Excalibur Ventures LLC v Texas Keystone Inc & Ors

Factual and Procedural Background

The present dispute arises from a Collaboration Agreement dated 16 February 2006 between Plaintiff and Texas, a US oil company, concerning joint bidding for petroleum blocks in Iraqi Kurdistan. Plaintiff contends it was unlawfully excluded from an interest in four petroleum blocks, notably the Shaikan block, which was found to contain substantial oil reserves. Although Plaintiff consented not to be a party to the Production Sharing Contract ("PSC") awarded for Shaikan, it claims an indirect interest under the Collaboration Agreement entitling it to relief including specific performance or damages.

Texas entered into the Collaboration Agreement with Plaintiff, reserving the right to introduce Gulf, a Bermuda-incorporated public company, as a party or participant. Gulf was not named as a party to the Collaboration Agreement initially, and Plaintiff alleges Gulf was either a party by agency or assignment or should be treated as such. Subsequently, a PSC was entered into for the Shaikan block on 6 November 2007 between the Kurdistan Regional Government ("KRG") and Gulf International (a Gulf subsidiary), Texas, and Kalegran (a MOL subsidiary).

Plaintiff accepts it was not a party to the PSC but claims entitlement to an indirect interest under the Collaboration Agreement. Defendants deny such entitlement and assert Plaintiff was not ready, willing, and able to perform its obligations, including financing its share of the signature bonus payable under the PSC. The litigation involves complex factual and legal issues including contractual interpretation under New York law, agency, alter ego, fiduciary duties, tortious claims, and valuation of interests.

Legal Issues Presented

1. Whether a party who consents not to be a party to a PSC can claim an indirect interest in the PSC under the Collaboration Agreement.
2. Whether Gulf was a party to the Collaboration Agreement ab initio or became a party by assignment or agency.
3. Whether Texas is the alter ego of Gulf so as to make Gulf liable for Texas' obligations.
4. Whether the Collaboration Agreement or the parties’ conduct gave rise to fiduciary duties towards Plaintiff.
5. Whether Defendants committed fraud, deceit, or tortious interference in excluding Plaintiff from interests in the PSCs.
6. Whether Plaintiff was ready, willing, and able to perform its obligations under the Collaboration Agreement.
7. The appropriate measure and date of assessment of damages for Plaintiff’s claims.
8. Whether specific performance is an appropriate remedy for Plaintiff’s claims.
9. Whether Plaintiff was prevented from raising finance by Defendants’ conduct.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court thoroughly examined the Collaboration Agreement, the conduct of the parties, and the surrounding circumstances, applying New York law principles of contractual interpretation. It found that the Collaboration Agreement was a joint bidding agreement typical of upstream oil projects, providing parties with the option to participate in bids and specifying rights and obligations only for parties who actually participated in the PSC. The Court held that a party who consents not to be a party to the PSC, as Plaintiff did, cannot claim an indirect interest in the PSC under the Collaboration Agreement. Such an indirect interest would impose rights without corresponding liabilities and was inconsistent with the contract's terms.

The Court concluded that Gulf was not a party to the Collaboration Agreement ab initio, nor did it become one by agency or assignment. Texas and Gulf were independent companies with separate boards and shareholders. The claim that Texas was Gulf’s alter ego was rejected because Gulf did not dominate Texas, and the legal principles governing veil piercing pointed to Texas law, under which no such domination or abuse was established.

Fiduciary duties were not found to arise between the parties. The Collaboration Agreement expressly disavowed any partnership or joint venture, and the parties acted at arm's length. Plaintiff was not vulnerable to domination or control by Defendants. No fiduciary or agency relationship was established.

Claims of deceit and fraudulent misrepresentation failed because the Court found that Mr Kozel informed Plaintiff of the KRG’s negative view of Plaintiff’s suitability to be on the PSC, and there was no evidence of concealment or dishonesty. Plaintiff’s misunderstanding of its entitlement was not induced by Defendants.

The Court rejected Plaintiff’s tortious claims for interference with contract or prospective economic relations, finding no improper or intentional inducement of breach or malice by Defendants.

On contractual performance, Plaintiff was found not to be ready, willing, and able to perform its obligations, particularly to pay its share of the signature bonus due under the PSC. Plaintiff had repudiated its obligations by late 2007 and was in material breach. Defendants were discharged from further performance and entitled to proceed without Plaintiff.

Regarding prevention, the Court held that Defendants did not wrongfully prevent Plaintiff from raising finance; Plaintiff’s failure to raise funds was its own responsibility. The absence of an acknowledgment letter or NDA did not cause Plaintiff’s failure to secure financing.

On remedies, the Court declined to order specific performance, citing the lack of agreed mechanism to give effect to any indirect interest, the absence of readiness to perform by Plaintiff, the need for third party consents, and the broken relationship between parties. Damages were assessed at the date of breach, late 2007/early 2008, when Plaintiff’s entitlement had little or no value. The Court rejected Plaintiff’s argument for damages based on present value or speculative future profits.

On valuation, the Court accepted expert evidence that Plaintiff lacked the necessary financial resources, management team, and technical expertise to attract private equity or investment banking finance in the required timeframe. The idea that Plaintiff could have been transformed into an investable entity by a “can-do” investment bank was rejected as unrealistic. The Court found that Plaintiff’s delay in bringing proceedings was unreasonable and inequitable, barring equitable relief.

The Court concluded that Plaintiff had no valid claim against Defendants and entered judgment for Defendants.

Holding and Implications

Judgment for Defendants

The Court held that Plaintiff was not entitled to any indirect interest in the Shaikan or other PSCs under the Collaboration Agreement, which did not contemplate such interests. Gulf was not a party to the Collaboration Agreement and did not become one. Plaintiff consented not to be on the PSC and was in breach of its obligations. Defendants were not liable for any breach or tort. Plaintiff’s claims for specific performance and damages failed. The claim was further barred by Plaintiff’s failure to raise finance and unreasonable delay.

The direct effect is that Plaintiff obtains no relief or interest in the PSCs or the oil blocks. No new legal precedent was established beyond the application of existing principles of contractual interpretation, agency, fiduciary duties, and remedies under New York and English law. The decision underscores the importance of clear contractual terms, the necessity of readiness to perform, and the commercial realities of financing high-risk oil exploration ventures.