Worldview Capital Management SA v Petroceltic International Plc

In this action, brought by Worldview Capital Management SA, (“Worldview”), against Petroceltic International PLC, (“PCI”), in which Worldview and its affiliated entities have about a 28 per cent shareholding, Worldview seek specific performance of a written agreement made between them dated 16 June 2014 (“the Agreement”). Worldview is a Swiss-based private investment management company and PCI is an Irish company domiciled in Ireland, carrying on the business of oil and gas exploration and production in various locations across the world. Its shares are traded on the Enterprise Securities markets of the Irish stock exchange, and on the Alternative Investments market of the London stock exchange.

PCI contends that this court has no jurisdiction to hear this claim, which it is accepted falls within EC Council Regulation 44 of 2001 (“the Regulation”), as a civil and commercial matter. Instead it contends that the Irish court has jurisdiction. Neither party suggests that any other court has jurisdiction.

The claim arises out of the fact that PCI proposed a share-placing on the AIM, intended to raise about $100 million. Worldview was invited to participate but refused to do so, having various concerns about the corporate governance of PCI and its business strategy. Following negotiations, a resolution of these matters was arrived at which is embodied in the Agreement. Essentially Worldview now agree to support the placing in exchange for commitments given by PCI to make certain changes to its corporate structure, and to carry out a review.

The material provisions of the Agreement, which expressly governed by English law, are as follows: Recital B states that PCI’s ordinary share capital is admitted to listing on the two markets to which I have referred, and recital E says that the Agreement contains the arrangement reached between the parties as regards certain corporate governance matters relating to the company. By clause 2.2, and conditional upon the appointment of defined new directors, Worldview agreed to vote in favour of a resolution to bring about the placing at an EGM, to take place on 26 June 2014. By clause 3.1, provided that this resolution was passed, PCI would appoint two new non-executive directors, Don Walcott and Joe Mach. These were the defined new directors. By clause 3.4, upon that appointment, four of the executive existing directors would resign, the effect of which would be that out of a board of seven directors, five would be non-executive, and two would be executive directors. Furthermore, one new director would be appointed to PCI’s nominations, remuneration and audit committees. Certain other changes to PCI and its shareholder rights and structure would also be made, pursuant to paragraph 4 of the Agreement.

I then turn to the contractual provisions lying at the heart of this case contained in clause 6. Under the heading “Business and Strategic review”, the company undertakes that the board will, as soon as practicable, following the appointment of the new directors, and in any event, prior to 30 September 2014, (a) undertake a review of the company’s strategy, business and operations, encompassing all geographies/projects where the company operates, and including the budgets and capex plans in each geography/project, (b) make a press announcement confirming the appointment of the new directors to include the following statement: “The new directors are looking forward to reviewing the company’s business and, in conjunction with the board, to reporting to shareholders at the Capital Markets Day scheduled for the autumn of 2014, and (c) following completion of that review make such public announcements as are necessary as a result of that review and hold a detailed presentation on the results of that review for Shareholders.

In its Particulars of Claim, Worldview alleges that PCI failed to conduct the review required by clause 6(a), and indeed pleads that at a meeting on 30 October 2014, Mr Robert Adair, the chairman of PCI admitted as much, saying that it was because of a possible offer to buy the company made by Dragon Oil Plc. Accordingly, Worldview sought the following relief in paragraph 10 of the Particulars of Claim: (a) specific performance of clauses 6(a) and (c) of the Agreement (b) directions from the court as to the timing and manner in which the review is undertaken, and in particular, but without limitation, a direction that the review should be led by either Don Walcott, or Joe Mach, both of whom are independent non-executive directors appointed pursuant to clause 3.1 of the Agreement, and that in the event that a committee of the board is appointed to undertake the review that it include both Mr Walcott and Mr Match, and be chaired by one of them, (c) and injunction preventing PCI taking any frustrating action pending the completion of the review, and (d) further or other relief.

