Pan Petroleum Aje Ltd v Yinka Folawiyo Petroleum Co Ltd & Ors

The first, second and fourth defendants (“the appellants”) appeal, with the permission of Longmore LJ, against the Order of Knowles J dated 12 May 2017 which found the appellants to be in contempt of Court and granted declaratory relief to the claimant (to which I will refer as “Pan Petroleum”). The contempt found was that the appellants had breached paragraph 2.2 of the judge’s earlier Order dated 20 January 2017 granting, inter partes, an interim injunction pursuant to section 44 of the Arbitration Act 1996.

The appeal is in a narrow compass and the only sanction for the contempt found by the judge was the declaratory relief granted.

The appellants and other defendants and Pan Petroleum are all parties to a Joint Operating Agreement (“the JOA”) dated 21 September 2007 in respect of a Nigerian offshore oilfield called the Aje field. The field was originally explored by the first defendant (and appellant) in 1991. Oil was discovered and Oil Mining Lease no. 113 was granted to the first defendant by the Nigerian Government for 20 years in 1998. The Lease is due to expire in June 2018.

Pan Petroleum became a party to the JOA by novation and assignment agreements made in June 2010. It has a minority stake in the field, its Participating Interest being 6.502%. The first defendant is the Operator under the JOA, which also provides for a Technical Adviser which is Folawiyo Aje Services Ltd (“FASL”), a company associated with the first and second defendants.

Article 5 of the JOA provides for an Operating Committee to exercise powers and make decisions in respect of the joint operations. It has power to vote on and pass binding resolutions as to the drilling and development of new wells, as set out in the Development Plan prepared by FASL as Technical Adviser, which also has the duty to prepare budgets to be submitted to the Operating Committee for approval pursuant to voting procedures set out in the JOA. Those voting procedures vary according to the significance of the decisions being taken. Some decisions require a qualified majority of votes from the parties’ representatives on the Operating Committee. Other decisions, as set out in Article 5.9.1, are of such significance that they require unanimous approval. One such is where there is a “major modification” to the Development Plan or to the budget for the operations. It is the interpretation and application of those provisions which gave rise to the dispute between the parties, summarised in more detail below. Once a budget prepared by FASL is approved by the Operating Committee, the JOA authorises FASL to issue “Cash Calls” to the parties. It is in dispute whether certain Cash Calls have been validly issued.

These disputed cash calls essentially relate to two proposed new wells Aje-6 and Aje-7. The original dispute concerned the decision to drill and establish a budget for Aje-6, which Pan Petroleum opposed on technical, economic and legal grounds. Pan Petroleum’s position is that the decision was a “major modification” requiring unanimous approval of the Operating Committee. The defendants’ case is that a qualified majority Pass Mark vote suffices.

On 4 and 5 September 2016, FASL put forward draft resolutions in relation to Aje-6 to establish a budget and raise funds for development of the well. At this stage, FASL had not put forward any proposal in relation to Aje-7. Pan Petroleum exercised its rights under the JOA to call for a general meeting of the Operating Committee which was set up for 5 October 2016. Before that meeting could take place, on 15 September 2016, FASL issued two Cash Calls requesting payment by Pan Petroleum on 3 October 2016. Cash Call 28 was described as a request for funds needed to meet the operational costs of the field, although the schedule included references to costs relevant to the disputed Aje-6 well. Cash Call 29 was described as a request for funds needed for ‘project long lead items’ for the development of both an undisputed ‘Aje-5’ well and the disputed ‘Aje-6’ well. Pan Petroleum’s share of these Cash Calls was US$1,355,016.80 and US$975,300.00 respectively.

The draft resolutions in relation to Aje-6 went through a number of amendments, but the final draft presented to the joint venture parties on 3 October 2016 included the following:

“2.

That the approval of the Operating Committee be given to establish a Development Budget for [2016] and 2017, in the amount of $40.4MM for D&C of Aje 6;

3.

That the approval of the Operating Committee be given to establish a Development Budget for 2016 and 2017, to include $14.2MM for hookup of Aje6”.

At the Operating Committee meeting on 5 October 2016, Pan Petroleum opposed the draft resolutions, in so far as they related to Aje-6, on the grounds that (i) any such resolution required unanimous consent of the parties and (ii) the drilling of the Aje-6 well was, in its view, premature and should only be carried out when the earlier wells in the field were fully functioning and better understood. Pan Petroleum voted against the resolutions, which were approved by all the other parties. The JOA contained a mechanism in Article 7.2 and 7.3 to deal with situations where a majority of parties consented to certain operations but others did not. The consenting parties could propose an Exclusive Operation and if that procedure were adopted, the consenting parties would then indemnify and hold harmless the non-consenting parties in respect of any costs and liabilities incurred incidental to such Exclusive Operation. Pan Petroleum’s position was and is that that Exclusive Operation procedure has never been engaged by the appellants, so that Pan Petroleum is entitled to be involved in decisions of the Operating Committee in relation to Aje-6 and subsequently Aje-7. On 21 October 2016, FASL issued Default Notices addressed to Pan Petroleum requiring payment of the Cash Calls. Further Default Notices followed on 16 November 2016.

The provision of the JOA dealing with Default and its consequences is Article 8. Under Article 8.1, the Technical Adviser issues a Default Notice to the Defaulting Party. By Article 8.3 the Default Notice will also reallocate between non-defaulting parties, in proportion to their participations, the sums unpaid by the Defaulting Party. If the Defaulting Party fails to pay within 5 days, the non-defaulting parties must pay the reallocated sums or they will become Defaulting Parties.

