Oxus Gold Plc (Formerly Oxus Mining Plc) & Anor v Templeton Insurance Ltd

In this action, the first named claimant (PLC) together with its subsidiary, the second named claimant (ORC) makes a claim in contract and negligence against the defendant (Templeton), a company registered in the Isle of Man and licensed there to carry on insurance business. It also seeks restitution of the warrants which are the main subject matter of this action and the return of a commitment fee. ORC is a company registered in the British Virgin Islands and its principal asset is and was at all material times an interest in a gold mine in Uzbekistan (the Amantaytau Project).

It has other interests in the international mining industry elsewhere in the Central Asian Republics of the former Soviet Union. PLC is a public company listed on the AIM which came into existence in circumstances to be described later in the judgment as a holding company.

Templeton is a part of a group of companies which are loosely connected but known as the Knox D’Arcy Group, which includes Knox D’Arcy Investments Limited (KDIL). Both companies are ultimately owned 100% by the Steele family trusts, so that Mr Steele had a significant influence on both companies, although he was a director of neither and was engaged by other companies in the group. There is no doubt that he was authorised to act for both, when involved in the matters which are the subject of this action. Mr Brunswick, with whom he worked closely was the Executive Chairman of the Board of Templeton and an executive director of KDIL. They were in touch by telephone every day, even when Mr Steele was in South Africa, where he also had an office and conducted business. Mr Steele made recommendations to KDIL from time to time in relation to investments it might make, which KDIL tended to follow. Templeton had its own board of directors, and Mr Steele was not involved in its ordinary decision making processes, not being versed in insurance matters in the same way as Mr Brunswick, a chartered accountant with some experience in the insurance field.

ORC, in the person of Mr Wilkins, its company secretary and also a chartered accountant, initially had dealings with the Knox D’Arcy Group because of his friendship with Mr Steele whom he had known from his university days. He was a founding director of ORC and the driving force behind it. Mr Steele considered that Mr Wilkins should have been the Chief Executive Officer of Oxus and Mr Steele’s approbation was not given lightly.

In circumstances which are in dispute, Templeton sought unsuccessfully to obtain for the claimants (together Oxus) the benefit of a Financial Bond or Performance Guarantee in respect of a contract to excavate, build and produce gold from, a mine in Uzbekistan. The Bond or Guarantee was to be given either by itself, backed by a reciprocal Bond or Guarantee from an AA credit rated insurance company or by that AA rated company directly. On the basis of the AA credit rating of that insurance company, it was hoped that secondary finance could be raised by Oxus at economic levels of interest, using the Bond or Guarantee as security for the advance. Secondary finance was needed because the primary finance then being sought was insufficient for the work required to excavate the mine and bring it to production (the Amantaytau Project).

There are essentially two areas of claim being made by Oxus.

The action has a complicated procedural history, being commenced by Oxus in 2003 against Templeton and KDIL. The claim as originally formulated was based on misrepresentation, negligent mis-statement and breach of contract with allegations that KDIL was the alter-ego of Templeton and that it had taken on the same contractual and tortious duties as Templeton. On being faced with an application for summary dismissal or strike out of its claim, Oxus substantially amended its Particulars of Claim and sought to join another company instead of KDIL. Some amendments were allowed but not others and the action then proceeded with the claim for misrepresentation abandoned.

The matter came on for trial before me in June 2005 with the allegation of the August Agreement and its substitution or variation by an Agreement in November 2001. Then and now, it is accepted that if Oxus cannot succeed on the August Agreement it cannot succeed on the November Agreement. Moreover in essence it is now said that the August Agreement is to be found in the terms of two letters and nowhere else and that the true effect of the contract was not to give rise to an obligation to provide the Bond or Guarantee which would sound in damages, but to result in the non-exercisability of the warrants if it was not provided. Oxus’ primary position is therefore that the objective intention of the parties was that Templeton could only exercise the warrants on provision or procuration of the Bond. Oxus nonetheless retains the other ways of putting the contracted case as a fallback position.

When the matter came before me in June 2005, Templeton applied to amend its defence. Its primary position always was that the warrants were valid and exercisable and that there was no need for any consideration for them as they were issued under seal. Alternatively if consideration was required, it was said that Templeton agreed to investigate the possibility of writing or procuring a Bond satisfying PLC’s secondary finance requirements. By amendment Templeton sought to add a further plea of consideration or “sufficient commercial justification for PLC to issue the warrants” in the form of the abandonment by KDIL of its claims arising out of an agreement evidenced by a letter dated 9 July 2001 (in fact sent by fax on 27 June 2001) from PLC to KDIL. I allowed that amendment but this resulted in an adjournment because Oxus said it was not in a position to deal with the new factual and evidential matters which arose in consequence.

The crucial letters upon which Oxus relies are letters of 8 and 9 August 2001. The 8 August letter was sent by Mr de Villiers of PLC to Mr Brunswick of Templeton and the letter of 9 August responding to it was sent by Mr Pretorius of Templeton to Mr de Villiers.

Even a cursory glance at the letters reveals that they are not capable of being read in isolation from other documents and the discussions which had taken place between the parties. The first line of the letter of 8 August refers to “our various discussions”, to “Templeton’s proposal” and to “a Financial Bond”, none of which are self explanatory without reference to what had passed between the parties earlier. Equally the “warrants” referred to and the fees to which the third paragraph refers require reference to other documents such as the letter and draft term sheet of 27 July 2001, which in turn refers to a letter of 23 July. It is clear, in my judgment, that, whatever contract was made, it cannot be found in these two letters alone and that it is necessary to examine the exchanges between the parties before this exchange of letters, in order to ascertain the objective intention of the parties in any contract made. This is not merely a situation where it is necessary to look at the background or surrounding matrix of fact as defined by Lord Hoffman in ICS Limited v West Bromwich Building Society [1998] 1WLR 896, but a case where the contract itself has to be pieced together from a number of different exchanges between the parties.

Whilst I am conscious that negotiations are not admissible evidence for the purposes of construction of an agreement in writing (ibid at p 912-3), the fact remains that, in order to piece together the agreement made between the parties it is necessary to examine the exchanges which occurred over the period between 23 July and 9 August, and to take account of the oral discussions between the parties. This is not a case where there is a formal contract in which the parties’ agreement has been reduced to one document. It is Templeton’s case that the letter of 8 August is an acceptance of offers previously made in oral discussions and in letters of 23 and 27 July. The Court has, self evidently to explore these issues by reference to the evidence put before it in relation to the period in issue. Moreover, in determining what was said in conversations between Mr Steele, Mr Wilkins and Mr deVilliers, it is necessary to have recourse to the documents in which reports were given of what was said and to take into account documents which show the instructions or authority given to the latter by the PLC board. These throw light on the credibility of each party’s case as to what was said and what the agreement between them is likely to have been.

In order therefore to ascertain the terms of the contract as well as its commercial background, it is necessary to recite much of the preceding history. Before doing so however I should draw attention to the terms of the warrants upon which Templeton relies when stating that it has no need to rely upon any contract at all, since the warrants, delivered under seal, speak for themselves.

By a certificate “executed as a deed of Oxus Mining plc this 8^th day of August 2001”, PLC certified that Templeton was the registered holder of the warrants comprised in the certificate “subject to and in accordance with the conditions attached hereto”. The seal of PLC was duly affixed in the presence of a director and the company secretary, Mr Wilkins. The relevant conditions of the 5 million warrants issued are comparatively limited. The exercise price was 15.25 pence and the exercise period was 5 years running from the date of issue which was said to be 8 August 2001, although Oxus’ evidence was that the certificates were actually issued on 17 August 2001.

“1.

General

The Warrants have the benefit of and are subject to the provisions contained herein.

Given these express terms, the position is therefore that Templeton has an unconditional right to exercise these warrants and to exchange them for shares at any time before 8 August 2006 unless Oxus can show some binding contract to the contrary which affects the validity or exercise of the rights given under deed or raise some other defence which affects the validity of the warrants. The warrants contain, on their face, a binding contractual obligation between PLC and the holder of the warrants which was entitled to transfer those warrants to a third party which could equally exercise the unconditional rights set out therein. Templeton wishes to enforce the warrants, not any contract to issue the warrants.

It is Oxus’ case that the warrants were only exercisable if Templeton provided or procured a Bond which could be used in relation to the obtaining of secondary finance, despite the terms of the warrants themselves. If there were to be any restriction on the exercisability of warrants, Templeton points out that the obvious and logical way to achieve this result would be to agree to the issue of warrants after the provision or procuration of the Bond or to alter the terms of the warrants so as to provide for their exercisability only upon the happening of the relevant event. In this case, the warrants were issued prior to the provision of the Bond/Guarantee and the terms of the warrants themselves included no restriction on exercisability. The letters upon which Oxus relies also contain no reference to exercisability.

Oxus adduced evidence from four witnesses, Mr Warrender (a non-Executive Director), Mr Wilkins (the Company Secretary), Mr de Villiers (the Financial Director after the flotation) and Mr Venables of the brokers, Old Mutual Securities Ltd (OM). Templeton called Mr Steele, Mr Brunswick and Mr Higgins, who was the underwriter at College Hill. All made lengthy statements and were extensively cross examined, which took 16 days. I therefore had ample opportunity to assess the credibility of the witnesses.

The most hotly contested events occurred in the summer of 2001, nearly five years ago. Unsurprisingly the witnesses had little detailed recollection of telephone calls or meetings although certain matters stood out in their respective memories. Much of the evidence was a process of reconstruction from the documents, including in particular Mr Wilkins’ diary notes which were made contemporaneously or virtually contemporaneously. In evaluating the evidence of the witnesses, I relied mostly upon the documents and the commercial probabilities, bearing in mind the relevant relationships between the parties.

Mr Warrender’s evidence largely accorded with the documents and I found him to be essentially reliable in the evidence he gave. There was however one note of a telephone call with Mr Wilkins which showed that he was informed of the proposal which led to the 9 July letter, of which he expressed no knowledge. In his evidence he said he had no recall of that conversation and sought to interpret his note, which I construed differently. Equally, having accepted that the minutes of the PLC Board meeting of 7 August 2001 were an accurate record, he considered that the resolution of the Board did not conclude the matter and that the Board contemplated further negotiations between Mr deVilliers and Mr Steele, although the expectation was that this would be academic, because the final result would be the issue of all the warrants at once. I did not accept that evidence either.

Mr Venables did his best to assist the court but I am satisfied he confused two different meetings since the evidence of both Mr Steele and Mr Wilkins was in agreement on this point.

Mr de Villiers had little actual recollection of the events but his evidence was in some respects grossly inconsistent with an e-mail sent by him to Mr Wilkins and the minutes of the Board meeting of the 7 August 2001. I am satisfied that his evidence of a telephone call which preceded the exchange of letters of the 8 and 9 August was fictitious. Furthermore, I was unable to accept his evidence in relation to his professed ignorance of the 9 July letter at the time it was sent and of the “Gentleman’s Agreement” which preceded it, shortly after it was made. As the prospective Financial Director of PLC, it appears to me almost inevitable that he would have been made aware of these matters.

Mr Wilkins frankly admitted that his recollection of events was limited and that his statement consisted of a great deal of reconstruction based upon his diary notes. Nonetheless, some of his evidence set out events as he wished they had been, rather than as they actually were. Thus he too, having drafted the Board minutes himself, after all the relevant events had taken place, said that the minutes failed to record the Board authority to management to negotiate further. He invented a telephone conversation with Mr de Villiers after the alleged negotiation. He said that he understood the warrants had deferred exercisability as a result of that negotiation but that it did not occur to him to alter the terms of the warrants or to take advice in relation to that. Although he chose to date the warrants 8 August, he professed not to recall the reason.

I could not accept his evidence as to what occurred on the evening of 13 June when he met Mr Steele, although his evidence of what occurred on 14 June was largely accurate. His evidence in relation to the 9 July letter was not entirely satisfactory since he said a number of inconsistent things about it because of his embarrassment about the use of it to avoid the need for disclosure in the IPO. I could not accept his evidence that he failed to recall being told in October 2001 of the distinction between Performance Guarantee and Financial Guarantee and the reason why the Hermes proposal involved the former rather than the latter. It is plain to me that this was a matter which must have been explored and explained because the Performance Guarantee structure was relatively complicated and Mr Wilkins would want to know why such a structure had to be adopted. I am satisfied that Mr Wilkins acted at all times in what he considered to be Oxus best interests, which created problems for him in giving his evidence.

Mr Steele made no notes of his own of the kind that Mr Wilkins did but relied extensively on those notes in his evidence. Where his evidence accorded with the documents I had no difficulty in accepting it but there were occasions where he gave evidence under cross examination of matters which were not in his statement, and which were not recorded in documents where it might be expected they would be. The major area where I was unable to accept what he had to say related to the “Gentleman’s Agreement” which he denied in its entirety and the sequence of events which led to the writing of the 9 July letter on 27 June. I am satisfied that in these particular areas the evidence of Mr Warrender and Mr Wilkins is to be preferred and that Mr Steele did not wish to accept that he had been privy to a post-dated document nor to a form of commitment which was not disclosed in the IPO, but which arguably ought to have been.

Mr Brunswick’s evidence accorded much more with what I would have expected, in the sense that it was based on broad areas of recollection rather than details of meetings or conversations, although he had plainly studied the documents. I was unable to accept what he said about failing to notice the post-dating on the 9 July letter but I otherwise found his evidence, for the most part, convincing.

I found Mr Higgins’ evidence under cross examination of little assistance because he was plainly not well at the time of giving that evidence and had very little actual recollection. In consequence his oral evidence bore little relationship to his statement which had plainly been drafted for him by reference to the documents and, in this context, I found the documents the more reliable guide.

A number of further factors influenced me in reaching my conclusions. Mr Wilkins and Mr Steele were friends and both were in highly influential positions in their respective organisations. There was an element of trust between them despite the primary pursuit by each of his own business interests. Agreements between them were more readily made and less adequately documented than might have been the case in other circumstances. Each felt able to “carry” his respective organisation. A further factor was Oxus’ shortage of cash at all material times. This was a highly influential factor in Oxus’ decisions both with regard to the issue of warrants and with regard to the pursuit of less expensive financing. Another element in the equation was the investment made by companies in the Knox D’Arcy Group in Oxus and Mr Steele’s desire for Oxus to succeed in order that the investment should be successful. This factor is self-evidently of importance in the context of the allegations made against Templeton in relation to the loss and expense incurred in pursuing a Financial Guarantee from Hermes which ultimately proved unsuccessful. When dealing with College Hill, Templeton’s interests were virtually co-extensive with those of Oxus and there was no reason to hide anything from Oxus when seeking to obtain the Guarantee on Hermes paper.

As a result of their university friendship and occasional meetings since, Mr Steele and Mr Wilkins would discuss their respective businesses and sometime in 1999 Mr Steele introduced Mr Wilkins and ORC’s Chief Executive, Mr Turner, to potential business contacts in South Africa. Although there is a dispute about the role played by Mr Steele, what matters for present purposes is that KDIL itself, a director (Mr Brunswick) and some of its employees became shareholders in ORC at some time during late 1999 or early 2000. The shares bought by the employees were all held in Mr Brunswick’s name, as trustee, and were dealt with by Oxus thereafter as being part of the KDIL shareholding. ORC’s intention was always to raise cash by way of an initial public offering (IPO) which was scheduled for the first quarter of 2001. By its very nature, any investment in a mining company of this kind was speculative and a large outlay was involved in the feasibility studies for the most forward project, the Amantaytau Project, and in the actual excavations. Initial costs were therefore high, before any revenue appeared. In consequence, as with many mining companies, there was a constant need for further funding in the period before any gold was poured.

Thus it was, that towards the end of 2000, ORC was looking for financing to carry it through until the IPO which was scheduled to take place in 2001. The plan was to float a new company, PLC which would hold the shares in ORC with the shareholders in ORC exchanging their shares for holdings in PLC.

In order to raise money in the interim, ORC approached existing shareholders, including KDIL inviting them to exercise warrants, which had been issued with their shares, at a discount from the exercise price of $1.20. The discount offered was 20 cents per share under an offer which expired on 21 December 2000. KDIL wished to take up the offer on the basis that it would be able to sell its shares in the IPO, which was then apparently anticipated to occur during the first quarter of 2001. ORC was looking both for extra cash and to tidy up its balance sheet before the flotation. Mr Steele’s evidence was that he was told by Mr Wilkins that the requirement was for short term bridging finance until the flotation in the first quarter of 2001 and that he was led to believe that the listing price would be in excess of the $1 warrants exercise price and nearer to a valuation by DWA Capital of $2.52, to which I refer later in this judgment. Thus, if the KDIL shares were sold into the IPO at the listing price, short term financing would result in a clear profit.

It was in these circumstances that the CEO of ORC, Mr Turner, wrote a letter date 20 December 2000 to Mr Brunswick at KDIL in the following terms:-

“Ken Taylor has discussed with me your request regarding the exercise of your Purchase Warrants at US$1.00 per share under our Offer which expires on 21 December 2000.

We have had discussions with our brokers, Old Mutual Securities, about including a small parcel of shares, owned by executive directors, for sale in the IPO. The rationale for this is that we financed Oxus at critical times over the past two years from personal funds and require repayment of some of these funds through the sale of a number of shares. All other shares of the executive directors will be subject to a 12 month hold on completion of the IPO. Old Mutual Securities has agreed with such a sale in principle and we intend to negotiate with them in January 2001 the appropriate terms of which the shares will be sold in our planned IPO.

Should you exercise the 597,372 Purchase Warrants under the current Offer before 21 December 2000, we hereby grant you the Option to include the shares held by yourselves, and by those private individuals introduced by yourselves, in the parcel of shares to be placed as part of the IPO.

We believe this approach should provide you with a suitable arrangement to sell the shares in our planned IPO should you elect to do so under this Option.”

(The reference to “the private individuals introduced by KDIL” was a reference to Mr Brunswick and the KDIL employees who had invested in ORC.)

I heard evidence from Mr Venables of OM and from Mr Wilkins who, with Mr Turner, had been involved in discussions with Mr Venables with regard to the possibility of the directors selling some of their shares into the IPO and thus obtaining reimbursement for significant sums invested in the past. The evidence of Mr Venables was that he had discussions in December 2000 with representatives of ORC about the sale of directors’ shares. He did not agree in principle to allow any sale but indicated that OM could be well disposed to the sale of a small parcel, depending on the circumstances at the time of the IPO, since the ability to carry such a sale was dependent on market conditions. He said that he was clear in saying that the position would have to be reviewed nearer the time. He was never shown the letter of 20 December 2000 and was surprised when he saw it in the context of this litigation. He said that he would clearly have needed to consider it with lawyers, had he seen it at the time.

In fact, market conditions were not good in the first half of 2001 and the IPO was delayed until July (from the first quarter). In the preceding months Mr Venables had been telling management that it would be very difficult to include such a share sale, in order to let them down gently. By about May such a sale appeared to him to be impossible because there was difficulty in obtaining full subscription for the shares to be issued and a sale of directors’ shares into the IPO would absorb some of the cash which Oxus wished to raise. Furthermore, an additional parcel on sale by directors and earlier investors would demonstrate a lack of confidence which would impact upon potential purchasers, as well as putting more shares on the market when there was perceived difficulty in obtaining subscriptions for the new shares to be issued.

Mr Wilkins’ evidence was that he and Mr Turner had earlier conversations with Mr Venables (in particular) at OM and understood him to be well disposed to the idea of a sale of directors’ shares in the IPO although it was obviously subject to market conditions at the time. He said that Mr Steele and Mr Brunswick must have understood that a sale into the IPO would only be possible if market conditions allowed, as this would be obvious to anyone with any commercial experience. They must, he said, have understood that any sale of this kind would be dependent upon the state of the market at the time and the recommendation of the brokers.

The third and fourth paragraphs of the letter of 20 December 2000 appear, nonetheless, to give, on their face, a clear option to include the shares held by KDIL and individuals introduced by it (the KDIL shares) in the directors’ parcel of shares which was to be placed as part of the IPO. On the face of it, no barriers to such a sale were expressed to exist since OM “has agreed with such a sale in principle” and the expressed intention was to negotiate the terms upon which such a sale would take place. There was no reference to any need for OM to approve such a sale, before it took place, or to such a sale being subject to OM’s view of the market conditions applicable at the time. OM were, of course, brokers, whose duty was to advise and accept instructions from Oxus, although it was always open to it to refuse to act, as a last resort, if its advice was not accepted. Although, therefore, Mr Steele and Mr Brunswick would have appreciated that market conditions could impact upon the possibility or viability of such a sale, the letter, on its face, purported to grant a valuable right which was not expressed to be subject to any further conditions at all, save the need for an agreement between the ORC directors and OM as to the detailed terms upon which the shares would be sold in the IPO, such terms then being applicable to the KDIL shares also. This was Mr Steele’s and Mr Brunswick’s approach, whilst recognising that the letter could be read in more than one way.

The letter of 20 December was known to Mr Turner as its author, Mr Wilkins as the Company Secretary and Mr Taylor as the Financial Director at that time. Mr de Villiers, who joined ORC in May 2001 to assist in the flotation and became Financial Director on 4 July, said that he never saw the letter until it was shown to him in the course of these proceedings. Although Mr Wilkins expressed surprise that Mr Warrender, a non-Executive Director knew nothing about this letter, he said that it would have been unusual to have copied it to non-Executive Directors. I conclude that no director other than the three mentioned at the beginning of this paragraph would have become aware of it before the time when issues arose in relation to it in the summer of 2001.

Mr Steele’s evidence was that the letter was the subject of assurances given by Mr Wilkins on the telephone, following its receipt by him. Mr Steele was troubled by the possibility of the directors being unable to sell their shares into the IPO because of “lock in” provisions which brokers frequently recommend. He appreciated that there was lack of clarity as to whether the KDIL parcel of shares was being tied in to directors’ shares in such a way as to prevent KDIL selling into the IPO if the directors did not sell shares themselves. He had previously been told that other investors would be realising their investments. His concern centred on the reference to a “parcel of shares” in the third paragraph and whether that was a reference to the directors’ parcel or referred to a free- standing parcel. He said that he was told by Mr Wilkins to focus on the grant of the option given in the third paragraph and not on the wording of the second paragraph, saying that KDIL would be able to exit in the IPO. This specific assurance was not mentioned in Mr Steele’s witness statement, was not mentioned in the pleadings and was not documented by him or Mr Brunswick. Mr Brunswick had no recollection of any conversation with Mr Steele on this subject, which does not suggest that any important concession was made by Mr Wilkins in relation to the letter. Nor does it appear to have been expressly mentioned to Mr Goodworth of Theodore Goddard (TG) when seeking advice on the letter. Whilst I accept that this letter must have been the subject of some discussion between Mr Steele and Mr Wilkins, designed to give the former some reassurance, because of their close relationship and because the purpose of the letter was to document some commitment on the part of Oxus on which Mr Steele was intended to rely, I do not find that anything was said which could affect the construction of the letter, since such a conversation would be likely to have resulted in changed wording in a replacement letter. For present purposes, however, it matters not exactly what was said.

Before this additional investment by KDIL in the sum of just under $600,000 in December 2000, an analyst at DWA Capital, a corporate finance and investor relations adviser with a focus on natural resources, had prepared a report and valuation of ORC’s business following a visit to the company’s operations in Uzbekistan. Prior to a reorganisation and share split, DWA Capital valued the company at $2.52 per share and Mr Steele had been told this when being asked to exercise the KDIL warrants.

In the run up to the IPO in the spring of 2001 however and following the group reorganisation, the business of ORC was assessed by OM’s resource analyst who reached startlingly different conclusions and concluded that a range of around 35p (about 99c) per share was a more appropriate valuation, particularly given a backdrop of increasingly difficult market conditions for gold mining companies in 2001, as he saw it. Mr Steele considered that the OM valuation was badly wrong and gave OM his detailed views about it at a meeting in May. Mr Brunswick’s view was similar. He had been expecting a flotation price of about 70p. Both considered that such a low listing price would result in loss of confidence by existing investors and Mr Steele thought that the price would drop to about 20p in 2 months. In fact, the listed price was ultimately 30p but even this quickly fell throughout July so that it was just under 15p on 26 July, a little less on the 8 and 9 August and under 8p on 26 November 2001.

In my judgment, it is unsurprising that Mr Steele, having been asked for short term finance, considered that he had legitimate cause for complaint when he was told in 2001 by Oxus that it would not be possible for the KDIL shares to be sold in the IPO although, in practice, by reason of the market conditions, the sale by the directors and others into the IPO appears not have been feasible because the IPO nearly failed for lack of enough subscribers. Moreover Mr Steele would not have wanted to sell the shares at the price at which the shares opened on the AIM on 4 July 2001, as this was only 30p. This was less than KDIL had paid on converting the warrants into shares in December 2000.

It was this question of pricing (in addition to the issue of the timing of the flotation) and what he saw as Oxus’ supine acceptance of OM’s recommendations on it, which also gave rise to Mr Steele’s other major complaint. He felt that he and KDIL had been misled into investing further funds in December 2000 on both fronts.

Mr Steele strongly disagreed with OM’s valuation and the methodology behind it and felt that OM should be putting forward a higher valuation which would present a stronger message to investors. Moreover Mr Steele made it clear to OM that he wanted a return on his investment, although the exact terms in which he made this plain was a matter of dispute. He made his position plain to Oxus however, with threats of litigation in May or June.

On 22 February 2001, after Mr Wilkins had told Mr Steele of the position, not only did Mr Steele complain but KDIL, in the person of Mr Brunswick, wrote to Mr Turner complaining at what he understood to be the contemplated delay in the IPO until some time in the summer, having been told, as he said, at the time when KDIL had invested additional capital in December 2000 that the IPO would take place prior to the end of the first quarter of 2001. In May 2001 Mr Steele and Mr Wilkins corresponded concerning the DWA valuation, as compared with the OM valuation and Mr Steele’s view that a significant part of the assets of ORC had been left out of account in the latter. It seems that Mr Wilkins himself did not really disagree with Mr Steele’s view and he, of course, was disappointed that he also could not sell some of his shares in the IPO, let alone make a profit in doing so.

At all events, a diary note of Mr Wilkins of 9^th May 2001 refers to a telephone conversation with Mr Steele in which the latter had said that he was “at best disappointed, at worst conned” in relation to the proposed listing price which at that stage was being discussed at 90c-$1. I am satisfied that Mr Steele was at this point not only complaining, but stating that he was minded to exercise his option entitlement under the 20 December letter.

It was in this context that a meeting was held on 16 May 2001 between Mr Steele, Mr Wilkins, Mr Venables, OM’s mining analyst and others at OM’s offices. Mr Venables had prior telephone conversations with Mr Steele but, in his evidence, maintained that he only ever met with him on this one occasion when Mr Steele put his complaints about the low projected IPO price, the lack of market testing and the differing valuations. Although Mr Venables said in evidence that Mr Steele made it clear that he wanted a return on his investment and was unhappy with what he saw as the diminished return that OM’s valuation would give him, he said that this was not put in the context of Mr Steele talking of realising his investment in the IPO. It was all about wanting to see some progression between the investment price and the IPO price, when in fact there had been a decline. Mr Venables said that Mr Steele was threatening and said that he would consult his lawyers with the implied threat of litigation, which he took to be a suit against OM for negligent valuation. He got the impression that if OM did not revise the valuation Mr Steele would take steps which might have an impact on marketing the IPO.

