On 10 September 2013, the Commercial Court dismissed the latest ‘mega‐claim’. This time, there was not a Russian oligarch in sight. Excalibur Ventures had claimed more than US$1.5 billion for the (alleged) loss of rights relating to petroleum fields in Iraqi Kurdistan. The defendants, including a number of companies owned or controlled by Gulf Keystone Petroleum, were vindicated, albeit with more than £30 million reportedly having been spent on legal costs. Excalibur now faces having to pay the defendants’ costs on an indemnity basis, which usually means reimbursing around 90 per cent of the fees incurred.
Excalibur, much like the mythical sword that is its namesake, appears shrouded in mystery. In July 2011, Gloster J gave a judgment restraining Excalibur from pursuing parallel ICC arbitration proceedings against Gulf Keystone (Excalibur Ventures LLC v Texas Keystone Inc & Ors [2011] EWHC 1624 (Comm)). Excalibur had been founded by Mr. Rex Wempen in around 2000 to offer investment, procurement and public relations services in the energy business. Its website, however, appears to have been blank. Gloster J noted:
“… there was no evidence before me showing that Excalibur had ever participated in any project, or that it possessed the technical know‐how, capability or capital required to invest or participate in an oil exploration and production venture. It has not apparently filed accounts, or made any public statement regarding its assets, liabilities, income or expenditure. I had little or no evidence before me of its financial position … I was told that it was only in late 2010 that Excalibur obtained funding from an unidentified third party to pursue its claim against the Defendants.”
Gulf Keystone was more substantial, with a market capitalisation of just under US$1 billion, listed on the Alternative Investment Market of the London Stock Exchange. It has offices in London, Algeria and Iraqi Kurdistan. Mr Todd Kozel was the chairman and CEO of Gulf Keystone. Mr Kozel, together with other members of his family, was also involved in another energy business, Texas Keystone, of which he was a director. Texas Keystone was a small enterprise, and was not a part of the Gulf Keystone group of companies. It had been set up by the Kozel family to develop oil and gas interests in the United States.
In 2006 and 2007, Mr Wempen of Excalibur provided certain information to Mr Kozel. The background was that Mr Wempen claimed to have had political and commercial contacts in Kurdistan. Under a unification agreement signed in January 2006, Kurdistan became an autonomous region in Northern Iraq, administered by the Kurdistan Regional Government. Excalibur claimed Mr Wempen knew that the regional government wanted to invite bids for development of its hydrocarbon resources, particularly its oil reserves. Mr Wempen set out to seek ‘business partners’ with whom Excalibur could work towards securing an opportunity to develop these resources. In the litigation, Excalibur claimed that Mr Kozel, Gulf Keystone and Texas Keystone had no knowledge of or contacts in the region, and did not know of any intention on the part of the regional government to invite bids.
Excalibur and Texas Keystone (alone) signed a so‐called collaboration, evaluation and bidding agreement in February 2006. Gulf Keystone stated that it had not signed this agreement because it had no interest in participating at that point in time, and did not expect to be successful if it had submitted a bid to the regional government (apparently, Gulf Keystone believed that Kurdistan was looking for US‐based companies). The collaboration agreement recited Excalibur and Texas Keystone’s wish to collaborate to bid for development rights for petroleum blocks in Kurdistan, and, if the bids proved to be successful, to extract and then sell petroleum. Texas Keystone was to be the operator if any blocks were acquired.
The contract gave Excalibur a 30 per cent share (by way of a participating interest) in any rights to a block that might have been secured through a successful bid. Texas Keystone held the remaining 70 per cent. The collaboration agreement also set out a procedure by which Gulf Keystone could become a party to it, but the process required Excalibur’s consent.
In June 2006, Mr Wempen and Mr Kozel met Kurdistan’s Minister for Natural Resources, Dr Hawrami, to discuss the possibility of securing a production sharing contract (“PSC”) for oil exploration in the region. According to Texas Keystone, Dr Hawrami insisted that any prospective bidder for a petroleum contract would have to satisfy certain criteria, specifically as regards its professional and technical experience, capacity and financial resources. These criteria were subsequently set out in the Kurdistan Oil and Gas Law of August 2007.
