Masri v Consolidated Contractors International UK Ltd & Anor [2006] EWHC 1931 (Comm)

[2006] EWHC 1931 (Comm)Case No 2004-124Case No 2004-831
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 28 th July 2006
Before
MRS JUSTICE GLOSTER, DBE
Between
Munib MasriClaimantConsolidated Contractors International UK Ltd & AnotherDefendants
Between
Munib MasriClaimantSaid Tawfic Khoury & OthersDefendants
Mark Hapgood Esq, QC and Simon Salzedo Esq(instructed by Simmons & Simmons) for ClaimantCharles Aldous Esq, QC, Ms Helen Davies & Simon Birt Esq(instructed by Herbert Smith LLP) for DefendantsHearing Hearing dates: 7 th- 9 th March 2006; 13 th- 15 th March 2006; 20 th and 21 st March 2006;23 rd March 2006; 27 th and 28 th March 2006; and 4 th April 2006
JudgmentMrs Justice Gloster, DBE:Introduction
[1]The Claimant, Munib Masri (“Mr. Masri”), is a Jordanian national and Palestinian businessman, now aged 71, who had a career in the energy industry before founding the EDGO group of companies (“EDGO”). At all material times he was Chairman and Chief Executive Officer of EDGO and he (or his family interests) owned 50% of its shares, the balance being owned by his business partner, Tarif Ayoubi (“Mr. Ayoubi”). Mr. Masri seeks payment from the Defendants of monies that he claims are due under, or damages in respect of the alleged breach of, an agreement which he entered into over 13 years ago on 6 November 1992(“the 1992 Agreement”). The Defendants contend that Mr. Masri had very substantial payment obligations under that agreement, which they allege he never fulfilled and that the 1992 Agreement came to an end a number of years ago. Accordingly they allege that nothing is owed to Mr. Masri.[2]The Defendants are members of the Consolidated Contractors Company group of companies, (which I shall refer to as “CCC” when I am referring to the group as a whole, or when I am referring to a particular company in the group without being specific as to which precise company). CCC is a large international group of companies specialising in construction projects in the Middle East. CCC was founded by the Second Defendant, Said Tawfic Khoury (“Mr. Khoury”), together with Kamel Abdul Rahman (“Mr. Rahman”), who died in 1980, and Hasib Sabbagh (“Mr. Sabbagh”), who was Chairman of CCC until 2004, when he resigned after he had suffered a major stroke. The First Defendant, Consolidated Contractors International (UK) Limited (“CCUK”), was incorporated in England and is CCC’s English subsidiary. The principal activity of CCUK is the provision of services (such as office space and staff) to companies in the group. The Third Defendant, Consolidated Contractors Group SAL (“CC Holding”), is a company registered in Lebanon, whose only assets are its shareholdings in other members of CCC. The Fourth Defendant, Consolidated Contractors International Company SAL (“CCIC”), which is also registered in Lebanon, is the main operating company in CCC, and owns or controls the majority of the group’s operating assets. Its managing office is in Athens, Greece. The predecessor to CCIC was Consolidated Contractors International Company Limited (“CCIC Ltd”), a company registered in Liberia. The Fifth Defendant, Consolidated Contractors (Oil & Gas) Company SAL (“CC (Oil & Gas)”) is also a Lebanese company, which was incorporated in September 1992 and whose main function is to operate the oil and gas interests of CCC. It is also principally operated from Athens.[3]Mr. Masri, Mr. Sabbagh and Mr. Khoury are (or, in the case of Mr. Sabbagh, were) all leading Palestinian businessmen, and part of what Mr. Khoury described as the Middle Eastern business community, who have known each other well socially and in business for at least 30 years. All three men have been involved in Arab Bank plc (“the Bank”), a major international banking group. Mr. Masri has been a non-executive director since 1974 and is currently Deputy Chairman of the Bank. Mr. Sabbagh became a non-executive director in 1979, but retired in 2003, when he was replaced by Mr. Khoury. Another person, who features in this case, was Abdul Majid Shoman (“Mr. Shoman”), who for many years was the Chairman of the Bank and was the son of the Bank’s founder. It was common ground that Mr. Shoman was a man of the highest integrity who was very widely admired and respected, not only in the Middle East, but also internationally. He died in 2005. Mr. Sabbagh, Mr. Khoury, Mr. Shoman and Mr. Masri were business colleagues of long standing. They shared a deep concern for the welfare of the Palestinian nation, and each of them was in some way or another involved with organisations which supported the Palestinian cause, such as the Welfare Association and the Palestine Development and Investment Company. CCC moved more of its business to the Bank, after the collapse of its previous bankers, because of the friendship of Mr. Sabbagh and Mr. Khoury with Mr. Shoman’s father and Mr. Shoman himself. CCC was an important client for the Bank. These were men who would strive not to offend each other. The background of these past friendships and business associations is relevant to the Court’s assessment of the parties’ conduct in relation to the making and implementation of the 1992 Agreement.[4]The 1992 Agreement was contained in, or evidenced by, a memorandum signed by Mr. Masri and Mr. Khoury at Mr. Khoury’s home in London on 6 November 1992 on the headed writing paper of CCUK, following a meeting between Mr. Masri and Mr. Khoury at CCUK’s London office earlier on the same day. The purpose of the 1992 Agreement was stated to be to define the principles of Mr. Masri’s participation in “CCC’s” interest in an oil field in the Masila block or concession (“the Concession”) in southern Yemen, which was originally held by CCIC and was subsequently transferred to CC (Oil & Gas), by an assignment dated 25 October 1992 (“the Assignment”), but which it was common ground did not take place as a legal assignment until written notice thereof had been given to the Yemeni Ministry of Energy on 8 February 1993.[5]The 1992 Agreement, as amended and signed, provided as follows:
“This is to define the principles of participation of Munib Masri (MASRI) in CCC’s interest in the Masila Block in Yemen. Basic principle is for Masri to receive 10% of CCC’s 10% interest or a 1% overall interest in the Block for Masri subject to the following conditions, payments and adjustments: 1. Masri is to pay 10% of Masila Block Development costs which are paid by CCC. 2. Masri is to pay 10% of Masila Operating costs assessed to CCC. … 4. Masri shall pay 10% of CCC’s share of Bonus and Training payments required under the Production Sharing Agreement (PSA). In consideration for the payments and participation of Masri as described above, Masri shall be entitled to the following when and if received by CCC. (Based on actual net receipts by CCC, i.e. after payment of marketing and other costs). A. 10% of CCC’s share of Contractor oil entitlements under the PSA. B. 10% of Development Cost Recovery received by CCC. For the purpose of this agreement, the following priority shall be assigned to funds available for cost recovery:- 1. Operating Expenses. 2. Exploration Expenses. 3. Development Expenses.”
[6]There is a dispute between the parties as to which of the Defendants was party to the 1992 Agreement and on whose behalf Mr. Khoury signed it. At the time he signed the 1992 Agreement, Mr. Khoury was a director and authorised signatory of both CCIC and CC (Oil & Gas). He was not, and has never been, an authorised signatory, nor a formally appointed director or direct shareholder of CCUK. Mr. Khoury presently holds the positions of President and Chairman of CC Holding and President of CCIC. He was also Chairman of CC (Oil & Gas) until June 1993.[7]Mr. Masri’s contention is that he contracted with CCUK, through Mr. Khoury. If that is wrong, then he contends that he contracted with the owner of the Concession at the date of the November 1992 Agreement, namely CC (Oil & Gas). Failing that, he contends that the contract was with Mr. Khoury himself and/or as agent for the top company in the group, CC Holding, both of whom, he contends, were in a position to procure that any relevant group company fulfil the obligations owed to Mr. Masri. Only if all those submissions are wrong, does Mr. Masri contend that CCIC was the contracting party. The Defendants contend that the only party to the 1992 Agreement was CCIC, which was the legal owner of the interest in the Concession at the time of the 1992 Agreement, although, because of the Assignment, the beneficial owner was CC (Oil & Gas). However the Defendants accept that there is to be implied in the 1992 Agreement a term as pleaded at paragraph 29 of the Amended Defence, which would oblige CCIC, in the event that it assigned its interest under the PSA, to procure that the assignee assumed CCIC’s obligations under the 1992 Agreement so that the assignee would undertake to pay a share of its own revenue from the Concession to Mr. Masri. The identity of the contracting party is relevant to certain limitation defences raised by the Defendants.[8]The Concession has turned out to be immensely profitable. It is common ground that, although the 1992 Agreement was binding on the relevant entity in CCC when it was made, CCC has not accounted to Mr. Masri in respect of any entitlement which he may have thereunder. The central issue at trial was whether CCC is justified in treating the 1992 Agreement as having been terminated, as it contends. The Defendants deny liability on a number of grounds, including an allegation that Mr. Masri failed to make the payments due under the 1992 Agreement, which amounted to a breach of a condition precedent to the Defendants’ liability, and/or a repudiatory breach, or a mutual abandonment, of the 1992 Agreement. Mr. Masri, on the other hand, contends that any payments which he might have been obliged to pay under the 1992 Agreement (apart from US$ 1.5 million which he did pay to an account in the name of CCIC in December 1992 and which was returned to him in June 1993 from an account in the name of CCIC) were waived or agreed not to be payable.

The issues

[9]Although the evidence was wide-ranging, and roamed over numerous issues and sub-issues of disputed fact and recollection, many of which, in the ultimate analysis, were only of tangential relevance, the principal issues for the Court’s determination at the end of the day may be summarised as follows: i) which of the Defendants was party to the 1992 Agreement; ii) whether Mr. Masri was in breach of the 1992 Agreement by not making payments other than US$ 1.5 million which he paid in December 1992; in particular,(i) whether Mr. Masri, as at the end of May 1993, was in breach of a payment obligation to meet cash calls; and(ii) whether Mr. Masri was in breach of an obligation to provide a bank guarantee in favour of the appropriate CCC company as at that date; iii) whether any of Mr. Masri’s payment obligations under the 1992 Agreement were cancelled and/or waived and/or postponed; iv) if not, whether any such breach amounted to a repudiatory breach of the 1992 Agreement, entitling the relevant Defendant to terminate it; v) if Mr. Masri was in repudiatory breach of the 1992 Agreement as alleged by the Defendants, whether such repudiation was accepted by the relevant Defendants; vi) whether Mr. Masri’s claim is barred in whole or part by limitation, beyond the admitted limitation to sums which it is claimed became due from CCUK on or after 18 February 1998 and/or from the other Defendants on or after 8 October 1998 in the Second Action or on or after 13 January 2000 in the First Action; vii) whether, on the true construction of the 1992 Agreement, a) Mr. Masri’s entitlements were limited to 10% of the defined oil and cost recovery entitlements of CCIC (as opposed to the entitlements of CC (Oil& Gas)); b) whether to cater for the assignment of its interest to CC (Oil & Gas) the 1992 Agreement contained an implied term (as the Defendants contend) that CCIC would procure the assignment of its obligations under the 1992 Agreement to any assignee of CCIC’s interest in the Concession; c) if so, whether Mr. Masri is now entitled to an order for specific performance of the obligation which the Defendants assert CCIC owed to procure that CC (Oil & Gas) would assume “CCC’s” obligations under the 1992 Agreement; viii) if, on the true construction of the 1992 Agreement, Mr. Masri’s entitlements were indeed limited to 10% of the defined oil and cost recovery entitlements of CCIC, whether the Defendants are estopped from so alleging; ix) whether, on the true construction of the 1992 Agreement, Mr. Masri had any entitlement to a 10% share of operating costs recovery.[10]In accordance with paragraph 14 of Cresswell J’s Order dated 17 May 2005, it was decided that the Court would not deal with any quantum issues and, in particular, would not resolve any consequential limitation issues arising from the Court’s decision as to the identity of the relevant CCC contracting party. Accordingly, save in relation to one discrete point, which I refer to below, issue vi) does not arise for determination.

Credibility of witnesses

[11]There was a considerable conflict of evidence between the two principal witnesses, Mr. Khoury and Mr. Masri, on many of the key factual issues. Unfortunately, both were hostile to each other and their personal dislike and mistrust at times infected the quality of their evidence. Most of the relevant events occurred many years ago, and both had a tendency to purport to give evidence about matters of which in reality they could have had no genuine recollection. I found them both to be somewhat unsatisfactory witnesses.[12]Of the two, I found Mr. Khoury to be the more honest witness. But he is 82 years old and, not at all surprisingly, did not have a good recollection of all of the details of events that took place some 10 to 20 years ago or of the dates upon which any particular event occurred. It was inevitable that he would become confused on occasions during his lengthy cross-examination. He felt and demonstrated some animosity towards Mr. Masri because of his pursuit of the claim. He clearly felt that Mr. Masri had been chasing him (on and off) in some way or other in relation to the claim for some 10 years, and clearly never accepted that Mr. Masri had earned the entitlement to share in the profits of the Concession which the 1992 Agreement undoubtedly gave him. This coloured his evidence.[13]I found the other witnesses called on behalf of the Defendants to be basically honest and trying to assist the Court in their evidence.[14]In many respects I found Mr. Masri to be an unsatisfactory and unreliable witness. He gave inconsistent evidence at times and was prone to regular exaggeration when he considered it suited his case. There were a number of occasions where I felt that I could not trust his credibility and that his evidence was self-serving. On other occasions, however, he gave his evidence frankly and truthfully.[15]Although, on the face of it, his notes supported at least some of his evidence, I found that they could not necessarily be regarded as reliable. Mr. Masri’s notes fell into two broad categories. Those notes that he made in his notebooks do appear to be (in the main) contemporaneous as can be seen from the original notebook, but it was clear that on many occasions he apparently added notes later and possibly even after the dispute arose. In such cases there was a tendency for the additions to be self-serving and not necessarily to reflect what actually had occurred. The second category of notes, which the Defendants were not prepared to accept as authentic, were those where the originals had been lost. In my judgment some of these could not be relied upon as necessarily contemporaneous. The Defendants complained that, even at the end of the trial, no satisfactory explanation has been provided for this apparent whole-scale loss of original documentation and that the excuses put forward by Mr. Masri for the loss of all these original annotations, handwritten documents and other notes (save for the notebooks) were inadequate and simply did not explain how all these documents have been lost.[16]At the end of the day I have concluded that it is not necessary for me, for the purpose of deciding the issues that arise for my determination, to conduct a forensic exercise to reach a conclusion as to whether any, and, if so, which, of Mr. Masri’s notes were brought into existence after the event. In all respects, where recollections differ, I have preferred to rely on a careful analysis of such contemporaneous documents as still exist and are accepted to be genuine. Necessarily, the witness evidence is less reliable because the passage of time has inevitably caused memories to fade, with the result that, to differing degrees, the witnesses have had to rely on reconstruction from documents rather than direct recollection.

