Monde Petroleum SA v Westernzagros Ltd

Index

Introduction

The dispute in outline

This action arises out of the scramble by Western companies, in the period following the fall of Saddam Hussain, to exploit the natural resources of the Kurdistan region of Iraq. As Christopher Clarke LJ noted in Excalibur Ventures LLC v Texas Keystone Inc (Footnote: ¹), at the relevant time Kurdistan was one of the last largely unexplored inland regions where there were prospects of discovering oil.

The claimant in this action, (“Monde”) is a British Virgin Islands company run by Mr Yassir Al-Fekaiki (“Mr Al-Fekaiki”). Mr Al-Fekaiki is a British national of Iraqi origin, whose father was, until his death in 1997, a prominent Iraqi politician and one of the leaders of the opposition to Saddam Hussain.

The defendant (“WZL”) is a Cypriot-registered company with its headquarters in Calgary, Canada. Until late 2007, it was a wholly-owned subsidiary of Western Oil Sands Inc (“WOSI”), a Canadian oil and gas company whose principal business was an oil sands project in Athabasca, Alberta. In 2007, WZL was “spun out” of WOSI and became the sole asset and 100% subsidiary of WesternZagros Resources Limited, a Canadian company whose shares are traded on the TSX Venture Exchange in Toronto.

In early 2006, WZL was attempting to negotiate with the Sulaymaniyah administration of the Kurdistan Regional Government (“the KRG”) an exploration and production sharing agreement (an “EPSA”), with a view to exploring for oil and developing oil production in that province of that region of Iraq.

On 23 April 2006, WZL and Monde entered into a written Agreement for Consulting Services (“the CSA”). The services under the CSA were to be provided by Mr Al-Fekaiki, and were intended to assist WZL to conclude its EPSA negotiations successfully. Monde’s reward for these services was to take the form of monthly fees, success fees payable on the achievement of certain specified milestones, and an option to acquire (in certain events) a 3% working interest in the EPSA. That option was to vest only upon the occurrence of the final milestone.

On 4 May 2006, an EPSA (“the May 2006 EPSA”) was executed between the KRG and WZL, but was never formally ratified by the KRG. Over the following months, the KRG required amendments to be made to the May 2006 EPSA. Those amendments had the effect of reducing WZL’s contract area from 3,700 km² to 2,120 km², and of revising the fiscal terms to make them more favourable to the KRG and less favourable to WZL. An amended and restated EPSA (“the February 2007 EPSA”) was executed on 26 February 2007 and was formally ratified by the KRG a few days thereafter.

On 16 March 2007 WZL served a Termination Notice on Monde, intending to bring the CSA to an end. On 18 April 2007 WZL and Monde executed a Termination and Release Agreement (“the Termination Agreement”). Under the Termination Agreement, in consideration of the payment by WZL of USD 700,000 (a sum to which Monde asserts that it was already contractually entitled), Monde agreed that the CSA was at an end, and WZL and Monde released each other from all further liabilities. It is common ground that, at that point, Monde’s 3% option under the CSA had not vested.

The present action was begun on 4 March 2013. In broad summary, the claims and defences raised in it are these. Monde claims that its signature to the Termination Agreement was procured by misrepresentation and/or economic duress. The relevant misrepresentations are alleged to have been made on behalf of WZL by Mr Bafel Talabani (“Bafel”). Bafel is the son of His Excellency Jalal Talabani, who was President of Iraq from April 2005 to April 2014. At the material time, Bafel was Commander of the KRG’s Counter Terrorism Group. Monde asserts that Bafel represented to Mr Al-Fekaiki in the course of a series of telephone conversations between 14 and 18 April 2007 that, if Monde agreed to sign the Termination Agreement, WZL would not merely pay the USD 700,000 for which Monde had invoiced WZL (which WZL otherwise intended to withhold), but would also enter into a new agreement (to replace the 3% option in the CSA) under which Monde would be given the chance to share in the profits arising from WZL's oil exploration and production in Kurdistan. The relevant duress is alleged to have been the threatened withholding, in breach of the CSA, of the USD 700,000.

On that basis, Monde seeks to set aside the Termination Agreement and/or to claim damages. Monde also asserts that the Termination Notice was invalid and that, by serving it, WZL committed a repudiatory a breach of the CSA, entitling Monde to substantial damages for the loss of its rights under the CSA, including its 3% option.

WZL denies making any misrepresentations or exercising any duress to procure the Termination Agreement. In particular, it denies that Bafel had any authority to act or speak on behalf of WZL, and says that Monde is in any event estopped from denying the validity of, or has ratified, the Termination Agreement. WZL also says that, even if Monde were to succeed in its claims relating to the Termination Agreement, Monde would be unable to prove any or any substantial loss. That is because, on WZL’s case, the Termination Notice was itself effective to bring the CSA to an end, or (if that be wrong) WZL would have been entitled to serve a further notice. In either event, no further payments would have become due to Monde under the CSA, and Monde’s 3% option would never have vested.

The dispute between the parties therefore has two parts: (1) can Monde impeach the Termination Agreement and, in consequence, claim damages for loss of its rights under the CSA; and (2) if so, did those rights have any or any substantial value?

The specific issues to be tried

By order dated 22 May 2015, Burton J directed that there be a split trial, and that the following issues (and related matters set out in the Statements of Case) should be heard first:

The trial and the witnesses

The trial took place over six court days between 11 and 19 April 2016. Monde was represented by Mr Stephen Cogley QC. WZL was represented by Mr Thomas Sprange QC and Ms Ruth Byrne. I am grateful to all the advocates for their assistance.

The sole factual witness for Monde was Mr Al-Fekaiki. The factual evidence on behalf of WZL was mainly given by its Chief Executive Officer, Simon Hatfield. Mr John Frangos, another executive of the company, also gave evidence for WZL.

In forming my views (where the evidence of the witnesses conflicted) as to which parts of this factual evidence to accept, and which to reject, I have of course paid close attention to the demeanour of the witnesses in the witness box as they gave their evidence to me. I have, however, also borne in mind the fact that the principal events with which this trial is concerned took place almost 10 years ago, and that the witnesses of fact have given their evidence once before on many of the matters in dispute, in the arbitration proceedings that took place in February 2014 (“the Arbitration”) (Footnote: ³). In those circumstances, it is inevitable that memories have faded or been changed by the passage of years and by repeated recollection and retelling (Footnote: ⁴). It is therefore particularly important that I should test the evidence of the witnesses against all of the other materials available to me. In that regard, I bear in mind the helpful observations of Robert Goff LJ (as he then was) in The Ocean Frost (Footnote: ⁵):

Overall, my impression is that none of the witnesses of fact told me the whole, unvarnished truth. Each of them, for his own reasons, had some matter or circumstance about which he did not want the Court to be fully informed.

As I shall explain later in this judgment, I have come to the conclusion that there are certain key respects in which Mr Al-Fekaiki’s evidence gave only a partial and misleading account of what had in fact taken place. His description of the relationship between him and Bafel was intended to disguise its true nature: and his account of the crucial conversations between them have been tailored for that purpose, and had been made more favourable to him since he first gave it. It was also, in some important respects, inconsistent with the contemporary documents. He also had a tendency to treat his hopes and expectations as if they were facts.

As for Mr Hatfield, it was obvious that he had had received witness training (Footnote: ⁶), and he admitted that he had been trained in preparation for giving evidence at the Arbitration hearing. He was reluctant to accept that anything in his witness statement might be incorrect. He also seemed to regard giving evidence as an exercise in advocacy, and often answered a straightforward question by turning to look at me (rather than at Mr Cogley QC, who had asked the question) and then making a lengthy speech, explaining WZL’s case. His evidence concerning (for example) the lack of contemporaneous written expressions of dissatisfaction with Monde’s performance was not supported by, and in places was inconsistent with, the contemporary documents. I formed the clear impression that Mr Hatfield was keen to ensure that the court was told only those matters which it was in WZL’s interest for it to be told, and that there were (as with Mr Al-Fekaiki) certain key respects in which his evidence painted only a partial and misleading picture

Mr Frangos also seemed at pains, in his evidence, not to give the court a full picture, particularly in relation to what communications had taken place between him, Mr Hatfield and his superiors during Mr Al-Fekaiki’s visit to Calgary shortly before service of the Termination Notice.

For all these reasons, I have come to the conclusion that it is necessary for me to treat the evidence given by each of these three factual witnesses with considerable caution, and that I must consider carefully, issue by issue, what parts of that evidence I should accept.

Burton J’s Order dated 22 May 2015 permitted both parties to call expert evidence on the single issue of whether the February 2007 EPSA was enforceable as a matter of Kurdistan and Iraqi law as at the date of the Termination Notice on 16 March 2007. Monde’s expert was Mr Salem Chalabi, a partner at Stevenson Harwood Middle East LLP. WZL relied upon the evidence of Mr N. E. “Skip” Maryan, an attorney and consultant specialising in the domestic and global upstream energy business, based in Williamsburg, Virginia.

Mr Maryan frankly accepted that he had no expertise in the law of Kurdistan and Iraq, and that he would defer to the expertise of Mr Chalabi on those matters. He sought, instead, to interpret the February 2007 EPSA by reference to the custom and practice of the international oil industry, and by reference to internationally recognised general principles of law. He justified this approach by reference to the definition of “Applicable Law” in Article 2.1.1 of the February 2007 EPSA as being:

.. the Law of Iraq as applied and administered for the time being in the Federal Region of Kurdistan, to the extent consistent with international law, as defined in Article 38 of the Statute of the International Court of Justice .. (Footnote: ⁷)

Many of the matters dealt with in the evidence of Mr Maryan are uncontroversial, and are admissible (in accordance with the well-known rules concerning the extent of the admissible factual matrix), as part of the general commercial background to the dealings between WZL and the KRG, including the February 2007 EPSA. However, in relation to the specific issue defined in Burton J’s Order dated 22 May 2015, only Mr Chalabi had the necessary expertise to give evidence that was admissible and helpful.

The Background to the CSA

The following facts were either common ground or were not seriously in dispute between the parties by the end of the trial.

Iraq and Kurdistan

Iraq was founded as a state in 1921, as the Hashemite Kingdom of Iraq. In 1958, the Hashemites were overthrown and Iraq became a republic. In 1968, a bloodless coup brought the Iraqi Regional Branch of the Arab Socialist Ba'ath Party to power. Saddam Hussein played a key role in the 1968 coup, and thereafter became vice-president and, in 1979, the fifth President of Iraq.

Iraqi citizens are composed of various nationalities and sects. The principal nationalities are Arabs and Kurds. The Kurds occupy 4 governorates in the north of Iraq: Dohuk, Erbil, Halabja, and Sulaymaniyah (“Suli”). The relationship between the Kurdish population and the central government of Iraq has historically been strained (Footnote: ⁸), but became particularly so after Saddam Hussein came to power.

Until 1979, Mr Al-Fekaiki’s father was resident in Iraq, where he was a prominent member of the Ba’ath party. When Saddam Hussein became President, Mr Al-Fekaiki’s father left Iraq for London, where he became a leading figure in the opposition to Saddam Hussein’s rule. In the early 1990s, Mr Al-Fekaiki’s father became one of the vice presidents of the Iraqi National Congress (“the INC”) led by Ahmad Chalabi. The INC was created in order to provide an umbrella for all the factions opposed to Saddam Hussain, including Kurds, Shi’ites (Mr Chalabi was a Shi’a Muslim), Sunnis and former Ba’ath party members (like Mr Al-Fekaiki’s father). Many of those who later went on to become prominent Iraqi politicians following the fall of Saddam Hussein visited Mr Al-Fekaiki’s family home in London to see his father during this period.

Following the end of the Gulf War in 1991, the Iraqi central government withdrew from the Kurdistan region, and the region was thereafter administered by a Kurdish administration. Following elections in 1992, a Kurdish parliament was established. In 1994 an internal war broke out between the two main political parties in Kurdistan, the Kurdistan Democratic Party (“the KDP”), which was controlled by the Barzani family, and the Patriotic Union of Kurdistan (“the PUK”), which was controlled by the Talabani family. In consequence, two separate administrations of the KRG emerged after 1996, one based in Erbil, (controlled by the KDP) and the other in Suli (controlled by the PUK). Although these two political parties became allied after the fall of Saddam Hussein’s regime in April 2003, their separate administrations continued to operate independently until early 2006, when they were merged by the Federal Region of Kurdistan Unification Agreement of 21 January 2006. Members of both of these governing families, the Barzanis and the Talabanis, feature in the events which have given rise to this case.

In the period following the fall of Saddam Hussein’s regime, the KRG sought investment in the oil and gas industry from multi-national companies with experience of oil exploration and production.

WZL’s efforts to become established in Kurdistan

On 24 November 2004, the PUK-controlled Suli administration signed a Memorandum of Understanding with WZL. WZL signed a further Memorandum of Understanding with the Ministry of Oil of the Federal Government of Iraq in Baghdad on 23 March 2005. Under those MOUs, WZL provided training programs, and conducted geological geochemical and geophysical surveys, the results of which were passed on to the KRG, in the expectation (or at least the hope) that the KRG would award to WZL the EPSA to explore for, and then produce, oil in the area that it was surveying.

In the course of its negotiations for these MOUs and the hoped-for subsequent EPSA, WZL had established contacts with various senior members of the PUK, and with the Deputy Oil Minister in Baghdad. It had also signed agreements with two sets of local consultants, Calex Energy Resources Inc (“Calex”, run by Mr Said Ahmed), and Near East Resources Inc (“Near East”, run by Mr Wathiq Hindo). These agreements gave Calex an option to take a stake of up to 2% in any WZL project in Kurdistan, and gave Near East an option to take a 5% working interest in any WZL project anywhere in Iraq. In both cases, the cost of taking up the option was to be funded in part by a loan from WZL. Both agreements, however, contained provisions requiring the consultant to reduce the share covered by its option, should WZL require additional local partners.

Negotiations between WZL and the KRG for the EPSA in relation to the Kalar-Bawanoor Block in the Garmian area of southern Kurdistan began in earnest in the fourth quarter of 2005. The negotiations were conducted on behalf of the KRG by a negotiating team known as the Special Projects Group, led by Mr Dilshad Abdul Rahman. These negotiations proved difficult because the Special Projects Group had little or no experience of negotiating such contracts, and took issue with provisions that would normally be thought acceptable, but failed to challenge proposals that would normally be thought unusually favourable to WZL.

Following meetings with the Special Projects Group in Canada in January 2006, WZL submitted a signed copy of a draft EPSA to the Deputy Prime Minister of the KRG, Mr Omer Fattah in February 2006. WZL then had a meeting in Kurdistan with Mr Fattah, in which he expressed his support for the deal and his desire that it be executed promptly.

Despite that expression of support, WZL still found it difficult to move matters forward to get a signed and ratified agreement. Mr Hatfield expressed his disappointment at the lack of progress in his letter dated 4 March 2006 to Mr Fattah:

.. We find .. that we are unable to establish a consistent and common negotiation framework, because, each time we meet with the [Special Projects Group] team, we are presented with fundamentally new and changing demands on many basic and critical points ..

The negotiation of the CSA

Faced with this impasse, WZL spoke to its contacts in the Kurdish region and in Baghdad, to try to find out what was causing the problem. They were given many different possible reasons. Eventually, WZL contacted the Deputy Oil Minister in Baghdad, Mr Motassim Hassan. He advised WZL that it needed to get support across all the competing factions within the KRG, and suggested that WZL should speak to Mr Al-Fekaiki. Mr Hatfield summarised matters as follows in the Briefing Paper dated 28 March 2006 which he prepared for the Board of WOSI:

It was apparent that some other reason for their lack of cooperation from the [KRG] negotiation team was at play although we did not know what. We had put down much of their difficult behaviour to lack of experience, being overly concerned about making mistakes and being blamed later, being overly cautious, having old nationalistic sentiments, etc, etc, but it was becoming apparent that there was more to it as we were starting to move backwards in the negotiations.

While in Suli we completed a situation analysis and it became apparent that we did not have enough active support from two of the main political players, despite having excellent support from two of the others.

In our frustration we approached Deputy Minister Motassim (the Chairman of our JCC with the Ministry of Oil in Baghdad and one of our firm supporters) about how to solve this and move forward. He recommended that we enlist the assistance of a lobbyist that had the ability and access to all the political players as our existing ‘agents’ were not able to do this. The recommended group is Monde Petroleum SA, a BVI registered firm with the Principal of Mr Yasser Al-Fekaiki ..

.. Another important consideration is that we are being asked to take a local partner in Kurdistan and we believe that Monde Group could satisfy that requirement ..

The KRG’s wish, which is referred to in this Briefing Paper, for WZL to take a “local partner” is a theme running through the events giving rise to this case.

On about 8 March 2006 Mr Hatfield and Mr Frangos went to a meeting at the offices of the solicitors, Lee Lanes LLP, in London. The meeting was attended by a partner in Lee Lanes, Mr Stephen Alexander, by Bafel, and by Mr Al-Fekaiki. Mr Al-Fekaiki’s own evidence was that he had first learned about WZL, and its need for consultancy services, in the course of discussions in Dubai with Bafel and with Darbaz Kosrat Rasoul Ali (“Darbaz”), the son of the vice-president of the KRG.

In his email dated 9 March 2006 to Mr Houck, the chairman of WOSI, Mr Hatfield described the previous day’s meeting at Lee Lanes in the following terms (Footnote: ⁹):

We met with son of Mr T [ie Bafel] and his UK lawyer [ie Mr Alexander] and business associate [ie Mr Al-Fekaiki] yesterday at their lawyer’s office in Mayfair. From our side were John [Frangos] and I, Wathiq [Hindo, of Near East] and our Iraq legal consultant Nick Hills ..

.. We explained the situation and mentioned that it had become apparent to us that we needed to enlist the assistance of a third party to lobby on our behalf and provide an explanation and reassurance to TOS (the other side) .. They were very well informed on what had transpired in the last few months ..

They indicated we will have to take a local partner and we explained we were prepared to consider this on a straight working interest but not a 20% profits interest as the PFP had requested, we also indicated that we may be open to financing a part of the local partner’s costs.

The advisers are a BVI company and will not be part of the local partnership, they will only act as advisors and understand the current legislation we are subject to ..

The reference to “the current legislation we are subject to” is a reference to the Corruption of Foreign Public Officials Act of Canada (Footnote: ¹⁰), and similar legislation in the US and elsewhere.

A further meeting took place the following day. Mr Hatfield’s email dated 10^th March 2006 to Mr Houck recorded that:

.. They [ie Monde] are willing to work for us and want to support us. As far as they are concerned we have the long-term interests of Kurdistan at heart, but would need us to spend time with them to explain the philosophy behind our EPSA, so they can advocate [on] our behalf now and in the future. We presented the annex A and annex B to the agreement that Paul Drager at MD [ie Macleod Dixon, now Norton Rose Fulbright Canada LLP] created yesterday and we discussed terms ..

We have some minor changes to make to the agreement and the amended agreement will b[e] emailed to me from Nick [Hills] our Erbil lawyer who is here and in attendance. Nick will also give us a summary of where this fits in the whole Middle East scheme of things ..

Meeting was very good and professional and businesslike, as usual John [Frangos] did an excellent job of charming them and taking the edges off my anglo-awkwardness ..

Further discussions took place in London on 15 March 2006 between Mr Alexander and Mr Hatfield, following which Mr Hatfield sent a document headed “Conceptual changes to WZ/Monde Agreement” under cover of an email dated 16 March 2000. On 19 March 2006, Mr Al-Fekaiki flew to Calgary, where he had negotiation meetings with WZL over the next couple of days. WZL’s internal “Meetings Agenda” for those meetings includes, as one of the items for consideration, “Their request for moderation of termination provisions in Article 10, we will ask for more specific termination provisions if milestones not reached by date(s) certain”.

Thereafter, through White & Case LLP, WZL retained the Middle East practice of the international investigation company, Kroll, to conduct “a due diligence background investigation” and to “investigate any reputational, ethical or legal issues that might exist in relation to” Mr Al-Fekaiki.

On 24 March 2006 Mr Frangos sent an email to Mr Alexander, saying that he had tried, without success, to send Bafel a note, and asking Mr Alexander to arrange for Bafel to call Mr Frangos. Mr Alexander forwarded that email to Mr Al-Fekaiki, asking him to pass it to Bafel. Mr Al-Fekaiki ultimately gave Bafel’s telephone number to Mr Frangos in an email sent on 13 April 2006.

A meeting of the board of WOSI took place on 4 April 2006, for which Mr Hatfield prepared his 28 March 2006 briefing document, in which he also recorded the following:

The deal concluded between us and Monde, signed by Monde but not yet by us pending our remaining due diligence and internal approvals .. after several rounds of discussion with Monde group was a combination of retainer, success fees and working interest financed through a loan. Their interest would be restricted to this project only. Monde wanted considerably more than this. We have several off ramps if it is apparent that this is not working. We have restricted the loan to the first development project. The whole deal is just for the current EPSA under consideration but the group has indicated that they will bring us other large deals and we have no reason to doubt this.

As Mr Hatfield recorded in his email dated 5 April 2006 to Mr Alexander, that board meeting instructed Mr Hatfield to do further due diligence on Monde’s past clients and to define carefully the short term work programme that Monde was expected to perform and to firm up the “deliverables” that Monde was to be required to produce.

At some point after that board meeting a document entitled “Action Items & Briefing Notes: Follow on to April 4 Board Meeting” was produced. That document recorded that the Board of WOSI, at its meeting on 4 April 2006, asked the management of WZL to attempt to secure a reduction in the option working interests that had been granted to Calex and to Near East. The “Follow-on” document indicated that that request was in the process of being implemented, and that WZL was confident of being able to reduce the total working interests of Calex and Near East to accommodate the inclusion of Monde, and thereby to keep the total of the interests of WZL’s agents at approximately the current level. That document also stated that:

Management is also examining ways how we can reduce, convert and include Monde’s working interest into the local Kurdistan partner’s interest that the KRG has requested.

Mr Al-Fekaiki had further meetings with WZL on 6 and 7 April 2006. He reported on these meetings to Bafel by email and in a telephone call. On 6 April 2006 Mr Frangos on behalf of WZL and Mr Al-Fekaiki on behalf of Monde signed a Confidentiality Agreement. Kroll reported via White & Case to WZL on about 7 April 2006. Under cover of an email dated 12 April 2006, Mr Al-Fekaiki sent to Bafel (at Bafel’s request) a draft letter introducing the Monde group of companies and a draft “CV” for the group. In his oral evidence, Mr Al-Fekaiki said that this was for Bafel to give to third parties, including Pet Prime International Oil Co Ltd (“Pet Prime”) and a number of other companies, to encourage them to enter into consultancy arrangements with Monde. Approval for Monde to be retained was finally given by the WOSI Board at its meeting on around 19 April 2006.

On about 23 April 2006 there was a meeting at the Fairmont Hotel in Dubai. It is common ground that Bafel was there, as well as Mr Hatfield and Mr Frangos. According to Mr Al-Fekaiki, he too was there. However, Mr Hatfield’s recollection (which, in my judgment, is probably correct on this point) was that Mr Al-Fekaiki was not present, but was spoken to by telephone. At that meeting, the CSA was signed (with a number of manuscript amendments) by Mr Frangos on behalf of WZL, and was sent by fax to Mr Alexander in London under cover of a header sheet which stated:

Please find attached a copy of the fully executed agreement from our side with amendments recently agreed to. Kindly initial from your side and return to us.

Mr Al-Fekaiki had already signed a draft of the CSA (as recorded in Mr Hatfield’s 20 March 2006 Briefing Document (Footnote: ¹¹)) prior to it being amended in manuscript (with his consent, given by telephone) and signed by Mr Frangos on behalf of WZL during the Dubai meeting.

Mr Hatfield recorded the execution of the CSA in two emails. In the first, to Mr Houck, he stated that

Agreement with Monde was concluded today .. over the phone from Dubai .. All off ramps preserved. Other changes made as per Monde’s original request (would have upset the relationship to push further). Monde is happy with [the] result and ready to start work advising us and lobbying for us, considerable advice already received ..

