BP International Ltd. v Energy Infrastructure Group Ltd.

By an order made on 26 March 2003, Cooke J. granted BPI, the Claimant, permission to issue and serve the claim form on the defendant, EIG, at its registered office (or elsewhere) in Mauritius. EIG made an application pursuant to CPR Rule 11(1):

On this application, EIG were represented by Ian Mill QC, and BPI by Sir Sydney Kentridge QC. I am grateful to both counsel for their help.

BPI is a member of the BP group of companies. EIG is a company incorporated in Mauritius in November 1997, shortly after the proprietors of this company, Mr Fred Jones and Mr Shiv Jatia, had started discussions with BPI about a project involving the import, storage, terminalling, transportation, bottling, distribution and marketing of LPG in bottles and in bulk to domestic, commercial and industrial consumers in North West India. The project was intended to be a joint venture between BPI and the two proprietors, Mr Fred Jones and Mr Shiv Jatia, and the latters’ corporate vehicles. EIG was, as I understand it, to be the investment vehicle for the two men and a company called Wimco Petrogas Limited, an Indian company [Wimco], was to be the corporate vehicle for the proposed joint venture in India.

BPI and EIG entered into a written Agreement [the Agreement] on 19 July 1998. The Third Recital provides:

“Whereas the Parties have reached outline agreement upon a co-operative joint venture to carry out the Project described in Clause 1 below through [Wimco], subject to the following terms and conditions.”

Clause 1 identified the Project and the various steps, such as jetty construction and the construction of railway sidings, that were involved in making the Project work.

Clause 2 identified the Object of the Agreement:

“The object of the Parties is to confirm the agreed basic terms of their joint participation in the Project which will form the basis of a Shareholders’ Agreement to be negotiated between [BPI] and EIG in respect of construction and operation of the Project via ownership of the existing Project Company [Wimco] subject to the terms and conditions set out herein.”

It was the initial intention of the parties to the Agreement that the Shareholders’ Agreement would be executed no later than 30 September 1998, that is, three months after the date of the commencement of the Agreement (which was deemed to commence as from July 1 1998). The Agreement was to continue in force “until superseded by” the Shareholders’ Agreement. However there was provision for agreed extensions, and, ultimately, the parties agreed to extend the deadline to 31 January 1999. The Shareholders’ Agreement was to include an equity split in the ownership of Wimco: BPI 51%, EIG 49% and obligations on both parties to make equity contributions as specified in Clause 9 of the Agreement.

Clause 5 of the Agreement required the formation of a Joint Pre-Project Board and Team whose responsibility was to oversee pre-Project operations and expenditure, and agree amendments to the draft Project Statement of Requirements attached to the Agreement, those costs being shared proportionate to the proposed shareholding in Wimco. Decisions of the Board “shall be reached by mutual agreement”. Clause 5.2 provided that

“For the avoidance of doubt, unless otherwise agreed in respect of particular items, all sums expended or contributed under this Agreement are at each Party’s sole risk and the termination of this Agreement for whatever reason shall not entitle any Party to any payment or refund from any other Party (unless necessary merely to properly adjust expenditure to be consistent with the cost-sharing arrangements agreed).”

Clause 7 of the Agreement required the parties to it to co-operate and

“procure that their respective affiliates, shareholders and advisers shall co-operate, to facilitate a full due diligence investigation into all aspects of the Project (including information, documents, representations and approvals) and of the Parties and [Wimco].”

The Shareholders’ Agreement was to contain a clause making English Law the governing law; whereas Indian law was to govern Wimco’s operations. And there was to be a provision for International arbitration.

Clauses 13 and 14 of the Agreement are relevant.