The factual background leading up to the conclusion of the 1992 Agreement

[17]It is necessary to set out the factual background leading up to the conclusion of the 1992 Agreement in some greater detail before addressing the issues identified above. Subsidiary issues in relation to this period arose in relation, amongst other things, as to whether Mr. Masri made any contribution to obtaining the Concession, whether Mr. Sabbagh promised Mr. Masri a 25% share of CCC’s 40% interest in the Concession in mid 1985 and whether there was some sort of collateral understanding reached at the time of the signing of the 1992 Agreement that the syndicated loan would be available to fund Mr. Masri’s share of development costs. It was argued that such matters were relevant not merely as to the credibility of Mr. Masri but also as to the issue whether his share in the Concession was given to him on terms that he would have to pay a proportionate share of the costs, and therefore relevant to the issues whether Mr. Masri was in breach of contract as at the end of May 1993, and whether any breach was such as to give rise to a right of termination on the part of CCC. It was also said that such issues went to the question of whether Mr. Masri and CCC in fact abandoned the November 1992 Agreement. Whilst it is not necessary for me to decide every dispute of fact relating to this period, an exposition of the factual matrix to the 1992 Agreement is helpful not only to its construction but also to resolution of the issues relating to breach. At the end of the day, however, there is no doubt that, whatever involvement, if any, Mr. Masri had in relation to the obtaining of the Concession, he was under the terms of the 1992 Agreement granted an interest in CCC’s interest therein, and subject to compliance with his obligations thereunder, was entitled to receive his appropriate share of CCC’s entitlement. This was something that Mr. Khoury, at times during the course of his evidence, had difficulty in accepting.[18]The British withdrew from Aden in 1967. The area which they had previously occupied became known as South Yemen and from 1970 was controlled by a Communist government. North Yemen became a republic following a series of conflicts in the 1960s. By 1985, Yemen was divided into two states: North Yemen or the Yemen Arab Republic (‘YAR’), with its capital at Sana’a; and South Yemen, or the Peoples Democratic Republic of Yemen (‘PDRY’), with its capital at Aden.[19]CCC’s involvement in Yemen went back to the 1950s. I find as a fact that it was essentially Mr. Sabbagh’s initiative to seek the Concession, and that it was obtained principally through the efforts of Mr. Joseph Lammam, CCIC Ltd’s (and subsequently CCIC’s) General Manager for South Yemen. Mr. Sabbagh believed that there was a real opportunity for CCC to participate in oil exploration and development in the PDRY because, at the time, CCC was one of the few foreign companies with existing relationships and a reputation in the country. Mr. Khoury himself lived in Aden from 1952 to 1957 and personally oversaw CCC’s work on the Aden refinery project. Mr. Lammam acted as CCC’s representative in Aden from 1953. CCC also built a school within their camp at Little Aden and became involved in social programmes.[20]At this time, the Government of the PDRY were looking for oil companies to move in. However, CCC had no prior experience of oil exploration and development and, accordingly, decided to try to obtain a concession in partnership with Occidental Petroleum Corporation (“Occidental”), a United States registered company, whose President and Chief Executive was a Dr. Ray Irani, whom Mr. Sabbagh and Mr. Khoury already knew. It was CCC’s contacts and experience in Yemen that attracted Dr. Irani to the partnership. Mr. Masri agreed with the statement in Dr. Irani’s homily to Mr. Sabbagh in a book called Hasib Sabbagh: From Palestinian Refugee to Citizen of the World, at p.87 that:
“Because of Hasib [Mr. Sabbagh]’s knowledge of Yemen and his contacts, Occidental decided to seek, through CanadianOxy Petroleum Limited,… a concession in South Yemen in partnership with CCC.”
[21]It became apparent that the government of the PDRY would not negotiate with Occidental, because it was a United States company, but that Occidental’s Canadian subsidiary, Canadian Occidental Petroleum Limited (“CanOxy”), would be acceptable. Some of the early documents connected with CCC’s efforts to obtain the Concession were copied to Mr. Masri, in particular earlier drafts of a Memorandum of Understanding dated 8 October 1985 setting out the initial relationship between CCIC Ltd and CanOxy. One document, a letter dated 9 July 1985 from Mr. Sabbagh to Dr Irani, also marked “cc M R Masri” mentioned that Mr. Sabbagh was planning to visit Aden on 21 July together with Mr. Shoman and Mr. Masri. A joint visit to Yemen did indeed take place on 21 July 1985, although the itinerary for “the Visit” suggests that Mr. Shoman and Mr. Masri only came from North to South Yemen on 22 July. On 22 July 1985, at least Mr. Masri and Mr. Shoman held a meeting with the Prime Minister of Yemen, Mr. Al-Attas and the Minister of Finance. But they did not meet the Minister of Energy and Minerals, nor anyone from his Ministry. It is a matter of some dispute whether the Concession was or was not discussed at this meeting, and what, if anything, was Mr. Masri’s role in obtaining it. Indeed as a factual issue it had a tendency to grow out of all proportion to its actual significance as a background matter to the principal issues that I had to decide.[22]In my judgment, however, Mr. Masri did indeed, in his evidence before this Court, exaggerate the contribution which he had personally made to CCC’s obtaining of the Concession. I conclude that his role was minimal, and that his presence on the scene at all, and the fact that he subsequently was granted an interest in the Concession, reflected the fact that CCC clearly regarded Mr. Shoman’s general support of the project, and, in particular, the support of the Bank, as valuable and something that CCC wished to reward; and that Mr. Shoman, for reasons of his own – no doubt because he might have felt that it would have been unacceptable for him personally to have taken a benefit -clearly wished to pass these benefits on Mr. Masri as his loyal assistant. My reasons for this conclusion are shortly stated as follows: i) The fact that earlier drafts of the Memorandum of Understanding dated 8 October 1985 and other letters were sent to Mr. Masri does not support the provision of any assistance by him or any role played by him in obtaining the Concession for CCIC. There is nothing in or attached to these documents asking Mr. Masri to do anything. There is nothing to suggest that Mr. Masri ever provided any comments on these documents, or advice in relation to them, or otherwise provided any assistance whatsoever. ii) Mr. Lammam’s evidence, which I accept, undermined the notion that Mr. Masri had a significant role in the obtaining of the Concession. Mr. Lamman himself approached the Ministry of Energy and Minerals of the PDRY, in relation to obtaining an oil concession in the Masila region back in May 1985. At the time, it was this Ministry and not any other part of the government of the PDRY that was responsible for the negotiations in relation to the Concession. Negotiations commenced by June 1985 and were lengthy and detailed. There was a break in the negotiations of a few months due to the political upheaval in the PDRY in January 1986. Once negotiations resumed, they resulted in the agreement of the PSA in September 1986. Mr. Lammam’s evidence was strongly to the effect that Mr. Masri did not provide any assistance whatever in the obtaining of the Concession. iii) Mr. Lammam’s evidence was that Mr. Masri’s visit on 22 July 1985 could have had nothing to do with the Concession at all. That was because the usual practice in the PDRY was that the President or Prime Minister would not take meetings alone, but would only do so accompanied by the relevant Minister, in relation to the subject matter of the meeting. But the Minister of Energy and Minerals did not attend Mr. Shoman and Mr. Masri’s meeting with the Prime Minister, which would have been the case, had there been any intention to have any serious discussion of the Concession at the meeting. In fact, the only Minister that Mr. Masri and Mr. Shoman met was the Minister of Finance. The likelihood, therefore, was that the matters discussed related to the Bank’s business in the PDRY. Moreover, if Mr. Sabbagh had wanted Mr. Shoman and Mr. Masri’s assistance in relation to the obtaining of the Concession, he would no doubt have arranged for them to be at the meeting that Mr. Sabbagh had with the Minister of Energy and Minerals. However, this took place before Mr. Shoman and Mr. Masri arrived in the PDRY. iv) Mr. Masri’s evidence did not address the contents of his meeting with the Prime Minister (which he described as having been brief), nor was he able to explain how the meeting was said to have assisted CCC, or what he in particular brought to the meeting (rather than simply being there as the assistant of Mr. Shoman). He kept no note of the meeting (contrary to his normal meticulous practice of keeping notes). Nor was there any evidence as to how that meeting did have any material bearing on the award of the Concession to CCIC and CanOxy. Indeed, as Mr. Ba Jamal (the current Prime Minister of Yemen) said in his evidence, Mr. Al-Attas subsequently opposed the grant of the Concession to CanOxy/CCIC when the matter was put before the meeting of the Politburo in December 1985. v) Furthermore, the Defendants put forward evidence from several prominent individuals from the Ministry of Energy and Minerals of the PDRY (“the Ministry”), who were involved in the negotiation of the PSA during 1985-6, and who testified in their statements to Mr. Masri’s lack of involvement in obtaining the Concession. Although three of these witnesses were tendered for cross-examination, Mr. Masri chose not to require them to be called. The first of these witnesses was Hussain Al Rashid Jamal Al Kaf, who was Director General of the Petroleum and Mineral Board of the Ministry, and head of the negotiating committee on behalf of the Ministry in relation to the Concession, in 1985 and Deputy Minister for Energy and Minerals after January 1986. His evidence was that the PDRY was very keen to encourage foreign investment in oil exploration at this time and he was sent to London to make presentations to attract oil companies. Mr. Lamman approached the Minister of Energy and Minerals who, in turn, referred Mr. Lamman to Mr. Al Kaf. Mr. Al Kaf confirmed that CCIC was a company which was well known to him at the time and was well respected within the PDRY. Detailed negotiations took place between Mr. Al Kaf’s committee and CCIC and CanOxy. As a result of the political unrest in January 1986, the negotiations were halted, but Mr. Al Kaf approached Mr. Lammam in March 1986 to ask whether they could recommence the negotiations. This process resulted in the relevant agreements being concluded in September 1986. Mr. Al Kaf was involved in the negotiations from the start to the finish and he confirmed that Mr. Masri played no role in assisting to obtain the Concession on behalf of CCIC and CanOxy. In cross-examination, Mr. Masri accepted all of Mr. Al Kaf’s evidence, other than the suggestion that Mr. Masri had not played a role in obtaining the Concession. However, Mr. Masri agreed that he played no role at any time during the negotiations, and accepted that Mr. Al Kaf was involved throughout and that, if Mr. Masri had been involved, Mr. Al Kaf would have been aware of it. The second witness was Mubarak Omar Bamahmoud, a leading member of the negotiating committee representing the Ministry in 1985-6, and also Deputy Director General for the Department of Petroleum Exploration. His evidence was to the effect that Mr. Masri had no involvement at all in the negotiations and he had not even heard of Mr. Masri’s name until his name was put to him for the purpose of these proceedings. Again, Mr. Masri accepted that he had no involvement with Mr. Bamahmoud. The third witness was Mohammed Abdo Rageh, one of the members of the negotiating committee on behalf of the Ministry in 1985-6. His evidence was to the effect that the principal negotiator on behalf of CCIC was Mr. Lammam; to the best of his knowledge Mr. Masri had no involvement at all in any of the negotiations; and he said that he had never heard of Mr. Masri until Mr. Lammam contacted him in relation to this dispute in 2001. Again Mr. Masri accepted this as correct.[23]The terms of the initial relationship between CCIC Ltd and CanOxy were set out in a Memorandum of Understanding dated 8 October 1985 which was copied to Mr. Masri. This showed that the Concession would be split 60:40 between CanOxy and CCIC Limited, with CanOxy to pay the first US$ 22.5 million of costs and expenses (of which US$ 4.375 million would be reimbursed by CCC), after which CanOxy would bear 65% of costs until declaration of commercial discovery (i.e., carrying 5% of CCC’s share of costs). An internal CCC memorandum dated 19 October 1985 gave details of a meeting between CCC and Occidental concerning the Concession on 17 October 1985 and was copied to Mr. Masri. There were discussions about the Concession later in 1985 and in 1986 between CCC, CanOxy and the Government of the PDRY, but Mr. Masri was not involved in these.[24]The Amended Consolidated Particulars of Claim allege that Mr. Sabbagh and Mr. Masri made an oral agreement in August 1985 that Mr. Masri would have his own 25% interest in CCC’s 40% interest in the Concession, in addition to the 25% share being offered to Mr. Shoman. This was denied in the Re-Amended Defence. It is not strictly necessary for me to decide this issue, given the terms of the 1992 Agreement, and certainly unnecessary for me to review the evidence relating to it in any comprehensive way. In my judgment there was no such agreement. Mr. Masri’s oral evidence on the topic was extremely unclear and, apart from the fact that his notes were ambiguous, there was doubt as to whether some of the annotations were contemporaneous. I conclude that there were discussions between Mr. Sabbagh and Mr. Shoman during this period, and that Mr. Sabbagh offered Mr. Shoman a 25% share of CCC’s interest in the Concession, but that Mr. Shoman personally refused it and asked Mr. Sabbagh to give this share to Mr. Masri instead. This is what Mr. Sabbagh subsequently told Mr. Khoury had occurred. However, there was nothing at this stage to indicate that Mr. Sabbagh and Mr. Masri had reached any sort of binding agreement as to Mr. Masri’s interest or to the structure of his participation. Nothing was reduced to writing. On the contrary, as Mr. Masri volunteered in his oral evidence in relation to the arrangements discussed at this time: “It was not a completely business relationship” and the relationship “was not bound by agreements …”.[25]The negotiations between CCC, CanOxy and the Ministry were broken off in early 1986 because of a brief period of political unrest which resulted in the accession to power of Mr. Al-Attas as President, and the imprisonment of the former oil minister. Renewed negotiations after the unrest resulted in the signature of an Agreement for Petroleum Exploration and Production dated 15 September 1986 (“the PSA”) between the Ministry, CanadianOxy Offshore International Ltd, a Bermudian subsidiary of CanOxy, (“CanadianOxy”) and CCIC, but did not become binding until an appropriate law had been passed by the PDRY authorities giving the provisions of the PSA full force and effect. The PSA was ratified by the South Yemen Parliament on 15 March 1987.[26]CCIC was the CC Group company that was a party to the PSA, but the abbreviation “CCC” was used for CCIC in the PSA. Together, CCIC and CanadianOxy were collectively referred to as the “Contractor”. The third recital to the PSA recorded that CanadianOxy was the operator for itself and CCIC with respect to the PSA.[27]In so far as is relevant, the PSA provided as follows: i) The Contractor (i.e. CanadianOxy and CCIC) was given the exclusive right to conduct petroleum operations in the Masila area, or Contract Area (as defined), during the term of the PSA. (Article 3.3). The Contractor was to provide all technical and financial resources required for the petroleum operations and was to carry out such operations at its sole cost and risk. The Contractor was to look only to the share of production from the Contract Area payable to it pursuant to Article 9 of the PSA to recover its costs and make its profit (Article 3.4.) ii) The Contractor had six years in which to explore the area and to declare “Commercial Discovery” (“the Exploration period”), and in the event that no Commercial Discovery was made by the end of that period, the PSA was to terminate. In the event of Commercial Discovery, the term of the PSA was to continue for 20 years after the date of Contractor’s declaration of first Commercial Discovery in the Contract Area (Article 4). “Commercial Discovery” was defined in clause 1.3 of the PSA as follows:
“1.3 ‘Commercial Discovery’ means a discovery in the Contract Area of an accumulation or accumulations of Petroleum which Contractor, after assessing the quantity and the quality of Petroleum present, the place and the depth of its location, the required investments, costs and prices prevailing in the world market, decides to be worthy of being developed and exploited and which Contractor commits itself to develop and produce under the terms of this Agreement.” iii) Article 9 of the PSA set out the provisions for the Contractor’s recovery of costs and expenses and allocation of oil production in excess of cost recovery as follows: Clause 9.1 dealt with cost recovery: “Subject to the auditing provisions of this Agreement, Contractor shall recover all costs and expenses not excluded by the provisions of this Agreement or the Accounting Procedure in respect of all the Exploration, Development and related operations hereunder of the extent of and out of a maximum of forty percent (40%) per annum of all Crude Oil produced and saved and out of a maximum of fifty percent (50%) per annum of all Gas produced and saved. Such Crude Oil and/or Gas to which Contractor is entitled for the purposes of recovering its costs and expenses is hereinafter referred to as “Cost Recovery Petroleum”
. Such costs and expenses shall be treated and recovered separately from the applicable Cost Recovery Crude Oil or Gas, as the case may be, in the following manner: (a) All Operating Expenses, incurred and paid after the initial Commercial Production, which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil is made, shall be recoverable in the Financial Year in which such Expenses are incurred. … (b) Exploration Expenditures, including those accumulated prior to the commencement of initial Commercial Production shall be recoverable on a straight-line basis at the rate of twenty-five percent (25%) per annum of the amount of the original Expenditures starting in the later of the Financial Year in which such Expenditures are incurred or paid or the Financial Year in which initial Commercial Production commences. (c) Development Expenditures, including those accumulated prior to the commencement of initial Commercial Production, shall be recoverable on a straight-line basis at the rate of sixteen and sixty seven hundredths [sic.] percent (16.67%) per annum of the amount of the original Expenditures starting in the later of the Financial Year in which such Expenditures are incurred or paid or the Financial Year in which initial Commercial Production commences. (d) To the extent that in a Financial Year costs, expenses or expenditures recoverable under paragraphs (a), (b) and (c) above exceed the value of all Cost Recovery Petroleum for such Financial Year, the excess shall be carried forward for recovery in the next succeeding Financial Year or Years until fully recovered, but in no case after termination of the Agreement.” iv) Oil produced in excess of that allocated for cost recovery was dealt with in clause 9.3, which provided that the Contractor (i.e. CanadianOxy and CCIC) would share the remaining oil with the Ministry in proportions which varied depending upon how much was produced, so that the Ministry’s proportion would vary between 66.7% and 80%, with the remaining 20% to 33.3% of profit oil going to the Contractors:
“The remaining Petroleum, i.e., the Petroleum remaining after deducting the Cost of Recovery Petroleum from the total Petroleum produced and saved, shall be taken and disposed of separately by Ministry and Contractor in the following proportions:…” [as summarised in the following table:] Ministry Contractor Production up to 25,000 barrels per day: 66.7% 33.3% Additional production between 25,000 and 50,000 barrels per day: 70% 30% Additional production between 50,000 and 100,000 barrels per day: 72.5% 27.5% Additional production between 100,000 and 150,000 barrels per day: 75% 25% Additional production between 150,000 and 250,000 barrels per day: 77.5% 22.5% Additional production which exceeds 250,000 barrels per day: 80% 20% “… That portion of the total petroleum produced and saved to be taken and disposed of by Ministry pursuant to this Section shall include production the value of which equals Contract’s liability for PDRY income taxes.” [as summarised in the following table:] Ministry Contractor Production up to 25,000 barrels per day: 66.7% 33.3% Additional production between 25,000 and 50,000 barrels per day: 70% 30% Additional production between 50,000 and 100,000 barrels per day: 72.5% 27.5% Additional production between 100,000 and 150,000 barrels per day: 75% 25% Additional production between 150,000 and 250,000 barrels per day: 77.5% 22.5% Additional production which exceeds 250,000 barrels per day: 80% 20% v) Article 11 contained obligations on the Contractor to pay a signature bonus and additional production bonuses to the Ministry once the Concession reached particular milestones in production. vi) Article 20, especially in Articles 20.3 to 20.5, also contained provisions obliging the Contractor to provide for and meet the expenses of a training programme for Yemeni personnel. vii) Article 24 governed assignment and provided that the agreement was not to be assigned to unrelated parties without the consent of the Government of PDRY. Thus Article 24.1 provided: “Neither Ministry nor Contractor may assign to a person, firm or corporation not a party hereto, in whole or in part, any of its rights, privileges, duties or obligations under this Agreement without the prior written consent of Government. However, either Ministry or Contractor shall be free to assign its rights, privileges, duties and obligations under this Agreement to an Affiliated Company or Appended Unit upon giving prior written notice to Government for such intention. Any assignee shall be as qualified as the assignor with respect to its technical and financial competence.”