It has now transpired that both Mr Walcott and Mr Mach have resigned, and, accordingly, to the extent that Worldview was entitled to seek the direction in relation to them at all, it cannot now do so. Mr Chivers QC, who appears on behalf of PCI, says that there can be no meaningful application to amend paragraph 10 to reflect this because at the moment it is not clear if this court has any jurisdiction to entertain the claim at all. Strictly he is right about that but it would be absurd for the Court not to recognise that this particular part of the relief sought is, on any view, impossible. In reality, therefore, and whether here or anywhere else, all that Worldview could now seek is specific performance of clause 6(a) and (c) of the Agreement, with any ancillary and necessary directions at to the timing of the performance by PCI of those obligations which it would be in the power of the court having jurisdiction to hear the claim, to order. I therefore proceed on that basis.

Article 2.1 of the Regulation reads as follows:

“Subject to this Regulation persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that member state.”

It is accepted that, unless any of the provisions in the Regulation which derogate from Article 2.1 apply, PCI must be sued in the courts of Ireland by reason of its domicile there.

The other material provisions of the Regulation are as follows:

If Article 22.2 applies here, as PCI contends it should but which Worldview denies, the courts of Ireland have exclusive jurisdiction, even if, taken by itself, the application of Article 5.1 would have conferred jurisdiction upon the English court. The English court would therefore have no jurisdiction and these proceedings would have to be set aside. If, however, Article 22.2 does not apply, then Article 5.1 has to be considered. Here, Worldview contends that is has a good arguable case that by reason of Article 5.1, the English court does have jurisdiction, in which case Worldview had a choice as to where to sue PCI, and it was thereby entitled to bring this action here. If Worldview is wrong about that, then there is no basis for this Court to have jurisdiction, and again these proceedings must be set aside. I deal with Article 22.2 and Article 5.1 in turn.

As with any derogation from Article 2.1, this exception to the general rule must be construed strictly. Two decisions of the European Court of Justice show that it is of limited ambit. In the first, Hassett v South East Health Board 2 October 2008, the matter referred to the Court for a preliminary ruling concerned the refusal of the board of management of the Medical Defence Union (“the MDU”) to refuse to indemnify two doctors who were facing claims for damages for professional negligence. Articles 47 and 48 of the MDU’s articles of association gave the board an absolute discretion to grant or withhold any such requested indemnity. As the doctors were being sued in Ireland, they sought to join MDU as a third party there. The MDU argued that the Irish courts had no jurisdiction over it, and relied upon article 22.2. The MDU maintained that, since the claims concerned essentially the validity of decisions adopted by the board of management, they fell within the scope of Article 22.2.

The ECJ rejected the notion that merely because a claim had some link with a decision taken by an organ of a company, Article 22.2 was engaged, otherwise all legal actions involving such decisions would have to be heard by the court where the company had its seat, and that would not be correct and would greatly increase the scope of the exceptional jurisdiction conferred by Article 22.2 - see paragraphs 23 to 25 of the judgment. Instead, Article 22.2 must be interpreted as covering only disputes where a party is challenging the validity of a decision of the organ of a company under the applicable company law or the provisions governing the function of its organ, like articles of association. Since the doctors in that case did not challenge the right of the board, under the articles of association, to decide, as it did, but rather challenged the way in which it exercised its undoubted powers, Article 22.2 was not engaged.

Then, in the case of BVG v JP Morgan Chase Bank [2011] 1WLR 2087, the German public transport authority brought proceedings in Germany alleging that its prior swap contracts with the bank were void, because they were made ultra vires the authority’s own statutes. The authority contended that Article 22.2 applied, thereby giving the German courts exclusive jurisdiction in the matter, which would take priority over the parties’ exclusive jurisdiction agreement in favour of the English Court. In holding again that Article 22.2 did not apply, the ECJ confirmed its strict approach to this question here, not least because, if applicable, it would override the party’s own contractual choice of jurisdiction - see paragraphs 30 to 32 of the judgment. In paragraph 44 of the judgment, the court said that the divergence between the language versions of Article 22.2 is to be resolved by interpreting that provision as covering only proceedings whose principal subject matter comprises the validity of the constitution the nullity or dissolution of the company, legal person or association, or the validity of the decisions of its organs. As a result, the ECJ held that even where the claim was that a contract was invalid because its making violated the body’s own internal statutes, this did not engage Article 22.2.

