In early 2005, a company called Amona Africa placed a bid for a major construction contract with the Libyan government. The initial contract value was almost a billion US dollars, with opportunities for this to increase.
At the same time, the Malaysian based Ranhill group wanted to acquire Amona Africa. The Ranhill holding company entered into an agreement to buy a majority shareholding, conditional on the construction contract being awarded to Amona Africa.
To improve the chances of securing the construction contract for Amona Africa and control of Amona Africa for Ranhill, executives of Ranhill began discussions with a company called Unaoil. Unaoil had business contacts in Libya who could provide access to members of the Gadaffi regime. This would lead to opportunities to lobby at the very highest level for the award of the construction contract.
Ranhill did not yet own or control Amona Africa. Nor were any Ranhill directors on the Amona Africa board. Negotiations with Unaoil were conducted by the group CEO of Ranhill and two other senior executive directors. One of these, a Mr Lough, was represented to Unaoil by the CEO as 'Ranhill's 'Mr Libya'. At this stage, Unaoil did not need to analyse which Ranhill group company the negotiators were representing. They were simply trying to do a deal between senior executives of the Ranhill group on one hand and Unaoil on the other.
Matters progressed to draft contracts. At this point, a difficult practical issue had to be addressed. Ranhill did not yet own or control Amona Africa. So, Ranhill could not make Amona Africa enter into the Unaoil contract. Partly for this reason and partly (it was said) to save tax, the contract was drawn up between a Ranhill subsidiary - Ranhill Middle East - and Unaoil. The contract, signed in May 2006, stated that:
- Amona Africa would (if awarded the construction contract) be the main contractor.
- Unaoil would provide its services to Amona Africa.
- Ranhill Middle East would be awarded part of the construction work as a sub-contractor.
- Unaoil would be paid for its services either by Ranhill Middle East (described as the 'Principal') or by one of its 'affiliates'.
Unaoil could expect to receive up to US $43 million for its consultancy services if the construction contract was won.
The Ranhill group CEO and one of the other main board directors conducting the negotiations were also directors of Ranhill Middle East. But Ranhill Middle East was a loss-making company with only a few employees and negligible assets. It was not in a position to perform sub-contract services and, in fact, never did so. All dealings in relation to Unaoil's services took place between Unaoil and Amona Africa.
It seems from the evidence that, even at this early stage, Unaoil felt uncomfortable with the situation. As early as August 2006, a 'side letter' was written by Mr Lough, on Ranhill Middle East notepaper, stating that Ranhill Middle East was acting as an 'authorised agent' of the Ranhill holding company in procuring Unaoil's services for Amona Africa.
Soon after that, the construction contract was awarded to Amona Africa. The share purchase agreement was then completed, Ranhill acquired control of Amona Africa and Mr Lough and other Ranhill representatives joined the Amona Africa board.
Between August 2006 and January 2007, no less than four supplementary agreements were entered into between Unaoil and Ranhill Middle East, varying the terms of the original consultancy agreement. One of these was drafted to include what was, in effect, a parent company guarantee of Ranhill Middle East's payment obligations. But in the signed version, this clause had been deleted and initialled by the signatories.
Unaoil was paid just over US $4 million under the consultancy agreement. The payments were made by Amona Africa, not by Ranhill Middle East. No further payments were made. By late 2008, Ranhill Middle East had become dormant. It left the Ranhill group in 2011. Unaoil claimed the balance due to it from Amona Africa. Unaoil claimed that either:
- The consultancy agreement was, in reality, made between Unaoil and Amona Africa, with Ranhill Middle East being named in the contract merely as 'window-dressing' to avoid tax, or
- Ranhill Middle East had, as set out in the August 2006 side letter, entered into the consultancy agreement as agent for the Ranhill holding company, so that the holding company was liable as principal for the contract obligations.
The court ruled in favour of Ranhill. Neither the Ranhill holding company nor Amona Africa had any case to answer. Although Ranhill Middle East was a company of no substance, it was a real company. Those executives who negotiated for the Ranhill group had authority to commit Ranhill Middle East to the consultancy agreement. A letter from a subsidiary claiming to be the holding company's agent was not enough to make that so. Although parent company guarantees had clearly been discussed, none was ever provided. Unaoil had lost almost US $40 million.
In some circumstances, courts have been prepared to find fiduciary duties (that is, duties of good faith and fair dealing) between business partners. For example, this has happened in joint ventures where one of the parties has a substantial degree of control of the joint venture business. But this was not such a case. Unaoil simply failed to arm itself with proper contractual protections.
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