If the Cash Call remains unpaid after the issue of a Default Notice, there are two successive consequences for the Defaulting Party. First, under Article 8.2, after 5 business days the Defaulting Party is excluded from the Operating Committee:

“8.2

Operating Committee Meetings and Data

Beginning five (5) Business Days from the date of the Default Notice, and thereafter while the Defaulting Party remains in default, the Defaulting Party shall not be entitled to attend Operating Committee or subcommittee meetings or to vote on any matter coming before the Operating Committee or any sub-committee until all of its defaults have been remedied (including payment of accrued interest). Unless agreed otherwise by the non-defaulting Parties, the Voting Interest of each non-defaulting Party during this period shall be its proportionate share, expressed as a percentage, of the total applicable Cost Bearing Participations of the non-defaulting Parties. Any matters requiring a unanimous vote of the Parties shall not require the vote of the Defaulting Party. …”

The second consequence of non-payment is that, under Article 8.4, after 45 days the Defaulting Party may be required to withdraw from the JOA and the Lease. The material parts of Article 8.4 provide:

“Remedies

8.4.1

During the continuance of a default, the Defaulting Party shall not have a right to its Entitlement [defined as "that quantity of Hydrocarbons which a Party has the right and obligation to take delivery pursuant to the Lease, Article 9 of this Agreement, and any applicable offtake agreement"] which shall vest in and be the property of the non-defaulting Parties. The Technical Adviser (or the notifying Party if the Technical Adviser is a Defaulting Party) shall be authorized to sell such Entitlement in an arm's-length sale on terms that are commercially reasonable under the circumstances and, after deducting all costs, charges and expenses incurred in connection with such sale, pay the net proceeds to the non-defaulting Parties in proportion to the amounts they are owed by the Defaulting Party hereunder (and apply such net proceeds toward the establishment of the fund under Article 8.4.3, if applicable) until all such amounts are recovered and the fund is established. Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties. When making sales under this Article 8.4.1, the non-defaulting Parties shall have no obligation to share any existing market or obtain a price equal to the price at which their own production is sold.

…

8.4.4

Notwithstanding that the amount of the default has been satisfied pursuant to Article 8.4.1, if the Defaulting Party fails to pay when due its applicable Cost Bearing Participation share of Joint Account expenses, including cash advances and interest by the forty-fifth (45^th) Day following the date of the Default Notice, then, without prejudice to any other rights available to the non-defaulting Parties to recover amounts owing to them under this Agreement, two or more of the non-defaulting Parties having a majority of the interests of the non-defaulting Parties (after excluding Affiliates of the Defaulting Party) shall have the option, exercisable at anytime thereafter until the Defaulting Party has completely cured its default, to require that the Defaulting Party completely withdraws from this Agreement and the Lease. Such option shall be exercised by notice to the Defaulting Party and each non-defaulting Party. If such option is exercised, the Defaulting Party shall be deemed to have transferred, pursuant to Article 13, effective on the date of the non-defaulting Party's notice, all of its rights, obligation, title and beneficial interest in and under this Agreement, the Lease, and the Technical Assistance Agreement to the non-defaulting Parties. …”

Efforts to resolve the dispute came to nothing. On 28 November 2016, Pan Petroleum wrote to the defendants requesting an undertaking that they would not take steps pursuant to the disputed Default Notices until the dispute had been resolved. The JOA is governed by Nigerian law but provides for disputes to be resolved by ICC arbitration in London. Pan Petroleum proposed an expedited arbitration. Its concern, as set out in the letter, was obviously that the defendants should not exercise any rights under Article 8 pending the outcome of such expedited arbitration. When there was no response to that letter, on 2 December 2016, Pan Petroleum applied ex parte to HHJ Waksman QC sitting the Commercial Court for an injunction pursuant to section 44 of the Arbitration Act 1996 to restrain the defendants from exercising rights under inter alia Articles 8.2 and 8.4 of the JOA.

At the time of that application, as set out in the witness statement in support of Mr Mildwaters, solicitor for Pan Petroleum, at [66]-[70], in the section of the statement dealing with why damages were not an adequate remedy, it is evident that the appellants were already seeking to exclude Pan Petroleum from the Operating Committee and its sub-committee. As already indicated, the absence of response to the letter of 28 November 2016 led Pan Petroleum to fear that, unless restrained by injunction, the appellants would use the Default Notices to exercise rights under both Article 8.2 and 8.4 to exclude Pan Petroleum from the Operating Committee and to forfeit Pan Petroleum’s rights and interest under the JOA and the Lease on or shortly after 5 December 2016.

At the ex parte hearing, the judge granted the injunction sought up until the Return Date, originally 16 December 2016, but adjourned by agreement to 20 January 2017. In accordance with the undertaking given at the ex parte hearing, Pan Petroleum commenced arbitration on 5 December 2016. Cash Call 28 was paid without prejudice to a challenge under Article 3.3.5. In the period before the Return Date, the defendants indicated that they proposed, in addition to the Aje-6 well, to proceed with an Aje-7 well. FASL circulated budget proposals in relation to that well. Pan Petroleum opposed Aje-7 for substantially the same reasons as they opposed Aje-6. FASL also issued three further Cash Calls, numbers 30, 31 and 32 for payment on or before 27 December 2016. Cash Call 32 related in part to Aje-6 expenses and was recalled and reissued on 6 March 2017. Upon non-payment of these Cash Calls, FASL issued Default Notices to Pan Petroleum on 9 January 2017.

Pan Petroleum served further evidence in support of the continuation of the injunction at the Return Date, including a witness statement from Richard Morton, a director of Pan Petroleum and technical director of Panoro Energy ASA, in which he explained some of the concerns of Pan Petroleum about the drilling and production of oil from Aje-6. At [10] he explained that FASL had not yet properly modelled and understood the reservoir for the Aje field, on the basis of a lack of ability to predict the performance of the Aje-4 and Aje-5 wells. He said that the drilling of Aje-6 without that understanding represented a risk of damaging the reservoir, which would not be the case if a prudent development plan were pursued. By excluding Pan Petroleum from the decision making process, the defendants would be exposing it to reservoir risks which it would be unable to predict and mitigation of which it would be unable to influence.