In Speed Investments v Formula One Holdings [2004] EWCA 1512, a decision of the English Court of Appeal, the issue was whether two directors of the first defendant company, purportedly appointed by the third and fourth defendants, were validly appointed, having regard to the terms of the shareholder agreement. What was at stake, therefore, was the correct composition of the board, by reference to the shareholder statutes, as it were. The Court of Appeal held that Article 22.2 applied. In paragraphs 25 and 26 of the judgment of Carnwath LJ, with whom Neuberger LJ and Sir William Aldous agreed, he put it in this way:

“... taking a simple view of the present dispute, it seems to me to fall clearly within the Article. It is a dispute about the composition of the Board of FOH. Thus the "subject matter" of the dispute is a "question concerning the internal management of the company", or, more specifically, concerning the "composition of… (one of the) organs of the company ... It is true that this interpretation involves some expansion of the language of the Article. The issue is not, strictly, "the validity" of the constitution, or of any actual board decisions. However, determining the composition of the Board is clearly essential for the validity of future decisions.”

In paragraph 31, he said that, “the real subject-matter of the dispute is the composition of the Board ...”

In the case before me, it is said that there is an issue as to the composition of the board committee which would oversee the production of the review. In fact, for the reasons given above, the claim for relief, which may have raised that issue, is no longer live, so the point does not arise.

But even if it had, it does not, as Speed did, raise the validity of the appointment of the members to the board itself being the relevant organ of the company. Indeed, if Worldview had the right to seek such a direction at all, it could only be because the Agreement somehow required it as a matter of contract. Otherwise, all that could really be said in support of the application here of Article 22.2 by PCI, is that the undertaking of a review was related to the internal management of the company. I agree, but that is not the same as the validity of its constitution or the validity of decisions of its organs, in the sense expressed in Hassett and BVG. Nor does it apply just because one possible outcome of the review might be a change to the constitution of PCI in some way. Speedwas a very different case, because the real dispute was held to be the validity or otherwise of the appointment of two directors to the board, which would then, by definition affect the validity of any future decisions of the board in the company law sense.

In truth, all this claim is about is the performance or otherwise by PCI of a particular contractual obligation contained in the Agreement. The fact that the subject matter of the review involves questions of company business strategy and governance, and the fact that the other contracting party is a shareholder is neither here nor there for present purposes. Accordingly, Article 22 is not engaged, and one therefore turns to Article 5.1.

The following is common ground:

The Particulars of Claim seeks specific performance of clause 6(a) and (c), i.e. the obligation to undertake the review, to make any necessary public announcements as a result of it, and the detailed presentation of the results for shareholders.

Article 5.1(b) contains special rules where the contract, or that part of it in issue, is concerned with the provision of goods or services.

Worldview does not say that clause 6 involves the sale of goods, but it does say that it entails the provision of services. I do not agree. This is not the supply of services from a party which typically engages in such a supply to clients or customers. Nor was it for remuneration, although I accept that the mutual promises made by the parties in the Agreement could be seen as some consideration for the obligations in clause 6. The simply point, as it seems to me, is that it is a mis-description or mis-use of the expression, “services,” to employ it in connection with an obligation by the company to consider its own strategy in governance, for the principal benefit of its shareholders.

In this context, the internal nature of the obligations emphasised by Mr Chivers QC is relevant. It is true that the review would undoubtedly entail the doing of substantial work but the fact that an obligation requires this, does not mean necessarily that services are being rendered in the Article 5.1 sense. It is accepted that, for the purposes of Article 5.1(b), it is not the case that, if there is no sale of goods then there must be a provision of services. Article 5.1 contemplates that subparagraph (b) may not apply at all, hence the wording in subparagraph (c).

Accordingly, one returns to article 5.1(a). The first question is the identification of the principal obligation. As a matter of analysis, and concentrating on clause 6 in the context of this agreement, my view is that the principal obligation here, is the undertaking of the review, said by Worldview not to have happened. That is where the real work is to be done under clause 6. Without the carrying out of the review, pursuant to clause 6(a), the obligations in clause 6(c) are meaningless. The fact that the product of the review, i.e. its results in a written form, as presented to shareholders, is also required, so that the results can be considered, does not mean that, as between the two obligations, the latter has primacy.

