MONDE PETROLEUM SA v WESTERNZAGROS LTD (2016)

A company (Monde) claimed that it had been induced by misrepresentation to enter into a termination agreement and sought damages for the termination of a consulting services agreement.

Monde was run by the son of a prominent Iraqi politician. It had entered into the consulting agreement with an oil and gas company (W) which was attempting to negotiate an oil exploration contract with the Kurdistan Regional Government. Under the consulting agreement Monde would receive monthly fees and an option to acquire 3% of the interest in the eventual oil contract. Monde’s role was to lobby political decision-makers in Iraq on W’s behalf in order to secure the oil contract. Those decision-makers included an Iraqi public official (B) who had influence over the award of public contracts. Shortly after an oil exploration contract was agreed with the Government, W terminated the consulting agreement, depriving Monde of the future interest in the oil contract. Monde signed a termination agreement accepting payment of $700,000. Monde asserted that that sum had already been due to it, and its signature to the agreement had been procured by misrepresentations made by B on W’s behalf. B had allegedly assured Monde that if it signed the termination agreement, it would have the opportunity to enter into a new agreement with him to share in the profits from oil production.

The court was required to determine whether

(1) Monde was induced to conclude the termination agreement by misrepresentation;

(2) it was an implied term of the consulting agreement that W would not exercise the right to terminate in bad faith;

(3) W was entitled to terminate the agreement under cl.10.2.

HELD: (1) Misrepresentation – It was more probable than not that B was trying to negotiate a new arrangement with W that would be profitable for himself, and that, in the course of those negotiations, W asked him to get Monde to sign the termination agreement. B had represented to Monde’s director that (a) if it signed the termination agreement B would in some way share with Monde the profits to be derived from a new agreement, so that Monde would be no worse off; (b) if Monde did not sign the termination agreement, W would not be willing to enter into those new arrangements and would not pay Monde’s outstanding invoices. In making the representations, B was acting at W’s request and with its actual authority. Further, B’s representation that Monde could indirectly profit from a new agreement was untrue when made. Where parties entered into a contract as the result of misrepresentation, it was no longer necessary for a claimant to establish the elements of the tort of deceit in order to claim damages. The Misrepresentation Act 1967 s.2(1) allowed a person who had been induced to enter into a contract by a misrepresentation to make a claim for damages as of right, as though the representation had been fraudulent, unless the representor proved that he had reasonable grounds to believe, and did believe, that the facts represented were true, Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297 followed. Monde had been induced by W to conclude the termination agreement by misrepresentation (see paras 182-184, 191, 202, 210-212, 221-222 of judgment).

(2) Bad faith – There was no general doctrine of “good faith” in English contract law, Compass Group UK and Ireland Ltd (t/a Medirest) v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200, [2013] B.L.R. 265 followed and Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All E.R. (Comm) 1321 considered. A duty of good faith was implied in certain categories of contract, such contracts of employment and contracts between partners or others whose relationship was characterised as a fiduciary one. However, in all other categories of contract such a duty would only be implied where the contract would lack commercial or practical coherence without it and where all the other requirements for implication were met, Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2015] 3 W.L.R. 1843 followed. There were no aspects of the relationship between the parties which indicated that the consulting agreement would lack commercial or practical coherence without the implication of a good faith term, Geys v Societe Generale [2012] UKSC 63, [2013] 1 A.C. 523 followed. Further, the suggested term was not concerned with the performance of the contract but with its termination. A contractual right to terminate was a right which could be exercised irrespective of the exercising party’s reasons for doing so, Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419, [2012] 2 All E.R. (Comm) 1076 followed. There was no implied term of good faith in the consulting agreement (paras 247-249, 255, 260-261, 275).

(3) Termination – W had been entitled to terminate the agreement but its termination notice was not effective because it did not give the 30-day notice required by cl.10.2. However, it would have been open to W to serve an effective notice at any point thereafter. Accordingly, any damages recoverable by Monde for the misrepresentations which led to the execution of the termination agreement were to be assessed on the basis that, although the termination notice had not brought the consulting agreement to an end, W would immediately thereafter have served an effective notice under cl.10.2, which would have ended the agreement (paras 312-318).

Judgment for claimant

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