Mr Wilkins was clear in his evidence that no threats of this kind were made at the meeting on 16 May at all and that Mr Venables must have been confusing this meeting with a later meeting in June, which he thought Mr Venables had attended. At the May meeting Mr Steele had suggested that existing shareholders should be compensated for the element of non-recognised value in the OM pricing by the issue of warrants to compensate. Neither he nor Mr Venables had any recollection of Mr Steele saying at that meeting that KDIL wanted to sell shares in the IPO in accordance with the December 2000 Agreement. A threat of litigation does not fit with this evidence.

Mr Steele’s evidence was that he discussed with the OM personnel the issue of valuation in detail and suggested that, if they were leaving out of account assets of the group which had been taken into account in the DWA valuation, then warrants should be issued to all existing shareholders in respect of them, thus enabling them to participate in the value of those projects which were effectively being considered as worthless. OM rejected that proposal. Mr Steele maintained that he told those present that KDIL would want to sell its shares in Oxus when the listing took place in accordance with the option given to him and expected the price to drop following listing because of the loss of confidence among existing shareholders. He said in evidence that he did not threaten litigation at this meeting and would not have considered suing OM for a valuation of this kind. He considered that the OM personnel appeared unaccustomed to detailed questioning of their valuation and the reasoning, or lack of it, that lay behind their assessment.

I conclude, as did Mr Wilkins, that Mr Venables was right in saying that he only met with Mr Steele once but was confused about any threats of litigation. None were made at that meeting in respect of the option letter, nor in respect of the valuation itself, though Mr Venables may have felt defensive and feared suit as a result of the persistent questioning of OM’s judgment by Mr Steele.

By the 12 June 2001, it is clear from Mr Wilkins’ diary note and inter solicitor correspondence that Mr Goodworth of KDIL’s lawyers, Theodore Goddard (TG) had been in touch with Mr Smith of ORC’s lawyers, Cameron McKenna (CMcK) about the enforceability of the 20 December 2000 letter, so that Mr Steele had plainly made his complaints clearly known to Oxus by then, and was relying on the December letter. I conclude that he was also threatening legal action. Litigation had been mentioned and compensation was being sought in warrants or cash in relation to the December letter instead of the suggestion of warrants which reflected the unrecognised value in OM’s pricing (which would be issued to all shareholders). Mr Brunswick’s evidence was that Oxus had made a promise that it could not keep and KDIL was seeking compensation for that and adopting a negotiating stance for that purpose.

KDIL has waived privilege in respect of an email from Mr Goodworth in which he advised that there was a strong case that ORC had granted an enforceable option to KDIL and had, by the letter, represented that there would be a sale of directors’ shares to which KDIL could add its parcel. He said that there were other facts and in particular conversations between Mr Steele and the directors which would have to be considered in order fully to evaluate the strength of any case that KDIL might have, but that in the time available, definitive advice was not possible. He said he could not comment on the adequacy of any disclosures in documentation issued by Oxus “in connection with the float” but went on to say that he thought that there was sufficient evidence of ORC being under some form of obligation to KDIL for it to be able to entertain the notion of closing a deal, presumably based on the arguable validity of those obligations. It appears that what he had in mind was the possibility of some settlement of the dispute, which, I find, reflected KDIL’s stance in seeking compensation.

Although it was suggested by Oxus that Mr Steele had no bona fide belief in the claim he was maintaining, I find that he not only felt he had a genuine grievance, but that he had a good argument to make on the letter of December 20, although it was not a clear cut case. Although it might not wish to sell into the IPO because of the price and the potential impact on the flotation’s success, KDIL adopted this negotiating position.

Meetings took place on 13 and 14 June, the details of which are much disputed, although it is accepted by both parties that some arrangement was made between them, which defused the risk of litigation and consequent derailment of the IPO, thus enabling OM to float PLC on the AIM. There are differences between the parties as to the dates and personnel present at particular meetings and as to exactly what was said on those occasions. The main disputed point is whether or not the end result was a “Gentleman’s Agreement” or an enforceable contract between Mr Steele, acting for KDIL and Mr Warrender and Mr Wilkins (and possibly others) acting on behalf of Oxus.

It is clear that there was a meeting on the evening of 13 June. Mr Wilkins’ diary refers to an appointment with Mr Steele at the Royal Ocean Racing Club, a venue where they frequently met and discussed matters over a drink. Mr Wilkins’ evidence was that he and Mr Turner met Mr Steele there without any other persons being present and that there was an argument about compensation to be given in the form of warrants for ORC rėneging on the obligations set out in the 20 December 2000 letter. Mr Steele was being “tough” and Mr Turner got argumentative. There was no agreement. At the end of the day Mr Steele refused to come to a meeting at OM’s offices that had been arranged for 9 o’clock the following day with some of ORC’s directors. He told Mr Wilkins that he had better “sort it out”, as he wanted his warrants. In consequence, according to Mr Wilkins, he went to OM’s offices the next day and confirmed to OM and other directors that there was a problem with Mr Steele who had refused to attend the meeting. The brokers said that matters had to be resolved with Mr Steele and so he was called and came over to join the meeting a little later than planned, at about 10:30am.

On Mr Wilkins’ evidence it was at that meeting on the morning of the 14 June, with the brokers present, that Mr Steele said that he wanted approximately 3 million warrants, exercisable in the period of 3½-5 years at the IPO price in exchange for which KDIL would waive its rights under the “option” to sell shares in the IPO, that KDIL would participate in the IPO and its lawyers, TG would draft the relevant documents. That was not something to which Oxus could or did agree at the meeting. There was argument as to the enforceability of the 20 December letter and the conflicting advice that each had obtained on it from its own solicitors. Mr Steele had said that the matter could be tested by going to the court to seek a quick declaration but Mr Wilkins himself had said that, if this course was followed, that would be the end of the flotation.

Mr Wilkins said that, after Mr Steele had left, OM expressed concern that if warrants were to be issued, or any agreement made to issue them there would have to be disclosure in the prospectus. Equally any litigation or threat of litigation would also have to be disclosed and the material uncertainty would result in the IPO not closing at all. Thus neither the issue of warrants nor an agreement to issue warrants, nor litigation, nor threat thereof, was acceptable to Oxus. OM insisted that the matter had to be resolved with Mr Steele and KDIL urgently if the IPO was to proceed. Mr Wilkins thought that Mr Venables had been present throughout the whole proceedings that morning but that the advice given by him was given after Mr Steele had left. It is to this advice, on this occasion, that Mr Venables’ evidence of what he said occurred on 16 May must relate. On cross-examination Mr Wilkins was unsure whether or not Mr Venables was present when the argument ensued with Mr Steele as to the enforceability and the conflicting legal advice obtained by the proponents of the different views on 20 December 2000 letter.

In the light of Mr Venables’ evidence and that of Mr Steele, I conclude that the meeting that day with Mr Steele, although at OM’s offices, took place in the room which had been allocated to Oxus and that the brokers were not present, but gave advice afterwards to Oxus. Mr Venables confused his meeting with Mr Steele in May when he felt under attack, with the later meeting he had with the Oxus directors when he heard of Mr Steele’s threat to sue and then gave his advice as to what had to be done to avert the aborting of the IPO.

In consequence of the brokers’ advice, according to Mr Wilkins, it appeared to the ORC Board that Mr Steele was threatening to derail the IPO in circumstances where ORC needed to raise cash urgently. In the light of OM’s advice that the problem had to be resolved, it was decided to send a senior delegation of the Board with an external investor who had some common interest with Mr Steele, to see him. Thus Mr Warrender, who was an independent non-Executive Director, and Mr Cooper went with Mr Wilkins and Mr Michaels (the investor) to see him that afternoon with the object of coaxing him out of “derailing the IPO”.

At that meeting according to Mr Wilkins, Mr Steele made it plain that if he was to support the IPO, that is by not litigating over the 20 December letter, Oxus had to issue him with further warrants. According to Mr Wilkins, “Mr Steele was told, rather reluctantly, that KDIL could be accommodated after the IPO but only in the context of a transaction in which KDIL provided proper consideration for the issue of warrants. In other words Mr Steele was told that the only way in which Oxus would issue warrants to him or KDIL was in return for future value and not on the basis, as Mr Steele asserted, of compensation for Oxus’ alleged refusal to allow KDIL to exercise its option”. Mr Steele was told that all the company could do was to sit down with him after the IPO and consider any proposal that he might have for a transaction that would provide value to the company and for which the compensation could include warrants or options. Mr Steele floated the idea of 3 million warrants or options but no number was agreed. No specifics were discussed or agreed because even Mr Steele did not know what type of transaction he would be able to present.

By the end of the meeting, Mr Wilkins’ evidence was that a “Gentleman’s Agreement” or understanding had been reached with Mr Steele that Oxus would sit down with him, after the IPO, to discuss a commercial transaction between Oxus and KDIL, on the basis that KDIL would provide proper consideration for the issue of warrants or options. On that basis Mr Steele agreed to drop his threat of litigation. It was then incumbent on Mr Steele to come back after the IPO with a proposal. Mr Wilkins considered that Mr Steele accepted this understanding and shook hands with Mr Warrender on it. At one point in the meeting, Mr Steele left the meeting to consult Mr Brunswick before returning.

Mr Wilkins’ diary entry for 10:30am on 14 June refers to a meeting with OM and KDIL which appears to set out Mr Steele’s position, as put forward in Mr Wilkins’ evidence. As with much else in Mr Wilkins’ evidence, he had based his testimony on his diary entries, having, unsurprisingly, limited detailed recollection of events in 2001. Other entries appear to show the advice given by brokers or solicitors or discussions amongst the directors that afternoon. There is no entry in respect of the meeting with Mr Steele in the afternoon because according to Mr Wilkins, he chose not to make any note, contrary to his usual practice of noting matters of importance. That in itself is significant.

Mr Warrender’s evidence was that he only met Mr Steele once and that this occurred at a meeting on 14 June in the afternoon. He had attended meetings in the morning at OM with various advisers to Oxus where he was told that Mr Steele claimed he had an agreement with Oxus whereby he could sell shares into the IPO if he wished. He said he was unaware of the letter of 20 December 2000, but it seems to me inherently unlikely that he did not ask to see it, as it was the source of the dispute. Because Mr Venables said that Mr Steele had to be persuaded to drop his claim and his threat to sue Oxus in order for the IPO to go ahead, he, Mr Wilkins, Mr Cooper and Mr Michaels went to see Mr Steele. Mr Venables had made it plain that OM would not proceed with the IPO, if Oxus granted Mr Steele warrants or any compensation in return for dropping the claim, and that the existence of the claim was material and would have to be disclosed if the matter was not resolved.

Mr Warrender said he was not concerned with the rights and wrongs of the claim, although he was told that Oxus’ Executive Directors did not believe that Mr Steele or KDIL had any right to sell stock into the IPO. He was concerned merely to persuade Mr Steele that it was in his best interests, as well as the rest of them, for the IPO to proceed and that he should therefore do nothing to prevent that happening.

At the meeting that afternoon, Mr Steele complained about Oxus and its mistreatment of him, saying that he had a right to sell shares into the IPO and that Oxus was rėneging on its obligations by not allowing him to do this or offering compensation. At the meeting Mr Steele maintained that some directors had agreed the previous evening that his company could have 3 million warrants for exercise at the IPO price, in order to defuse his threats to litigate. The delegation explained to Mr Steele that neither the brokers nor lawyers would permit Oxus to allow KDIL to sell into the IPO nor to offer him compensation for not being able to do so. He, Mr Warrender, raised the question of providing future financial services as potential consideration for the issuing of warrants after the IPO. Mr Steele said that, in the future, he could help Oxus in raising finance for the Amantaytau Project or other purposes, in exchange for warrants. It was accepted that if KDIL was able to assist Oxus in raising finance, then Oxus would be able to reward it by the issue of warrants if the compensation was reasonable in relation to the value of services supplied. There was no discussion about the precise nature of the services to be provided though Mr Steele mentioned figures of 3 million and 5 million warrants. There was no possibility of any agreement being made before the IPO and so the only commitment could be to continue discussions after it. Mr Wilkins asked Mr Steele to accept the word of the directors present that Oxus would deal with him in good faith in the future but Mr Steele questioned the integrity of Oxus’ management in the light of what had occurred in relation to the 20 December letter. Mr Steele was invited by Mr Warrender to check on his integrity by calling a mutual friend.

On this version of events, Mr Steele left the room and returned several minutes later and after a repetition of the parties’ positions eventually relented and agreed that if negotiations could take place with the involvement of Oxus’ non-Executive Directors as to a future agreement under which KDIL would provide services to Oxus in return for a fee of 5 million warrants, he would back down on litigating against Oxus and discussions could recommence after the IPO. It was again made plain that the services to be provided would have to be prospective in nature and “worth” the number of warrants to be earned, to the satisfaction of Oxus Board. Mr Steele agreed and he and Mr Warrender then shook hands, thus concluding a “Gentleman’s Agreement” to negotiate in good faith after the IPO as to how KDIL might be able to help Oxus raise financing, or to provide other financial services, for compensation which might include as many as 5 million warrants.

Mr Steele’s evidence was that the idea of compromising the 20 December letter dispute by issuing warrants was discussed between him and Mr Michaels and Mr Wilkins in two separate telephone conversations on the evening of 12 June. This is supported by diary entries of Mr Wilkins. He then met Mr Wilkins, Mr Warrender and Mr Cooper, together with Mr Michaels at his offices at St James’s Place on 13 June. He was told by Mr Wilkins that Oxus’ solicitors had advised that the 20 December letter did not give rise to any enforceable obligations.

There was discussion about the validity of the December 2000 letter Agreement with each side maintaining that its position was supported by legal advice. It was, therefore, at that meeting that Mr Steele pointed out that the only way to test the matter was by applying to the court for a declaration which he felt could be done quickly. Mr Wilkins said that if this was done, OM would abandon the listing due to the uncertainty it would create. OM was not prepared to allow KDIL to sell into the IPO and if KDIL insisted, the IPO might fail. Further, any litigation would derail the IPO. An immediate solution was required because there was a risk of ORC failing in the intervening period if listing was delayed. Nothing was said about the impossibility of offering any compensation in respect of the 20 December letter.

Mr Steele testified that he was surprised at what was being said, because it strengthened his negotiating position. He had not only the 20 December letter but the knowledge that Oxus was short of cash and could not afford not to proceed with the IPO which he was in a position to derail. Having previously discussed warrants for the unvalued part of Oxus’ assets, and having agreed with Mr Brunswick prior to the meeting that a deal could be done with warrants, it was his recollection that it was proposed and agreed at that meeting that KDIL be issued with 3 million warrants to be issued in the IPO, at the IPO price, in exchange for waiving its rights under the December 2000 letter. He recalled leaving the meeting to enable the ORC Directors and Mr Michaels to discuss the position and so he could consult with Mr Brunswick, which he did. After about half an hour the meeting re-formed and the ORC Directors said they were prepared to agree to the proposal and Mr Steele said he would instruct TG to prepare the appropriate paperwork the next day. Because, during the meeting, Mr Wilkins had indicated that the ORC Board was meeting OM the following day, Mr Steele said that he would want to attend that meeting, to which the ORC Directors had no objection.

Mr Warrender and Mr Michaels had been present and were seeking to broker a solution. There was brief talk about working together in the future but nothing specific in relation to Oxus’ financing needs. He was invited to check on Mr Warrender’s trustworthiness by calling a mutual acquaintance which he did subsequently, but not at the time.

There is a note from a secretary at TG timed at 10 o’clock on Thursday 14 June which relates a message left by Mr Steele for Mr Goodworth. This reads as follows:-

“Had a session with the board of Oxford last night they have agreed to award to 3m warrants with a five year life at the issue price. I am going round now to Old Mutual to tell them I have agreed with Oxus that SNG will draft three documents:

1.

one paragraph of approx four lines to go in the prospectus disclosing that (i) that we are waiving our entitlement to the option (ii) in consideration for this the company will be granting us 3m five year warrants.

2.

SNG will again draft one paragraph (probably identical wording) to go in the letter to placees.

3.

A document of undertaking from the company to us specifying the obligations to issue the warrants.

If you could draft numbers 1 and 2 ASAP and give me a call on his mobile ASAP

He will fill you in. Oxus are waiting outside to go across in Old Mutual. Waiting for your call.

No need to come to meeting at 12.00”

This contemporaneous note shows clearly, unless Mr Steele was for purposes unknown, deliberately misleading his solicitors, that he had met with some Directors of Oxus the previous evening and thought there was a agreement between them which required formal documentation. He was on his way to OM for the meeting on 14 June in order to tell them that TG was drafting documentation. The priority, as appears from that note, was the material to go into the prospectus and the letter to placees, which would have been of concern to OM for the IPO, whilst the undertaking to issue shares could be documented with less urgency. The wording of the former documents would presumably have to be agreed with OM, but, given the timing and content of the message, that wording was not available for the morning meeting.

This note is of significance in my judgment in reinforcing Mr Steele’s evidence that he had met with at least one director on the evening of 13 June. The note is compelling contemporaneous evidence of an agreement being reached on the terms set out in the note and I find that such an agreement was reached. What is equally significant however, is that none of the specific documents referred to in that note was ever circulated by TG to anybody and there has to be good reason for that. For reasons which appear later in this judgment, I find that Mr Warrender, who said he only met Mr Steele once, was not at the meeting and that it was attended by Mr Wilkins, Mr Michaels and probably Mr Cooper, a non executive director.

On Mr Steele’s evidence, he went to the meeting on the morning of 14 June in order to ensure that Mr Turner, who had not been present the previous evening, and the other directors agreed to the deal. Mr Steele had some history of disagreement with Mr Turner, whom he met on a number of occasions when he had raised his claim to be entitled to sell into the IPO. Because of such past clashes, Mr Turner had not been in the delegation which met him the previous evening. Other directors may have been present on 14 December also. He did not meet Mr Venables there. At that meeting Mr Wilkins and Mr Steele explained the arrangement that had been reached the previous night. It appeared clear to him that the other directors present had already been briefed by Mr Wilkins and they confirmed the agreement. Mr Turner was persuaded that 3 million warrants was the best solution to the dispute given the need to proceed with the IPO. Mr Steele maintained that Mr Wilkins then asked him whether KDIL would be prepared to subscribe further in the placing and he indicated that, provided the documents he required were issued, he thought that KDIL would be prepared to make a further investment of this kind. Mr Wilkins’ note of the meeting on the morning of the 14 December is consistent with this, particularly at it refers to further investment by KDIL, albeit of $500,000, as compared with Mr Steele’s recollection of £100,000.

Mr Steele gave evidence of a telephone conversation with Mr Goodworth after the meeting, in which Mr Goodworth advised that a Warrants Deed should be drafted, rather than an undertaking. There is evidence that TG commenced drafting a Warrants deed on 14 June, as a draft Warrants Deed appears in the trial bundle where the first page is dated 14 June 2001. Although Mr Steele gave evidence that this was forwarded on the evening of 15 June, there is no other evidence of this and I conclude that he was wrong about that.

Mr Steele said that there had been no meeting of the kind suggested by Mr Wilkins on 13 June with him and Mr Turner. There had equally been no meeting on the afternoon of the 14 June with the delegation which included Mr Michaels and Mr Warrender and there was no “Gentleman’s Agreement” of the kind to which Mr Warrender and Mr Wilkins testified. There was no discussion of 5 million warrants, as Mr Warrender had said in his evidence, and there was no understanding reached that, because of the flotation, he should trust them to sit down after the IPO and negotiate a deal which would include warrants for value to be given by KDIL. Given his negotiating position, Mr Steele maintained that none of that would make any sense to him.

To the contrary, he maintained that there was a binding agreement reached on the morning of 14 June, and that Mr Goodworth then drafted a warrants deed after suggesting that this was better than an undertaking. He told Mr Wilkins thereafter that a deed would be sent to him, whilst Mr Wilkins took it upon himself to deal with the prospectus wording and the letter to placees. Thereafter, according to his statement, Mr Steele chased Mr Wilkins who was stalling on the issue of the Warrants Deed. In cross examination, he accepted that under the agreement reached, the Deed was to be issued as part of the IPO at the IPO price, but that he was chasing for approval of the document. There is no evidence of such chasing, just as there is no evidence of the draft deed being sent at this stage.

I conclude that Mr Steele’s evidence is correct in relation to the events of 12 and 13 June, largely because it is supported by the documents, in particular the solicitors’ secretary’s note and Mr Wilkins’ diary entries for June 12 and 13. Although Mr Wilkins’ appointments diary referred to a projected meeting at the Royal Ocean Racing Club, the separate diary, in which he made notes or recorded events as, or after, they occurred, does contain a reference to a meeting with Mr Steele and Mr Andre Michaels. Moreover the close relationship between Mr Steele and Mr Wilkins suggests the likelihood of them seeking to sort matters out between them, with the aid of a man such as Mr Michaels who was known to sympathise with Mr Steele’s complaint both over the pricing of shares in the listing and the difficulty in realising the investment made in December 2000, before seeking the agreement of the ORC Board.

As to events on 14 June, I accept Mr Steele’s evidence as to what occurred in the morning at OM’s offices. Mr Wilkins’ diary note records not what Mr Wilkins demanded but, as might be expected, the end result of that meeting, namely an agreement, to which Mr Turner assented, for the supply of 3 million warrants at the IPO price in consideration for KDIL giving up its rights under the 20 December letter. The reference to TG providing the first draft of the documents is only sensible in this context. Although there was dispute as to how much Mr Steele had said he was prepared to invest, the reference to that, again, only makes sense as something which was part of the deal, not as a demand made by Mr Steele. As Mr Goodworth’s advice had pointed out, there was enough to be said in favour of an obligation for Oxus to feel justified in making a deal and it did so by agreeing to issue KDIL with warrants in the IPO, instead of allowing a sale by KDIL in the IPO. The 20 December letter claim was thus compromised, Mr Steele agreed to invest further funds, if necessary, and 3 million warrants were to be issued to KDIL.

Having made this agreement however, the ORC directors were then told, in terms, by OM that warrants could not be issued in the IPO and that an agreement to issue warrants was disclosable, as was any claim to warrants or litigation in respect of them.

As to the rest of the day, I broadly accept the evidence of Mr Wilkins and Mr Warrender, with some qualification, because it is the only sensible explanation for what occurred thereafter. In particular:

It appears from a diary note of Mr Wilkins dated 21 June that he called Mr Steele that day about an investment of £100,000, which I find is the basis for Mr Steele’s evidence that this was the figure he discussed on 14 June. This was however overtaken by other events the next day. At about lunchtime on Friday 22 June, Mr Wilkins heard that a prospective investor had pulled out of investing in the IPO, thus leaving a shortfall of about £500,000 in the projected IPO subscriptions. That evening he and Mr Steele met at the Royal Ocean Racing Club. Although Mr Steele’s evidence was that he asked Mr Wilkins where the Warrants Deed was and asked him for copies of the proofs of the prospectus in order to ensure that proper disclosure of the promised warrants had been made, I reject that because of my earlier findings on the “Gentleman’s Agreement”. Mr Wilkins’ evidence was that he was embarrassed, following the “Gentleman’s Agreement”, to be asking Mr Steele for a further investment in Oxus to help make up the shortfall, but he did so and Mr Steele indicated that he would be prepared for KDIL to invest up to a figure of £250,000, provided other shareholders were also willing to help in order to make good the deficit.

A note of Mr Warrender’s dated 22 June, about which he and Mr Wilkins said they could remember little, shows that they conversed about the shortfall and that the latter had talked to Mr Steele. In my judgment, it is clear from the note that the idea of Mr Steele nominating a director, of being given options and of a further investment of between £100,000 and £300,000 were discussed. I conclude that these matters were therefore also discussed between Mr Wilkins and Mr Steele on 22 June as a means of providing Mr Steele with the warrants which were the subject of the “Gentleman’s Agreement” or, at least, that there was discussion between Mr Wilkins and Mr Warrender about an offer to be made to Mr Steele along those lines.

It is common ground between Mr Wilkins and Mr Steele that they spoke again on the telephone at the beginning of the following week, Monday 25 June 2001 in relation to the further investment that KDIL might make. In that conversation Mr Wilkins, having spent the weekend seeking to raise further sums by way of subscription from existing investors, asked Mr Steele for a further investment of £175,000 which would make good the deficit, when taken together with other shareholders’ contributions. Mr Steele maintains that he was asked about the further investment of which he had given indication on 14 June but said that he wanted the Warrants Deed and was fed up with being strung along. His evidence was that he told Mr Wilkins that unless he was to see the Warrants Deed, he would have to ask TG to start court proceedings. In response Mr Wilkins said that he had not had time to deal with the Warrants Deed and that, as the prospectus was almost finalised, no major alterations were possible to refer in the text to KDIL’s warrants.

On Mr Steele’s evidence, in the face of threats of litigation, Mr Wilkins agreed, in the course of one conversation only, to a solution which was to be enshrined in a letter. KDIL was to be given the right to nominate a director to the Oxus Board, KDIL would receive 5 million warrants, the revised agreement would be noted in the prospectus and the Warrants Deed would be sealed after the listing was complete.

Mr Wilkins maintained that Mr Steele had said that he would not subscribe further to make up the shortfall at the IPO unless he was given confirmation in writing of a right to appoint a director and to 5 million warrants, as opposed to the 3 million which had been referred to in the conversations in mid June. The further investment by KDIL would come at an additional price. He was not asking for written confirmation of the Gentleman’s Agreement. He was however still saying that he had a claim on ORC in relation to the 20 December letter. In cross examination, Mr Wilkins’ evidence developed inconsistently with his statements, saying that there was negotiation over two or three days and that Mr Steele had initially sought to obtain a letter which gave him such rights. Mr Wilkins was not prepared to make any such commitment before the IPO, because this would require disclosure but, in order to placate Mr Steele and to give him some comfort in relation to the Gentleman’s Agreement reached nearly two weeks earlier, he agreed to write a letter, the wording of which was negotiated between them and represented a compromise form, when agreed.

According to Mr Brunswick who also conversed with Mr Wilkins later that week, the arrangement made was that KDIL agreed to sub-underwrite up to £250,000 as a consequence of these discussions, which was formalised with OM on about 26/27 June. It was this which led to a letter being faxed to him on 27 June.

Both Mr Steele and Mr Wilkins agreed that a letter dated 9 July was the outcome of their discussions, It was common ground that it was sought in the context of the further investment that Oxus was seeking from KDIL, despite the inconsistencies in Mr Wilkins’ evidence, I do not consider that Mr Steele would have given him the freedom to write a letter to record an agreement of this kind in any terms he wished and Mr Steele did not contend otherwise. The form of words must have been negotiated.

That letter was sent by fax on 27 June at 16:57 hours by Mr Wilkins to Mr Brunswick and was post-dated. It read as follows:-

“This letter confirms our irrevocable undertaking, within a three month period from today’s date, to invite you or a person nominated by Knox d’Arcy Investments Ltd to join the Board of Directors of Oxus Mining plc, and as consideration for you or the nominated person accepting such invitation, Oxus will issue to Knox d’Arcy or an entity nominated by Knox d’Arcy, five million options or warrants convertible into five million ordinary shares, exercisable over a 5 year period at the lower of the AIM issue price or the prevailing market price, or if the prevailing market price is above the issue price, at the prevailing market price or such lower price as may be reasonably permitted by the regulatory authorities at the time.”