Each Party (the “Indemnifying Party”) agrees to indemnify the other Party (the “Indemnified Party”) and its directors, officers and employees, at all times after the date of this Agreement, against all losses, damages, liability, payment and obligation, and all expenses (including, without limitation, reasonable legal fees), incurred, suffered, sustained or required to be paid, directly or indirectly, by or sought to be imposed upon, the Indemnified Party and its directors officers and employees for personal injury or death to persons or damage to property arising out of the negligent or intentional act or omission of the Indemnifying Party in connection with this Agreement.

It is common ground that the negotiations to complete the Shareholders’ Agreement broke down and by letter dated 23 December 1998, BPI pulled out and suggested that the Agreement should terminate with effect from 31 December 1998. It also appears to be common ground that the Agreement expired by effluxion of time, in accordance with its terms, on 31 January 1999. However, the parties were in dispute about the motivation of BPI in persuading the proprietors of EIG that they were genuinely interested in the Project and were prepared to go along with the proposed structure of the deal. EIG were seeking substantial compensation from BPI in connection with the proposed joint venture and BPI’s withdrawal from it. There were without prejudice discussions between the parties which lasted from January 1999 to October 2000. The extent to which it is legitimate to refer to these discussions is in issue. Sir Sydney is right, I think, to say that a party is entitled to refer to them to show that the parties were in dispute: without a dispute there is nothing for the privilege against disclosure to adhere to. On the other hand, it seems to me illegitimate to refer to the details of the dispute so as to identify the items in dispute and the claims made in relation to them.

Thus it was that EIG and others [I refer to the Plaintiffs in this Texas action compendiously as EIG] issued proceedings against BPI and others [BPI] in the Dallas County Court, Texas on 29 April 2002. By these proceedings EIG sought damages specified to be over US$100 million, together with punitive damages. The written claim has been amended twice and the third Amended Original Petition claims damages for fraud and breach of fiduciary duty on the grounds that there was a knowingly or recklessly false misrepresentation to EIG that BPI accepted the Project as configured; that this representation caused EIG to choose BPI as Project partner, in preference to other interested contenders and that when BPI unexpectedly “walked away” from the Project in December 1998, the Project lacked management direction and control so that it was difficult to find a replacement partner earlier than 15 months later.

On 26 March 2003, without prior warning or letter before action, BPI started the present proceedings in this jurisdiction and to which this application relates. The claim is for four negative declarations:

“21.1.

pursuant to the terms of the Memorandum of Agreement, the Claimant was entitled to decide not to enter into a Shareholders’ Agreement with the Defendant prior to 31 January 1999 and/or that the Claimant’s decision not to enter in a Shareholders’ Agreement taken on or about 14 December 1998 did not constitute a breach of the Memorandum of Agreement, whether by way of Wilful Default (as defined in clause 13.1) or otherwise;

21.2.

the Claimant did not otherwise commit any breach of the Memorandum of Agreement, whether by way of Wilful Default (as defined in clause 13.1) or otherwise;

21.3.

the Memorandum of Agreement duly and properly terminated on 31 January 1999, in accordance with its terms and conditions, as varied by the Second Letter of Variation; and,

21.4.

the Claimant’s sole liability to the Defendant resulting from or arising out of the Memorandum of Agreement and/or its terms or conditions or any of them and/or its performance and/or its termination is as set out in Appendix 5 hereto.”

BPI challenged the jurisdiction of the Court in Dallas: both in personam and subject matter jurisdiction, I think. They filed special appearances, under Rule 120a of the relevant procedural rules, in August and September 2002. However, after discussion, the parties to the USA action reached a procedural agreement in June 2003 [the Rule 11 Agreement].

For present purposes the essence of this Rule 11 Agreement is that BPI submitted to the jurisdiction of the Texas courts, subject to their right to contend that Texas is not ‘a’ or ‘the’ [as the case might be under local law] convenient forum. It is accepted that the choice of law provision in Clause 14 of the Agreement does not apply to causes of action other than claims for breach of contract and that it is irrelevant to the Court’s decision on the forum or governing law questions so far as they relate to them.