Article 24.2 went on to provide that Government consent to any assignment to a non-affiliated third party should not be arbitrarily withheld and imposed conditions on such assignments.[28]A Joint Operating Agreement (“the JOA”) was entered into between CanadianOxy and CCIC (again referred to in this agreement as “CCC”) and was expressed to be effective on the same date as the PSA and for a term coincident with the term of the PSA. It seems to have been signed by 27 April 1987, but then re-stated in a document dated 6 April 1988. The only difference between the two versions appears to be the wording of clause 3.10, but these are not material for present purposes. The JOA formalised the matters agreed in the Memorandum of Understanding. Thus Article 2 of the JOA set out the percentages of participating interest, with CanadianOxy having 60% and CCC having 40%; CanadianOxy was to carry out the operations under the PSA (Article 3); CCIC was designated as independent contractor for the provision of all necessary works and services (Article 3.10); and a Management Committee was established to supervise operations (Article 4). In particular the costs associated with the anticipated activities under the JOA were to be funded by means of the payment of monthly (or more frequent) advance cash calls on the contracting parties, for which they were severally liable (Article 6.3). In the event of any default of longer than 20 days in paying those cash calls, the JOA provided that the defaulting party would forfeit all of its rights in the JOA and the PSA and any production arising therefrom (Article 9). Although, as Mr. Masri accepted, he had no involvement with or input into the PSA or the JOA, and that he did not ask for, and was not provided with, a copy of either of these documents, he was well aware that such draconian forfeiture provisions were commonplace in many oil exploration projects.[29]I accept the evidence of Mr. Khoury and Mr. Nakhleh that, because of the risks associated with the project in the pre-development stage, particularly given its location, it was throughout CCIC’s intention to put itself in a position where it did not have to pay any of the exploration costs of the Concession, and thereby to limit its exposure to costs until such time as it was apparent that Commercial Discovery had been made. This was achieved by means of both the terms of the JOA itself and subsequently by means of two farm out agreements, whereby CCIC agreed to transfer part of its share in the Concession in return for the counter-party to the farm out agreement agreeing to pay CCIC’s share of the exploration costs, as summarised below. Thus, under Article 20 of the JOA (which reflected provisions that had been agreed between the parties in the Memorandum of Understanding dated 8 October 1985): i) CanadianOxy bore 5% of what would otherwise have been CCIC’s 40% share of exploration costs and expenses up to the date of Commercial Discovery (which in the event was 18 December 1991), with the result that CCIC was responsible for only 35% of costs and expenses until that date; and ii) CanadianOxy was to bear the first US$ 22.5 million of the costs and expenses incurred in fulfilling the obligations under the PSA, subject to a reimbursement by CCIC of US$ 4,375,000 (representing 35% of the costs above US$ 10 million) after the first US$ 22.5 million had been incurred.[30]At around the same time as the PSA was being negotiated and agreed, CCC was also embarking upon various construction projects in North Yemen (YAR). In 1985, it was agreed that Mr. Masri would have a 25% share in CCIC’s construction projects in North Yemen. Mr. Masri’s evidence was that the relationship in North Yemen was with EDGO, rather than with him personally. The relationship between CCIC and EDGO/Mr. Masri as regards the North Yemen projects was set out in a series of internal CCIC memoranda. The first was a memo dated 3 July 1989 from Mr. Khoury to Mr. Nakhleh, which recorded Mr. Masri’s share at 15% and which was copied to Mr. Masri at the time; the second, dated 21 October 1989, was from a Mr. Fawzi Kawash to Mr. Nakhleh, and recorded that he had agreed with Mr. Khoury that Mr. Masri’s share would be 25% instead of 15% from inception. The position was then clarified in a further memo from Mr. Khoury to Mr. Nakhleh dated 16 September 1991, which recorded that Mr. Masri was to have a 25% share in the profits and losses of the construction projects in North Yemen until 30 June 1991, and a share of 15% from 1 July 1991 onwards. These memoranda recorded that Mr. Masri was to render marketing and other services to CCIC in the YAR and that he was to share in the profits and losses of all operations of CCIC in that country. He was to provide bank guarantees for all banking facilities required for the North Yemen operations in his proportionate share, and was also to be charged interest on his proportionate share of the costs of the projects. Mr. Masri confirmed in his oral evidence that this was how it worked. Under the arrangement, Mr. Nakhleh kept Mr. Masri updated from time to time as to the status of the North Yemen projects. The North Yemen projects were all construction projects, in relation to which CCIC was paid for work carried out, but was required to provide various guarantees in respect of items such as performance, advance payment and customs, and also used overdrafts, short term loans and letters of credit to ensure positive cash flow.[31]Pursuant to the arrangement in relation to North Yemen, CCIC asked EDGO to issue guarantees in respect of its share of the projects. For example, Mr. Nakhleh wrote to Mr. Masri on 7 December 1989 requesting him promptly to issue a counter guarantee in favour of the Bank in respect of his 25% share of the Bank facilities that were being utilised by CCIC in respect of the Faculty of Agriculture project in Sana’a (North Yemen). EDGO put arrangements in place very shortly thereafter as had been requested. The Bank confirmed (at the request of Mr. Davies, of EDGO) to CCIC on 17 January 1990 that a blockage of US$ 1,461,404 had been established in respect of this project, and this was confirmed again by further telex from the Bank dated 30 January 1990 (which stated that the blockage was valid until 6 January 1992). Other similar blockages were subsequently established by Mr. Masri in respect of the other construction projects in North Yemen in respect of which he also had a share.[32]On 18 December 1989, Mr. Nakhleh informed Mr. Masri that CCIC would be making a payment to Mr. Masri in respect of the North Yemen projects of US$ 788,000. This was paid in two instalments: the first in the sum of US$ 400,000 on 20 December 1989, and the second in the sum of US$ 388,000 on 17 January 1990. Both payments were made to account 213280 at Arab Bank (Switzerland) Ltd, Geneva, which Mr. Masri referred to as “EDGO’s account” in his evidence, and he likewise confirmed that this US$ 788,000 went to EDGO.[33]The Defendants rely on the manner in which bank guarantees and blocked deposits were provided in relation to the North Yemen contracts, to support their case that it is not likely in practice that CCC would have waived any requirement that Mr. Masri should provide a guarantee.[34]By early 1990, the results of exploration were promising, but the initial US$ 22.5 million of expenditure was almost exhausted (it was in fact July 1990 when the entire sum was expended by CanadianOxy) so the date was approaching when, under the JOA, CCIC would become liable for 35% of on-going exploration costs. The political situation had improved, with North and South Yemen uniting as from 20 May 1990. CCC did not wish to fund exploration so it began to consider the possibility of farming out part of its 40% stake in the Concession. CanadianOxy confirmed that its 5% carry would not be withdrawn in the event of a farmout. Mr. Masri may have had some role in the identification of potential farmout partners in early 1990 and had discussions about this aspect with Mr. Khoury and Mr. Brawley. On 27 July 1990, CCIC entered into a farm out agreement with Pecten Yemen Company (a US oil company controlled by Shell) (“Pecten”). Under the farm out, Pecten acquired half of CCIC’s 40% interest in the Concession, in return for payment of CCIC’s past and future exploration costs up to a total of US$ 16 million (plus a single payment of US$ 500,000). Once the US$ 16 million had been expended, Pecten and CCIC were each to be responsible for funding their share of cash calls according to their shares in the Concession, namely 20% for Pecten and 20% for CCIC, although CCIC continued to benefit from the 5% “carry” from CanadianOxy in respect of exploration costs so that, prior to a declaration of commercial discovery, its liability for exploration costs would only be 15% of the total Concession costs. The Pecten farm out was formalised between the parties to the JOA by way of Amendment No.1 to the JOA dated 27 September 1990. The reimbursement of US$ 4,375,000 which CCIC was obliged to pay CanadianOxy (representing 35% of the costs above US$ 10 million), after the first US$ 22.5 million had been incurred, was made using funds received from Pecten under the Pecten farm out agreement. Due to the delays in receipt of those funds as a result of the need to obtain consent of the assignment to Pecten, CCIC did however also incur some additional interest charges to CanadianOxy in respect of this payment obligation. In due course, the first exploratory well proved to be successful and, on 30 January 1991, Pecten confirmed that it would continue with the project, taking on the obligation to fund the first US$ 16 million of what would otherwise have been CCIC’s share of costs. Mr. Brawley gave evidence to the effect that it was then believed that the US$ 16 million would be exhausted around the middle of 1991. The net result of the Pecten farmout was that CCIC had postponed further the date on which it would have to make any payment at all in relation to the costs of the Concession. Mr. Masri admitted that he was not involved at all in the negotiation of the Pecten farm out and that he did not ask for a copy of the relevant agreement.[35]On 7 February 1991 there was a meeting between Mr. Masri, Mr. Sabbagh and Mr. Khoury. Although Mr. Khoury did not recall it, I find that it is probable that the meeting took place. It is referred to in the contemporaneous daily notebook which Mr. Masri kept. It is also referred to in a separate file note allegedly made by him. The Defendants do not accept the authenticity of this note; even if there was such a meeting at or around that time, the Defendants do not accept that this document is an accurate record of it. The typewritten note records Mr. Masri as saying that Mr. Sabbagh had said that they would divide the “shareholding” in the Concession 50% as between Mr. Shoman and Mr. Masri on one hand and 50% Mr. Khoury and Mr. Sabbagh on the other. It also records that Mr. Sabbagh said that he remembered that he had promised Mr. Masri a share in the Concession; that Mr. Sabbagh then said that there were now two alternatives: either CCC compensates Mr. Masri; or he retains his stake but it would cost him maybe US$ 10 million; that Mr. Masri said that he would stay and was ready to pay; and that Mr. Sabbagh said that he hoped “we” (which in context must have meant both CCC and Mr. Masri) would not have to pay anything to Occidental. This note is unusual because it is typed, whereas most of the notes of meetings that Mr. Masri has disclosed are handwritten. Mr. Masri said he thought he may have handwritten it, or dictated it, and had someone type it up. It could not have been made immediately after the meeting on Thursday 7 February 1991, because the last part of the note also relates that “Next Friday Said called me” and in the last 2 lines “Next day I spoke with Ali”. Mr. Masri acknowledged in his oral evidence that he may have made this note a week after the meeting.[36]Mr. Masri at some point made various handwritten revisions and additions to this typewritten note. He contended in his oral evidence that these revisions were made shortly after the meeting, as soon as the typewritten note had been given to him, because it was a draft that he was correcting, but no further typed-up version was disclosed. Mr. Masri has inserted in the second paragraph of the note a reference to his claiming a share of the CanadianOxy construction contract. Having heard Mr. Khoury’s evidence, I consider that it is highly unlikely that such a claim was made at the meeting because, had he done so, Mr. Sabbagh and Mr. Khoury would have rejected it out of hand.[37]It is not necessary for me to make any specific findings about the authenticity of this note or when it or the manuscript amendments were made. The note is very discursive and difficult to follow, is subjectively written from Mr. Masri’s standpoint, and is of little utility for the purposes of the issues I have to decide, since it merely reflects discussions in negotiations leading up to the conclusion of the 1992 Agreement. On the assumption that it is genuine, the most that it shows is that Mr. Masri was very keen to justify what he saw to be a promise made to him by Mr. Sabbagh in 1985 of an interest in the Concession; that Mr. Sabbagh recalled that he had offered Mr. Masri some sort of interest in the Concession back in 1985; that Mr. Khoury was not keen on the idea and wanted Mr. Masri bought out; and - perhaps most critically – that if he were to stay in, Mr. Masri would have to pay.[38]There was then, throughout the first half of 1991, a certain amount of debate within CCC about whether to look for a further farmout. By March 1991, it seemed that Pecten’s US$ 16 million would be used up by the end of June 1991. Mr. Masri was involved in discussions relating to farm out possibilities in connection with the Concession. I find as a fact that, about this time, Mr. Masri was given, and read, a copy of a farm out proposal relating to the Concession prepared by CanadianOxy, which clearly stated, on its first page after the Contents page, that CCIC held the interest in the Concession and which made it clear throughout the document that it was CCIC that was the CCC entity that held the interest. The defined abbreviation for CCIC in this document was “C.C.C.”. I also find as a fact that, as he admitted in cross-examination, Mr. Masri knew that it was CCIC that held the interest and that this derived, at least in part, from the farm out proposal document.[39]By March 1991, it had become clear that Pecten’s US$ 16 million would be spent around the middle of 1991 and accordingly that, absent a further farm out, CCIC would then become responsible for 15% of the exploration costs. On 20 April 1991, Mr. Nakhleh sent a memo to Mr. Sabbagh recording that it was estimated that this point would be reached on 1 June 1991, and that Mr. Brawley had estimated that CCIC would have to pay US$ 6 to US$ 10 million in respect of exploration costs during the period June to December 1991. Around May 1991, Mr. Sabbagh began discussing with Occidental’s Chairman, Dr. Irani, a further farm out to an Occidental affiliate, Occidental Yemen Inc. (“Oxy Yemen”). Mr. Brawley was shocked that Mr. Sabbagh had decided to farm out half of CCIC’s remaining interest in the Concession to Oxy Yemen and had concerns about the terms of the proposal which was being negotiated directly by Mr. Sabbagh. On 7 June 1991, Mr. Brawley wrote a memorandum to Mr. Khoury setting out his thoughts on the proposed farmout. Mr. Brawley pointed out that test results from the Camaal 2 well were looking favourable, indicating that it was better than the previous two wells, with the consequences that oil might be approaching the commercial level and that ‘the value of a share of CCC’s interest is increasing.’ On 18 June 1991, Mr. Brawley put his initials to a status report prepared by Mr. Glance, which repeated some of his views. The report recorded that the exploration wells had provided encouraging results but there was limited time to complete exploration under the PSA; that activity was being accelerated and costs were increasing, with the 1991 budget having been revised from US$ 23.8 million to US$ 90.2 million. Pecten’s US$ 16 million had been exhausted at the end of May 1991. Thus, he explained, CCC would be reassuming a liability for 15% of exploration costs with effect from 1 June 1991, which would amount to US$ 9.76 million by the end of 1991 on present estimates.[40]Mr. Masri received a copy of Mr. Brawley’s status report in June 1991. As well as setting out CCIC’s liability for its 15% share of exploration costs, the report also indicated that there had been a very large increase in the 1991 budget. Mr. Masri acknowledged in his evidence that he would have appreciated there was a substantial increase in the 1991 budget with the result that CCC was facing having to incur something in the order of US$ 9 million to US$ 10 million worth of exploration costs in 1991.[41]In June 1991 Dr. Saleh Jallad, the Group Treasurer of CCIC, went to Vienna for a meeting (at which Mr. Masri was also present) where Mr. Shoman on behalf of the Bank refused to finance CCC’s share of development costs in relation to the Concession on the grounds that he regarded it as too risky.[42]It is common ground that a meeting took place on 3 July 1991 between Mr. Sabbagh and Mr. Masri regarding Mr. Masri’s participation in the Concession. I accept the Defendants’ contention that the probable reason for the meeting was that, if Mr. Masri was to have a share in the Concession, his commitment to meet the exploration and/or development costs had to be clarified, as CCIC were facing substantial cash calls. The meeting took place at a time when CCIC were still engaged in negotiations with Occidental in relation to the potential further farm out to Oxy Yemen. Although Mr. Masri had originally suggested that he thought Mr. Khoury was also present at this meeting, he subsequently corrected that and agreed with Mr. Khoury’s evidence that he was not present at this discussion regarding the Concession. A note was prepared and initialled by both Mr. Sabbagh and Mr. Masri headed “Munib el Masri’s share in Masila Concession”, giving Mr. Masri two options for his participation. As originally typed the note provided two options for Mr. Masri:
“Option One”: “2.25% of total shares and this leaves CCC 17.75%. In this case he has to pay C.C.C. immediately US$ 1,977,163 and continue paying his share of all expenses during exploration and development.” “Option Two”: “1% of concession:- (a) In this case C.C.C. would bear all the expenses of exploration. If oil is found commercially Munib Masri would share in 1% of the development cost.”
[43]There are two versions of this note – one disclosed by Mr. Masri and one by the Defendants, both of which contain original handwriting. Both versions bear the same handwritten amendment to the level of development costs that Mr. Masri would have to bear under Option 2, changing 1% to 1.5%. This change appears to have been made physically on the Defendants’ version, and then the document photocopied, because on Mr. Masri’s version this amendment is clearly copied rather than a case of the same amendment being made manually to two copies of the same original document. The change on both documents was then initialled by Mr. Masri and Mr. Sabbagh. From the initials’ location, it looks as though the initialling was only to this alteration and not to the document as a whole. The version of the document disclosed by Mr. Masri also bears an additional handwritten amendment, which purports to amend the share in the Concession to be given to Mr. Masri under Option 2 from 1% to 1.5%, but this was not initialled by anyone. Significantly, the Defendants’ version does not contain this change or the date, but does also bear Mr. Khoury’s initials to the change to Mr. Masri’s share of the development costs (which do not appear on Mr. Masri’s version). Mr. Khoury accepts that the third set of initials are his, although he had no recollection of when he placed them there and did not recall being involved in the preparation of the note or in the meeting. It is the Defendants’ case that their version of this note is the only one which records what was actually agreed by Mr. Masri and Mr. Sabbagh at this meeting (hence being initialled by Mr. Sabbagh and Mr. Masri and being taken to Mr. Khoury to initial in that form); whereas the additional un-initialled amendment which only appears on Mr. Masri’s copy must have been made at some subsequent stage by Mr. Masri. Otherwise, submit the Defendants, it would likewise have been initialled. Mr. Masri also said that he sent a letter to Mr. Sabbagh on 6 August 1991 referring to their earlier meeting. Mr. Sabbagh did not respond to the letter and the Defendants deny that it was ever received by them. In support of that contention, Mr. Khoury said that he never discussed the matter with Mr. Sabbagh, that no copy was ever found in CCC’s files and that it was only provided to CCC in the course of a subsequent mediation of the dispute. I accept Mr. Khoury’s evidence.[44]Given the actual terms of the subsequent 1992 Agreement, it is not necessary for me to decide what was actually agreed by Mr. Masri and Mr. Sabbagh at the meeting on 3 July 1991, as to the quantum of his interest in the Concession. It is certainly not the case that the divergence between 1.5% for his share of the development costs and 1% for his interest in the Concession was necessarily a mistake, as CCC’s commercial reasons for his participation might well have required him to pay some sort of premium for the grant of an interest. However, in my judgment, the document that was signed at the meeting by Mr. Sabbagh was in the form of the Defendants’ version and the likelihood is that Mr. Masri, after the meeting took place, added the manuscript amendment of 1.5% to his interest in the Concession on his version. There is no, or no sufficient, evidence that he did so for any nefarious reason and he may well have done so because he thought that his interest should be the same as his proportionate share of the development costs, or because he thought that was what had been agreed. Nor, in my judgment is it likely that the letter dated 6 July was ever in fact sent by Mr. Masri to Mr. Sabbagh. The document does not accurately record the terms of the 3 July 1991 document as regards the percentages provided for under Options One and Two, nor does the July 1991 document support the assertion made by Mr. Masri in the letter that under Option Two he was to pay nothing. As I have already stated, Mr. Sabbagh and Mr. Khoury would never have agreed to the suggestion of Mr. Masri having any share in the construction work relating to the Concession and it is highly unlikely in my judgment that Mr. Sabbagh would not have replied to the letter, had he received it. The letter appears to go to some length to try and justify Mr. Masri having a share in the Concession as a result of his involvement in North Yemen. The two, as is clear from the Defendants’ evidence, were always quite separate. I suspect that Mr. Masri decided in the event not to send the letter, as he probably appreciated that it would irritate Mr. Sabbagh and Mr. Khoury, and not be a sensible way to play out the negotiations. However, the draft letter is a typical example of Mr. Masri’s attempts to “talk up” what had been discussed or agreed between the parties and his own contribution to the various projects.[45]Negotiations continued between Mr. Sabbagh and Occidental with respect to a farm out of half of CCIC’s remaining share and the agreement was finalised in the form of a letter agreement dated 24 July 1991. Under this agreement, CCIC assigned to Oxy Yemen 50% of CCIC’s remaining 20% interest in the Concession so that CCIC was left with a 10% interest in the Concession, and Oxy Yemen obtained a 10% interest in the Concession. In return, Oxy Yemen was responsible for its own share of costs and agreed to pay to CCIC US$ 4 million together with 50% of CCIC’s 10% share of exploration costs until the date of commercial discovery, and all of CCIC’s share of exploration costs after the date of commercial discovery, save for those exploration costs associated with development wells. The aim of this was to dovetail with the 5% CanadianOxy “carry” (which expired at the date of commercial discovery) so that CCIC would not have to pay exploration costs. Oxy Yemen would also make payments to CCIC equivalent to 5% of profits received by Oxy Algeria in relation to another contract called the Djemaa Touggourt contract. The net result of the Oxy Yemen farmout was therefore that CCIC had ensured that other parties would cover all of CCIC’s share of exploration costs (as CanadianOxy was still carrying 5%, and Oxy Yemen had now agreed to pay the other 5%). CCIC would also receive a payment of US$ 4 million plus a 5% share in the profits of an unrelated contract. Mr. Masri was not involved in obtaining the Oxy Yemen farm out.