In his statement, Mr Steele said that he did not discover, until after the IPO, that the letter had been post-dated to 9 July, to a date after the listing had taken place. He was then told of the letter by Mr Brunswick, who had received it on the evening of 27 June by fax and who then read it over the phone to him in South Africa. Mr Brunswick’s evidence was that he did not notice the date or, at least, it did not strike him as significant. Mr Brunswick had examined the letter, when he and Mr Steele later saw that the prospectus, circulated to shareholders on about 29 June 2001, it contained no reference to KDIL’s warrants nor to the offer of a directorship. I do not accept that the post-dating was not noticed. If that had been the case, there would have been vociferous letters of complaint on discovering that Oxus had reneged on another agreement. Moreover, it is not possible to conceive of the receipt of a letter, which had been the subject of negotiation of this kind, without an examination of its terms to ensure it reflected what was agreed. The reference in it to “three months from today’s date” and the variation of the price which depended, in part, on the date when the directorship was accepted within that period, invited attention to be paid to the date of the letter.

Mr Wilkins testified that the 9 July letter was written on Mr Steele’s insistence, and was post dated at his suggestion, as a form of insurance against Oxus not sitting down and negotiating some kind of business transaction after the IPO, in accordance with the Gentleman’s Agreement. His evidence varied as to the effect of the letter.

Mr Wilkins said that he spoke to the Chief Executive Officer, (Mr Turner), Mr Cooper and, he thought, Mr de Villiers about the letter before sending it. Their concern was as to the number of warrants and the fact that the prospectus had to be approved the next day and the possibility of a need to disclose this arrangement. They felt uncomfortable. They understood that an enforceable agreement to issue warrants would be disclosable, even if oral. The problem had been overcome by having a Gentleman’s Agreement that was so uncertain that no one could say that there was an enforceable agreement which needed to be disclosed in the prospectus. The letter of 9 July was intended to have the same effect so that it also did not need to be disclosed in the IPO. Nonetheless, because Mr Steele asked for it to be post-dated, he agreed to do so after finalising its terms with Mr Steele. He did not copy the letter to the Board but he and Mr Steele each put it in their respective drawers, to take out after the IPO in order to negotiate a deal for value which could give rise to the issue of 5 million warrants.

As set out above, Mr Wilkins’ evidence about the 9 July letter wavered between saying that it gave rise to enforceable rights if no alternative deal was concluded and saying that it was sufficiently vague and uncertain not to be enforceable and was understood not to be enforceable, being only a platform for further negotiation. He said also that he considered that Mr Steele viewed the 9 July letter as an insurance policy, something that did give him an entitlement to claim in certain circumstances, where a satisfactory alternative transaction was not agreed, but, in reality, it was no more than a basis for negotiation. Mr Steele had initially asked for a letter of agreement to appoint a director and options which would have been enforceable and disclosable but Mr Wilkins refused to give it and instead wrote a letter in the form of the compromise wording to be found in the 9 July letter. Had any claim been made on the basis of it, his evidence was that it would have been very difficult to justify the granting of 5 million warrants in respect of the acceptance of a position as a director, whatever the duties involved.

Mr Steele’s evidence was that what he wanted and needed was an enforceable agreement particularly in the light of his experience in relation to the 20 December 2000 letter. He therefore did want it to be mentioned in the prospectus because, if mentioned there, it would be virtually impossible for Oxus to renege upon the agreement reached. He maintained that he was told by Mr Wilkins that, because of the pressure in trying to ensure that the IPO worked successfully, he would not have time to deal with the Warrants Deed until after the 4 July and, in consequence, Mr Steele asked for a letter to be sent to Mr Brunswick committing Oxus to the agreed course. It was to be evidence that an agreement had been reached. Mr Steele was clear in his evidence in saying that there was never any question of any further consideration being required beyond that which was set out in 9 July letter. Nor was there any discussion about further negotiation about the terms of any appointment to be director. The agreement on the terms of the letter was concluded over the telephone but the letter was then sent to Mr Brunswick.

I find that Mr Wilkins’ evidence in relation to the circumstances in which this letter came to be written is broadly accurate but is not clear as to its effect or intended effect. I am unable to reach any conclusion as to who was responsible for, or suggested, the post-dating, but it is most likely to have been Mr Wilkins, since he had the personal duty of disclosure. It is inconceivable that Mr Brunswick did not realise at once, on receipt of the letter, that it was post-dated and that Mr Steele did not know of it, both after its receipt and beforehand. The problem of disclosure was well known to Mr Steele and had been the basis for the Gentleman’s Agreement. He must have appreciated that it could not be disclosed. Moreover Mr Wilkins could never have sent, by fax dated 27 June, a letter dated 9 July in the hope that it would not be discovered. It is true that he did so shortly before the prospectus was published, but the timing was, in my judgment, determined by the point at which he knew that KDIL had committed itself by sending the sub-underwriting commitment to OM. Whilst, it was the fax copy received by KDIL which was disclosed, not the original letter retained by Mr Wilkins, not much weight can be placed upon this, since Oxus would obviously be more sensitive about it, and it is likely, although no evidence was given on it, that the original, placed in Mr Wilkins drawer, was later destroyed. I find that Mr Steele knew that the letter was to be post-dated before it was sent.

There is only one reason for its post-dating and it is the same reason which lay behind the Gentleman’s Agreement - the need to avoid disclosure in the prospectus. It was post-dated so as to appear that it was made after the IPO and did not therefore require disclosure in it, should it ever be produced. It was sent by fax dated 27 June to Mr Brunswick, because Mr Steele wanted to have a letter, which recorded some kind of obligation on Oxus to give KDIL warrants, and which he could then produce, should the Oxus directors attempt to wriggle out of the Gentleman’s Agreement. It also reflected more warrants and potentially a better price for KDIL, should the market price drop as he expected. It was the Warrants that he was after and the directorship was a mechanism by which the grant of those warrants or options could be justified.

Mr Steele was suspicious that the Oxus directors would not act as “gentlemen” and keep their honour obligations, and so insisted, as the price for further investment, on Mr Wilkins delivering this letter. It is significant that there was a Board meeting on 27 June according to Mr Wilkins’ diary and I find that Mr Turner, Mr Cooper and Mr de Villiers knew of it at about the time it was sent. Mr Warrender, as appears from his note of 22 June, knew of the proposal, if not of the terms of the letter itself, and it seems to me likely that this was known to all those most intimately involved at Oxus, as was the Gentleman’s Agreement, out of which it developed. How easy it would have been to enforce the contents of the letter, given that it came from ORC and matters of corporate governance arise in relation to directorships of a publicly listed company, is a matter I need not pursue, although I find that it was intended to give rise to some sort of legal obligation upon which Mr Steele could rely.

It appears that it was disclosable in the IPO, because, on its face, it gave rise to an irrevocable undertaking (words upon which Mr Steele had insisted) both in relation to a directorship and to the issue of options or warrants, if that offer of a directorship was accepted, whilst the details of the terms of the directorship and whether it would be options or warrants were undecided. It was intended to give rise to obligations which would, if necessary, be enforceable. It would only be an “insurance policy” for Mr Steele if he could rely on its terms. I do not think that Mr Wilkins was deliberately handing Mr Steele a letter with which he could blackmail him, simply on the ground of post-dating. Despite their “ups and downs” Mr Steele and Mr Wilkins were friends and the intention that lay behind the 9 July letter was to create a record of an obligation to deliver 5 million warrants, connected with a directorship, which gave some rationale for it. If some better rationale could be found for it, after the IPO, then this obligation could be superseded by whatever was later agreed.

It differed from the earlier agreement on 14 June, prior to the Gentleman’s Agreement, inasmuch as it involved the idea of a directorship (with the concomitant notion that directors are often granted share options), referred to 5 million warrants or options and allowed for a three month period from 9 July for the invitation and taking up of the directorship and the issue of the warrants. The price also differed because, instead of the IPO price, it provided for the lower of that price and the AIM listed price at the date of issue in the event of the price dropping, as Mr Steele expected. It provided a different mechanism in the event of the price rising after flotation, because Mr Steele and Mr Wilkins did not know what the listing rules provided in such circumstances. Despite all Mr Wilkins’ protestations, I find that he thought that this agreement, to the extent it was enforceable, was disclosable, although he confidently expected to reach a properly documented agreement after the IPO with Mr Steele, a friend who had helped Oxus in its hour of need. He and Mr Warrender fully intended to abide by the earlier Gentleman’s Agreement, so that production of this letter would not be a problem, as it would become unnecessary on conclusion of a later transaction by which Mr Steele could obtain warrants, (albeit that the number had now increased and the price had changed because Mr Steele and KDIL had helped to salvage the IPO).

With the assistance of KDIL’s additional investment made on 2 July 2001, which turned out to be £175,000 and that of other existing shareholders, the IPO just succeeded and £6.6m was raised. Trading of the shares on the AIM began on 4 July. Mr Wilkins’ diary note of 5 July reading “Knox d’A warrants/options” was explained by him as a reminder to himself to sit down and negotiate with Mr Steele in relation to this issue. Mr Wilkins and Mr de Villiers took a short break immediately following the flotation and the next relevant event appears to have occurred in about mid July.

It had always been clear that there would be a need for further finance following the IPO. Societè Generale (SG) had, on 2 March 2001 provided Oxus with an indicative term sheet for a senior debt facility for the Amantaytau Project. This covered about $26m with a potential further $5m by way of primary finance but it was a condition that Oxus would have to raise additional finance by way of either new equity or subordinated debt, as a form of secondary finance. The amount had to be sufficient to cover the balance of the funds required to complete the construction and commence production of the Amantaytau Project, amounting to about $10m or more and this then became the main concern, apart from finalising the primary finance following the IPO.

Mr Brunswick gave evidence that Mr Wilkins telephoned him, on return from his holiday, on about 18 or 19 July and thanked him for KDIL’s support in the IPO. In discussing Oxus’ future prospects, he said that Oxus had a proposal for further funding from SG but there was a need for secondary finance. Mr Brunswick asked whether he had thought of raising the money by way of a Bond backed by a reputable insurance company. Mr Brunswick mentioned this to Mr Steele and there is a note in Mr Wilkins’ diary of a telephone conversation between him and Mr Steele on that date. That note appears to record Mr Steele explaining to Mr Wilkins how such a deal might work and includes the following wording:-

“ - Theodore Goddard drafting warrants deed. [Bd to approve.]

- invitation to join Board. (Ralph Brunswick)

- minute : dirs considered perception of favourable placing…

- when disclosed?

- provisional offer of bond insurance (subject to re-ins) from Templeton. RS to speak to RB

- Bd create c’ttee to review & expedite?”

Whilst the exact terms of this telephone conversation cannot be garnered from this note, it is appears that the question of issuing warrants, a directorship, the issue of disclosure and a provisional offer of an insurance bond with re-insurance were raised and that there was a suggestion that a Bond Committee be created to review and expedite consideration of the matter. The exact linkage between these issues is unclear but it is clear that linkage there was. It is clear that Mr Wilkins had in mind both the 9 July letter and the possibility of finding some form of financial services which a company in the Knox D’Arcy Group could provide, by way of justification or additional justification for the directors of a plc to issue warrants.

The documents show that TG sent Mr Wilkins a draft Warrants Deed on 20 July but without any figures included for the number of warrants, the exercise price or the start date of the five year period during which they could be exercised. Another note in Mr Wilkins’ diary refers to a conditional placing of a Bond with insurers or to the issue of a Bond by Templeton underwritten by such entities, the key being the AA credit rating of those entities.

Mr Steele’s evidence was that the conversations at this time centred on his requirement for the KDIL warrants which had still not been received, despite the 9 July letter, and upon Templeton’s willingness to attempt to procure a Bond, provided that it received the warrants promised. Because Oxus was short of cash, Mr Wilkins was suggesting that warrants could be issued and a seat on the Board provided, if Templeton investigated the feasibility of obtaining a Bond or Guarantee from an insurance company. I find that the conversations were part of the ongoing discussions between Mr Steele and Mr Wilkins to find a way of issuing 5 million warrants for value which was not readily open to challenge on the basis of lack of proper consideration, although Mr Steele considered that KDIL was owed the warrants. The object was to find a mechanism which would justify the warrants without requiring too much to be done by KDIL or the Knox D’Arcy Group. As between Mr Wilkins and Mr Steele, this was not intended to be more than the provision of some limited value, but it resulted in an attempt by Oxus to renegotiate to obtain something more.

Mr Wilkins’ evidence was that he asked for a letter to be sent for him to put in front of the PLC Board which was meeting on 23 July. On that date, Mr Brunswick wrote a letter to PLC in the following terms:-

“Following our recent discussions and the publication of the recent Prospectus, I understand that you require approximately US$35m of debt finance to bring Amantaytau Phase 1 into production. I also understand that you have a conditional offer of US$25m from Societè General.

I confirm that we are prepared to write or to procure the provision of a financial bond to cover the US$10m shortfall should you proceed with the Societè General offer or in the alternative to write or to procure the provision of a bond for the full US$35m. I envisage that any such bond will be backed ultimately by Standard and Poors AA rated security.

The provision of such a bond in either case will be subject to satisfactory proof of title, properly authenticated independent valuations from a recognised source and full due diligence.

We are prepared to establish whether the conditions relating to the provision or procurement of such a bond can be satisfied provided that Oxus Mining plc first agree to issue Templeton Insurance Limited with warrants to subscribe for 5 million ordinary shares in terms not materially different to those contained in the draft Warrants Deed sent to you on Friday evening.

In the meantime, may I congratulate you on your successful listing an AIM.”

Templeton thus confirmed that it was prepared to procure a Bond to cover the $10m shortfall or a higher figure, whilst contemplating that there would ultimately be backing for that by further security of AA rating. The offer was subject to contract in the sense that “full due diligence” was required before any Bond would be issued. The letter made it plain that nothing would be done to investigate the possibility of provision or procurement of the Bond unless PLC first agreed to issue Templeton (as opposed to KDIL) with 5 million warrants on essentially the terms set out in the draft Warrants Deed previously sent. Mr Wilkins clearly understood from this, as he accepted in cross-examination, that the demand was for warrants to be issued up front before Templeton would do anything. If that happened, Templeton was going to establish whether the conditions relating to the provision and procurement of such a Bond can be satisfied, which meant that it would investigate the matters referred to in the preceding paragraph of the letter, to see if the appropriate conditions could be met for a Bond to be issued. There was no undertaking to provide or to procure such a Bond however.

The Minutes of the PLC’s Board meeting on 23 July refer to this proposal as giving distinct advantages over a further equity issue (which would undoubtedly have been very difficult if not impossible) and to the obtaining of the bond as likely to improve the share price (which had dropped since the IPO). The Board also noted “the request of Templeton that they be issued warrants to subscribe for 5 million ordinary shares as part of the fee for providing and/or procuring the provision of the bond”. The Board appointed a committee of directors as the Bond Committee, to progress the initiative and to discuss the appropriate terms of such warrants with Templeton for approval by the Board in a telephone Board meeting as soon as appropriate.

Mr Wilkins then sent Mr Brunswick copies of the SG term sheet and an Oxus cash flow model, so that he could see the parameters for the secondary finance and for a Bond against which such finance could be raised.

There is a 26 July Wilkins diary note of a conversation between Mr Wilkins and Mr Steele where there is once again reference to an AA backed Bond and Hermes is named. Mr Steele’s evidence is that it was then that he spoke to Mr Wilkins and in that conversation it was agreed that Templeton would be issued with 5 million warrants unconditionally at an exercise price of 15.25p and that Templeton would then investigate the possibility of obtaining an insurance Bond or Guarantee. It was also agreed that KDIL would waive its entitlement both to a seat on the Oxus Board and to its 5 million warrants once Templeton had been issued with its warrants in substitution. Mr Steele said that TG would send an amended draft of the warrants deed, as TG duly did on 27 July. In that draft, 5 million warrants were specified, the start date was given as 30 July 2001 but the price was set out as 16p. Mr Wilkins’ note of the conversation of 26 July simply refers to “market price” but gives the number of a warrants certificate to be issued (PWP 025). The market price was taken from a Reuters screen in Mr Steele’s office. I accept Mr Steele’s evidence on this, with which Mr Wilkins scarcely disagreed, it being Templeton’s case that this agreement was subject to the Oxus board’s approval, which would be needed for the issue of warrants in any event. Mr Steele considered he had an agreement with Mr Wilkins who was Oxus and that Mr Wilkins could deliver his board. All that Mr Steele had agreed to do was for Templeton to start work on obtaining the bond, if the warrants were issued and to waive KDIL’s rights under the letter of 9 July.

Mr Brunswick’s evidence was that, before leaving for his holiday on 27 July, he spoke to Mr Wilkins in that week. He confirmed that interest was being shown by insurers and mentioned to him Hermes and Radios, although at that time he had written confirmation from neither. He said that they had confirmed their interest in principle and that each had a different product to offer. In the case of Radios it was a financial bond. In the case of Hermes it was a Performance Guarantee and Mr Brunswick explained the difference, with the Performance Guarantee operating in respect of the completion of the gold mine and the production of gold at a specified rate. Mr Wilkins appeared to be interested only in the cost and credit rating, as this was to be used as collateral for secondary finance. This accorded with his evidence generally, that he was not concerned at the nature of the instrument as long as it was “bankable”, in the sense that it could be used to raise finance. Mr Brunswick’s evidence on this conversation was not challenged, borne out as it is, in part, by Mr Wilkins’ diary note, so that, however little attention Mr Wilkins paid to the distinction, the fact remains that he was made aware, at the outset, that Hermes would proffer a different type of instrument from a Financial Guarantee. As required by Mr Wilkins, Mr Brunswick then wrote a further letter.

That letter of 27 July from Mr Brunswick to Mr Wilkins was expressed in the following terms:-

“Following our discussions and my letter of 23 July I am pleased to be able to make a fully underwritten conditional offer to provide a Financial Indemnity Bond in the amount of £12.5 million for a period of up to 5 years. I attach for your consideration a terms sheet summarising the conditions together with a specimen Financial Indemnity Bond.

I can confirm that I have positive expressions of interest from two sources at present being Hermes Kreditversicherungs AG and via Burley Group, Radion.

The premium for this Financial Indemnity Bond will be 2½% of the bond sum for each year of the bond, payable upon issue.

In order to progress matters beyond this stage I would appreciate if you would execute the completed Warrants Deed sent to you today by Theodore Goddard. ”

That letter enclosed a draft financial Indemnity Bond and a Templeton term sheet which was expressed to be indicative only and not to constitute any offer or commitment. It expressly said that all terms and conditions were subject to change at the sole discretion of the underwriters and were subject to due diligence, properly authenticated independent valuation and satisfactory proof of title. Once again the letter made it plain that although Templeton was making a conditional offer to provide a Bond in accordance with the letter and its enclosures, nothing would happen in relation to this unless PLC issued the warrants in the form of the deed sent by TG. The two expressions of interest were received in writing, in letters from College Hill for Hermes and from the Burley Group in respect of Radios, dated 27 and 30 July.

The draft financial Indemnity Bond was an instrument supplied by the Burley Group as being a document of the kind which Radios would be willing to execute. It was, on its face, an ordinary Financial Guarantee under which Radios would guarantee the payment by Oxus to its lender of any debt owing under a specified loan agreement. The figure of 2½% pa by way of premium was a figure which Mr Brunswick had obtained from Mr Fressan of LRM, the brokers through whom he had made contact with the Burley Group which was in contact with Radios, which was said to be part of the Skandia Group. The letter of 27 July 2001 from the Burley Group to LRM confirmed that it would obtain a Bond from a carrier, rated AA or better, in the amount of £12.5m (subject to a retention of £2.5m) “subject to due diligence”. The later letter from College Hill was signed by Mr Higgins and confirmed that “subject to our usual due diligence and the approval of our credit committee”, he was pleased to confirm that Hermes, “in principle… should be able to meet your requirements.” In cross examination Mr Brunswick accepted that he had had a general expression of interest from Mr Higgins who had said he would in principle be prepared to write £5m, but Mr Brunswick considered that he would write more than this after a proper assessment. Mr Brunswick did not however expect Hermes to write a Financial Guarantee through College Hill, being aware that their business was that of Performance Guarantees, the nature of which he had explained to Mr Wilkins, who knew that this was the kind of instrument which Hermes would provide. His emphasis was on Radios at this point as the more likely avenue, as continued to be the case until late September 2001.

The term sheet that was enclosed was a Templeton indicative term sheet only but was plainly drafted with Radios more in mind than Hermes. Whilst Hermes was known to have a AA rating, Mr Brunswick knew little about Radios save for the terms which had been obtained through Mr Fressan. The reference to Skandia was encouraging however. At this stage however all he was doing was having a look around the market to see whether there was any possibility of a Bond which might be used as security for secondary finance. This he did speedily before going on holiday that evening and writing this letter which, on his own admission, was badly drafted, in describing the position with regard to the Radios Bond, rather than the Hermes position. He was not expecting to do much in order to obtain the warrants which he regarded as already owed to KDIL for past services.

Although only Mr Steele and Mr Higgins of the witnesses appeared to recognise it in evidence, it appears to me from the documents that Templeton was envisaging the possibility of more than one structure at this stage. Templeton might write a Bond or Guarantee, with a secondary Bond or Guarantee from an insurer in its favour. Templeton might write a primary Bond or Guarantee, with a direct Bond or Guarantee, at a level in excess of that of Templeton’s, from such an insurer. The insurer might write the whole Bond or Guarantee in favour of Oxus, with no involvement of Templeton. Much would depend on what was available with AA rating and what arrangement could be made with the entity which had that rating (e.g. cut through clauses and the like).

It is clear that the purpose of this letter was merely to show that there was at least a possibility of obtaining such a Bond, which could be used for secondary financing purposes and that, in the light of all that had gone before, Mr Steele and Mr Brunswick expected to do little else to obtain warrants duly issued by Oxus. It was a “conditional” offer to provide such a Bond which, as everybody realised, meant that it was “subject to contract” and that insurers had done no more than express some positive interest whilst not in any way committing themselves, as the wording at the top of the indicative terms sheet made plain.

Some of the Oxus Directors were incredulous at the possibility of obtaining finance on this basis as an e-mail from Mr Pas to Mr Turner, Mr de Villiers and Mr Warrender on Sunday 29 July shows. He referred to it as a “miracle solution”. That e-mail pointed out some of the issues which would arise and made the point that it was of the utmost importance that Oxus should have expert legal advice on how the Bond would operate in relation to the lending and questions of security and recourse. Oxus’ potential sources of secondary financing were however extremely limited.

Oxus consulted an insurance consultant, Mr Speller who spoke to Mr Steele on Monday 30 July in the absence of Mr Brunswick on holiday. Whilst the letter is not entirely accurate in describing Templeton, it records Mr Steele as explaining Templeton’s business and the possibility of Templeton writing a Bond with 100% reinsurance or with a small retention. It refers to “two companies who have now confirmed in writing their willingness to accept the risk having already studied the financial information made available to them”. This could only refer to the SG term sheet and the cash flow models supplied. The letter also referred to Templeton’s preference to deal with Hermes but its desire to have an alternative to assist in negotiations. Reference was made to the retention of £2.5m which suggests that Mr Speller had seen a copy of the Burley Group fax or at least had it read to him. It looks as though Mr Speller thought that the £2.5m retention would be borne by Templeton in the context of a primary and secondary bond. Mr Speller’s letter to Mr Wilkins reports on his conversation with Mr Steele in relation to further issues such as security, commitment fee and the like but the terms of the letter make it plain that there were areas upon which Mr Steele could not give any assistance. As Mr Steele did not profess to be an expert in insurance and Mr Brunswick had carried out the investigations before going on holiday, this was not surprising. The letter concluded by referring to Mr Steele’s requirement of “an expression of intent to issue on this basis so that the detailed negotiations can proceed towards the issue of a formal offer”. Mr Steele, in his evidence, did not agree that he had said anything of the kind, since a lot more information would plainly be required by insurers but I do not think anything turns on this. Mr Speller said in a separate letter to Mr Wilkins that there was no disadvantage in giving an expression of intent to proceed with the next stage of negotiations, because Oxus was not undertaking any commitment in doing so.

It is plain that the Oxus Board was looking to obtain more value for the issuing of the warrants and to ascertain how realistic the suggestion of a bond as collateral for secondary finance, was. This was one reason why it had set up the Bond Committee to investigate this possibility. Secondary finance was essential to Oxus and its directors were uncertain whether Templeton could really help. Oxus was cash short and had limited possibilities of raising money, and wished to pursue this avenue if it was realistic.

Following its institution, the Bond Committee produced a number of versions of a draft memorandum, the amendments to which are of some significance in the context of what later occurred. That Committee consisted of Mr de Villiers, Mr Wilkins and Mr Warrender, two of whom had, of course, been party to the Gentleman’s Agreement. Both were also aware either of the 9 July letter or of the essence of the commitment in it, whilst Mr de Villiers, if contrary to my earlier finding, he did not know of the 9 July letter at this stage, certainly became aware of it prior to the exchange of letters on 8 and 9 August. It is inconceivable that it could not have been the subject of discussion amongst the members of the Bond Committee.

All the different versions of the one memorandum produced by the Bond Committee, with the intention of laying it before the Board, contained much the same information, referring to the background of the letters of 23 and 27 July from Templeton. Each referred to a request by Templeton for 5 million warrants to be issued to it with a five year life “as consideration for proceeding with the proposal set out in those two letters”. Copies of the letters and their enclosures were to be circulated with the memorandum. The memorandum then set out how such a Bond might work and the lack of clarity of the proposed arrangement and how it might fit in with the primary funding. Reference was made to the advice from Mr Speller that Oxus should proceed with the next stage of negotiation. Each version of the Bond Committee memorandum recommends that the Bond proposal be investigated fully and that Templeton be instructed to proceed to “the next stage”, with a view to producing an underwritten term sheet subject to conditions precedent and consistent with the SG underwritten conditional term sheet for the secondary finance, as soon as practical. With regard to the issue of warrants to Templeton, the different versions of the memorandum contain different recommended terms of issue.

In Mr Wilkins’ first draft he suggested that one third of the warrants should be issued against an instruction to Templeton to proceed to “the next stage”, a further one third be issued against receipt of an underwritten term sheet for a Financial Bond subject to conditions precedent which were not inconsistent with the SG underwritten conditional term sheet and that the final one third be issued against receipt of the final Bond documentation. Mr Warrender amended that version by making the issue of the second tranche of warrants conditional upon the conditional approval, subject to legal documentation, by SG of the Bond and the final one third against receipt of final documentation acceptable to all parties or upon Oxus’ voluntary failure to proceed. Both of these versions of the memorandum were dated 31 July 2001.