At [11] he explained how the Aje-5 well had been drilled with the consent of all the joint venture partners, in accordance with an approved environmental impact assessment, which was the subject of discussion and agreement. He said that, whilst FASL might be preparing an updated environmental impact statement to encompass Aje-6 as well, the impacts and potential mitigations were unknown and potential damage to the environment could not be quantified. He said that this should be discussed and deliberated on by all the joint venture partners including Pan Petroleum. Exclusion of Pan Petroleum from the decision making process would expose it to liability for environmental risks which were unpredictable and outside its control.

He went on to explain at [12] and [13] that there were also technical and operational issues with Aje-6, specifically that it might be necessary to shut in production from Aje-4 and Aje-5, so net production from those wells would be affected by activities on Aje-6. He said this was another area where the risks involved could be discerned and mitigated by Pan Petroleum’s participation in the decision-making processes. He concluded [13] by saying: “It is therefore imperative that Pan Petroleumremains involved in all Operating Committee decisions and technical decisions made by the joint venture partners.”

It is thus clear that, although Mr Rhodri Davies QC for the appellants sought to argue that Pan Petroleum’s real concern in obtaining and seeking the continuation of the injunction was to prevent its exclusion from the joint venture through the operation of Article 8.4, Pan Petroleum was equally concerned about the serious negative impact of exclusion from the decision-making processes of the Operating Committee under Article 8.2.

This concern was also made absolutely clear by the Skeleton Argument of Mr David Joseph QC and Mr Adam Board, counsel for Pan Petroleum for the Return Date hearing. In the section dealing with the inadequacy of damages as a remedy, they said at [74]:

“C could never by an award of damages be put in the same position it would have enjoyed if an injunction had been granted. In particular C will lose its ability to attend, discuss, influence decision-making, be properly informed, object to further decisions that require unanimity, and protect its substantial investments in the project to date…What is more, by excluding C from these decision-making processes, D are likely to impose increased operational, financial and environmental risks on C towards third parties (or its interest in the JOA) that C is not aware of and has no opportunity to mitigate and all which will be very hard if not impossible to assess in terms of damages.”

In their Skeleton Argument for the Return Date hearing, the defendants argued that the ex parte injunction which Pan Petroleum was seeking to continue provided too much protection to Pan Petroleum, as it was not limited to the dispute concerning Aje-6 and Aje-7. At [40] Mr Davies QC complained that the order: “restrains the Defendants from exercising rights against the Claimant in respect of any default by the Claimant, whether or not this has anything to do with Aje-6.” In order to address this objection, Pan Petroleum circulated a revised draft Order on 19 January 2017, the day before the hearing, the relevant paragraph of which provided:

“2.

Up to and including the date specified in paragraph 1 above, the Defendants must not exercise or purport to exercise (by written notice or otherwise) in respect of the Aje-6 or Aje-7 development wells:

2.1

any of the rights and/or remedies in Article 8.4 of the Joint Operating Agreement to vest, deem to vest, transfer, or deem to transfer for its own benefit or otherwise the Claimant’s Entitlement and/or Participating Interest in the Joint Operating Agreement or Oil Mining Lease 113;

2.2

any of the rights and/or remedies in Article 8.2 of the Joint Operating Agreement to exclude the Claimant from participating in, or voting at, meetings of the Operating Committee;

2.3

any right of termination at law or other remedy which would deprive the Claimant of its Entitlement and/or Participating Interests in the Joint Operating Agreement or Oil Mining Lease 113.”

The underlined words were added by Pan Petroleum to address the defendants’ concern about the width of the injunction.

The matter came before Knowles J on 20 January 2017. In opening the application to continue the injunction, Mr Joseph QC made it clear that Pan Petroleum required two forms of protection from the exercise by the defendants of rights under the JOA pending the conclusion of the arbitration:

In addition, Pan Petroleum sought protection against any attempt by the defendants to invoke other rights of termination or forfeiture under Nigerian law, which would not require a default or a cash call or reliance on the remedies under the JOA. It was that protection which was sought under paragraph 2.3 of the draft Order, quoted above. Accordingly, the background or context of the application to continue the injunction and of the Order in those terms which the judge granted was that Pan Petroleum was seeking those three forms of protection.

In his submissions before this Court, Mr Davies QC sought to rely upon certain submissions made by Mr Joseph QC as an indication that it had been accepted by Pan Petroleum that, to the extent that Cash Calls 30 and 31, which did not relate to Aje-6 or Aje-7, were outstanding and had not been paid, the defendants would not be precluded by the proposed Order from exercising their rights under Article 8 of the JOA. In particular, he relied upon a passage at page 14 of the transcript of the hearing where Mr Joseph QC said this:

“…the cash calls 30 and 31 do not relate to Aje-6 and 7. Hence the change of the wording we are proposing; in other words, the wording narrowing it down to Aje-6 and 7. So, the injunction, as we are seeking today, would not affect the defendants’ rights in relation to cash calls 30 and 31. Under the default notices, which have been issued on those cash calls, the parties have got until 23 February to pay before any question arises under 8.4.4 in relation to those cash calls.”

Mr Davies QC is taking this out of context. It is quite clear that Mr Joseph QC was simply making the point that continued default in relation to Cash Calls 30 and 31 could lead to exclusion from the joint venture under Article 8.4 on grounds unrelated to the dispute about Aje-6 and 7. He was certainly not accepting that the defendants could use default in relation to Cash Calls 30 and 31 as a basis for excluding Pan Petroleum from the Operating Committee and then passing resolutions in relation to the development of and budgetfor the Aje-6 and Aje-7 wells (which is what the appellants did on the Monday morning following the Return Date hearing, in circumstances described in more detail below). Furthermore, unless Mr Joseph QC had made some concession which was reflected in the Order or the judge’s judgment, I do not consider that what Mr Joseph QC said during the course of submissions is admissible as to what is the correct construction of the Order.

Mr Davies QC submitted to the judge that even the form of Order which Mr Joseph QC had now put forward including the words: “in respect of the Aje-6 or Aje-7 development wells” before sub-paragraphs 2.1, 2.2 and 2.3, over protected Pan Petroleum because it would mean that Pan Petroleum was spared the consequences of decisions which the Operating Committee could properly take whilst Pan Petroleum was in default in respect of payments for other matters.