Before the Commercial Court, the defendants argued that Excalibur could never have hoped to satisfy the government’s requirements, simply because Excalibur would have been quite unable to carry out any petroleum operations in Kurdistan. The defendants also pointed out that Excalibur never sought to provide any information to the ministry, even though it would have been aware of the great importance placed on inviting only suitably qualified bidders. The defendants explained that the government was not even satisfied by the financial position of Texas Keystone. For this reason, Gulf Keystone also became involved in the negotiations for a PSC. When Texas Keystone sought to transfer its rights under the collaboration agreement to Gulf Keystone, in April 2007, Excalibur apparently refused to allow Gulf Keystone to establish an interest in any bid for a production sharing contract, or to permit Gulf Keystone to become a party to the Collaboration Agreement.
Eventually, the ministry did accept that Gulf Keystone had shown the necessary technical expertise, but concerns about the financial position of both Texas Keystone and Gulf Keystone remained. A substantial Hungarian enterprise, MOL Hungarian Oil and Gas Company, was competing for licences in respect of other blocks in Kurdistan at that time. The government proposed that MOL be introduced as co‐bidder with additional financial strength. Gulf Keystone agreed to introduce MOL into the bid for two blocks (Shaikan and Akri Bijeel). MOL bid via a subsidiary, Kalegran Limited.
On 6 November 2007, Texas Keystone, Gulf Keystone and Kalegran signed a PSC to explore and develop the Shaikan Block. Gulf Keystone was named as the Operator. Excalibur was not a party.
On 24 November 2007, Mr Kozel then wrote to the ministry, on behalf of Gulf Keystone, asking for permission to add Excalibur as a non‐operating partner in the Shaikan PSC, and other agreements. No such consent was given.
From November 2007, Gulf Keystone and Texas Keystone invested around US$500 million, in developing and exploring Shaikan. They struck oil in August 2009. At the time, this was hailed as one of the largest discoveries in the region.
In December 2010, Excalibur began Commercial Court litigation and ICC arbitration proceedings on the same day. In the court proceedings, Excalibur raised a raft of claims both under New York law and English law.
Excalibur could not have two bites at the cherry
Gloster J put a stop to the arbitration proceedings, as Excalibur was suing for virtually the same relief in the Commercial Court. The collaboration agreement, to which only Texas Keystone and Excalibur were parties, provided for ICC arbitration in New York. Excalibur had nonetheless joined the Gulf Keystone defendants to the ICC proceedings, on the basis that they were bound by the arbitration clause. The main argument here appears to have been that Texas Keystone agreed to the arbitration clause on behalf of the Gulf Keystone entities, or was the alter ego of Gulf Keystone. All defendants, including Texas Keystone and Gulf Keystone, submitted to the jurisdiction of the Commercial Court. Gloster J noted that Excalibur had submitted to the jurisdiction of the English court, and so was clearly of the view that England was the appropriate forum.
Gloster J’s July 2011 judgment must be considered against the background of the English court’s power to restrain foreign proceedings. The High Court can grant injunctions to restrain arbitrations seated in a foreign jurisdiction, under Section 37 of the Senior Courts Act 1981. However, that jurisdiction will only be exercised exceptionally.
The next piece of the legal puzzle is the power of the court to rule on the validity of an arbitration agreement. Despite the so‐ called ‘kompetenz‐kompetenz’ doctrine, under which an arbitral tribunal is competent to decide on its own jurisdiction, the Supreme Court has unequivocally confirmed in Dallah Real Estate and Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, that the English court retained jurisdiction to determine the issue of whether there was an arbitration agreement. The real issue is whether it is appropriate to do so.
Gloster J also rejected Excalibur's submission that Section 37 of the Senior Courts Act did not envisage injunctions where the seat of an arbitration was outside of England and Wales, so that (if Excalibur had been right) the party objecting to the jurisdiction of the arbitral tribunal would have had to do so in the courts of the seat of the arbitration proceedings (or later resist enforcement of the award).
The judge then went on to hold that there were exceptional circumstances that warranted an injunction restraining the New York arbitration. She took the following into account:
- There was strong prima facie evidence that Gulf Keystone had never agreed to become party to the collaboration agreement, and seemed unlikely to have accepted the arbitration clause in that contract.
