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THE PUZZLE OF UNINTENDED ACCEPTANCE OF REPUDIATION

Lloyd's Maritime and Commercial Law Quarterly

THE PUZZLE OF UNINTENDED ACCEPTANCE OF REPUDIATION

Qiao Liu*

Shell Egypt v. Dana Gas
The victim of a repudiation of contract is said to be put to “election” between two alternative courses of action: either “accepting” the repudiation, thereby terminating the contract, or “affirming” the contract, thereby keeping the contract alive and relinquishing the right to “accept” the repudiation. A perplexing issue arising in the application of this doctrine of “election’ is whether a purported exercise of a contractual right of termination constitutes an acceptance of an unknown or undisclosed repudiation. Although heatedly debated in recent litigation, the issue remains an obscure one. Notwithstanding its being the latest attempt to shed more light on the issue, the Commercial Court’s decision in Shell Egypt West Manzala GmbH, Shell Egypt West Qantara GmbH v. Dana Gas Egypt Ltd (formerly Centurion Petroleum Corp) 1 seems instead to have increased the obscurity and, incidentally, to have exposed the questionable wisdom of the use of “election” in the context of contract determination.
On 17 March 2006, Centurion and Shell entered into a contract for cooperative exploration and exploitation of some areas in Egypt believed to contain gas (the ‘FIA contract”).2 Centurion agreed, in what was described as a process of “closing”, to assign to Shell half of the whole interest in an exclusive concession (the ‘Concession Agreements”) to engage in such activities. The concession was acquired previously by Centurion together with an Egyptian state-owned company from the Egyptian Government. Under the Concession Agreements, Centurion was named as the operator and held 75% of the whole interest whilst the Egyptian company held the remaining 25%. As a result, the completion of “closing” was dependent on Centurion’s acquisition of the Egyptian company’s minority interest. Clause 3.1.8 of the FIA contract conferred on Shell a right to terminate the contract by giving 30 days’ notice in writing if ‘closing” was not completed within nine months following the date of contract, namely by 17 December 2006. In that case Shell would not be entitled to claim back any payment made under the contract. By clause 3.1.9 Shell was entitled to do so only if non-assignment was caused by Centurion’s failure to acquire the minority interest from the Egyptian company. The contract was executed and Shell duly made an initial payment of $15 million. Before the final date for closing arrived, several disputes arose between the two parties. First, the FIA contract provided that once Shell drilled “initial five wells’ they had one of two options:
CASE AND COMMENT

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