Mr Davies QC relied upon exchanges with the judge at pp 22-24 of the transcript as demonstrating that the judge had accepted that the amended draft Order would permit the appellants to rely upon default in relation to Cash Calls 30 and 31 to exclude Pan Petroleum from the Operating Committee and then pass resolutions relating to Aje-6 and 7. I consider that what the judge said was no more than exploration of what Mr Davies QC’s argument was, not the judge agreeing that Mr Davies QC’s construction of the proposed Order was correct. That conclusion is supported by the fact that the judge did not call upon Mr Joseph QC in reply, which it seems to me he would have been bound to do if his view, even provisionally, had been that Mr Davies QC’s submissions on this point were correct. Furthermore, as Mr Joseph QC submitted, the discussion during submissions was superseded by the judgment given by the judge at the end of the hearing.

The judge made the Order in the form sought by Pan Petroleum, so that paragraph 2 of the Order he made was as set out at [17] above. He delivered a short ex tempore judgment, since by this stage it was nearly 5 o’clock on a Friday afternoon. He said that he was “broadly content” with the revised draft Order provided by Mr Joseph QC, subject to two points. First he had asked for fortification of the cross-undertaking in damages by provision of security of U.S. $1.5 million, which Mr Joseph QC had agreed on behalf of Pan Petroleum. Second, he addressed the criticisms raised by Mr Davies QC in these terms at [20] and [21]:

“…there is room for improvement in a relatively modest way of the drafting of paragraph 2 itself. My preference here would be to leave counsel to refine this because they may have a way that meets, well enough, the satisfaction of both parties but essentially the point is that the current language in respect of Aje-6 and Aje-7 development wells does not sit too easily as a precursor to each of the sub-paragraphs, although it is one of those passages that helps limit sub-paragraph 2.2.

[21] From my point of view, had Mr Davies QC not criticised that wording, I would have found myself able to live with it but I respect the point that it could be improved on. As I say, it may be the best course to see whether, between the parties, a better version could be knocked out. If not, then it can stay as it is”.

It is quite clear, given the overall context, that the judge was there rejecting Mr Davies QC’s submissions as to the correct construction of the revised Order being put forward by Mr Joseph QC, but indicating that, if counsel could agree a better form of wording, then the judge would consider it. If not, the Order as made would stand. The judge was not saying that the Order he made was in any sense ambiguous, merely that if counsel could come up with a more felicitous wording, he would consider it.

At about 8 am London time on the following Monday 23 January 2017, representatives of the three appellants (the first, second and fourth defendants) attended an Operating Committee meeting held by telephone through the fourth defendant’s London office, excluding Pan Petroleum and the third and fifth defendants (who were also in default). Pan Petroleum received three minutes informal notice of the meeting by an email sent at 7.57 am London time on 23 January 2017. At the meeting the appellants voted on and agreed a number of resolutions in respect of the Aje-6 and Aje-7 wells, all of which had obviously been prepared in advance of the meeting. It appears from the minutes of the meeting of the Operating Committee that it lasted 14 minutes.

The resolutions passed included the following:

“Pursuant to the Joint Operating Agreement (“JOA”)

And upon Folawiyo Aje Services Limited (“FASL”), duly giving notice to all parties (including those in default) of a meeting to be held in London pursuant to Article 5.5.1,

And upon Pan Petroleum Aje Limited (“PPA”) being in default of Cash Calls 30 and 31, and upon EER (Colobus) Limited (“EER”) and PR Oil and Gas Nigeria Limited (“PROG”) also being in default,

And upon all relevant parties agreeing pursuant to Article 5.5.3 to waive the notice period and hold the meeting on 23 January 2017,

And upon the parties attending the meeting noting that there had arisen a challenge to the validity of resolutions previously passed and to the validity of certain Cash Calls, and noting that, without making any admission or comment relating to the challenges raised or in relation to any other grounds for alleging invalidity, the passing of further resolutions would be useful in clarifying the situation.,

And upon the following Resolutions were put before the Operating Committee at the meeting,

IT WAS RESOLVED with the unanimous consent of all parties entitled to attend the Operating Committee and to vote, and not being excluded from attending or voting pursuant to Article 8.2;

1.

That the notice period for holding this meeting be waived;

2.

That the meeting could consider and vote upon all the matters noted below which were not included in the agenda for the meeting.

3.

That the approval of the Operating Committee be given to Cash Call immediately for $2.8mm for long lead items for D&C of Aje 6 and $1.65mm for Aje 5 intervention;

4.

That the approval of the Operating Committee be given to Cash Call immediately for £1.6mm for long lead items for hook up of Aje 6;

5.

That in respect of the Cash Call to be issued subsequent to this resolution relating to the items outlined in paragraphs 3 and 4 above, and to the extent that sums have already been paid in respect of Cash Call 29 or the purported Cash Call 29, relating to those items, then those sums be applied in connection with the further Cash Call and further sums requested from each party in further Cash Call be adjusted accordingly.

…

11.

That the approval of the Operating Committee be given to establish a Development Budget for 2016 and 2017, to include $40.4MM and D&C of Aje 6:

12.

That the approval of the Operating Committee be given to establish a Development Budget for 2016 and 2017, to include $14.2MM for hookup of Aje6;

…

14.

That the approval of the Operating Committee be given, to Cash Call immediately $13.1MM for long lead items for D&C of Aje-7;

15.

That the approval of the Operating Committee be given, to Cash Call immediately $2.0MM for long lead items for hook up of Aje-7;

16.

That the approval of the Operating Committee be given to establish a Development Budget for 2017, in the amount of $47.5MM for D&C of AJE 7;

17.

That the approval of the Operating Committee be given to establish a Development Budget for 2017, to include $16.5MM for hookup of Aje7;

18.