[46]As he stated in his evidence, Mr. Brawley felt that CCIC had provided the farm out to Oxy Yemen on terms that were too advantageous to the latter. There followed exchanges of correspondence and discussions relating to clarifications of the Oxy Yemen farm out. Some of the issues were dealt with in a letter agreement dated 14 October 1991 and others in a compromise agreement dated 20 December 1991. The farmout was formalised between the parties to the JOA by Amendment No.2 to the JOA dated 1 November 1991. The Oxy Yemen farm out was not the last of the changes to the participations in the Concession. CanadianOxy assigned an 8% participating interest to Oxy Yemen under an agreement dated 1 August 1990. Around October 1991, Oxy Yemen assigned all of its participating interest in the Concession to Occidental Peninsula Inc. The result was that by late 1991 the ownership percentages in the Concession were as follows: CanadianOxy 52% CCIC 10% Pecten 20% Occidental Peninsula 18%[47]Mr. Hapgood submitted that the two farm outs had generated valuable payments to CCIC in excess of its costs. In fact, as Mr. Khoury explained, in addition to the exploration costs, CCIC had also incurred considerable costs since 1985 in respect of its interest in the Concession. For example, Mr. Nakhleh prepared a schedule on 9 June 1992 which set out the financial position in relation to the Concession which not only showed the single development cost cash call paid by that date (the April 1992 cash call of US$ 4,476,039), but also the other costs that CCIC was incurring in respect of the Concession. These included costs in relation to the employment of Mr. Lammam, Mr. Brawley and Mr. Nouar (an Algerian oil and gas consultant), office costs, overheads and cost per books (including items such as travel). This showed that the total cost to CCIC of participation in the Concession to June 1992 was US$ 15.8 million. Mr. Nakhleh’s evidence on this was not challenged.[48]On 5 August 1991, Mr. Sabbagh visited Mr. Masri and asked to buy out Mr. Masri’s share in the Concession. I have already referred to the detailed letter which Mr. Masri wrote to Mr. Sabbagh the next day, asking him not to persist in this request, but which I have held was probably never sent. On 16 September 1991, Mr. Khoury recorded in a memorandum to Mr. Nakhleh that in relation to North Yemen, Mr. Masri’s share would be 25% up to 30 June 1991, but 15% thereafter.[49]On 18 December 1991, Commercial Discovery (as defined at Article 1.3 of the PSA) was declared in relation to part of the Concession. In preparation for that declaration, CanadianOxy had produced a Feasibility Study for the development of the Concession. A draft dated 9 November 1991 estimated development costs at US$ 468 million. A further draft, dated December 1991, estimated development costs at US$ 500 million. A yet further draft dated 3 December 1991 was signed as “approved” by representatives of at least some of the Concession partners (including Mr. Brawley for CCIC), and this document estimated development costs at US$ 455 million. An “updated” copy of the Feasibility Study was circulated by CanadianOxy on 11 December 1991 – this again estimated development costs at US$ 500 million. This was based on estimated “Oil-in-place” of 555 million barrels, of which the ultimate economic recovery was estimated at 234 million barrels. It was proposed that commercial production would begin by January 1994 and a flat price of “US$ 19 fob offshore loading point” was assumed. When Commercial Discovery in relation to the Concession was announced by CanadianOxy on 18 December 1991, the decision to declare was based on an estimation of 550 million barrels of oil in place, estimated recoverable reserves of 235 million barrels and estimated development costs in excess of US$ 500 million. The announcement of commercial discovery stated that a development plan would be submitted to the Ministry in January 1992. This was produced in January 1992, and estimated that development costs would be US$ 560 million.[50]The announcement of commercial discovery in relation to the Concession on 18 December 1991 signalled the end of the CanadianOxy “carry” of 5% of CCIC’s share of exploration costs and also the imminence of CCIC having to pay development costs (which were not covered under the Oxy Yemen farm out). Accordingly, cash calls in respect of development costs were shortly to be made on CCIC. Mr. Sabbagh, with the agreement of Mr. Khoury, decided to finance CCIC’s share of the development budget by way of a loan, rather than a further farm out under which CCIC would have had to cede part of its retained 10% share. Finance in the sum of US$ 50 million was sought. This reflected 10% of the (then) estimate of overall development costs, which as at December 1991 was US$ 500 million. Dr. Jallad, the Group Treasurer, was assigned to obtain the loan. He drafted a letter to the Bank (which was signed by Mr. Sabbagh) dated 18 December 1991 setting out the basic details of the finance that was required in the sum of US$ 50 million. This letter also requested a bridging loan of US$ 10 million to cover the (then) anticipated time period it would take to arrange the full US$ 50 million financing. The Bank extended an offer of a US$ 10 million bridging loan, subject to conditions in a telex dated 15 January 1992, which included the personal joint and several guarantees of Mr. Sabbagh and Mr. Khoury. Dr. Jallad accepted these terms, and there followed a series of communications providing information about the Concession to the Bank. Dr. Jallad encountered difficulties during the first half of 1992 in attempting to persuade the Bank to extend the loan on the limited recourse basis that Dr. Jallad was, at that time, proposing. Mr. Shoman, as Chairman of the Bank, was unwilling for the Bank to lend US$ 50 million on its own, and felt that it would be difficult to arrange a syndication of banks because of the risks associated with the political situation in Yemen.[51]Pursuant to clause 3.10 of the JOA, CCIC obtained the construction contract on 8 May 1992. As I have already stated, prior to its involvement in the Concession, CCIC was already known and well regarded in South Yemen. Obtaining the contract involved Mr. Khoury personally going to see the President of Yemen, Mr. Saleh, whom he knew. Mr. Saleh indicated that he wanted the project to be completed by Yemen’s Independence Day in the following year, namely 26 September 1993. Although he appreciated that this would be a formidable task, Mr. Khoury agreed to this with the result that CCIC was granted the contract. Mr. Masri did not suggest that he had any involvement in the obtaining of the construction contract for CCIC, nor in its execution, such as (for example) by providing any supporting guarantees.[52]In the first half of 1992, Dr. Jallad also tried to generate interest in his proposal with other banks. Thus, for example on 14 May 1992, Dr. Jallad sent a letter to Arab Banking Corporation in an attempt to obtain finance for CCIC’s share of development costs. The letter set out that oil in commercial quantities had been found, that the development phase was economically viable at a total cost of about US$ 600 million, and that CCIC required a loan on a limited recourse basis of up to US$ 50 million. The security proposed was to be “fundamentally based on our share of the oil produced and sold.” The finance being proposed by Dr. Jallad was with limited recourse, which put the South Yemen political risk onto the lender. The letter informed the bank that CCIC would also be undertaking the majority of the construction works in the Concession, valued at about US$ 160 million over a construction period of about two years. Similar letters were sent to Chemical Bank, the Bank, Arab National Bank and NMB Bank.[53]All the banks approached declined to participate at that time. That was probably for a number of reasons: first, because the Bank, CCIC’s known preferred and usual bank, had declined to participate; second, because US$ 50 million was too large for one bank to finance alone; and, third, because a syndication of banks would be difficult to arrange. The underlying factor in each case was the risk associated with the political situation in Southern Yemen.[54]Revised budgets were produced for the 1992 year of the Concession on 15 July 1992. This increased the budgeted development costs for 1992 from around US$ 194 million to around US$ 206 million. Mr. Brawley and Mr. Glance, approved the budget changes on behalf of CCIC, and requested that efforts to minimise costs should continue. A preliminary budget for 1993 was produced on 16 July 1992 which came to a total of US$ 451.23 million, and which included a figure for development costs in 1993 of US$ 341.07 million. By July 1992 therefore, total development costs to the end of 1993 were already estimated to exceed US$ 540 million. Mr. Brawley monitored the costs and was concerned about the cost increases.[55]At the end of July 1992, Dr. Jallad met a contact of his at BNP, and they spoke about finance for the Concession. His contact indicated that BNP would participate in the loan if the Bank could be persuaded to lead a syndication of banks and if he was able to convince his BNP colleagues to open an exposure line to the former PDRY. Dr. Jallad then went round other banks (including Arab Banking Corporation, Gulf International Bank, Banque Indosuez and Banque Paribas) informing them that BNP had agreed in principle to participate on the basis the Bank would lead the syndicate and was able to persuade these other banks to participate in the loan on condition that the Bank led the syndication. Dr. Jallad then went back to Mr. Shoman at the Bank and explained that the rest of the syndicate was in place so long as the Bank was willing to lead. On this basis, he was able to persuade Mr. Shoman in mid August 1992 to lead a US$ 50 million syndicated loan for CCIC. But by this stage it had become apparent that the idea of limited recourse financing which had originally been proposed by Dr. Jallad would not be acceptable. The proposal was that the borrower would be CC (Oil & Gas), which was described as a new company established to own the Concession and all other related assets and similar future projects; that security would be provided by way of an escrow account for all proceeds from sale of oil; and, importantly, that the borrowing would be guaranteed by CCC. As Mr. Khoury explained, he and Mr. Sabbagh owned CCC and he regarded this requirement as effectively meaning that he and Mr. Sabbagh had personally to back the loan at a time when oil revenues had not commenced and the success of the Concession was not certain.[56]In the meantime, further revised budgets for development costs had been produced. In August 1992, the 1992 revised budget increased 1992 development costs to US$ 235.54 million. The 1993 revised budget included a slight reduction in development costs from US$ 341.07 million to US$ 336.65 million, due to an acceleration of the project whereby some of the expenditures initially proposed for 1993 were brought forward to 1992. On or about 21 August 1992, Mr. Glance prepared some estimated projections of cost recovery and production share for CCIC’s participation in the Concession. These were based on assumptions that included an oil price of US$ 16 per barrel, reserves of 300 million barrels and an initial production rate of 120,000 barrels per day. The assumptions stated that the exploration, development and operating costs had been modified from estimates provided by CanadianOxy. The recoverable development costs appeared in the cost recovery table as US$ 560.04 million. The projections indicated that over the life of the project CCIC would on those assumptions receive cost recovery of US$ 155.76 million and profit oil of US$ 113.424 million, totalling US$ 269.184 million. These projections were subsequently updated by Mr. Glance on 15 October 1992. In the calculations, the assumptions of an oil price of US$ 16 per barrel, and reserves of 300 million barrels at an initial production rate of 120,000 barrels per day, were retained. Updated estimates of costs were incorporated into these projections. The total cost recovery and profit oil for CCIC was now projected to be US$ 267.05 million over the life of the project based on those assumptions.[57]On Tuesday 18 August 1992, or possibly Wednesday 19 August 1992, there was a meeting between Mr. Masri and Mr. Khoury. It was agreed at this meeting that Mr. Masri would be entitled to a 1% share of the benefit of the Concession. Following the meeting, Mr. Khoury told Mr. Nakhleh what had been agreed and Mr. Nakhleh recorded this in a note for his file in the following terms:
“Masila Oil Concession On Wednesday August 19, 1992, the following was agreed between Said Khoury and Munib Al Masri concerning CCC’s 10% share of the concession. 1. Munib will receive the benefit of 1% of the concession from CCC and 9% will remain for CCC. 2. Munib will participate in 1% of the development costs and he will recover the amount from the sale of oil as per the agreement with the Government. Charge interest until we receive the loan from the bank then actual will be charged.” 3. CCC will pay 10% of all other expenses and are entitled to all recoveries receivable from exploration expenses.”
[58]The words in italics were added by Mr. Nakhleh in handwriting, probably some time after August 1992. Mr. Masri contended that that these words had not been added by Mr. Nakhleh until February 1993 and Mr. Nakhleh was vigorously cross-examined to this effect. Although Mr. Hapgood submitted that there were a number of reasons why Mr. Nakhleh’s evidence should be disbelieved on this point, having carefully re-read the transcripts on this issue, I conclude that the probability is that these words were indeed added around mid-November 1992, as a result of its having then been explained to Mr. Nakhleh by Mr. Khoury that he had reached an understanding with Mr. Masri in relation to the syndicated loan. This evidence is supported by the fax sent by Mr. Khoury to Mr. Masri on 18 November 1992 (which Mr. Nakhleh drafted) which stated:
“It seems we will never get the loan before end of December, at least. So please send your share until end of October as requested before by Mr. Jamal Nakhleh.”
[59]Mr. Nakhleh explained that his handwritten note simply recorded the fact that, if Mr. Masri did not pay what had been demanded, then CCC would have charged him interest. It was also suggested to Mr. Khoury that Mr. Nakhleh’s note recorded an instruction by him to the effect that Mr. Masri’s liabilities should thereafter be dealt with on a running account basis, i.e. that Mr. Masri would not be paying development costs or interest month by month, but rather that CCC would be maintaining an account for him to which costs and interest would be debited on a rolling basis with no obligation upon Mr. Masri. Likewise Mr. Masri suggested (by reference to a note in his notebook) that at the 18/19 August meeting it was in fact agreed that he would not have to pay any expenses, but rather would simply receive 10% of CCIC’s net profits. In my judgment such a suggestion is inconsistent both with the terms of Mr. Nakhleh’s note and the subsequent documents. There is no reason to doubt the accuracy of Mr. Nakhleh’s note as a record of what was agreed at this meeting. Moreover, Mr. Masri accepted in his oral evidence that it was agreed and understood at this meeting that he would have a 1% share of the Concession and be liable for 1% of the development costs.[60]The second and third points in Mr. Nakhleh’s record of the meeting, set out above, make clear that Mr. Masri would pay 1% of development costs (and recover the same), but that he would not have to pay exploration costs and, expressly in the third point, he would not be entitled to exploration cost recovery. The agreement that he should have no entitlement to exploration cost recovery is entirely inconsistent with the case Mr. Masri put forward from time to time during the trial that he was somehow entitled to some share of profit from the farm outs (at least so far as such profit was obtained via exploration cost recovery). There was no probability of Mr. Khoury changing his mind in this respect either, whether at the time of the 1992 Agreement or subsequently. Mr. Masri contended that he was aware, at the time of this August 1992 meeting, that the US$ 50 million syndicated loan was being sought and that he believed that he would benefit from it in his 10% proportion. However, he accepted in cross-examination that, if that was the case, he would have to provide whatever security was needed to support his share of the loan and that, if the loan did not come through or was insufficient, he would have to pay his share of development costs.[61]On 10 September 1992 the Bank made a formal offer, in principle, via its Offshore Banking Unit (“OBU”) in Bahrain, to participate in the US$ 50 million loan to CC (Oil & Gas) and act as an arranger for syndicating the loan. The terms and conditions on which the approval was given included the provision of joint and several full recourse guarantees by CC Holding and CCIC (as well as additional security by way of an escrow account for the proceeds of oil sales, assignment of insurance, pledge of CC (Oil & Gas) shares and a suitable assignment of oil sales revenue). The information requested by the Bank included information relating to the guarantors and the borrower, along with financial data for the past five years, together with future projections. The confirmed approval was subject (inter alia) to the condition that the offer could be withdrawn in the event of “any material adverse changes affecting the project, the borrower or the guarantors.” CC (Oil & Gas) (as borrower) and CC Holding and CCIC (as guarantors) set out their case for the obtaining of the US$ 50 million four-year syndicated loan facility in an Information Memorandum, prepared by Dr. Jallad, using information collected from a variety of sources. The Information Memorandum included a proposal for the provision of joint and several guarantees from CC Holding and CCIC during the period of the loan, together with a section on the current status and background of CCIC and CC Holding. Key financial information for CCC was also included in appendices. The banks were informed that the construction contract for the Concession had been awarded to CCIC, as the General Contactor, and that the final value of that contract was anticipated to be in the range of approximately US$ 200-230 million. The total development costs were expected to be at least US$ 560 million, although it was noted that, if variation orders or acceleration orders were made by the Operator, this amount would increase accordingly. Calculations of the project economics were based on average selling price of US$ 16 per barrel.[62]The proposal that CCIC and CC Holding fully guarantee the syndicated loan was reflected in clause 22 of the final syndicated loan agreement executed on 8 April 1993. The guarantees and the loan were also supported by substantial and far-reaching representations and covenants from CCIC and, in particular CC Holding, as well as CC (Oil & Gas). Furthermore, the loan agreement included obligations on each of CCIC, CC Holding and CC (Oil & Gas) to provide each of its annual financial statements and half-year financial statements to the banks and CC Holding also undertook to ensure that the consolidated financial statements of the CC Group maintained certain values of the key financial ratios.[63]On 24 October 1992, Mr. Nakhleh sent a letter to Mr. Masri at the Edgo address in Amman, Jordan enclosing a statement of cash calls paid by CCIC in respect of development costs, plus interest, and requested that he pay his 10% share in the sum of US$ 2,210,263.75 to CCIC’s bank account at the Bank in London. Mr. Masri denied that he ever received this letter, but I consider that it is highly probable that he did do so. The evidence that supports my conclusion that he did receive the document is as follows: i) Mr. Nakhleh’s personal assistant’s correspondence log records that the letter was sent. ii) The letter was addressed to Mr. Masri at EDGO, P.O. Box 926647 in Amman, Jordan; this was the address from which Mr. Davies, of EDGO, corresponded with Mr. Nakhleh on 22 November 1992; other letters sent to that Amman address were received which Mr. Masri confirmed that he did receive. iii) Mr. Masri received later correspondence referring to this letter but never questioned what the earlier document was. iv) Mr. Nakhleh’s fax to Mr. Masri dated 30 November 1992, of which Mr. Masri appears to have taken multiple copies, also referred back to his 24 October 1992 fax, albeit there was a typographical error which referred to it as “My memo dated 24.11.92”. Again, there was no demur from Mr. Masri as to his receipt of this letter. v) The assertion that Mr. Masri did not receive the 24 October 1992 cash call at the time was only made after it had become apparent (in interlocutory proceedings) that the Defendants were relying on this document to demonstrate that Mr. Masri knew, before 6 November 1992, that it was CCIC that was the CC Group entity requesting payment of cash calls from him (in the context of the identity of the proper contracting party, which was an issue at the summary judgment and jurisdiction stage). Indeed, in Paragraph 18 of the original Particulars of Claim Mr. Masri had specifically relied upon, and referred to, this written request dated 24 October 1992. vi) It is also likely that the payment request was the cause of Mr. Masri again pressing Mr. Khoury for a written agreement.[64]On 25 October 1992, Mr. Khoury (acting on behalf of CC (Oil & Gas)) signed the Assignment Agreement and executed a Deed of Assignment to assign CCIC's remaining 10% interest in the Concession to CC (Oil & Gas), a new company that had been established to own the Concession and to borrow the syndicated loan.[65]The assignment did not take effect until notice had been given to the Yemen Governmentpursuant to clause 24.1 of the PSA on 8 February 1993. Notice of CCIC’s intention to assign its interest to CC (Oil & Gas) was also sent to CanadianOxy, Occidental and Pecten on 8 February 1993 in accordance with Article 12.3 of the JOA and their consent to the assignment was requested. CCIC remained the contracting party under both the PSA and JOA until at least 8 February 1993 and was the company on which cash calls continued to be made.[66]By the time of the 1992 Agreement, CCIC had already paid cash calls in respect of development costs totalling US$ 21,160,649, and, as I have found, Mr. Masri had already been requested to pay his share of these cash calls by the letter dated 24 October 1992, although no payment had been forthcoming. At this time, the total budgeted development costs were US$ 571.89 million, of which budgeted expenditure for 1992 was US$ 235.54 million and budgeted expenditure for 1993 was US$ 336.35 million. I hold that it is likely that Mr. Masri would have been keen in all the circumstances to have ensured that his entitlements and obligations in respect of the Concession were recorded in a written agreement and that it was he, rather than Mr. Khoury, who was at that time pressing Mr. Sabbagh for a formal written agreement to secure his entitlement in respect of the Concession, and I accept Mr. Khoury’s evidence on this point, which was confirmed by Mr. Brawley’s evidence.[67]Mr. Khoury and Mr. Masri were both in London at the beginning of November 1992, so they agreed to meet at the office of CCUK, being a convenient location in London. They discussed the matter at the meeting in CCUK’s offices. They agreed that a document should be signed incorporating their understanding reached at the meeting and that they would meet again that evening at Mr. Khoury’s home in London, where a document would be signed. After the meeting, Mr. Khoury asked Mr. Brawley to draw up an agreement, as Mr. Brawley had a better knowledge of how the Concession arrangements worked. Mr. Brawley did so and provided a draft to Mr. Khoury, who had the agreement typed up for signature. It was typed on CCUK headed paper. Mr. Khoury and Mr. Masri met again in the evening of the same day at Mr. Khoury’s home in London. An amendment was made to the agreement in manuscript, deleting the obligation on Mr. Masri to pay a 10% share of CCC’s internal costs and administration, which, by this time, were already substantial. The 1992 Agreement was then signed by both Mr. Khoury and Mr. Masri. It was common ground that the Memorandum once signed constituted and/or evidenced an agreement binding on Mr. Masri on the one side and on at least one of the Defendants – ‘CCC’ in the document – on the other; that Mr. Masri would be liable to CCC for 10% of the development and operating costs for which CCC was liable; that Mr. Masri would be entitled to 10% of the actual net receipts by CCC, after payment of marketing and other costs, in respect of CCC’s share of ‘Contractor oil entitlements’ and development cost recovery; and that the nature of Mr. Masri’s share was that he was to be a “hidden partner”, in that he was to step into CCC’s shoes in respect of his share without becoming an actual party to the various agreements relating to the Concession.[68]I turn now to the determination of the principal issues as formulated above.