As contemplated by the Rule 11 Agreement, BPI filed its Answer and jury demand on June 23 2003 and sought a dismissal of the Texas action under the doctrine of forum non conveniens. They relied upon a contractual limitation of damages Clause, which is, presumably, a reference to Clause 13 of the Agreement. They also filed Interrogatories and Requests for production of documents in support of their dismissal application. In particular they sought an admission that there was an action pending in this jurisdiction, and that EIG could bring common law fraud claims in the action.

BPI’s application to dismiss the Dallas action is to be heard by that court on February 23, 2004.

EIG’s submissions may be summarised thus:

There is no serious issue to be tried between the parties and the claim and the evidence in support has been “crafted so as to try and manufacture an issue where none actually exists.” Second, BPI’s motive in starting the proceedings in this jurisdiction was in order to strengthen its motion to dismiss in the Dallas Action. Third, England is not the natural forum for the resolution of the real (as opposed to the manufactured) dispute between the parties and Texas is the most appropriate forum for that dispute. Finally, in making the application for permission to serve EIG out of the jurisdiction, BPI were not “full and frank” in their evidence in support.

In order to obtain permission to serve a party out of the jurisdiction the applicant must show that he has a good arguable case on issues which he bona fide desires to have tried. The Claimant must advance a substantive claim which he can assert has a reasonable prospect of success. And if these requirements are satisfied, then the court must ask whether this jurisdiction is the proper place in which to advance the claim.

Although the Agreement is governed by English Law and contains a term giving this court jurisdiction over any claim in respect of the Agreement, this only provides grounds for service out of the jurisdiction if the claim is “in relation to” that contract. Superficially, the claim is made in relation to the Agreement. The evidential basis of the claim in this case comes from the witness statement of Mr Greeno, a partner in BPI’s solicitors, Messrs Herbert Smith. He asserted that as EIG did not accept BPI’s proposal for an early withdrawal from the Agreement, it came to an end on 31 January 1999. He referred to the fact that there had been protracted without prejudice discussions between the parties and that no agreement had been reached on the sums due under Clause 5.2. He exhibited the last open letter on this topic dated October 26 2000 from BPI to EIG inviting EIG to submit an invoice for US$136,000, being the amount which BPI considered was due and owing under the Agreement. Mr Greeno stated that EIG “refused to agree this amount and provide [BPI] with an invoice” but instead “EIG has demanded sums far in excess of [US$136,000] which [BPI] believes have no basis under the terms of the [Agreement].”

Mr Greeno uses the alleged dispute over payments due under Clause 5.2 to leap to the conclusion that “there is clearly a dispute between the parties as to the effect of the [Agreement] which [BPI] wishes to have resolved by the court. BPI seeks declaratory relief from the court with a view to determining the extent of its liability to [EIG] arising in respect of the [Agreement]. .. In particular, [BPI] seeks declarations that it was entitled to decide not to execute the Shareholders’ Agreement, and/or its decision not to execute that agreement was not a breach of the [Agreement] and that the only sums due to [EIG] in respect of the Agreement are the sums set out in the Schedule to the Particulars of Claim” totalling US$136,000. But despite these assertions, there is in truth no substantial question of fact or law between the parties or any which BPI bona fide wish to have tried in this jurisdiction.

The hollowness of the assertions can be seen when one examines each of the declarations sought. The first declaration sought is to the effect that BPI were entitled to decide not to enter into the Shareholders’ Agreement. There is nothing in the Particulars of Claim which would justify that relief and the statement in the evidence that a dispute has arisen between the parties as to the effect of the Agreement is not sufficient. In fact, there never has been an assertion by EIG that BPI’s failure to enter into the Shareholders’ Agreement was a breach by them of the Agreement. To say, as did Mr Greeno in his second witness statement that the claims made in the first three declarations sought were included “in the light of the various claims that were made by EIG in the course of “without prejudice” discussions” and “in an attempt to ensure all disputes between the parties as to the meaning and effect of the Agreement were resolved in these proceedings” was unsatisfactory. It was a breach of the confidentiality of the without prejudice rule and in any case as a matter of law a party cannot found their cause of action on the basis of what was said in such discussions [see Unilever Plc v Proctor & Gamble [2000] 1 WLR 2436].