That Cash Call 28 be retrospectively approved, and/or that the sums claimed n Cash Call 28 be approved, and/or that FASL be duly authorised to issue a further Cash Call in respect of the sums claimed in Cash Call 28, and to apply the sums received in payment of Cash Call 28 against the sums requested in further Cash Call.”

It is not suggested that, in excluding Pan Petroleum from the Operating Committee and passing these resolutions, the appellants wilfully breached the Order of 20 January 2017. Mr Davies QC told us that, having received legal advice over the weekend, the appellants considered that, on their construction of the Order, they were permitted to exercise their rights under Article 8.2 of the JOA by excluding Pan Petroleum from the Operating Committee and passing these resolutions. However, the appellants and their legal advisers should have appreciated that the judge had not endorsed their construction in his judgment. In the circumstances, on the basis that the appellants must also have appreciated that Pan Petroleum would never consent to what the appellants were proposing to do, the only proper and appropriate course for the appellants and their legal advisers to have adopted was to go back before Knowles J and clarify what the Order permitted them to do before excluding Pan Petroleum from the Operating Committee and passing this series of resolutions. By not returning to Court, the appellants took the risk that, if they were wrong in their construction of the Order, they would be in contempt of Court.

Following these events on 23 January 2017, both parties wrote to the judge seeking confirmation of the position as it stood at the end of the hearing on 20 January 2017. On 24 January 2017, Mr Davies QC wrote to the judge on behalf of the appellants seeking what was in effect a variation of the Order made at the hearing whilst stating that they: “fully recognise that the Court made an order in this case on Friday afternoon and that the Order was and is effective notwithstanding that it has not yet been drawn up and sealed”.

Enclosed with the letter was the variation which the appellants sought which was in these terms, adding the underlined words:

“Up to and including the date specified in paragraph 1 above, the Defendants must not exercise or purport to exercise (by written notice or otherwise) in respect of any non-payment by the Claimant of cash calls relating to Aje-6 or Aje-7 development wells: …

2.2.

any of the rights and/or remedies in Article 8.2 of the Joint Operating Agreement to exclude the Claimant from participating in, or voting at, meetings of the Operating Committee.”

The judge ruled on this in an email to the parties dated 26 January 2017. He confirmed that he had not accepted the appellants’ submissions as to the Order “over-protecting” Pan Petroleum and that the Order had been made in the form drafted by Pan Petroleum, stating:

“I appreciate both sides of the argument over the Operating Cttee. The complexity is that even accepting C has not paid Cash Calls 30 and 31 the dispute in relation to Aje-6 may cause the proposed transaction of different business by the Operating Cttee concerning Aje-6 that would be the case if C is correct in its contentions in the dispute. In light of that, for the short period of the injunction, and because my decision is directed to holding the ring, the restraint on D should extend to not excluding C from Operating Cttee business that is in respect of the wells Aje-6 and Aje-7”.

There were further exchanges between the parties and with the Court in which the appellants sought a short resumed hearing to hear further submissions as to the terms of the Order. Pan Petroleum considered no such hearing was necessary if the appellants agreed to revoke the resolutions which they said had been passed in breach of the injunction. A short further hearing did take place before Knowles J on 30 January 2017, at which Mr Davies QC invited the judge to finalise the Order whilst indicating that nothing in his email of 26 January 2017should be interpreted as expressing a view one way or the other as to whether the resolutions passed on 23 January were in breach of the Order. Mr Davies QC also sought permission to appeal.

At [1] of his short judgment, Knowles J confirmed that the Order would be as made on 20 January, saying:

“On the question of the terms of the order that I made on the 20 January with the benefit of the claimant’s wording in front of me, my conclusion is that the terms are to be in that form. I gave an opportunity for dialogue between the parties to see whether the terms could be better expressed but am of the view that the terms are best expressed as per the claimant’s draft. So, that is to confirm the position at 20 January and the form in which the sealed order will be made.”

He went on to refuse permission to appeal.

On 3 and 16 February 2017, with a view to avoiding contempt proceedings, Pan Petroleum repeated its invitation to the appellants to withdraw the resolutions. Those requests were rejected. In the circumstances, Pan Petroleum commenced contempt proceedings on 1 March 2017, seeking declarations that the purported resolutions were illegal, null and void as a matter of English law. The judge heard the application on 12 April 2017 and reserved judgment.

In his judgment dated 12 May 2017, Knowles J found that the appellants were in contempt. Having set out the terms of the injunction and the events of 23 January 2017, the judge’s reasoning was set out succinctly and robustly at [11] to [19]:

“11.

It is in my view plain beyond argument that what I have just described amounted to the exercise or purported exercise of "rights and/or remedies in Article 8.2 of the Joint Operating Agreement to exclude the Claimant from participating in, or voting at, meetings of the Operating Committee".

12.

Was that exercise or purported exercise "in respect of the Aje-6 or Aje-7 development wells"? The resolutions concern approval of financial calls and budgets for work on or with those wells, rather than approval of the work itself. But on the plain and natural meaning of the words "in respect of", excluding the Claimant from participating in a meeting approving a financial call or a budget for work on or with a well is exercising or purporting to exercise that right "in respect of the" well. The words "in respect of" are wide words, as Mr David Joseph QC (appearing for the Claimant) submits.

13.

Mr Rhodri Davies QC (appearing for the Defendants) argues that, when used in connection with Article 8.4 (and specifically Article 8.4.4) in paragraph 2.1 of the injunction, the words "in respect of the Aje-6 or Aje-7 development wells" must refer to failure to pay in respect of those wells (rather than other wells). They should mean the same, the argument continues, when applied in connection with Article 8.2 in paragraph 2.2 of the injunction. This is material because in exercising Article 8.2 rights the Relevant Defendants were relying on a failure to pay in respects other than in respect of those wells.

14.

As to this argument, I do not consider that it follows, either necessarily or otherwise as a matter of interpretation, from the fact that the words "in respect of the Aje-6 or Aje-7 development wells" may have narrower application in the context of Article 8.4 that they have a narrower application in the context of Article 8.2. The Article in question will inform their meaning, and breadth of application, when used in relation to that Article.