Issue i): Which of the Defendants was party to the 1992 Agreement

[69]As I have already said, Mr. Masri contends that he contracted with CCUK, through Mr. Khoury. In the alternative he contends that he contracted with the beneficial owner of the Concession at the date of the November 1992 Agreement, namely CC (Oil & Gas). In the further alternative he contends that the contract was with Mr. Khoury himself and/or as agent for the top company in the group, CC Holding, both of whom were in a position to procure that any relevant group company fulfil the obligations owed to Mr. Masri. Only if all those submissions are wrong, does Mr. Masri assert that CCIC was the contracting party, as the Defendants claim.[70]In support of these contentions, and in particular the primary contention that Mr. Masri contracted with CCUK, Mr. Hapgood submitted as follows: i) On its face, the November 1992 Agreement purports to be an agreement with CCUK, whose notepaper is used, featuring the ‘CCC’ logo in the top left hand corner. ii) The November 1992 Agreement was drafted by a director of CCUK, Mr. Brawley. iii) Only CCUK could have had the Agreement typed onto CCUK notepaper at CCUK’s offices. There is no suggestion on the Defendants’ side that Mr. Khoury acted with some impropriety in procuring that that took place. iv) Accordingly, the Defendants’ case that Mr. Khoury did not have authority to contract for CCUK is irrelevant. CCUK permitted Mr. Khoury to appear to do so. In other words, CCUK held out Mr. Khoury as having such authority. v) The Defendants’ acceptance during the course of the trial of Mr. Masri’s role as a hidden partner contradicted their principal contention that the Agreement could only have been made with the party who owned the interest in the Concession. However, submitted Mr. Hapgood, the 1992 Agreement did not need to be with the party which held the interest, because the interest was not being formally assigned or transferred to Mr. Masri; the arrangement was a purely economic one; Mr. Masri was being put in the economic position of holding 10% of CCC’s 10%; thus any CCC entity was capable of making and carrying out such an agreement. vi) The Defendants’ contention that the agreement had to be with the CCC entity which held the interest is inconsistent with Mr. Khoury’s failure to mention the fact that he had just signed an Assignment of the interest from one company (CCIC) to another (CC (Oil & Gas)). If it had been necessary for the agreement to be with the entity holding the interest, then the effect of assignment would not have been left to be covered by an implied term, but would have been mentioned expressly, given the fact that such an assignment had only just been made. vii) Upon the basis of the evidence received at trial as to the operation of CCC as a group, the Defendants could not realistically contend that the phrase ‘CCC’ denoted CCIC, rather than any other company in the group. The phrase was used to refer to the group as a whole, or to any company in the group, without any bias in usage in favour of any one company or another, as was accepted by Mr. Brawley in his oral evidence, when he withdrew any suggestion in his statements that “CCC” was a deliberate choice by him to indicate CCIC; and as was also accepted Mr. Lammam and Dr. Jallad. viii) The evidence at trial established that Mr. Khoury had actual or at least apparent authority to contract on behalf of CCUK. Contrary to the evidence put in for CCUK when it had earlier sought summary judgment on this point, Mr. Khoury did indeed have the largest office in CCUK’s offices (equal with that of Mr. Sabbagh). Mr. Brawley agreed that, as an employee and director of CCUK, he had no difficulty taking instructions from Mr. Khoury; that he signed agreements for CCIC without any formal authority to do so; and that he would likewise not have had any complaint if Mr. Khoury had signed an agreement for CCUK. ix) The evidence at trial established that the CCUK employees, Messrs Brawley and Glance, were very active indeed in managing the Concession on behalf of CCC. Much of the correspondence was done on CCUK notepaper. An outsider could easily be forgiven if he had wrongly come to believe that CCUK was the CCC entity which held the Concession. x) Given that it had become common ground that the assignment from CCIC to CC (Oil & Gas) had taken effect in equity, as between CCIC and CC (Oil & Gas) before the November 1992 Agreement was made, if the Agreement did have to be with the legal person who owned CCC’s interest, that person was CC (Oil & Gas). xi) Although, in their opening submissions, the Defendants said it was important to consider the role of CCUK within the CCC group, since Mr. Masri’s evidence was that he did not understand anything about the structure of the CCC group, such matters are not available as aids to construction of the November 1992 Agreement.[71]Mr. Aldous contended that this issue is primarily to be resolved by reference to the proper construction of the 1992 Agreement. He submitted: i) From the outset the CCC share of the Concession had been owned by CCIC, which was the party to the PSA (and defined in the PSA as CCC); that, although as between CCIC and CC (Oil & Gas), the October 1992 assignment might well have been effective as an equitable assignment, until such time as the requisite notice was given it had no effect as regards the other parties to the PSA. At the time of the 1992 Agreement, the company which remained the party to the PSA, and hence held the interest in the Concession remained CCIC. ii) He further submitted that the express references in the 1992 Agreement to “CCC’s interest in the Masila Block” and the “basic principle” being stated to be for Mr. Masri “to receive 10% of CCC’s 10% interest or a 1% overall interest in the Block” indicated that the clear intent was to confer upon Mr. Masri all the benefits of a share of the interest held in the Concession (on condition that Mr. Masri complied with the remaining terms of the agreement). Further, the payment obligations to Mr. Masri expressed in the latter part of the agreement are all only said to fall due “when and if” the relevant sums are received by “CCC” and are to be “based on actual net receipts by CCC”. The party that was most obviously in a position to discharge this type of obligation was the party that was actually due to receive the sums in question i.e. the entity that held the interest in the Concession. Similarly, the payment obligations imposed upon Mr. Masri were expressed by reference to the sums “which are paid by CCC” or “assessed to CCC” or which are required of “CCC” under the PSA. Accordingly, he submitted that this type of accounting mechanism clearly points to the counterparty to the agreement being the party that was actually due to make such payments at the time of the 1992 Agreement. Moreover, the terms “Masila Block Development costs”, “Masila Operating costs”, “Bonus and Training costs”, “Contractor oil entitlements” and “Development Cost Recovery”, which define the sums payable by either party under the 1992 Agreement, are all terms that are to be found in or are derived from the PSA, to which express reference is made in the 1992 Agreement. The obvious inference is that the counterparty to the 1992 Agreement was the party to the PSA, namely CCIC, which was defined in the PSA as “CCC”. iii) He relied upon the fact that, although the 1992 Agreement was set out on the letterheaded paper of CCUK, the terms of the agreement do not contain any reference to CCUK, which has never owned the interest in the Concession. The fact that it was recorded on the CCUK letterhead, he argued, reflected no more than that the CCUK letterhead was to hand in the office of CCUK, which is where Mr. Khoury and Mr. Masri happened to be when they agreed to enter into a written agreement. He pointed to the limited and separate role of CCUK within CCC, and the fact that its principal activity was the provision of services to companies within CCC, the most common services provided by CCUK being administrative services and the provision of staff to advise or acquire professional advice as required for specific projects. iv) He further referred to the fact that, although CCUK also operated a small number of construction contracts, it did not conduct any oil and gas operations such as those in the Concession. Whilst two CCUK employees, namely Mr. Brawley and Mr. Glance, were obviously actively involved in managing CCIC’s (and subsequently CC (Oil & Gas)’s interest in the Concession), as Mr. Brawley explained, in doing so they were acting on behalf of CCIC (and subsequently CC (Oil & Gas) and not CCUK. v) He relied upon the fact that Mr. Khoury’s evidence was that he intended to contract on behalf of CCIC, rather than on behalf of any other member of CCC, and that, at the time he signed the 1992 Agreement, Mr. Khoury was not even an authorised signatory of CCUK. He submitted that, although the subjective intent of one party uncommunicated to the other is not usually admissible to assist in the identification of the parties to a contract, where the issue is on whose behalf did an agent act in entering into a contract, the intention of the agent is plainly relevant and admissible: Bowstead & Reynolds on Agency, Seventeenth Edition, at paragraph 8-074 and National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582 at p 597, per Colman J. vi) In contrast, he submitted, this principle did not extend to evidence adduced by the other contracting party as to its uncommunicated subjective belief or understanding as to the identity of the party on whose behalf an agent was acting: Shogun Finance Ltd v Hudson [2003] 3 WLR 1371 per Lord Phillips at paragraphs 123-125 and Lord Walker at paragraph 183 and Chapman v Smith [1907] 2 Ch 97, per Parker J at p 102. Mr. Masri’s evidence that that he did not know which member of the CC Group held the interest in the Concession at the time of the 1992 Agreement and that his intention was to contract with CCUK, was therefore irrelevant, even if correct (which the Defendants disputed). In any event, Mr. Masri did not suggest that he understood that CCUK was the party which held the interest in the Concession or was party to the PSA. In fact, by the time of the 1992 Agreement, Mr. Masri had not only received the 24 October 1992 cash call from CCIC, but also had received at least one other document showing that CCIC held the interest in the Concession, namely the farm out proposal dated 15 March 1991 which Mr. Masri acknowledged was an important document which he read at the time. vii) He further relied upon the fact that it was notable that, prior to serving his proceedings in June 2004, Mr. Masri had never suggested or implied that CCUK was involved in the Concession, nor had he ever demanded any sum of money from CCUK in relation to the Concession.[72]In my judgment the suggestion that Mr. Khoury was contracting on behalf of CCUK, an English company with a limited role within CCC, merely because its writing paper was used for the purpose of setting out the terms of the 1992 Agreement, has an air of total unreality about it. Although I consider, on the basis of Mr. Brawley’s evidence that Mr. Khoury would have had actual authority to contract on CCUK’s behalf (and not merely ostensible authority), it was not the legal or beneficial owner of any interest in the Concession and an identification of it as the contracting party would have been wholly inconsistent with the express terms of the 1992 Agreement, as Mr. Aldous submitted, and indeed with the factual matrix which I have set out above. Not only was Mr. Masri aware that the entity that held the legal interest in the Concession was CCIC and that it was the contracting party under the PSA, but he had never suggested at any time, prior to serving his proceedings in June 2004, that CCUK, the English company, was in any way involved or liable to him. Nor is there any basis for suggesting that Mr. Khoury, in his personal, individual, capacity was a party to the 1992 Agreement. He clearly contracted as an officer, and on behalf of, the relevant CCC entities and there is no reason to suppose that he was assuming any personal liability thereunder.[73]In my judgment, the correct analysis, given the facts which I have set out above, was that Mr. Khoury, as the controlling shareholder in the CCC group, with Mr. Sabbagh’s blessing, had the necessary actual authority to enter into the 1992 Agreement on behalf of whichever one or more company, or companies, within the CCC group was the appropriate corporate entity to agree to grant Mr. Masri an interest in the Concession. It was simply not a matter that concerned Mr. Masri or Mr. Khoury which precise corporate entity was the appropriate corporate entity; as far as they were concerned, Mr. Khoury was agreeing on behalf of “CCC” and that was enough. If the issue about the about the identity of the contracting party or the Assignment had been raised at the meeting, and they had had explained to them that, as became common ground during the trial, the legal title to the interest in the Concession was in CCIC, but that, because of the Assignment, and the fact that no notice of it had been given, the beneficial interest in the Concession was now with CC (Oil & Gas), it is inconceivable that they would have said anything other than “well, in that case, of course, the contract is entered into on behalf of both companies, both the legal and the equitable owners.” In my judgment that is preferable to the analysis, as pleaded at paragraph 29 of the Amended Defence, that some term is to be implied that to the effect that CCIC was obliged, in the event that it assigned its interest under the PSA, to procure that the assignee assumed CCIC’s obligations under the 1992 Agreement so that the assignee would undertake to pay a share of its own revenue from the Concession to Mr. Masri. The reality is that, at the time of the 1992 Agreement, the interest in the Concession had already been assigned in equity to CC (Oil & Gas). The effect of my conclusion on this issue on the limitation defences will, as I have said, fall to be considered on another occasion. Issue ii) whether Mr. Masri was in breach of the 1992 Agreement by not making payments other than US$ 1.5 million which he paid in December 1992 and by not providing a guarantee Issue iii) whether any of Mr. Masri’s payment obligations under the 1992 Agreement were cancelled and/or waived and/or postponed Issue iv) if not, whether any such breach amounted to a repudiatory breach of the 1992 Agreement, entitling the relevant Defendant to terminate it; Issue v) if Mr. Masri was in repudiatory breach of the 1992 Agreement as alleged by the Defendants, whether such repudiation was accepted by the relevant Defendants;[74]It is appropriate to deal with these four issues together.

The understanding reached in November 1992

[75]It was – or became - common ground that that at some point by mid November 1992 at the latest, Mr. Khoury and Mr. Masri reached an understanding regarding the syndicated loan to the effect that Mr. Masri would be able to benefit from it in order to cover his share of the development costs, in the sense of not having to provide actual funds in respect of his proportionate share of the cash calls made on CCIC in respect of development costs. However, there was a significant dispute as to the precise terms of that understanding. The dispute related to two key issues. First the extent to which Mr. Masri would be able to benefit from the syndicated loan in order to cover his share of the development costs, and second, that if he was to be able to benefit from the syndicated loan, whether he was required, as the Defendants contended, to provide a counter guarantee in CCIC’s favour in an amount of US$ 5 million.[76]Mr. Khoury’s evidence in relation to this understanding was in some respects unsatisfactory, as from time to time, during the course of his statements and evidence, he appeared to reject the notion that he had reached any understanding with Mr. Masri at all. Nor did I find Mr. Masri’s evidence very helpful on the point, since his evidence was at times self-serving and tendentious. My conclusions may be summarised as follows.[77]I accept the Defendants’ case that, to the extent that CCIC’s development costs were covered by the syndicated loan, and to that extent only, the understanding reached was that Mr. Masri would be able to benefit from it in order to cover his share of the development costs. But I hold that the understanding was that, until such time as the loan was put in place, Mr. Masri was required to fund his share of the cash calls by actual payment. Likewise, to the extent that the cash calls exceeded the amount of the syndicated loan, Mr. Masri was again required to contribute his share in the form of actual payment. In his pleaded case, Mr. Masri alleged that:
“it was agreed orally between Mr. Khoury and the Claimant, at the time of signing the 1992 Agreement, that the Claimant’s obligations to pay development and operating costs would be satisfied initially from the proceeds of the Syndicated Loan, and subsequently from production revenue.” and “It had always been agreed orally that the Claimant’s funding obligations under the written terms of the 1992 Agreement would be satisfied by the Syndicated Loan.”
In other words, Mr. Masri’s contention was that he would not have to pay any cash whatsoever for development costs. Mr. Masri expressly asserted this in his first statement served in September 2004 with one limited exception, namely that he might be asked to pay cash calls, pursuant to the 1992 Agreement, until the syndicated loan was in place. However, in cross-examination Mr. Masri had to accept that there was “no doubt” that if the syndicated loan was insufficient, he was clearly going to have to pay his share of the development costs, which he also accepted could be substantial. Mr. Masri repeatedly referred to the arrangement with Mr. Khoury in terms such as the following:
“It was a mirror. Whatever their obligation was, I will meet it. If they do not pay it, I do not pay it. If they paid it, I will pay it. I have to pay it.”
Moreover it was clear from his re-examination, in answer to questions from the Court, that Mr. Masri was talking about the actual payment of cash, and not just the creation of a running account to which his obligations would be debited on a rolling basis. Mr. Khoury’s evidence, which I accept, was that he had repeatedly told Mr. Masri to pay the cash calls and that he had always been “after him to pay the cash”. The requirement for Mr. Masri to pay his share of any cash calls that exceeded the amount of the syndicated loan was also confirmed by Mr. Khoury in the course of his oral evidence.[78]The real issue, in my judgment, was whether that requirement to pay cash calls was waived, in or about May 1993, when Mr. Nakhleh made a file note dated 25 May 1993 recording certain instructions given to him by Mr. Khoury:
“As instructed by the President, CCC will waive all bank guarantees required from Mr. Munib Al Masry for the operations in North Yemen and the Masila Oil Concession.”
Profits and losses will be settled on a personal basis between the President and Mr. Munib Al Masry based on returns submitted to the President by the Group Accounts. The President might instruct the payment back of US$ 1,500,000 – paid by Mr. Munib Al Masry. Mr. Fawzi Kawash to note. Mr. Miran Shamlian to note.” [There was a manuscript “OK” arrowed to the US$ 1.5m.] I deal with that issue further below. Mr. Miran Shamlian to note.”

[There was a manuscript “OK” arrowed to the US$ 1.5m.]