The second, to Mr Hindo of Near East, was rather less formal:

The Monde deal was concluded yesterday and all parties are happy .. We had a[n] excellent talk with Smith [ie Bafel] and have lots of new insights. He really is quite a guy. Jones [ie Mr Al-Fekaiki] was in South of France and we talked over [the] phone. Their Shylock from London [ie Mr Alexander] wasn’t involved.

The express terms of the CSA

Article 1 of the CSA provided that Monde:

.. agrees to perform such services (the “Services”) described in Schedule “A” to this Agreement as [WZL] shall request. [Monde’s] services shall be carried out exclusively by [Mr Al-Fekaiki] or under his direct supervision in accordance with parameters and guidelines specified by [WZL]. Services shall be performed in a reasonable, diligent and professional manner. [Monde] shall report to [WZL] in accordance with Schedule “A”.

Schedule “A”, which defined the “Services” to be provided by Monde stated:

[Monde] will advise and assist [WZL] in concluding and maintaining a fully operational and enforceable Exploration and Production Sharing Agreement between Kurdistan Regional Government - Iraq Sulaimaniy Administration and [WZL] for the South Sulaymaniyah area (the “EPSA”) with the KRG in the Federal Region of Kurdistan on terms and conditions satisfactory to [WZL] and materially and substantively covering the acreage delimited in the current draft EPSA (or such amended acreage to which [WZL] may agree) ..

Consultancy services shall comprise such advice, support, cooperation, introductions and other consultancy services in regard to the public and private sector in the Federal Region of Kurdistan and Iraq generally as [WZL] may (always subject to the laws in force in any applicable jurisdiction) properly and reasonably require so as to achieve the objectives set out above.

Work programs for the Services to be performed shall be established and periodically agreed to between the Parties. [Monde] to be proactive and to use its initiative, connections and influence in the Federal Region of Kurdistan and Iraq generally but to seek direction and instructions before proceeding with initiatives and meetings with KRG or Iraq Government officials

In addition to the foregoing services [Monde] will take all reasonable steps to advise and to assist [WZL] with its general business development in the Federal Region of Kurdistan and Iraq generally ..

Schedule “A” also required Monde to report monthly in writing according to a format to be supplied by WZL, and provided for meetings to take place at least monthly. It concluded by stating:

The Services may be amended by the parties from time to time and are to be reviewed after each 3 months of [the] contract term

Article 2 and Schedule “B” set out the fees which Monde was to receive as consideration for its services. Schedule “B” provided that:

.. in consideration of the services performed, [WZL] shall pay to [Monde]:

(a)

USD 100,000 per month, inclusive of expenses, payable within 30 days of the end of each month, for the first month, and USD 80,000 per month, inclusive of expenses, payable within 30 days at the end of each month, for the second and third months.

(b)

USD 50,000 per month, inclusive of expenses, payable within 30 days of the end of each month thereafter until first revenues are received under the EPSA ..

(c)

success fees as follows:

(i)

USD 550,000 upon commencement of the Seismic Program .. following signature of the EPSA and associated agreements .., or 2 months after the signature by all appropriate parties of the EPSA, whichever comes first;

(ii)

USD 550,000 following completion of the first 250kms of the Seismic Program and within one month of the EPSA becoming effective, i.e. passed into law by the Unified Government of Kurdistan, whichever comes last;

(iii)

USD 600,000 following completion of the first 500kms of the Seismic Program and within one month of [WZL] receiving a signed copy of the Confirmation and Support Letter of the Government of the Republic of Iraq (substantially in the form attached in Schedule “D” or a letter having the same effect) acknowledging the EPSA, all to the satisfaction of [WZL].

The final sentence of Schedule “B” provided that “The Option shall only vest upon the events described in (c) above having occurred”. The terms of the Option were themselves set out in Schedule “C”. This (to the extent relevant) provided that:

[Monde’s] option to acquire a 3% working interest in the EPSA is exercisable on the earlier of a declaration of first commercial discovery with respect to the EPSA or 24 months from the commencement of the Seismic Program

All of [Monde’s] costs from the time it elects to go to a working interest shall be advanced by way of loan by [WZL] on behalf of [Monde]. [Monde] shall bear all of its own costs once the loans are paid out on the first project. 75% of [Monde’s] gross share of revenue from the EPSA will be used to repay [WZL’s] funding until the loan is repaid (including interest at LIBOR +2%). All advances will be secured by [WZL] against the assets ..

Formal Participation Agreement to be signed within 60 days of the exercise of the option. If other terms cannot be agreed then they are to be determined under arbitration provisions based on this Schedule.

Article 3 of the CSA required Monde to invoice WZL monthly and for WZL to pay those invoices within 30 days of receipt “provided, however, that [WZL] may withhold invoiced amounts which [WZL] reasonably disputes until such dispute is resolved”. Article 5 contained stringent obligations of confidentiality. Articles 6 and 7 of the CSA contained provisions and representations by Monde designed to ensure compliance with all relevant laws including, in particular, the Corruption of Foreign Public Officials Act of Canada. Article 12 provided for the CSA to be governed by and construed according to the laws of England. Article 13 contained dispute resolution provisions providing for arbitration under ICC Rules. Article 18 provided that time was to be of the essence of the CSA; and Article 19 contained an entire agreement clause, in the following terms:

This Agreement represents the entire agreement between the parties and may only be varied or amended by a written instrument signed by both parties. This Agreement supersedes all prior written instruments signed by the parties relating to the subject matter of this Agreement

The term and termination provisions of the CSA were set out in Article 10. This provided as follows:

10.1

Subject to the provisions of this Article 10, this Agreement shall be effective for a period of 4 months from the effective date hereof.

10.2

Notwithstanding section 10.1, this Agreement shall continue if the EPSA is executed within four months from the date hereof or, if the EPSA is not executed, at the election of [WZL], provided that this Agreement and the option contemplated in Schedule “C” (the “Option”) may be terminated by [WZL] upon thirty days’ notice to [Monde] should the EPSA not become fully operational and enforceable within six months from the date hereof. If this Agreement is continued as set out above, on the 1-year anniversary of this Agreement it shall terminate with respect to the payments contemplated in Schedule “B”, unless mutually extended for 1 year terms.

10.3

Notwithstanding the provisions of Section 10.1 and 10.2 above, this Agreement and the Option may be terminated:

(i)

by [WZL] upon thirty days’ advance written notice to [Monde] if it becomes manifestly apparent that an operational and enforceable EPSA in form and on terms acceptable to [WZL] cannot be concluded,

(ii)

by either party immediately in the event the other party commits a material breach of this Agreement which remains uncured after the period for curing specified in the notice of the breach has expired,

(iii)

by mutual written agreement of the parties,

(iv)

by election of [WZL] on the termination of the EPSA, or

(v)

by [WZL] if it is manifestly apparent that achievement of the milestones set out in Schedule “B” are being achieved primarily as a result of activities of third parties

Subsequent events

The parties’ expectations about timing

The right given to WZL by Section 10.2 of the CSA to terminate the CSA in the event that the EPSA did not become “fully operational and enforceable” within 6 months reflected Monde’s advice to WZL that all of the Schedule “B” milestones could be achieved within that period. As Mr Hatfield recorded in his board Briefing Document dated 28 March 2006

.. Monde are very confident that we can get the EPSA signed within weeks, and the EPSA passed into law in the unified Kurdistan and the comfort letter from the Central Government all within 6 months ..

That did not seem to Mr Hatfield to be an unreasonable timescale, particularly since he had already been told (as he recorded in his 22 February 2006 email to Mr Houck) by Mr Dilshad Rahman of the Special Projects Group that Mr Rahman “didn’t see any problem with getting the [EPSA] signed”, but that it would take the KRG “at least a couple of months to get the comfort letter from the central govt”.

One of Mr Al-Fekaiki’s first acts after the CSA was signed was to send an email dated 25 April 2006 to Darbaz, to which he attached a copy of the draft Confirmation and Support Letter of the Government of the Republic of Iraq. In that email, Mr Al-Fekaiki said:

I have spoken to [Bafel]. We should let [WZL] negotiate their existing signed contract directly with the relevant people, we would only assist should they require our assistance.

The existing contract is quit [sic] complete and does not require much change.

However we will require to help them receive the letter attached or one to that effect.

[Bafel] will be with you tomorrow, to fill you in on the details.

The delay in ratification of the May 2006 EPSA

In fact, the May 2006 EPSA was signed on 4 May 2006, less than two weeks after the execution of the CSA. However, Article 2.2 of the May 2006 EPSA made implementation of the provisions of that agreement conditional upon the following:

2.2.1

Ratification according to a law which will be issued for this purpose by the KRG pursuant to the Constitution of the Federal Region of Kurdistan and which will materially comply with text set out in Annex E; and

2.2.2

Approval and ratification within fourteen (14) days of the date of this Agreement by the Board of Directors of [WZL] of the terms and conditions of this Agreement

In the event, neither of those conditions precedent was satisfied according to its terms. First, approval by the WZL board was held up by the notification of a competing claim (though it was eventually given contingently at about the end of June 2006, the deadline having been extended by consent). Secondly, formal ratification by the KRG of the May 2006 EPSA was not forthcoming.

The beginning of the dispute with Pet Prime

On 7 May 2006 Mr Hatfield received a letter from Bryan W Aldridge, the general counsel for Pet Prime. That letter drew attention to the fact that Pet Prime had a Production Sharing Agreement dated 14 January 2003 with the KRG, which (according to Pet Prime) gave it exclusive rights over a substantial part of the area covered by the May 2006 EPSA held by WZL. Mr Aldridge’s letter invited “any constructive suggestion you have to resolve this situation”.

This letter was not the first that WZL had heard of this possible competing claim. In an email dated 10 May 2006 sent to Mr Alexander and Mr Al-Fekaiki, Mr Hatfield recorded that Pet Prime had first intimated its claim in a letter dated 12 April 2006. That letter is not in the Trial Bundle. According to Mr Hatfield’s email, WZL had shown that letter to the KRG during negotiations in Suli on 26 April 2006, but had been reassured that Pet Prime’s rights did not extend to the area which was to be covered by (what became) the May 2006 EPSA, and had signed the May 2006 EPSA on that basis.

On 9 May 2006, Mr Hatfield passed the information about Pet Prime’s claim by email to Mr Alexander and Mr Al-Fekaiki, seeking Monde’s assistance. Mr Al-Fekaiki, in turn, sought the assistance of Bafel, and thereafter passed on to Bafel from time to time not only details of WZL’s thinking in relation to how to deal with the Pet Prime dispute, but also a number of emails from Mr Hatfield to Mr Al-Fekaiki. These included one dated 11 May 2006 which was headed “Private and Confidential: do not forward this email”, and another dated 8 September 2006 which stated in its body “Please do not forward any or part of this message”.

Payment of Monde’s first success fee

On 11 May 2006 Monde invoiced WZL for the first month’s consultancy fee of USD 100,000 and for the first success fee of USD 550,000, payable “upon commencement of the Seismic Program .. following signature of the EPSA and associated agreements”. Also on 11 May 2006, Mr Al-Fekaiki sent an email to Bafel, attaching a copy of the draft Confirmation and Support Letter of the Government of the Republic of Iraq. That letter stated:

Please find attached the letter for Motas .. to look at and sign if possible. Once done, please forward to their local representative and if possible copy me.

On 17 May 2006, Bafel replied to an email from Mr Al-Fekaiki, which had forwarded an email from Mr Hatfield giving details of a meeting between WZL and the KRG about the Pet Prime situation (and other matters), by saying

Dear Y, cc me every single communication, especially if regarding obligations, responsibilities or fees.

The Pet Prime situation and the fact that the May 2006 EPSA had not yet been formally ratified by the KRG continued to cause problems for WZL throughout the summer and on into the autumn of 2006. Mr Hatfield adverted to some of these in an email dated 23 June 2006 which he sent to Mr Al-Fekaiki, in which he also stated:

My assistant Lisa is preparing the clean contract and copy of the EPSA for you. The second monthly invoice has been paid and the first bonus payment has been approved for payment on July 4^th, 2006

In fact, the first USD 550,000 success fee was not paid by WZL to Monde until 10 July 2006.

On 6 July 2006, Mr Al-Fekaiki sent an email to Darbaz, attaching a copy of the draft Confirmation and Support Letter of the Government of the Republic of Iraq. Mr Al-Fekaiki asked Darbaz to “have the attached letter processed as soon as possible for [WZL] [as] this will assist them with regards to the ratification of their contract”. That letter was, of course, also necessary for Monde’s 3% option under the CSA to vest, and this was the third time that Mr Al-Fekaiki had written in an attempt to get the letter signed.

On 16 July 2006, Mr Hatfield sent an email to Mr Al-Fekaiki in which he said that it was “timely to start formalising [the] process” for Monde to provide monthly written reports to WZL, and provided a suggested format which he described as “an initial wish-list in order to keep our auditors happy”. In that email, Mr Hatfield requested a meeting with Mr Al-Fekaiki to discuss WZL’s concerns about the Pet Prime situation and about “the information that the KRG Special Projects Group is telling us that they do not see a clear way forward to getting our EPSA ratified in the manner they agreed to do”. Mr Al-Fekaiki immediately forwarded that email to Bafel, asking him for his thoughts and comments.

On 25 July 2006, Mr Hatfield sent a further email to Mr Al-Fekaiki saying that he had been instructed by WZL’s auditors that WZL needed to see Monde’s monthly report before it could release any further funds, but “we can discuss how best to produce this when we meet, I am sure we can find a solution”. That email went on to note that WZL:

.. have a Board Meeting tomorrow and I am not looking forward to telling them that the Pet Prime issue is not settled or that the KRG is going soft on getting the EPSA ratified by the unified KRG even though they agreed and signed that they would. These are quite serious matters and we need to find a solution for both if this project is to proceed according to our plans. I hate to [have] hiccups this early in the process, it doesn’t bode well for the future. However with the excellent lobbying ability of Monde, I am confident we can resolve these impasses.

Further problems for WZL

At about this time, two more problems arose for WZL. The first involved WZL’s contractors and the Kurdish security forces, known as the Asaish. On 19 July 2006 Mr Al-Fekaiki sent an email to Mr Hatfield and Mr Frangos, advising WZL to terminate the contract of its security contractors. This was followed up again on 30 July 2006. Mr Hatfield’s email of that date to his local colleague, Jack Blackshear, recorded:

Just so you know, I got an earful from the KRG via Monde today about our inability to control our contractors .. As we have seen, the Asaish have stepped in and plan to do so more forecably [sic] in the future, there was mention about shutting us down for longer if nec [sic] until we get the message. We are asked to police our own contractors so the Asaish don’t have to do it in the future again ..

This, and related problems with the Asaish, continued through August and September. On 9 October 2016, Mr Blackshear sent a Status Report email to Mr Hatfield about a meeting which he had had with the Asaish. According to Mr Blackshear’s report:

The meeting .. began by an explanation of our problem created by the dispute between the MoI and [the] Asaish over the sourcing of personnel for the seismic program. Introductory remarks also included a formal complaint about the threats made by Mr Mohammed to James. We explained that the dispute had so crippled the company’s ability to recruit sufficient personnel that it was beginning to affect the security of the project. This situation was described as grave enough that WZL’s management in Calgary had decided to close the operations until the situation was resolved. We pictured this as fundamentally a losing situation for both [WZL] and the KRG. [The Asaish’s representative] responded that it would be easy to resolve the problem. All we had to do was to source our personnel from the Asaish ..

Mr Blackshear’s report also contained an account of subsequent meetings with the Asaish, including meetings also attended by Bafel (referred to throughout as “Mr Smith”). According to Mr Blackshear, at one of these meetings, it was agreed by Bafel and the Asaish:

.. that two letters to [WZL] would be issued: one would come from [Bafel] and the second from Mr Omar Fatah. Both would confirm that the KRG wishes the recruitment of personnel for our project, and indeed the trucks and other services to come through the Asaish. It was emphasized many times that the Asaish would make no money on their help and that all would be absolutely honest in the “Western Sense” ..

Mr Blackshear’s report concluded by observing that WZL’s decision to shut down operations in the face of these problems had “done its job”, that they had agreed a practical solution with Bafel and the Asaish, and that when operations restarted they should be “able to operate into the future without fear of a reoccurrence of the types of problems that have plagued the company since July”.

Mr Hatfield’s reply email (also sent on 9 October 2006) adopted a less optimistic tone. It stated that the seismic crew would not start work again unless he, Mr Hatfield, gave approval, and that that would be unlikely to happen for at least a couple of weeks. Mr Hatfield concluded:

I am extremely wary of all the half measures and broken promises made by the various groups within the KRG and their inter-department bickering - all it does is cost us fruitless money and delays the development of the region. The EPSA is clear that the KRG is to provide us protection, and here we are in a situation where the Asaish is threatening us. This is clearly an unacceptable situation ..

Mr Hatfield forwarded this plainly confidential email to Mr Al-Fekaiki, who forwarded it in turn to Bafel and Stephen Alexander. Bafel’s response began with an obscenity, and continued

.. What asaish threat!!! Was there. Read the letter, how positive is that?!!! He is looking for a way out. He wants force majeure? Perhaps to destabilise as [sic] to buy out cheap?

Mr Al-Fekaiki did not relay this response back to Mr Hatfield. However, on 10 October 2006, he did respond to Bafel, saying:

I think it might be a good thing for us if management buyout goes through. I think we can squeeze even more out of them at the very least, or even bring in our friends to make an offer to buy them out ourselves at a very low cost to takeover [WZL]. This would really work to our advantage and that of the parties concerned on this side. Have a think through it.

But let’s see how the next few days unfold

This was the first of a number of emails passing between Mr Al-Fekaiki and Bafel in which they discussed ways in which they might get more money from WZL.

WZL’s second additional problem was the USD 5m “Signature bonus” to which the KRG was entitled under the terms of the May 2006 EPSA. On 27 July 2006, WZL received a formal letter from the Ministry of Region for Financial and Economic Affairs, requesting WZL to pay that bonus to an account in the name of “Zozik Company” at a branch of Standard Chartered Bank in Amman, Jordan.

That proposal was unacceptable to WZL, because it would be open to challenge as a corrupt payment (their suspicion being that the specified bank account was under the control of Mr Fattah). However, the dispute as to what was to happen to the Signature bonus (and as to whether it was in any event payable prior to ratification) was a further factor responsible for delaying the ratification by the KRG of the May 2006 EPSA.

Dr Ashti

Meanwhile, WZL had continued to negotiate in an attempt to resolve the conflict with Pet Prime. In late May or early June 2006, Dr Ashti Hawrami (“Dr Ashti”) had been appointed as the KRG’s Natural Resources Minister. This had a significant effect on the negotiations, as Dr Ashti adopted a harder and much more commercial approach than had hitherto been taken by the Special Projects Group team

On 11 August 2006, Dr Ashti emailed Mr Hatfield, expressing surprise that WZL had not already been in touch, and saying that they urgently needed to meet face-to-face to talk about WZL’s agreement and its operations in Kurdistan. A meeting was arranged, in the course of which it rapidly became clear that Dr Ashti was intent upon re-negotiating the terms of the May 2006 EPSA, which he did not regard as a valid contract. On 18 August 2006, Mr Hatfield sent an email to Mr Al-Fekaiki, in which he expressed surprise at Mr Al-Fekaiki’s most recent intervention in the dispute involving WZL’s security contracting arrangements. That email continued:

.. Given our recent meeting with the new Minister I am in serious doubt as to the future of our agreement and our ability to work effectively in this environment. I am sure that you will be able .. to see that the investment community will not view these developments positively. We hope that all our advisers will be able to provide us with timely advice on the evolving political situation before we enter additional meetings with hidden agendas .. Given the rapidly evolving political situation, we may need to go to a more frequent and more comprehensive reporting/meeting/two-way briefing process rather than less. When should we expect you in Calgary to visit our facilities?

Mr Al-Fekaiki did not at that point go to Calgary, despite this invitation. WZL had meetings with Pet Prime in Houston in an attempt to negotiate a solution, and sent a number of letters to Dr Ashti. Mr Hatfield sent drafts of these letters to Mr Al-Fekaiki for comment, and Mr Al-Fekaiki forwarded them to Bafel before responding. On 8 September 2006 Mr Hatfield sent a confidential email to Mr Al-Fekaiki, reporting on his meeting in Houston and on Pet Prime’s assertion that it had been told by Mr Fattah that “the only reason he signed the [May 2006 EPSA] was because [Bafel] and his mother had pressured him into doing so”. Mr Hatfield asked Mr Al-Fekaiki to confirm that neither Monde, nor anyone connected with it, had any relationship with Pet Prime or any of Pet Prime’s connections. As I have already mentioned (in paragraph 61 above), Mr Al-Fekaiki again forwarded that email to Bafel.

By email dated 9 September 2006, Dr Ashti made it clear that, if WZL and Pet Prime did not resolve matters between themselves, he would impose a solution upon them. He also indicated that the KRG believed that the area covered by the May 2006 EPSA was smaller than WZL itself believed.

On 14 September 2006 Mr Alexander sent an email headed “Pet and Western” to Bafel, in which he gave advice to Bafel (on behalf of the KRG) about how to bring both the Pet Prime and the WZL contracts to an end:

I write to confirm my discussions with you of yesterday.

Whilst you have confirmed that you wish the two parties to try and reach an amicable and practical decision, it is thought unlikely that this can be achieved.

However, you should formally tell both parties that you expect to receive their joint proposals by the end of September .. The lack of finality to the situation is clearly the most harmful to your country, as every day that goes by is a day further from production. Therefore matters need to be resolved soon ..

I think that we both agree that, if the government intends to terminate the contracts, it must be seen to do it in a legal and correct way, so as to avoid damage to foreign investor confidence ..

I think we both agree the Canadians [ie WZL] will be far less likely to fight than Pet but we must prepare equally strong cases against them ..

Whilst from my preliminary view of the papers we can see numerous breaches of contract by both parties in their conduct, I need to meet with all relevant people who have knowledge of the history so that we don’t make mistakes and can fully present your case. We also need to investigate whether there have been any misrepresentations made by either company in the contract negotiations which induced the Government to enter into the contracts ..

I would suggest therefore I come to your country during the week of 25^th September and interview the relevant officials and Minister if appropriate ..

After the meetings I will prepare draft letters for approval by you. Once the letters are finished, I believe that the next step would be for the Oil Minister to call each party to a meeting and make the following proposal [to accept cancellation of their contracts in return for repayment of the amounts that they have spent] ..

If either party fails to accept the offer within 48 hours, then the draft letter which we will be shown at the meeting but not delivered will be formally sent to the Board of Directors of both Pet and Western, the contracts terminated without compensation, and an action commenced by the Government for damages against the companies.

Thus you have offered them a dignified and swift exit in a reasonable manner. If they do not accept you are in a position to move immediately and terminate the contracts

Mr Alexander forwarded that email to Mr Al-Fekaiki, but Mr Al-Fekaiki did not forward it to WZL.

The following day, on 15 September 2006, both WZL and Pet Prime had meetings in London with Dr Ashti, who was accompanied by Bafel. Mr Hatfield reported to Mr Al-Fekaiki on his meeting with Dr Ashti by email that same day, saying that it was a surprise for him to see Bafel with Dr Ashti, who “was less hostile than last time, but still threatened to throw us out and refund all our costs”.

Also on 15 September 2006, the Toronto Globe and Mail newspaper published a story to the effect that the major shareholders in WOSI were about to begin a public battle to oust the company’s board of directors, because those shareholders were unhappy about the company’s involvement in Iraq. A copy of an online version of that newspaper report was sent by someone called “John” to Bafel, under cover of an email saying “it seems Mr Hattfield [sic] has not been telling everyone the truth. There is a new solution in the works that will be very good for the KRG”. Bafel forwarded that email and its enclosure to Mr Al-Fekaiki, Mr Alexander and Darbaz.