Late at night on 31 July 2001, Mr Warrender sent Mr Wilkins an e-mail, which was received by him at 00:36 hours on 1 August. This records that Mr Warrender had tried to speak to Mr Steele and would call him in the morning. He had been thinking about the tranches and was suggesting that the final tranche should be issued when all conditions precedent to the issue of the final Bond documentation other than those to be fulfilled by Oxus or which were substantially under Oxus control had been met. The alternative, he suggested was to issue all 5 million warrants to Templeton at once, but to defer the exercisability of the last two tranches until the events specified in his version of the draft memorandum (my emphasis). He asked for Mr Wilkins’, Mr Turner’s and Mr de Villiers’ views. Alongside the paragraph which suggested the change in the exercise dates, on Mr Wilkins version appears the word “No” with an exclamation mark. It is clear that this suggestion was not one which met with Mr Wilkins’ approval, whether or not he discussed it with the other Directors. It did not feature in any subsequent versions of the Bond Committee memoranda. Oxus had rejected the idea of deferred exercisability and the point was never raised in oral discussions with Mr Steele.

Mr Warrender did speak to Mr Steele in South Africa to discuss the matter. Mr Warrender’s witness statement made it plain that Mr Steele was adamant that he wanted 5 million warrants to be delivered up front, which Mr Warrender questioned when there was no certainty that Templeton would be able to deliver a Financial Bond. Mr Steele’s response was to say that he insisted on the 5 million warrants at once before Templeton would initiate the work. If successful, however, in obtaining the Bond, he would not expect an additional cash fee if the exercise price of the warrants was as agreed with Mr Wilkins. If however the exercise price of the warrants was set at a premium to the current market price, then he would expect a cash fee. Either way, Mr Steele said that Templeton would not be prepared even to begin any work unless the 5 million warrants were delivered up front. Thus although Mr Warrender was seeking to get greater value in exchange for the issue of warrants, he did not succeed in doing so. Mr Steele was not prepared for Templeton to do any more work in relation to the Bond without the warrants being issued.

Whilst there is a version of the Bond Committee memorandum dated 1 August 2001 which includes a reference to a success fee of £250,000 and an exercise price of 22p as opposed to the earlier price of 16p, this version has a number of manuscript notes on it made by Mr Wilkins. One of those notes reads “owe 5m PW (purchase warrants) at MKT (market) based on past KD’s assistance” a clear reference to the 9 July letter given in respect of KDIL’s assistance both at flotation and in December 2000. It also refers to “cosmetic issues” and “s/holder litigation, staged issue based on second stage conditional letter open to scrutiny/attack”. Although Mr Wilkins was not cross examined about this, it reveals the Oxus directors’ fear of challenge in relation to a decision to issue warrants without apparent sufficient consideration. It is plain that, notwithstanding the Gentleman’s Agreement and the 9 July letter, Mr Wilkins, Mr Warrender and Mr Turner were all looking for some way of obtaining further consideration from Knox D’Arcy/Mr Steele/Templeton to justify the issue of the promised warrants.

The final version of the Bond Committee memorandum is dated 2 August. The background section refers to the letters of 23 and 27 July from Templeton and relates that:

“As consideration for proceeding with the proposal, Templeton have asked for 5m warrants to be issued to them at market price with a 5 year life, plus a success fee of £250,000.”

This drew a distinction between proceeding with the proposal, on the one hand for which the warrants be issued and obtaining the Bond, on the other, for which a cash success fee would be payable.

In the Financial Analysis section, the rationale for the Bond Committee recommendation to the Board is set out in the following way:-

“If the bond approach proves successful, the dilution [of the share capital] from the issue of 5 million warrants as part of the package will be deemed immaterial. It should also be noted that Templeton are not asking for work fees or other cash payments in advance of the final product (cf the Endeavour proposal)[an alternative financing proposal] And warrants, of course, ultimately will produce cash for the company. If the bond approach is unsuccessful the warrants may have little value because Oxus will likely have to raise equity at a much lower price than the warrants’ exercise price. Furthermore, it may prove necessary for Oxus to issue a much larger number of warrants in order to place a similar amount of equity.”

The Bond Committee then made its recommendation that a £12.5m Indemnity Bond financing would be far preferable to an equity issue as a means of funding, because there was at least as good a chance of raising money through such a method as in an equity offering and such Indemnity Bond financing would make the raising of additional equity thereafter much easier at a higher share price. The Committee felt that Oxus had nothing to lose by issuing the warrants; if Templeton obtained the bond, no one would complain about the resulting share dilution because the share price would rise dramatically: if it did not obtain it, there would have to be a share issue at a low price and the warrants would be worthless at the agreed exercise price. The memorandum went on:-

“In summary, therefore, we conclude that the choice facing the Board is whether or not to risk the issue of 5 million warrants at the current share price, in order to motivate Templeton to deliver an underwritten bond package which would provide Oxus and its shareholders the substantial advantages discussed above.

It is recommended that the bond proposal be investigated fully and that Templeton be instructed to proceed to the next stage, with a view to producing an underwritten term sheet, subject to conditions precedent, and consistent with the SocGen underwritten conditional term sheet, as soon as practical. It is recommended that the bond be denominated in US dollars, if possible. The sooner that Oxus can announce that it has underwritten conditional offers for all the finance to build AGF phase 1, the better. And if it can be seen that it can be done with little shareholder dilution (other than raising minimal working capital for other purposes), the impact on the share price must surely be positive.

With regard to the issue of warrants to Templeton, we recommend as follows:

•

That the Board creates a new class of warrant and issues 5 million such warrants for Templeton against an instruction to Templeton to proceed to the next stage. (We are restricted to a maximum 20% of the issued capital being subject to option or warrant at any one time – based on 125m shares issued, 20% is 25m. We currently have 13.59m options, 1.39m warrants at $0.85, and 1.0m warrants reserved for Barclays. A further 5m warrants takes us to 20.98m):

•

That the principal terms of the warrants are fixed now; being an exercise price of [16p] and an expiry term of 5 years;

•

That a success fee of [£250,000] be paid to Templeton upon receipt of the final bond documentation, acceptable to all parties.”

It is abundantly clear, notwithstanding various Oxus witnesses’ attempts to argue the contrary in evidence, that the Bond Committee was recommending that 5 million warrants should be issued to Templeton at once, so that it would be prepared to investigate the Bond proposal and ascertain if it was available, with a view to the production of a term sheet. The exercise price was to be the market price (which had already been agreed on 25 July by Mr Wilkins as 15.25p on that date). In addition Templeton was to receive a success fee of £250,000, if the Bond was finally obtained.

Mr Wilkins’ evidence in relation to the whole period after his return from holiday on 18 July was to the effect that he was in favour of the solution of structuring a transaction which was not open to criticism in respect of the issue of so many warrants for a non-executive directorship and which was linked to the need for secondary financing. He accepted that the directorship idea with share options was replaced by the warrants mechanism linked to the Bond proposal and that, notwithstanding Oxus’ hope to issue shares in tranches, Mr Steele was adamant that all the warrants be issued immediately with an exercise price reflecting the then current share price. Although the Bond Committee memorandum was never finalised and signed, the 2 August version reflected the Bond Committee’s and his own proposal. Mr Wilkins sought, however, in his witness statement, to maintain that the question of exercisability however remained in issue, a point which is directly contrary to all the relevant documents. The idea of conditional exercisability had been raised by Mr Warrender and scotched by Mr Wilkins himself and never surfaced in any later version of the Bond Committee memorandum, nor in the Board meeting where a resolution was passed in relation to the warrants themselves, nor in any discussion with Mr Steele.

On the evening of Friday 3 August Mr Wilkins flew to Tashkent. On 6 August Mr de Villiers met with Mr Steele and had further conversations with him the following day. Mr Steele’s evidence accorded closely with Mr de Villiers e-mail to Mr Wilkins in Tashkent timed on receipt at 01:08 hours in the early morning of 8 August, which set out for Mr Wilkins’ benefit the substance of what had been said. Those conversations and the Board meeting which occurred on 7 August are crucial as a background to the exchange of letters on 8 and 9 August between Oxus and Templeton.

So far as relevant, Mr de Villiers’ e-mail reads as follows:-

“To summarise the proceeding with RS of Monday and today:

I met him at his offices as planned after a very good 45 min discussion with DWS that cleared up a lot of confusion that had resulted from trying to glean information from CMcK. RS took me through the logic and mechanics of the insured bond financing (credit enhancement) and showed me some faxes that where from directors of insurance companies expressing interest in participating in the scheme with Oxus, he said that I could not take copies of them. He explained the working relationship with Templeton and the long term planned use of this form of financing for his asset stripping ideas. He also went to great lengths to state that the success of this approach would depend on the commitment of the Oxus board but when challenged on this he was not able to back it up with much more than the argument that they had tried to renege on the original warrant commitment and then he went on to say that they should comply with the demands and request of the insurance company. He did after some discussion state that he was a key player in the whole process and would be able to influence its outcome. He felt that Oxus had a high chance of success, around 80%+.

On the matter of warrants he said very early on in the discussion the only way forward (to progress the bond) was for the board to authorise the 5 mil warrants at 15.25 pence. He maintains that he had supplied all the necessary documentation and agreed this price with you last week and therefore there was no reason to discuss price further, they was after all already an agreed and documented right, alternatively he said he could put a director on the board and claim the warrants. Anyway there was lots of back and forth discussion of history of his heroic deeds and lots of threats of what he might do if he did not get his way, everything from manipulating the share price to liquidating the company and suing the directors as well as a lot of character assassination and his views of various personalities, all very irritating which I shrugged off. In the end he was basically agreeing to one of two things.

The outright immediate unconditional offer of 5 mil warrants at 15.25 pence to Templeton

or

5 mil warrants at 20 pence and a guaranteed bullet payment of £250,000 after three months.

Today I went back with the offer of 5 mil warrants at 20p and a performance based i.e. success fee of £350,000 payable on draw down, he rejected this and a variation that I tried to discuss with him which was splitting the £350,000 into two tranches. His basic point of rejection seemed to waiting for any money and again being exposed to the board potentially reneging on a payment. His counter offer was the warrants at 20p and a guaranteed work fee of £250,000 payable over 12 weeks and a success fee £250,000 payable at drawdown. The alternative remained at 5 mil warrants at 15.25p and the right to charge expenses.”

Whilst Mr Steele’s evidence differed in relation to some parts of this e-mail which purported to record elements of the meeting on Monday 6 August, it is clear from the terms of the e-mail that Mr de Villiers was well aware of the “original warrant commitment” and the “agreement and documented right” to which Mr Steele referred. The 9 July letter was plainly known to him and this was a matter to which Mr Steele made express reference in their discussions. Mr Steele’s evidence was that Mr de Villiers was attempting to renegotiate the agreement which he had previously reached with Mr Wilkins.

I find that on the points which really matter, the e-mail is an accurate record of what took place between them, which Mr de Villiers explained to Mr Wilkins. Mr Steele continued to demand the immediate issue of the 5 million warrants, stating that this was “the only way forward to progress the Bond”. Mr Steele showed Mr de Villiers copies of the two letters which had been received by Templeton in which the expressions of interest were made by or on behalf of insurers, to show that there was a real possibility of such an instrument, but did not allow him to take copies, making it plain that no more work would be done to investigate the matter unless the warrants were issued, in accordance with his discussions with Mr Wilkins on 26 July.

He made it plain that the Board had to authorise the issue of those warrants at 15.25 pence, referring to the price he had agreed earlier with Mr Wilkins and to the draft warrants document that TG had supplied. Whilst Mr de Villiers sought to move him from this position, Mr Steele remained firm, relying upon the 9 July letter as entitling him to put a Director on the Board and claim the warrants in any event. As the e-mail summarises the position on 6 August, the end result was Mr Steele’s agreement to one of two courses. The first was the outright immediate unconditional offer of 5 million warrants at 15.25 pence to Templeton (as previous agreed with Mr Wilkins). The alternative was 5 million warrants at 20 pence, which represented a premium on the share price at that stage which had fallen below 16 pence and a further payment of £250,000 after three months. Both those positions involved the issue of unconditional warrants which could be exercised at any time over their duration, the only difference being the price at which they were to be exercised and the question of some additional cash payment. Since Oxus had a cash shortage, the latter was hardly an attractive proposition. No success fee arose under either proposal.

Following this meeting at Mr Steele’s offices, on the following day, they had a telephone conversation. Mr de Villiers again sought to obtain something further in exchange for the warrants. As expressed in the e-mail, he offered 5 million warrants at 20 pence together with a success fee of £350,000 should the Bond be obtained. Mr Steele rejected that and a further variation involving splitting that figure into two tranches. As recorded in the e-mail, Mr Steele’s basic point was that he did not wish to be exposed to the Board reneging on an agreement. Mr Steele then reverted with an even less attractive offer from Oxus’ point of view, looking for the 5 million warrants with an exercise price of 20 pence, a guaranteed work fee of £250,000 payable over 12 weeks plus a success fee of £250,000 if the Bond should be obtained. Alternatively the original deal was available for 5 million warrants at 15.25 pence and the right to charge expenses, with no success fee should the Bond/Guarantee be obtained. Mr Steele was still insisting on receiving all 5 million warrants at once on an unconditional basis, the only issues being the exercise price and the question of additional payments.

Mr de Villiers, like Mr Warrender, had sought to obtain some concessions from Mr Steele but had failed. This is altogether unsurprising given the previous history of the matter, the negotiations over the 20 December 2000 letter option, the 13/14 June agreement followed by the “Gentleman’s Agreement” and the terms of the 9 July letter. As Mr Brunswick expressed it in evidence, the Knox D’Arcy view was that they were already owed the warrants.

Before sending this e-mail, a Board meeting had been held by telephone in which Mr Wilkins participated. This is referred to in the final paragraph of that e-mail where Mr de Villiers records speaking to all the Board members and obtaining their agreement to discuss with Mr Steele, his original request of 5 million warrants at 15.25 pence, which he would do “first thing tomorrow”, by which he of course meant shortly after the opening of business hours on 8 August. He expected then an exchange of letters with Templeton, the drafting of Board minutes to record the position and the issue of the warrants.

It was not until Mr Wilkins came back from Tashkent on about 17 August that he drafted the Board minutes. In his witness statement, he said that he drafted the minutes to reflect the exchange of letters of 8 and 9 August. The minutes referred to Mr Turner and Mr de Villiers being in London and to the contacting of Mr Wilkins and the non-Executive Directors by telephone. Despite much prevarication on the part of the Oxus witnesses, at one time or another each accepted in evidence that the minutes were an accurate record of what had taken place, whilst seeking to re-interpret them or in some cases to say that more took place than was recorded. The relevant parts of the minute reflect the Bond Committee’s recommendation and the two available bases for agreement put forward by Mr Steele on 7 August, as set out in Mr de Villiers e-mail. Thus the relevant parts of the minutes read as follows:-

“2.2

On behalf of the Bond Committee Anthony Warrender tabled a memorandum setting out the details of the proposed financial bond, and the proposed terms of the warrants, being warrants to subscribe for 5,000,000 ordinary shares in the Company, at an exercise price of 15.25 pence, with an exercise period of 5 years. It was noted that Templeton were not proposing to be paid a work fee, or success fee, in respect of the provision of the bond, in return for which they had requested that the warrants be issued at a modest discount to the current share price of 16.25 pence. As an alternative, Templeton had also proposed a combined cash work and success fee of £500,000, in which case the warrants would be issued at a modest premium to the current share price.

2.3

After careful consideration and discussion, noting that the Bond Committee had also discussed the proposal with the Company’s insurance and legal advisers, and with Barclays Capital and SocGen, noting that the Company did not wish to expend its cash other than in accordance with the budget approved at the previous Board Meeting, and also noting the likely benefit to shareholders should the bond proposal prove successful, IT WAS RESOLVED to accept the Templeton proposal on the basis of an issue of warrants to subscribe for shares at 15.25 pence per share.

The Board was faced with deciding whether to agree to Mr Steele’s proposal for unconditional warrants (see the reference to “the proposed terms of the warrants”, being the terms set out in paragraph 14 of this judgment) with an exercise price of 15.25 pence, which was described as representing a modest discount to the current share price, or, alternatively, Mr Steele’s proposal for a cash work and success fee of £500,000 with an exercise price which represented a modest premium to the current market price (the two proposals put forward by Mr Steele on 7 August as recorded in Mr de Villiers 8 August e-mail).

The Board minutes record the Bond Committee’s prior discussions with Mr Speller and CMcK, with Barclays Capital which was advising on the loan finance and with SG, the primary financier. The desire not to make any cash payments clearly played its part and the Board resolved to accept the Templeton proposal to issue warrants with a strike price of 15.25 pence per share. The resolution expressly referred to the allotment and issue of 5 million purchase warrants to subscribe for shares “in accordance with their terms” at an exercise of 15.25 pence. As Clause 3 of the draft warrants deed gave rise to an unconditional right to exercise the warrants and the warrants were also assignable, it is clear that the Board was not making the issue of the warrants or their exercise conditional upon Templeton actually obtaining the Bond referred to in the July correspondence. It is also clear that the Board did not authorise or expect there to be any further negotiation. In essence it accepted the Bond Committee recommendations and the rationale which lay behind it. Negotiation for more value had been attempted without success. As these minutes were drafted after the August Agreement was concluded, it is also noteworthy that there is no note in them of any later negotiation or agreement which represented any different conclusion from that on which the Board had resolved. (Nor are there any minutes of subsequent Board meetings to that effect).

It is against this background that the letter of the 8 and 9 August fall to be construed. Contrary to the evidence of some of the Oxus witnesses, there was no Board approval given to Mr de Villiers to renegotiate. The approval was given to accept what Mr Steele was insisting on, because efforts had already been made to renegotiate which had, unsurprisingly, failed. In his statement, Mr de Villiers said that he contacted Mr Brunswick on the morning of 8 August and told him that Oxus was only prepared to issue the shares in return for Templeton providing and arranging the Bond, that Mr Brunswick indicated that this was acceptable and that this should be put in writing. Since Mr Brunswick was travelling in a Winnebago in the USA without an operable mobile telephone, this is not possible. In a later statement Mr de Villiers said that it was Mr Steele he spoke to, who was heading to South Africa at about that time. Mr de Villiers’ evidence was that he faxed the offer in draft, unsigned, form to Mr Steele’s office and then spoke to Mr Steele and read him out the terms of the letter, to which Mr Steele agreed. Mr Steele said this did not happen. I do not accept any of this evidence from Mr de Villiers. There is a fax sheet without a transmission record on it to Mr Steele dated 8 August in which Mr de Villiers enclosed “the proposed letter re the issue of warrants” and asks for a simultaneous “release from the obligation to appoint a director and issue warrants as detailed in our letter of 9/07/01”. It does not appear that that fax was ever sent although it shows a clear understanding of the need for the 9 July letter obligations to be formally waived. On 8 August however Mr de Villiers faxed the letter of that date to Templeton’s offices in the Isle of Man marked for the attention of Mr Brunswick, who was on holiday. It was plainly intended to be an acceptance of Mr Steele’s first offer, as set out in the Board minutes.

For convenience, I once again set out the terms of the exchange. The 8 August faxed letter reads as follows:-

“Following on from our various discussions regarding Templeton’s proposal to provide or procure a financial bond for £12.5 million in favour of Oxus Mining plc, we are pleased to inform you that the board has approved the granting of 5 million warrants at 15.25 pence valid for 5 years on the following terms.

Templeton immediately proceeds with the necessary activity to enable it to provide or procure a financial bond for at least £12.5 million in favour of Oxus Mining Plc. If possible it would be helpful if the bond were denominated in US Dollars and be for an amount up to US$ 20 million.

The granting of 5 million warrants a 15.25 pence valid for 5 years in Oxus Mining plc is the entire consideration due to Templeton for providing and arranging the above and no other fees are due to Templeton other than those fees indicated in the letter and draft term sheet of 27 July 2001 or such other 3^rd party costs as may be necessary.

Please can you confirm Templeton’s acceptance of this arrangement by return fax so that we may proceed with the preparation of the warrant documentation.”

In Mr Brunswick’s absence Mr Pretorius, a fellow Director of Templeton sent the following reply; probably after discussion with Mr Steele, although Mr Steele denied it:

“Thank you for your letter dated 8 August 2001 addressed to Ralph Brunswick.

I am writing to you to confirm our acceptance of the 5 million warrants at 15.25 pence valid for 5 years.

Please forward to us the executed Warrants Deed provided to you by Theodore Goddard as soon as possible.

I confirm that we are commencing the necessary work regarding the bond and either Ralph Brunswick or I shall contact you shortly to progress matters.”

Oxus’ case is that the 8 August letter constitutes an offer which was accepted by the reply of the 9 August and that, on their proper construction, the letters require Templeton to succeed in producing the Bond in order to be entitled to exercise the 5 million warrants. In the light of the prior discussions, the 8 August letter cannot be construed in this way.

In the first place there is not the slightest suggestion in the letter of a deferment of the exercisability of the Bonds. Secondly the terms of the Bonds themselves provided for unconditional exercise and assignability which meant that any subsequent bearer of the Bonds would inevitably be able to exercise them without reference to any supposed condition, since they were issued by PLC under seal. Thirdly the obligation placed upon Templeton was to proceed (my emphasis) with the activity required (to start work) to enable it to provide or procure a Financial Bond, not to obtain such a Bond.

It is plain in my judgment that if the intention had been to make the warrants conditional upon obtaining the Bond this would have been done in one of two ways. There would have been no issue of the warrants until the Bond had been obtained: alternatively the terms of the warrants themselves would have made it plain that they were only exercisable upon the obtaining of the Bond.

The only point which gives rise to the possibility of argument appears to me to arise from the third paragraph of the letter and this is, as it appears to me, a lawyers’ point, since it is not one which occurred to Oxus when making complaints against Templeton in respect of its alleged failures with regard to the Bond. The point did not even feature in the original Particulars of Claim dated 11 April 2003. It surfaced only in draft amended particulars in October 2003, formalised into Amended Particulars of Claim which were served on 23 February 2004. The letter can only be read in the light of the preceding history and when this is taken into account, it is plain that neither party intended or understood this letter to give rise to a binding obligation upon Templeton to obtain the Bond nor to make either the issue or exercisability of the warrants conditional upon that.

The first paragraph reveals an acceptance of the proposal which had been made by Mr Steele (as recorded in the Bond Committee minutes as reflected in Mr de Villiers’ email to Mr Wilkins) and expresses pleasure at approving the grant of 5 million warrants at 15.25 pence. The second paragraph is to be read in the light of Mr Steele’s/Templeton’s refusal to do any further work in relation to procuring a Bond without the issue of the warrants, both in the letters of 23 and 27 July and orally in conversation with Mr Wilkins, Mr Warrender and Mr de Villiers. The paragraph provided that Templeton was to start work with a view to obtaining such a Bond. The third paragraph, upon which Oxus places so much reliance merely records that there was to be no additional fee payable to Templeton should it succeed in obtaining that Bond and expresses this by stating that the grant of the warrants was “the entire consideration due to Templeton for providing and arranging the above”, meaning the entire consideration, should it achieve that result (apart from the fees indicated in the letter and draft term sheet sent on 27 July or other necessary third party costs).

The letter from Mr Pretorius in reply in fact accepted the 5 million warrants and did not expressly accept any of the other terms in the 8 August letter. Confirmation was given of commencement of the necessary work regarding the Bond however.

These exchanges in late July and August superseded all prior arrangements between Mr Wilkins and Mr Steele, whether acting for KDIL or Templeton. It was the best deal Oxus could get out of Mr Steele, following the history to which this judgment refers. Oxus’ directors wanted as much value as they could get, but Mr Steele had proved intransigent and, given the need for secondary finance, the limited sources available for it and the rationale of the Bond Committee that Oxus had little to lose and everything to gain from such a deal, they felt commercially justified in issuing the warrants on this basis, instead of the basis upon which Mr Wilkins and other directors had already agreed, whether in the 9 July letter or other conversations in June. The matter was considered afresh by the Board, with the Bond Committee recommendations in mind, regardless of all else that had gone before and the conclusion was reached that this was a commercially justifiable agreement, into which Oxus was prepared to enter.

Although efforts had been made in negotiation to defer issue of a portion of the warrants until the Bond was obtained, there was never any suggestion that all of the warrants should be so deferred. Throughout the negotiations it had always been recognised that at least one tranche should be issued at once whilst the Bond Committee had hoped for the deferment of the issue of two further tranches against milestones relating to the obtaining of the Bond. Mr Steele had held firm on this when Mr Warrender and Mr de Villiers had each attempted to obtain more from him than had been discussed with Mr Wilkins on 25 June and insisted on the issue of all the warrants at once with no conditions before issue. No one had ever suggesting to him any conditionality of exercise at any time, whether orally or in writing.

The notion that, by this letter of 8 August, the entitlement to exercise the warrants was made conditional upon obtaining the Bond flies in the face of all the prior history which had passed between the parties and makes no sense whatsoever in the context of the Board’s instructions to Mr de Villiers and his report to Mr Wilkins of what was about to happen on the morning of 8 August. The letter of 8 August cannot be read in the manner which Oxus suggests. It was an acceptance of Mr Steele’s position as recorded in Mr de Villiers’ e-mail and in the minutes of the Board meeting which Mr Wilkins later drafted, on his return from holiday, knowing of this exchange of letters. He clearly saw those letters as setting out the position as recorded in the minutes and his effort to distort the meaning of the words in the minutes which set out the resolution to issue the warrants “in accordance with their terms”, in order to suggest that they envisaged negotiation as to the exercisability of the warrants, was as hopeless as it was misguided.

If there had been some successful re-negotiation of the whole basis of the transaction, either these Board minutes would show an authorisation to negotiate, or would (being drafted after such negotiation) make reference to what has transpired. Alternatively the next Board minutes would record with great satisfaction the achievement of a far better result than the previous meeting had authorised.

No legal advice was taken as to the implementation of any agreement for the deferred exercisability of the bonds in relation to the terms of the bonds themselves. The requirement for such advice appears to me to be an almost inevitable consequence of the agreement which Oxus maintains it made, so that the Bonds could be drafted appropriately. Instead, by a letter of 17 August Mr Wilkins sent Mr Steele a copy of the warrants in the form previously drafted by TG, whilst sending the original to Templeton, significantly dating the Deed 8 August, the date when Oxus accepted Templeton’s proposal, not 9 August which Oxus now maintains was the date when Templeton accepted Oxus offer.

Oxus’ case on the nature of the agreement depends entirely upon these two letters since, apart from Mr de Villiers’ fabricated evidence of telephone calls with Mr Brunswick or Mr Steele on the morning of 8 August in which he alleged that he read out the terms of the 8 August letter which were accepted by the person on the other end of the call, no Oxus witness suggested that there had been any oral agreement of the kind alleged by it. Mr Warrender’s evidence was that he understood, until he saw the letters of 8 and 9 August in the context of this litigation, that the deal had been done on the basis of the Board minutes. No one ever reported back to him that the deal had been done on a different basis. I reject Mr Wilkins’ evidence that he was told in a subsequent telephone conversation by Mr de Villiers that he had achieved a different deal in the letters of 8 and 9 August (and Mr de Villiers’ evidence to the same effect) because it is inconceivable that this would not be reflected in contemporary documents or mentioned in the witness statements.

There are three further factors which reinforce the conclusion I have already reached.