15.

Mr Davies QC argues that the injunction does not say that the Defendants were restrained from acting "even if the Claimant was in default in respect of undisputed cash calls which did not concern the Aje-6 or Aje-7 wells". He is, with respect, correct only in the technical or narrow sense that those are not the words that are used. The words that are used ("in respect of the Aje-6 or Aje-7 development wells") are wide enough to restrain acting that was in respect of the Aje-6 or Aje-7 development wells even though that acting was undertaken in reliance on undisputed cash calls which did not concern the Aje-6 or Aje-7 wells.

16.

Mr Davies QC argues that it is material to the interpretation of the injunction that the Claimant had not and could not put forward a case for protection from the consequences under Article 8.2 where its default was in respect of undisputed cash calls which did not concern the Aje-6 or Aje-7 wells. It is, rightly, acknowledged in this argument that it is the terms of the injunction that matter. If it is wider than the Claimant is entitled to then that would be for an application to vary or discharge the injunction, or for an appeal against its grant or against a refusal to vary or discharge.

17.

But in any event Mr Davies QC's argument meets the obstacle that the parties were in dispute in relation to the Aje-6 well and that dispute might cause the transaction (unless restrained) of different business by the Operating Committee concerning the Aje-6 well than would be the case if the Claimant was right in that dispute.

18.

Mr Davies QC is correct in saying that the dominant concern in ordering the injunction was to prevent the use of Article 8.4 of the Joint Operating Agreement to cause irreversible loss to the Claimant of its entire commercial interest. However Article 8.2 had its place in the injunction too.

19.

Mr Davies QC argues that the standard of certainty required before reaching a conclusion on meaning is very high in the context of contempt proceedings. Thus, he argues, if there is a reasonable argument for a construction that would not put the Relevant Defendants in breach of the injunction, then the application should fail. I do not disagree but the present case is plain.”

The appellants grounds of appeal are that:

The applicable legal principles in relation to construction of Court Orders and findings of contempt in relation to breach of an Order were essentially common ground between the parties both before the judge and before this Court and, in any event, the Supreme Court recently gave guidance on this issue in JSC BTA Bank v Ablyazov (No. 10) [2015] UKSC 64; [2015] 1 WLR 4754, in the judgment of Lord Clarke of Stone-cum-Ebony JSC (with whom the other Justices agreed) at [16]-[26]. The principles can be summarised as follows:

As Mr Joseph QC correctly submitted, those principles confirm a consistent line of authority that Court Orders are to be construed objectively and in the context in which they are made, including the reasons given by the Court for making the Order at the time that it was made. That point was made clearly by Lord Sumption giving the judgment of the Privy Council in Sans Souci Limited v VRL Services Limited [2012] UKPC 6 at [13]:

“…the construction of a judicial order, like that of any other legal instrument, is a single coherent process. It depends on what the language of the order would convey, in the circumstances in which the Court made it, so far as these circumstances were before the Court and patent to the parties. The reasons for making the order which are given by the Court in its judgment are an overt and authoritative statement of the circumstances which it regarded as relevant. They are therefore always admissible to construe the order. In particular, the interpretation of an order may be critically affected by knowing what the Court considered to be the issue which its order was supposed to resolve.”

I have already indicated that it is not contended on behalf of Pan Petroleum that the appellants wilfully breached the Order, but that does not preclude a finding of contempt. Where the Court concludes that the party in contempt has acted on the basis of an interpretation of the Order which was not reasonably arguable, it is not necessary for an applicant to also show that the breach of the Order was committed with actual knowledge. Christopher Clarke J put this point clearly in Masri v Consolidated Contractors [2011] EWHC 1024 (Comm) at [155]:

“In my judgment the power of the court to ensure obedience to its orders for the benefit of those in whose favour they are made would be inappropriately curtailed if, in addition to having to show that a defendant had breached the order, it was also necessary to establish, and to the criminal standard, that he had done so in the belief that what he did was a breach of the order – particularly when a belief that it was not a breach may have rested on the slenderest of foundations or on convenient advice which was plainly wrong.”

As that passage demonstrates, equally it is no defence for the party in breach to show that it acted on the basis of legal advice. That will only go to issues of mitigation, not to whether there was a contempt: see the judgment of the Restrictive Practices Court (Megaw J President) in The Tyre Manufacturers’ Conference Ltd’s Agreement [1966] 1 WLR 1137 at 1162D-H.

The principal submission advanced by Mr Davies QC on behalf of the appellants was that the construction of the Order adopted by the judge in [12] to [15] of his judgment involved the words: “in respect of the Aje-6 or Aje-7 development wells”,which appeared only once in paragraph 2 of the Order, having a different meaning in relation to paragraphs 2.1 and 2.3 of the Order to the meaning they bore in relation to paragraph 2.2 of the Order. Mr Davies QC submitted that in relation to paragraph 2.1, these words could only be qualifying the ground of the default in respect of Aje-6 and Aje-7 because Article 8.4 is concerned with the whole of a party’s (here Pan Petroleum’s) Entitlement and/or Participating Interest. He also submitted that the words operated in the same way in relation to paragraph 2.3 of the Order, which is simply an expansion of paragraph 2.1.

Mr Davies QC submitted that the words “in respect of the Aje-6 or Aje-7 development wells” must bear the same meaning in respect of paragraph 2.2 of the Order, in other words the injunction meant that the appellants must not exercise, on the grounds of a default related to Aje-6 or Aje-7, any of their Article 8.2 rights to exclude Pan Petroleum from the Operating Committee. However, if Pan Petroleum was in default in relation to a Cash Call not related to Aje-6 or Aje-7, then the Order did not qualify the consequences under Article 8.2. He submitted that the judge’s construction, giving the words a different meaning depending upon whether they were applied to paragraph 2.1 or paragraph 2.2, was unorthodox and implausible and not a proper basis for a finding of contempt. He submitted that the construction adopted by the judge had to involve a substantial rearrangement of the wording of paragraph 2 and, specifically, paragraph 2.2, to provide as underlined hereafter: “... the Defendants must not exercise ... 2.2 any of the rights and/or remedies in Article 8.2 of the Joint Operating Agreement to exclude the Claimant from participating in, or voting at, meetings of the Operating Committee in respect of the Aje-6 or Aje-7 development wells ...”

