract. To adopt the language of the Royal Court, it is self-evident that at that point in time there was no longer a service contract in existence and that no substitution, assignment or novation was then possible. The whole sub-stratum of the buy-out had gone. In our view, the release of the obligations of [BVE] and Bakrie under their respective confidentiality agreements was nothing more than an inevitable and necessary concomitant."
That passage seems to refer primarily to paras 329 and 330 of the Royal Court's judgment (para 329 refers to "the fact that the fundamental premise of the buy-out agreement had disappeared by 7 July (if not before)"). As will appear, their Lordships are unable to agree with the conclusion in the last sentence of the passage.
Damages: some common ground
"We believe that what could reasonably have been demanded must be assessed after, rather than before, Pell Frischmann lost exclusivity. The breaches of contract, for which these Wrotham Park damages are being claimed, continued through to 28 July 1997 and possibly beyond. It would be illogical to assess them at an artificial mid-point in the factual sequence."
PFE might have been expected to have argued for part at least of the damages to be assessed before exclusivity had been lost, on the basis that its bargaining position was stronger. But the appellant's written case (paras 85 to 87) opts for 28 July 1997 as "the natural point on which to assume a negotiation", adding (para 87),
"that Pell Frischmann had lost exclusivity by then would not have mattered."
Wrotham Park Damages
(1) every type of compensatory damages which exceed the actual financial loss caused to the claimant by an actionable breach of duty; or
(2) damages awarded ( in lieu of specific performance or an injunction) under the jurisdiction created by section 2 of the Chancery Amendment Act 1858 ("Lord Cairns's Act"); or
(3) Damages awarded under Lord Cairns's Act in respect of a non-proprietary breach of contract (that is, a breach of contract not involving the invasion of a property right).
The expression is probably most helpful as a description of the second, intermediate category, which includes but is not limited to the third, narrow category into which this appeal falls. Both courts below seem to have assumed without argument that the jurisdiction conferred by Lord Cairns's Act is exercisable (presumably by analogy) by the Royal Court of Jersey. That view is given some slight support by the decision in Benest v Langlois  JLR 117, in which numerous English authorities on breach of confidence were cited and followed (but the decision was concerned only with liability, not remedy).
(1) Damages (often termed "user damage") are readily awarded at common law for the invasion of rights to tangible moveable or immoveable property (by detinue, conversion or trespass): Stoke at pp1410-1412; Experience Hendrix at paras 18 and 26.
(2) Damages are also available on a similar basis for patent infringement and breaches of other intellectual property rights of a proprietary character: Stoke at p1412; General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd  1 WLR 819.
(3) Damages under Lord Cairns's Act are intended to provide compensation for the court's decision not to grant equitable relief in the form of an order for specific performance or an injunction in cases where the court has jurisdiction to entertain an application for such relief: Lord Nicholls in Blake at p281. Most of the recent cases are concerned with the invasion of property rights such as excessive user of a right of way (Bracewell v Appleby  Ch 408, Jaggard). The breach of a restrictive covenant is also generally regarded as the invasion of a property right (Peter Gibson LJ in Experience Hendrix at para 56) since a restrictive covenant is akin to a negative easement. (It is therefore a little surprising that Lord Nicholls in Blake, at p283, referred to Wrotham Park as a "solitary beacon" concerned with breach of contract; that case was concerned with the breach of a restrictive covenant to which neither the plaintiff nor the defendant was a party; but the decision of the House of Lords in Blake decisively covers what their Lordships have referred to as a non-proprietary breach of contract.)
(4) Damages under this head (termed "negotiating damages" by Neuberger LJ in Lunn Poly at para 22) represent "such a sum of money as might reasonably have been demanded by [the claimant] from [the defendant] as a quid pro quo for [permitting the continuation of the breach of covenant or other invasion of right]" (Lunn Poly at para 25).
(5) Although damages under Lord Cairns's Act are awarded in lieu of an injunction it is not necessary that an injunction should actually have been claimed in the proceedings, or that there should have been any prospect, on the facts, of it being granted: Millett LJ in Jaggard at p285 (but cf at p291); Lord Nicholls in Blake at p282; Chadwick LJ in World Wide Fund for Nature v World Wrestling Federation Entertainment Inc  1 WLR 445, para 54. This point was not raised in argument in the appeal but is pertinent since there was such a long delay before PFE issued the order of justice commencing these proceedings.
"27 It is obviously unwise to try to lay down any firm general guidance as to the circumstances in which, and the degree to which, it is possible to take into account facts and events that have taken place after the date of the hypothetical negotiations, when deciding the figure at which those negotiations would arrive. Quite apart from anything else, it is almost inevitable that each case will turn on its own particular facts. Further, the point before us today was not before Brightman J or before Lord Nicholls in the cases referred to by Mr Mann.
28 Accordingly, although I see the force of what Mr Mann said in  of his judgment, it should not, in my opinion, be treated as being generally applicable to events after the date of breach where the court decides to award damages in lieu on a negotiating basis as at the date of breach. After all, once the court has decided on a particular valuation date for assessing negotiating damages, consistency, fairness, and principle can be said to suggest that a judge should be careful before agreeing that a factor that existed at that date should be ignored, or that a factor that occurred after that date should be taken into account, as affecting the negotiating stance of the parties when deciding the figure at which whey would arrive.
29 In my view, the proper analysis is as follows. Given that negotiating damages under the Act are meant to be compensatory, and are normally to be assessed or valued at the date of breach, principle and consistency indicate that post-valuation events are normally irrelevant. However, given the quasi-equitable nature of such damages, the judge may, where there are good reasons, direct a departure from the norm, either by selecting a different valuation date or by directing that a specific post-valuation-date event be taken into account."
Conclusions as to damages for breach of contract
"For these reasons, the starting point in this case can legitimately be taken as being the cost of producing the information."
That was an error of principle. The critical point was that the confidentiality agreements gave PFE a power of veto which stood between its erstwhile collaborators and what they saw as a valuable opportunity. The Court of Appeal did not satisfactorily explain why it considered that the amount of the damages (£500,000) awarded by the Royal Court for breach of confidence (alone) was too high, or its own conclusion (paras 255-257) that £500,000 was the appropriate global figure for the entire damages.
The tort claim
"Even if we are wrong in these conclusions and [BVE] 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 [PFE] puts its many claims in tort). Each entity was well capable of making its own decision for itself and no doubt did."
The Court of Appeal endorsed this conclusion (para 269).