The first of these relates to a proposal made by Templeton in October and November 2001 that it should be paid a success fee for the obtaining of a Guarantee from College Hill, acting on behalf of Hermes. By a letter of 26 October 2001, Mr Brunswick informed Mr Wilkins that Templeton had obtained agreement from College Hill that it would issue a Guarantee in the form of the wording attached, for a sum up to £10,000,000 or its US dollar equivalent. A one page form of wording was attached and the terms upon which it was to be issued were set out, on an “in principle” basis, in Mr Brunswick’s letter. The letter drew attention to the need for political risks cover in an acceptable form and the need for adequate security to be provided to the issuer of the Guarantee. It also explained the form of the Guarantee as being a Performance Guarantee – namely one which guaranteed the performance of a contract by indemnifying the other party against non-performance. The contract in question was specified as being between AGF and Oxus “so that AGF constructs and operates the mine so as to deliver pre determined minimum cash flows to Oxus”. The letter then set out the fees that would be payable in relation to the Guarantee which included a commitment fee payable to College Hill, a premium of 3½% per annum of the amount guaranteed and then a changed exercise price for the 5 million warrants already issued, namely a price representing the average mid-market price of PLC’s shares over the previous 30 days. In addition a further 4 million warrants were sought at the same price. These last two elements were to be Templeton’s success fee.

Discussions continued and agreement was reached in relation to a later letter of 22 November 2001 from Mr Brunswick to Mr Wilkins. That once again referred to the agreement of College Hill to issue a Performance Guarantee with the attached wording and contained much the same information as the letter of the 26 October. The fees payable in relation to the Guarantee were then set out as including a commitment fee of £115,000 payable by 30 November 2001, the premium as previously put forward, and two elements of a success fee, payable to Templeton. The first element was a reduction in the exercise price for the existing 5 million warrants so that they were exercisable at the average mid-market price over the 30 days prior to 26 October 2001 (which was in fact 7.75p). The second element was an arrangement fee of £300,000, “payable in ordinary shares in Oxus at the average mid-market price over the 30 days prior to 26 October 2001”.

That offer was open for acceptance until 30 November and on that very day Mr Wilkins replied to Mr Brunswick saying that he had wired the £115,000 to Templeton’s account as the commitment fee payable to Hermes, as set out in Mr Brunswick’s letter of 22 November. No issue was taken by Oxus that the letter of 22 November 2001 did set out the terms of an agreement between PLC and Templeton, although it sent no formal acceptance. It was however relied on by Oxus in the context of its allegations about the November Agreement.

The very existence of this agreement, to some extent, undermines Oxus’ case because, if Templeton had agreed to obtain the Bond/Guarantee in consideration of being able to exercise the warrants, there was already an agreed success fee in existence at the time of that agreement in November. In such circumstances Oxus would have objected strongly to the suggestion that a further success fee should be payable to Templeton for doing what it had already agreed to do in order to exercise the warrants. The point only goes a limited distance however, since Templeton had, in the discussions, as evidenced by the letter of 8 August agreed to forego any success fee, if it received the warrants at once.

However, circumstances had changed by November 2001. The price of shares in Oxus had dropped yet further to under 8p and the warrants would have been perceived as of little value. Moreover, it had by this time become plain that Oxus’ options for the obtaining of finance were limited, both in the context of the events of 9/11 and the Enron debacle. There was fresh negotiation and agreement, in these circumstances, as to the exercise price, with no objection from Oxus (and with Mr Speller’s positive recommendation), which shows not only that the warrants were unconditionally exercisable, but also indicates that the parties considered that whatever Templeton had been obliged to do, as a consequence of the discussions and letters of 23 July, 27 July and 8 August had been done, so that a new agreement was appropriate, if Templeton was to proceed to do more detailed work to seek to obtain the bond. The existence of the newly agreed success fee shows also the clear basis upon which this new phase of work was to be done. Templeton was to seek to obtain the Guarantee on a “speculative” basis, in the sense that it would earn nothing if the Guarantee was not obtained.

Secondly, in July 2002 PLC sought to raise a further £5m by way of a rights issue. In the prospectus for that issue, there was express reference to a “performance contract” between PLC and AGF, under which it would make an advance to AGF and AGF would agree to repay the advance, plus the sunk costs of ORC and interest, in accordance with an agreed repayment schedule. The prospectus referred to the proposal that AGF’s ability to meet the schedule would be guaranteed by Templeton (or a subsidiary or an associate of Templeton) which in turn would be guaranteed by an insurer with financial strength rating of AA minus (S&P), pursuant to a Performance Guarantee to be purchased by ORC. The prospectus said that “Templeton has confirmed to Oxus that it has reached agreement with an appropriate insurer to issue the Guarantee, subject to contract”.

In describing the Proposed Subordinated Insured Debt Facility, the prospectus made it plain that Oxus, AGF, Merrill Lynch International (ML), Templeton and other relevant parties had not entered into legally binding agreements to provide for the creation and issue of that facility, the issue and purchase of Notes thereunder or “the other transactions contemplated thereby”. It made it plain that there was a risk that matters would not be agreed and that the facility might not go ahead. The Directors of PLC were therefore telling the world at large that Templeton had not entered into any binding arrangement to obtain any guarantee or Bond in the context of the secondary financing.

Furthermore at paragraph 2.7 of Part III of the prospectus, PLC set out, in a short list, the aggregate number of outstanding warrants. Amongst that list were included 5 million warrants at an exercise price of 15.25p and an exercise expiry date of 8 August 2006. This could only refer to the warrants issued to Templeton dated 8 August 2001. In a footnote to that list the following wording appeared:-

“The company has agreed with Templeton, the owner of these 5 million warrants, to change the exercise price to £0.0775 conditionally upon completion and drawdown of the Proposed Subordinated Insured Debt Facility.”

The prospectus thus spelt out the inter-relationship between the agreement made in August 2001 for the issue of 5 million warrants and the agreement concluded in November 2001. Templeton had 5 million warrants which it was entitled to exercise at 15.25p at any time before 8 August 2006 on an unconditional basis, but if the Proposed Subordinated Insured Debt Facility went ahead, then the exercise price would change to 7.75p. There is not the slightest doubt that PLC was recognising in this prospectus an unconditional right vested in Templeton to exercise the warrants at 15.25p and an additional agreement which accorded Templeton a success fee in the event of its procuring a Guarantee which would be used in secondary finance, in the shape of a reduction in the exercise price to 7.75p.

The third factor consists of the Oxus letters of claim when the Hermes Guarantee proposal collapsed. The letters raise complaints of various kinds but do not at any point suggest that the warrants could not be exercised as the result of any failure on the part of Templeton. Neither the Oxus letter of complaint of 17 September 2002, nor the solicitors’ letter of 20 January 2003, nor the original pleadings in this action, raise the point at all. I conclude that it is an afterthought, put forward on the advice of lawyers who saw a potential argument in the wording of 8 August letter and that this does not reflect the way the parties saw it at all at the time, nor an objective view of this agreement.

Templeton agreed to do very little in order to obtain the 5 million warrants which had already been promised to them on more than one occasion by Mr Wilkins. Originally, on 13 and 14 June, Mr Wilkins and the directors of ORC had agreed to the issue of 3 million warrants to KDIL, in return for KDIL waiving its claim under the 20 December 2000 letter which it maintained gave it an entitlement to sell shares into the IPO. Whilst this was superseded by the Gentleman’s Agreement, after the Oxus Directors had been told by OM that such an arrangement should not be countenanced, the post-dated 9 July letter expressed an irrevocable undertaking to issue 5 million warrants to KDIL in return for its nomination and acceptance of a Directorship, but also in exchange for KDIL’s sub-underwriting of the IPO to the extent of £250,000. Whilst that was effectively intended to be a “stop gap” agreement, it placed obligations upon KDIL which were very limited. Given also its pressing need for secondary finance, the difficulties in finding that and the rationale of the Bond Committee’s memorandum, Oxus had little bargaining power when it came to seek to negotiate the matter following the IPO, when seeking some financial services which would be enough for the Directors to feel they could justify the position to shareholders when issuing the warrants.

Templeton, in the persons of Mr Steele and Mr Brunswick, saw Knox D’Arcy as being owed the warrants by Oxus. Mr Brunswick said he was surprised at the efforts to renegotiate what had previously been set out in the 9 July letter but, as he did not want to be a Director of PLC and PLC did not particularly want a Knox D’Arcy representative on its Board, both parties considered that an alternative arrangement was preferable, although Mr Wilkins’ evidence was that the directorship was still available, if Knox D’Arcy wanted it. The obtaining of secondary finance however was very important to PLC and therefore also to the Knox D’Arcy Group with its investment in it.

Mr Steele however was not prepared to initiate any work beyond what had been done by Mr Brunswick as at 27 July unless the 5 million warrants were issued. As appears from the Bond Committee memorandum and the Board minutes which referred to it, there was little or no “downside” to issuing the warrants and PLC were prepared to risk the issue of 5 million warrants in order to motivate Templeton to deliver an underwritten bond package and to instruct Templeton “to proceed to the next stage, with a view to producing an underwritten term sheet, subject to conditions precedent and consistent with the SG underwritten conditional term sheet”.

The next stage was to start work on obtaining the bond and that was all that the letter of 8 August and the previous discussions envisaged. It meant exploring further the opportunities available following the preliminary investigation carried out by Mr Brunswick, in order to move towards obtaining an underwritten indicative term sheet from an AA insurer, along the lines of the underwritten conditional term sheet which Templeton had already produced on 27 July. As expressed in the letter of 8 August, Templeton was to “proceed with the necessary activity to enable it to provide or procure a Financial Bond”, (my emphasis). All recognised clearly that Templeton was not undertaking an obligation to procure the Bond or Guarantee, since that depended upon so many factors which were outside its or Oxus’ control. It was to proceed with activity which would lead to a Bond/Guarantee being issued, without any undertaking on its part, or warranty, that it would be obtained. It was well understood that the provision of any Bond/Guarantee, whether from the two entities already approached, or anyone else, was subject to contract, subject to due diligence and all the other elements which would have to be resolved before any insurer would agree to a Bond/Guarantee or any lender would agree to advance money on the basis of it.

The warrants were therefore issued on the basis that Templeton would start work to obtain or procure a Bond/Guarantee. The November agreement, concluded in circumstances already described (and covered later in this judgment), shows the clear mutual understanding that it had done that and that it was appropriate, in the new circumstances, for a success fee to be payable after all.

There thus was no contractual undertaking to obtain the Bond at all but merely to proceed with work to seek to obtain it. Templeton puts the matter this way in its Amended Defence:

“The true agreement…was that Templeton would investigate the possibility of Templeton writing or procuring a bond satisfying PLC’s secondary finance requirements…”

On Mr Steele’s evidence, there was never any specific work referred to in the negotiations in July and August, whether in terms of time or progress. There was no minimum amount of work that Templeton was required to do. The obligation was to start the work, which he and Mr Brunswick were otherwise refusing to do. Templeton was to get the warrants for starting the work, in other words, moving on and investigating whether matters could be progressed. It was never expressed any more precisely than that. Whilst therefore the agreement was not to investigate, as such, beginning the work involved that investigation.

There is no suggestion that Templeton did not so proceed, whatever complaint may be made about its performance thereafter or the advice and recommendations it made when doing so. Mr Brunswick’s evidence was that he pressed Mr Fressan of LRM for more information about the Radios proposal, albeit to little effect, and contacted the Burley Group direct also. He attempted to ascertain the substance of Radios and its reinsurers, without success. Mr Fressan was telling him that he was in discussions with the Burley Group about Skandia Bank as the source of secondary funding in order to present a complete secondary financing package, but by the end of September, Mr Brunswick considered that no progress was likely to be made, particularly in the light of the events of 9/11. Mr Brunswick’s focus then moved to College Hill and the events of October and November, which are related later in this judgment. Whilst little was achieved prior to the new agreement reached in November, there is no doubt that work was done by Templeton. The warrants were issued unconditionally to Templeton on 17 August (dated 8 August) without any suggestion that their exercise would be conditional upon successfully obtaining the Bond and work was started, although events were later overtaken by the fresh agreement in November. When the first stage, involving the further investigation of the possibilities, was completed, and it became plain that a Performance Guarantee from Hermes was the only potential route to be followed, then a success fee was expressly agreed in November, payable for obtaining the Bond.

In these circumstances Oxus’ contractual claim cannot succeed. The warrants were issued under seal and there was no agreement that their exercise was conditional on obtaining a Bond or Guarantee. They could not be cancelled as Oxus purported to do in August 2003. The warrants deed is unimpeachable.

In these circumstances, Templeton does not have to show that it gave good consideration for the warrants, because they were contained in a deed. In any event, there was an agreement made in July and August, as set out in this judgment, whereby Templeton agreed to embark on the process of seeking a Bond or Guarantee as consideration for the issue of the warrants. Templeton did that and there can be no question of any total failure of consideration.

To the extent that it matters, the July/August agreement was concluded after the PLC Board had fully considered the question of value for the warrants by reference to the Bond Committee Memorandum. It was made in the light of the rationale expressed in that Memorandum. It was made in substitution or replacement of the agreement evidenced by the post-dated 9 July letter, which constituted an irrevocable undertaking by ORC, within 3 months, to invite Mr Brunswick or nominee to join the Board of PLC and to issue 5m share warrants or options to KDIL on the acceptance of that directorship. That letter, in itself, contained good consideration in the acceptance of a directorship, even though the terms of that directorship were not spelt out. The 9 July letter agreement was also concluded as a quid pro quo for KDIL’s agreement to sub-underwrite up to £250,000 (and the further investment under that agreement that it was yet to make on 2 July of £175,000). Mr Steele acted for both Templeton and KDIL in his negotiations. Thus Templeton can be said also to have procured KDIL’s waiver of whatever rights it had under the 9 July letter, as part and parcel of the July/August arrangements. This was well understood, as can be seen from Mr de Villiers’ draft fax of 8 August, which sought release from the 9 July letter obligations, although it was not sent. As was clear from the evidence on all sides, Templeton’s entitlement to warrants replaced that of KDIL.

The agreement evidenced by the post-dated 9 July letter was designed to appear as if it had been made on 9 July and not 25/27 June, in order to avoid any requirement for disclosure in the IPO prospectus. The responsibility to disclose was that of the directors of PLC, not Mr Steele, and, whoever suggested the post-dating, it is those directors who alone would be liable for the non-disclosure unless Mr Steele assisted in it or took part in it. I do not need to decide whether that agreement might be tainted by illegality, because Templeton was not party to it and the August Agreement was not made pursuant to it, as opposed to the Gentleman’s Agreement. Templeton does not need to rely on it, although I deal with the issue of illegality in what follows.

If the agreement evidenced by the post-dated 9 July letter was void for illegality, then there was a further element of consideration for the July/August agreement, inasmuch as it replaced or varied the 13/14 June Agreement, which remained extant. That agreement, which in turn involved the issue of fewer warrants but at a different price, was “superseded” only by a “Gentleman’s Agreement” made in the afternoon of 14 June, which ex hypothesi was not enforceable, so that the pre-existing obligations remained in being, and were capable of being waived, with the different pricing regime agreed.

If it could be said that the 13/14 June agreement was cancelled as a matter of law, because the parties intended this element of the “Gentleman’s Agreement” to be legally binding, whilst the rest was not, then there could be no waiver of rights under that or variation/replacement of the obligations it imposed in July/August. On this hypothesis however, assuming the agreement evidenced by the 9 July letter is void, there was then no prior waiver by KDIL of its claim under the December letter at any time until finalisation of the warrants arrangements in July/August and Templeton’s procurement of the waiver of that claim also constitutes good consideration for the issue of warrants.

The waiver of the claim under the December letter was plainly good consideration in itself for any warrants that were agreed to be issued. Whilst it was not a watertight claim, as all recognised at the time, it was a bona fide arguable claim which was of value and was treated as such.

At the commencement of its closing oral submissions, Oxus sought permission to amend to plead illegality on a hypothetical basis. That plea related to the 9 July letter, although its case was, as it always had been, that the 9 July letter was no more than a further incident in the Gentleman’s Agreement. I refused permission to amend because of the lateness of the plea and because it was not Oxus case and it did not wish to advance any facts in pursuit of it. Nonetheless, I indicated, as I had much earlier in the trial, that if issues of illegality arose then the court would have to take cognisance of them. On that basis I was addressed by both counsel on the subject.

Mr Bloch QC, for Oxus argued that, if, contrary to Oxus’ case that the 9 July letter agreement was only an incident of the Gentleman’s Agreement, it was intended to be an enforceable contract, it was an illegal contract and void because one element of it was the agreement not to make disclosure of it in the IPO. He pointed out the need for disclosure in the prospectus of any outstanding convertible securities, the remuneration of existing and future directors and of contracts which are material for investors to know. He argued that there was a clear breach of the disclosure regulations made under the Financial Services Act.

The undertaking contained in the 9 July letter was not in itself a contract which was forbidden by law. Although Oxus sought to argue that it was prohibited by Section 151 of the Companies Act 1985, I am unable to see how this can be the case. Oxus was not giving financial assistance directly or indirectly for the purpose of the acquisition of its shares in agreeing to grant warrants in exchange for a directorship. Whilst Section 151 provides that it is not lawful for a company to give financial assistance directly or indirectly for the purpose of the acquisition of its shares, before or at the same time as the acquisition takes place, “financial assistance” is defined in the following section. Here it could not be said that Oxus had made a gift or a loan or that its net assets had been reduced to a material extent by some other form of financial assistance. The agreement was to issue warrants or options in exchange for a directorship. There is nothing unusual about options being given to directors in consequence of their appointment. Moreover, as I have already found, the further investment of £175,000 was also part of the arrangement. There is equally nothing unusual about warrants being issued with shares. Whilst it was suggested in evidence that the issue of 5 million warrants was disproportionate in either context, those 5 million warrants have to be seen in comparison with the 125 million shares issued in PLC. Moreover, as at the relevant date, for all the reasons set out in the Bond Committee memorandum, the value of those warrants was highly speculative.

If there had been no IPO, no question of unlawfulness could arise because the agreement itself would be unchallengeable. The only element which gives rise to any argument of unlawfulness lies in the absence of disclosure in the IPO. This however would not render the agreement evidenced by the 9 July letter (and the further investment) void for illegality. As was pointed out in argument, this is a necessary consequence of the requirement for disclosure which appears in the Financial Services Public Offer of Securities Regulations 1995.

As these regulations provide expressly for compensation to be payable to a person who has suffered loss as a result of an omission in the prospectus, it necessarily follows that any agreement which ought to have been disclosed in that prospectus is enforceable. If this were not the case, there would be no basis for any compensation at all. As Templeton pointed out in argument, if a contract of this kind was illegal, unenforceable and void, there would be no material contract to disclose so that the omission in the prospectus could have no causative effect in giving rise to a right of compensation to a person injured thereby.

Whether or not the contract evidenced by the 9 July letter, with the additional consideration of the sub-underwriting agreement (or investment of £175,000) falls within the ambit of Regulation 9 or not, the agreement itself is not void for illegality. Self evidently therefore the warrants themselves are not in any way tainted or unenforceable.

Although reliance was placed by Oxus on the decision of Megarry J in Spector v Ageda [1973] 1 Ch30 and the passage at pages 43-46, the situation there was entirely different. The loan, which was the subject of the court’s decision, was given and used to discharge another loan which was in part illegal under the Moneylenders Acts. As a matter of public policy, it was held that where the subsequent transaction was entered into by a person who not only knew of the partial illegality of the prior contract, but also was in a real degree responsible for it and was seeking to avoid its consequences, the whole of the subsequent transaction would be affected by the illegality, unless there was some way of showing that the partial illegality of the first contract related solely to some defined portion of the later transaction.

The warrants in the present circumstances, however, were not given in order to fulfil the 9 July letter obligations but were given for a different consideration which included two elements. The first of these was Templeton’s agreement to start work. The second was the waiver of any claim under the 9 July letter which, (if the letter agreement was illegal and void contrary to my judgment), might amount to no consideration in law but would not result in a tainting of the warrants themselves.

As a matter of public policy, upon which all such issues of illegality ultimately depend, I am unable to see why these warrants should in any way be struck down. They stand on their own, without the need for consideration and even if consideration is sought, it can be found without reference to any transaction which is illegal and which could be said to taint it. However the matter is approached, it appears to me that there was good consideration for the issue of the warrants. It is trite law that the Courts will not investigate the adequacy of consideration and the modern approach is much more commercial than was the case in the 19^th Century or early 20^th Century. Consideration is readily found in a commercial context and I have no difficulty in finding it here.

Oxus had a number of alternative points in relation to the contract made, none of which have any impact in circumstances where it has failed in its primary contention that it was a condition of exercisability of the warrants that the Bond be obtained. However:

In its closing submissions, a mistake argument was put forward by Oxus, which was based on the proposition that it could recover the warrants, because it parted with them under the mistaken belief that the Templeton proposal to seek a Bond was a real one which Templeton had investigated and intended to pursue. On my findings, it was a real proposal and Templeton did intend to pursue it, as it subsequently did.

In consequence, Templeton is entitled to rely on the terms of the warrants as issued and Oxus’ claims in relation to them fail.

The restitution claim, seeking the return of the bond/guarantee, falls with the determination of the contractual claim and the rejection of the arguments as to total failure of consideration and mistake. In these circumstances, no question of unjust enrichment arises, nor unconscionability in Templeton’s retention or exercise of the warrants. There is no illegality in the contract which lay behind the deed and no breach of it which could result in any restriction on the exercisability of the warrants.

In paragraphs 46-51 of the Amended Particulars of Claim, Oxus maintain that Templeton owed an on-going duty of care in the statements which it made and in the recommendations, assurances and advices given by it to Oxus in connection with the raising of secondary finance for the Amantaytau Project. It is said that Templeton should have provided information and advice to Oxus in relation to all matters relevant to the obtaining of secondary financing for the project and should not have provided misleading information as to the likelihood that it would be able to provide or procure secondary finance by means of a Performance Guarantee. It should have disclosed to Oxus all information which it knew and which Oxus might reasonably require to know prior to entering into what is described as “the November Agreement” and during the course of the work required to implement Templeton’s revised scheme for obtaining secondary finance. It is said that Mr Steele and Templeton held themselves out as financial consultants and experts in secondary finance and in the arrangement of such finance through the mechanism of a Financial Indemnity Bond or Performance Guarantee.

There is little dispute as to the relevant law. A duty of care arises when, expressly or by implication, one party assumes or undertakes a responsibility to another Hedley Byrne & Co Limited v Heller & Partners Ltd [1964] AC 456 page 483. An assumption of responsibility arises in circumstances where a person has a special skill and he undertakes to apply that skill for the assistance of another who replies upon it (ibid at pages 502 and 514). The duty imposed upon a party in these circumstances includes a duty to give careful advice and accurate information (ibid page 523) and in all circumstances and in any event the person giving the information or advice owes a duty to be honest (ibid page 496).

An obvious example of a case where duty of care arises is in the context of insurance broking. A multitude of authorities show that the broker owes a duty of care to his client, the insured or re-insured, when effecting insurance or reinsurance, although the exact ambit of that duty necessarily varies according to the circumstances of the case. The fact that the broker receives its remuneration by way of commission payable by the other party to the contract is irrelevant in this context but the vast majority of the reported cases deal with the position where insurance or reinsurance cover has been obtained or purportedly obtained by the broker and criticism is made of it in relation to the actual placement or purported placement. This is unsurprising, since, in the ordinary way, limited costs are incurred in the pursuit of a contract which does not materialise and the client knows from the outset that until a contract is made with the insurer or reinsurer, as the case may be, there is no certainty of any cover and expressions of optimism by the broker are no more than that and cannot be relied on because there is no obligation upon the insurer or reinsurer to grant the cover.

The broad thrust of Oxus allegations centre on the following failures:-

It is further alleged that Templeton actively discouraged Oxus and others from obtaining any advice in relation to the mandate of College Hill and letters of July and August 2002 are relied on in this context.

It is alleged that by reason of these various failures on the part of Templeton, Oxus acted to its detriment in incurring considerable costs and expense in putting the revised scheme into place, all of which were wasted as the Bond/Performance Guarantee was not ultimately obtained. Hermes refused to write the Guarantee which Mr Higgins of College Hill wished to write in its name and, as a consequence of this refusal, Oxus was unable to comply with a condition precedent in the SG primary finance arrangements. In consequence, the proposal to borrow that primary finance of $31m from SG collapsed and SG withdrew in December 2002. Under different control and largely different management, in April 2003, Oxus managed to put in place new project financing with a credit agreement with Standard Bank London Limited and West LB AG, under which it borrowed $36m to bring the project into production, having managed to reduce its borrowing requirement from $41.9m to $30m plus $6m overrun. The project has been successful and Oxus now appears to be thriving (hence the dispute over the warrants, since its shares are now valued at about 66p).

The amounts claimed in respect of wasted costs are the fees of Templeton, SG, CMcK, DWS, Salans and various other lawyers or accountants which were engaged at one time or another in relation to attempts to obtain primary and secondary financing, prior to the collapse of the SG financing proposal. The sums in question amount to something a little short of £1.5m.

No claim in contract is now pursued for failure to obtain the Bond. As I have already found that there was no such contractual duty, no such claim could succeed. Equally however no claim is put on the basis of any failure to observe any other contractual obligation but in essence it is said that Templeton had a special relationship with Oxus which required it to exercise due care and skill in providing information, advice and recommendations to Oxus in relation to the obtaining of secondary finance.

At the outset it is worth noting that it is accepted by Oxus that at all times prior to the collapse of the Performance Guarantee proposal at the end of October 2002, the project arrangements with various providers of secondary finance, including Barclays Capital, ML and SG were subject to contract and that the project arrangements with College Hill, acting for Hermes, fell into the same category. The May 2002 prospectus, to which I have referred earlier in this judgment, was an express recognition of this. There was thus, on any view of the matter, the possibility that any one of these entities would fail to participate in the structures suggested without room for any recourse against it. In sequence, Barclays Capital, ML, Hermes via College Hill and SG did pull out between late 2001 and the end of 2002.

In order to succeed on this part of the claim therefore, Oxus has to show that Templeton not only owed the duties alleged but breached them and that such breaches caused these entities to pull out of the proposed arrangements. Oxus has to show that, in consequence, costs were unnecessarily incurred by Oxus under the various agreements by which it undertook to pay those entities their fees and its own advisers their respective fees. Quantum is outside the scope of this hearing but what Oxus has to establish is that, but for the acts of omission of Templeton, in breach of duty, it would not have spent time and effort in pursuing the Hermes Performance Guarantee nor engaged the various professionals to work on the proposal with consequent incurring of fees.

Mr Steele is not a Director of Templeton although Templeton is ultimately 100% owned by Mr Steele’s Family Trust. Templeton has its own Board of Directors and, in ordinary insurance matters, operates without Mr Steele’s involvement. In the circumstances which arose in relation to Oxus, Mr Steele was heavily involved and acted both for KDIL and Templeton, albeit without any official authorisation. There is not the slightest doubt however that Mr Brunswick, as Director of both KDIL and Templeton, was entirely content for Mr Steele so to act, because both these companies were ultimately owned by Mr Steele’s Family Trust. At all times therefore he acted for one company or the other in the context of this transaction. Templeton would therefore be responsible for what was said by both Mr Brunswick and Mr Steele, in the context of seeking to obtain the Performance Guarantee from Hermes.