The Particulars of Claim do not assert that a dispute has arisen as to the date of termination of the Agreement, merely that EIG had not accepted BPI’s proposal that the Agreement should terminate at the end of the year. It is common ground that the Agreement expired by effluxion of time as at the end of January 1999. Accordingly the declaration sought under paragraph 21.3 would serve no useful purpose and would not, therefore be granted.

The last declaration [paragraph 21.4] relates to the debate as to what “costs” are outstanding under the Agreement. The evidence shows that apart from the letter from BPI in effect offering to pay US$136,000 to close the account, which offer was not accepted but ignored, nothing further has been said ‘openly’ about such sums. There has been no ‘open’ [as opposed to without prejudice] demand from EIG under the Agreement. If BPI genuinely wished to have this claim determined by the Court it is odd that it did not pursue the matter after October 2000 or write any letter before action. The terms of the declaration in paragraph 21.4 of the Particulars of Claim is not confined to this matter. On the contrary, it is widely drawn to cover BPI’s liability to EIG resulting from or arising out of the Agreement its terms or conditions or its performance or termination. The Court should infer that the true reason for this declaration was to set on foot in this jurisdiction proceedings which compete with the Texas action and to assist BPI in its forthcoming jurisdictional challenge.

In considering whether England is an appropriate place for this litigation, I should pay heed to the fact that there were, at the time they were commenced, already in existence proceedings in another jurisdiction and that those proceedings involve overlapping issues: BAS Capital Funding Corporation & Others v Medfinco Limited & Others [2003] EWCH 1798. There is plainly an overlap since BPI assert in the Dallas Action that the damages to which the Plaintiffs in that action are entitled “are contractually limited by the agreement between the parties.” It would not be sensible for there to be concurrent proceedings in this jurisdiction and in Texas. Considerable costs have already been incurred in Texas and many thousands of documents have been disclosed. The governing law of the non contractual causes of action in the Dallas Action may not be English Law – it is not English Law by virtue of any agreement between the parties. If the tort claims are governed by a law other than English law then it will probably be the Law of the State of Texas. If BPI really wish to have the ‘costs’ issue under Clause 5 of the Agreement decided then they could include that claim and any other contractual claim in the proceedings in Texas. BPI should not have been allowed to start competing proceedings to those started in Texas, where considerable progress in the litigation has already occurred.

Finally, the leave granted to BPI by this Court should be set aside because the application was not supported by evidence which was ‘full and frank’. The statement made by Mr Greeno in his first witness statement, the only evidence before the Court when the application was granted, implied that the dispute as to the proper amount of costs due under the Agreement was a continuing one. He said: “To date however, [EIG] have refused to agree this amount and provide [BPI] with an invoice. Instead the Defendant has demanded sums far in excess of [US$136,000] which [BPI] believes have no basis under the terms of the [Agreement].” The true position was that there had been no written or oral communication on the subject of costs since the letter from BPI dated October 26 2000. EIG had not openly asserted that any additional sum was due by way of costs and that the ‘demand’ referred to by Mr Greeno occurred in the context of without prejudice discussions. Nor did Mr Greeno state that the true motivation for the English Action was to improve the chances of stopping the Texas proceedings. This was done by an unsupported assertion that there was a dispute between the parties “as to the effect of the [Agreement]”, when there was not. He misrepresented the nature of the action in Texas by stating that it appeared to relate only to events pre-dating the Agreement, whereas “it is clear that the Texas Defendants' actions in subsequently “walking away" from the Project in December 1998 is the source of the Texas Plaintiffs’ grievance”. The risk of an overlap between the two actions is demonstrated by the Requests for Admissions filed in the Texas Action. The Court should infer that this action would never have been started had it not been for the Dallas action. If the Court was not prepared to dismiss the action it should stay it pending determination by the Texas Court of the motion presently due to heard in February 2004.

