MONDE PETROLEUM SA V WESTERNZAGROS LTD

[2016] EWHC 1472 (Comm), Queen's Bench Division, Commercial Court, Richard Salter QC, sitting as a Deputy High Court Judge, 28 June 2016

Contract - Termination - Consultancy Services Agreement - Whether agreement validly terminated - Utmost good faith - Implied terms – Subsequent settlement agreement - Whether settlement agreement voidable for misrepresentation - Misrepresentation Act 1967, section 2(1)

In April 2006 Monde entered into a contract for consulting services (the CSA) with WZL. Monde, through Mr Al-Fekaiki, was to assist WZL in its negotiations with the Kurdistan Regional Government for an exploration and production sharing agreement (EPSA) in relation to oil reserves in the region. Monde was to receive monthly fees, success fees payable on the achievement of certain specified milestones, and an option to acquire a 3 per cent working interest in the EPSA on the occurrence of the final milestone. Clause 10 of the CSA provided that: the CSA was effective for four months (clause 10.1); it was to continue if the EPSA was executed within four months, although it could be terminated on 30 days' notice if the EPSA did not become fully operational and enforceable within six months (clause 10.2); and it could be terminated on 30 days' notice in the event of a material breach (clause 10.3). An EPSA was entered into in May 2006, and subsequently modified in February 2007. On 16 March 2007 WZL served a Termination Notice on Monde, on the asserted basis of Monde's poor performance. On 18 April 2007 WZL and Monde executed a Termination and Release Agreement under which WZL was to pay to Monde the outstanding sum of US$700,000 and it was agreed that the CSA was at an end and that each party released the other from all further liabilities. It was common ground that, at that point, Monde's 3 per cent option under the CSA had not vested. In the present proceedings Monde claimed the following. (a) Its signature to the Termination Agreement was procured by misrepresentation by Mr Bafel Talabani on behalf of WZL that if Monde signed WZL would enter into a new agreement replacing the 3 per cent option with an opportunity to share profits. (b) Its signature to the Termination Agreement was procured by economic duress, in that Monde threatened to withhold the US$700,000 owed. The duress plea was withdrawn in the course of the hearing. (c) The Termination Notice purportedly terminating the Termination Agreement was invalid, and by serving it WZL committed a repudiatory breach entitling Monde to substantial damages for the loss of its rights under the CSA, including its 3 per cent option. The notice was allegedly invalid: (i) by reason of breach of an implied term of utmost good faith; (ii) by reason of the loss of the right to terminate; and (iii) because 30 days' notice had not been given. WZL asserted that Monde was estopped from denying the validity of the Termination Agreement.