On 18 September 2006 Dr Ashti sent an email to both WZL and Pet Prime along the lines recommended by Mr Alexander in his 14 September 2006 email to Bafel. This email required them either to resolve the issue between themselves by 21 September 2006, or to sign letters requesting that their agreements be terminated in return for a refund of expenditures made to date. It also threatened that, if they did not comply, their agreements would both be terminated without compensation.

Intense negotiations between all three parties then took place. Mr Al-Fekaiki was on a number of occasions asked for, and gave his advice. From time to time Mr Al-Fekaiki would forward further emails which he had received from WZL to Bafel, and from time to time Bafel would forward emails to Mr Al-Fekaiki. WZL eventually produced a first draft of an amended EPSA on 28 September 2006, but negotiations about the principles as well as the details of that agreement continued for some time thereafter.

The end of the first six months of the CSA

On 14 October 2006, Mr Al-Fekaiki sent an upbeat email to Mr Hatfield, indicating that WZL should receive a favourable response quite soon from the authorities to allow it to proceed with its operations. Mr Al-Fekaiki urged WZL to follow Monde’s recommendations about its local operations. Mr Hatfield’s reply, dated 18 October 2006, confirmed payment of Monde’s invoices for July, August and September, and went on to say:

.. As you are aware, we are following through with the plan to rectify our issues in Kurdistan. Monde may not understand or like the order or pace that I am doing it but we have good reasons for doing it this way.

It is vital that Monde and associates do not do anything that could interfere in any way in this. I am not that concerned with how pleased or otherwise our office staff are in Suli, they are and will follow my instructions to the letter.

As an example I request you stop visits to our office in Sulaymaniyah when it happens that any officials are also visiting as it creates a large amount of attention, gossip and erodes confidentiality.

I understand Monde is doing everything in its power to assist [WZL] but we need to be careful how this unfolds from here.

Mr Hatfield’s 18 October 2006 email also noted that the six-month period contemplated in the CSA for completion of the “milestones” was coming to an end:

There is another matter of Monde’s contract with [WZL]. It is up for renewal and we need to get this formalized. Your lawyer has not provided us with the complete faxed document despite numerous direct attempts to obtain this, including a direct visit from our lawyer while he was in London.

We will prepare an updated renewal and send it to you for execution. It may be necessary for us to invite you to visit Calgary as part of this process.

On 19 October 2006 Mr Al-Fekaiki sent to Mr Hatfield a signed copy of the CSA “which I located from my files”, and confirmed receipt of payment of the most recent monthly fee. On 3 November 2006 there was a meeting of the Board of Directors of WZL. The Minutes of that meeting record:

The directors reviewed and discussed an agreement executed between the Company and Monde Petroleum SA dated 23^rd April 2006, (the “Monde Agreement”) and it was resolved that this agreement be ratified by the Board.

According to Mr Hatfield, this was the first time that the board of WZL had met after the execution of the CSA.

On 8 November 2006, Mr Hatfield sent to Mr Al-Fekaiki a “clean signed copy of the [CSA] as requested”. That copy bore a fresh signature page with a new signature by Mr Frangos, and incorporated in typescript the manuscript amendments which had been made to the 23 April 2006 version. There were, however, no other changes from the 23 April 2006 version. In particular, no change had been made to the date, or to the provisions of Article 10 of the CSA relating to its term and termination. According to Mr Hatfield, this was “simply prompted by the Board’s ratification and a desire to have a clean executed version of the contract on file”. Mr Hatfield’s 8 November 2006 email to Mr Al-Fekaiki continued:

.. You should know that there has been pressure to reopen this agreement and reduce the bonuses in line with the 42% reduction in acreage that has been forced on us by Ashti, but we were able to maintain it as agreed in Dubai on April 23^rd, 2006 ..

On 23 November 2006, Mr Al-Fekaiki sent Monde’s latest report and invoice to WZL. Mr Hatfield responded the same day, saying:

We are glad to hear from you as always. We hope you are well.

[WZL] has every intention of honoring the agreement we made on April 23^rd in Dubai and as such we sincerely hope that Monde does too. Our Accounts Payable Group will be pleased to process your invoice once we have received your signature on the clean version of the agreement that you had requested we send you, and which we did so on November 8th as a pdf.

Yassir, please note that I have zero latitude on this, as I mentioned before, there are many questions as to the effectiveness of our agreement with Monde and I have pushed hard to maintain the levels according to the April 23^rd deal ..

Mr Al-Fekaiki responded on 25 November 2006 with an email to which he attached a pdf of the signature page of the CSA. In response, on 28 November 2006, Mr Hatfield sent to Mr Al-Fekaiki a pdf file of the CSA, with the signature page inserted into the document. Mr Hatfield’s email also promised that a paper copy would be delivered to Lee Lane’s office in London, and continued:

.. We consider this matter closed and I will press our Accounts Payable Group to process your current invoice, but should you have any concerns about any aspect of this agreement please let us know by return.

Mr Hatfield’s 28 November 2006 email also brought Mr Al-Fekaiki up to date with the current situation regarding the EPSA:

We have been put on hold for the closing of the EPSA while Ashti continues his fight in Baghdad. If you have any insights into this they would be appreciated ..

.. [T]here has not been too much happening while the seismic has been stood down. I do not have permission to restart the program until the EPSA is closed and ratified by letter from the PM. Ashti has reassured us that this is in hand but yet we wait.

It is now urgent for us to close this deal as promised by Ashti.

The February 2007 EPSA

In November and early December 2006, Bafel sent 2 significant emails to Mr Al-Fekaiki. The first, dated 12 November 2006, informed Mr Al-Fekaiki that Bafel was having lunch with the Prime Minister (Nechirvan Barzani) and would “find you afterwards and let you know how things are going and next steps”. That email concluded “I’ll bring you some greens [i.e. banknotes] to look after our friends”. The second, dated 9 December 2006, informed Mr Al-Fekaiki of the existence of a “letter vital for closing the Pet deal”, but asked Mr Al-Fekaiki not to tell Mr Hatfield about it, but simply to reassure him that the agreement would be signed. Mr Al-Fekaiki complied with that request, and in a number of subsequent emails simply reassured Mr Hatfield that outstanding issues would be resolved “as soon as possible”

On 9 December 2006, Mr Al-Fekaiki met Mr Nechirvan Barzani at his private office in Erbil. Mr Al-Fekaiki’s evidence (which was not challenged, and which I accept) was that the meeting lasted approximately an hour, during which he explained the current position regarding WZL’s project. Mr Barzani then pressed Mr Al-Fekaiki for confirmation that he could be relied upon to ensure that WZL’s project would have positive results for Kurdistan. Mr Al-Fekaiki gave that confirmation, and Mr Barzani then confirmed that the project would proceed. Mr Barzani told Mr Al-Fekaiki that he would contact the relevant officials in his cabinet to give the go-ahead. As Prime Minister of Iraqi Kurdistan, Mr Barzani was the ultimate decision maker, who could give a go-ahead which more junior ministers such as Dr Ashti would be obliged to implement. Mr Al-Fekaiki gave a brief summary of his meeting with Mr Barzani in an email which he sent to Mr Hatfield, in which he said:

.. I do not believe there is room to grind any terms, but again Baghdad and the US are exerting a lot of pressure. I recommended that it is time to meet at a happy medium and move on, as time is being wasted on needless negotiations in place of reaching substantial achievements.

I was again reassured that all outstanding issues would be resolved as soon as possible.

On 14 December 2006 Mr Al-Fekaiki sent an email to Bafel, reporting on a meeting that he had had with Mr Hatfield at the Fairmont hotel in Dubai. He recorded that Mr Hatfield had told him that WZL would be “pulling the plug completely” and that Mr Hatfield himself would be out of a job if the EPSA was not signed and ratified prior to 1 January 2007.

That email simply recorded that Mr Al-Fekaiki had “reassured [Mr Hatfield] that this matter will be closed ASAP”. According to Mr Al-Fekaiki’s witness statement, this reassurance took the form of Mr Al-Fekaiki “relat[ing] to [Mr Hatfield] my meeting with Nechirvan Barzani on 9 December 2006” and telling Mr Hatfield “that as far as Monde was concerned, the EPSA was as good as ratified”. It would seem from the contents of Mr Hatfield’s subsequent emails that he was nevertheless not wholly reassured by what he was told by Mr Al-Fekaiki. It would also seem, from Mr Al-Fekaiki’s closing comments in this email, in which he recommended to Bafel that they should try to clear this matter once and for all, as “losing [WZL] would not look good on the parties involved”, that Mr Al-Fekaiki himself was also not wholly confident.

Mr Al-Fekaiki thereafter continued to forward emails received by him from WZL to Bafel. However, on 30 December 2006, the exchange was in the opposite direction, with Bafel forwarding to Mr Al-Fekaiki an email from Mr Hatfield which enumerated WZL’s concerns. Mr Al-Fekaiki’s response was that this was “interesting” and that it “confirms my earlier view, they [ie WZL] are desperate to have this matter concluded”.

On 5 January 2007, Bafel sent an email to Mr Al-Fekaiki, making a number of suggestions as to what he should say to WZL “untill [sic] we get news from Ashti”, including “any other bloody stalling tactics Ashti is nowhere to be seen!!”. Mr Al-Fekaiki followed that advice and sent an email to Mr Hatfield which concluded “Patience is a virtue and we will have to strive to achieve progress and meet our goals”.

On 10 January 2007 Mr Hatfield sent to Bafel a summary of what Mr Hatfield described as a “disappointing” meeting with Dr Ashti that afternoon. In the course of that meeting, Dr Ashti had offered WZL essentially two options: take the amended EPSA currently on offer, and adjust the contract structure and fiscal terms to make them likely to comply with forthcoming regional and federal petroleum laws; or take the amended EPSA currently on offer, but assign 50% to the KRG.

Bafel forwarded that email to Mr Al-Fekaiki, who responded by an email dated 11 January 2007, in which he explained his understanding of WZL’s current thinking to Bafel:

All the matters said were discussed last night.

They said that they were told by several of their sources to follow the path of Dr A before, and it seems that they have been taken into a maze for nothing, after spending 22 odd mill on local operations, and the time on negotiations and renegotiations, they are nowhere better than 7 months ago. They feel they might have been mislead!!! [sic]

They are questioning Monde’s role at present and in the near future.

They are questioning the credibility of the KRG and Dr A, and they do not feel that if they even try to negotiate anything that Dr A or the KRG would follow through on their promises ..

Mr Al-Fekaiki’s email also recorded:

.. Something that Dr A has said to them, he asked who is getting a carry in their operations, meaning third parties that are not declared such as “M”? He wants to know about it. And maybe that is why they are reluctant to give extra percentages to the local and KRG? He seems to be sniffing around to me there?

Negotiations between WZL and Dr Ashti continued throughout January 2007. On 28 January 2007, Mr Hatfield sent an email to Dr Ashti containing proposed terms for the new EPSA. These terms included a proposed agreement by the KRG to waive the USD 5m “Signature Bonus”, in return for an agreement by WZL to complete USD 5m worth of Community Support Projects. Mr Hatfield forwarded this email to Mr Al-Fekaiki, who in turn forwarded it to Bafel, commenting:

.. Please note: if the 5 mil is levied then Wathiq [Hindo, of Near East] should be asked to have this added to the ratification bonus of Monde to make up for all the lobbying it did on [WZL]’s behalf. (What do you think?) .. Also please note that they did not mention the change of area, meaning that they will accept the new changes .. including the change to the smaller area. Should we [be] able to give them back the original area, this can be lucrative to Monde ..

Yet again, therefore, Bafel and Mr Al-Fekaiki were discussing in their emails how to manage the situation in order to get more money from WZL for Monde.

On 29 January 2007, Mr Al-Fekaiki forwarded to Bafel his comments and recommendations concerning WZL’s proposed terms. Bafel replied:

.. Try to get more for Monde. Me and D [ie Darbaz] have a plan to get more. Have been talking to Ashti it will be fine, but I’m hearing Prime agreed to EVERYTHING, just not yet signed ..

Mr Al-Fekaiki’s response was to say:

.. Please give me indications on what is required so I prepare the right approach and utilise the best efforts ..

In Mr Al-Fekaiki’s witness statement, he says that he now believes that Bafel’s remark that “Me and D have a plan to get more” showed that Bafel and Darbaz “were in negotiations with WZL to get an increased stake in WZL’s operations with Dr Ashti’s blessing”. According to Mr Al-Fekaiki, the timing of this email, just before the February 2007 EPSA, suggests that “there was an agreement between Bafel and [WZL] by which Monde’s share in the EPSA was passed to Bafel or some entity that [was] connected to the Talabani family”.

Mr Al-Fekaiki did not refer to this exchange in his 29 January 2007 email to Mr Hatfield. Instead, he indicated that it would be beneficial to WZL and Monde if he and Mr Hatfield were to meet in the near future “to review matters generally inclusive of the [CSA]”. He suggested a meeting between himself, Mr Hatfield and Mr Frangos on the way to Erbil on their next trip. Mr Hatfield’s response was that “If need to discuss things regarding the [CSA], [WZL] are open”. However, he went on to observe that he “continue[d] to field questions about the effectiveness of the [CSA]”.

That same day, Mr Hatfield forwarded to Mr Al-Fekaiki the detailed comments made by Dr Ashti on the terms proposed by WZL. Mr Al-Fekaiki immediately forwarded Mr Hatfield’s email to Bafel, asking him to advise. Mr Al-Fekaiki also responded to Mr Hatfield’s email about the CSA, indicating his dismay at the suggestion in Mr Hatfield’s email that Monde was not effective in furthering WZL’s interests. Mr Hatfield, in turn, responded tersely: “Your comments are noted. Now can we move on?”

On 31 January 2007 Mr Al-Fekaiki sent an email to Mr Hatfield, saying that he had had a call from Baghdad and Bafel (to whom he again referred as “Smith”). According to Mr Al-Fekaiki’s email:

Monde is under the understanding that Ashti and [Bafel] shall be in Erbil at a time of your choosing from tomorrow onwards to finalise this matter once and for all, upon [WZL]’s request. Time being of the essence’

Mr Al-Fekaiki’s email set out the main points that Monde said that it perceived as acceptable by the KRG (including the reduced area), and referred to Monde’s “aggressive lobbying” in the last 48 hours on behalf of WZL.

Mr Al-Fekaiki and Mr Hatfield exchanged emails on 1 February 2007. Mr Al-Fekaiki’s email urged that it was “vital that we now sit down and revise the [CSA] at the earliest opportunity as we have discussed on many occasions”. Mr Hatfield’s reply said that he had been thinking the same thing, “given the course of events, the likely path forward and the drastically reduced value proposition that [WZL] is now faced with”. Mr Al-Fekaiki forwarded that email to Bafel, with the comment:

Obviously they will be looking to reduce matters, however I am thinking of the following:

(1)

Double monthly payments if possible.

(2)

Double the next two bounces?

(3)

Change the timing of payments upon events happening rather than waiting for work to be carried out.

(4)

Option to be executed within 60 days of ratification rather than waiting for 24 months.

He then emailed Mr Hatfield on 2 February 2007 saying:

An Addendum to the Agreement is being prepared by Lee Lanes. Please advise on your arrival time to London so that we can discuss this matter and finalise prior to your travel to Erbil.

At this point, Bafel seems to have begun negotiating directly on behalf of the KRG with Mr Hatfield. In an email dated 2 February 2007 (which he forwarded to Mr Al-Fekaiki), Bafel told Mr Hatfield that he (Bafel) could not “allow so much of [Dr Ashti’s] valuable time to be taken up with one single issue”. He urged Mr Hatfield not to waste the time of Dr Ashti (or of Bafel) any further, but instead to travel to Erbil straightaway “with the authority and willingness to sign one of the options presented to you”. Mr Hatfield replied by return, indicating that he planned to arrive in Erbil on 6 February 2007 “to complete the formalities if this is acceptable to Dr Ashti”.

On 3 February 2007, Mr Hatfield sought advice by email from Mr Al-Fekaiki about the situation. In that email he also requested a copy of the promised Addendum to the CSA, so that he could consider it in advance of meeting Mr Al-Fekaiki in London, on his way to Erbil. On Sunday 4 February 2007, Mr Al-Fekaiki responded to Mr Hatfield, urging him to be in Erbil on Tuesday, 6 February 2007, ready to meet Bafel and Dr Ashti on Wednesday, 7 February 2007. Mr Al-Fekaiki’s email also included a list of suggested amendments to the CSA, including the deletion of clause 10.2 and its replacement with:

This Agreement and the option contemplated in Schedule “C” (the “Option”) may not be terminated by [WZL] so long as the EPSA or any amendments thereto are agreed to by [WZL] and ratified by the Kurdistan Regional Government.

However, the proposed meeting between Mr Hatfield and Mr Al-Fekaiki in London did not take place. Instead, Mr Hatfield responded to Mr Al-Fekaiki’s email with his own email sent on 4 February 2007, in which he proposed that Mr Al-Fekaiki should instead travel on Monday, 5 February 2007 to Calgary “as there are a few people here that would like to talk to you to get your independent assessment of the situation and discuss the amendments you are suggesting”.

Mr Al-Fekaiki accepted Mr Hatfield’s invitation, and travelled with Mr Alexander to Calgary, where he was looked after by Mr Frangos and by Charles Beraud, WZL’s company secretary and legal adviser. Mr Al-Fekaiki’s evidence was that Mr Frangos and the other representatives of WZL were very friendly to him during his time in Calgary, and that while he was there he met the WOSI Board of Directors and told them of his discussions with Mr Barzani, and explained why, in the circumstances, Monde wished to change its agreement with WZL so as to make its option vest more quickly. According to Mr Al-Fekaiki:

During a meeting with Mr Frangos and to discuss this proposed change, Mr Frangos received a call and left the room. He returned some minutes later and confirmed that “our friend”, meaning Bafel, had been on the phone. Mr Frangos said no more. I had a feeling that something was going on behind the scenes, but did not know what ...

.. [A]t no time was Monde told of any dissatisfaction on [WZL’s] side, let alone the possible termination of the [CSA]

Mr Frangos did not, in his evidence, contradict Mr Al-Fekaiki’s account of their meeting. On the contrary, it was his evidence (in response to cross examination) that he simply did not recall what was discussed between him and Mr Al-Fekaiki in Calgary.

On returning to London, Mr Al-Fekaiki sent a polite email of thanks to Mr Frangos for his hospitality, to which Mr Frangos responded with thanks, saying that “Charlie [Beraud] and I appreciated your update and we thank you for taking time to spend with us in Calgary”. Mr Al-Fekaiki also reported by email to Bafel on what had happened in Calgary saying that “as per your suggestions, we did not bring up the subject of Monde’s Agreement, but I made it very clear that should Monde’s performance [be] in question, it should be said”. According to Mr Al-Fekaiki’s email:

I relayed my personal prospective [sic] of the whole situation in Iraq and Kurdistan, be it Petroleum Act, security and political which was required to be presented to the Board of Directors Thursday.

Other than that, not much was said other than stories about cars and Maggie.

It seems that, for the next two weeks, there was no further correspondence between WZL and Mr Al-Fekaiki. On 21 February 2007 Mr Al-Fekaiki sent Mr Hatfield the latest draft of the Petroleum Act: and on 23 February 2007 Mr Al-Fekaiki sent Monde’s Monthly Report for February, together with Monde’s February Invoice and a copy of its January invoice “which we believe remains outstanding”.

As I have already said, on Monday, 26 February 2007, WZL and the KRG executed the February 2007 EPSA, which was formally ratified a few days later. Article 1 of the February 2007 EPSA provided that:

This agreement shall be read and construed as a revision of the [May 2006 EPSA] and not as an original legal instrument in its own terms.

Apart from reducing the area covered by WZL’s concession, and making the fiscal terms more favourable to the KRG than those in the May 2006 EPSA, the February 2007 EPSA also contained (in clause 19) the right for the KRG to assign all or part of its 25% interest to a company established under the Kurdistan Petroleum Law or to a non-publicly owned third-party, thus giving the KRG the power to impose a local partner on WZL.

The termination of the CSA

Mr Al-Fekaiki’s “fall from grace”

According to Mr Hatfield, WZL had had “various misgivings” about Mr Al-Fekaiki and Monde from the start of their relationship. By the time Dr Ashti came on the scene in August 2006, and thereafter started to renegotiate the terms of the EPSA, Mr Hatfield was “very much convinced that Mr Al-Fekaiki was somewhat idle, realistically out of his depth, and had no real idea of what he should be doing .. Our overriding sense .. was that we had been effectively duped”. According to Mr Frangos, “From my observation .. Monde’s performance was sub-par at best. In particular, Mr Al-Fekaiki was not effective and there was little contribution if any to WZL’s position with the KRG through him or his contacts. Over time it became apparent that his work was sloppy at best”.

Mr Frangos’ evidence was that WZL nevertheless took no action because Mr Frangos had “initially encouraged the exercise of patience so as to give Monde a fulsome opportunity to perform and show some value”. Mr Hatfield, however, gave a more practical explanation. This was that WZL was hesitant to terminate its relationship with Monde at that point because of concerns that alienating Mr Al-Fekaiki might also alienate Mr Al-Fekaiki’s connections in the KRG, including Bafel.

It was the evidence, both of Mr Hatfield and of Mr Frangos that, at some point in early 2007, WZL changed its mind. In Mr Hatfield’s words, WZL’s “reticence about terminating the CSA for fear of political repercussions was fast disappearing”. In his witness statement, Mr Hatfield explained that “it was about this time that a rumour started circulating in Kurdistan that Mr Al-Fekaiki had fallen from favour. The rumour related to an allegation of poor conduct in connection with another international investor in the region. WZL therefore withheld payment of Monde’s invoices starting from January 2007, treating those invoices as disputed, and summoned Mr Al-Fekaiki to a meeting with members of the WOSI board given their mounting concerns about his competence”.

Mr Hatfield expanded on this account in his oral evidence. He explained that, at some point in late January or early February 2007, Bafel arranged a meeting (either in Dubai or London) at which he told Mr Hatfield that Mr Al-Fekaiki had “fallen from grace” because of things that he had done in relation to other business interests which he had with Bafel. The suggestion was that Mr Al-Fekaiki “had produced a firearm in a negotiation”, as a result of which Bafel and other connections in Kurdistan were seeking to disassociate themselves from Mr Al-Fekaiki. According to Mr Hatfield, he took Bafel’s comments during this meeting as a warning that “it would not serve us well if we continued our relationship with” Mr Al-Fekaiki. It was Mr Hatfield’s evidence that, in response, he told Bafel that he “would be very happy to terminate the relationship with Monde because [he] was very unhappy with it anyway”.

None of this detail had featured in Mr Hatfield’s witness statements, either in this action or in the arbitration (Footnote: ¹²). In his witness statement in this action, Mr Hatfield had referred only to “a rumour .. circulating in Kurdistan that Mr Al-Fekaiki had fallen from favour”, and had made no mention of Bafel’s role. In the later sections of this judgment, I shall have to consider how much of this evidence given on behalf of WZL I can accept as truthful.

The documentary record does contain some indications that there was some tension at this time in the relationship between Mr Al-Fekaiki and Bafel. The first indication appears in Mr Al-Fekaiki’s email dated 7 February 2007 to Bafel. This begins by giving an account of Mr Al-Fekaiki’s meetings in Calgary, saying that “as per your suggestions, we did not bring up the subject of Monde’s Agreement”. The second part of that email, though, is concerned with problems arising from dealings with the Allenborough Energy Corporation and matters about which Mr Al-Fekaiki said that he had “no solid proof, only suspicions”. It concludes “I will call you to confirm my travel plans to Suli or Erbil as fast as humanly possible as I am not prepared to leave such extremely dangerous accusations unresolved any longer”.

The second indication appears in Mr Al-Fekaiki’s email dated 27 February 2007 to Bafel, which bears setting out at length:

I am sorry that we have been unsuccessful to meet in person and discuss several outstanding issues that are of great concern.

Since my last trip to Canada and our recent meeting in London I have had time to consider exactly what you have said so far, and I believe I hear what you’re trying to say. Certain recent statements you have made have led me to reconsider my position and role within the group and believe that it would be best for us to address this matter urgently and without delay to safeguard our agreed interests.