Mr Davies QC’s primary position was that the appellants’ construction of the Order was clearly the correct construction, but if he was wrong about that, he submitted that the appellants’ construction was a reasonably arguable one, so that acting upon it could not be a contempt. He submitted that this was strongly supported by the context of the Order. He contended that, in seeking this Order, as Mr Joseph QC put it, to “hold the ring” pending the conclusion of the arbitration, Mr Joseph QC had not sought relief on a basis which prevented the exclusion of Pan Petroleum for default which was nothing to do with Aje-6 or Aje-7.

As part of the context or background against which the Order was to be construed, Mr Davies QC relied upon the exchange he had with the judge at pp 22-24 of the transcript of the hearing on 20 January 2017 as demonstrating that the judge had at least accepted that the appellants’ construction of the Order was reasonably arguable. He did not suggest that his clients had relied upon this in taking advice over the following weekend or in taking the steps which they did on 23 January 2017, but submitted that when one considered that exchange, it was very difficult to say that the appellants’ construction was not only wrong, but not even reasonably arguable. Although he accepted that the exchange was not binding on the Court as to what the Order meant, he submitted that it demonstrated that the Order was not clear and unambiguous. Mr Davies QC submitted that, if the appellants’ construction was indeed, reasonably arguable, they had been entitled to act upon it and it was nothing to the point that they could have gone back to Court before taking the steps they did on 23 January.

Mr Davies QC also submitted that the Order should not be construed as protecting Pan Petroleum from the consequences under Article 8.2 of non-payment of undisputed cash calls, on the basis that it was not seeking such protection and that it could not in the case of an admitted default demonstrate any cause of action entitling it to be on the Operating Committee.

On behalf of Pan Petroleum, Mr Joseph QC submitted that the context of the Order was Pan Petroleum’s application for relief “holding the ring” where the original casus belli as set out at [7]-[9] and [13] above was that FASL had produced draft resolutions in relation to Aje-6 which the appellants were trying to push through the Operating Committee without unanimity and at the time that the injunction was originally granted on 2 December 2016, the appellants were already trying to exclude Pan Petroleum from the Operating Committee and, as set out at [14] above, Pan Petroleum was concerned that unless restrained by injunction, the appellants would seek both to exclude it from the Operating Committee and forfeit its rights under the JOA and the Lease.

Mr Joseph QC pointed out that this dual concern about exclusion not just from the project as a whole pursuant to Article 8.4 but exclusion from the Operating Committee pursuant to Article 8.2 had continued at the time of the Return Date hearing. The Exclusive Operation provisions under Article 7 had not been invoked, so Pan Petroleum was entitled to participate in discussions at and decisions of the Operating Committee. As set out at [16] to [18] above, Mr Morton had set out in his witness statement for that hearing why it was that Pan Petroleum was so concerned about being excluded from the decision-making process in relation to Aje-6 and Aje-7. There had been no evidence in answer from the appellants. Mr Joseph QC also pointed out that the same dual concern was set out in his Skeleton Argument for that hearing in the section dealing with why damages was not an adequate remedy at [74]-[76] and was repeated in his oral submissions to the judge.

Mr Joseph QC submitted that Mr Davies QC was simply wrong to suggest that Pan Petroleum was only seeking relief in respect of Aje-6 and Aje-7 where the default was in respect of those wells. As he pointed out, at the time of the 20 January hearing, there were no Cash Calls in relation to Aje-7, so there was no question of any default in relation to that well in any event. He submitted that the relief being sought was to restrain the appellants from exercising any rights under Articles 8.2 and 8.4 in respect of the Aje-6 and Aje-7 wells, whatever the basis for the purported exercise of those rights. This was the relief sought in the draft Order Mr Joseph QC had put before the Court.

Mr Joseph QC submitted that the Order as made in accordance with that draft had only one clear and unambiguous meaning. It prohibited the appellants from exercising any of the disputed rights and remedies against Pan Petroleum “in respect of the Aje-6 or Aje-7 development wells”. These were general connecting words synonymous with or similar to “as regards”, “with reference to” or “with respect to”, not necessarily implying as a matter of interpretation, any reference to an underlying Aje-6 or Aje-7 default by Pan Petroleum. The judge was right to conclude that, whilst those general connecting words had one, clear meaning, it did not necessarily follow that their application to the three sub-paragraphs in paragraph 2 of the Order was identical.

As for the other matters relied upon by Mr Davies QC as part of the context of the Order, Mr Joseph QC submitted that, in the passage of the transcript at pp 22-24, the judge was summarising the submissions made by Mr Davies QC, not agreeing with him. Mr Davies QC had submitted that the draft Order over-protected Pan Petroleum but the judge had rejected that submission and made the Order sought, which was the default position unless some other wording was agreed between the parties or approved by the Court, which had never happened.

Despite the ingenuity of Mr Davies QC’s submissions, I am quite satisfied that the wording of paragraph 2 of the Order does have the clear and unambiguous meaning for which Mr Joseph QC contends and which the judge found. The general connecting words “in respect of the Aje-6 or Aje-7 development wells” are qualifying, so far as relevant, the rights and/or remedies which the appellants can exercise under Article 8.4 (paragraph 2.1) or Article 8.2 (paragraph 2.2). Those general connecting words are not limited by reference to default by Pan Petroleum in respect of Aje-6 or Aje-7 as the appellants contend. Their construction would require reading words into the paragraph, as their own proposed amendment in their letter to the Court of 24 January 2017 set out at [34] above demonstrates. That the wording of the Order cannot bear the meaning for which the appellants contend is also demonstrated by the fact that, at the time the order was made, there could by definition have been no default in respect of Aje-7 because there was no Cash Call.