Mr Craig QC says that the position must be otherwise because if one took the example of a solicitor’s report on title, or a surveyor’s valuation, the principal obligation must be the production of the report in each case, and so it is here. I do not accept the analogy. First, in both cases, there would undoubtedly be a provision of services, so the special rules in 5.1(b) apply. But secondly, and in any event, it is far from clear that the principal obligation is the document, and not the work which leads to it, i.e. the examination of title or the consideration of materials leading to a particular value. Finally, and again, the making of the review here is a very different creature from a report on title or evaluation, dealing here, as it does, with internal questions of the company future strategy and governance.

Moreover, such authority as there is, in my judgment, clearly supports the above conclusion. In Source Ltd v TUV Rheinland Holding AG [1997] 3WLR 365, a decision of the Court of Appeal, the plaintiff had engaged the German defendant to conduct quality control inspections in the far East, on goods which the plaintiff was going to buy. The defendant was also obliged to prepare reports on their inspections and send them to the plaintiffs in England. In his judgment, with which Waite and Aldous LJJ agreed, Staughton LJ stated as follows:

“It is evident that this inspection is not to be a casual glance, but a detailed examination applying certain technical tests. What is more, it was contemplated that if any goods seemed to fail the inspection there was a possibility the inspector would tell the factory and the factory would put the matter right. There were of course a number of other obligations under the contract: an obligation to inspect, an obligation to refer defects to the factories, an obligation to make out a report and send it to England and, as it seems to me, possibly to transmit a certificate to the sellers. But, for my part, I have no doubt that the principal obligation should be characterised as the inspection of the goods. One cannot elaborate the point. That was the principal task for which the plaintiffs engaged the German companies, in my view, and the principal obligation for the purposes of Article 5(1) ... it does not seem to me to follow at all that in a case of contract the principal obligation should be regarded as delivery of reports in England ... the principal obligation was to inspect in China and Taiwan.”

Obviously, without a report of the inspection, the plaintiff would not know what it found. Nonetheless, the principal obligation was the inspection itself. That is directly analogous to the case before me. Mr Craig QC sought to argue that the other ancillary obligations, like the reporting of any defects to the factories, made all the difference in Source Limited, but I reject that. The point is, obviously, that without the basic task being done, the inspection in that case, and the review in this one, none of the other obligations can be implemented. As Mr Chivers QC accepted, this is not simply because one obligation is temporally before the other. It is because it is logically and indeed existentially prior.

Some further support for the same conclusion will be found in Union Transport v Continental Light [1992] 1 WLR 15. Here, the contest was between two obligations in a charterparty which had not been fulfilled, namely the obligation to nominate a vessel, to be the subject matter thereof, and the obligation to provide it. At first instance, Evans J held that the former was the principal obligation because it was, “an essential preliminary.” The House of Lords agreed. In his judgment at p22 Lord Goff stated that:

“Nomination of a vessel under such a contract is not a mere naming of a vessel; it is rather the identification of the subject matter of the contract, with the effect that the name of the vessel, once nominated, becomes written into the contract ... nomination of the vessel triggers certain other obligations under the contract, notably in the present case obligations on the plaintiffs to keep the defendants and their agents fully informed of the position of the vessel so nominated, and to give advance notice of her arrival on each of the five days preceding her arrival at the loading port ... Furthermore under such a charter, I do not see how, until there has been a nomination, there can be any duty to cause any particular vessel to proceed to the loading port……I do not reach this conclusion on the ground that the performance of the obligation to nominate precedes in point of time the performance of the obligation to provide the vessel. I do so because the obligation to nominate it is for the reasons I have given a more fundamental obligation.”

Mr Craig QC sought to distinguish that case on the basis that the obligation to nominate was fundamental to the whole contract, not just to a part of it. I disagree. The reasoning of the House of Lords is plainly applicable here, whether one is talking about the entire subject matter of contract, or only part of it.

The key question is how the obligation said to be the principal obligation relates to the relevant part of the contract, whether that is all there is to the contract or not. Accordingly the principal obligation here is the obligation here is the obligation to undertake the review.