In general, it has been an increasingly difficult working environment that seems to be corrupted by whispers and suspicions doubting everyone’s intentions let alone the continuous shifting of pre-agreed positions. But I am particularly tested when my loyalty is put in question despite my unreserved devotion to our common interests for the past 17 months notwithstanding the background of volatility and changing expectations and requirements.

Most concerning is the questioning of my reputation, credibility and especially my family name. In the face of this, I cannot idly stand by and do nothing and, as you do, I take such accusations of being a “liability” extremely seriously and, as you would, take great insult in being labelled as such.

Therefore and for the sake of our long-standing families’ friendship and certainly for ours, I believe that it would be best for us to meet soonest and agree on a settlement that would safeguard our common and individual interests.

I cannot stress enough the urgency of this and until we meet, I would ask you to immediately hold all activities that involve me personally and I look forward to hearing from you.

Mr Al-Fekaiki was cross-examined about this email, and accepted that he and Bafel had “disputes” at about this time. According to Mr Al-Fekaiki, the “group” to which he was referring was not just him and Bafel, but “consists of quite a big group that consists of many other high-end individuals in Iraq and specifically in Kurdistan .. mainly on the PUK side”. Mr Al-Fekaiki’s evidence was that, at that point in early 2007, he “had a vision or had a way of looking at things, of how things should be done, and [Bafel] had his own way”. However, Mr Al-Fekaiki denied that he and Bafel had agreed to split the fruits of their work: “that was suggested but it didn’t happen. We continued”.

On 6 March 2007 Mr Al-Fekaiki sent an email to Mr Hatfield and Mr Frangos enclosing Monde’s invoice dated 6 March 2007 for its USD 550,000 “fee due in respect of ratification of the EPSA”. That email said that Monde “would appreciate your kind and swift process of all invoices, current and outstanding”, and continued “In the meantime, Monde has been receiving highly concerning reports that [WZL] is planning to bring about the termination of its agreement with Monde, we would appreciate your immediate comments and clarification regarding this matter”.

The Termination Notice

WZL did not respond to that email. However, on 15 March 2007 Mr Hatfield sent an email to Wathiq Hindo (of Near East) making it clear that Mr Hatfield wished to talk to Mr Hindo very urgently about Monde.

Also on 15 March 2007, Mr Al-Fekaiki sent an email to Mr Hatfield, chasing a reply to Monde’s 6 March email. The reply which Monde received, sent by fax on 16 March 2007 to Mr Alexander at Lee Lanes, was the Termination Notice. This was signed by Mr Frangos, and stated:

Re : Notice of Termination

We refer you to the Agreement for Consulting Services between [WZL] and [Monde] ..

As you are aware, Section 10.2 of the Agreement provides that should the EPSA not become fully operational and enforceable within 6 months of April 23, 2006, that [WZL] may terminate the Agreement, including the option set out in Schedule C. Accordingly, [WZL] hereby gives you formal notice that the Agreement, including the option set out in Schedule C, is hereby terminated.

Please discontinue the carrying out of any of the Services (as set out in the Agreement) upon receipt of this notice.

We respectfully draw your attention to Section 5 of the Agreement, and in particular Article 5.3 and 5.4 and request your immediate compliance. We thank you for your assistance with this matter.

Mr Al-Fekaiki responded by an email dated 19 March 2007, saying:

Monde confirms receipt of [WZL]’s termination notice, which is duly noted.

We hereby request that all invoices, current and outstanding, are fully paid immediately and without any delays.

That email also enclosed an invoice from Monde to WZL for USD 50,000 for “our agreed fees for March 2007”. Since under Schedule B of the CSA, monthly fees were payable “within 30 days at the end of each month” (Footnote: ¹³), neither that invoice for March, nor Monde’s February invoice was yet due for payment. Payment of Monde’s January invoice was, however, about 20 days overdue.

Five days later, on 24 March 2007, Mr Alexander sent an email to Mr Hatfield. That email indicated that Mr Alexander had discussed the Termination Notice with Mr Al-Fekaiki “who agrees that the best course of action for the benefit of all parties is to meet in London as soon as possible to discuss the outstanding matters and seek a resolution of any issues either party may have”. That email concluded by indicating that, if Mr Hatfield declined to have a meeting, Mr Alexander would write more fully on Monde’s behalf.

The Termination Agreement

Some 3 weeks later, on 14 April 2007 WZL sent an email to Mr Al-Fekaiki and Mr Alexander. That email attached a draft of the Termination Agreement, and stated that WZL “will be pleased to pay all outstanding Monde invoices received by us once we receive your signature”. Mr Al-Fekaiki replied by email within a couple of hours, saying:

Monde confirms receipt of your email, which is duly noted.

We shall consider our position and take the appropriate decision in due course.

Meantime, we would like to reiterate that it is highly advisable for all parties to meet in London as soon as possible and without further delay.

According to Mr Hatfield’s witness statement, it was at this point that Bafel sought to intervene on Monde’s behalf, and WZL “in order to ensure that the parties’ relationship came cleanly to an end .. agreed that it would pay the invoices it had until then refused to pay upon execution by Monde of an agreement recognising the termination of the CSA and releasing WZL from any claims under that agreement”.

Mr Hatfield was, in my judgment, wrong to use the word “refused” in this passage in his witness statement. As he was later obliged to accept in cross-examination, although WZL had not yet paid Monde’s January and later invoices, it had not told Mr Al-Fekaiki that WZL was treating any of those invoices as “disputed”. I was not convinced by Mr Hatfield’s explanation that his use of the word “refused” was justified by “the implication we were refusing to pay them by our silence”.

Mr Hatfield expanded considerably on his account of the events leading up to the Termination Agreement in his oral evidence. He said that Bafel had asked Mr Hatfield and Mr Frangos to go to Dubai for a meeting. During that meeting, Bafel had asked Mr Hatfield and Mr Frangos to pay all of Monde’s outstanding invoices, including that for March. Mr Hatfield and Mr Frangos had agreed to that request, on condition that Monde agreed to sign a Termination Agreement. It was Mr Hatfield’s evidence that Bafel appeared at this point to be acting on Monde’s behalf.

Mr Hatfield could offer no explanation as to why Bafel should first have intervened to request that WZL should terminate its agreement with Monde, but subsequently should have intervened on Monde’s behalf to ensure payment of all of Monde’s invoices. According to Mr Hatfield “it was a curious relationship that [Bafel] had with Mr Al-Fekaiki because - well it’s in keeping with [Bafel’s] character that I observed that he could, on occasions, be very hostile and, on other times, be quite sympathetic”.

In his witness statement, Mr Al-Fekaiki gives the following account of what happened next:

It was on or about 14 April 2007 that I received a first call from Bafel. He told me that he was in Dubai with Mr Frangos and Mr Hatfield. I clearly recall him saying “I’m sitting here with John and Simon”. He then told me that he had been asked by [WZL] to pass on the following information: if Monde did not sign the Termination Agreement, Monde would not receive payment of the USD 700,000 .. I did not want to sign the Termination Agreement for the simple reason that I was concerned that signature would result in Monde being unable to exercise the option.

Further calls were made by Bafel to me over the following three days. I was in London for all calls. In the first call, Bafel said that I needed to sign the Termination Agreement because [WZL]was going to be signing with a local partner and they could not do so unless Monde gave up its rights to the option as they could not have two companies as consultants. This simply did not make sense so I refused. In a later call he said that he and [WZL] were under pressure from Dr Ashti who wanted all consultancy agreements to be with local companies. I told him that if this meant giving up the 3%, I was not prepared to do so.

During one of the calls, Bafel said that an agreement was on offer whereby Monde would get a quarter of everything to which it was already entitled. This included a 25% share of the monthly USD 50,000 retainer until commercial discovery; and 25% of the 3% option. 25% was put forward on the basis that Schedule C envisaged Monde receiving 25% of its entitlement under the option and the balance of 75% going towards the repayment of the loan, which [WZL] would extend to Monde to enable Monde to acquire its stake. This interest would come through a new entity controlled by or associated with the PUK with which [WZL]intended to enter an agreement. That Bafel had these numbers to hand was indicative of [WZL]’s involvement. The exact name of the proposed entity was not identified, however, reference was made to Bafel’s Uncle Hawre who lived in London and is the brother of Hero Khan, Jalal Talabani’s wife. Reference was also made to entities named Nokan and Kalkan Group, companies connected to the PUK and [the] Talabanis.

On 18 April 2007 Bafel called again and asked me if [I] had signed the Termination Agreement. When I said no, he became agitated and said that if I did not, the CSA would be terminated for me. In retrospect I ought to have sought legal advice, but at that time was uncomfortable doing so from my then solicitors, Lee Lanes, because of their relationship with Bafel. Faced with this ultimatum, I signed the Termination agreement on behalf of Monde. On the strength of our conversation concerning the 25% division, I wrote an email to Bafel confirming the position on the same day the Termination Agreement was signed.

It is right to record that the account given by Mr Al-Fekaiki of these events has not always been exactly the same. In particular:

Mr Hatfield, in his witness statement, stated that he could not comment on what Bafel did or did not do or say to Mr Al-Fekaiki, and by implication denied that any telephone call had taken place in his presence while he and Bafel were meeting in Dubai. His evidence was that Bafel “was never engaged in any way, shape, or form by WZL .. If he made the above threats or representations, he did not do so on [our] instruction, with our authority, or even with our knowledge”. Mr Frangos did not mention either of the meetings with Bafel or deal with many of these issues in his witness statement, and was not asked about them in cross-examination.

Under cover of an email dated 18 April 2007 Mr Al-Fekaiki sent to WZL a signed copy of the Termination Agreement. This document contained a number of changes from the draft which had been sent to him on 14 April 2007. Mr Al-Fekaiki had himself been named as a party in the 14^th April draft, but did not appear as a party in the version signed on 18 April 2007. The sum of USD 650,000 which had appeared in the 14^th April draft had been increased to USD 700,000 in the signed version. The signed version included a release by WZL of Monde (as well as the release by Monde of WZL): and, in the signed version, the law and jurisdiction clause had been changed from the Province of Alberta to England and Wales.

At about the same time, Mr Al-Fekaiki sent a copy of the signed Termination Agreement to Bafel, under cover of an email which read as follows:

Please find attached the Termination and release with [WZL], duly signed and sent to [WZL] as per your request.

Meantime, please find to follow my calculations of what is due, I trust that you will secure my interests as per our previous discussions, but I shall leave that to you.

Amounts due to me, as per our original agreement, are as follows:

(A)

Up to 30 March 2007

(700,000 – 10%) / 4 = 157,500.00

(B)

31 March 2007 - 31 March 2008: As this will be paid in other means, I believe it would be best to settle this now paving the way for you to utilise such means as you see fit.

([50,000 x 12] – 10%) / 4 = 135,000.00

(C)

Approval from Central:

(600,000 – 10%) / 4 = 135,000.00

Due to me = (A + B + C = 427,500.00) - owed to you [100,000.00]

Total due to me = 327,500.00 + 25% share of 3% = 0.75% to be paid upon commercial discovery and as per the terms of the signed contract.

I believe it best to settle the above as per our original agreement, however I shall leave such matters at your humble discretion.

In his oral evidence, Mr Al-Fekaiki sought to explain these figures. Asked to explain why, in line (A), he was asking Bafel to “settle” an amount of USD 157,000 out of the USD 700,000 to be paid to Monde (rather than to Bafel) by WZL under the Termination Agreement, Mr Al-Fekaiki said:

.. Monde owed certain parties for security and for their costs that were involved, which Monde had to pay. So part of it is Monde were decided that it will give part of that 700 towards what it was already owed .. This is between me and [Bafel] on the basis of really everything to do with [WZL], what was owed and what was due. And it was a general between .. what Monde was receiving from [WZL], as well as what Monde owed to the local contractors .. It was agreed that we will receive the 700. And then Monde agreed that it will pay some of the 700 to parties in the KRG area for contractors for services

Asked to explain the 10% deduction, Mr Al-Fekaiki said that it was to go to Lee Lanes. Asked to explain why, in line (B), Monde was only getting one quarter of the USD 50,000 per month fee, Mr Al-Fekaiki said that “that’s part of the agreement for the termination .. that Monde is getting 25% of what it was actually due under the CSA. Asked whether WZL had agreed to pay this further year’s fee in advance (an arrangement for which the CSA did not provide a precedent), Mr Al-Fekaiki said no:

It was going to come from the new entity that they’re entering- they’ve entered into. So it’s a joint entity .. The representations were made is that [WZL] would be paid that through that entity. .. So [WZL] would be paying the 50,000 per month to an agreed entity. And out of that 50,000, Monde would be receiving 25%.

With regard to the timing of these payments, most of which would not yet have been due under the CSA, Mr Al-Fekaiki’s evidence was that:

.. What was agreed was that those fees that are due to Monde are to be taken in advance. Because what - I mean, one way Bafel was saying that the 700 is not going to be paid, then you’re going to pay the 700. You know, you owe us this much and that much, and you have to pay all these contractors and so forth. So it’s part of what he was - you know, part of the conversation. So after the negotiations that took place after the phone, what we - was agreed was that, okay, Monde will receive its next year until things are much more solidified, so who the entity is, what the contract terms are going to be, so what- another CSA or so forth. How do we solidify all these percentages?

Although he was leaving matters at Bafel’s “humble discretion”, because he was “acting as the intermediary at that time”, it was nevertheless still Mr Al-Fekaiki’s evidence that all the sums were to be paid by WZL, albeit through the new entity.

On 28 April 2007 Mr Al-Fekaiki sent to Mr Frangos and Mr Hatfield a copy of his email dated 19 March 2007, which had attached Monde’s March invoice. Mr Frangos responded the same day, promising to “progress payment”. However, no payment was received. On 4 May 2007, therefore, Mr Al-Fekaiki sent a further email to WZL. This said

We would like to remind [WZL] that they are bound by our original Agreement to settle all invoices in a timely manner and that the outstanding invoices were legally due to Monde prior to termination, and thus [WZL] has clearly breached our Agreement.

Furthermore, Monde agreed to signed the Termination and Release Agreement against which Monde was promised an immediate release of any and all outstanding funds upon [WZL]’s receipt of our signature.

Unfortunately, it seems that [WZL] remains adamant on delaying the payments for whatever reasons, unknown to us, leaving Monde with no alternative but to hereby give [WZL] final notice that should cleared funds for all outstanding invoices are not [sic] in place in Monde Petroleum’s account by no later than 12:00 GMT, of Tuesday, May 8, 2007 Monde will immediately consider its signing of the Termination and Release Agreement null and void and shall pursue such avenues that are deemed appropriate without any further notice.

Payment of the USD 700,000 was eventually made on 7 May 2007.

Events following the Termination Agreement

According to Mr Al-Fekaiki’s witness statement, Mr Al-Fekaiki contacted Bafel on numerous occasions after the execution of the Termination Agreement, to find out what was going on and why he was yet to receive any monies under the new arrangement. Mr Al-Fekaiki’s witness statement also explained that he “did not contact [WZL] on the basis that [he had] entered into the new agreement, albeit very reluctantly, in good faith, and in reliance on the promises Bafel had made”.

On 28 February 2008 WZL and the KRG entered into a Production Sharing Contract in relation to the Kalar-Bawanoor Block (the “February 2008 PSC”). Recital (G) to the February 2008 PSC described this contract as an amendment and restatement of the February 2006 EPSA. However, its commercial terms were significantly different. In particular, it provided (in broad summary) for the interests under the contract to be divided up: as to 40% to WZL; as to 20% to the KRG; and as to the remaining 40% to a Third Party Participant to be nominated by the KRG.

Almost a year after the execution of the Termination Agreement, on 9 April 2008 Mr Al-Fekaiki sent a further email to Bafel, attaching an invoice from Monde. This email stated:

I would like to bring to your attention that we have now reached the time where we need to settle outstanding financial matters.

Amounts currently due as per our original agreement are as follows:

(A)

Up to 30 March 2008 outstanding from past contract with [WZL]

(327,500) – 303,000 = 24,500.00

(B)

Pre-agreed annual payment, as these fees are being paid to you via other means with regards to [WZL]

([50,000 x 12] – 10% / 4 = 135,000.00

(C)

Pre-[a]greed consulting fees with regards to the negotiation with the KRG and Contractor, preparation, signing and ratification of a 488 MW power plant contract for the KRG

USD 3,000,000.00 as a one-off payment

Total due = (A + B + C) = USD 3,159,500.00

I have taken the liberty to attach an invoice and hope that we can have your remittance at the earliest.

I look forward to receiving the confirmation of remittance and seeing you in the very near future.

The attached invoice from Monde was addressed to “Commander Bafel Ahmad Talabani, Kurdistan Regional Government (KRG)”, and was expressed to be for “our agreed fees for services rendered for the duration from July 2006 to March 2008 – USD 3,159,500.00”. Asked to explain why he was sending an invoice addressed personally to Bafel for a total which included sums which (according to Mr Al-Fekaiki) were to be paid to Monde by WZL, Mr Al-Fekaiki replied:

.. My understanding is Monde should have had a share in the new entity. And that entity was still invisible to Monde. So the only point of contact for me who made the representations, at that time, was Bafel. So I was only contacting Bafel with regards to that - the actual agreement and representations that were made.

Mr Al-Fekaiki also explained that the “pre-agreed consulting fees” in line (C) were in connection with the Allenborough contract, and were nothing to do with WZL.

Mr Al-Fekaiki sent a chasing email to Bafel on 13 May 2008. Bafel’s response, by return, was terse:

Unfortunately there will [be] no “settlement of fees” at least in the form shown below. Better to discuss in person I believe

Under a Completion Agreement dated 19 June 2008, the KRG transferred the Third Party Interest under the February 2008 PSC to Talisman (Block K44) BV (“Talisman”). A Third Party Participation Agreement of the same date provided for Talisman to make certain payments to the KRG. On 24 June 2008 Mr Al-Fekaiki sent an email to Bafel, in which he said that he had “received the good news of the sale of 40% of the [WZL] block to Talisman, with ensuring the continuation of the KRG’s 20% free carry. Congratulations”. Mr Al-Fekaiki expressed the hope that Bafel would be able to update him on the current situation at some point, and his desire to meet Bafel either in Dubai or London.

On 25 July 2011, the KRG, WZL and Talisman entered into an Amendment Agreement, under which the contract area under the February 2008 PSC was split into two sections, one (“Kurdamir”, comprising 340 km²) to remain governed by the February 2008 PSC, and the other (“Garmian”, comprising 1,780 km²) to be governed by a new Production Sharing Contract between the KRG and WZL. It was a condition precedent to that Amendment Agreement that the KRG should be satisfied that WZL’s Consulting Agreements with Calex and Near East “and the interests in the production sharing contracts acquired under” those agreements had been terminated, and the KRG required WZL to deliver a Letter of Representations and Warranties to that effect. That Letter referred to WZL’s expired agreements with Calex and Near East, but made no reference to Monde or the CSA. It was also a term of that Amendment Agreement that WZL’s interests would automatically terminate if it thereafter made an assignment of all or any part of its interests without the prior consent of the KRG.

Mr Al-Fekaiki’s evidence did not record what happened in the four years following his May 2008 emails to Bafel. However, according to Mr Al-Fekaiki’s witness statement, in August 2012 he was summoned to meet Jalal Talabani in Berlin. According to Mr Al-Fekaiki “he had heard about the dispute that had arisen with [WZL] [and] wanted to hear first-hand what was going on because there were reports in the press that referred to Bafel being dishonest”. After Mr Al-Fekaiki had explained matters to Jalal Talabani, he “made a Presidential Decree that the matter be investigated and resolved such that Monde’s rights would be reinstated”. However, towards the end of 2012, Jalal Talabani suffered a stroke and was hospitalised in Berlin. According to Mr Al-Fekaiki, Mr Al-Fekaiki flew there to see him and was met by Bafel, who told Mr Al-Fekaiki to send all relevant documents to Araz Talabani, who dealt with the Talabani family’s commercial matters.

On 5 January 2013, Bafel sent an email addressed to Araz Talabani to Mr Al-Fekaiki. This stated:

I can confirm that [Mr Al-Fekaiki] and I (acting as his lobby at the time) were lied to by [WZL] regarding other agreements entered into post (Monde’s) termination, evidence of which is clearly published on the KRG website. I am convinced that this was done purely to defraud [Mr Al-Fekaiki] (by taking advantage of our family and personal friendship). In fact I can say that I believe that our lobbying for [WZL] was instrumental in them being granted the concession in the first place!

Again, in the later sections of this judgment which deal with the specific issues on which I have to rule, I shall have to consider how much of the evidence that I have recorded in this and the preceding sections of this judgment I can accept as reliable.

The nature of the relationship with Bafel Talabani

I begin my analysis of the issues in this case by considering the nature of the relationships between Mr Al-Fekaiki and Bafel, and between WZL and Bafel. Those relationships seem to me to be at the heart of this case, because it is Bafel who is alleged to have made the representations on behalf of WZL on which Monde’s claim to set aside the Termination Agreement is primarily founded.

Neither side called Bafel to give evidence on their behalf, though either of them could have sought his help. It is plain from Bafel’s 5 January 2013 email (Footnote: ¹⁴) that, at least in 2013, Mr Al-Fekaiki and Bafel were still in communication with each other: and Mr Al-Fekaiki asserted that Bafel was willing to give evidence on his behalf in his oral evidence in the Arbitration (though not in his evidence in this action). As for WZL, they are still engaged in Kurdistan, and gave no convincing reason why they could not themselves have contacted Bafel to seek his evidence, had they wished to do so.

Even so, there is no evidence that Bafel was within the jurisdiction so as to be a compellable witness for either side at this trial. The evidence also suggests that he might well have had his own reasons for not being a willing witness, whether to give evidence in person, by video link, or in writing. Neither side put in evidence any communication asking Bafel to be their witness. It seems to me that both sides could equally have had reasons for not seeking out his evidence. In the circumstances, I do not think it right to draw inferences in favour of either side from the fact that the other side did not produce evidence from Bafel.

The absence of evidence from Bafel means that it is necessary for me to infer the nature of the relationships between Bafel and each of the parties from what I have been told (and not told) by them about those relationships, and from the documentary evidence.

I start with the way in which Mr Hatfield and Mr Al-Fekaiki saw the situation in Kurdistan in 2006 and 2007, and the motivations of the other people on the ground at the time. Mr Hatfield described the situation in Kurdistan as he then saw it in an email dated 27 December 2006 to Mr Blackshear:

.. No one in this region offers assistance without expecting something in return .. There is no such thing as altruism, personal gain is the underlying motivator - and also no one can avoid the local jealousies that inevitably arise (and have arisen). .. We are one of the very few pies in the region and everyone wants a slice ..

Mr Al-Fekaiki, in his witness statement, was even more forthright:

It is common practice for oil companies in Kurdistan to make payments, over and above those prescribed in an EPSA or Production Sharing Agreement, to local officials often referred to as “local partners”. These partners are generally connected to one of the families .. the Talabanis or Barzanis . I had told [WZL] that there was a possibility that they would be required by Dr Ashti, the Talabanis or the Barzanis to have a local partner. This was a common practice in Iraq whereby political parties would impose a local partner on foreign companies in order to secure benefits for the local political parties or those politicians that controlled it. These “partners” are commercial entities connected to the Talabani and Barzani families ..

Due to bribery laws in the West, local partners are usually re-cast in contractual documents. This is a fiction. Payments to these entities are nothing more than kickbacks for local politicians.

It is not necessary for the purposes of this judgment for me to comment on whether these descriptions of the situation in Kurdistan in 2006 and 2007 are accurate as generalisations. The evidence before me does, however, establish that they are accurate at least as regards the motivations of Mr Al-Fekaiki and Bafel. Mr Al-Fekaiki did not dispute that he had a number of business arrangements with Bafel, including in relation to the Allenborough contract. In my judgment, however, the evidence also indicates that those arrangements included accounting to Bafel for the majority share of the amounts paid by WZL to Monde.