[79]The second issue in dispute in relation to the November 1992 understanding related to the provision of a guarantee. The Defendants contended that the parties agreed that, before Mr. Masri could take any benefit from the syndicated loan, he had to provide a guarantee in respect of 10% of the total amount of the loan, i.e. in respect of the amount of US$ 5 million, and that accordingly he was in breach of the 1992 Agreement at all times, even before the stage when CCC’s development costs exceeded the amount of the syndicated loan. The Defendants accept that, at the time that the understanding was reached in November 1992, it may have been the case that Mr. Khoury and Mr. Masri did not discuss the form that the guarantee was required to take. However, the Defendants submit that it did subsequently become clear to Mr. Masri, as a result of conversations with Mr. Khoury, and requests from Mr. Nakhleh, that, if he was to be able to benefit from the syndicated loan, he was required to provide a counter guarantee from a bank in CCIC’s favour in the amount of US$ 5 million.[80]In my judgment, there was no contractual agreement or understanding reached in November 1992 for the provision of any such guarantee or to the effect that Mr. Masri would only be released from his obligation to pay his share of the development costs (up to US$ 5 million, once the syndicated loan was in place), if he provided a guarantee. I find that there may well have been some discussion in late 1992 and early 1993 about the provision of a guarantee by Mr. Masri in favour of the Bank, but by late January 1993, that suggestion was not proceeded with. In his evidence, which I accept on this point, Mr. Masri stated that that his position was that he was willing in principle to give a guarantee in favour of the Bank, but only if he was given a more formal share in the Concession, which he could then use as security. Otherwise, he would have to put up funds in a blocked deposit, which he was not willing to do. He stated that, in the event, CCC’s preference was for Mr. Masri to remain a silent partner without a formal share in the Concession, and accordingly the request for a guarantee was not persisted in. That evidence was to some extent confirmed by a statement in a letter from Mr. Shoman dated 16 October 2003, although I do not place much reliance on that as it was so long after the event and Mr. Shoman, by then an elderly man, may well have been to some extent prevailed upon by Mr. Masri to assist his cause.[81]It was common ground that Mr. Nakhleh did not request Mr. Masri to procure the issue of a bank guarantee in favour of CCC (as opposed to a guarantee in favour of the Bank) until 8 May 1993. Mr. Nakhleh’s evidence was to the effect that the request for a bank guarantee in favour of CCC was probably his idea rather than Mr. Khoury’s. This accorded with the commercial practice between the parties in relation to other contracts, because, as Mr. Nakhleh also accepted, the pattern in relation to the North Yemen construction contracts was that CCC only requested a counter-guarantee after it had procured the issue of its own bank guarantee in favour of the employer. In his evidence, which again I accept on this point, Mr. Masri stated that he and Mr. Khoury spoke about Mr. Nakhleh’s request for a bank guarantee in favour of CCC and that Mr. Masri’s position was the same as it was in relation to a guarantee in favour of the Bank, namely that he was willing in principle to give one, but only if he was given a more formal share in the Concession, which he could then use as security. Again CCC’s preference was that Mr. Masri should remain as a hidden partner, and accordingly Mr. Nakhleh’s request for a bank guarantee was not proceeded with Mr. Khoury’s evidence about the guarantees was confused and contradictory and he found it difficult to remember what had actually happened in relation to this issue and was confused between a personal guarantee in favour of the Bank and a bank guarantee in favour of CCC. There was much disputed oral evidence about the guarantee issue, and in particular debate about whether a meeting had taken place between Mr. Sabbagh, Mr. Khoury and Mr. Shoman in Amman in late January 1993, at which Mr. Masri alleged that CCC’s requirement was waived. Even if this meeting did not take place, (and there is no documentary evidence to support it, which is perhaps surprising since Mr. Masri was usually assiduous in making a note of any important meeting), the contemporary documentation does not in my judgment support the Defendants’ case that it was a term of the November 1992 understanding, that, in order to obtain the benefit of the syndicated loan, he had to procure the issue of a bank guarantee in favour of CCC. At most the evidence showed that CCC wanted a guarantee, and certainly that Mr. Khoury and Mr. Nakhleh were at various stages pressing for one, against Mr. Masri’s persistent failure to meet his obligation in respect of development costs. But it does not establish to the requisite standard of proof that Mr. Masri was in breach of any obligation in failing to procure one, or that, once the syndicated loan was in place, he was not entitled to a notional credit for a proportionate part of that loan, as against his liability to pay cash calls, in the absence of the provision by him of such a guarantee. There was evidence, however, that in February 1993 Mr. Masri and Mr. Khoury reached an agreement or arrangement that he need not pay the then outstanding amounts due from him in respect of cash calls, and that the sum of US$ 1.5 million paid by him would be returned to him, provided that he provided a bank guarantee, but that is a somewhat different issue which I deal with below. Was there any waiver of, or estoppel in relation to, Mr. Masri’s payment obligations, was he in repudiatory breach of contract, and was there any decision to accept such breach?[82]The more important issue is whether, as Mr. Masri alleged, and the Defendants denied, the Defendants waived their right to enforce the strict written terms of the 1992 Agreement and/or are estopped from doing so. The gist of the allegation is that the Defendants, principally through Mr. Khoury, represented to Mr. Masri that he did not need to make further payments to them over and above a single payment that he actually made of US$ 1.5 million, that was returned to him, and that accordingly Mr. Masri was not in breach of the 1992 Agreement when the amount of cash calls in respect of CCC’s development costs exceeded the amount of the syndicated loan of US$ 450 million.[83]In order to resolve these issues it is necessary toset out some of the chronology in some detail.[84]As I have concluded above, the understanding reached in November 1992 was that Mr. Masri would be required to pay cash calls which were not covered by the syndicated loan. By a fax dated 18 November 1992 (drafted by Mr. Nakhleh), Mr. Khoury informed Mr. Masri that it did not seem the syndicated loan would be obtained before the end of December, and requested Mr. Masri to send his share of the cash calls up to the end of October as had been previously requested by Mr. Nakhleh. The 18 November fax also warned Mr. Masri to be prepared to pay his share for the November cash call, which was around US$ 540,000. Mr. Masri failed to make any payment in response to this request. In the course of Mr. Khoury’s cross-examination it was suggested that immediately prior to the sending of this fax, an understanding had been reached between Mr. Khoury and Mr. Masri that he need not pay the October cash call. The suggested understanding was denied by Mr. Khoury, and there is no documentary evidence to support it. Moreover, the suggestion was contrary both to Mr. Masri’s claim that he never received the 24 October letter, and to his understanding that he would be required to pay his share of the cash calls prior to the receipt of the syndicated loan. It is also inconsistent with the subsequent cash calls. Mr. Khoury sent a further fax to Mr. Masri dated 21 November 1992 referring to the syndicated loan, advising that one of the banks had indicated uncertainty in relation to its participation in the loan, and asking Mr. Masri to provide his share of the US$ 5 million shortfall (i.e. US$ 500,000). In fact, it was BNP that had withdrawn from the syndication. Mr. Nakhleh sent a further written request to Mr. Masri for payment on 30 November 1992. This listed the amount due previously notified on 24 October 1992 (US$ 2,210,263.75) (incorrectly referred to as a request dated 24 November 1992 in Mr. Nakhleh’s fax) and added Mr. Masri’s share of the December cash call (US$ 453,926.50), giving a total requested payment of US$ 2,664,190.25. Mr. Masri accepted in his evidence that it was quite obvious to him when he received this cash call that the amount that he was being requested to pay would increase with further monthly cash calls as they came through. Once again no payment was made by Mr. Masri in response to this third written request for payment, which was simply ignored. Nor is there any evidence to indicate that at this time Mr. Masri had any discussion with either Mr. Khoury or Mr. Nakhleh to excuse his non payment. To the contrary, the next fax sent by Mr. Nakhleh on 11 December 1992 records in terms that “surprisingly” he had “not received any answer from you on the transfer requested”. The 11 December 1992 fax contained a yet further written request for payment. This was the fourth request for payment by Mr. Masri of sums due from him under the terms of the 1992 Agreement.[85]On the same day as he received Mr. Nakhleh’s fax, and clearly in response to it, Mr. Masri made a telephone call to Mr. Nakhleh. This resulted in Mr. Masri sending a sum of US$ 1.5 million to CCC, which arrived for value on 17 December 1992.[86]During the course of this conversation, Mr. Nakhleh made the following note:
“(1) I am pledging my share for the syndication. (2) I am trying my best The maximum I can transfer 1.5-2.00 Hopefully before the 20th (3) As soon as we sign the agreement and withdraw funds he wants the money back ___________________________________________________ (A) I have not received any one payment on a/c of profits. …”
The maximum I can transfer 1.5-2.00 Hopefully before the 20th[87]The top section of the note referred to the Concession, and the section under the line referred to the North Yemen projects. I find that Mr. Nakhleh’s note was a verbatim record of what Mr. Masri was saying on that occasion. Although Mr. Masri initially tried to suggest that before speaking to Mr. Nakhleh he had already agreed with Mr. Khoury that he only need send US$ 1.5 m at that time, that suggestion was inconsistent with the terms of this note and in the course of his oral evidence Mr. Masri accepted that he probably spoke to Mr. Nakhleh before then speaking to Mr. Khoury. Mr. Khoury does not recall any such conversation. Moreover, the suggestion that Mr. Khoury agreed that Mr. Masri need only pay US$ 1.5 million is wholly inconsistent with his evidence that he repeatedly asked Mr. Masri to pay the cash calls. The second paragraph of this note plainly demonstrates that – for whatever reason – Mr. Masri was on this occasion informing Mr. Nakhleh that he was not then in a position to transfer the full amount of the cash call, but rather was only in a position to transfer between US$ 1.5-2 million. Although in the course of his cross-examination, to avoid this conclusion Mr. Masri did try and suggest that the line “I am trying my best” related to the syndicated loan, that suggestion was rejected by Mr. Nakhleh, whose evidence on this point I prefer. Moreover, the suggestion is not only inconsistent with the natural reading of this note but also there was nothing in the progress of the loan at this stage which required Mr. Masri to try his best over it. The third paragraph of this note records a request by Mr. Masri for repayment of any funds transferred as soon as the loan was drawn down. The evidence of Mr. Khoury (which was not challenged) is that Mr. Masri repeatedly made such requests after he had paid the US$ 1.5 million.[88]Mr. Hapgood submitted that by December 1992 things were all very positive for CCC and that at least by the start of 1993 it was perfectly obvious to Mr. Khoury that CCC would get back all of its development costs and make a good profit out of the Concession. Accordingly, he argued, it was likely that Mr. Khoury would have been more than happy for Mr. Masri not to make cash payments, but to have his indebtedness accrued on a running account. In my judgment the financial evidence demonstrates that CCC would not necessarily have been so optimistic about the prospects of the Concession that it would have been perfectly content to have relieved Mr. Masri from his financial obligations. First, as regards the Concession, by early December 1992, CCIC had also paid the December 1992 cash call, such that the total amount already paid by CCIC to CanadianOxy amounted to US$ 25,699,914. In addition, on 10 December 1992, a revised budget had been produced for the Concession for 1992 and 1993. This increased the total budget in respect of development costs from US$ 571.89 million to US$ 684.74 million, of which budgeted expenditure for 1992 was US$ 270.69 million and budgeted expenditure for 1993 was US$ 414.05 million. It was therefore clear even by this time that CCIC’s share of the total development costs would far exceed the amount of the syndicated loan, whenever that was to be received. These very considerable increases in the development cost budget led Pecten immediately to express its concern over the level of costs and the economic viability of the project in a letter dated 3 December 1992, which was copied to Mr. Brawley. Mr. Brawley shared these concerns as did Mr. Khoury. Moreover, although the increases to the development budget for 1993 did in large part result from increases in the construction contract, the budget for the CCIC construction contract dated 14 December 1992, demonstrates that at this time the total profit that CCC anticipated earning from that contract only amounted to US$ 10,694,000. That amount would not have been sufficient to cover CCIC’s/CC (Oil & Gas)’s obligations in respect of the development cost cash calls, and would not in any event be realised until the construction contract was completed. Moreover, although in light of various subsequent changes to the scope of the project works, the value of the contract did subsequently increase from US$ 154 million to a total of US$ 338 million, the total profit to CCIC under this contract was only US$ 14 million.[89]Mr. Masri alleges that he had a further conversation with Mr. Khoury about the cash calls on 16 December 1992, of which he says he made a contemporaneous note on a copy of Mr. Nakhleh’s fax dated 30 November 1992. Mr. Masri also provided two other copies of this fax containing different handwritten annotations. The originals of the note are missing. The originals of all of these documents are amongst many originals that were said to have been lost by Mr. Masri. Mr. Masri accepted in evidence that he thought the last two paragraphs of this note had been added later than 16 December 1992, although he was unable to identify precisely when. He had no clear recollection of his conversation with Mr. Khoury. The first numbered paragraph purports to record that during this conversation Mr. Masri told Mr. Khoury that “we are ready to pay” and that Mr. Khoury said that “since we will sign soon with the syndication no need now”. Mr. Masri suggests that the first part of this note is recording an offer to pay the remainder of the sum that had been by then requested by Mr. Nakhleh. There are many uncertainties surrounding the various versions of the note, which it is not necessary for me to rehearse. I conclude, however, that the likelihood is that the annotations were added by Mr. Masri sometime after another unannotated version of the note (together with other documents) was handed to Mr. Munir Khoury in 2001, when Mr. Masri met him in an attempt to obtain his assistance in seeking to resolve the dispute. Given that the handwritten notes on the annotated version of the fax are said to support Mr. Masri’s case, the likelihood is that, if they had existed at that time, Mr. Masri would have provided a copy of that document to Mr. Munir Khoury rather than simply providing him with the unannotated version (which does not support Mr. Masri’s case, but rather supports the proposition that that CCIC had made very large cash calls on Mr. Masri which he had failed to pay). The suggestion that he had agreed that Mr. Masri should not pay this cash call was strongly disputed by Mr. Khoury. In particular, as Mr. Masri accepted, as at 16 December 1992, the syndicated loan was nowhere near finalisation. Further, the assertion that Mr. Khoury said that they were soon to sign with the syndication, is in fact inconsistent with the third paragraph of the note, in which Mr. Masri has noted that Mr. Khoury “asked me to talk to the Bank to speed up the granting of the loan”. If Mr. Khoury really had told Mr. Masri as at 16 December 1992 that CCC was about to sign the syndicated loan, there would have been no need for him to have made this request. Most importantly, the suggestion that Mr. Khoury agreed on or about 16 December 1992 that Mr. Masri need not make any further payments towards his share of the cash calls is inconsistent with both the letter dated 23 December 1992 and the fax dated 15 February 1993 from Mr. Nakhleh to Mr. Masri in which he was requested to make further payments. Accordingly, I conclude that there was no agreement to the effect alleged by Mr. Masri.[90]As foreshadowed in Mr. Nakhleh’s note of the conversation on 11 December, CCIC only received a single sum of US$ 1.5 million towards Mr. Masri’s share of his outstanding cash calls. As I have stated, this was paid on 17 December 1992 from an EDGO account.[91]Mr. Nakhleh wrote to Mr. Masri on 23 December 1992 thanking Mr. Masri for the US$ 1.5m and enclosing an updated statement of account showing a balance of US$ 1,903,703.60 due as at 1 January 1993 (taking into account the January cash call). He also said that Mr. Sabbagh had asked him to point out that: Mr. Sabbagh could not understand why Mr. Masri had mentioned CCC’s contracting activities in Southern Yemen; he was surprised that Mr. Masri had exercised his right to look into the books of the contracting activities in North Yemen; and that, if Mr. Masri was not happy with the way the partnership was being managed in North Yemen, then Mr. Sabbagh was ready to terminate it at any time. However Mr. Masri did not pay the sum demanded. In my judgment that was a breach of the 1992 Agreement.[92]A further fax requesting payment from Mr. Masri in relation to the Concession was sent by Mr. Nakhleh on 15 February 1993. In making these cash calls, Mr. Nakhleh acted throughout on the direct instructions of Mr. Khoury. The total amount that Mr. Nakhleh stated was due from Mr. Masri (taking into account the single payment of US$ 1.5 million that had been made in December 1992) as at 15 February 1993 was US$ 2,961,475, which included the amount due from Mr. Masri in respect of the January cash call. Attached to the fax, was a schedule setting out details of the total cash calls that had been paid by CCIC to that date, from which it was apparent that the total cash calls paid already amounted to US$ 44,053,047. The schedule also showed that the cash calls for December 1992 and January 1993 alone respectively amounted to US$ 7,915,736 and US$ 10,437,357. Mr. Nakhleh stated in the fax:
“As the syndication agreement is not expected to be finalized before the end of March 1993, kindly arrange to transfer the amount due from you to [CCIC’s account at the Bank, in London]”
. Mr. Masri did not do so. In my judgment that was a breach of the 1992 Agreement.[93]After this, CCC never sent another cash call to Mr. Masri. Mr. Masri says this was the result of one or more conversations between Mr. Masri and Mr. Khoury in February 1993, evidenced by a note that he contends that he made contemporaneously:
“Telephone conversation. Feb 24th 93. Our meeting in London with Abu Tawfic [Mr. Khoury] The week later - Agreed that no need for us to sign or pay our 10%. … US$ 2,961,475.74. They CCC will pay and then we will settle – since we talked about the farmout money – CCC received – did not pay our share (25% - 15%) to Pecten. CCC (Abu Tawfic) said they will pay even the 1.5 million back to us since they are receiving some money back. …”

The week later -

[94]Mr. Masri contends that this reflected a discussion between him and Mr. Khoury in which it was agreed: i) that, going forward, there would be no need for Mr. Masri to pay (as distinct from bear) his share of development costs or to meet cash calls made on him; rather, CCC would pay those costs, and then, at a later date, Mr. Masri and CCC would ‘settle’, in the sense of taking of an account at some later stage, when Mr. Masri would be debited with his share of the development costs; ii) that, accordingly, no more cash calls would be made on Mr. Masri; iii) that he would be re-paid the US$ 1.5 million that he had already paid. Mr. Masri contends that the reason for this arrangement was the fact that CCC had not paid Mr. Masri his share of the farm-out money; the argument was that, if Mr. Masri had indeed been granted an interest in the Concession in 1985, then he had a valid claim to a share in CCC’s profits from the farm-outs because they diluted his share in the Concession, which claim to a share of the farm-outs was something Mr. Masri reminded Mr. Khoury on a number of occasions. In support of Mr. Masri’s version of events, Mr. Hapgood pointed to the facts that the 24 February conversation took place after the cash call for the February development costs was made on 15 February 1993; that a cash call for the March development costs, payable by CCC to CanadianOxy at the end of February, would in the ordinary course of events have been made on Mr. Masri, in late February or early March; but no such cash call was made. Accordingly, argues Mr. Hapgood, by far the most probable explanation for this is that, following the conversation between Mr. Masri and Mr. Khoury, Mr. Khoury instructed Mr. Nakhleh to stop sending cash calls, and instead to maintain an internal record for Masri with interest being charged on the basis recorded in Mr. Nakhleh’s notes.[95]Mr. Nakhleh’s explanation for not raising a cash call for the pre-syndicated loan development costs in February 1993 was that he had been instructed by Mr. Khoury not to do so. His evidence was as follows:
“Q. Why did you not make a cash call for the February development costs? A. Because Mr. Masri was not paying money. So I told Mr. Khoury. He said, "He will not pay money", so I stopped sending him the cash calls. Q. Is it right that Mr. Khoury told you not to send any more cash calls? A. Of course. Everything I do is with the blessing of Mr. Khoury.”
A. Of course. Everything I do is with the blessing of Mr. Khoury.”[96]However it was clear from his evidence that Mr. Nakhleh did not understand the November 1992 Agreement to be at an end in February 1993, and that certainly Mr. Khoury had not said anything to that effect at that stage.[97]Mr. Khoury’s evidence was to somewhat different effect. He said that he decided to give Mr. Masri one last chance to prove his commitment, by providing the guarantee that had been repeatedly requested. Mr. Khoury said that he and Mr. Masri had a conversation (which may have been on or about 24 February 1993) during which, on the basis that Mr. Masri would provide a guarantee in respect of the loan, Mr. Khoury agreed with Mr. Masri that he need not pay the balance of the February cash call at the time.[98]It is not strictly necessary for me to resolve this conflict of recollection in the light of my conclusion as to what happened in later months. It may well have been the case that Mr. Masri was pushing for an arrangement whereby he did not have to pay actual cash in respect of calls, and his liability would simply be debited to a running account, to which interest would also be debited. However, I do not accept the accuracy of Mr. Masri’s evidence to the extent that he was seeking to suggest that, at that stage, there was an agreement that he was no longer under any obligation going forward to pay cash calls, but that they should be debited to a running account, even though the syndicated loan was not yet in place, or the total development costs might exceed the amount of the loan. In my judgment, based on the subsequent documentary evidence, the likely position reached in February was that Mr. Masri and Mr. Khoury reached an agreement that Mr. Masri need not pay the then outstanding amounts in respect of cash calls, and that the sum of US$ 1.5 million paid by him in December 1992 would be returned to him, provided that he provided a bank guarantee in favour of CCIC. This is supported by the fact that on 8 May Mr. Nakhleh sent a telex in the following terms:
“Re Masila Syndicated Bank loan 50,000,000 Edgo share 10% US$ 5,000,000 Please expedite issuing of your guarantee in our favour with a validity up to 31/12/94. Whenever, this guarantee is established, we will refund to you US$ 1,500,000 received value 17/12/92. Your prompt action will be appreciated and please keep us informed.”
However, I do not accept that, at this stage, there was any agreement that, going forward, he would not have to pay cash calls in respect of his share of development costs, and that his liability would simply be debited to a running account. Syndicated Bank loan 50,000,000

Edgo share 10% US$ 5,000,000

[99]The evidence of both Mr. Khoury and Mr. Nakhleh is that they were told by Mr. Masri that the reason he was unable to pay the cash calls and was continuously pressing for the return of the US$ 1.5 million to him was that he was short of funds. Contemporaneous support for this evidence was provided by the terms of Mr. Nakhleh’s note dated 11 December 1992, to which reference has been made above. Mr. Masri disputes that this was the case, and indeed repeatedly suggested that he had ample funds at his disposal either via EDGO or as a result of his personal investments readily to pay the cash calls or to provide the requested guarantee. Yet, at the same time, he also repeatedly said that he could have done the latter at least only if he had been given his shares which he could pledge to the bank. I accept the Defendants’ submission that Mr. Masri may well also have been concerned about the risks associated with the Concession, particularly given the falling oil prices in the latter part of 1992 and the early part of 1993 and the political uncertainties associated with, and consequent risks of, doing business in Yemen. Indeed, Mr. Masri accepted in the course of his oral evidence that in December 1992 the Concession was certainly risky. Although Mr. Masri sought to portray himself as an optimist, he also accepted that he appreciated at the time that there were potential problems on the political front in Yemen. The reality in my judgment was that, for whatever reason, Mr. Masri did not wish to tie up such unencumbered funds as were at his disposal either by paying the cash calls or by providing a guarantee and this is why he was repeatedly requesting the return of his funds and relief from having to pay his share of development costs. I do not accept his contention that he was entitled to a share in any farm outs, or that this was something that had been agreed with CCC, which justified his not having to pay cash calls. The evidence showed that there was no such agreement, and that, every time he raised such a claim in the course of negotiations with Mr. Sabbagh or Mr. Khoury, they were extremely annoyed and gave him short shrift.[100]The syndicated loan agreement was signed on 8 April 1993. Pursuant to its terms, the syndicate of banks agreed to grant CC (Oil & Gas) a facility in the aggregate amount of US$ 50 million, upon the terms and subject to the conditions set out in the agreement. The loan agreement provided (in clause 10) for CC (Oil & Gas) to make specified repayments of the borrowed amount bi-annually in the period 1994 to 1996, regardless of the revenues that had been received at each of the specified repayment dates. It also provided (in clauses 7 & 8) for interest to be paid, either quarterly or bi-annually. In addition, pursuant to clauses 18 and 19, CC Holding accepted various financial covenants relating (amongst other things) to the consolidated financial condition of the Group. By clause 22, each of CC Holding and CCIC irrevocably and unconditionally and jointly and severally guaranteed the due and punctual observance of all terms, conditions and covenants on the part of CC (Oil & Gas) contained in the loan agreement.[101]By 8 April 1993, when the syndicated loan agreement was signed, the cash calls that had already been paid by CCIC exceeded the amount of the syndicated loan. In addition, on 30 April 1993, the May cash call in the amount of US$ 907,114 was also paid. By the time the syndicated loan was drawn down on 10 May 1993, in the full amount of US$ 50 million, CCIC had therefore already paid cash calls totalling US$ 54,330,385. Even on the basis of the December 1992 budget, it was also facing very considerable further cash calls later in 1993. On the basis of what I have held to be the understanding between the parties, Mr. Masri was at the very least, by that stage, in breach of his obligation to pay 10% of US$ 4,330,385, being the amount by which the cash calls paid by CCIC exceeded the amount of the syndicated loan, in circumstances where he had not complied with the arrangement to put a bank guarantee in place.[102]Thus, by April/ May 1993, despite the terms of the 1992 Agreement, Mr. Masri had failed to pay his share of cash calls (having been in default since the 1992 Agreement was signed), had repeatedly requested repayment of the US$ 1.5 million, and had failed, as a condition of not having to pay outstanding cash calls, to put up a guarantee, in accordance with the understanding reached in about February, in respect of his share of the syndicated loan. I conclude that by this stage Mr. Masri was indeed in repudiatory breach of the 1992 Agreement. I accept the Defendants’ submissions that Mr. Masri’s express obligations to pay his 10% share of the Development and other costs were clearly fundamental to his right to a 10% share of CCIC’s oil entitlements, and was expressly stated to be “subject to the following conditions, payments and adjustments”, namely the payment of 10% of development costs, operating costs and bonus and training payments. At the time of the 1992 Agreement CCIC had had to pay and was faced with having to pay yet further substantial developments costs, as well as operating costs once operations started. The profitability of the Concession was far from assured and it would, in any event, be some considerable time before any costs would be fully recovered, if ever. Mr. Masri’s payment obligations were plainly conditions or, at the very least, innominate terms, the breach of which went to the root of the contract. Thus in my judgment, if Mr. Masri’s payment obligations were not waived, his failure to make the payments constituted repudiatory breaches of the 1992 Agreement entitling CCIC to terminate the contract.[103]It is to the issue of whether there was a waiver (as Mr. Masri contends), or an acceptance of his repudiatory breach and a termination of the 1992 Agreement (as the Defendants contend), that I now turn.[104]Not surprisingly, by April/May 1993, Mr. Khoury was vexed with Mr. Masri’s continued failures to honour his obligations. The Defendants’ case is that, as a result, by 25 May 1993, Mr. Khoury had decided that the 1992 Agreement had come to an end. Mr. Khoury put it as follows in his evidence:
“A. What I remember, and I will tell you now what I remember, he was supposed to pay before the development costs. I was after him. In the end he paid 1,500,000. I was after him --- he was after me “Please ..” – I think he started amounts after that, I do not remember exactly: “Please, I need the money, pay them back to me, pay them back to me”
. And I waited and waited and waited, then I decided that the man is worried or afraid because the indications were not so good for this project. So in the back of my mind, I decided that he does not want, especially when I asked him at a certain time, several times, by talking to him and by telephone, to give us his share of the guarantee, and which he did not, so I sent him the 1,500,000 with, in the back of my mind, that the man is not interested at all. … It was in our agreement, he has to pay or his contract is cancelled, and it is cancelled because he did not pay. And I have been after him, “Please pay, please pay, please give your – to the banks, your guarantee”. He did not fulfil. When he does not fulfil an agreement, definitely he is out.” … We considered him as out of this concession. He did not fulfil his responsibilities” … I do not remember the date – but after he refused to give the guarantee, after he asked for the 1.5 million. Instead of adding more, because the expenses were more, he did not pay and he was not ready to give the guarantee. This must be after that, when I got fed up. Q. You say you got fed up. A. Yes Q. What rights did you think Mr. Masri then had ? A. No rights. He did not fulfil his obligations.” … It was in our agreement, he has to pay or his contract is cancelled, and it is cancelled because he did not pay. And I have been after him, “Please pay, please pay, please give your – to the banks, your guarantee”. He did not fulfil. When he does not fulfil an agreement, definitely he is out.” … We considered him as out of this concession. He did not fulfil his responsibilities” … I do not remember the date – but after he refused to give the guarantee, after he asked for the 1.5 million. Instead of adding more, because the expenses were more, he did not pay and he was not ready to give the guarantee. This must be after that, when I got fed up. A. Yes Q. What rights did you think Mr. Masri then had ? A. No rights. He did not fulfil his obligations.”