One then moves to the place of performance. A preliminary point, initially taken by Mr Chivers QC, was that if the contract did not expressly or impliedly dictate any place of performance then the entire Article 5 exercise must be jettisoned at that point without more. He said that this was entailed by certain dicta of the House of Lords in Agnew v Länsforsäkringsbolangens [2001] 1 AC 223. Read in context, I do not accept that the majority of the House of Lords was saying that, and if it was, it was clearly obiter. But in any event, in the end, Mr Chivers QC was disposed to accept that the correct approach to a problem of that kind was as clearly stated by the ECJ , in Wood Floor Solutions v Silva Trade [2010] 1 WLR 1900, which concerned the place of performance of a commission agents obligations. The Court stated as follows:

“... in order to apply the rules of special jurisdiction ... laid down in the second indent of Article 5(1)(b) of the Regulation, when these are several places where services are provided by the agent the 'place of performance' must, in principle, mean the place of the main provision of services by the agent.”

Then in paragraph 40:

“If the provisions of a contract do not enable the place of the main provision of services to be determined, either because they provide for several places where services are provided, or because they do not expressly provide for any specific place where services are to be provided, but the agent has already provided such services, it is appropriate, in the alternative, to take account of the place where he has in fact for the most part carried out his activities in the performance of the contract, provided that the provision of services in that place is not contrary to the parties' intentions as it appears from the provisions of the contract. For that purpose, the factual aspects of the case may be taken into consideration, in particular, the time spent in those places and the importance of the activities carried out there. It is for the national court seised to determine whether it has jurisdiction in the light of the evidence submitted to it.”

And finally in paragraph 41:

“ ... if the place of the main provision of services cannot be determined on the basis of the provisions of the contract itself or its actual performance, the place must be identified by another means which respects the objectives of predictability and proximity pursued by the legislature. For that purpose, it will be necessary for the purposes of the application of the second indent of Article 5(1)(b) to consider, as the place of the main provision of the services provided by a commercial agent, the place where that agent is domiciled. That place can always be identified with certainty and is therefore predictable. Moreover, it has a link of proximity with the dispute since the agent will in all likelihood provide a substantial part of his services there.”

Accordingly, in cases where the place of performance cannot be determined by reference to the contract itself, there is a set of fallback alternatives when considering the Article 5.1 outcome. In this case, I accept, as does Mr Chivers QC, that the contract does not require any particular place of performance in relation to the conducting of the review, and it would be quite impossible for Worldview to show a good arguable case that the contract prescribed England as the place of performance here. The first fallback of where the review was actually performed is not available here, since there is no real evidence as to where that was, if it happened at all; while PCI’s likely defence is that a review was carried out despite Mr Adair’s alleged admission to the contrary, there is no evidence as to where, in fact, it was done. Although Mr Custance of Worldview’s solcitors states in his first witness statement that, when looking at the terms it would have been carried out predominantly in England since most of the board lives there, that is far from determinative. The truth is, that, if the review was done, it could have been done in a whole host of locations, and electronically across different locations.

Since the “actual performance” fallback under Wood Floor is not available, one ends up with the domicile of the contracting party in question, here PCI, and that is Ireland. That is not, in any sense an artificial domicile since most board meetings were held there, as were many ad hoc meetings and the PCI shares were traded on the Irish stock exchange as well as the London stock exchange. PCI has offices in Dublin, as well as its offices in many other locations. While four of the seven directors, at least at the time when Messrs Walcott and Mach were still there, are listed as living in England, this does not alter my conclusion because the contractual obligation to conduct the review lies upon the company, not individual directors who would be involved in carrying it out. To focus on the domicile of individual directors who meet and conduct business in different locations as well as electronically would subvert the principle underlying the final fallback position which is that the domicile of the relevant contracting party can always be identified with certainty and is therefore predictable. See paragraph 41 of Wood Floor cited above.

Accordingly, Worldview has not shown a good arguable case that Article 5.1 confers jurisdiction on the English court. It follows that PCI’s application to set aside these proceedings for want of jurisdiction must succeed. I should add that PCI have raised a further point to the effect that if it was wrong on both Article 22.2 and Article 5.1, in any event, the clearly more appropriate forum was Ireland. That raises difficult questions where the Regulation purports to be a complete code on such issues. However it was not argued before me, but PCI reserves its right to argue it hereafter, should the matter go further. I am grateful to both counsel for their assistance in this case.