The pointers to that conclusion include the following:

Individually, each of these pointers could perhaps be explained away. Cumulatively, their combined impact is strong. However, perhaps the clearest piece of evidence in favour of this conclusion is Mr Al-Fekaiki’s email dated 18 April 2007 to Bafel (Footnote: ²⁸), in which he brings into the account between him and Bafel only a 25% share of the USD 700,000 which was due from WZL to Monde, and which WZL were going to pay via Lee Lanes.

That USD 700,000 represented sums due to Monde under the CSA, for which Monde had submitted invoices to WZL. Since Mr Al-Fekaiki was the only registered shareholder of Monde, there was no obvious reason why he should credit Bafel with 75% of those sums in working out the balance due from Bafel to him. When Mr Al-Fekaiki was asked towards the end of his oral evidence to explain this credit, he seemed to me to be making his response up as he went along. The transcript, which records the pauses and re-starts in his answer, to an extent reflects this. Furthermore, the essence of the answer which he gave - that it was a deduction because “Monde owed certain parties for security and for their costs which were involved, which Monde had to pay” (Footnote: ²⁹) - seems to me to make neither logical nor commercial sense. First of all, it makes no obvious logical or commercial sense to credit Bafel with sums due from Monde to third parties. Secondly, it makes no obvious logical or commercial sense that the total amount due in respect of “security” and “costs” should be a round 75% rather than a specific sum. Thirdly, it makes no obvious logical or commercial sense that the deduction should be the same round 75%, irrespective of whether the sums dealt with in those lines are in relation to the past or in relation to the future. For all these reasons, I do not accept Mr Al-Fekaiki’s explanation.

In my judgment, Mr Al-Fekaiki was (perhaps inadvertently) telling the truth when he later said “This is between me and [Bafel] on the basis of really everything to do with [WZL], what was owed and what was due”. It seems to me that the reality, as reflected in this email, was that the USD 700,000 to paid by WZL to Lee Lanes was going to be under Bafel’s control (Lee Lanes were Bafel’s solicitors), and that Bafel was being asked to direct payment to Mr Al-Fekaiki of Mr Al-Fekaiki’s own 25% share (calculated after deduction of Lee Lanes’ 10%) “as per our original agreement” - ie the agreement between Bafel and Mr Al-Fekaiki to divide between them (inter alia) the proceeds of the CSA.

I turn now to consider the position of WZL. Mr Hatfield and Mr Frangos, on behalf of WZL, plainly knew that there were commercial arrangements between Mr Al-Fekaiki and Bafel. However, there is no evidence that they knew that Mr Al-Fekaiki had agreed with Bafel to pass on to him any of the monies that were to be paid by WZL under the CSA. As experienced businessman, they are likely to have suspected that anything done for them by Bafel would not be done on an entirely altruistic basis. However, they were at all times very careful to ensure that the structure and documentation of WZL’s arrangements did not involve any infringement of the laws against corruption to which WZL and they were subject, and the evidence does not establish that they knew that structure and documentation to be a sham.

Bafel was a public official, and appears to have had influence over the award of public contracts to WZL. Sums paid by WZL to Monde for its assistance in negotiating those contracts were, on the findings that I have just made, being shared with him. Accordingly, although neither party sought to argue that the CSA was unenforceable on the grounds of illegality, I have nevertheless considered, as I am obliged to (Footnote: ³⁰), the question of whether I am required to raise and to deal with that issue of my own motion.

However, the CSA is not on its face an illegal contract. Any illegality (either under English law, whether statutory (Footnote: ³¹) or at common law (Footnote: ³²), or under the law of Iraq (Footnote: ³³)) would arise from the private arrangements, outside the CSA, entered into between Mr Al-Fekaiki and Bafel: and I am far from satisfied that the whole of the relevant circumstances concerning those arrangements have been put in evidence before me. The issue of illegality was not raised during the trial. Taking all those considerations into account, it seems to me that it is neither necessary nor appropriate for me to explore further in this judgment the issue of any possible illegality (Footnote: ³⁴). The relevance of my findings in this section is therefore confined to the light which those findings can shed on the motivations of Mr Hatfield, Mr Frangos, Mr Al-Fekaiki and Bafel, and upon the inherent probabilities of their acting in the various ways that have been alleged.

A second and equally important factor concerning Bafel, again relevant to the motivations of those parties and to the inherent probabilities, is Bafel’s involvement in the negotiations between the KRG and WZL, and the direct communications which took place between him and WZL.

As I have already mentioned, Mr Al-Fekaiki forwarded to Bafel all of the correspondence that he received from WZL, thus keeping Bafel fully informed about WZL’s negotiating position and strategy. The evidence, however, also indicates that WZL itself was in direct communication with Bafel from as early as the spring of 2006 (Footnote: ³⁵). Bafel also attended both the initial meeting on 8 March 2006 (Footnote: ³⁶) and the meeting on 23 April 2006 at which the final terms of the CSA were agreed (Footnote: ³⁷).

In September 2006, Bafel appears to have taken advice on behalf of the KRG about how to bring both the Pet Prime and the WZL contracts to an end (Footnote: ³⁸). The advice given to Bafel about how to deal with the situation was implemented by Dr Ashti (Footnote: ³⁹). Bafel thereafter often accompanied Dr Ashti at negotiating meetings with WZL (Footnote: ⁴⁰). In the months immediately prior to the signature of the February 2007 EPSA, Bafel himself appears to have taken a direct hand in those negotiations (Footnote: ⁴¹).

Bafel also met Mr Hatfield and Mr Frangos (without Mr Al-Fekaiki being present) in late January or early February 2007 (to tell them, according to Mr Hatfield, that Mr Al-Fekaiki had “fallen from grace”) (Footnote: ⁴²), and in April 2007 (to ask them, according to Mr Hatfield, to pay all of Monde’s outstanding invoices) (Footnote: ⁴³).

These pieces of evidence demonstrate two things of relevance: first, that WZL had and often used its own direct channel of communication with Bafel, bypassing Mr Al-Fekaiki and Monde; secondly, that Bafel was willing to pursue his own agenda (and/or the agenda of the KRG), even if adverse to the interests of WZL, while simultaneously advising Mr Al-Fekaiki about what he should say and do as WZL’s consultant.

The third and final relevant factor is the change in the nature of the relationship between Bafel and Mr Al-Fekaiki which occurred in January and February 2007. The evidence concerning this is incomplete, but this change is reflected in Mr Al-Fekaiki’s emails dated 7 February 2007 and 27 February 2007 to Bafel (Footnote: ⁴⁴). Mr Al-Fekaiki, in his oral evidence, accepted that he and Bafel had “disputes” at about this time, which he described as being about “how things should be done”. He denied, however, that he and Bafel had agreed to go their separate ways, and said that they “continued” (Footnote: ⁴⁵). By contrast Mr Hatfield, in his oral evidence, said that Bafel had told him that Mr Al-Fekaiki had produced a firearm during a commercial negotiation, and that that behaviour had caused Bafel and other KRG officials to seek to disassociate themselves from Mr Al-Fekaiki (Footnote: ⁴⁶).

The Trial Bundle contains only a very few communications between Mr Al-Fekaiki and Bafel after February 2007 (although Mr Al-Fekaiki’s evidence was that he did contact Bafel on numerous occasions to find out what was going on) (Footnote: ⁴⁷). The few communications that are included there (Footnote: ⁴⁸) seem to me to reflect a greater distance and coolness in the relationship between Mr Al-Fekaiki and Bafel than that shown by the numerous very warm and informal communications between them prior to February 2007.

Taking all of this evidence into account, I am satisfied that there was a significant cooling in the relationship between Bafel and Mr Al-Fekaiki in about January or February 2007, and that Bafel was thereafter even more inclined to pursue his own interests and no longer placed significant value on his association with Mr Al-Fekaiki. It is not necessary for me to make any finding as to the cause of this change in the nature of their relationship (Mr Al-Fekaiki vehemently denied the suggestion that he had produced a firearm), and I do not do so.

I am also satisfied that that cooling was initiated by Bafel, and that Mr Al-Fekaiki at all relevant times would have preferred his previous warm and close relationship with Bafel to continue or to resume. I am prepared to believe that that desire was partly a matter of friendship. However, it also seems to me that a significant part of Mr Al-Fekaiki’s motivation for wanting to resume cordial relations with Bafel was financial. Mr Al-Fekaiki’s relationship with Bafel had given Mr Al-Fekaiki influence (or, at least, the appearance of influence) with the KRG, and consequently the opportunity to sell that influence to Western parties such as WZL. Mr Al-Fekaiki appears to have had some other high-level contacts in the KRG (Footnote: ⁴⁹), and so was not wholly dependent on Bafel for those opportunities. However, he does not seem to have been as close to any of those other contacts as he was to Bafel, nor to have been able to exploit those contacts as effectively.

Issue 1: Was Monde induced by WZL to conclude the Termination Agreement by misrepresentation?

Against that background, I now come to consider my analysis and to state my conclusions in relation to the specific issues identified in Burton J’s Order.

1(a) Did Mr Bafel Talabani represent to Monde that if it signed the Termination Agreement WZL intended to enter into a New Agreement under which Monde would be offered the right or opportunity to share in the profits arising from WZL’s oil exploration and production in Kurdistan and/or in some other way enable Monde to benefit substantially from such oil exploration and production?

1(b) Did Mr Bafel Talabani represent to Monde that it would have to sign the Termination Agreement before payment of the outstanding invoices and success fee then due under Schedule B to the Consultancy Agreement, and before WZL entered into the New Agreement?

I propose to deal with these two sub-issues together, since they both relate to what is alleged to have been said by Bafel to Mr Al-Fekaiki.

Mr Al-Fekaiki’s evidence about his telephone conversations with Bafel between 14 and 18 April 2007, which I have set out in paragraph 134 above, was not directly contradicted by any other evidence. However, as set out in paragraph 135 above, his account of these conversations has not always been exactly the same, and his evidence was challenged in cross examination. The question that I have to decide is whether I should accept all or part of the account that he is now giving as truthful.

On behalf of Monde, Mr Cogley QC submitted that Mr Al-Fekaiki’s account is supported both by the contemporary documents and by the inherent probabilities. In Mr Cogley’s submission:

For WZL, Mr Sprange QC submitted that the variations in the account of these telephone conversations given by Mr Al-Fekaiki at different times show that his evidence about them was unreliable. Mr Sprange also submitted that Mr Al-Fekaiki’s 18 April 2007 email to Bafel was not consistent with Mr Al-Fekaiki’s account. Mr Sprange placed particular stress upon the fact that that email asked Bafel to “settle the above as per our original agreement”. In Mr Sprange’s submission, that reference to an “original agreement” could not sensibly be interpreted as a reference to an agreement made that very day on the telephone (which was how Mr Al-Fekaiki explained it in his oral evidence). Mr Sprange also drew attention (inter alia) to the fact that Mr Al-Fekaiki’s email contained no details of the alleged agreement involving WZL, but rather spoke of leaving matters to Bafel’s “humble discretion” to secure Mr Al-Fekaiki’s interests. Mr Sprange further pointed to the absence of any contemporaneous communication between Monde and WZL (as opposed to between Mr Al-Fekaiki and Bafel) about the alleged new agreement.

In my judgment, Mr Sprange is correct in submitting that Mr Al-Fekaiki’s account of these conversations is one that has been tailored to suit Mr Al-Fekaiki’s interests and to fit the contemporary documents. It has also been improved somewhat in the re-telling. I have also formed the conclusion that Mr Al-Fekaiki’s account in his oral evidence of the genesis of the 25% figure in his emails sent on 18 April 2007 (Footnote: ⁵⁷) and 9 April 2008 (Footnote: ⁵⁸), and in the account in his witness statement of his telephone calls with Bafel (Footnote: ⁵⁹), is simply untrue. The true source of that figure is the “original agreement” between Bafel and Mr Al-Fekaiki as to the division of the monies to be paid by WZL to Monde under the CSA (Footnote: ⁶⁰). Mr Al-Fekaiki has shaped his evidence in an attempt to conceal the true nature of the relationship and dealings between him and Bafel. He has also allowed it to be influenced by his desire for the purposes of the present proceedings to pin liability on WZL rather than on Bafel for what has happened

However, that does not mean that I should disbelieve all of Mr Al-Fekaiki’s evidence about these calls. I do not consider that he has simply made the whole story up. I am satisfied, taking the entirety of the evidence into account, that Bafel did (as Mr Al-Fekaiki says) make a number of telephone calls to Mr Al-Fekaiki between 14 and 18 April 2007, in the course of which he persuaded Mr Al-Fekaiki to sign the Termination Agreement. I reach that conclusion largely for the first 5 of the reasons put forward by Mr Cogley. That, it seems to me, is the most probable of the available explanations for Mr Al-Fekaiki’s apparent change of mind between 14 and 18 April 2007 about signing the Termination Agreement.

I also accept Mr Al-Fekaiki’s evidence that, in the first telephone call which Bafel made to Mr Al-Fekaiki, which took place on 14 April, Bafel told him that Mr Hatfield and Mr Frangos were with him in the room, and that he had been asked by them to tell Mr Al-Fekaiki that, if Monde did not sign the Termination Agreement, WZL did not intend to pay Monde’s outstanding invoices. That is the kind of thing that Bafel would have been quite likely to say, if he wanted to persuade Mr Al-Fekaiki to sign the Termination Agreement. It is also a detail which Mr Al-Fekaiki is perhaps unlikely to have invented, particularly since he would not otherwise have known that Mr Hatfield and Mr Frangos were in Dubai at the time.

I am also satisfied on the evidence that:

That is the explanation which, in my judgment, best accords with the contemporary documents and the inherent probabilities. The KRG had been pressing WZL for some time to take a “local partner” (Footnote: ⁶¹), so that the KRG could take its share of the profits (Footnote: ⁶²). Dr Ashti had also been pressing WZL to terminate all other interests in WZL’s rights (Footnote: ⁶³). The February 2007 EPSA had provided a vehicle for such a “local partner” to come on board with WZL (Footnote: ⁶⁴). Bafel would have seen that he was no longer likely to get anything via Monde from WZL (Footnote: ⁶⁵), and so would have been looking to set up some sort of “local partner” deal with WZL, under which he could continue by other means to get an indirect cut from WZL’s profits.

Having decided to distance himself from Mr Al-Fekaiki, the step of persuading Mr Al-Fekaiki to sign the Termination Agreement would have seemed advantageous to Bafel, both because it would have meant that Monde’s potential 3% share would now be clearly available for the new “local partner”, without any lingering risk of a claim from Mr Al-Fekaiki on behalf of Monde (thus making Bafel’s intended negotiations with WZL easier), and because it would have given Bafel something that he could offer to WZL to assist in those negotiations.

That explanation also fits with the terms of Mr Al-Fekaiki’s emails sent on 18 April 2007 (Footnote: ⁶⁶) and 9 April 2008 (Footnote: ⁶⁷). Those emails record Mr Al-Fekaiki’s understanding that Bafel would be getting monies from WZL via “other means”. That is consistent with Mr Al-Fekaiki’s evidence that he was told that there would be a new agreement between WZL and a KRG-controlled entity, and that money would indirectly flow to Bafel as a result. Those emails also record Mr Al-Fekaiki’s understanding that he would get from Bafel the 25% share to which he was entitled “as per our original agreement” (ie the agreement between Mr Al-Fekaiki and Bafel with regard to the sharing of Monde’s income (Footnote: ⁶⁸)) of the monies which would have been due to Monde “as per the terms of the signed contract” (ie the CSA), had it continued. Mr Sprange’s submission based on the words “our original agreement” seems to me to be based on a misinterpretation of those words in the context of the overall meaning of these emails.

The way in which this issue has been framed in Burton J’s Order implies that some “right or opportunity” was to be given to Monde “under” the new agreement. However there was, in my judgment, never any question of Monde being openly a party to any such new agreement, or of Monde benefiting directly from it. On the contrary, the whole point was that Monde’s direct relationship with WZL should come to an end, and be seen to come to an end. Mr Al-Fekaiki was being asked (and eventually agreed) to leave it to Bafel to get money by some means from the new arrangement with WZL, and thereafter to make Mr Al-Fekaiki whole - “to secure my interests” - for what Mr Al-Fekaiki was giving up (or thought that he was giving up) by signing the Termination Agreement and bringing the CSA indisputably to an end.

A more difficult question is whether it is likely that Bafel said anything to Mr Al-Fekaiki about WZL’s intentions in relation to any such new agreement. It seems to me that the focus of these later telephone conversations about Mr Al-Fekaiki’s 25% share of the future monies to come indirectly from WZL was probably on what Bafel was proposing to do, rather than on WZL and its plans. It would, however, have been more persuasive for Bafel to indicate to Mr Al-Fekaiki that WZL was willing in principle to enter into such a new agreement: and, on a fine balance, I am satisfied that he probably did do so.

On this issue, I therefore find as a fact that, in the course of telephone conversations that took place between 14 and 18 April 2007, Bafel represented to Mr Al-Fekaiki (on behalf of Monde) that:

These are not, of course, the precise terms of the representations pleaded in paragraph 80 of the Re-amended Particulars of Claim. However, it seems to me that the substance of these representations - that WZL intended to enter into a new agreement with a PUK-controlled entity, and that Monde would continue under these new arrangements to have the hope of benefiting as under the CSA from WZL’s future profits - is contained within what is pleaded in that paragraph. No aspect of the trial would have been dealt with differently if these precise representations had been pleaded in terms in place of the words used in paragraph 80. Taking all these matters into account, I am satisfied that no injustice will be caused to WZL by my making these findings and proceeding on that basis.

1(c) If he made the representations as alleged by Monde, did Mr Bafel Talabani do so on behalf of WZL?

There is no direct evidence, whether oral or documentary, to prove that, in making these representations, Bafel was acting on behalf of WZL. Monde’s case is a circumstantial one, based upon Mr Al-Fekaiki’s evidence of what he was told by Bafel (supported by Mr Al-Fekaiki’s subsequent emails to Bafel), and upon the inherent probabilities. Monde’s case is directly contradicted by Mr Hatfield’s evidence.

Mr Cogley QC, for Monde, submitted that it was overwhelmingly probable that, at around this time:

In Mr Cogley’s submission, the facts and arguments which support these inferences include:

In Mr Cogley’s submission, the material issue was whether, for the purpose of making these particular representations, Bafel was acting on behalf of WZL. Bafel’s prior connection with Mr Al-Fekaiki was largely irrelevant. First of all, as a matter of fact, their relationship had changed by this time. Secondly, as a matter of law, what was under consideration here was an “ad hoc” agency, rather than any form of general agency, and it is clearly established that an intermediary can be held to be acting on behalf of different parties to the same transaction at different times (Footnote: ⁷³).

Mr Sprange, for WZL, took issue with Mr Cogley’s factual arguments, and said that the authorities on “ad hoc” agency which Mr Cogley cited were irrelevant, since each case depended upon its own facts. In Mr Sprange’s submission:

It is, as Mr Sprange correctly submitted, trite law that authority has to come from the principal, and cannot be conferred by the agent on himself. In order for Monde to establish that WZL was legally responsible for Bafel’s representations, Monde must show that WZL either actually authorised Bafel to make those representations, or by its words or conduct represented or permitted it to be represented to Monde that Bafel had that authority. As Mr Sprange also rightly submitted, the only direct evidence on the issue was Mr Hatfield’s, who said that WZL did not give any such authority to Bafel.

However, on the issues which are relevant to this question, WZL’s evidence was unsatisfactory and, in my judgment, not credible:

The conferring of such authority does not have to be proved by direct evidence. It can be inferred from circumstantial evidence: and that circumstantial evidence can include things said by the agent to the other party. I have already found as a fact that Bafel, in the first of his telephone conversations with Mr Al-Fekaiki, told Mr Al-Fekaiki that Mr Hatfield and Mr Frangos were in the room with him (Footnote: ⁷⁷). In my judgment, that statement was probably true. Mr Hatfield and Mr Frangos did meet Bafel in Dubai at about that time: and it is on balance unlikely that Bafel would have made that detail up.

There is also force, in my view, in the other submissions made by Mr Cogley, particularly with regard to Bafel’s knowledge of the Termination Notice and how Bafel came to be involved in these negotiations. There is no evidence that Mr Al-Fekaiki solicited any intervention by Bafel, or told him about the Termination Notice. If Bafel did not learn about the termination notice from Mr Al-Fekaiki, it must be probable that he heard about it from WZL.

Taking that fact, and all the other evidence and arguments relied on by Mr Cogley into account (and notwithstanding the contrary arguments put forward by Mr Sprange), it seems to me to be more probable than not that, in the early part of 2007, Bafel was trying to negotiate a new arrangement with WZL that would be profitable for himself, and that, in the course of those negotiations, WZL asked Bafel to clear the decks by getting Mr Al-Fekaiki to sign the Termination Agreement on behalf of Monde. That seems to me to be the most probable explanation for Bafel making these telephone calls to Mr Al-Fekaiki.

I therefore find that, in making representations to Mr Al-Fekaiki, Bafel was acting at WZL’s request, and therefore with WZL’s actual authority. He was not acting either on his own behalf, or on behalf of Monde. To the extent (if any) that, in the course of persuading Mr Al-Fekaiki to sign the Termination Agreement, Bafel said more than he had been authorised by WZL to say, he was simply performing the specific task that he had been asked by WZL to carry out in an unauthorised manner, and WZL therefore remain liable for his words and actions. There was clearly a sufficient connection between that task and Bafel’s statements to Mr Al-Fekaiki on behalf of Monde, to make it just that WZL should be held legally responsible to Monde for the consequences of those statements (Footnote: ⁷⁸).

In the circumstances, it is not necessary for me to consider Mr Cogley’s alternative argument, which is that, by being present when Bafel made his first telephone call to Mr Al-Fekaiki in the course of those negotiations (in the course of which Bafel said in their hearing that he had been asked by them to pass on information intended as an encouragement to Mr Al-Fekaiki to sign the Termination Agreement), Mr Hatfield and Mr Frangos held Bafel out to Monde as having authority to make further statements for that purpose on WZL’s behalf.

1(d) If Mr Talabani made any such representation(s), were they false?

In paragraph 84 of the Re-Amended Particulars of Claim, Monde asserts that what Mr Al-Fekaiki was told by Bafel was untrue, because WZL was not subject to any pressure from the KRG and because WZL was in fact prepared to pay the outstanding invoices whether or not Monde signed the termination agreement.

In my judgment, those assertions are not made out on the facts. As to the first point (as I have already stated in paragraph 186 above), the KRG had been pressing WZL for some time to take a “local partner” (Footnote: ⁷⁹), so that the KRG could take its share of the profits (Footnote: ⁸⁰); and Dr Ashti had also been pressing WZL to terminate all other interests in WZL’s rights (Footnote: ⁸¹). As to the second point, it seems to me to be more probable than not that WZL did intend to use the outstanding invoices, whether due or not, as a pressure point to persuade Monde to enter into the Termination Agreement.

The remaining point of falsity pleaded in paragraph 84 is the assertion that Bafel’s statement that WZL intended to enter into a new agreement from which Monde could indirectly profit was untrue.

As Mr Sprange correctly submits, where an alleged misrepresentation constitutes a representation as to future intention, the representor’s state of mind is the present fact which must be shown to be materially false (Footnote: ⁸²): and since someone who makes a representation as to his own present intention will usually know his own mind, an allegation that such a representation was false will (save in exceptional circumstances) amount to an allegation of dishonesty (Footnote: ⁸³). That is how Monde puts its case, asserting in paragraph 84 that the representations “were false and were made dishonestly, fraudulently, recklessly or negligently as to their truth”.

WZL did not in fact enter into any relevant new agreement or arrangement, though it did at a much later stage take a local partner. That fact does not, of itself, prove that the statement that it intended to do so was false when made (Footnote: ⁸⁴). However the evidence tendered on behalf of WZL does not suggest that WZL did have any such intention at that time. Neither Mr Hatfield nor Mr Frangos said so, and neither gave evidence of any subsequent change of mind.