Q. What rights did you think Mr. Masri then had ?

[105]The Defendants’ case is that Mr. Khoury therefore instructed Mr. Nakhleh on 25 May 1993 to forget about chasing Mr. Masri to provide the guarantee or to pay the cash calls and informed him that thereafter Mr. Khoury would deal with Mr. Masri on a personal basis. As Mr. Nakhleh explained, when being cross-examined on his file note dated 25 May 1993:
“A. It was clear, from [Mr. Khoury’s] instructions, that our relation with Mr. Masri is no more in force, “You do not chase him for any money, you do not chase him for any guarantees, you keep for me, because I will settle with him personally, you keep a set of records in order that when I sit with him, I will try to give him something and close the subject. I knew that it is final. Mr. Khoury told me, ‘Forget about him, do not ask him for any guarantees, do not chase him’. “Q. .... He did not say to you that the relationship is at an end? A. This is what he said. He said, ‘Forget about Mr. Masri’, okay? ‘Do not keep any, except a record that will help me to deal with Mr. Masri’. What does this mean? Q. Right. I will tell you what our case is. What it means is that Mr. Khoury was contemplating, at this time, opening up negotiations with Mr. Masri to bring Mr. Masri's participation in Yemen to an end by agreement. A. To me the instruction was very clear, which I understood from Mr. Khoury, and this is why I did not have anything to do with the case until he came -- Mr. Masri came in 1995. ‘Our relation with Masri is ended, do not chase him, do not ask him for any guarantees, I will deal with him personally on the profit and loss. Just keep me a record in order for me to know where we have reached in order for me to offer him something’ Q. Am I right in understanding that you are saying that it was your inference, from what Mr. Khoury told you as recorded here, that the agreement was at an end ? A. No, this is what I understood from Mr. Khoury conveying to me, and I wrote it this way, but I understood it means that our relation with Mr. Masri, the official relation, is no more valid; “I will deal with him personally, when I decide, and when I decide, and not based on any agreement even”
. He will decide – Mr. Khoury will decide how much he will pay. He will not even refer to the agreement of November. … My answer is the way I put it is what I meant, that Mr. Khoury told me, “Everything is at an end with Mr. Masri from now on I will deal within him personally” I knew that it is final. Mr. Khoury told me, ‘Forget about him, do not ask him for any guarantees, do not chase him’. … My answer is the way I put it is what I meant, that Mr. Khoury told me, “Everything is at an end with Mr. Masri from now on I will deal within him personally”[106]The note to which Mr. Nakhleh was referring was in the following terms and recorded the gist of what Mr. Khoury had told him:
“SUBJECT: MR. MUNIB AL MASRY As instructed by the President, CCC will waive all bank guarantees required from Mr. Munib Al Masry for the operations in North Yemen and the Masila Oil Concession. Profits and losses will be settled on a personal basis between the President and Mr. Munib Al Masry based on returns submitted to the President by the Group Accounts. The President might instruct the payment back of US$ 1,500,000 – paid by Mr. Munib Al Masry.”
The Defendants submit that the words “on a personal basis” in the second paragraph of this note are particularly significant and belie any suggestion that at this time Mr. Khoury or Mr. Nakhleh regarded the 1992 Agreement as ongoing. They rely on Mr. Khoury’s explanation when questioned about this paragraph of the note:
“Q. So you are contemplating that there is still in existence an agreement, namely the November 1992 agreement, under which Mr. Masri might have to bear losses ? A. He might have to pay what ? Q. He might have to bear losses. A. No, no, no. Q. You see you are not saying here, “I might instruct an ex-gratia payment, i.e. going only one way, in Mr. Masri’s favour”
. You are saying that if there are losses, you might have to discuss Mr. Masri contributing to them. A. What I am telling an employee of mine ‘Forget about it. If there are losses or profits, I will deal with Mr. Masri on a personal way.’ I did not tell him if there are losses, he has to pay. Of course, I had in mind he will never pay. So I have just to give him something if we succeeded.”

A. He might have to pay what ?

[107]In the event, Mr. Khoury did instruct the payment back of the US$ 1.5 million, on 1 June 1993.[108]In my judgment the evidence, on proper analysis, shows that, although as I have held, CCC was entitled to determine the 1992 Agreement, Mr. Khoury never in fact decided to do so. Instead, in or about late May 1993, he decided to waive Mr. Masri’s continued failure to pay to his cash calls and put up a guarantee, and instead to accede to the suggestion, which no doubt emanated from Mr. Masri, that he should debit his continuing obligations to a running account, together with interest thereon, with a view subsequently to reaching some sort of amicable compromise with Mr. Masri for bringing his interests in the Concession (and in North Yemen) to an end. The reason why, although no doubt exasperated with Mr. Masri, Mr. Khoury took this course, was that he was concerned not to upset Mr. Shoman, a staunch supporter of Mr. Masri, not only because of Mr. Khoury’s, Mr. Sabbagh’s and Mr. Shoman’s long-standing friendship, but also, no doubt, because of Mr. Shoman’s position in the Bank. Moreover, Mr. Khoury, as he himself said, was always someone who wished to handle matters in an amicable, commercial, rather than confrontational way, and I conclude, that despite Mr. Khoury’s irritation with Mr. Masri at the time, and the disdain of Mr. Masri’s character which he expressed in witness box, he would not have wished to have upset or fallen out with Mr. Masri, a friend, or at least business colleague, of long standing. Whether such a decision was reached as a result of discussions with Mr. Masri, or with Mr. Masri and Mr. Shoman, or unilaterally on Mr. Khoury’s part, matters not. It is amply evidenced by Mr. Nakhleh’s file notes and other contemporaneous CCC internal notes which show records being kept on a running account basis of Mr. Masri’s obligations and entitlements in relation to the Concession.[109]Mr. Khoury’s position was well-encapsulated in the following passages of his evidence, which are worth an extensive quotation: “Q. I am coming to the question. I just want to take you back to your paragraph 35. Can we continue? However, if Mr. Masri decided he did not want to provide a guarantee and continued to plead for the return of his money. On 1st June 1993 I acquiesced and asked Mr. Nakhleh to return the 1.5 million to him on the understanding that he would repay the money with interest when he had more funds." A. Yes. Q. You understand what you are saying there; you acquiesced, you acceded, to a request from Mr. Masri. There is no question of the 1992 agreement being ended, is there? A. In the back of my mind, the agreement was ended. I did not want -- first of all, to the contrary of what you are saying, at the beginning, I was a friend of Mr. Masri. I did not want to hurt the feeling of Mr. Masri and tell him that he did not fulfil – ‘you did not honour your agreement’. So let us forget about it now, and I thought within a short period, if he goes and gives the guarantee, then I might ask him to come back. But in the back of my mind he was finished. … Q. ‘I acceded to that position’. A. No, no. I never agreed to that. MRS JUSTICE GLOSTER: You see, it says: ‘However, Mr. Masri decided he did not want to provide a guarantee and continued to plead for the return of his money. On 1st June 1993 I acquiesced and asked Mr. Nakhleh to return the 1.5 million to him on the understanding that he would repay the money with interest when he had more funds.’ Do you see that? A. Yes, yes. MRS JUSTICE GLOSTER: What is being said, by Mr. Hapgood, is that the words ‘I acquiesced’ mean, and what you were saying was, that you went along with Mr. Masri's decision that he did not want to provide a guarantee and his request for the return of the money, and you agreed that he should not have to provide a guarantee and could have his money back. A. I do agree, except that -- to everything except this ‘acquiesced’. I did not mean ‘acquiesced’ by that, as he explains it. What I meant, I asked Mr. Nakhleh to return the 1.5 million to him with the understanding, with the understanding, that if he come and pay the money or give the guarantee, I will bring him back. This was in the back of my mind. MRS JUSTICE GLOSTER: What about in the front of your mind? Did you agree with Mr. Masri that he could come back in if he repaid the money with interest? Is this something that you discussed with Mr. Masri? A. I told him. I told him, ‘Munib, if you pay your money or you give a guarantee, within a short period we reconsider your situation’. …. A. You see, I am talking with something in the back of my mind. When I might have told him ‘forget’, but forget for the time being. I have the feeling, at that time, that Mr. Masri is not interested, that Mr. Masri is out. And Mr. Masri being a friend, I thought that when we finish the job and he is out, I will reconsider giving him something for -- to start and remind you from the beginning. I said it is not a right to Mr. Masri, it is a gift given to him, in fact a gift given to Mr. Shoman, not to Mr. Masri. Now, still to keep this good relation, I was planning to give Mr. Masri something at the end for two reasons: first this is our habit, and I prove it to you with money, and the other partner; and secondly, knowing that Mr. Masri will go to Shoman and start asking things, Shoman would come to me, and usually my partner does not refuse Shoman. … Q. Can I put the question again? You are agreeing with me that on the evidence you are giving just now, it would have been pointless for CCC to be doing calculations of the value of Masri's interest in the concession? A. There are two things for you to keep in mind. One thing, the Riyadh concession and his share in the concession. There was no right for him for anything. There was another consideration which I took and I mentioned it before: always, always, Masri was a friend, Shoman was behind Masri. I wanted at the end to keep Shoman and Masri happy. Shoman, even if I did not want to make him happy, Mr. Sabbagh would. They have been great friends, they have been doing favours for each other. I am still doing it up until now. I cannot tell you what I have done to the Arab Bank recently, which nobody could have done it for him. We always do favours to the Shomans. … Q. I will answer that question: if, for nothing else, then to make interest run, because you were charging Mr. Masri interest on these development costs. A. I told you before, I was planning, after we finish everything, if we make any money, to go and pay Mr. Masri a little amount, just to please Shoman, not him, because Shoman will be after me and this is not the first time when Shoman contact me, ‘Please, Said, we should help Masri’. Q. If you thought that Mr. Masri was abandoning his interest in the concession, why did you not simply write to him and say, ‘My dear Munib, I am getting the strong impression that you have lost interest in the concession. Could you please confirm this to be the facts and we will go our separate ways?’ A. You see my relations with him were friendly relations. MRS JUSTICE GLOSTER: Were friendly relations? A. Were friendly relations. I did not want to touch his feeling, so I did not write him. A. No. … Q. Now do you understand the concept of terminating an agreement because the opposite party is not fulfilling his obligations? A. Yes, of course. Q. In the context of your long relationship with Mr. Masri and your friendship and the common bond between you over the Palestinian cause, it would have been a very drastic step for you to terminate the 1992 agreement against Mr. Masri's wishes, would it not? A. It could be, yes. Q. It would have been unthinkable, would it not? A. Yes, I would feel bad about it. Q. Your position in 1993 was that you were not going to terminate the 1992 agreement, but you might sit down and discuss a settlement with Mr. Masri to buy him out? A. If I remember, there was something like that. Q. That is what happened, is it not, because you moved on in 1994 to discussing an amicable settlement -- A. Yes, yes. Q. -- and a consensual termination of the whole Yemen partnership, both the North Yemen construction contracts and the South Yemen concession? A. Yes. Q. It is not your evidence that you, in your own mind, went through a process of reasoning, of saying, ‘I am now terminating the 1992 agreement’. You never did that, did you? A. No. Q. And you would never have done such a thing, even if it had been on the horizon, without first giving Mr. Masri an opportunity to put things right if you felt he was in breach of the agreement. That is correct, is it not? A. I did, but verbal, not in writing. Q. And you would never have taken such a drastic step as termination without writing to Mr. Masri to explain why you were taking that step? A. Of course. He knows. There are obligations which he is not fulfilling”. (emphasis added) …. … We always do favours to the Shomans. … …

Q. It would have been unthinkable, would it not?

[110]Accordingly, I hold that, on the evidence, there was no acceptance by CCC of Mr. Masri’s repudiatory breach of the 1992 Agreement, in the sense of there being no decision on CCC’s behalf to terminate it. On the contrary, in my judgment, CCC waived those breaches and decided to proceed on the basis that no further cash calls would be made on him, and his obligations and entitlements under the 1992 Agreement would be debited to a running account.

Was there any communication of acceptance of repudiatory breaches of contract?

[111]Even if I were wrong in that conclusion, and there was a decision to accept Mr. Masri’s repudiatory breaches, in my judgment there was no communication of any such decision to Mr. Masri. There were, as I find as a fact, no verbal or written communications by CCC to Mr. Masri terminating the 1992 Agreement on the grounds of Mr. Masri’s repudiatory breach. Mr. Aldous sought to rely on Lord Steyn’s articulation of the legal requirements for an acceptance of a repudiation in Vitol S.A. v. Norelf Ltd[1996] A.C. 800. He submitted that, although the Defendants did not suggest, and have never suggested, that their acceptance of Mr. Masri’s breaches of the 1992 Agreement was expressly communicated to Mr. Masri in writing in 1993, as Lord Steyn made clear, an act of acceptance of a repudiation requires no particular form, and may consist of a communication or conduct. Mr. Aldous also submitted that the conduct relied upon has to be judged objectively; thus the relevant issue is whether the conduct relied upon would have clearly and unequivocally conveyed to the reasonable person in the position of the repudiating party that the aggrieved party is treating the contract as at an end. He therefore relied upon the Defendants’ conduct in: i) returning the US$ 1.5 million to Mr. Masri in mid June 1993, at a time when Mr. Masri was well aware that, due to his failure to provide the repeatedly requested guarantee, he was not entitled to the benefit of the syndicated loan and therefore owed several million dollars in cash calls, leaving aside his share of further development costs which by then CCIC/CC (Oil & Gas) had paid ; ii) coupled with their failure at any time thereafter to make any demand of Mr. Masri in respect of his share of those increasing development costs, in circumstances where, on his own admission, Mr. Masri was well aware that the development costs had already exceeded the amount of the syndicated loan and were moreover increasing substantially in amount. Indeed, as at February 1993, Mr. Masri had been told that CCIC’s share of development costs had reached over US$ 44 million.[112]Although I accept Mr. Aldous’ submissions on the law, I do not accept, on the evidence here, that a reasonable person in the position of Mr. Masri as the repudiating party would have considered that CCC was treating the contract as at an end. CCC on Mr. Khoury’s instructions, maintained an exact record of what Mr. Masri’s financial position would have been had he not (supposedly) lost his interest in the Concession. The instructions for the keeping of this ledger refer to ‘interest due from Munib Masri’ and state that ‘10% of all cash calls paid by CCC is also due from Mr. Munib Masri’. This is a far more elaborate exercise than was required if Mr. Khoury was simply going to make a small ex gratia payment to Mr. Masri at the end of the project. Moreover, as the parties engaged in a long drawn out process of settlement, CCC made a detailed calculation of the present value of a 10% interest in the Concession and it engaged Arthur Anderson as expert valuers for the same purpose. All this activity was inconsistent with a communicated acceptance of repudiatory breach. Further, Mr. Khoury never took any of the many opportunities available to him to seek to advance CCC’s case during the process of attempting to reach an agreement with Mr. Masri by asserting that Mr. Masri had wrongly failed to meet cash calls and provide a bank guarantee in favour of CCC. Likewise, I reject Mr. Khoury’s vague and unparticularised assertion in his evidence that he told Mr. Masri verbally that his interest in the Concession was at an end.[113]In the alternative, Mr. Aldous relied on evidence that in June 1994 and subsequently in December 1994 Mr. Sabbagh and Mr. Khoury respectively made it clear to Mr. Masri that they did not consider that Mr. Masri had any rights in relation to the Concession. A meeting took place between Mr. Sabbagh and Mr. Masri on 2 June 1994. Mr. Masri made a note relating to this meeting in his notebook in the following terms:
“In Amman – Had a meeting (2/6) with Hasib and he blew his top. Talked to him and told him he is wrong. He wants to settle and come up with the solution – I left it up to him. Mr. Shoman as usual he insisted that the deal was for both North & South Yemen and the share is 25% - and he told Hasib to take care of the situation.”
[114]Mr. Aldous pointed to the fact that Mr. Masri accepted, that at this meeting, Mr. Sabbagh denied that Mr. Masri had any interest in the Concession and was denying that he had any rights or entitlement at all in relation to the Concession. Mr. Aldous argued that Mr. Masri cannot have been in any doubt at least by this time that CCIC was treating the 1992 Agreement as at an end. He also pointed to a further conversation which Mr. Masri had with Mr. Sabbagh regarding his claim in respect of the Concession, and a letter which Mr. Khoury wrote to Mr. Masri on 27 December 1994 and subsequent correspondence.[115]As I have already said, in my judgment there was in fact no decision on CCC’s part to terminate and there was a waiver of Mr. Masri’s obligations to pay up actual cash. Even if I were wrong in this conclusion, the subsequent correspondence and statements were not sufficiently clear or unambiguous to amount to a communication of acceptance of those breaches at that stage. They can more accurately be characterised as simply denials by CCC of any entitlement on Mr. Masri’s part to participate in the Concession, because of Mr. Sabbagh’s and Mr. Khoury’s strongly held views that he had done nothing to deserve his interest. Moreover the continuing attempts to reach agreement by way of compromise of his entitlement, some of which are described in the documents and witness statements, and the draft settlement agreements, which went on for several more years, until these proceedings were commenced in 2004, were in my view inconsistent with any communication of CCC’s acceptance of a repudiatory breach of contract on Mr. Masri’s part back in April/ May 1993. Accordingly I reject this argument.