The argument on behalf of BPI may be summarised as follows:

It seems to me that I should apply the following principles of law, which I think are not in dispute between the parties. This case is not about principles; rather it is about the application of the principles to the facts of this case.

There are three issues:

Have BPI shown that there is a serious issue to be tried?

At the end of the day, I am satisfied that there are serious issues to be tried in relation to the Agreement. It seems to me clear that the following questions arise:

In my view, there has been a certain amount of posturing by both parties in relation to the claim which each is making against the other. As a matter of commercial reality, what the parties want the courts to decide is whether BPI were fraudulent or in breach of some as yet undefined fiduciary relationship in the making of the arrangements or the performance of them, and, if so, with what consequences. The contractual claims as such are a relatively insignificant feature of the case. It is the effect of the contractual provisions on the extent of BPI’s potential liability that may be important. Hence, the desire of BPI for a finding that their liability is limited by the terms of the Agreement. It is not necessary to pry into the secrets protected by the cloak of ‘without prejudice’ to reach this conclusion. The conclusion is obvious having regard to the allegations in the Texas Action and the provisions of the Agreement itself. The parties are in dispute to the extent indicated and it is artificial to contend otherwise.

EIG cannot have it both ways. Either there are disputes in the Dallas Action which overlap with the contractual claims or there are not. If there are, then their argument that EIG were asserting no claims under the contract seems difficult to sustain. The reality of the case is that EIG are alleging that they were tricked into joining forces with BPI as a result of what was said and that thereafter the Project floundered through lack of direction and positive input from BPI after the Agreement had been entered into, and that, when BPI walked off, the Project was left in such a state that it took months to make it marketable to other partners. The case cannot properly be decided, I would have thought, without considering both the tort and the contractual position together. This was a project for completion in North West India to be performed by an Indian Company owned jointly between the primary parties. The financial vehicle, EIG, is incorporated in Mauritius. But for the existence of the proceedings in Texas, and BPI’s submission to the jurisdiction of that Court, I can see strong arguments for saying that there is a sufficient overlap between the proceedings in this jurisdiction and the claims in Dallas to say that the only sensible place for this whole litigation is England, since that was the non-exclusive jurisdiction chosen by the parties to govern their contractual disputes.

If it were sensibly possible to define the two actions as one being contractual and the other tortious, and to keep them separated, then one might contemplate a position in which the Dallas Court dealt with the fraud case and the English Court dealt with the contractual disputes. But as EIG’s counsel points out, there is an inevitable overlap between the two claims because, in reality, BPI will wish to rely on the contract as defining the extent of EIG’s rights to complain. The problem before me stems from the fact that proceedings in another jurisdiction had already started when this action commenced. And there is no doubt that there has been a submission to the jurisdiction of the Dallas Court, pace BPI’s argument about forum conveniens there.

It seems to me clear from the evidence that the proceedings in this country have been contrived simply with a view to bolstering BPI’s forum non conveniens case in Dallas. I reach this conclusion on the basis of a number of factors. First, the negative declaration as to the costs issue is odd, bearing in mind that the position had crystallised as at October 2000 [2 and ½ years before the action was started]. If that had been a genuine continuing bone of contention then I would have expected some correspondence about it. It is very curious that there was no letter before action in this case. Such a letter was to be expected. I reject Sir Sydney’s submission that there was no purpose in writing such a letter. On the contrary, a letter saying that ‘unless you are content to accept US$136,000 in full and final satisfaction of your claim in respect of costs and in respect of BPI’s total liability under the contract and joint venture arrangement’ we will sue you, would have avoided the rather sterile debate about whether something was or was not in issue. The problem for BPI is that had such a letter been written it would have demonstrated the overlap between the tort claim and the contractual claim. By these proceedings, BPI want the court to affirm that BPI is not liable for more than the small sum referred to and that the contract excludes their liability for anything else. There is force in the submissions made to me that BPI were having to work hard to contrive the claim and they have slid from a proposition about the costs under the Agreement into a far wider contention which was intended to confront the court in Dallas. Whilst I think that the witness statement could have been more forthcoming, I would not characterise it as less than full and frank. However, it was drafted in such a way that I am not surprised the application was granted ex parte.