Mr Davies QC’s submission that the judge had adopted an unorthodox and implausible construction of the general connecting words, so that they meant something different in each of the sub-paragraphs, is simply wrong as a matter of analysis. It confuses the meaning of the words, which remains constant, with the effect which their application has in each of the sub-paragraphs. In the case of paragraph 2.1, the effect of the application of the words may well be no more than that the appellants are prohibited from using a default in respect of Aje-6 or Aje-7 to forfeit all Pan Petroleum’s rights under the JOA and the Lease. However, it does not follow that the effect of the application of the general connecting words to paragraph 2.2 has to be the same. As a matter of construction it is clear that the overall wording: “the Defendants must not exercise or purport to exercise (by written notice or otherwise) in respect of the Aje-6 or Aje-7 development wells …any of the rights and/or remedies in Article 8.2 of the Joint Operating Agreement to exclude the Claimant from participating in, or voting at, meetings of the Operating Committee;” prohibits the appellants from doing what they purported to do on 23 January 2017: excluding Pan Petroleum from the Operating Committee on whatever basis and then passing resolutions in respect of the Aje-6 and Aje-7 wells.

I also agree with Mr Joseph QC that the overall context and object of the Order overwhelmingly supports that construction. From the time of the ex parte hearing onwards, Pan Petroleum was seeking relief to “hold the ring” pending the conclusion of the arbitration, not just to prevent the appellants from forcing its complete withdrawal from the project under Article 8.4, but also to prevent the appellants from excluding Pan Petroleum from the decision-making processes of the Operating Committee under Article 8.2, on whatever pretext or basis and then passing resolutions in respect of the Aje-6 or Aje-7 wells seeking to establish budgets and make Cash Calls. That Pan Petroleum was seeking relief in those two distinct but related areas is clear from the evidence of Mr Mildwaters for the ex parte hearing and of Mr Morton for the Return date hearing (as referred to earlier in this judgment) and from the Skeleton Argument and oral submissions of Mr Joseph QC at the Return Date hearing. The submission made by Mr Davies QC, that Mr Joseph QC had not sought relief on a basis which prevented the exclusion of Pan Petroleum from the Operating Committee for default which was nothing to do with Aje-6 or Aje-7, is thus incorrect, as is his suggestion that Pan Petroleum was not seeking protection in respect of Cash Calls it did not dispute.

Furthermore, that Pan Petroleum was seeking relief in those two areas and that this was the context and object of the Order is also clear from a comparison of the draft resolutions presented by FASL to the Operating Committee meeting on 5 October 2016 quoted at [8] above with [11] and [12] of the resolutions passed in Pan Petroleum’s absence on 23 January 2017 quoted at [31] above. It can be seen that they are identical and relate to development budgets for D & C and hook-up for Aje-6. Likewise, [3] and [4] of the resolutions passed on 23 January 2017, approving Cash Calls for long lead items for D &C and hook-up respectively for Aje-6 correspond with the disputed aspects of Cash Calls 28 and 29 relating to Aje-6. In other words, by the resolutions passed on 23 January 2017, the appellants sought to achieve precisely the same result as Pan Petroleum was seeking to prevent through the injunctionobtained ex parte on 2 December 2016, as continued at the inter partes Return Date hearing on 20 January 2017. In my judgment, that demonstrates that the resolutions passed on 23 January 2017 were the clearest possible breach of the injunction.

None of the other matters relied upon by the appellants assists them. I have already said that the exchange between Mr Davies QC and the judge on 20 January 2017 was not the judge agreeing with Mr Davies QC, but the judge summarising the argument being put, without accepting it. That he did not accept it is evident, not only from the judgment on 20 January 2017 and the Order he made which he declined to amend thereafter, but from the terms of his contempt judgment.

Mr Davies QC’s submission that the Order should not be construed as protecting Pan Petroleum in respect of undisputed Cash Calls, because it could not in such a case demonstrate any cause of action entitling it to be on the Operating Committee, is misconceived. The merits of the underlying claim of Pan Petroleum are to be determined in the arbitration, not before the Court and, in any event, at best this point would go to the question whether the Order should have been made in as wide terms as it was (which is not the subject of the appeal), not to the issues of the correct construction of the Order and whether the appellants were in contempt.

In the circumstances, given my firm conclusion that the wording of paragraph 2 of the Order has the clear and unequivocal meaning for which Mr Joseph QC contends and which the judge found, the appellants’ contrary construction of the Order is not reasonably arguable. I agree with Mr Joseph QC that the appellants’ construction is irreconcilable with the relief that Pan Petroleum was seeking and which the Court was prepared to grant, to “hold the ring” pending the arbitration. In relation to the second and third grounds of appeal, there is no question of the judge having applied the wrong legal test in [19] of his judgment as to the degree of certainty required before a finding of contempt can be made. Nor is there any question of the judge having failed to give adequate reasons for his finding of contempt. Although his judgment is succinct, it provides a sufficient explanation of what the Order means and why the appellants’ construction is not arguable.

The conclusion that the appellants’ construction of the Order is not reasonably arguable is not altered by the fact that the appellants received legal advice over the weekend of 21/22 January that the Order permitted them to do what they proposed to do, namely exclude Pan Petroleum from the Operating Committee and then pass resolutions in respect of the Aje-6 and Aje-7 wells. By not going back to Court before they took those steps on Monday 23 January, as they should have done, the appellants took the risk that what they did would amount to a contempt of Court. Had they gone back to Court first, it is clear that the judge would have disabused them straight away of the misapprehension that the Order permitted them to exclude Pan Petroleum from the Operating Committee and then pass these resolutions.

The judge was entirely justified in concluding that the appellants were in contempt and that Pan Petroleum was entitled to the declaratory relief he granted. The appeal must be dismissed.

I agree.

I also agree.