Mr Steele, in this context had only derivative information from Mr Brunswick who was in touch with Mr Higgins of College Hill and in due course, Mr Felstead of LRM who also liaised with Mr Higgins for Templeton. Mr Steele had no direct contact with Mr Higgins at the relevant time. Furthermore, at all material times, I find that Oxus, in the shape of Mr Wilkins and Mr de Villiers, knew that Templeton at all times dealt with College Hill and never made any direct approach to Hermes in Germany. They were told that this was the point of contact and that this was the appropriate channel of communication. Mr Wilkins in fact carried out his own independent enquiries into College Hill, including enquiring of Mr Speller. He ascertained that Hermes annual accounts referred to College Hill as its representative and contact point in London and that it had full authority to act to bind Hermes. At some stage he also understood that College Hill was entrusted with a Hermes seal and did apply it to instruments issued by it. Mr Higgins was well known in the world of surety cover.

As already mentioned, Templeton is a licensed insurer. It is not an insurance broker although it has subsidiaries which engaged in that activity. Here, in July and August, it appears to have contemplated giving a bond or guarantee as an insurer, with a secondary bond or guarantee at an excess level from an AA reinsurer, or some bond/ guarantee in its favour, equivalent to reinsurance with a retention. Alternatively it might simply obtain a direct Bond/Guarantee from such an insurer. In circumstances already referred to, and as set out later in the judgment, however, in October and November 2001, Templeton agreed, for a success fee, to seek to obtain a Performance Guarantee from Hermes, somewhat in the manner of an insurance broker. As the Oxus witnesses accepted, there was no contractual duty to obtain it. At its highest, Oxus witnesses considered, in Mr de Villiers’ words, that Templeton was bound to use its best endeavours, although I do not see how even this can be spelt out. The agreement was, simply, that if it obtained such a Performance Guarantee, Oxus would pay it a success fee. This was its incentive to obtain it, just like an insurance broker who earns his commission, payable by the insurer, with the consent of the insured.

The question arises as to what duties Templeton owed in common law as well as contract. It is clear that, in acting for Oxus in seeking to obtain the Guarantee, it would, like any other entity in such a position be liable for any negligent or fraudulent misrepresentations. Previous claims based on misrepresentation, negligent misstatement and breach of warranty as set out in the original Particulars of Claim, with an allegation that KDIL was the alter ego of Templeton have been abandoned and only the amended claim, as it now stands, is pursued, based on statements, recommendations, assurances and advice.

Despite some ambiguity in the nature of the claim being pursued, it is clear that Templeton assumed no more than an introductory role in relation to the raising of the secondary finance as such, whilst it was involved directly in the obtaining of a Bond or Guarantee which could be used as security in order to raise such finance. Whilst Mr Steele introduced Mr Schmeltzer of ML when Barclays Capital dropped out of the picture, introduced Deutsche when ML also dropped out, and explained the nature of the envisaged structure to them on such introduction, the responsibility for finding a lender who would advance money on the back of the projected Guarantee, never rested upon Templeton, Mr Steele or Mr Brunswick. That was always a matter for Oxus, albeit that Mr Steele was anxious to help if he could, because of the Templeton investment in Oxus.

Although Mr Steele recognised that, assuming the structure could be put together so that the AA insurer’s guarantee really did adequately secure the Oxus borrower’s obligations to the provider of secondary finance, the raising of finance on the back of the Guarantee ought not to be problematic, all knew that raising money in this way was a novel idea, and that there were issues as to the form of the Guarantee and whether what had to be written as a Performance Guarantee would suffice for a lender’s requirements for security. It was not part of Templeton’s responsibility to ensure that a particular form of Guarantee would be acceptable as security to a potential lender, nor to advise as to its suitability in that regard. Oxus and the potential lenders had their own personnel and advisers for that.

The wording and structure of the Performance Guarantee arrangements had to be negotiated and Templeton’s part was to liaise with Oxus, the potential secondary lenders and their advisers and with the insurers and to report back on what would and would not be acceptable to those insurers in this context. Templeton would seek to obtain from insurers, on Oxus behalf, agreement to a structure and wording which would achieve Oxus’ objectives for secondary finance security

As appears later in this judgment, issues arose because the projected lenders wished to have a form of Guarantee from Hermes which was as much like a Financial Indemnity Bond or Financial Guarantee as possible, whilst College Hill, acting for Hermes, could only write Bonds or Guarantees which could properly be characterised as Performance Bonds or Performance Guarantees. Throughout the whole of the period between 9 October 2001 and November 2002, all those involved in the discussions, whether at Oxus, Templeton, College Hill, the prospective lenders and all their respective lawyers, were conscious of the need to formulate a Performance Guarantee which College Hill could write but which would meet the need of the lenders as a form of security in respect of an Oxus default on the projected loan arrangements. The use of Performance Guarantees in this way was known to be a novel idea. Neither Oxus nor Templeton had any prior experience of it, as each had told the other. What was achieved was a set of documents which were acceptable to all the parties to the transaction, including Hermes’ agents College Hill, but which was not acceptable to Hermes itself.

There is no doubt that the suggestion that Oxus might utilise a Bond as a means of raising finance emanated from Mr Brunswick in a conversation with Mr Wilkins on the latter’s return from holiday in July 2001. Templeton had been involved in the issue of three Performance Bonds with Hermes although none were of the size of the financing involved here. Templeton had also been involved in the issue of some 23 Financial Guarantees. None of these transactions occurred in a similar context to what was required here. Performance Bonds were, of course, in common use in the field of construction contracts, but to use them as a means of raising finance in the world of mining, was an entirely different matter.

Between 20 and 27 July, in circumstances to which I have already referred in this judgment, Mr Brunswick set about investigating the possibility of obtaining a Bond or Guarantee which could be used as security upon which financing could be based. In that time he made contact with Mr Higgins of College Hill, which he knew only wrote Performance Guarantees and the Burley Group, which he understood to be in contact with Radios which could provide a Financial Indemnity Bond. In order to obtain expressions of interest, he had sent them copies of the SG proposal and an Oxus cash flow model. As appears from Mr Brunswick’s letter of 23 July and the Burley Group letter of 27 July (referred to earlier in the judgment), the idea at that stage appears to have been that Templeton might well write part of the Bond with a secondary form of Bond from Radios. Templeton were talking of being prepared to “write or to procure” the provision of a Financial Bond, whilst envisaging that any such Bond would be ultimately backed by S&P AA rated security. The mechanism for such a Bond does not appear to have been fully worked out, although the Burley Group refer to a £12.5m Bond to be obtained from an AA rated carrier subject to retention of £2.5m, which would be borne by Templeton itself, which of course did not have a AA rating. This is what Mr Steele appears to have conveyed to Mr Speller. The expression of interest from Mr Higgins was even more general.

At this stage all that Mr Brunswick was doing was indicating that there were possibilities in the market, well knowing that Templeton’s offer of a Bond was of no use at all unless there was backing from a AA rated entity which would provide “credit enhancement” which could result in a bank being willing to lend on the basis of that security.

The 27 July letter contained a “fully underwritten conditional offer to provide a Financial Indemnity Bond” with a terms sheet enclosed and made reference to two expressions of interest, namely Hermes and Radios (described as Radion). The indicative term sheet was headed “Templeton” and it appears that, at this stage, it was still envisaged that Templeton itself might underwrite the Bond, although Mr Brunswick’s evidence was that he was contemplating one of those two entities providing the Bond to Oxus without any involvement of Templeton.

At all events, whatever Mr Steele may have said about the prospects of obtaining a Bond or Guarantee from Hermes or Radios in his conversation with Mr de Villiers on 6 August and about a preference for Hermes (and Mr Steele denied that he would ever have said that Oxus had a high chance of success of over 80%), the position initially was that Mr Brunswick’s focus at the early stages was more upon Radios. Following Mr Brunswick’s return from holiday some two thirds of the way through August, and over the next month and a half, whilst Mr Wilkins pursued other possible avenues for finance, Mr Brunswick’s view narrowed to one realistic possibility only, namely a direct Performance Guarantee from Hermes. Whilst Mr Wilkins had been investigating other possible means of financing which had nothing whatever to do with Templeton, Mr Brunswick was unable to obtain any satisfactory information with regard to Radios or to its reinsurers who, it appeared, were supposed to have a high S&P rating. Enquiries by Mr Fressan and the Burley Group itself resulted in nothing of any substance. The only option, so far as Mr Brunswick and Mr Steele were concerned, therefore became College Hill, since Mr Brunswick effectively had no other contacts to pursue with regard to this type of arrangement.

On 7 September 2001 Oxus had signed a preliminary agreement with SG in relation to the primary finance it was seeking, with the usual commitment letter and mandate letter. Mr Wilkins was seeking information from Mr Brunswick as to the progress he was making whilst Oxus was also pursuing another form of finance through its adviser Endeavour Financial Corporation Inc (Endeavour). The events of 11 September (9/11) threw the world wide insurance industry into a state of uncertainty and at about this time the Enron disaster was hitting the headlines and putting insurers and financiers off unusual forms of financing and bonds. The possibility of obtaining Financial Bonds looked bad.

On 24 September, on Mr Wilkins’ evidence, he was told by Mr Brunswick that although Radios could write the Bond, it was not AA rated and reinsurance of Radios’ risk was currently not available due to market conditions. Mr Wilkins continued discussions with Endeavour and Barclays who were advising upon the primary finance also.

On 9 October Mr Wilkins met with Mr Speller who told him that the UK underwriter for Hermes was Mr Higgins at College Hill and that College Hill could write up to £5m in Bonds on behalf of Hermes without referral to Germany. Mr Speller asked whether Hermes would write two different Bonds to a total of £10m and suggested that Mr Wilkins obtain written confirmation of the offer.

Following that meeting, Mr Wilkins telephoned Mr Steele the same day and discussed the position with him. I heard evidence from both Mr Steele and Mr Wilkins about this conversation and Mr Wilkins’ diary note shows the nature of the conversation, although not the exact detail of it. Whilst reference was made to Radios and its reinsurer, which remained unidentified, and to a premium of 4½% which was considered too high, Mr Steele also referred to Hermes and a conversation took place about the nature of Financial Guarantees. Whilst Mr Wilkins’ diary note is unclear, it appears from it that, although part is deleted, Mr Steele explained to him that a Performance Guarantee involved Hermes guaranteeing the performance of AGF to Oxus in respect of a contract between them. Mr Steele was passing on what Mr Brunswick had told him, namely that Hermes was preferable to Radios, because it was likely to be cheaper. Mr Steele also told Mr Wilkins that Mr Brunswick had explained to him that Hermes did not write Financial Guarantees although it could and did write Performance Guarantees. Any deal with Hermes would therefore have to be structured so that the document signed was a Performance Guarantee, which was intended to have the same effect as a Financial Guarantee. This had been discussed with Mr Higgins himself who had suggested a contract between ORC and AGF pursuant to which AGF would be obliged to get the mine into production and attain various target levels of delivery of gold which could be turned into cash flow. Those obligations would be the subject matter of the Guarantee.

It is plain from Mr Wilkins’ confused note that Mr Steele had attempted to explain a Performance Guarantee to him but Mr Wilkins construed his note as showing that he had been told of a firm £5 million Financial Guarantee on offer from Hermes and a further £5 million Performance Guarantee which was not firm. I reject that interpretation and in cross- examination, Mr Wilkins did accept that the distinction between a Performance Guarantee and a Financial Guarantee was explained to him and that he had recorded that the Performance Guarantee was to guarantee cash flow or gold production from the mine. He also thought that Financial Guarantee was described to him as a guarantee of cash flow on behalf of Oxus. An examination of the note, when combined with Mr Steele’s evidence and the inherent commercial probability, given Templeton’s knowledge that College Hill only wrote Performance Guarantees results in the conclusion that Mr Wilkins was being told of two Performance Guarantees of 5 million each from Hermes, through College Hill, of which one was firm but the other was not. Despite the deletion in the note, he was being told that a Performance Guarantee would guarantee the performance of AGF to Oxus and was to be the equivalent of a Financial Guarantee, in as much as it did guarantee cash flow by means of guaranteeing production of gold.

The note contains no reference to Hermes or College Hill’s requirement to write a Performance Guarantee because they would not write Financial Guarantee but it appears to me inevitable that the rationale for the Performance Guarantee structure must have been explained to Mr Wilkins. It does not seem to me to be credible to imagine a conversation taking place in which a structure of this kind was explained without an explanation of the need for it. I find therefore that, in accordance with Mr Steele’s evidence, not only was the difference between Performance Guarantee and Financial Guarantee explained and probably in sufficiently clear terms so that Mr Wilkins should have grasped it, but that Mr Wilkins was also told that College Hill/Hermes did not write Financial Guarantees of the ordinary variety or Financial Indemnity Bonds along the lines of the specimen which had been supplied with Mr Brunswick’s letter of 27 July. That was of no importance to Mr Wilkins, as long as finance could be raised on the strength of the instrument provided.

It will be recalled that, in their conversation on 27 July, Mr Brunswick had already told Mr Wilkins of the different products available from Hermes and Radios. This however was plainly a more detailed explanation, since the two were being compared so that a decision could be made as to the route to pursue. In such circumstances, the details and rationale which lay behind the Performance Guarantee, must have been explored, although Mr Steele was no expert in insurance.

On 9 October Mr Brunswick also wrote to Mr Wilkins relaying a firm offer of a Bond from Radios (described as a Swedish insurer) but at a rate of 4.5% per annum plus a commitment fee. The problem of the identity and security of the reinsurer was mentioned. The letter referred also to the indication from the London market (College Hill) of an offer of a £5 million Bond on S&P AA paper, plus the possibility of a further £5 million. Those Bonds were expressed to be “subject to agreeing wordings and any collateral”. This letter was required by Mr Wilkins for presentation to the PLC Board which met on 11 October but, in the meantime, on 10 October Mr Brunswick also had a conversation with Mr Wilkins, explaining that he was meeting with College Hill that day. Mr Wilkins was alarmed at Radios’ indicated premium of 4½% and Mr Brunswick said he thought that the premium with Hermes was likely to be less. Mr Brunswick’s evidence was that during that conversation with Mr Wilkins he also explained the difference between the products being offered by Radios, on the one hand, in the shape of a Financial Guarantee and Hermes on the other, in the shape of a Performance Guarantee. In his witness statement, Mr Brunswick said he vividly recalled this because he spent some time explaining to Mr Wilkins how he had described to Mr Higgins, shortly beforehand, the way in which a mine was constructed and brought to production, so that Hermes could guarantee the working of the mine and the production of gold. Mr Brunswick explained that the Performance Guarantee route was likely to require a more complicated structure than the Financial Guarantee route but pointed out that Performance Guarantees were well known in construction projects, though novel in the mining industry.

I am satisfied on the evidence of Mr Brunswick and Mr Steele, reinforced by the documents, that both of them had explained to Mr Wilkins before the time of the PLC Board meeting on 11 October, the difference between Performance Guarantee and Financial Guarantee. He had also been told the reason which lay behind the need for the Hermes Guarantee to be a Performance Guarantee. At this stage Mr Brunswick had ascertained what products were available on a “in principle”/“indicative term sheet” basis, although nothing had been produced by College Hill beyond the original expression of interest. From Mr Brunswick’s perspective, in order to progress either the Radios or the Hermes proposal, further work would be required and Mr Wilkins had to decide whether he wanted to go down either of these routes or any other route which was available to him through Oxus advisers.

At the Board meeting of 11 October, PLC’s Directors discussed the proposals set out in the 9 October letter from Templeton and the convertible bullion related asset (COBRA) proposed by PLC’s financial advisers Endeavour. The Board considered the information available in relation to Templeton’s proposals to be too vague to form a real view as to the likelihood of obtaining such a Bond on acceptable terms and the difficulties in dealing with security but agreed that “Templeton be asked to proceed, wherever possible, to firm quotes, supported by detailed indicative term sheets for review by the company.” It was however agreed to proceed with the alternative bullion related asset proposal as the preferred financing option.

Having discussed the matter with Mr Higgins, Mr Brunswick received a letter from Mr Higgins dated 19 October 2001 enclosing a proposed Bond wording which met with College Hill’s approval. That was a wording suggested by Mr Higgins based on previous guarantees he had issued. The letter said that he did not anticipate any difficulty in being able to assist on the bonding front, subject to the usual underwriting criteria, including cash flow projections, project insurances and particularly Political Risk insurance (PRI). No premium was referred to in that letter but Mr Brunswick called College Hill and spoke to Mr Higgins’ son, also an underwriter, who indicated that it would be 2%. After that Mr Brunswick spoke again to Mr Higgins senior about the details of the transaction and his underwriting criteria and the form of the Guarantee which College Hill was prepared to provide.

In discussion with Mr Steele thereafter, the latter said that Templeton should negotiate with Oxus for a success fee payable if the deal went through and in consequence the letter of 26 October, to which I have already referred in this judgment was sent by Mr Brunswick. Not only did it explicitly explain the nature of a Performance Guarantee but it enclosed a copy of the form of Guarantee which Mr Higgins himself had put forward. This constituted a prepared agreement by Hermes to indemnify Oxus against loss suffered by it as a consequence of an act of default by AGF in respect of any term or terms of its contract with Oxus. The idea, which had plainly been discussed with Mr Wilkins, was that Oxus would lend money to AGF, based on the loan to it from the secondary lender. AGF would use the money to excavate the mine and deliver gold to Oxus in accordance with a pre determined schedule which was related to the repayment of the loan (the equivalent of cash flow). The letter set out the fees payable to College Hill and Templeton.

In addition Mr Brunswick wrote a confidentiality letter to Mr Wilkins and on that very day Mr Steele met with Mr Wilkins and Mr de Villiers and went through the two letters of 26 October with them. The reason for the confidentiality letter, as explained by Mr Steele, was that Templeton did not wish to be cut out by Oxus. The scheme was seen as a novel way of raising secondary finance on the back of a Performance Guarantee and Templeton did not want Oxus taking it and using it without reference to Templeton. Oxus’ directors raised no objection to signing the confidentiality agreement and did so. This letter accompanied the 26 October engagement letter which sought a success fee should the Performance Guarantee be obtained from Hermes.

Although Mr Wilkins’ evidence initially was that he was not told on 9 October, 10 October or 26 October that Hermes could not write Financial Guarantee, he said that he accepted the confidentiality agreement because he knew that it was a novel transaction, where a Performance Guarantee was being used which was intended to have the same effect as a Financial Guarantee. He personally was not interested whether it was Financial Guarantee or Performance Guarantee. All he wanted was a form of security upon which he could raise secondary finance. Mr de Villiers’ evidence was that, after receipt of the letter of 26 October, which spelt out that Hermes would write a Performance Guarantee, Oxus wanted to know why and were told that College Hill could write a Performance Guarantee because it wrote it for the construction industry. He accepted in cross examination that he became aware, largely through discussions with Mr Brunswick, which he could not date, that the limitation was on what College Hill was capable of writing. He understood also that Financial Guarantee was unlikely after the Enron debacle. He also accepted that he knew “since October” that the change from Indemnity Bond to Performance Bond was because he had been told by Mr Brunswick that Hermes only wrote Performance Guarantees, not Financial Guarantees.

It mattered nothing to Oxus what the form of guarantee was, as long as it achieved the desired result of enabling Oxus to raise finance. Its prospects of successfully raising funds in any other way were limited even at this stage and by about the end of November, it appears that there was really no alternative proposal available to Oxus, although it continued to look for other options. The reality was that Oxus felt it had no real choice but to explore the Performance Bond route and took the decision to do so, in the full knowledge that it was a novel means of raising finance, where there was considerable risk of an abortive transaction. The absence of any current plea of misrepresentation, after earlier pleas, is doubtless based on the impossibility of showing any reliance on anything said which caused Oxus to pursue this route, as opposed to any other. All it now says is, that if it had been given the information of which it claims ignorance, it would have done nothing and not incurred any expenditure on what turned out to be an aborted transaction. That in itself is unlikely, since Oxus had to raise finance in order to proceed with work on the Uzbekistan gold mine.

I am entirely satisfied that, by the end of 26 October meeting, both Mr Wilkins and Mr de Villiers must have been fully aware that College Hill/Hermes (which were regarded as one and the same) did not write Financial Guarantees. There could have been no other reason for structuring the transaction in this way and they could not have failed to ask the reason, if they did not already know it. The confidentiality agreement was only explicable in this context – safeguarding the confidentiality of this novel form of guarantee on which finance could be raised. If College Hill, for Hermes, had been prepared to write a Financial Guarantee then none of the projected structure would have been necessary. It would have been much simpler and easier to proceed along that route. Mr Wilkins’ diary note evidences a full discussion on the nature of the Performance Guarantee, as well as referring to the success fee which Templeton was seeking. According to Mr Steele, at that meeting Mr Wilkins confirmed that his own investigations had thrown up doubts about Radios, quite apart from what Mr Brunswick had said, and Oxus decided that Templeton should pursue the Hermes route.

On 1 November Mr de Villiers wrote to Mr Brunswick seeking clarification of matters raised in the letters of 26 October and at the meeting as relating to the Performance Guarantee which College Hill was contemplating. The letter showed some misunderstanding of the definitions in the draft Performance Guarantee but asked whether the commitment fee sought was payable to Hermes and was a deposit in respect of premium payable and would be deducted from premium if the matter went ahead. He also wanted to know if the deposit would be refundable if it did not. Oxus was showing its cash consciousness. He also asked for a completed offer in writing from Hermes, in order to put it before the Board to justify making such payment.

Following some discussion between Mr de Villiers and Mr Steele, on 5 November, Mr de Villiers enclosed a re-draft of some elements of the proposed Performance Guarantee wording and asked for confirmation that this was the basis of the offer, whilst Mr Brunswick took up the question of the commitment fee with Mr Higgins. On the same day, Mr Higgins, after discussions with Mr Brunswick, wrote to him, confirming that he would keep his offer open until close of business on 23 November, subject to receipt of a commitment fee of £40,000. He also said he would keep it open until the 17 January if a further £75,000 was paid prior to close of business on 23 November. His evidence was that he did not think Oxus seriously intended to proceed with the Guarantee, as such little progress had been made since July. He expressed disappointment that his previous offer (set out in Templeton’s 26 October letter) had not been accepted. and indicated that if he had not heard further by the close of business on 9 November, he was not prepared to spend more time on the matter.

By a letter of 6 November Mr Brunswick wrote to Mr Wilkins explaining the position on the commitment fee and stating that “should the proposed contract be unacceptable to Hermes”, the £75,000 commitment fee would be refunded but that the £40,000 was payable to extend the offer period and therefore would not be. The commitment fees were not however part of the premium and were over and above any premium to be paid. Both Oxus and Templeton agree that the “contract” which is referred to, so far as acceptability is concerned, is the ORC contract with AGF. The draft amendments put forward by Mr de Villiers were said to have been orally agreed by College Hill, but that confirmation in writing should be forthcoming shortly.

The de Villiers’ revisions to the wording were made after discussion with Barclays Capital, which had confirmed that the revised wording could be the basis of a “bankable document”, upon which finance could be raised. On 15 November, Mr Higgins wrote to Mr Brunswick confirming his agreement to that form of words for a £10m guarantee (or US equivalent) and by the letter of 22 November Mr Brunswick passed on that agreement to Oxus in his letter which followed the format of the earlier 26 October letter save for the new commitment fee and the changes in the success fee to which I have already drawn attention in the earlier part of this judgment.

Once again, on 23 November 2001, Mr Higgins wrote to Mr Brunswick confirming that he did not anticipate any difficulty in issuing the required Bond in the agreed format which was attached. The letter set out the various matters upon which he would require to be satisfied before writing the Guarantee. The letter made it plain that the wording of the Guarantee guaranteed the performance of a contract between Oxus and AGF but that there was no objection to the benefit of that being assigned to a lender. A copy of that letter was sent on to Mr Wilkins, who refers to it in his letter of 30 November, when notifying Mr Brunswick of the payment of the commitment fee on the last day of the deadline, which had also been extended by Mr Higgins letter of 23 November. The letter from Mr Higgins, seen by Oxus, was, as always, set out on letter-heading which had Hermes name and the initials “CH” in bold in the top right hand corner, with College Hill’s name on the left, “on behalf of Hermes”. Also Oxus’ directors knew that at all times, Templeton was dealing with Mr Higgins at College Hill, not with Hermes in Germany.

Before accepting the terms of engagement put forward by Templeton and paying the commitment fee, Oxus had received advice from Mr Speller on the Performance Guarantee proposal. Oxus had at all times access to advice from Barclays Capital, Endeavour and from solicitors, quite apart from the financial expertise on the Board itself.

Barclays Capital had expressed an interest in providing the finance itself against provision of a guarantee, once it heard of the possibility, but had not made any commitment to do so. An e-mail from Mr Daley of Barclays Capital to Mr de Villiers refers to a conversation between the former and Mr Brunswick, who was not prepared to do any more work unless there was a mandate to proceed in accordance with his 22 November letter. Discussions with him had revealed that Templeton was saying that the starting point for any drafting had to be the contract between AGF and ORC and the Performance Guarantee structure, to which the financing documents had to be accommodated. Barclays Capital’s view was that it was best to start with the loan structure for Mr Brunswick to take to Hermes to ascertain if it would support it with a guarantee. Barclays suggested that Templeton be offered a success fee to motivate Templeton to “sell” the structure to Hermes. This clearly highlights the inherent tension between a proposed lender, which was looking for something in the nature of a Financial Guarantee and College Hill, which was clear that it would only write a Performance Guarantee. This understanding must have played a part in Oxus’ willingness to agree to the success fee, which it did, when they paid the commitment fee on 30 November.

However, by a letter of 17 December 2001 Barclays expressed an inability to submit a proposal to finance Oxus, due to the lack of information available on the Guarantee Hermes would be providing. This must have been foreshadowed, since, at the end of November, Mr Wilkins asked Mr Steele whether he knew anyone who might be interested in providing funds for the proposed subordinated loan and who might be able to move more quickly than Barclays appeared willing to do. In consequence Mr Steele approached Mr Schmeltzer who was Managing Director of Structured Credit at ML. He spoke to him on the phone and explained the background and this led to a letter from ML expressing interest on 29 November, albeit referring to a Financial Guarantee insurance policy issued by Hermes. This was corrected by Mr Steele but the letter was passed on to Mr Wilkins who paid the commitment fee to Templeton the following day.

At a Board meeting held on 3 December, Mr Wilkins reported that “a firm offer of an insurance guarantee for £10m (or US dollar equivalent) had been received from Hermes” via Templeton and set out the projected terms. The minute refers to a specimen wording of the Guarantee which had been received “but would need to be modified once the terms of the contract between Oxus and AGF had been agreed”. The minute makes it plain that the Guarantee was intended to “guarantee the performance of AGF pursuant to a contract to build a mine in accordance with an agreed specification and produce and sell gold so as to deliver a minimum pre-determined cash flow to Oxus. On the basis of that pre-determined cash flow, Oxus would seek to borrow £10m from an appropriate source secured by the Guarantee” and went on to refer to the contract with ML and its “subject to contract” offer to place and/or underwrite a Corporate Bond to be issued by Oxus, secured by the Guarantee. The 17 January deadline (in the 22 November letter) was noted in respected of the Hermes offer.