In the circumstances, I am satisfied (and find) that Bafel’s representation to Monde that WZL intended to enter into a new agreement from which Monde could indirectly profit was untrue when made.

Unfortunately, that is not quite the end of the matter. To make WZL liable in the tort of deceit for Bafel’s misrepresentation, Monde would have had to show either (a) that Bafel himself knew that what he was saying was untrue, or was reckless as to its truth (Footnote: ⁸⁵), or (b) that WZL itself (in practice that means Mr Hatfield and/or Mr Frangos) had a fraudulent state of mind:

.. that is, that he intended the claimant to be misled or at the very least was indifferent as to whether he might be. Where a false representation has been made innocently by an agent acting within his authority, the mere fact that the principal knows the facts which render the representation false will not make the latter liable if he has not expressly authorised the representation or deliberately concealed facts from the agent with a view to the claimant being misled. So in Armstrong v Strain (Footnote: ⁸⁶) estate agents with general authority to make representations about a house on their books innocently told a purchaser that it was sound when, as the owner knew, it was not. The Court of Appeal upheld a finding that the owner was not liable to the purchaser in deceit .. (Footnote: ⁸⁷)

Where, as here, the parties have entered into a contract as the result of the misrepresentation, it is no longer necessary for a claimant to establish the elements of the tort of deceit in order to claim damages. The Misrepresentation Act 1967 s 2(1) allows a person who has been induced to enter into a contract by a misrepresentation to make a claim for damages as of right, as though the representation had been fraudulent, unless the representor “proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true” (Footnote: ⁸⁸).

However, it has been suggested that one possible consequence of the decision in Royscot Trust Ltd v Rogerson (Footnote: ⁸⁹) (in which the Court of Appeal held that the measure of damages recoverable under s.2(1) of the 1967 Act is the measure for fraudulent misrepresentation rather than that for negligence) is that the difficulties which arise in cases of fraud where the misrepresentation is made by one person, but the guilty knowledge is that of another, may apply equally to an action for negligence under this subsection (Footnote: ⁹⁰).

Academic writers have criticised the decision in Royscot, and there are some judicial dicta which support that criticism (Footnote: ⁹¹): but, unless and until Royscot is over-ruled, I am bound by it. Even so, I cannot see that the principles enunciated in Royscot can have any effect on WZL’s liability on the facts of the present case, where WZL has neither pleaded nor sought to prove the statutory defence.

Subsection 2(1) reads as follows:

Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.

The Royscot principle may perhaps (I express no view) apply in a principal and agent case to the question of precisely who (principal or agent) must be shown to have had reasonable grounds and actual belief in order for the principal to be able to make out the statutory defence. But for liability prima facie to attach, subject to that defence, it is enough for the claimant to establish the conditions laid down in the statute: that a misrepresentation has been made to the claimant, that in consequence he has entered into a contract and thereby suffered loss, and that the representor (in a principal and agent case, the principal) would have been liable had that misrepresentation been made fraudulently.

That fortunately means that it is unnecessary for me to decide whether Bafel was telling the truth in his email dated 5 January 2013 (Footnote: ⁹²) in saying that he was misled by WZL, or whether he was himself deliberately untruthful or reckless in what he said to Mr Al-Fekaiki, or whether there was simply a misunderstanding between Bafel and WZL as to WZL’s intentions. I say “fortunately” because, in my judgment, the evidence is simply insufficient for me to decide which of those three choices is the more probable. Were Monde’s case based purely on the tort of deceit, it would therefore fail for want of proof of one of the essential elements of that tort. The Misrepresentation Act 1967 s 2(1) permits Monde’s case to succeed without proof of that element, absent proof by WZL of the statutory defence.

1(e) Did Monde rely on such representations if made in executing the Termination Agreement?

1(f) Was it reasonable for Monde to rely on such representations if made in executing the Termination Agreement?

I propose to deal with these two issues together, since they overlap.

As Rix LJ stated in The Kriti Palm (Footnote: ⁹³), “The elements of the tort of deceit are well known. In essence they require: (1) a representation, which is (2) false, (3) dishonestly made, and (4) intended to be relied on and in fact relied on”. With regard to reliance, as Males J noted in UBS AG v Kommunale Wasserwerke Leipzig GmbH (Footnote: ⁹⁴):

There is a rebuttable presumption, in a fraud case, that a Defendant to whom a fraudulent misrepresentation is made was induced by that representation (in the sense that the representation played a part in the decision) to enter into the contract in question. In Dadourian Group International Inc v Simms (Footnote: ⁹⁵) the Court of Appeal approved the following propositions:

(2)

If the representation is of such a nature that it would be likely to play a part in the decision of a reasonable person to enter into a transaction it will be presumed that it did so unless the representor satisfies the court to the contrary . . .;

. . .

(4)

The presumption of inducement is rebutted by the representor showing that the misrepresentation did not play a real and substantial part in the representee's decision to enter into the transaction; the representor does not have to go so far as to show that the misrepresentation played no part at all ..

As Mr Sprange QC correctly submits, reasonableness comes into claims for misrepresentation in two ways. First, a representation will not be actionable unless it is one on which the representee was intended and entitled to rely (Footnote: ⁹⁶). Secondly, if it would have been unreasonable of the representee to rely upon the representation, that may go to show that the representee did not in fact rely on it.

In Mr Sprange’s submission, Bafel’s statements about WZL’s intention to enter into a new agreement were not statements on which Mr Al-Fekaiki was entitled to rely. In any event, Mr Al-Fekaiki did not do so because it would have been plainly unreasonable for someone like him in his position to do so. Mr Sprange relies upon the fact that Mr Al-Fekaiki was an experienced businessman, well able to protect his own interests, and could easily have spoken directly to Mr Hatfield and Mr Frangos rather than simply relying on Bafel’s word. Mr Al-Fekaiki, in Mr Sprange’s submission, also had good reason not to accept Bafel’s statement at its face value. First, Mr Al-Fekaiki knew there had been a cooling in the relationship between him and Bafel, and so knew that Bafel could not be relied upon to look after his interests. Secondly, Mr Al-Fekaiki knew that WZL was trying to get rid of Monde, had not been prepared to renegotiate the CSA, and was plainly trying to avoid giving him or Monde any chance of achieving the hoped-for 3% interest. Thirdly, Mr Al-Fekaiki knew that WZL was careful about contracting, and usually involved its lawyers in finalising any formal agreement.

The factual points made by Mr Sprange are mostly not in dispute, and are matters which I have taken into account in forming my conclusions upon earlier sub-issues. However, the contemporary documents show that, even at this point, Mr Al-Fekaiki was still hoping to be able to meet Mr Hatfield and/or Mr Frangos and to negotiate a new deal with them to preserve Monde’s position (Footnote: ⁹⁷). The contemporary documents also show that Mr Al-Fekaiki knew that Bafel had previously had direct dealings with WZL and that Bafel (rather than Mr Al-Fekaiki) was the one with real influence (Footnote: ⁹⁸). In my judgment, it was not unreasonable of Mr Al-Fekaiki to accept Bafel’s words at their face value. Bafel’s statement about WZL’s intention to enter into a new agreement, under which Mr Al-Fekaiki’s financial position would be preserved but Monde’s participation would be hidden, was one on which Mr Al-Fekaiki (on behalf of Monde) was intended and was entitled to rely. He did, in fact, rely on it, and it was not unreasonable of him to do so.

Conclusion on Issue 1

It follows from the findings that I have made in relation to these sub-issues that, in my judgment, Monde was induced by WZL to conclude the Termination Agreement by misrepresentation.

Issue 2: Was Monde induced by WZL to conclude the Termination Agreement by Duress?

2(a) Did Mr Bafel Talabani threaten that WZL would not pay Monde USD700,000 invoiced by Monde under the Consultancy Agreement unless Monde signed the Termination Agreement?

2(b) If he made the threats as alleged by Monde did he do so on behalf of WZL?

2(c) If so, would non-payment of the USD700,000 invoiced by Monde have amounted to a breach of the Consultancy Agreement?

2(d) Even if non-payment of the USD700,000 invoiced by Monde would have amounted to a breach of the Consultancy Agreement, could a threat of non-payment amount to improper and illegitimate pressure amounting to duress causing the execution by Monde of the Termination Agreement?

2(e) Prior to these proceedings, did Monde protest in relation to the duress, if proven?

Monde’s pleaded case was that Bafel’s threat (on behalf of WZL) that WZL would not pay Monde’s invoices unless Mr Al-Fekaiki signed the Termination Agreement was a threat to break the CSA, and amounted in law to duress. Submissions based on duress were also included in Mr Cogley QC’s Written Opening.

However, at the outset of his oral closing submissions, Mr Cogley formally withdrew Monde’s plea of duress. It is therefore unnecessary for me to make any findings in relation to this issue and its sub-issues.

Issue 3: If Monde was induced to execute the Termination Agreement by misrepresentation or duress, is Monde nevertheless estopped from denying the validity of the Termination Agreement?

WZL’s pleaded case

In paragraph 105 of its Defence, WZL asserts that Monde is estopped from denying the termination of the CSA:

.. In particular, by its acceptance of the 16 March Termination Notice .. and/or by its execution of the Termination Agreement and/or by its pressing for and acceptance of payment under the Termination Agreement .. and/or by its very long silence and delay following execution of the Termination Agreement up to the bringing of these claims some five years and 11 months later, Monde:

105.1

agreed and/or promised not to enforce its rights under the CSA;

105.2

further or alternatively, represented that its rights under the CSA had come to an end;

105.3

further or alternatively, gave WZL reason to assume that Monde’s rights under the CSA were at an end which assumption was either shared by Monde or in which it acquiesced.

In reliance on Monde’s promise not to enforce its rights under the CSA and/or in reliance on such rights having been terminated, WZL altered its position, or alternatively altered its position to its detriment, such that Monde should now be estopped from denying the termination of the CSA. In particular, WZL entered into a new form of agreement in the form of the [February 2008 PSC] .. amended and replaced in 2011 by the 2011 PSC, which agreement effectively prohibited all minority interests and involved the formal confirmation by WZL that it had terminated all third party consultant relationships.

WZL’s Skeleton Argument did not address this issue, and neither Mr Cogley QC nor Miss Byrne dealt with it in their oral opening or closing arguments. In the circumstances, I can deal with this issue comparatively briefly.

WZL’s pleading does not identify whether the particular form of estoppel on which it relies is an estoppel by representation, or a promissory estoppel, or an estoppel by convention. It has been said that “the attempt .. to demonstrate that all estoppels .. are now subsumed in the single and all-embracing estoppel by representation and that they are all governed by the same principle .. [has] .. never won general acceptance” (Footnote: ⁹⁹): and the two doctrines have different requirements. However, the fundamental requirements of both estoppel by representation and of promissory estoppel are a representation followed by reliance (Footnote: ¹⁰⁰): and, although an estoppel by convention does not depend on any representation or promise (Footnote: ¹⁰¹), such an estoppel nevertheless “requires communications to pass across the line between the parties” (Footnote: ¹⁰²). Without a sufficient representation or communication, there can be no estoppel of any kind.

The representations or communications on which WZL relies in this paragraph of its Defence as giving rise to an estoppel preventing Monde from denying the validity of the Termination Agreement are (1) the execution of the Termination Agreement itself; (2) Monde’s pressing for payment and accepting payment of its invoices (which is said to have been done “under the Termination Agreement”); and (3) Monde’s subsequent silence and delay in bringing its claims against WZL.

In my judgment, none of these matters is sufficient to found an estoppel of any kind preventing Monde from challenging the validity of the Termination Agreement.

Conclusion on Issue 3

I therefore find that Monde is not estopped from denying the validity of the Termination Agreement.

Issue 4: Was it the common intention of the parties, on exercising [sic] the Consultancy Agreement, that they would enter into a long term agreement for the mutual benefit of both parties (as Monde contends); or was the Consultancy Agreement intended by the parties to be a ‘trial run’, with a long term relationship being possible only if Monde proved to be a capable and valuable consultant to WZL (as WZL contends?).

Monde’s pleaded case

In paragraphs 18 and 19 of its Re-amended Particulars of Claim, Monde asserts that, as a result of what was said during the meetings at which the CSA was negotiated (including as to Monde’s “normal” remuneration terms, and the reasons for those terms):

..it was the clear and stated common intention of Monde and [WZL] that they would enter into a long-term agreement for the mutual benefit of both parties, going beyond the immediate goal of concluding the EPSA, and [Mr] Hatfield and/or [Mr] Frangos made a representation to Monde to that effect. Further or alternatively, [Mr] Hatfield and/or [Mr] Frangos represented to Monde that Monde would be remunerated fully for its services in advising on, assisting with, lobbying for and facilitating the conclusion of the EPSA by sharing in the profits generated by [WZL]’s future oil exploration and production in Kurdistan, as if Monde were a silent or quasi-partner.

However, it was agreed by Monde and [WZL] that, initially, the agreement for consultancy services would have a fixed duration to bide the event that Monde was not able to assist [WZL] as envisaged and that the consultancy agreement would be renewed as appropriate. Alternatively, [Mr] Hatfield and/or [Mr] Frangos made a representation to that effect.

The evidence

Mr Al-Fekaiki’s evidence was that he recalled Mr Frangos and Mr Hatfield dismissing his concerns about the provisions of clause 10 of the CSA, and:

.. telling me that their inclusion was simply a means of getting the document past the WOSI board and their auditors and that their [sic] remained a common intention that Monde and [WZL] would work together on a long-term basis. I even recall Mr Frangos saying to me that “you are going to be a very rich man”. He also said, referring to the 4-month period set out in clause 10.1, that he appreciated it might take some time for Monde to achieve what [WZL] wanted due to the sensitive nature of what it was being asked to achieve ..

Both Mr Hatfield and Mr Frangos expressly denied making any such representations. On this point, therefore, there was a straightforward conflict of evidence between the parties.

The documentary evidence on this issue is limited (Footnote: ¹⁰⁵). The contemporary documents record negotiations between the parties about the termination provisions, with Monde (unsurprisingly) wishing them to be made more favourable to Monde, but with WZL (again, unsurprisingly) keen to preserve its “off ramps if it is apparent that this is not working”. The documents also record Monde’s suggestion that it would bring “other large deals” to WZL, and WZL’s hope that that would come about - a hope which is reflected in the terms of Schedule A to the CSA, which requires Monde, as part of its Services, to “take all reasonable steps to advise and to assist [WZL] with its general business development”. However, the documents contain no specific support for the assertion that Mr Hatfield or Mr Frangos made any promises to Monde, other than those contained in the CSA itself.

Analysis

Taking all of this evidence into account, I am not satisfied that anything was said by either Mr Hatfield or Mr Frangos to Mr Al-Fekaiki (or to anybody else on behalf of Monde) that amounted to the kind of statement to which the law would give effect, either by way of representation or collateral contract. It is, in my judgment, quite likely that Mr Hatfield and/or Mr Frangos used warm words of encouragement to Mr Al-Fekaiki, indicating their hope that, if all went well, Monde and WZL would have a long and mutually beneficial relationship. It is, however, inherently improbable that Mr Hatfield or Mr Frangos, as experienced commercial men, would have said anything sufficiently specific as to detract from the carefully negotiated “off ramp” provisions in the CSA.

I therefore find that no representations of a kind which might affect the interpretation of the terms of the CSA were made by WZL to Monde in the course of the negotiations for that agreement.

Issue 4, as framed in Burton J’s Order, is concerned generally with “the common intention of the parties” rather than with any specific representations. The difficulty with that formulation, as counsel on both sides have acknowledged in their written submissions, is that the common intention of the parties to a contract as to the legal effect of that contract is to be primarily to be found in the words of the contract itself, interpreted by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", and disregarding subjective evidence of any party's intentions (Footnote: ¹⁰⁶).

Given that there is no claim for rectification in the present case, the alleged “common intention” (to the extent that it goes beyond what is to be found in the words of the CSA, as so interpreted) is in my judgment legally irrelevant to any of the issues that I have to decide.

The parties’ pre-contractual negotiations cannot be taken into account in determining what the terms of a contract mean, except where a party seeks to establish that a fact which may be relevant as background was known to the parties or to support a claim for rectification or estoppel (Footnote: ¹⁰⁷). The parties’ intentions as to the meaning of the words that they have used in their contract may perhaps be illuminated by the background facts: but those intentions, even if common, cannot themselves be admissible as a relevant background fact, either in aid of interpretation or in aid of the different, though related, process (Footnote: ¹⁰⁸) of deciding whether any further term should be implied into the contract. To do so would be wrong in principle, because it would involve taking subjective evidence into account. It would also be to reason in a circle.

The only relevant common intention that I can properly take into account, therefore, is the parties’ common intention to enter into the CSA containing the provisions in clause 10 as to term and termination (Footnote: ¹⁰⁹).

Conclusion as to Issue 4

I therefore find that no representations of a kind which might affect the interpretation of the terms of the CSA were made by WZL to Monde in the course of the negotiations for that agreement. Since no such representations were made, and no claim is made for rectification, the parties’ intentions in entering into the CSA are to be found in the CSA’s own terms, interpreted by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean, but disregarding any subjective evidence as to those intentions.

Issue 5: Was it an implied term of the Consultancy Agreement that, amongst other things, WZL would not exercise any right to terminate under Clauses 10.2 and/or 10.3 in bad faith and/or in any manner which unconscionably deprived Monde of its accrued and/or future rights arising under that Agreement and/or only for a proper purpose (as Monde contends); or did the Consultancy Agreement contain no such implied terms (as WZL contends)?

Monde’s pleaded case

In paragraphs 32 and 33 of the Re-amended Particulars of Claim, Monde pleads that:

[32] Further, it is averred that in addition to the express terms of the [CSA] there were terms implied into the [CSA] that:

(a)

each of the parties would act in good faith towards the other in the exercise of all of its rights and in performance of all of its obligations under the [CSA] generally, and in particular to give effect to the long-term, quasi-partnership nature of the parties business relationship; and/or

(b)

..

(c)

[WZL]’s right to terminate the [CSA] (under clauses 10.2 and/or 10.3 thereof) would not be, and could not be, exercised other than in good faith and/or in a manner which unconscionably deprived and Monde of its accrued and/or future rights arising under the [CSA]; and/or

(d)

[WZL]’s right to terminate the [CSA] (under clauses 10.2 and/or 10.3 thereof) would only be exercised for the proper purpose for which it was conferred and not arbitrarily, capriciously or unreasonably (taking into account, inter-alia, Monde’s rights under and interests in the [CSA].

[33] The said terms or any one or more of them were necessary and implied into the [CSA] by reason of business efficacy and/or by operation of law to give effect to the bargain made between the parties on account of:

(a)

the close working relationship of mutual trust and confidence between the parties;

(b)

the stated common intention of the parties that the [CSA] should be a long-term co-operation (and the representations made to that effect are by [WZL] ..);

(c)

the quasi-partnership nature of the [CSA] and the Option;

(d)

the common intention of the parties that the [CSA] should be for the mutual benefit of both Monde and [WZL] (and the representation made to that effect by [WZL] ..);

(e)

The combination remuneration structure of the [CSA] in the form of Schedule B and the Option; and

(f)

the adverse effect which [WZL]’s exercise of the termination provisions would have on Monde:

(i)

once the [CSA] had continued beyond four months’ duration and

(ii)

after the EPSA had become fully operational and enforceable

(iii)

but before the exercise of the Option,

including the reduced level of remuneration to which Monde would then be entitled

The arguments of the parties

As Lord Sumption JSC stated in British Telecommunications plc v Telefónica O2 UK Ltd (Footnote: ¹¹⁰):

.. it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously: Abu Dhabi National Tanker Co v Product Star Shipping Ltd, The Product Star (No 2) [1993] 1 Lloyd's Rep 397 (per Leggatt LJ at 404); Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] EWCA Civ 1047 (per Mance LJ at [67]); Paragon Finance plc v Staunton, Paragon Finance plc v Nash [2001] EWCA Civ 1466, [2002] 1 WLR 685 (per Dyson LJ at [39]–[41]). This will normally mean that it must be exercised consistently with its contractual purpose: see Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd's Rep IR 221 (per Brooke LJ at 239–240); Equitable Life Assurance Society v Hyman [2002] 1 AC 408(per Lord Steyn and Lord Cooke of Thorndon at 459 and 461) ..

On behalf of Monde, Mr Cogley QC submitted that this principle applied equally to the exercise of a contractual right to terminate, such as that conferred by clauses 10.2 and 10.3 of the CSA. He also submitted that the implication of such a restriction was particularly appropriate in the circumstances of the present case, given the facts and factors which I have quoted above from Monde’s pleading, and the fact that the CSA might otherwise be interpreted as conferring upon WZL a right to bring the contract to an end at a point after Monde had done its work but before Monde had reaped the more substantial part of its contractual reward. Mr Cogley also drew attention to what he described as the “subjective” elements within the rights given to WZL to terminate the CSA.

An authority in support of his submissions, Mr Cogley relied upon the judgments of Leggatt J in Yam Seng Pte Ltd v International Trade Corp Ltd (Footnote: ¹¹¹) and in MSC Mediterranean Shipping Co SA v Cottonez Anstalt (Footnote: ¹¹²). He laid stress in particular, upon Leggatt J’s observations in paragraphs [97] and [98] of his judgment in the latter case, where the learned judge (having referred to the line of authority identified in paragraph 243 above) continued:

[97] .. The cases in this line of authority have all been concerned with the exercise of discretionary powers conferred by the express terms of the contract, whereas the choice whether or not to terminate the contract in response to a repudiatory breach is one which arises by operation of law. However, I cannot see why this should make any difference in principle. In each case one party to the contract has a decision to make on a matter which affects the interests of the other party to the contract whose interests are not the same. The same reason exists in each case to imply some constraint on the decision-maker’s freedom to act purely in its own self-interest. The essential concern, as Rix LJ observed in the Socimer case at para [66] is that the decision-maker’s power should not be abused.

[98] I would accordingly regard the line of authority dealing with the exercise of an option to terminate the contract and the line of authority dealing with the exercise of a contractual discretion as concerned with materially identical questions and as establishing essentially the same test.

For WZL, Mr Sprange QC submitted that English law does not recognise an over-riding duty of good faith, and that the implied terms contended for by Monde did not meet the strict tests for implication, which were recently reaffirmed by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd (Footnote: ¹¹³). In Mr Sprange’s submission, the suggested terms were neither necessary nor obvious, and were in any event inconsistent with the express terms of the contract.

Analysis

There are, in my judgment, two insuperable obstacles to Monde’s contentions on this issue.

First, even assuming that Monde were to be right in saying that the parties intended the CSA to be a long-term arrangement relating to “general business development” going well beyond the May 2006 EPSA, it would not follow that it was necessary to imply into the CSA any duty of good faith or other limitation constraining WZL’s freedom to exercise the rights prima facie conferred by clauses 10.2 and 10.3 in its own self-interest.

There is no general doctrine of “good faith” in English contract law (Footnote: ¹¹⁴). A duty of good faith is implied by law as an incident of certain categories of contract (for example, contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one) (Footnote: ¹¹⁵). However, in all other categories of contract – including the CSA - such a duty will only be implied where the contract would lack commercial or practical coherence without it (Footnote: ¹¹⁶) and where all the other requirements for implication are met. By reference to Baroness Hale's classification of implied terms in Geys v Société Générale, London Branch (Footnote: ¹¹⁷), such a term falls into the first category, not the second (Footnote: ¹¹⁸).

In Yam Seng (Footnote: ¹¹⁹), Legatt J gave “some joint venture agreements, franchise agreements and long-term distributorship agreements” as examples of contracts which may perhaps “involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements”, and in which the implication of a term requiring the parties to perform their obligations in good faith might therefore sometimes be justified. However, it is clear that the mere fact that a contract is a long-term or relational one is not, of itself, sufficient to justify such an implication. As Beatson LJ recently noted in Globe Motors, Inc v TRW Lucas Varity Electric Steering Ltd (Footnote: ¹²⁰)

.. an implication of a duty of good faith will only be possible where the language of the contract, viewed against its context, permits it. It is thus not a reflection of a special rule of interpretation for this category of contract ..

