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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Adamantine Energy (Kenya) Ltd v Bowleven (Kenya) Ltd  EWHC 130 (Comm) (28 January 2016)
Cite as:  EWHC 130 (Comm)
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QUEEN'S BENCH DIVISION
Fetter Lane, London, EC4A 1NL
B e f o r e :
| ADAMANTINE ENERGY (KENYA) LIMITED
|- and -
|BOWLEVEN (KENYA) LIMITED
Jim Cormack of Pinsent Masons LLP for the Defendant
Hearing dates: 7,8,9 December 2015 and 11 January 2016
Crown Copyright ©
Hon. Mr Justice Popplewell :
"8. DRILL OR DROP
8.1 Not later than three (3) months before expiry of each Exploration Period (or any extension thereof pursuant to Clause 2.5 of the PSC), [Adamantine] and [Bowleven] shall hold a meeting of the Management Committee pursuant to Clause 5 of the JOA at which the Parties shall discuss, in good faith, and then vote on whether they jointly wish to proceed into the next Exploration Period and also the portion of the Contract Area to be surrendered pursuant to Clause 3 of the PSC.
8.2 If the Parties agree to proceed into the First Additional Exploration Period or the Second Additional Exploration Period (as applicable), [Adamantine] shall give notice to the Government, on behalf of the Parties, of their intention to do so pursuant to Clause 2.3 or 2.4, respectively, of the PSC and [Bowleven] shall, not less than one (1) month prior to the expiry of the then current Exploration Period, deliver to [Adamantine] (i) a Bank Guarantee for fifty percent (50%) of the value of the Phase 2 Work Programme or Phase 3 Work Programme, as applicable (as set out in column 3 of Schedule A); and (ii) a PSC PCG Guarantee for the remaining fifty percent (50%) in value of such applicable Work Programme.
8.3 If the Parties both agree that they do not wish to proceed into the First Additional Exploration Period or the Second Additional Exploration Period, as applicable, [Adamantine] shall give notice to the Government, on behalf of the Parties, of their intention to relinquish the PSC in its entirety.
8.4 If either Party votes against proceeding into the next Exploration Period, but the other Party votes to proceed, the other Party may require, at any time thereafter before the expiry of the then current Exploration Period, the first Party to assign its fifty percent (50%) Participating Interest in the PSC for nil consideration. The first Party shall sign a deed of assignment, in similar terms to the Assignment, together with such other documents as may be necessary to effectively transfer the first Party's fifty percent (50%) Participating Interest in the PSC to the other Party or its nominee. The first Party shall meet any taxes payable in respect of such transfer.
8.5 If [Bowleven] elects not to proceed into the next Exploration Period, [Bowleven] shall have no obligation to provide the Adamantine Carry for that Exploration Period, or to meet the PSC Costs in respect of any subsequent Exploration Period. [Bowleven] shall however remain liable to pay the Adamantine Carry for the then current Exploration Period or, if expended, for its share of any approved and budgeted costs in excess of the relevant Adamantine Carry until the expiry of the then current Exploration Period."
(1) There was an update on the status of the extension application to the Ministry, which was to the effect that the Ministry were very sympathetic; were looking at an extension and trying to gather all the facts; and would revert in normal course.
(2) Mr Willett of Bowleven made the point that because they would not have fulfilled the minimum work requirement under the IEP, they did not have the right under the PSC to move into the 1AEP, so that a drill or drop vote under the SPA was irrelevant. The strategy should be to pursue the extension application, and if it looked as though it was not going to be granted, to invoke force majeure.
(3) Mr Moore of Adamantine explained that Adamantine's view was that force majeure was not declarable now that the locals were permitting work. Mr Willett responded that although the security incident had become a weaker basis on which to assert force majeure as time had passed, Tesla's contractual stance was a stronger ground.
(4) Mr Cassidy of Bowleven made the point that clause 2.3 of the PSC required both the expenditure and the work requirements to be fulfilled before they were entitled to proceed into the 1AEP. Mr Moore of Adamantine responded that if they were to approach the Government and offer to perform the uncompleted IEP seismic work during 1AEP, in addition to the further 1AEP seismic work, the Government would not object, and that accordingly a drill or drop vote was necessary. This suggestion was raised by Mr Moore in reaction to the correction by Bowleven of his previous point which had been understood as suggesting that the Government would allow the parties to satisfy the IEP requirements by making the minimum expenditure without requiring them to carry out the work obligation.