Mr Steele arranged a meeting between Mr Wilkins and Mr Schmeltzer and his colleague Mr Essome which took place on 10 December. On that occasion Mr Steele effected the introductions and gave Mr Schmeltzer some background on the current position, including information on the Hermes Performance Guarantee, against which ML were to be asked to raise the money. Hermes would be guaranteeing the construction of the mine and the delivery of gold within a specific time frame to a specific value. That gold would be used not only to repay the ML financing, but also to service and eventually pay back SG’s primary loan. Mr Steele’s evidence is that he once again pointed out that Hermes could not give a Financial Guarantee, although it could give a Performance Guarantee and that this was the basis upon which the documents had to be drafted. Mr Wilkins did not recall that being said in his presence but once again I find that it was inevitable that such a matter should be canvassed, because it was the reason lying behind the structure which had to be put in place and with which ML had to work. Mr Schmeltzer explained during the meeting, according to Mr Steele, that a Performance Guarantee was likely to mean a higher rate of interest on the financing (whilst attracting a lower premium for its provision).

ML had in-house lawyers who could advise on the matter but in due course brought in Allen & Overy (A&O). Oxus had its own internal lawyer Mr Lesser who drafted the loan agreement and performance contract between ORC and AGF. At this point it became necessary to engage lawyers to act in College Hill’s interest.

In Mr Higgins’ statement, he said that, because he had dealt with Mr Brunswick for some time, he was happy for him to carry out the necessary due diligence for Hermes and to protect its interests, making it clear that Mr Brunswick should deal with Oxus alone and that Oxus should not contact him direct. He told Mr Brunswick that it was up to him to retain lawyers and that College Hill would not bear any legal costs but that it would be his decision whether to proceed with any Guarantee on the basis of what had been drafted. The underwriting decision would remain his whilst Mr Brunswick could deal with the details of the various documents and requirements and bring them to him for consideration and decision making.

In these circumstances Templeton sought to engage TG in the person of Mr Goodworth but because it became plain that matters had to be dealt with urgently in order to meet the 17 January deadline, Mr Goodworth felt unable to act in the light of other pressing commitments. A meeting between Mr Steele, Mr Brunswick, Mr de Villiers, Mr Wilkins and Mr Goodworth therefore proved abortive. Nonetheless, at that meeting, there was again a full discussion of the nature of the transaction and of the documents which had to be drafted for the secondary funding, which was to be raised with the benefit of a Bond underwritten by ML and backed by a Hermes Performance Guarantee. Once again I find that the need for a Performance Guarantee was spelt out, since it had to be for the purpose of giving instructions for drafting. Equally the reason for this must have been expressed, in the presence of Mr Wilkins and Mr de Villiers. When Mr Goodworth said that he could not act, he recommended another, firm Salans Hertzfeld & Heilbronn HRK (Salans).

Mr Steele met a representative of Salans on 21 December. The same process of giving information and instructions must have taken place. The arrangement was that, although Templeton was Salans’ client, it was engaged on behalf of College Hill and, as is common in the context of financing, all the fees were to be paid by Oxus. Salans’ engagement letter of 21 December 2001, sent to Templeton was not therefore signed by Templeton, since it provided for Oxus to be responsible for Salans’ fees in the first place but Templeton to be responsible in default. It also sought a payment on account of costs.

Unsurprisingly perhaps, little was done over the Christmas period save that Mr Lesser drafted the AGF/ORC “Performance Contract” and in January 2002, after returning from his Christmas break, Mr Brunswick met with Salans and instructed them as to the structure required in relation to Hermes Performance Guarantee. At this stage there was a certain amount of panic on ML’s part, because the 17 January deadline was looming in respect of the Hermes Guarantee and ML was still formulating its proposal in relation to raising the secondary finance by means of loan notes.

At a Board meeting on 16 January, one day prior to the expiry of the deadline and one day after ML had finalised its terms of engagement and indicative term sheet, there was a PLC Board meeting. The purpose of the meeting was to discuss and, if thought fit, to approve the purchase of a Performance Guarantee in order to secure additional construction financing for the AGF project.

On the same day, an internal memorandum at ML seeks to draw the attention of MLs’ in-house lawyers on the need to give comments to Salans on a draft Performance Guarantee which had been drafted by Salans and put forward for acceptance. ML required this to be looked at as soon as possible, since it had to be signed that day. The enclosed Performance Guarantee was in a radically different form from that which had previously been put forward as an approved document by College Hill. The essential operative provision provided that, in consideration of payments to be made by Oxus to Hermes pursuant to a Structure Agreement made between Hermes, ORC and PLC, Hermes “unconditionally and irrevocably guarantees on demand being made by or on behalf of ORC, the due performance of AGFs’ obligations under sub Clauses 2.1(g) and 2.1(i) of the Performance Contract.” Those provisions in the Performance Contract appear to have remained unchanged throughout the duration of the various drafts. They provided for AGF to “make payments to ORC in accordance with the Schedule set forth in Appendix 2… by way of repayment together with interest thereon, of the loan” and “to remit payments due to ORC hereunder promptly to an account directed by ORC…”

Mr Brunswick’s evidence was that this form of wording was put forward by Salans but came from a template which had been produced by Mr Higgins and that this form of wording for the Performance Guarantee had his express approval. Moreover, whilst there were subsequent variations of the draft Performance Guarantee, the version which was current in August and September 2002, when issues arose, contained essentially the same form of wording which Mr Higgins had approved on a number of occasions.

A problem arose at this time in relation to the territoriality of the risk to be written by Hermes. According to Mr Higgins’ statement, towards the end of November, Hermes had indicated to him that Uzbekistan was to be removed from its Risk Treaties as from 17 January 2002. His recollection was that he received a list from Hermes indicating several countries where it had reassessed its position and which it had decided to exclude from its business. He had telephoned Hermes to ask how this would affect business which had already been agreed to in principle and was told that, if he felt he had made a commitment, then he could honour it. The difficulty was that the deadline which he had given was due to expire on 17 January but he was prepared to extend that to 30 January.

Mr Wilkins, from the start of the new year onwards, was having meetings with ML and with Salans and was talking to SG. Oxus was concerned at having to pay the premium for the entire period of the Guarantee in advance because of its cash flow difficulties. Because Mr Brunswick’s mother was terminally ill, he involved Mr Felstead of LRM to do much of the leg work in attending meetings and taking documents backwards and forwards between the various parties who were seeking to agree the drafts. ML was still formulating its loan notes structure and there was therefore no possibility of putting the whole structure together by the end of January.

Although Mr Higgins had still only agreed in principle to give a Performance Guarantee on wording which he had approved, Mr Higgins indicated to Mr Brunswick in the later part of January that he was prepared to consider increasing the value of the Guarantee to £15m but could not decide on this without full details of the overall transaction. ML had then to ascertain whether it could achieve secondary funding of £15m in any event.

Because there had been no formal extension of the 31 January deadline for the Hermes Guarantee, SG was concerned that it was no longer available. In consequence, Mr Wilkins requested another comfort letter from Templeton which was duly sent on 14 February confirming the £10m Guarantee was still available whilst saying that it was continuing discussions with Hermes in an attempt to obtain an increase to £15m. SG appeared dissatisfied with this and, in consequence, on 27 February in response to a further request, Mr Higgins wrote to Mr Brunswick (under the usual Hermes/College Hill letterhead) about the £10m Guarantee and confirmed that “on the envisaged basis we should jointly be able to put this risk to bed”. In order to overcome the territoriality problem he had suggested, and the letter confirmed, that the original Bond would be executed in favour of the lender by a special purpose vehicle (s.p.v.) guaranteeing completion of the contract, the wording of which he expected to receive shortly.

Mr Wilkins sent an e-mail to Mr Steele on 13 February in which he asked whether or not the transaction was still on, as he and all his advisers were concerned. SG, DWS (its solicitors), CMcK (Oxus solicitors), Price Waterhouse and Brown Shipley, wanted to know where the matter stood. That e-mail refers to the apparent urgency in respect of earlier deadlines, with “no chance of extension or renewal due to reinsurance treaty variations”, thus showing that Mr Wilkins was well aware of the territoriality problem, at latest by that date. It appears to me that it is likely to be for that reason that, on March 6, he drafted a letter to be signed by Mr Brunswick, referring to the s.p.v. and confirming that the legal principles associated with the Guarantee and Bond were acceptable to Templeton and Hermes.

Mr Brunswick’s evidence was that it was Mr Higgins who had come forward with the idea of an s.p.v. located in a country within the territorial ambit of his mandate, which would provide the Performance Guarantee, whilst Hermes would give a Guarantee in respect of the s.p.v.’s performance.

Since no one else had seen the mandate at this stage and were therefore all unaware of the exact territoriality restriction, there is no reason to think that it was anyone other than Mr Higgins who suggested this and I accept Mr Brunswick’s evidence on the point. Moreover, there is no doubt that Mr Higgins was agreeable to it and considered that this would solve any problem that existed.

ML continued its deliberations with a view to raising finance and SG once again sought further assurance. Mr Wilkins asked Mr Brunswick to produce yet another letter and on 7 March 2002 Mr Higgins again wrote to Mr Brunswick stating that he was “extremely hopeful that we will be able to assist on the bonding front, assuming that Hermes’ contingent liability would be protected by the proffered collateral, particularly the underlying guarantee to be provided by the s.p.v. and the existence of proper insurances including acceptable political risks cover”. Mr Higgins’ evidence was that as matters dragged on an on, he thought the matter less and less likely to proceed to a concluded transaction and his letter of 7 March set a further 60 day deadline, following which he said that his papers would be destroyed, on the assumption that his offer was not being taken up.

By a letter of 8 March Mr Brunswick wrote to Mr Wilkins confirming that the deadline of 17 January had passed but, given the revised structure for the Guarantee now under discussion (referring to the s.p.v.), he confirmed that there was no deadline by which documentation needed to be finalised and the premium paid. This letter took the form of wording drafted by Mr Wilkins himself on March 6 and which he had sought. It included in the final paragraph a confirmation “that the legal principles associated with the Guarantee and the Bond remain acceptable to Templeton and Hermes”, as they did, since Mr Higgins had approved the documents and structure as it appeared at the time.

At all material times it is plain that Mr Wilkins and Mr de Villiers knew that Mr Brunswick and Templeton were dealing with Mr Higgins at College Hill alone since this was always made plain to them from the outset. A reference to “Hermes” in a letter such as this conveyed to them as was intended, that College Hill accepted the position on behalf of Hermes. I find that Mr Wilkins and Mr de Villiers understood the letter in that way.

On 18 March 2002 Salans sent an e-mail to Mr Wilkins referring to a meeting held between Salans and Mr Felstead who was now seen as the main contact on the Hermes side, because of the need for Mr Brunswick to give attention to his mother. The e-mail contained the following wording:-

“The good news of course, is that Hermes are still interested in doing the deal and I also understand that there will no longer be a problem with the fact that Uzbekistan is involved. This means that there is now no deadline, which of course, will mean that it should be possible to have a simultaneous completion of the execution of the performance guarantee and the finalisation of the Societè Generale arrangements...

Apparently the way in which the difficulties regarding Uzbekistan and the prohibition on Hermes issuing Financial Guarantees is to be overcome is by the involvement in the transaction of a new joint venture vehicle. Apparently this joint venture vehicle will give a Financial Guarantee to ORC as to the performance by AGF of its obligations under the performance contract. Hermes will then give a Performance Guarantee to ORC of the performance by the joint venture vehicle of its obligations under the aforementioned Financial Guarantee. The joint venture vehicle will take all the security which we originally envisaged Hermes taking and will assign that security to Hermes. The Performance Guarantee issued by Hermes will, as before, be assigned to the Bond issuer. Extraordinary though it may seem, Cliff Felstead assures me that the inclusion of this additional buffer between the ORC – AGF performance contract and Hermes is sufficient to ensure that there are no problems with regards to either Uzbekistan or the restriction on the issuing of Financial Guarantees. No one appears to be quite sure at present though who the shareholders of the joint vehicle company should be or where it should be incorporated, so this is something that remains to be discussed.

Still outstanding is the major issue which we encountered towards the end of January, namely the irreconcilability of the security required by Hermes as against the security which Societè Generale’s lawyers said that their client was prepared to offer.”

Salans thus informed Oxus in clear terms both of the “prohibition” on Hermes issuing Financial Guarantees and a territorial problem relating to a Guarantee for a company incorporated in Uzbekistan, as AGF was. Salans thought it seemed extraordinary that the s.p.v. structure would be sufficient to overcome the territoriality problem but referred to Mr Felstead’s assurance on this, an assurance which he could only have obtained from Mr Higgins himself who, on Mr Brunswick’s evidence, had put forward the suggestion in the first place.

For the reasons I have already given, contrary to Oxus case, this was not the first occasion upon which Oxus became aware that Hermes would not write Financial Guarantees and Mr Wilkins was certainly aware of the territoriality difficulty prior to the e-mail sent by him to Mr Steele on 13 February, referred to earlier.

On 24 April Mr Brunswick wrote to Mr Wilkins confirming that, subject to agreement of the detail with SG in relation to the security to be made available to it and to Hermes, Templeton had obtained support for an increase in the Guarantee from £10m to £15m.

At this stage the position was, therefore, that all concerned in the structuring of the transaction and the drafting of the transaction documents were aware that it was crucial that the Guarantee to be given by Hermes, upon which financing was to be secured, was a Performance Guarantee, not a Financial Guarantee. Equally, all were aware of a territorial limit which prevented Hermes from writing a Bond in favour of an Uzbekistan company. This latter difficulty had been met with Mr Higgins’ own suggestion of an s.p.v., Kresta Hague, which would itself give the Performance Guarantee and would in turn be guaranteed by Hermes.

Mr Higgins had told Mr Brunswick (who had passed this on to Mr Steele) that there was a limitation in his mandate relating to OECD countries, in the context of discussing the s.p.v. but this was of no concern to Mr Brunswick since the interposition of the s.p.v. as an Isle of Man company solved this problem in Mr Higgins’ view, just as it solved the difficulty relating to Uzbekistan. At this stage no one, other than Mr Higgins had seen College Hill’s underwriting authority (the mandate).

Mr Brunswick’s evidence was that it was in April or May that he became aware that, before the closure of the transaction, there would be a need for a legal opinion on the capacity of College Hill to write the Guarantee. He did not know what the required form of such an opinion might be but appreciated that a lender would wish to satisfy itself before advancing money on the strength of the Guarantee as security. It must, of course, have been obvious to a firm such as Salans that, for the purpose of concluding the transaction and executing the documents, an opinion of this kind would be usual and would inevitably be required if those acting for the lender were fulfilling their duties to their client.

It appears from an e-mail of 1 May from Salans to Mr Wilkins that Mr Felstead, having spoken to Mr Higgins, had informed Salans that Mr Higgins had no concerns about the fundamental structure of the transaction although there was a certain amount of “devil in the detail” which might cause problems. The concerns raised related to issues of security and enforcement and the inter-relationship of SG’s rights and Hermes rights, not to concerns about capacity to write the Guarantee for any reason. It is clear, from this letter, that Salans was satisfied that Mr Higgins had no difficulties with the form of Guarantee to be issued, which had not changed in essence since January, or with the involvement of Kresta Hague and its role. The concerns which had been advanced were again referred to in an e-mail of 30 May from Mr Brunswick to Mr de Villiers.

On 26 June Salans sent to Mr Farrell of Endeavour the latest drafts of the Performance Contract and of the s.p.v. Performance Guarantee which once again expressly guaranteed AGF’s obligations under sub Clauses 2.1(g) and 2.1(i) of the Performance Contract – the payment obligations. The e-mail refers to Hermes “currently reviewing the draft Hermes Performance Guarantee” that had been sent, with a view to simplifying it. A copy was to be provided as soon as the review had been completed. ML, on 5 July sent back its amendments to all the relevant documents, including the Hermes Guarantee, referring to the need for a “capacity opinion”. On 8 July Mr Farrell stated his understanding that ML would want legal opinions as to the capacity and enforceability of both the Hermes and s.p.v. Performance Guarantees, but not until execution of those Guarantees. I find, that whenever the subject of legal opinions first surfaced (and there is some dispute about when that was), the common expectation, in accordance with the evidence I heard, was that they would be required, as is usual, for completion of the transaction- ie very much at the latter stage of all the processes involved, when the documentation had been essentially agreed. This is unsurprising since the opinions would have to relate to the particular transaction and the final, or virtually final documentation.

Whilst PLC’s Board of Directors passed a resolution on 11 July approving the Transaction Documents in “substantially final draft form” and authorised their execution with such amendments as might be considered necessary or desirable by the signatory, an e-mail of the same date shows that the Hermes Performance Guarantee was still the subject of considerable discussion because ML had engaged A&O who had come back with a different form of Performance Guarantee from that which Mr Higgins had approved. Although the Primary Finance Documents were executed by all the parties on 17 July, including the Inter Creditor Agreement which dealt with the respective security to be given to SG and Hermes, other matters remained outstanding.

It was on 23 July that ML sent a list of points to be covered in a German legal opinion on Hermes, after discussion with A&O. All of these related to Hermes capacity to write the Guarantee and not to College Hill’s capacity to write business on behalf of Hermes. The terms of a diary note of Mr Wilkins of 23 July, however, look as though he had been discussing with Mr Steele the question of College Hill’s capacity, upon which Mr Steele had said that there should not be a problem, as opinions on its authority to write for Hermes had been given before. He thought that the Guarantee wording should not be a problem.

Nonetheless, an internal note at ML, which must be dated from around this time, shows that Mr Schmeltzer and Mr Essome had left ML abruptly after termination of their contracts by ML. Mr Filion reported in that note that A&O had formed the view that the documents produced by Salans were inadequate, with the result that A&O had felt compelled to re-write the Hermes Guarantee from scratch.

It was at about this time in July/ August that Mr Brunswick said that, in the context of the opinion which he understood to be required before completion, he discussed the issue of College Hill’s authority with Salans, which had obtained a copy of the College Hill mandate. Mr Brunswick was told that the mandate appeared to have been drafted by a lawyer at the outset and then “finished off in crayon”. The view formed by Salans, nonetheless, was that the intention and spirit of the document were clear. Mr Brunswick was not told of any problem with it. He himself had not seen the mandate and did not do so until September. As far as he was concerned, the question of authority and capacity to write was a matter for Mr Higgins who had throughout confirmed, in principle, that he would write a Performance Guarantee and had specifically approved various forms of wording, including the form of Performance Guarantee which he had given Salans in January 2002 and which formed the basis of all later drafts (other than A&O’s version produced shortly before ML’s withdrawal from the financing). Any legal issues would be dealt with by Salans, which was not suggesting any difficulty in this regard.

Once ML dropped out, Mr Steele was asked by Mr Wilkins if he could help in any way to find another financier. He then introduced Mr Wilkins to Mr Eaton at Deutsche, to whom the ML papers were transferred by Mr Schmeltzer. Mr Wilkins’ diary notes refer to his conversations with Mr Steele and Deutsche’s willingness to provide the finance. It also refers to Deutsche’s need to be convinced that College Hill could write the proposed Guarantee and that the instrument could properly be characterised as a Performance Guarantee, rather than a Financial Guarantee. It is plain that it was made aware at the outset of the issue, in the same way as, I find, was everybody else involved in the transaction. No one, by this stage, could not have been aware that Hermes would only write Performance Guarantees and that the structure depended on the instrument being so characterised.

On 1 August Mr Wilkins sent an e-mail to his co-directors informing them that, subject to the appropriate legal opinion from Salans as to College Hill’s capacity to write Hermes paper (as opposed to the particular form of Guarantee), Deutsche would take over the transaction. The e-mail records that the legal opinion was currently being worked on by Salans and that Mr Wilkins had no reason to believe that it would reveal any difficulty. The e-mail further records:-

“Salans have confirmed verbally to me that a preliminary review of the contracts between Hermes and College Hill appears to grant College Hill the appropriate mandate to write Hermes paper, to bind Hermes etc and this is what we have consistently been told throughout by Richard Steele and Ralph Brunswick at Templeton and Cliff Felstead acting for College Hill.”

Mr Wilkins said he was chasing for the legal opinion and that Salans should have it ready shortly but were awaiting the results of a German search as to the validity of the execution of the College Hill contracts by Hermes, which he regarded as “standard legal stuff”.

On 2 August Salans e-mailed Endeavour to enclose the current version of the Hermes Performance Guarantee, stating that no draft legal opinion had been produced in relation to the document, because clarification was awaited from College Hill on certain questions raised in relation to the mandate supplied by College Hill to Salans.

The idea that Deutsche would be involved as financier was superseded by SG itself deciding that it would be prepared to provide the secondary finance on the security of the Hermes Guarantee, although its commitment letter refers to the Guarantee in terms which make it look like an ordinary Financial Guarantee. A legal opinion confirming the giving of Guarantees by Hermes and Kresta Hague together with a clear explanation of the legal relationship between the various parties and their powers was also required.

Mr Brunswick’s evidence was that he told Mr Higgins in August of the need for an opinion, although Mr Speller was asking Mr Wilkins why it was necessary to have a German legal opinion at all since the College Hill underwriting agreement with Hermes was subject to UK Law and any Guarantee issued would also be subject to UK Law. It is clear that Mr Speller had been in contact with Salans, though whether he had a copy of the mandate is unknown. Mr Speller expressed concern about the possibility of enquiries being made of Hermes in Germany about the underwriting authority of College Hill on the basis that, if that were done, Mr Higgins might lose patience and withdraw from the entire arrangement. Mr Brunswick had ascertained from Mr Higgins, however, that he had written Bonds for SG before and that an opinion should not be a problem. His capacity had been opined on before and Hermes had a firm of lawyers in Hamburg (Kadens) which he would contact. Whilst a letter had been produced from Hermes dated 16 August confirming College Hill’s authority to act in the UK in connection with the underwriting of Performance Bonds and confirming Mr Higgins’ authority to sign and seal such Performance Bonds on behalf of Hermes, no legal opinion had been made available by 30 August, when Mr de Villiers pressed Mr Brunswick for it in the context of a planned closure of the transaction “at the beginning of next week”.

The correspondence shows that Mr Higgins obtained a letter from Kadens, which was not addressed to SG and then sought one which was so addressed, which was forthcoming on 6 September. That letter confirmed Hermes’ status and statutory ability to write Performance Bonds and Guarantees. It also referred to an inspection of the mandate and confirmed that the authority given to College Hill was vested in persons named in Appendix A, of which a certified copy was purportedly enclosed. In fact Appendix A was not enclosed but the last sentence of the letter said that execution by those persons rendered such Performance Bonds enforceable against Hermes.

On 11 September Mr Felstead of LRM provided SG and Oxus with a copy of the mandate. This was in the form of a Memorandum of Agreement between Hermes and College Hill and gave College Hill the power to bind business as described in Appendix A. Any other business outside the terms of Appendix A required specific prior approval. Appendix A included the following:-

“Classes of business and territorial limitation.

Bonds or Guarantees issued under hand or under seal on behalf of bondees domiciled and working in OECD countries…

1.

Bonds required in connection with construction and supply contracts, civil engineering, house building and engineering.

-

Bid Bonds

-

Performance Bonds or Supply Bonds

-

Advance Payment Bonds

-

Maintenance Bonds or Retention Money Bonds….

Exclusions.

2.

All types of Bonds and Guarantees not expressly mentioned above under classes of business and territorial limitation in particular Financial Guarantees…

3.

All indirect Bonds and Guarantees (fronting).”

When SG’s lawyers, DWS saw this, they immediately wrote to Kadens, referring to the mandate, and stating that it was clear to them that Hermes would need to provide specific approval for College Hill to write the Performance Guarantee, as it fell outside the parameters set out in Appendix A. Copies of the Hermes Performance Guarantee and the Kresta Hague Performance Guarantee had been provided to Kadens with the Performance Contract in the form approved by Mr Higgins, showing the essential guarantee to be of Clause 2.1(g) and 2.1(i) of the Performance Contract, namely the payment obligations.

Kadens replied by fax on 12 September saying that they were unable to provide the required confirmation since the draft of the Guarantee referred to the provisions of the Kresta Hague Performance Guarantee and that fell outside the terms of Appendix A. College Hill was therefore not authorised to sign the Performance Guarantee. The letter went on to say that “as far as we are informed, Hermes generally will not accept the convisions (sic) and obligations as stipulated in the above mentioned deed.” Thus Kadens agreed with DWS that the Performance Guarantee fell outside the terms of the mandate and also informed DWS that Hermes would not give specific authorisation to write it.

DWS promptly wrote to Salans, complaining that it had been known for some time that SG required a German Law opinion on College Hill’s authority to sign the Guarantee on behalf of Hermes. They pointed out that the documentation underpinning the Deed of Guarantee, including the Kresta Hague Performance Guarantee and the Performance Contract, had been negotiated and finalised in the preceding few weeks. They pointed out that no one had alerted them to any issue about the provision of the opinion regarding Hermes and that they were entitled to proceed on the basis that it would be uncontroversial. The letter then recited the exchanges with Kadens and referred to DWS’ understanding that Salans were aware of the terms of the mandate, prior to proceeding to draft the relevant documents. The letter asked if there were other documents which were relied on and wanted to hear about a resolution of the matter as soon as possible.

Mr Higgins wrote on the same day to Mr Felstead referring to a meeting with him that morning, saying that whilst he had been extremely hopeful that authorisation to write the risk would be forthcoming from Hamburg, and notwithstanding his very strong recommendations, a negative response had been received and that therefore he was unable to help, because he thought the reply from Germany had been influenced by recent events on the German domestic front. He was, by this, referring to the collapse of a German construction company, where Hermes had large exposure on guarantees written. He said he found it almost impossible to envisage a change of heart on the part of Hermes in Germany and then pointed out that there was a problem concerning the geographic area because of a territorial exclusion clause in the reinsurances.

Efforts were made to retrieve the situation but all were ultimately of no avail. Views were expressed about problems raised on the wording of the mandate, of which three were foremost:

Salans’ response to DWS’ complaint stated that the question of authorisation was a matter which Templeton had been trying to resolve for some time and that College Hill had indicated that Kadens’ fax of 12 September was not Hermes’ final position. The letter also refers to College Hill making efforts to seek specific authorisation to execute the Performance Guarantee. The letter complained at direct contact made between SG and Hermes, which, it said, had led to Hermes instructing College Hill not to proceed with the transaction, pending review. Salans’ letter went on to say that it had advised Templeton of the ambiguity in the mandate when it was first seen but disputed Kadens assertion that its provisions prohibited College Hill from writing the Guarantee. The letter went on to say that Templeton had been advised by College Hill several times during the course of the transaction that it was authorised to execute the Performance Guarantee and that it had in the past executed similar guarantees within a similar structure. It was also pointed out that Endeavour had been made aware at the end of July that the mandate was a poorly drafted document and that opining on it would be problematic. Much of the information in this letter came from Mr Brunswick, who in turn got it from Mr Higgins, but much else plainly represents Salans’ attempt at self justification, in circumstances where the problems which arose in relation to the mandate were self-evident to a lawyer, long before the mandate was seen.

The major issue was plainly whether or not the Hermes Performance Guarantee could properly be characterised as a Performance Guarantee rather than a Financial Guarantee. From the moment Salans was involved in January and Mr Higgins had produced a draft for it to use, Salans was aware of the need to structure the transaction in such a way that it would fall within Mr Higgins’ mandate, even though it did not receive a copy of it until, it appears, some time in late July, no doubt following ML’s expression of a requirement for an opinion. Even to an untutored eye, a guarantee of Clauses 2.1(g) and (i) of the Performance Contract does not look much like a Performance Guarantee, as opposed to a Financial Guarantee. It should have been patently obvious to Salans and to other lawyers engaged by other parties, that what was being put forward by Mr Higgins to them, and by them to others ran the risk of being characterised as a Financial Guarantee “dressed up” as a Performance Guarantee, even if College Hill was saying otherwise. Some might have said it was not even “dressed up”, but was simply a Financial Guarantee in itself.