For example, in Hamsard 3147 Ltd v Boots UK Ltd (Footnote: ¹²¹) one of the issues was whether there should be implied into a contract for the supply of children's wear to Boots a requirement “that the parties should at all times act in good faith towards one another in relation to the operation of the contract, and approach one another on an open and collaborative basis, so as to ensure that they maximised the net profits generated under the agreement”. Having considered Leggatt J’s decision in Yam Seng (Footnote: ¹²²), and having held that no “good faith” term of the type contended for could be implied into an interim arrangement reached between Boots and Hamsard, Norris J continued:

[86] I would maintain that view even if the arrangement between Boots and Hamsard is to be regarded as some sort of nascent joint venture in the course of negotiation. I do not regard the decision in Yam Seng Pte Ltd v International Trade Corporation as authority for the proposition that in commercial contracts it may be taken to be the presumed intention of the parties that there is a general obligation of 'good faith'. I readily accept that there will generally be an implied term not to do anything to frustrate the purpose of the contract. But I do not accept that there is to be routinely implied some positive obligation upon a contracting party to subordinate its own commercial interests to those of the other contracting party. Boots was not obliged as a matter of 'good faith' to order from Hamsard goods that it did not want .. simply because if it had done so the nascent joint venture would have been more profitable.”

Another example may be found in the decision of Henderson J in Carewatch Care Services Ltd v Focus Caring Services Ltd (Footnote: ¹²³), where the contracts under consideration were franchise agreements for a renewable period of 7 years. It was alleged that those agreements included implied terms that

(i)

The purpose of the same was to:

(a)

enable [Carewatch] to carry on business with a view to making a profit as a franchisor; and

(b)

enable Focus at the same time to carry on business with a view to making a profit as a franchisee; and/or

(c)

enable Focus to build up, retain or realise the capital value of the franchise business or to have something to sell; and/or

(d)

work to improve and develop the franchise network for the mutual benefit of [Carewatch] as franchisor and Focus as franchisee.

(ii)

[Carewatch] would not derogate from the grant of the franchise in particular by acting or failing to act so that the consequence was the reduction or diminution in the viability or value of the franchise network or the viability, value or marketability of the franchise business operated by Focus;

(iii)

[Carewatch] would give the Defendants reasonable notice of any change that would be likely to adversely affect the viability, value or marketability of the franchise business operated by Focus;

(iv)

Neither party is entitled to benefit from their own breach of contract or other wrong;

(v)

The parties would conduct themselves in a manner which was supportive of and did not frustrate, obstruct or inhibit the purposes of the same;

(vi)

The parties would at all times operate the terms of the Agreement on an open and collaborative basis for their mutual benefit and so as to allow them each to maximise profits; and

(vii)

The parties would conduct themselves as franchisor and franchisee in good faith and/or dealing with each other fairly and in particular not in a manner that would damage each other's business interests in the franchise businesses operated by Focus under licence from [Carewatch].

Henderson J rejected each of these suggested implied terms, as inconsistent with the express terms of the agreements and/or as unnecessary, on the basis that each of the agreements under consideration was:

.. for a commercial relationship, from which both parties hoped to profit, and where both sides had interests of their own to protect. I can find no “clear lacuna” in the detailed provisions of the agreement which has to be filled if the agreement is to work commercially, let alone by terms framed in such wide and imprecise language as those which are pleaded.

The agreement between distributors of financial products and independent financial advisers considered by Elisabeth Laing J in Acer Investment Management Ltd and another v The Mansion Group Ltd (Footnote: ¹²⁴) provides another example. In that case:

.. neither side saw this as an exclusive relationship. The sorts of obligations and commitments that would be expected in a relational contract are absent. It was not a long-term relationship: either party could end it by giving a relatively short period of notice. Neither party was required to spend significant sums in reliance on the continuation of the relationship. In the circumstances of that relationship, defined by the terms of the agreement, set in its commercial context, there is no scope for the implication of a term of good faith. The terms of agreement, in its context, make it impossible for me to hold that Acer owed any relevant fiduciary duties to Mansion.

In my judgment, it is impossible in the present case to identify any facts forming part of the commercial background, or any aspects of the relationship between the parties as set out in the CSA itself, which indicate that the CSA would lack commercial or practical coherence without the implication of a “good faith” term of the kind contended for by Monde.

As for the commercial context, both sides saw Monde’s principal role, in Mr Al-Fekaiki’s own words, as being “to lobby and secure access to key political decision-makers in Iraq” in order to get what eventually became the May 2006 EPSA signed and ratified. Monde’s primary job was (again in Mr Al-Fekaiki’s own words) “to lobby behind the scenes” to achieve that: and Monde gave no guarantee of success. As Mr Al-Fekaiki said in evidence, “I was not able to promise [WZL] anything, nor could I commit to achieving what they wanted within a specific timeframe as the country remained at war”

This was reflected in the express terms of the CSA. The CSA was a detailed and professionally drafted agreement, in relation to which both sides were advised by lawyers. Its terms provided (in clause 4) that Monde should be an independent contractor and “shall have control of the manner in which Services are performed”. Although Monde bound itself in clause 1.2 not to work for any direct competitor of WZL, the terms of the CSA did not otherwise limit Monde’s freedom to act for any other party in any other capacity, or to carry on any other business. The list of Services in Schedule A was extensive and apparently onerous: but Monde’s obligation was only to perform such of those Services “as [WZL] shall request” (clause 1.1). This obligation was further specifically limited by the words of Schedule A to such services “as [WZL] may .. properly and reasonably require so as to achieve the objectives set out above” - those objectives being stated to be “concluding and maintaining a fully operational and enforceable [EPSA] .. on terms and conditions satisfactory to [WZL] and materially and substantively covering the acreage delimited in the current draft EPSA (or such amended acreage to which [WZL] may agree)”.

For these Services, Monde was to be paid the monthly payments and success fees set out in Schedule B, and was to be granted the Option described in Schedule C. Apart from its obligation to pay these fees (clauses 2 and 3), and an obligation of confidentiality (clause 5.2), no substantive obligations were imposed upon WZL by the CSA.

The CSA therefore simply does not contain the sorts of mutual obligations and commitments that would be expected in the kind of relational contract where there are (in Leggatt J’s words) “expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding”, such as might perhaps (in the absence of any contrary indications) justify the implication of a “good faith” term.

The second insuperable objection standing in the way of Monde’s contentions is that the suggested term is not concerned with the performance of the contract, but with its termination.

In my judgment, a contractual right to terminate is a right which may be exercised irrespective of the exercising party’s reasons for doing so. Provided that the contractual conditions (if any) for the exercise of such a right (for example, the occurrence of an Event of Default) have been satisfied, the party exercising such a right does not have to justify its actions.

So, in Lomas v JB Firth Rixon Inc (Footnote: ¹²⁵) a strong Court of Appeal (Footnote: ¹²⁶) characterised as “hopeless” the argument that the Non-Defaulting Party’s express right under the ISDA Master Agreement to bring that agreement to an end upon the occurrence of an Event of Default was impliedly subject to the requirement “to exercise its discretion .. in a manner which is not arbitrary, capricious or unreasonable”. In their view:

The right to terminate is no more an exercise of discretion, which is not to be exercised in an arbitrary or capricious (or perhaps unreasonable) manner, than the right to accept repudiatory conduct as a repudiation of a contract. We have already commented that the specific right to terminate makes theoretical the question whether an Event of Default constitutes a repudiation of the contract which can be accepted by the innocent party as bringing the contract to an end. But no one would suggest that there could be any impediment to accepting repudiatory conduct as a termination of the contract based on the fact that the innocent party can elect between termination and leaving the contract on foot. The same applies to elective termination.

This principle, or something very like it, has been applied in a number of other decided cases:

It may fairly be said that the facts of each of these cases are different in some respects from the present. Lomas and Greenclose were concerned with derivative contracts, which it could be argued are in a special category (though it should be noted that an ISDA Master Agreement may often cover many transactions over many years). Reda was a case where the term itself provided for termination “without cause”. Hamsard and TSG Building Services (like Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) (Footnote: ¹³²)) were cases in which there was an express term with which the suggested implied term would overlap.

However, in my judgment, the principle recognised in Lomas, and which has been applied (to a greater or lesser extent) in the other cases referred to above, is one of general application. The kinds of implied restrictions and constraints referred to in paragraph 243 above simply do not apply to the exercise of a contractual right of termination.

One reason for this is that a contractual right to terminate a contract is, as the Court of Appeal noted in Lomas, not the exercise of a contractual discretion. Contractual discretions arise where there are a range of options from which to choose (Footnote: ¹³³). A contractual right to terminate involves a binary choice.

This distinction between discretions involving a choice between a range of options and a right conferring a binary choice (although not the differentiation in terminology) was recognised by the Court of Appeal in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) (Footnote: ¹³⁴). In that case, Medirest was under a duty to monitor monthly its own performance and to record instances where it fell short. A formula existed for calculating how many so-called “failure points” Medirest had incurred and what deductions fell to be made to the Trust's monthly payments to Medirest as a result. Once the correct figure for the failure points and deductions had been established, the Trust had a contractual right: it could 'award' Medirest the failure points, or it could choose not to do so. Likewise, it might levy a deduction against its monthly payment to Medirest, or it might choose not to do so.

Jackson LJ (with whom Lewison and Beatson LJJ agreed) noted that the rights given to the Trust in relation to service failure points and deductions involved simple binary decisions whether or not to exercise an absolute contractual right, rather than the discretions involving making an assessment or choosing from a range of options taking into account various interests, or the kind considered in cases such as Socimer. He said:

[91] The discretion which is entrusted to the Trust in relation to service failure points and deductions in the present case is very different from the discretion which existed in the authorities discussed above. The Trust is a public authority delivering a vital service to vulnerable members of the public. It rightly demands high standards from all those with whom it contracts. There may, of course, be circumstances in which the Trust decides to award less than the full amount of service failure points or to deduct less than it is entitled to deduct from a monthly payment. Nevertheless the Trust could not be criticised if it awards the full number of service failure points or if it makes the full amount of any deduction which it is entitled to make. The discretion conferred by cl 5.8 simply permits the Trust to decide whether or not to exercise an absolute contractual right.

[92] There is no justification for implying into cl 5.8 a term that the Trust will not act in an arbitrary, irrational or capricious manner. If the Trust awards more than the correct number of service failure points or deducts more than the correct amount from any monthly payment, then that is a breach of the express provisions of cl 5.8. There is no need for any implied term to regulate the operation of cl 5.8.

[93] Mr Howe points out that cl 6.2.1 of Part C of the Payment Mechanism requires Medirest to demonstrate certain matters “to the reasonable satisfaction of the Trust”. He submits that this involves an element of discretion. It must be implied that the Trust will not exercise this discretion in an arbitrary, irrational or capricious manner.

[94] I do not accept this submission for two reasons. First, the qualification of “satisfaction” by the word “reasonable” makes the test objective, rather than subjective. Secondly, cl 6.2.1 contains its own control mechanism, viz “the reasonable satisfaction of the Trust”. There is no need for a further or different control mechanism, as set out in the suggested implied term.

The Mid-Essex case was followed and applied by Sir William Blackburne in Myers v Kestrel Acquisitions Ltd (Footnote: ¹³⁵), a decision about whether the power conferred on the issuer company by clause 9 of certain Vendor Loan Notes was constrained by any sort of good faith obligation. Clause 9 of the notes conferred on the issuer the power to “make any modification to this instrument” either with the sanction of an extraordinary resolution or without such sanction, if it was “consistent in all material respects with any modification being made to the Discounted Loan Note Instrument”.

Sir William Blackburne rejected the argument that there had to be some “good faith” limitation on the power to modify the loan notes. He held that it was impermissible to imply a duty of good faith. Although clause 9.1 was drafted as a power, that power was not a discretion which involved a choice from a range of options, but was instead the exercise of a contractual right whether or not to modify without consent, which was constrained by the requirement that the modification be consistent with the modification to the Discounted Loan Note. In his view (Footnote: ¹³⁶):

The fact that Kestrel had that contractual choice does not justify subjecting it to some kind of good faith obligation. The decision in Socimer .. is not in point ..

I do not accept Mr Cogley’s submission that commercial common sense requires that the right to terminate conferred by clauses 10.2 and 10.3 of the CSA must be subject to some implied limitation because those provisions contain a subjective element.

Another possible reason for the distinction made in Lomas is that the right to end a contract is different in kind to the sort of rights which may arise in the course of that contract’s performance. The purpose of a contractual right to terminate is to give the party on whom that right is conferred the power to bring the contract to an end. It is a right to bring an end to the parties’ shared endeavour. In my judgment, it is unlikely that the hypothetical reasonable commercial man or woman would expect the party exercising that right to be obliged to consult anyone’s interests but its own.

I am conscious that, in the passage from the MSC Mediterranean Shipping case referred to in paragraph 245 above, Leggatt J appears to have expressed a contrary view. However, Leggatt J was there dealing with a rather different situation. Contrary to Mr Cogley’s submission, Leggatt J was not considering a contractual right to terminate in that passage in his judgment. Rather, he was considering the limits placed by the law on an innocent party’s common law right to affirm the contract and to insist on future performance. As the Supreme Court has recently explained, the justification for the limitation put on that common law right by the line of authorities including the famous case of White & Carter (Councils) Ltd v McGregor (Footnote: ¹³⁷) is not any implied term, but the principle that “the law will not generally make a remedy available to a party, the adverse impact of which on the defaulter significantly exceeds any legitimate interest of the innocent party” (Footnote: ¹³⁸). The MSC Mediterranean Shipping case is therefore not directly in point on this issue. In any event, it does not appear from the transcript of Leggatt J’s judgment that Lomas was cited to him.

The fact that the authorities referred to in paragraph 243 above do not apply to contractual termination clauses does not, of course, mean that considerations of commercial common sense can never come into the matter. They may, for example, be highly relevant to the interpretation of contractual termination provisions, as for example in the well-known case of The Antaios (Footnote: ¹³⁹). However, the exclusion of any considerations of good faith, proper purpose and the like means that the only relevant enquiry is whether the conditions laid down in the contract have, on the true interpretation, been fulfilled. The common law has, for sound commercial reasons, traditionally regarded certainty as a particularly important consideration in relation to contractual termination provisions (Footnote: ¹⁴⁰). By avoiding any enquiry into the motives or purpose of the terminating party, the common law seeks to provide in this area the certainty “which is the most indispensable quality of mercantile contracts” (Footnote: ¹⁴¹).

Conclusions as to Issue 5

I therefore find that it was not an implied term of the CSA that WZL would not exercise any right to terminate under Clauses 10.2 and/or 10.3 in bad faith and/or in any manner which unconscionably deprived Monde of its accrued and/or future rights arising under that Agreement and/or only for a proper purpose. The CSA contained no such implied terms.

In any event, as I shall explain when dealing with Issue 10 below (Footnote: ¹⁴²), I should have concluded that WZL did not act in bad faith or unconscionably even if, (contrary to my view) WZL had been under a duty, as alleged by Monde, not to exercise its rights under clause 10.2 “in a manner which unconscionably deprived Monde of its accrued and/or future rights arising under the [CSA]”.

Issue 6: Was WZL entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.2 of the Consultancy Agreement, such that the Termination Notice was effective in any event?

The Termination Notice (Footnote: ¹⁴³) expressly relied upon clause 10.2 of the CSA (Footnote: ¹⁴⁴). This (relevantly) provided that

.. this Agreement and the option contemplated in Schedule “C” (the “Option”) may be terminated by [WZL] upon thirty days’ notice to [Monde] should the EPSA not become fully operational and enforceable within six months from the date hereof ..

Monde’s case is that WZL was not entitled to terminate the Consultancy Agreement on 16 March 2007 under clause 10.2. Monde argues that the EPSA had already become “fully operational and enforceable” by that date. Alternatively, it argues that WZL had lost any right which it might otherwise have had, because it did not exercise it immediately and/or because WZL had affirmed the CSA.

These arguments are considered under the following 4 sub-issues.

6(a) On a proper construction of Clause 10.2, was any right of WZL to terminate the Consultancy Agreement under that clause lost if not exercised by WZL immediately?

Mr Cogley QC’s Written Opening described as “Monde’s primary case” the argument (pleaded in paragraph 43A of the Re-amended Particulars of Claim) that clause 10.2 of the CSA gives a “one-time” option to WZL, which arose upon the expiry of six months from the date of the CSA (or any extended date). In Mr Cogley’s submission, that option had to be exercised at that time or not at all. If it was not exercised then, it was lost for all time and all purposes.

Mr Cogley argued that the contrary construction would be “capricious and arbitrary”, because it would allow WZL, after six months, the right to terminate the CSA under this provision at any time before the EPSA became “fully operational and enforceable”, even if it was by then inevitable that that event would occur within hours of the termination. That would permit WZL to deprive Monde of all future remuneration, including its valuable option, just at the point when Monde’s work was complete and WZL was about to enjoy the full benefit of that work.

Mr Sprange QC took issue with this line of argument. Mr Sprange submitted that the words of clause 10.2 are plain and afford no room for the implied limitation suggested by Monde, which could not in any event be justified by the arguments put forward by Mr Cogley.

In my judgment, Mr Sprange’s submissions on this issue are correct. There is, of course, force in Mr Cogley’s argument that the interpretation of clause 10.2 for which WZL contends may work harshly from Monde’s point of view. However, the same could be true if WZL exercised its right immediately it became available. If at the moment of termination, it was already inevitable that the EPSA would shortly thereafter become fully operational and enforceable, the same harshness to Monde would arise whether WZL served its notice promptly or belatedly. That harshness is therefore not a good argument for interpreting clause 10.2 as requiring any notice to be served promptly. That is simply not what the words of clause 10.2 say.

I therefore find that, on the proper construction of clause 10.2, WZL’s right to terminate was not lost simply because it was not exercised immediately such exercise became possible.

6(b) If such right was not lost immediately, was it lost because WZL affirmed the Consultancy Agreement?

Monde’s alternative case is that WZL lost its right to terminate the contract under clause 10.2 by affirming the CSA. Mr Cogley QC argued that this happened no later than 25 November 2006, and certainly prior to the service of the Termination Notice on 16 March 2007.

The acts relied upon by Monde as amounting to affirmation are those pleaded in paragraphs 42, 43B, 43C, 46 and 49A of the Re-amended Particulars of Claim. In broad summary, these are WZL’s acts (a) in continuing to request Monde to provide services under the CSA after 23 October 2006, (b) ratifying the CSA at its Board Meeting on 3 November 2006, and (c) sending to Mr Al-Fekaiki a clean signed copy of the CSA (incorporating in typescript the manuscript amendments that had been made before the CSA was originally signed, but bearing a fresh signature page) in the context of discussions about the CSA being “up for renewal” (Footnote: ¹⁴⁵).

Mr Sprange QC submitted that this whole argument was misconceived, because the doctrine of affirmation can have no application to a contractual right of termination such as that conferred by clause 10.2 of the CSA. In Mr Sprange’s submission, where a contractual right to terminate arises (as here) upon the non-fulfilment of certain conditions, the principles of election and affirmation are inapplicable. There is no breach to affirm, and the right will only be lost if and when the party in whose favour the right to terminate has arisen has indicated its intention to abandon its right in clear and unequivocal terms,

In support of that submission, Mr Spring relied upon the decision of the Court of Appeal in the case of BDW Trading Ltd v JM Rowe Investments Ltd (Footnote: ¹⁴⁶). The BDW Trading case concerned a contract for the sale of a site in Watford High Street, the terms of which required the purchaser to redevelop the site and then to lease it back to the vendor. A clause in the contract entitled the purchaser to rescind the contract by the service of a notice at any time following the non-satisfaction of any of a number of specified conditions. A period of approximately 4½ months elapsed between the date when the purchaser first became entitled to serve a notice of rescission, and the date when it actually did so, and during that time the purchaser continued to negotiate with the vendor. It was argued on behalf of the vendor that the right conferred by this clause was in the nature of an election, and that it had been lost by delay and/or affirmation. The Court of Appeal rejected those arguments. Patten LJ (with whom Aikens and Arden LJJ agreed) distinguished such a contractual right from the right to terminate upon breach of condition or fundamental breach. He held (at paragraphs [78]-[79]) that a party upon whom such a contractual right is conferred does not make an election by continuing to perform the contract until it chooses to exercise its right to terminate. The purchaser was therefore entitled to wait before serving its notice, and nothing that it did in the intervening period amounted to a waiver of its rights:

.. It could, of course, have chosen to waive its right to rescind, but for that to occur [the purchaser] would need to have indicated its intention to abandon its right in clear and unequivocal terms .. (Footnote: ¹⁴⁷)

In my judgment, Mr Sprange’s submissions are correct on this point also. The BDW Trading case is authority for the proposition that the doctrines of election and affirmation have no application to the rights conferred by a clause such as clause 10.2 of the CSA.

I have considered whether the actions of WZL, although not amounting in law to an affirmation, were nevertheless such as to indicate to Monde “in clear and unequivocal terms” that WZL was abandoning its rights under clause 10.2. In that connection, I have also considered Monde’s further arguments (pleaded in paragraph 49 of the Re-amended Particulars of Claim) that WZL’s actions resulted in an agreement with Monde to renew the CSA on or about 25 November 2006. Monde’s case is that the effect of that alleged “renewal” was to re-set the contractual clock, so that the six-month period in clause 10.2 would thereafter not expire until about 25 May 2007, after the date of the Termination Notice.

Mr Hatfield’s 18 October 2006 email certainly referred to the CSA being “up for renewal”, to the need to “get this formalised”, and to WZL’s intention to “prepare an updated renewal and send it to you for execution” (Footnote: ¹⁴⁸). However, the CSA contains no provision for “renewal”. Clause 10.2 states simply that the CSA shall continue beyond the original four month period if the EPSA is executed within that period, and may continue beyond that period at the “election” of WZL, in either case subject to WZL’s right to give 30 days’ notice of termination “should the EPSA not become fully operational and enforceable within 6 months”.

Against that background, it seems to me to be difficult to construe WZL’s actions in sending a clean, re-executed, but otherwise un-amended copy of the CSA to Monde under cover of an email describing it as “a clean signed copy of the [CSA] as requested” (Footnote: ¹⁴⁹) as a “renewal” of the CSA, sufficient to restart the six-month period. That “clean signed copy” still stated that it was “made effective the 23^rd day of April 2006”: and the term and termination provisions in clause 10 were still stated to run, initially, “for a period of four months from the effective date hereof” - that is, from 23 April 2006. It would, in my judgment, be straining the language of the clause 10.2 to interpret the six-month period provided for in that clause as running from the later date on which the CSA was re-signed.

Nor, in my judgment, were WZL’s acts a sufficiently clear and unequivocal indication of an intention to abandon its rights under clause 10.2 to amount to a waiver preventing WZL thereafter from exercising those rights (or from exercising those rights until a further period of 6 months had elapsed).

I therefore find that WZL had not, as at the date of the Termination Notice, lost by its conduct its rights under clause 10.2.

6(c) Was the phrase “fully operational and enforceable” EPSA in Clause 10.2 of the Consultancy Agreement synonymous with “the EPSA becoming effective, i.e. passed into law by the Unified Government of Kurdistan” (Schedule B, paragraph (c)(ii)) as Monde contends; or with the completion of all the Schedule B milestones, including that in accordance with paragraph (c)(iii) “WZ receiving a signed copy of the Confirmation and Support Letter of the Government of the Republic of Iraq (substantially in the form attached in Schedule “D” or a letter having the same effect), acknowledging the EPSA, all to the satisfaction of WZ”, as WZL contends?

Monde accepts that the phrase “fully operational and enforceable” must mean something more than simply “executed”. Monde’s case is that, to make sense of the provisions of the CSA as a whole, this expression should be interpreted as meaning the same as “effective, i.e. passed into law by the Unified Government of Kurdistan”, which is the expression used in Schedule B paragraph (c)(ii) to describe the milestone on the occurrence of which the second success fee would become payable.