Issue vi) whether Mr. Masri’s claim is barred by limitation

[116]The discrete issue that remains for determination under this head at this stage (given the parties’ agreement that limitation-related quantum issues should be determined at a subsequent hearing), is whether, if the 1992 Agreement was not determined by 1994, as a result of Mr. Masri’s own repudiatory breach (as I have found), the conduct of Mr. Sabbagh and Mr. Khoury thereafter evinced an intention not to be bound, and therefore amounted to a repudiatory breach of contract which Mr Masri accepted by failing to request payment, more than six years before the issue of these proceedings. The Defendants’ alternative case is, in summary, that (on this hypothesis), in early 1994, he was justifiably expecting to receive payments in respect of his share of revenues; not only did CCC not pay or account to Mr. Masri for anything, but Mr. Sabbagh and Mr. Khoury told him in no uncertain terms that he was not entitled to anything in respect of the Concession; thus CCC was in breach, actual or anticipatory, in taking this stance. The Defendants further contend that at the end of 1995, Mr. Masri engaged in negotiations concerning the lump sum that might be paid to him in settlement of both North and South Yemen; that the basis of these discussions and negotiations was the parties attempting to agree payment of a fixed sum, rather than CCC paying Mr. Masri a share of oil revenues from the Concession on any basis going forward. Thus the Defendants submit, on this alternative hypothesis, Mr. Masri’s conduct in accepting that he would be paid a lump sum effectively by way of compensation demonstrates his acceptance of CCIC’s repudiation/renunciation and therefore the end of the 1992 Agreement . At this stage, they contend, he would have had a good cause of action for breach of contract against CCC for payment of a proper sum by way of damages. Mr. Aldous correctly submitted that the cause of action for breach of contract, where a repudiation is accepted, thereby discharging the “innocent” party from performance, accrues at once, from the time of acceptance of the repudiation, and accordingly the limitation period begins to run at that time: Chitty on Contracts at §28-035. Accordingly, Mr. Aldous argued, Mr. Masri accepted the repudiation at the latest at the end of 1995, and therefore started even his first action (against CCUK) in February 2004 well outside the 6 year limitation period.[117]I have already referred to the letter dated December 1994 which Mr. Khoury wrote to Mr. Masri saying that Mr. Sabbagh had said that Mr. Masri had asked again about his account with CCC in Yemen. It is not an easy letter to summarise, not least because of the confusion between North Yemen and South Yemen, but it states that CCC’s operations in South Yemen were independent of those in North Yemen and that Mr. Masri had no connection with the South Yemen operations. In conclusion Mr. Khoury stated that he had “agreed with Mr. Sabbagh to terminate your relation with us regarding the contracts in Yemen starting from the beginning of next year, i.e. 1995 and close your account up to that date in order to safeguard our relationship with you because we have been sustaining losses there since the start of the war there, and we believe this conflict is going to drag on for some time…”. The letter, in other words, looks forward to what will happen, rather than back. I have already held above, in relation to the previous issue, that it did not amount to an acceptance, or a communication of an acceptance, by CCC of any repudiatory breach on the part of Mr. Masri. Nor, even if the letter could be characterised as an anticipatory repudiatory breach on the part of CCC, was it treated as such by Mr. Masri. He replied with a letter dated 12 January 1995. In relation to South Yemen, he reminded Mr. Khoury that the shares had been allocated and confirmed on Mr. Khoury’s own instructions (by the 1992 Agreement) and stated that he, Mr. Masri, had fulfilled all his financial and banking obligations. He offered to meet to arrive at an amicable solution and to fulfil any obligations due from him. Mr. Masri’s notebook suggests that he handed the letter to Mr. Sabbagh at a meeting on 19 January 1995 and discussed “finalis[ing] the situation” with him. Mr. Masri also noted a calculation of the value of his stake in the concession.[118]Mr. Masri wrote again to Mr. Khoury and Mr. Sabbagh on 8 July 1995 asking for a meeting or a proposal to finalise the issue between them in the following terms:
“It has been 8 months since my big brother [Mr. Sabbagh] spoke and it also has been about 6 months since your letter to me (and my reply to it) in which my brother [Mr. Sabbagh] asked me to terminate our partnership in Yemen and to which you, [Mr. Khoury], also requested in your letter. I agreed to this request in all good faith, but to this date I have as yet not received your proposal towards the termination of my partnership that started with you in Yemen 10 years ago. I would be thankful if you wrote to me in this regard, and if we met to finalize this issue in a manner that is satisfactory to all and protects our friendship and unique relationship, while also recognising everyone’s just rights.”
Again, in my judgment, this letter cannot be characterised as an acceptance by Mr. Masri of any repudiatory breach on the part of CCC.[119]A meeting was arranged for 27 November 1995 in Athens. CCC prepared calculations of the likely profitability of the concession, showing an adjusted forecast total profit of US$ 17.8 million for themselves as at 2011, and then calculating the present value of 10% of that figure (i.e. Mr. Masri’s share). Depending on the discount rate used, the present value of a 10% interest was shown as ranging between US$ 701,789 and US$ 387,981. At the meeting there was a discussion of the amounts at which the CCC Group proposed that it would buy out Mr. Masri’s share. Mr. Khoury said that, at the meeting, Mr. Masri agreed to accept the sum of US$ 4 m in settlement of his claims in respect of North and South Yemen; Mr. Masri, on the other, denied that he had agreed to accept this sum. Be that as it may, on 4 December 1995, Mr. Masri wrote saying that he believed the figure discussed at the Athens meeting of US$ 5 million (sic) did not reflect a fair settlement and he requested a further meeting and expressed his agreement with a suggestion from Mr. Khoury that a valuer be appointed to value his share of the partnership. The “5m” was noted in the margin rather than included in the main text of the letter and Mr.Khoury does not recall seeing this letter, although a note on Mr. Masri’s version states that it was delivered by hand to Mr. Sabbagh and that a copy was given to Mr.Khoury through Mr. Sabbagh. Again, this is not an issue that I need resolve, as, in the meantime, CCC had prepared a draft Settlement Agreement dated 5 December 1995, which was sent to Mr. Masri on 13 December 1995, under cover of a letter of that date from Mr. Nakhleh. This draft agreement recited that Mr. Masri had rendered services to CCC in both North and South Yemen and stated that CCC had agreed to pay, and Mr. Masri to accept, the sum of US$ 4 million “in respect of services rendered by Mr. Al Masry for the Construction Operation in North Yemen and for his agreed sharing interest in the Masila Block.”[120]Mr. Sabbagh wrote to Mr. Masri on 26 December 1995 expressing bewilderment that Mr. Sabbagh’s integrity and honesty was being doubted and saying that he would therefore leave the issue to Mr. Khoury. Further discussions for settlement of Mr. Masri’s claim must have continued thereafter, since CCC sent to Mr. Masri in February 1996 a report by Arthur Andersen, valuing CCC’s share in the concession at some US$ 34.5 million on a present day value as at 1 January 1996. Subsequently there appears to have been discussion between Mr. Masri and Mr. Khoury about the possibility of Mr. Masri’s accountant going to sit with CCC’s Mr. Jamal and Mr. Nakhleh to review the figures and also the possibility of Mr. Masri’s own expert doing a valuation. In a letter dated 30 November 1996, Mr. Masri referred to a telephone conversation that day with Mr. Khoury. He noted that Mr. Khoury had agreed to Mr. Masri sending his own valuer to meet with Mr. Nakhleh in Athens. He also noted that Mr. Khoury had said that they would discuss the possibility of paying Mr. Masri a 10% share of the proceeds starting the following year. Mr. Masri listed some questions which the valuer had raised and expressed the hope that the matter was now resolved. Mr. Masri then retained an international consulting firm, Arthur D Little, to prepare a valuation on his behalf, who travelled to Athens in early April 1997 to obtain the necessary information, and who reported in July 1997. In my judgment, none of the events during this period can be characterised as an acceptance by Mr. Masri of any repudiatory breach on the part of CCC, even on the assumption that there had been one, in CCC failing to pay his entitlement.[121]In January 1998, Mr. Masri did in fact compromise with CCC his entitlements to a share of their North Yemen operations, in an agreement modelled on the 1995 draft Settlement Agreement. In May 1998, the Arthur D Little report was updated. Mr. Masri wrote to Mr. Khoury on 2 June 1998 expressing willingness to meet to finalise the matter. He said that he would send them the revised report. He requested that they agree to remain in partnership, unless Mr. Khoury preferred to buy out Mr. Masri’s share. Another valuation was subsequently performed for Mr. Masri, again with CCC’s co-operation, by a Mr. Abu Farha. He visited CCC’s offices in Athens in December 1999 and discussed figures with CCC’s personnel, and then reported on 29 February 2000 and with an updated valuation on 28 February 2002. There matters appeared to have lain until a further meeting took place on 30 October 2000, between Mr. Masri, Mr. Sabbagh and Mr. Khoury, when Mr. Sabbagh apparently became furious with both Mr. Khoury and Mr. Masri and denied any entitlement on Mr. Masri’s behalf, in relation to the South Yemen concession. According to Mr. Masri’s note, he showed Mr. Sabbagh the 1992 Agreement, which surprised Mr. Sabbagh, who then offered to pay US$ 10 million. This is disputed by the Defendants who say that it was Mr. Masri who demanded this sum. Mr. Masri’s note records that Mr. Masri said he would take such a sum to settle the position up the end of 2000, but thereafter would take his share of income each year. Again, this is not an issue that I need to resolve.[122]Subsequently, there was correspondence between Mr. Sabbagh and Mr. Shoman, of which Mr. Masri received copies. A letter dated 2 January 2001 from the former to Mr. Shoman, stated categorically that Mr. Masri had had no relationship with CCC in South Yemen, but that, even if there had been any ambiguity about that matter and CCC had given him a share of its interest in the Concession, that offer was based “on the condition that Mr. Masri participates in the cost and expenses of developing the concession proportionally with his share. Unfortunately, Mr. Masri did not fulfil any of these obligations in spite of all the reminders we sent him, bearing in mind that these expenses exceeded the sum of 100 million dollars”.[123]As I have already held in determining issue v), even if I were wrong in my finding that CCC waived Mr. Masri’s obligation to come up with actual cash payments, as opposed to deciding to accrue his obligations and entitlements on a running account basis, I do not regard that letter to Mr. Shoman as sufficiently unambiguous, in the light of what had occurred in the intervening months, to amount to a communication to Mr. Masri of an unequivocal acceptance by CCC as at that date of breaches of the 1992 Agreement committed by Mr. Masri in 1993. That is particularly so given the different attitude of Mr. Khoury towards Mr. Masri, as compared with that of Mr. Sabbagh, and Mr. Khoury’s attempts to negotiate a settlement with Mr. Masri. Likewise, although, thereafter, CCC disputed his entitlement and strenuously argued that he had done nothing in South Yemen to earn any such interest, there is nothing in the subsequent correspondence which can be characterised as an acceptance by Mr. Masri of such repudiatory breaches as there might have been on the part of CCC, thereby bringing the 1992 Agreement to an end. On the contrary, there were attempts between the parties and their representatives – albeit desultory at times – to settle Mr. Masri’s claims, over the next few years, which are described in the documents and witness statements, until the first set of proceedings were started in 2004. In summary, this final period was characterised by numerous attempts by Mr. Masri to obtain a satisfactory settlement of his claim. I also accept his evidence that he had no detailed knowledge of when payments should have been made by CCC in respect of his entitlement, and indeed, Mr. Nakhleh, in his 4th statement asserted that up to the end of 1996, Mr. Masri’s net position in respect of the Concession was to owe US$ 3.6 million to CCC. (I should emphasise that this judgment makes no findings as to when, or in what amounts, payments accrued due to Mr. Masri as that will be an issue for the subsequent quantum hearing.) Nor in my judgment, could the Defendants have taken any brief period of silence on Mr. Masri’s part as his acceptance of the ending of the November 1992 Agreement, by acceptance of any repudiatory breach on their part.[124]Accordingly, I conclude in relation to issue vi) that, beyond the admitted limitation of Mr. Masri’s claim to sums which accrued due from CCIC and CC (Oil & Gas) in the six years prior to the issue of the claim form in the relevant action, Mr. Masri’s claim against those defendants is not barred by limitation. Issue viii) if, on the true construction of the 1992 Agreement, Mr. Masri’s entitlements were indeed limited to 10% of the defined oil and cost recovery entitlements of CCIC, whether the Defendants are estopped from so alleging;[125]In the light of my decision that the CCC parties to the 1992 Agreement were both CCIC as legal owner, and CC (Oil & Gas) as equitable owner, of the Concession, these issues have to be approached from a somewhat different perspective than the way in which the matter was argued. It follows from my decision on the identities of the contracting parties that, so far as Issue vii) (a) is concerned, the answer is that Mr. Masri’s entitlements were not limited to 10% of the defined oil and cost recovery entitlements of CCIC, but included the entitlements of CC (Oil& Gas).[126]So far as Issue vii) (b) is concerned, the answer is, that, in the light of my decision on the identities of the contracting parties, there was no need for the implication of any implied term that CCIC would procure the assignment of its obligations under the 1992 Agreement to any assignee of CCIC’s interest in the Concession, since CC (Oil & Gas) was a party in any event. It is trite law that, in the absence of a need for an implied term in order to give commercial efficacy to a contract, no such term will be implied. Had I reached a different conclusion in relation to the identity of the CCC contracting parties, I would, in the factual circumstances rehearsed earlier in this judgment, have implied a term to the effect that CCIC would procure the assignment of its obligations under the 1992 Agreement to CC (Oil & Gas), since it was the equitable owner of the interest in the Concession at the time, and to any other assignee of CCIC’s interest in the Concession, which was a company within the CCC group, or an affiliate of CCC. Indeed Mr. Aldous conceded that a term would be implied in the wider form to novate the 1992 Agreement “to any assignee of CCIC’s interest in the Concession”. I am not sure that I would have implied a term in such wide terms, but that is irrelevant for present purposes.[127]As to Issues vii) (c) and viii), again these do not arise in the light of my finding that CC (Oil & Gas) was a party to the 1992 Agreement. If I were wrong in so holding, then in my judgment Mr. Masri would not now be entitled to an order for specific performance of the obligation which CCIC would have had to procure that CC (Oil & Gas) would assume “CCC’s” obligations under the 1992 Agreement. I do not regard such an obligation as continuing indefinitely, or giving rise to a continuous breach, as Mr. Hapgood sought to contend. On this hypothesis, in my judgment the breach occurred at the latest a short time after the Assignment became a legal assignment, as a result of notice being given to the Yemen Government, and CC (Oil & Gas) accordingly became the legal owner of the rights in the Concession and entitled to the defined oil and cost recovery entitlements. CCIC should have procured a novation of its rights and obligations under the 1992 Agreement within a reasonable period from that date. Nor would there have been any estoppel or other reason preventing CCIC from running a limitation argument in such circumstances. As Mr. Aldous submitted, Mr. Masri knew from an early stage that CC (Oil & Gas) had become the party with the interest in the Concession and therefore the party that would be receiving revenues. For example, he received (and made some notes on) a newspaper article dated 9 April 1993 from the Arab newspaper “Al-Hayat”, which reported the syndicated loan by the Bank to CC (Oil & Gas). Further, as I have mentioned above, Mr. Masri gave evidence that he was provided with a bound copy of a report by Arthur Andersen dated 21 February 1996 which indicated that CC (Oil & Gas) was the owner of the interest in the Concession. I thus accept Mr. Aldous’ submissions that no estoppel arises. Mr. Masri knew that CC (Oil & Gas) had become the party holding the interest well in time to bring any claim for breach of the above implied term against CCIC, but did not do so. The time-bar would have prevented him from so doing now. I also accept Mr. Aldous’ submissions that, although this result might have seemed harsh, it was Mr. Masri’s decision to bring proceedings in this country by suing CCUK and using this as the link to claim against the other Defendants here; that accordingly, there would have been no reason why Mr. Masri should not have had to suffer the procedural consequences of doing so. Mr. Masri could have brought proceedings well before the expiry of the limitation period. I also accept that the Defendants have suffered prejudice as a result of Mr. Masri’s failure to issue proceedings earlier, because of the absence of witnesses such as Mr. Sabbagh and Mr. Shoman. Issue ix) whether, on the true construction of the 1992 Agreement, Mr. Masri had any entitlement to a 10% share of operating costs.[128]Although no such entitlement was pleaded by Mr. Masri, during the course of the trial an issue arose as to whether on a proper construction of the 1992 Agreement, Mr. Masri had any entitlement to a 10% share of CCC’s operating cost recovery. Both sides agreed that I should decide the issue as a matter of construction of the 1992 Agreement. Under the PSA, there was a difference between development costs, which were to be recovered according to a contractual formula over a number of years after they had been incurred, and operating costs which were recovered in the same year as they were incurred.[129]Mr. Hapgood contends that on the true construction of the 1992 Agreement Mr. Masri should receive his 1% share of operating costs recovery. He contends that, against the factual matrix, a commercial reading of the 1992 Agreement would include operating cost recovery within the heading of ‘Contractor oil entitlements’ in paragraph A of the Agreement. Mr. Hapgood submitted that it was not a term of art and was not defined in the PSA and that a businessman in Mr. Masri’s position would have no way of knowing that it was intended to exclude operating cost recoveries. He further submitted that the Defendants’ construction is uncommercial and surprising because: i) such a provision between these parties, against the background of their earlier agreements, would have been unusual; that it could have been included, but one would have expected to find express words to state it, not a hidden result of a proper understanding of the undefined term ‘Contractor oil entitlements under the PSA’; and ii) the need for an express term to give effect to the asymmetrical treatment of operating expenses and recoveries is emphasised by the 2nd paragraph of the Agreement, which states the ‘basic principle’ of a 1% overall interest subject to the following conditions, payments and adjustments. Such an asymmetry would have been an ‘adjustment’ and should have been expressed as such.[130]Mr. Aldous’ submitted that the 1992 Agreement plainly conferred no such entitlement to Operating cost recovery. His arguments may be summarised as follows: i) The 1992 Agreement does not include any express entitlement to Operating cost recovery. ii) The 1992 Agreement not only deals separately with Mr. Masri’s requirement to pay Development and Operating costs, but specifies in terms the two items which (on condition that he paid the sums due from him) Mr. Masri was to be entitled to payment; namely “A. 10% of CCC’s share of Contractor oil entitlements under the PSA and B. 10% of Development Cost Recovery received by CCC”. The inclusion of the second of these items separately from the first plainly demonstrates that it was not intended that the phrase “contractor oil entitlements” in sub-paragraph A would encompass the proceeds of all cost recovery oil to which the Contractor was also entitled under the PSA, in addition to the profit oil. Indeed, had that been the intention, submitted Mr. Aldous, there would be have been no purpose whatsoever in the inclusion of sub-paragraph B. If this were the correct interpretation the only way to give any effect to sub-paragraph B would be to conclude that this entitled Mr. Masri to double Development Cost recovery, which would be commercially nonsense. iii) Moreover, the remainder of the 1992 Agreement only served to reinforce this point. In particular, if the phrase “contractor oil entitlements” is to be interpreted as meaning both profit oil and the proceeds of cost recovery oil under the PSA, there would have been no conceivable purpose in specifying the order in which cost recoveries received under the PSA were to be applied for the purposes of the 1992 Agreement. By contrast if paragraph A is taken to refer to CCC’s profit oil under the PSA paragraph B and the remainder of the agreement specifying the order of cost recovery have a clear and obvious purpose. iv) Finally, submitted Mr. Aldous, in the light of the manuscript amendment that was made before the 1992 Agreement was signed, removing any obligation on the part of Mr. Masri to contribute to CCC’s internal costs, if the agreement were to be construed as entitling Mr. Masri to a 10% share of all recoveries received by CCC under the PSA including in respect of cost recovery oil, the effect would in fact be to confer a considerable premium on Mr. Masri. The result would be that his return under the 1992 Agreement would far exceed the return of CCIC on an equivalent 1% share, notwithstanding that it was CCIC and not Mr. Masri who was actually a party to the PSA and JOA, and who as a result incurred considerable cost in managing the interest in the Concession. All such management costs would have been to Mr. Masri’s benefit, as well as being to the benefit of CCIC.[131]In my judgment, for the reasons basically put forward by Mr. Aldous, the 1992 Agreement conferred no such entitlement to Operating cost recovery. Although arguments relating to linguistic redundancy (the presumption against surplusage) do not play a significant part in the construction of commercial contracts( see The Eurus [1998] 1 Lloyd’s Rep 351), nonetheless here it is difficult to give a sensible construction to the above provisions if ‘Contractor oil entitlements’ were indeed intended to cover all cost recovery. The commercial drivers for the 1992 Agreement also in my view make it unlikely that CCC would have agreed to give Mr. Masri a share in their entitlement to Operating cost recovery. Accordingly I decide this issue against Mr. Masri.

Conclusion

[132]I am grateful to leading and junior counsel and solicitors on both sides for the extensive and detailed written and oral submissions that were presented to the Court in this case, both during and after the hearing. They were of valuable assistance in the preparation of this judgment. The fact that this judgment does not expressly address all the numerous sub-issues that arose, and the submissions that were made in relation to them, does not mean that they were not the subject of careful consideration in reaching the conclusions set out above.[133]I shall address any consequential matters arising from this judgment and the form of the order after hearing further submissions from counsel.

Cited in 7 later judgments