So there appears to me to be an underlying dispute relating to fraud AND the Agreement. The contractual issue is not just about the costs under Clause 5 but is much wider. I agree with Sir Sydney that one cannot shut ones eyes to the extent of a dispute by retreating behind a wall of silence based upon ‘without prejudice’ discussions. All this could have been crystallised had a proper letter before action been written. But even without it, as Mr Mill emphasises, it has been clear throughout that BPI say that their liability is no more and no less than that provided under the Agreement, whether or not fraud is established, and to this extent it is clear that there is a contractual dispute. There is also a potential dispute as to whether BPI were entitled to walk away from the Agreement when they did. If they were not, then there may well be an argument for saying that they repudiated the Agreement in a way which was not capable of acceptance or non-acceptance; in other words that by walking away, as a matter of law the Agreement came to an end there and then; alternatively, by walking away before its due date damages for breach of contract were suffered. Either way, it seems to me that Mr Mill went too far in his submissions that there is no serious issue to be tried between the parties. EIG are plainly complaining about BPI walking away from the Project when they did. The negative declarations sought in the claim in paragraph 23(1) (2) and (3) reflect an underlying dispute, if one takes a realistic view of what the parties are saying openly. As to the declaration in sub-paragraph (4), that seems to be of the essence of the claim. A fuller witness statement should have been provided. But because the parties are indulging in shadow boxing what should be said is perhaps not said for fear of its effect in the jurisdictional game. If fraud is established, the case is likely to be easy to resolve in Dallas; so also if it is not.

What should I now do? The weight of the dispute, its centre of gravity, lies in the tort claims that are being advanced in Dallas. If the fraud is established then the claims under the Agreement will pale into insignificance, although the Court in Dallas will have to rule on arguments relating to the effect of the contractual provisions on the ambit of BPI’s liability to EIG. The issue of fraud will, as I understand it, be decided by a jury; the jurisdiction there gives EIG the advantage of being able to recover punitive damages, if fraud is established. The case has been proceeding in Dallas although primarily concerned at this stage with questions of jurisdiction and forum non conveniens. But some disclosure is under way. The answer to BPI’s suggestion that Dallas has no connection with the underlying dispute is that they have submitted to that Court’s jurisdiction. BPI may be able to persuade that Court that it is not a or the convenient forum, in which case the claim in these proceedings will have to be re-visited. But because of the sequence of events, it seems to me that the right course for this Court to take is not to dismiss the claim as contended for by Mr Mill but rather to stay these proceedings until after the Court in Dallas has ruled upon the application currently before it.

Had BPI come to this Court and made a case for an anti-suit injunction against EIG soon after the proceedings had been started in Texas, such a case might have succeeded, even though the Claim there is made by entities other than EIG and the defendants include entities other than BPI. The reality is that if EIG were restrained from continuing the proceedings in Texas the claims in Texas would have evaporated. But they did not do this. Although they challenged the jurisdiction of the Dallas Court they have now submitted to it. Whilst it can be said that EIG have brought on themselves the risk of actions proceedings in two jurisdictions at once, having regard to the jurisdiction clause in the Agreement, BPI’s submission to that jurisdiction makes all the difference. It is this feature of the case which entitles me, I think, to exercise my discretion to grant a stay. This case is exceptional.

In these circumstances I answer the questions posed in paragraph 22