In support of its argument, Monde relied upon the evidence of its expert, Mr Chalabi. Mr Chalabi’s evidence, in summary, was that under Iraqi law, execution and ratification by the KRG alone was sufficient to make the February 2007 EPSA enforceable, both as a matter of constitutional law and as a matter of contract law. There was no further legal requirement for the Federal Government of Iraq to give any formal approval, since the development of new oil fields in Kurdistan fell within the constitutional authority and remit of the KRG.

On the other side, WZL at first attempted to challenge Mr Chalabi’s view, in reliance upon the evidence of its own expert, Mr Maryan. However, as I have already held (Footnote: ¹⁵⁰), Mr Maryan had no relevant expertise in the law of Iraq or Kurdistan. I have no hesitation in rejecting WZL’s challenge to Mr Chalabi’s views, and in accepting Mr Chalabi’s evidence on all points of Iraqi law. His evidence was cogent, balanced, and effectively un-contradicted.

WZL, however, also argued that the position under Iraqi law was only one of the factors to be taken into account in deciding whether the February 2007 EPSA was “fully operational and enforceable” in the sense in which that expression was used in clause 10.2 of the CSA. WZL submitted that the CSA was concerned with practicalities as much as legalities, and argued that the interpretation contended for by Monde failed to give due weight to the word “fully”, or to the requirement for the EPSA not merely to be “fully enforceable”, but also “fully operational”.

WZL’s case is that for the EPSA to be both “fully enforceable” and “fully operational”, what was required was not simply execution and ratification of the EPSA by the KRG, but also approval by the Federal Iraqi government. Without that, the EPSA would have been open to challenge in practice, in the uncertain conditions which then pertained in Iraq, whatever the theoretical legal position. WZL pointed out that Mr Chalabi, although firm in his views on the correct legal position, frankly accepted under cross-examination that there were differences of view between the KRG and the Federal Government as to the extent of the KRG’s authority in relation to these matters, that the issues had a political dimension as well as a legal one, and that:

The issue of whether the Kurdish KRG is entitled or has the authority to enter into this contract and whether it owns these fields is a matter that is not yet been decided appropriately to the acceptance of all the political players

WZL submitted that it therefore made practical sense for WZL to require, not only the KRG’s formal approval, but also formal approval from the Federal Iraqi Government.

In that connection, WZL drew attention to three matters:

WZL further argued that its interpretation was supported by the structure of the CSA, which indicated that what was required was achievement of all of the milestones listed in Schedule B, including receipt of “a signed copy of the Confirmation and Support Letter of the Government of the Republic of Iraq”.

In WZL’s submission, the express goal of the CSA, stated in Schedule A, was “a fully operational and enforceable” EPSA, which was precisely the same wording as was used in clause 10.2. The compensation provisions in Schedule B were plainly designed to incentivise Monde to help WZL to achieve that goal. Under Schedule B, the most valuable of the success fees - the 3% option - only vested upon the achievement of the last milestone, which was receipt by WZL of the Confirmation and Support Letter. It would make no sense, say WZL, that the goal of a “fully operational and enforceable” EPSA should be regarded as having been achieved at any point prior to the achievement of that final milestone.

On behalf of WZL, Mr Sprange submitted that the background, which is reflected in clause 18 of the CSA, shows that WZL was in a hurry. The achievement of the first milestone, execution of the EPSA, within the initial four month period would give Monde a further 2 months to achieve the goal of making that EPSA “fully operational and enforceable”. If that goal could be achieved simply by obtaining ratification of the EPSA by the KRG, Monde would no longer be under any time pressure to achieve the final step, formal approval by the Federal Government of Iraq. The CSA plainly contemplated that that was to be the final step: and until that point, the EPSA would still only be on its way to being “fully operational and effective”. It would not yet have achieved that status.

It is implicit in the submissions that I have summarised above that both sides accept that the expression “fully operational and enforceable”, which is used both in clause 10.2 and Schedule A of the CSA, must be interpreted in the context of the CSA, and must be given a meaning by reference to one of the milestones in Schedule B. The difference between the parties is simply as to whether the relevant milestone is the second, or the third and final, one in that Schedule.

In favour of the relevant milestone being the second is the fact that the trigger stated in clause 10.2 for the continuation of the CSA after the initial four month period is the execution of the EPSA, which is the first milestone in Schedule B. There is therefore some logic in saying that the next trigger in clause 10.2 should equate to the next milestone in Schedule B. There is also some force in the argument that, under Iraqi law, the achievement of that milestone was all that was required for the EPSA to be fully effective.

However, on balance, I am persuaded that the construction contended for by WZL makes better sense, both in the context of the CSA as a whole and in the context of the commercial background known to the parties at the time when the CSA was executed.

The commercial background was that there was a dispute between the KRG and the Iraqi Federal Government about who had the rights to grant agreements like the EPSA. A commercial company like WZL was not interested in being involved in a legal or political wrangle. It wanted to get on with the business of exploring for, and then extracting, oil. For that to happen with the least prospect of interruption, WZL needed both the KRG and the Iraqi Federal Government to be onside. Mr Al-Fekaiki was well aware of these realities, hence his expression of confidence that all of them could be achieved within six months, his acknowledgement that companies other than WZL also wanted comfort letters from the Federal Government, and his repeated attempts (through his contacts, Darbaz and Bafel) to get the relevant letter signed.

In that context the CSA, in my judgment, contained its own implied definition of “fully operational and enforceable”, which was to be found in the 3 milestones in Schedule B. All 3 had to be achieved before the goal of a “fully operational and enforceable” EPSA would be reached.

I therefore find that the phrase “fully operational and enforceable” in Clause 10.2 of the CSA was synonymous with the completion of all the Schedule B milestones, including WZL receiving a signed copy of the Confirmation and Support Letter of the Government of the Republic of Iraq.

6(d) Had the EPSA become fully operational and enforceable, within the meaning of Clause 10.2, by 16 March 2007, such that WZL had lost any right to terminate the Consultancy Agreement under Clause 10.2 by that date?

There was no dispute between the parties that, as at the date of the Termination Notice, the February 2007 EPSA:

As I have found that WZL’s construction is the correct one, I therefore find that the February 2007 EPSA had not become fully operational and enforceable, within the meaning of clause 10.2 by the date of the Termination Notice.

Conclusions as to Issue 6

I therefore find that WZL was entitled to terminate the CSA on 16 March 2007 under clause 10.2 of the CSA.

The validity of the Termination Notice, and the effect on Monde’s recoverable loss

The second part of Issue 6 assumes that, if that is my conclusion, I will also conclude that the Termination Notice was effective. However, in my judgment, the Termination Notice was not itself effective to bring the CSA to an end, because it did not purport to give the 30 day notice required by clause 10.2. I accept Mr Cogley QC’s argument that the 30 day period prescribed by clause 10.2 was mandatory, because it was intended to give Monde a final chance prior to termination to bring about a fully operational and enforceable EPSA.

I do not accept the contrary argument put forward by Mr Sprange QC, to the effect that the Termination Notice impliedly gave the required period of notice by invoking the provisions of clause 10.2. That argument is inconsistent with the express words used in the Termination Notice, which stated that the CSA “is hereby terminated”, and required Monde to “discontinue the carrying out of any of the Services .. upon receipt of this notice”.

That conclusion means that the Termination Notice was not effective to bring the CSA to an end.

However, that may not greatly assist Monde. It would have been open to WZL, at any point thereafter, to serve an effective notice under clause 10.2: and Mr Al-Fekaiki conceded in cross-examination on a number of occasions that there was no immediate prospect of obtaining the letter from the Federal Government required to make the February 2007 EPSA “fully operational and enforceable”, so as to prevent any such further notice from being effective. On the contrary, Mr Al-Fekaiki’s evidence in cross-examination was that, at the time when the Termination Notice was served, “no letter was coming .. and I told them [ie WZL] that”.

It is well-established that, in assessing damages by reference to a contact, the court:

.. must take into account all contingencies which might have reduced or extinguished the loss .. It follows that if the defendant has under the contract an option which would reduce or extinguish the loss, it will be assumed that he would exercise it. Again, if it is reasonable for him to take steps to mitigate his loss, he must do it. And so forth .. (Footnote: ¹⁵²)

This principle is not an absolute one, and does not require the court to assume that the party in breach would have acted in an uncommercial way (Footnote: ¹⁵³). However, in this case, the assumption required by this principle entirely accords with the commercial realities.

It follows that any damages recoverable by Monde from WZL for the misrepresentations which led to the execution of the Termination Agreement must be assessed on the basis that, although the Termination Notice had not itself been effective to bring the CSA to an end, WZL could and would immediately thereafter have served an effective notice under clause 10.2, which would have ended the CSA (and, with it, Monde’s chance of its 3% option vesting). WZL’s wrong has therefore caused Monde no substantial recoverable loss.

Issue 7: If as at 16 March 2007 WZL was not entitled to terminate the CSA under Clause 10.2, was it nevertheless entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(i)?

WZL’s case was that, even if it was not entitled to bring the CSA to an end under clause 10.2, it was entitled to bring the CSA to an end under clause 10.3, and the court in assessing Monde’s damages should assume that it would have done so (Footnote: ¹⁵⁴). Since I have already decided that, as at 16 March 2007, WZL was entitled to terminate the CSA under clause 10.2, I can deal with these issues comparatively briefly.

WZL first relied upon clause 10.3(i). This entitled WZL to bring the CSA to an end by service of a 30 day notice

.. if it becomes manifestly apparent that an operational and enforceable EPSA in form and on terms acceptable to [WZL] cannot be concluded ..

In my judgment, the phrase “an operational and enforceable EPSA” in this clause means a “fully operational and enforceable EPSA” in the sense used in clause 10.2 and Schedule A. It does not seem to me that any differentiation was intended by the omission of the word “fully”.

Some support for WZL’s case that it was “manifestly apparent” that such an EPSA was not going to be concluded may perhaps be found in Mr Al-Fekaiki’s answers quoted in paragraph 315 above. However the test laid down in this clause is a strict one. It operates only where it is manifestly apparent that such an EPSA “cannot” be concluded. In my judgment, the evidence taken as a whole is insufficient to support any such conclusion.

Conclusion as to Issue 7

I therefore find that WZL would not have been entitled (had it needed to do so) to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(i).

Issue 8: If the answer to question 7 is ‘no’, was WZL nevertheless entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(ii)?

WZL next relied on clause 10.3(ii). This entitled either party to bring the CSA to an end:

.. immediately in the event the other party commits a material breach of this Agreement which remains uncured after the period for curing specified in the notice of breach has expired ..

WZL contends that, in this context, a “material breach” means something less than a breach of condition or a repudiatory breach (since that would add nothing to WZL’s rights at law). It accepts, however, that a “material breach” must mean something more than a merely trivial breach.

In my judgment, a “material breach” in this clause means a breach that is material in the context of the CSA, in the sense that it is sufficiently serious that it would affect the willingness of a reasonable non-breaching party to continue with the agreement (Footnote: ¹⁵⁵).

WZL’s case, as explained by Ms Byrne, was that Monde’s performance of its obligations under the CSA was so poor (and involved so many failures to comply with requests from WZL) that Monde was in material breach, entitling WZL to give notice under this provision.

In my judgment, that case cannot succeed.

Clause 5.1 of the CSA required Monde to maintain all information received from WZL “in strict confidence”, and not to disclose it to third parties. The history that I have related above includes a significant number of examples of apparently serious breaches by Monde of this requirement (Footnote: ¹⁵⁷). However, WZL has not pleaded or sought to rely upon these disclosures as material breaches justifying termination. They cannot therefore affect my conclusion on this issue.

Conclusions on Issue 8

I therefore find that WZL would not have been entitled (had it needed to do so) to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(ii).

Issue 9: If the answer to question 8 is ‘no’, was WZL nevertheless entitled to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(v)?

WZL finally relied on clause 10.3(v). This entitled WZL to bring the CSA to an end:

.. if it is manifestly apparent that achievement of the milestones set out in Schedule “B” are being achieved primarily as a result of activities of third parties ..

Ms Byrne, on behalf of WZL, realistically accepted that this issue really stands or falls with Issue 8. In my judgment, the evidence does not establish that, at the date of the Termination Notice it was “manifestly apparent” that the milestones set out in Schedule B were being achieved primarily as the result of the activities of persons other than Monde.

Conclusion on Issue 9

I therefore find that WZL would not have been entitled (had it needed to do so) to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(v).

Issue 10: Did WZL serve the Termination Notice in bad faith and/or unconscionably because in doing so it intended to deprive Monde of the monthly remuneration under the Consultancy Agreement and of the profits arising from WZL’s future oil exploration and production in Kurdistan, such that in serving the Termination Notice WZL breached the implied terms of the Consultancy Agreement?

Since I have held that WZL’s right to serve the Termination Notice was not subject to any implied restriction of the kind contended for by Monde, this issue does not arise.

Unconscionable termination

However, in case this matter should go further, it may be helpful if I briefly set out the findings that I would have made had I come to the opposite conclusion on Issue 5.

What a duty of good faith requires, apart from the core value of honesty, is sensitive to context (Footnote: ¹⁵⁸). Such a duty (where it exists) may perhaps sometimes have a significant content, particularly in contracts where there is “a high degree of communication, co-operation and predictable performance based on mutual trust and confidence and expectations of loyalty”. However, since the purpose of a right of termination is to permit the possessor of that right to bring the relationship to an end, it is (as I have already said) difficult to see how that right can be circumscribed by a duty to consider the interests of the other party to the relationship, or any similar obligation.

Nevertheless, I will assume for these purposes that (contrary to my view) WZL was under a duty, as alleged by Monde, not to exercise its rights under clause 10.2 “in a manner which unconscionably deprived Monde of its accrued and/or future rights arising under the [CSA]” (Footnote: ¹⁵⁹).

In my judgment, WZL’s intention in serving the Termination Notice was to bring the CSA to an end. A material consideration in that decision was clearly WZL’s desire both to cease paying Monde and to ensure that Monde did not obtain any share in WZL’s future revenues. WZL was also influenced by Bafel’s indication that it should distance itself from Mr Al-Fekaiki, by its desire to ensure that it could comply with Dr Ashti’s expressed wish that WZL should only have local partners, and (to a lesser extent) by its wish to ensure that it could safely give a participation to any such local partner without even the small risk that it might also have to provide for Monde’s share.

Was that acting unconscionably? In my judgment, it was not. At the time when the Termination Notice was served, the February 2007 EPSA has been executed and ratified. To that extent, WZL’s purpose in retaining the services of Monde had been achieved. However, there was little or no prospect of the third milestone in Schedule B of the CSA being achieved in the immediate future. As Mr Al-Fekaiki accepted, “no letter was coming .. and I told them [ie WZL] that”. So, if the CSA continued, WZL would be facing the prospect of being obliged to continue paying Monde, despite the common expectation that Monde was unlikely to be able to do anything in the immediate future to achieve the final goal for which it had been retained. Even from Monde’s perspective, its prospects of obtaining its 3% would have seemed remote. Realistically, the most that Monde could in practice have hoped for was that it might at some stage have the chance to re-negotiate with WZL the terms of the option, so that it vested at an earlier point: but that was simply a hope, not a right given to it by the CSA.

Monde’s argument to the contrary really comes to this: that good faith required WZL to treat Monde’s right to its 3% as having vested at the second milestone in Schedule B, even though the CSA expressly provided that it should not vest until the third milestone. In my judgment, that cannot be right.

The effect of a defective Termination Notice

I have found that the Termination Notice, because it did not comply with the requirement in clause 10.2 to give 30 days’ notice, was not effective to bring the CSA to an end.

However, serving a defective notice of termination is not in itself a breach of contract. The defective notice is simply of no legal effect (Footnote: ¹⁶⁰). Nor will it usually be construed as a renunciation of the contract, unless “looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract” (Footnote: ¹⁶¹).

Given how limited the obligations on WZL under the CSA were, it does not seem to me that a reasonable person in the position of Monde would have regarded the Termination Notice as anything other than an attempt to operate the contractual machinery. It would not have seen it as a renunciation.

Conclusion as to Issue 10.

I therefore find that, by serving the Termination Notice, WZL did not breach any term of the CSA.

Issue 11: If the answer to questions 6 - 9 are all ‘no’, and the answer to question 10 is ‘yes’, such that in serving the Termination Notice on 16 March 2007 WZL committed a repudiatory breach of the Consultancy Agreement, has Monde suffered loss?

Issue 11 raises a series of questions concerning the various contingencies which could have been relevant to the assessment of Monde’s damages but for my finding on Issue 6. Monde’s pleaded case appears in paragraph 20 of its Reply. Since, as a result of my finding in relation to Issue 6, none of these questions arise, I can deal with them comparatively briefly.

11(a) Have the first 500kms of the Seismic Program been completed, and has WZL received a signed copy of the Confirmation and support letter of the Government of the Republic of Iraq substantially of the form in schedule D to the Consultancy Agreement, or a letter having the same effect, acknowledging the EPSA all to the satisfaction of WZL, such that the Option would have vested but for the termination of the Consultancy Agreement?

It was common ground that the first 500 km of the Seismic Program have long since been completed.

However, it was Mr Hatfield’s un-contradicted evidence (which I accept) that even now, nearly 10 years after the date of the Termination Notice, no Confirmation and Support Letter of the Government of the Republic of Iraq has been received.

It follows that Monde’s option would not yet have vested, even had the CSA continued.

11(b) If so, has the EPSA in respect of which the Option was granted been superseded/replaced (as WZL contends), or are all the agreements made by WZL with the KRG within the definition of “EPSA” in Schedule A to the Consultancy Agreement (as Monde contends)?

On my finding in relation to Issue 11(a), this question does not arise.

Had it been relevant, I would have found that the EPSA contemplated by the CSA was the May 2006 EPSA, as amended and/or re-stated from time to time. That would therefore include the February 2007 EPSA and the February 2008 PSC, both of which contained wording indicating that they were intended as an amendment and restatement of the original May 2006 EPSA (Footnote: ¹⁶²).

It is a much more difficult question whether the EPSA contemplated by the CSA would have included the variations and divisions thereafter made in 2011 (Footnote: ¹⁶³) (which were on materially different terms), or any subsequent agreements. The parties to the CSA do not appear to have contemplated the possibility that Monde’s option would not vest for several years after the execution of the EPSA, and so did not provide for anything other than the immediate future.

The reality is that, if the CSA had remained in force, Monde would have engaged in some sort of negotiation with WZL as to Monde’s position in relation to these later contracts. Monde’s real loss (on the hypothesis, contrary to my previous findings, that it has suffered any) would therefore have been the loss of the chance to negotiate a deal with WZL for some continuing (albeit indirect) participation in these later agreements.

11(c) Would Monde have been precluded from exercising the Option even if the Consultancy Agreement had remained in force, because it would have been required to undertake financial obligations beyond its capabilities?

The Terms of Participation set out in Schedule C to the CSA provided that WZL should lend to Monde all of its costs from the time that Monde elected to go to a working interest. Those costs were to be repaid from the sums payable to Monde on the first project.

In the circumstances, there is no reason to believe that Monde would have been precluded from exercising its option by any financial constraints.

11(d) Would the exercise of the Option have required approval of the KRG upon provision by Monde of evidence as to its technical and financial capabilities to the satisfaction of the KRG and if so, would such approval have been obtained?

This is an entirely hypothetical question. The reality is that, as matters developed, the approach and policy of the KRG in relation to the position of consultants such as Monde changed, and became strongly adverse. It is clear that the KRG would not, at present, permit Monde to have a direct interest in any contract between the KRG and WZL (Footnote: ¹⁶⁴).

Again, Monde’s real loss (on the hypothesis, contrary to my previous findings, that it has suffered any) would therefore have been the loss of the chance to negotiate a deal with WZL for some continuing (albeit indirect) participation in the profits from these later agreements.

11(e) Would the exercise of the Option have been subject to pre-emption rights of Talisman? If so, would Monde have been entitled to damages from WZL if Talisman had exercised such a right?

Again, this is an entirely hypothetical question. In reality, this situation would never have arisen.

Conclusion as to Issue 11

Monde’s loss (on the hypothesis, contrary to my previous findings, that it has suffered any) would have been the loss of the chance to negotiate a deal with WZL for some continuing (albeit indirect) participation in the profits from WZL’s later agreements with the KRG.

Issue 12: Is Monde entitled to rescind the Termination Agreement, or is it barred from doing so on grounds of impossibility of making restitution and/or delay and/or estoppel and/or because Monde subsequently affirmed it and/or because of the intervention of the rights of third parties?

In the course of his closing submissions on behalf of Monde, Mr Cogley QC made it clear that Monde was no longer seeking rescission but only claiming damages for misrepresentation. In the circumstances, this issue does not arise and I need make no findings in relation to it.

Summary

For the reasons set out above, my findings on the various specific Issues set out in the Order of Burton J are therefore as follows:

Monde was induced by WZL to conclude the Termination Agreement by misrepresentation.

Mr Cogley formally withdrew Monde’s plea of duress. It is therefore unnecessary for me to make any findings in relation to this issue

Monde is not estopped from denying the validity of the Termination Agreement.

No representations of a kind which might affect the interpretation of the terms of the CSA were made by WZL to Monde in the course of the negotiations for that agreement.

Since no such representations were made, and no claim is made for rectification, the parties’ intentions in entering into the CSA are to be found in the CSA’s own terms, interpreted by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean, but disregarding any subjective evidence as to those intentions.

It was not an implied term of the CSA that WZL would not exercise any right to terminate under Clauses 10.2 and/or 10.3 in bad faith and/or in any manner which unconscionably deprived Monde of its accrued and/or future rights arising under that Agreement and/or only for a proper purpose. The CSA contained no such implied terms.

WZL was entitled to terminate the CSA on 16 March 2007 under clause 10.2 of the CSA. The phrase “fully operational and enforceable” in Clause 10.2 of the CSA was synonymous with the completion of all the Schedule B “milestones”, including WZL receiving a signed copy of the Confirmation and Support Letter of the Government of the Republic of Iraq: and as at the date of the Termination Notice, no such letter had been received by WZL.

However, the Termination Notice was not effective to bring the CSA to an end, because it did not give the 30 day notice required by clause 10.2.

It would nevertheless have been open to WZL, at any point thereafter, to serve an effective notice under clause 10.2: and there was no immediate prospect of obtaining the letter required to prevent any such notice from being effective.

Any damages recoverable by Monde from WZL for the misrepresentations which led to the execution of the Termination Agreement must therefore be assessed on the basis that WZL could and would immediately thereafter have served an effective notice under clause 10.2, which would have ended the CSA (and, with it, Monde’s chance of its 3% option vesting).

WZL’s wrong has therefore caused Monde no substantial recoverable loss.

WZL would not have been entitled (had it needed to do so) to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(i).

WZL would not have been entitled (had it needed to do so) to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(ii).

WZL would not have been entitled (had it needed to do so) to terminate the Consultancy Agreement on 16 March 2007 under Clause 10.3(v).

Since I have held that WZL’s right to serve the Termination Notice was not subject to any implied restriction of the kind contended for by Monde, this issue does not arise.

However, if that be wrong:

In any event, by serving a defective Termination Notice, WZL neither breached nor renounced the CSA.

Monde’s loss (on the hypothesis, contrary to my previous findings, that it had suffered any) would have been the loss of the chance to negotiate a deal with WZL for some continuing (albeit indirect) participation in the profits from WZL’s later agreements with the KRG.

Mr Cogley QC made it clear that Monde was no longer seeking rescission but was only claiming damages for misrepresentation. In the circumstances, this issue does not arise and I need make no findings in relation to it.

Consequences

I will hear the parties on the consequences of the findings set out above. A short further hearing should be fixed through the usual channels for that purpose as soon as possible. Pursuant to CPR PD 52A 4.1(a), I adjourn all applications for permission to appeal to that further hearing, together with all other consequential applications. In the circumstances, there is no need for the parties to attend the formal handing down of this judgment.