- The Gulf Keystone defendants had no connection with either New York or the ICC as an arbitral institution. Requiring these companies to participate in an argument over jurisdiction before New York arbitrators would involve determining the issue whether they were party to the arbitration agreement “by the back door”.
- Excalibur had brought a substantive claim in the Commercial Court and had pending applications before the court in London. It had not, however, asked for anything in the New York proceedings. Gloster J found that it had been an abuse of process to require the other parties to change course and proceed with the arbitration, when everyone had now submitted to the jurisdiction of the Commercial Court.
- It would be oppressive for Gulf Keystone to have to apply to the New York courts (as Excalibur had) to determine whether they were parties to the arbitration agreement:
“It would be vexatious for TKI and the Gulf Defendants to be forced to defend two sets of proceedings involving the same issues in two jurisdictions at the same time. Excalibur's suggestion that, so far as the Gulf Defendants are concerned, this is “self‐induced”, because they object to the jurisdiction of an arbitral tribunal is not, in my view, well‐founded. Apart from the fact that, having been joined as defendants to the Commercial Court Proceedings the Gulf Defendants were prima facie entitled to a judicial determination by this court as to whether they are parties to the arbitration agreement, it would, in my judgment, be oppressive for them (as Excalibur suggests they should) to have to apply to the New York courts, as the putative supervisory court for the ICC arbitration, to determine the question whether they were parties to the Collaboration Agreement. That is because the evidence of New York law shows that, if the Gulf Defendants were forced to apply to the courts in New York for an injunction to restrain Excalibur from pursuing the arbitration against them, there is a risk that they would thereby be taken to have submitted to the jurisdiction of those courts for the purposes of any claim which Excalibur might then make, despite the fact that: a) the Gulf Defendants would otherwise have no connection at all with New York and would not be subject to the jurisdiction of those courts; and b) as Excalibur itself contends, the case has “numerous links with England and Wales”.”
That is a stark judicial comment. It shows that the Commercial Court will not shy away from sanctioning a party which, like Excalibur, tries to use parallel proceedings to gain a tactical advantage – always provided that the Commercial Court itself has jurisdiction, as it did here.
Excalibur loses the substantive claims, too
The ICC proceedings in New York having been restrained by the High Court, the litigation continued. It was the defendants' case that, even though Texas Keystone was prepared to include Excalibur in bids, Excalibur simply could not have participated because it did not meet the legal requirements Iraqi Kurdistan imposed on bidders.
The defendants relied on a clause in the collaboration agreement which expressly required compliance with all relevant local laws governing oil blocks in Iraqi Kurdistan and also on another, which provided that:
“Nothing herein shall be constructed so as to require the commission of any act contrary to law in any relevant jurisdiction”.
To make matters worse for Excalibur, the contract also contained a warranty that each party had obtained all licences, permits and other government authorisations required in the conduct of its business. Finally, they relied on a force majeure provision as excusing it from any obligation (if it did exist) to include Excalibur in bids, since force majeure was defined as including governmental actions:
“… compliance with any laws, rules, regulations or orders of national or other governmental agencies or bodies having jurisdiction in or in respect of Iraqi Kurdistan, any Acreage acquired or to be acquired pursuant to this Agreement.”
On 10 September 2013, Clarke J dismissed all of Excalibur’s claims. He found that the collaboration agreement did not create or recognise any entitlement of Excalibur to an indirect interest in the Shaikan or any other PSC. Excalibur had consented not to become a party to the Shaikan PSC, something that would have been impossible in any event. The Commercial Court also dismissed the suggestion that Gulf Keystone somehow acceded to the collaboration agreement after the event. Clarke J went on to make a series of alternative findings, if he were wrong about Excalibur having any entitlement to an interest under the Shaikan PSC. These ranged from Excalibur’s inability or unwillingness to perform in any event to Excalibur having committed repudiatory breaches of the collaboration agreement. Any of those would have discharged Texas Keystone, and Gulf Keystone, from having to transfer any interest to Excalibur. The court also dismissed a raft of further claims, ranging from fraud, to wrongful interference with Excalibur’s ability to raise finance, to even more imaginative causes of action. The final coup de grace was a finding that even if Excalibur was entitled to a 30 per cent interest, it would get 30 per cent of nothing: at the time when damages would fall to be assessed, the interest in the Shaikan field was deemed to (still) be worthless.