(5) Mr Bridgman of Adamantine, as chairman of the meeting, then indicated that he was going to call for a vote. He said that Adamantine would vote to move into the next exploration phase and asked what Bowleven's voting intentions were.
(6) Mr Cassidy questioned whether what was happening was a "good faith discussion" within the meaning of clause 8 and asserted that Bowleven simply could not move into the next phase based on the data acquired to date.
(7) By agreement the Bowleven team then muted their lines so that they could have an internal discussion, although Mr Stacey stayed on the line and discussed practical matters on the ground. When the others rejoined, they asked for an adjournment for 25 minutes, to which Adamantine agreed.
(8) When the meeting resumed with the Bowleven team dialling back in, Mr Cassidy said "Bowleven votes yes to proceeding conditional on receiving the time extension".
(9) Mr Bridgman said that a conditional vote was not valid and it had to be yes or no. He said that if Bowleven sought to maintain a condition, it would be treated as a no vote. In the discussion which followed Mr Cassidy maintained that a conditional yes vote was valid and should be recorded; and the Adamantine representatives stated that such a conditional vote was not allowed and would be treated as a no vote. Adamantine made clear that it was voting yes unconditionally.
(10) The meeting ended with the parties maintaining their positions and Adamantine stating that it would be sending a deed of assignment for Bowleven to execute to transfer its 50% participating share.
"…..[the] work obligations under the [PSC] have not been fulfilled by [Adamantine]. Accordingly, as [Adamantine] is unable in terms of the [PSC] to enter into the [1AEP] , further to clause 8 of the [SPA], Bowleven votes "no", if no time extension for a minimum of 12 months is received from the Government of Kenya, provided that, if a time extension for a minimum of 12 months is received from the Government of Kenya, the earlier vote of "no" is void as irrelevant and the Parties shall hold the relevant meeting to discuss and vote whether to proceed into the [1AEP], 3 months prior to the new expiry date."
(1) There was no valid vote called on 25 February 2015. A clause 8 vote can only be as to the exercise of rights under clause 2(3) of the PSC, and at that date both parties knew that Adamantine would have no rights under clause 2(3) on or before 26 May 2015 unless an extension were granted because it was a certainty that it would not by then have fulfilled the minimum work and expenditure obligation in respect of the acquisition of 2D seismic data. Accordingly any vote under clause 8 was premature: there would not be a clause 2(3) right under the PSC unless an extension were granted; and if it were granted, the clause 8 vote would not be required until three months before expiry of the extended period, which ex hypothesi would be after 25 February 2015.
(2) In the alternative, Adamantine's agreement to seek an extension of the IEP, confirmed at the meeting on 21 January 2015 and executed prior to the 25 February meeting, precluded the ability to hold a valid drill or drop vote whilst the application was pending by reason of the operation of an estoppel by convention.
(3) Alternatively, Bowleven's vote was not an unconditional no vote, and is not to be treated as such. A conditional vote in the form made by Bowleven is a valid vote under the clause; and because an extension has in fact been granted, the condition is engaged and the vote is not negative.
(4) In the alternative, if a conditional vote is not permitted, Bowleven's failure to vote unconditionally is merely a breach of contract; it is not deemed to be an unconditional no vote.
(5) In the further alternative, Adamantine did not enter into good faith discussions as required by clause 8, with the result that the vote is invalid.
Issue 1: Was there a valid clause 8 vote?
"When interpreting a written contract, the court is concerned to identify the intention of the parties 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", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd  AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn  1 WLR 1381, 1384-1386; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen)  1 WLR 989, 995-997, per Lord Wilberforce; Bank of Credit and Commerce International SA v Ali  1 AC 251, para 8, per Lord Bingham of Cornhill; and the survey of more recent authorities in Rainy Sky  1 WLR 2900, paras 21-30, per Lord Clarke of Stone-cum-Ebony JSC."
Issue 2: Was a clause 8 vote precluded by the agreement to seek an extension?
Issues 3 and 4: Bowleven's vote is not to be treated as a no vote because (a) conditional votes are valid or (b) if invalid, a conditional vote is merely a breach sounding in damages
Issue 5: Good faith