Salans did not need to see the mandate in order to appreciate this. At some point it should have dawned on it that a legal opinion could indeed be problematic, but it did not warn Mr Brunswick of this at all. Equally, there is no evidence that the lawyers acting for ML (A&O) or for SG, DWS (who were concerned only initially with the primary finance, but knew that the secondary finance was a condition precedent to the drawdown of the primary funding), ever raised the issue before September, by which time SG was considering the provision of the secondary finance also. What CMcK made of it is unknown. All the lawyers appear to have proceeded on the basis that if Mr Higgins thought he could write it, that was good enough at the drafting stage.

Having been told of the territorial restrictions point, Salans did not need to see the mandate in order to appreciate the potential difficulty, with the device of interposing an Isle of Man company as the guaranteed entity. The same is true for the other lawyers involved. As soon as Salans saw the mandate, however, and saw an exclusion of indirect guarantees, the difficulty with the use of this device was effectively highlighted, even if, on its proper construction, that exclusion related to the position where Hermes was fronting for another entity and writing a guarantee indirectly for that entity, rather than the situation where another entity was fronting for Hermes. For Salans to talk of advising its client of the ambiguity in the mandate in circumstances where it had confirmed orally to Mr Wilkins that its preliminary view of the mandate was that it appeared to grant College Hill the necessary authority, appears disingenuous. I accept Mr Brunswick’s evidence that he was told, rather like Mr Wilkins, that the mandate appeared adequate, however amateur the drafting.

Whilst Mr Turner had written a strong letter of complaint to Templeton on 17 September, that had been the subject of a conversation between Mr Wilkins and Mr Cooper (both of whom were then abroad together), on the one hand, and Mr Steele, on the other, in which Mr Wilkins had made mollifying comments and, according to Mr Steele had agreed that the threat of litigation in Mr Turner’s letter would be withdrawn, so that Templeton could persist in its efforts to retrieve the situation. In consequence of that telephone conversation Salans had sent draft letters to Mr de Villiers for Oxus to sign confirming that it would not take any action against Templeton and confirming (with a variation which reflected the share price) the success fee set out in the 22 November letter which Oxus had never accepted in writing.

Templeton did continue in attempts to obtain Hermes’ authority to issue the Guarantee, as did Mr Higgins, both with the College Hill Board and the Hermes Board. A letter of 19 September, written by Mr Lambeck, one of the Hermes directors, confirmed that it was within Mr Higgins’ authority to issue the Guarantee but expressed the wish that he should not do so because of a deterioration in “our perception of the security offered by Oxus and a re-assessment of the overall exposure”. Although Mr de Villiers letter of 23 September refused to waive any claims which Oxus might have against Templeton, Mr Brunswick contacted others in the insurance field, including Gallaghers to obtain their advice in relation to the form of the Guarantee with a view to making its character more obviously that of a Performance Guarantee. Mr Wilkins himself wrote directly to Hermes, in a somewhat ill-advised manner, and involved the German Ambassador to Uzbekistan. This appears to have been counterproductive and in a telephone call with Mr Schrader, Mr Wilkins was told in late September that Hermes was not interested in this piece of business, never wrote Financial Guarantees and that the form of the Guarantee revealed that its overall intention was to repay the SG loan.

Mr Wilkins was still seeking an opinion from Salans on the basis that he had been informed that Salans would confirm that the Guarantee was a Performance Guarantee and fell within the mandate. By a letter of 26 September, Mr Brunswick updated Mr Wilkins on the position, saying that Mr Higgins was still seeking authorisation from Hermes to write the Guarantee, if underwriting criteria were satisfied. Mr Brunswick thought that success remained possible but that the appropriate lines of communication should be adhered to, so that contact with Hermes took place only through College Hill and contact with College Hill was made only through him or Mr Felstead.

At that time it appears that there were four issues that Hermes thought should be addressed, the primary one being the Performance Guarantee/Financial Guarantee distinction. Minutes of a PLC Board meeting on 27 September 2002 refer to the main issue as the Performance Guarantee/Financial Guarantee distinction and to Gallaghers’ amendments to the draft wording. It referred to Salans’ adamant verbal position that the Guarantee as drafted by it was indeed a Performance Guarantee but stated that commercial points were now being raised, although College Hill was confident that it would obtain Hermes’ consent.

Despite optimism expressed by Mr Higgins and Templeton, ultimately a letter was written on 25 October by Mr Higgins stating that, “following our Board meeting” last week, it had been decided not to proceed further with the Guarantee of Kresta Hague for four reasons, two of which concerned inadequate Political Risk Insurance, one of which related to the level of security available and the last of which was the view of his German colleagues “based on the various communications from others involved in this transaction, that the structure for the Performance Guarantee is simply a construct to convert a Financial Guarantee into a Performance Guarantee”. Mr Higgins stated that “this is not a view that I hold myself but at this stage that is of little relevance”.

To the very end therefore it can be seen that Mr Higgins, and apparently Salans continued in the view that Mr Higgins was authorised by the mandate to write the Guarantee. Mr Brunswick’s evidence was to the effect that the other matters raised were none of them “deal-breakers” and would all, he thought, have been capable of resolution, even though one of the Political Risk points was a new one. There were undoubtedly commercial factors which underlay the decision taken by Hermes but the primary reason advanced for not giving College Hill authority to write the risk was the Financial Guarantee/Performance Guarantee issue. That was decisive for Hermes and therefore was conclusive for College Hill purposes. The reason was that Hermes itself did not write such business, regardless of any issue of authority to College Hill. Hermes ultimately reached its own decision, without regard to questions of College Hill’s authority, since what was sought at that point was specific permission to write the risk, whatever the terms of the mandate.

Thus the position is that Templeton had been told from the outset by Mr Higgins that he had authority to write Performance Guarantees but not Financial Guarantees. Templeton had also been informed by Mr Higgins, or indirectly through Mr Felstead, that the essential form of the Guarantee under discussion throughout was approved by him, subject to his specific points which were all taken into account and incorporated, so that the final version was one with which he was content. Templeton was entitled to conclude that he knew his business best and that lawyers would confirm that he could write the business, particularly as Salans appeared confirmatory of the position, when asked.

Mr Higgins was the most experienced surety underwriter in the UK at the time, according to Mr Brunswick. He was a leader in his field. He had worked for Hermes for some years and before that for Aegon. Mr Brunswick had never heard of anyone having a problem with Mr Higgins authority or with the Bonds or Guarantees written by him. Mr Higgins was held out in Hermes’ annual reports as being Hermes’ representative in London to whom all enquiries should be made. He had the Hermes seal and when he wrote business for Hermes, that seal was applied, rather than executing business in the name of College Hill, as agents. In short, as Mr Brunswick put it in evidence, he treated Mr Higgins as Hermes since Hermes had invested him with so much authority.

Mr Brunswick was, in such circumstances, entitled to assume that Mr Higgins knew what business he could and could not underwrite and that when he indicated that something was within his authority, this was the case. There would be no basis upon which to challenge that until such time as it became necessary in the transaction for that authority to be verified, which would inevitably be shortly before the deal was closed. Mr Brunswick could not be expected to know the terms of College Hill’s mandate, nor to ask for a copy of it at any earlier stage. He was entitled to assume that if Mr Higgins thought there was any doubt about his authority to write a transaction he would consult with Hermes in Germany and resolve the issue. Mr Higgins’ own evidence was that there were two Hermes Directors who were constantly in and out of College Hill’s offices, Mr Schrader and Mr Lambeck, and that if there were any issues of that kind he would discuss the matter with them. He said that he had done this in the present case but whether this is so or not, it is hard to fault Mr Brunswick for not challenging Mr Higgins about his authority until the point when it became necessary for an opinion to be provided.

Moreover, Mr Brunswick had engaged Salans to act for College Hill and it was Salans’ task to ensure that the documentation fitted the mandate and met the territoriality restriction and the Financial Guarantee exclusion, even before it had seen the mandate itself. On seeing it, it was for Salans to satisfy itself of the position and to advise College Hill and Mr Brunswick of any difficulties which arose in the context of construction of that mandate.

Oxus had, of course, instructed CMcK as its own solicitors, although CMcK seems to have played little or no part in the drafting of the relevant documents since Mr Wilkins chose to rely on Salans, even though he knew that Salans acted for Hermes, College Hill and Templeton. Mr Wilkins knew full well, because he had checked the position himself in October, after his discussion with Mr Speller, that Hermes’ accounts told the public at large that College Hill was its representative to contact in London. He also knew that College Hill was entitled to use the Hermes seal and his evidence was that he would not expect College Hill to go along with a transaction to which it could not commit Hermes.

As already mentioned, once it is accepted that Templeton entered into no contractual agreement to obtain the Performance Guarantee from Hermes, its position can be seen as akin to that of a broker attempting to procure insurance. It was seeking to obtain such a Guarantee from Hermes for a success fee. If it made a negligent misrepresentation to Oxus, that would of course be actionable, but no plea of misrepresentation is made. If it assumed a responsibility to advise and did advise negligently, that too would be actionable, but what advice was sought or given? Did Templeton advise as to the capacity of College Hill to conclude the transaction or did it undertake to do so, with the result that a failure to disclose deficiencies in the mandate or the structure which affected College Hill’s authority was a breach of duty? Did Templeton make negligent recommendations to continue with the pursuit of the transaction at a time when it knew or ought to have known that there was no realistic prospect of successfully concluding it? Should Templeton have checked the position on College Hill’s authority to write this particular Guarantee with Hermes or told Oxus that it had not done so or advised it to do so or engage lawyers to do so? As appears from the history, which I have set out at some length, these allegations have an air of unreality about them. The reality was somewhat different.

As pleaded by Oxus, Templeton should have disclosed to it that there was a substantial risk that College Hill might not have authority to issue the proposed Guarantee because, although it was aware that the mandate did not extend to giving Financial Guarantees, it had not checked on the position by seeking a copy of the mandate or obtaining confirmation from Hermes of College Hill’s authority in relation to the Guarantee; nor had it told Oxus to obtain legal advice or advise it that it would be imprudent to rely on College Hill’s own assertion of its authority.

The position is however that Mr Brunswick knew from the outset that College Hill could not write Financial Guarantee for Hermes but did not know the reason. It could have been a constitutional prohibition on Hermes, a statutory prohibition on Hermes or a self-denying ordinance as a matter of policy, along the lines of the Lloyd’s regulations which prevent, save in specified circumstances, the writing by Lloyd’s underwriters of Financial Guarantee. (No reference was ever made to the Lloyd’s regulations in the context of the events which occurred or to its definition of what constituted a Financial Guarantee.) It could have been simply a limitation on College Hill’s authority. This prohibition on writing Financial Guarantees was known to Mr Wilkins in early October 2001, and to Mr de Villiers by late October, before Oxus agreed to the 22 November proposal that Templeton should seek to obtain an instrument which was explained to be a Performance Guarantee. Mr Brunswick did not see the mandate itself until September 2002 and had no cause to seek a copy of it before then, in circumstances where Oxus was looking to Salans (whose bill it was paying) and to Mr Higgins to ensure that the wording of the Guarantee was in a form which Mr Higgins could write.

Inasmuch as Mr Wilkins and Mr de Villiers knew of the restriction on writing Financial Guarantees (a point driven home by Salans’ e-mail of 18 March 2002, which referred to a prohibition on Hermes issuing Financial Guarantees), Oxus did not need Templeton to advise it that it would be prudent to check the mandate or to check with Hermes as to College Hill’s underwriting authority, let alone Hermes’ statutory or regulatory position. Oxus did not need Hermes to tell it to take legal advice in relation to issues of authority or the wording and structure of the Guarantee, since it was not only open to Oxus to take such advice at all times in relation to its own position, but it had engaged its own solicitors in relation to the financing proposals as a whole.

The idea that Templeton assumed a responsibility to check on College Hill’s underwriting authority at an early stage of the transaction or to advise Oxus of potential problems in relation to it flies in the face of reality. Everyone assumed that College Hill, which was seen by the relevant market as Hermes in London, had authority to do what it said it could do. Templeton could be expected to work on that basis, with any checking of legal formalities to be done at the stage when lawyers were ensuring that everything was in order before proceeding to completion. Templeton, in the persons of Mr Brunswick and, for this purpose, Mr Steele, had no idea that there was such a problem save for the need to construct an instrument which was a Performance Guarantee, a matter of which Mr Wilkins and Mr de Villiers were made well aware.

The idea that Templeton undertook such a responsibility later, when Oxus was looking to Salans and Salans was obtaining its instructions from Mr Higgins is again fanciful. In cross examination, Mr Wilkins said he did not know whether he should be blaming Templeton or Salans and Mr de Villiers’ evidence appeared to be that Templeton was to blame for not obtaining a favourable opinion earlier from Salans. The fact remains that they were both aware of the Financial Guarantee/Performance Guarantee issue at an early stage and the need for documents to be drafted appropriately, for which solicitors were engaged by College Hill. The risk involved in this novel form of financing whereby a Performance Guarantee was to be used to achieve the same effect as a Financial Guarantee was known very early on and appreciated by Mr Wilkins, notwithstanding his evidence to the contrary. It was also known by Mr de Villiers, as I have found, by late October 2001. There was still no reason to effect any check on College Hill, nor to warn Oxus about any potential problem in relation to College Hill’s authority, as none was known or feared, save the Financial Guarantee restriction of which Oxus was well aware and the application of which would depend on the final form and structure of the transaction as a whole and the part played in it by the Guarantee.

Mr Wilkins likewise knew of the 17 January deadline and the reason for that deadline and for the interposition of the s.p.v. well before that was spelt out to him in Salans’ e-mail of 18 March 2002, as the 13 February email reveals. Again he must have asked and been told the reason for the deadline when seeking extensions of it, if not before. I find that he must have been aware of the issue in January 2002. Although the OECD point did not surface until September 2002 when the mandate was seen, the inclusion of the s.p.v. was designed, as all knew, to overcome the difficulty of a territorial restriction which was appreciated, namely that, after the deadline, it was not open to College Hill to issue guarantees in respect of an Uzbekistan company’s obligations. Again all those involved appear to have worked on the basis that Mr Higgins knew his own territorial restrictions and if he said he could write a risk in respect of an interposed Isle of Man company, there was no reason to question that at any stage before the formal position had to be the subject of a legal opinion, shortly before completion.

Once Salans e-mail of 18 March 2002 spelt out this problem, there was obviously nothing more for Templeton to tell Oxus. For the same reasons as already given, it is again unreal to assert that Templeton assumed any responsibility to check on College Hill’s authority, to ensure that Hermes in Germany was informed of the details of the scheme involving the s.p.v, or that it approved of it or to inform Oxus that it had not taken such steps and that Hermes in Germany did not know. The situation had been set out by Salans with the assurance from Mr Higgins that he could write the business in the form then contemplated.

Whether the matter is looked at as a question of duty or a question of breach is probably neither here nor there. Templeton was under no duty to procure the Bond and, absent any negligent misrepresentation which is not pleaded or established, it had no duties to advise upon the wording of the Guarantee, the viability of the structure with the interposition of Kresta Hague, or the likelihood of the scheme succeeding. Nor did it do so. Moreover it passed on the relevant information it had (save for the OECD restriction which added nothing to the Uzbekistan restriction) so that Oxus was aware of the potential difficulties and the risk involved. Had Oxus at any time wished to pursue any of these points which it says that Templeton should have pursued, it would have been open to it or its lawyers to do so, by asking Templeton to pursue them with College Hill or Hermes direct. Moreover, in the many contacts that Mr Wilkins had with Salans, it was open to him to press Salans about matters which were essentially legal in relation to the mandate.

I was referred to Hedley Byrne (ibid) and to Caparo v Dickman [1990] 2 AC 605 and in particular to p620H-621A. The need for knowledge by the defendant of the claimant’s reliance on advice or information given is clear in the context of founding a duty, quite apart from a breach which causes damage. Here, Templeton could not be expected to realise that Oxus was relying on it for legal advice as to the nature of the instrument to be executed by College Hill, nor as to the workability of the scheme involving a performance contract and another Guarantee given by Kresta Hague. That sort of advice was available from lawyers, from which Templeton would rightly expect Oxus to take it. If Oxus was not happy with what Salans were saying on behalf of College Hill, the appropriate and reasonable course to adopt was to take its own independent legal advice from CMcK, which, of course, it may well have done.

Furthermore, I am satisfied that Oxus’ representatives did not rely on Templeton in this regard. It did not look to Templeton to inform it whether the documents drafted by Salans and agreed with other lawyers constituted a transaction in which there was a Performance Guarantee that College Hill could properly write or a Financial Guarantee which it could not. Nor did it look to Templeton to inform it whether the s.p.v. structure was effective in law. They relied on Mr Higgins and the lawyers advising each party to resolve those matters. Moreover, Oxus had no other real options available for the obtaining of finance and would have proceeded with this transaction if there was any chance of its successful conclusion. I reject the notion that Oxus would have done nothing rather than pursue this transaction, unless and until it became clear that it was feasible.

As Mr Wilkins accepted in an e-mail of 18 September 2002, Templeton had put a great deal of effort into the procurement of the Guarantee from College Hill and was anxious for it to succeed. It had a success fee riding upon it, quite apart from its warrants in Oxus, the value of which depended upon the obtaining of the finance and the further development of the project. In that e-mail, once again, Mr Wilkins stated that Salans had told him that, although the mandate contained some ambiguities, it was obvious what the parties intended and that College Hill could write the Guarantee. That was also, to his mind, the only explanation for the work Salans had done in drafting the documents in accordance with the agreed structure without raising any objections.

Templeton was not to blame for the form of the Guarantee being seen as a Financial Guarantee by Hermes at any stage. It was not to blame for the unacceptability of the s.p.v structure to Hermes. It was not to blame for any failure, prior to the emergence of the issue, to check on College Hill’s authority, nor on Hermes’ own policy with regard to Performance Guarantees masquerading as Financial Guarantees. It had no reason to raise such matters with Hermes, College Hill or Oxus, in circumstances where Mr Higgins was confident and remained confident of his capacity to conclude the Guarantee as drafted in the transaction structure which he had approved. However the point is put, Templeton owed no relevant duty of care to Oxus in these respects, breached no such duty of care and caused no loss to it. For these reasons Oxus’ claims in negligence fail.

In addition to its other claims, Oxus claims the return of £75,000 which it paid to Templeton as a commitment fee at the end of November 2001.

In its letter of 26 October 2001, Templeton explained the nature of the Performance Guarantee and explained that the contract which was to be the subject of that Guarantee was between AGF and Oxus. The letter refers to “the Guarantee” and to one contract only, although this is not spelt with a capital “C”. The letter referred to the fees payable in relation to the Guarantee as including a commitment fee of £100,000, payable within seven days of the date of the letter.

In his letter of 1 November 2001, Mr de Villiers, in addition to asking other questions asked for confirmation that “the Contract” would be between Oxus Mining PLC and Amantaytau Gold Fields AO. The fifth question read as follows:-

“Please confirm that the commitment fee of £100,000 is payable to Hermes Kredit Versicherung AG and is a deposit towards the total premium payable. If we proceed the deposit will be deducted from the total premium. If we do not proceed the deposit will be non-refundable.”

Having taken instructions from Mr Higgins, Mr Brunswick wrote back to Mr Wilkins on 6 November, confirming what he had agreed with College Hill. A letter confirmed that the current offer would stay open until close of business on 23 November subject to receipt of £40,000 prior to the close of business on the 9 November. The next paragraph read as follows:-

“Prior to close of business on 23 November receipt of a further £75,000 will extend the offer until 17 January 2002, an extension of seven days over our previous proposal. Should the proposed contract be unacceptable to Hermes Kredit Versicherung AG, the £75,000 commitment fee will be refunded.”

The letter went on to deal with the specific requests raised by Mr de Villiers and in answer to the question about the commitment fee, the response was as follows:-

“The commitment fee is payable to extend the offer period. The commitment fee of £75,000 will be refunded if the contract is unacceptable to Hermes Kredit Versicherung. The commitment fees are not part of the premium and are over and above any premium to be paid”.

It was, as related earlier in this judgment, a letter of 22 November 2001 which became the basis of the agreement on fees. In that letter there was a paragraph which explained the nature of the Performance Guarantee and described the subject of that Guarantee as the “Contract” between AGF and Oxus which was to be attached as a Schedule to the Guarantee. That letter referred to the fees payable in relation to the Guarantee as including a commitment fee of £115,000 payable by 30 November 2001.

It is common ground between the parties that agreement was reached on this basis by payment of the commitment fee on 30 November. It is also common ground that the contract which is referred to in the letter of 6 November in the context of the commitment fee, means the contract between ORC and AGF, the contract which was then seen to be the subject of the proposed Performance Guarantee. At that stage that “performance contract” had not yet been drafted so that College Hill was not in a position to say whether or not it was prepared to guarantee performance in accordance with it. That document was only drafted by Oxus’ in-house lawyer on 23 December.

Oxus argues that the letter of 6 November from Mr Brunswick draws a clear distinction between Hermes on the one hand and College Hill on the other. The letter refers to both, including Hermes with its full title in one of the two references. I have already found, however, that the Oxus representatives at all material times knew that Mr Brunswick was dealing with Mr Higgins of College Hill and not directly with Hermes in Germany. When therefore reference is made in this letter to a contract “unacceptable to Hermes”, both parties would have understood this to mean Mr Higgins at College Hill, acting on behalf of Hermes. Merely because the letter refers to both College Hill and Hermes does not mean that a distinction was being drawn between them for this purpose. It would be attaching too much weight to the reference to Hermes, even with its full title, to read it as meaning Hermes in Germany, as opposed to the entity acting for Hermes with which it was known that Templeton was dealing. The reason for the use of the Hermes name is, in my judgment, because the form of the request in the letter of 1 November made that reference itself.

The question of liability to refund the £75,000 claimed by Oxus therefore turns on two questions. The first is whether the Oxus/AGF contract proved to be unacceptable to College Hill. The second is which party is liable to make any refund which is due.

As to the first question, I have no difficulty in finding that the AGF/Oxus contract proved unacceptable to College Hill, as well as to Hermes itself. Whether regard is had to the shape of the transaction as it was in November 2001, with the Oxus/AGF contract as the subject of the Performance Guarantee, or to the shape of the transaction as it later became, where the subject of Hermes Performance Guarantee was the Kresta Hague/Oxus Guarantee, which in turn guaranteed AGF’s performance under the Oxus/AGF contract, the specific Oxus/AGF contract was unacceptable to College Hill. The main reason advanced for not writing the Performance Guarantee was that, in the eyes of Mr Higgins’ German colleagues, the Guarantee which Mr Higgins wished to write was, when properly characterised, a Financial Guarantee and not a Performance Guarantee. This was because it guaranteed either directly (in November 2001) or indirectly (in October 2002) performance under the Oxus/AGF contract and, in particular, the payment obligations therein. That contract was ultimately unacceptable to College Hill as the subject, direct or indirect, of the Performance Guarantee.

Furthermore, the AGF/ORC contract was unacceptable to College Hill in February 2002 because the Guarantee to be written by Hermes was to guarantee AGF, an Uzbekistan company outside the OECD. After adjustment of the structure, the AGF/Oxus contract was unacceptable to Hermes in September 2002 because the interposition of Kresta Hague was seen as a device to enable Hermes, indirectly, to give a guarantee to such a company.

Oxus pleaded that the letters enshrined an agreement to pay the commitment fee to Templeton as a principal. Templeton pleaded that the commitment fee was payable to College Hill/Hermes and I find, on the true construction of the question asked in the 1 November letter and the answer given in the 6 November letter, as further encapsulated in the 22 November letter, that the commitment fee was payable to Hermes. All understood that the payment would be made to Templeton for the account of College Hill, acting as agents for Hermes.

An answer to a request for information reveals that Templeton never actually paid the money to College Hill but “Templeton held £115,000 for College Hill and to its order and has agreed with College Hill to hold the same pending the outcome of this litigation”.

Templeton does not hold the commitment fee as a principal. On its own admission, it holds the sum of £75,000, which is refundable by Hermes to Oxus in the circumstances which have occurred. Mr Brunswick’s evidence was that Mr Higgins had left it to him to decide whether or not the money should be refunded, as a consequence of a discussion between them after Mr Higgins had sold his business to Hermes. The money should have found its way to Hermes but, in practice, this has not occurred and the money has not even found its way to College Hill. Nonetheless the agreement to pay a commitment fee of £115,000, of which £75,000 was repayable in the circumstances described, must be an agreement between Oxus and Hermes, for which Templeton was acting in this respect, (albeit that its letter of 22 November contained provisions constituting an agreement between itself and Oxus also). The “fees payable” included both a commitment fee and a premium which were payable to Hermes and a success fee which was payable to Templeton.

In such circumstances the question which arises is whether or not Templeton was undertaking an obligation itself to refund the commitment fee, in addition to the obligation on Hermes to do so if the contract should prove unacceptable to Hermes. I am, regrettably, unable to come to that conclusion on the basis of the letters to which I have referred. Once the finding is made that the commitment fee was payable to Hermes and that Templeton and College Hill prescribed it as agents and receipt by them would be as agents for Hermes, it is hard to see how the letters could constitute a commitment by the agent to return the fee in addition to the obligation of the principal.

I hold that Oxus is entitled to the return of £75,000 from Hermes, notwithstanding that Hermes is not represented in this action. I hold also that, as the sum of £75,000 is held by Templeton to the order of College Hill, as agents for Hermes, this is a specific fund which can be made the subject of a third party debt order in favour of Oxus, even if it is not technically held by Templeton as “stakeholder”.

As a matter of justice, it is plain that this sum should be returned to Oxus forthwith and it cannot be doubted that, on the court’s finding that Oxus is entitled to £75,000 from Hermes, both Hermes and College Hill would instruct Templeton to refund that amount.

Whilst this judgment is circulated in draft only, for the purpose of correction of typographical errors and the like, I make it clear that I am today, on publication of this draft, making an interim third party debt order by which I direct that until the hearing at which this judgment is handed down, Templeton must not make any payment of the sum of £115,000 to College Hill or Hermes. The sum is fixed at that level in order to allow for interest on the sum of £75,000 which can be made the subject of a final third party debt order, if necessary.

All of Oxus’ claims have failed, although I have found an entitlement to the return of £75,000 of the commitment fee by College Hill/ Hermes. In these circumstances, I would hope that an agreed form of order can be agreed and that Templeton will, without the need for any further order, repay the £75,000 which it holds. In circumstances where Templeton has succeeded on each of the main issues and where I have found neither of the main protagonists to be entirely accurate in the evidence given, it appears to me that, subject to any special circumstances of which I am unaware, costs must follow the event. I will however deal with such issues on the formal hand-down of the judgment.

It remains only to thank Counsel, Mssrs Alan Steinfeld QC and Richard Ritchie (acting for Templeton), Mr Michael Bloch QC and Ms Lucy Frazer (acting for Oxus) and those instructing them, Kingsley Napley and Clifford Chance, respectively for all their assistance.