UK: Memery Crystal Acts For Mediterranean Oil & Gas Plc In Successful Defence Of Fraud Claim

Some Key Points for Commercial Parties

Memery Crystal acted for longstanding AIM-listed client Mediterranean Oil & Gas Plc ("MOG") in its successful defence of a fraud claim brought by Leni Gas & Oil Plc ("LGO") against two of MOG's subsidiaries. Following an 8 day trial in the Commercial Court, judgment was handed down on 27 March, dismissing LGO's case which was found by Mr Justice Males to have "failed at every stage".

The case

The dispute dates to July 2012 when MOG acquired LGO's 10% interest in a Malta offshore exploration licence.  LGO claimed it had been induced to sell "quickly" and "cheaply" by a comment made by MOG during a telephone conversation and without knowing that MOG was in confidential talks with Genel Energy who were interested in buying part of MOG's interest in the licence.

The decision

Mr Justice Males found that there had been no misrepresentation, no dishonest intention to mislead, no inducement and that MOG had no duty to disclose the Genel negotiations to LGO.  He said:

"...MOG's desire to ensure that LGO did not find out about the potential Genel deal after the 10 July 2012 call is fully explained not only by the commercial confidentiality of those negotiations but also by the obvious risk that LGO was likely to use that information in order to seek to extract better terms for its exit than those agreed in principle on 12 July."

Key commercial points

Some key points for commercial parties come out of the case.  The parties in this case are in the oil exploration business but these principles apply equally to other transactions in other sectors:

1. The outcome of this case reinforces a long standing and unsurprising legal principle that parties in arm's length commercial negotiations are not under a duty to tell each other things that may affect their view of the asset or their own negotiating position.  There are exceptions to this rule (for example in true partnership relationships) but as a rule neither a seller nor a buyer needs to highlight things the other party might wish to know.

2. The legal duties that partners to a joint venture owe to each other are mainly those set out in the contract between them (in the oil and gas industry the Joint Operating Agreement ("JOA")).  It is common for JOAs to contain express duties on the operator to disclose particular types of information to the other parties.  These duties should not be read as imposing a general duty to disclose anything of interest to the other parties.  In the absence of an express provision, you should not expect a running commentary on the other party's own marketing efforts.

3. If you are going into a joint venture as a minority party and there is likely to be information to which the other party has better access, you need to address this issue at the contract (or JOA) negotiation stage - although trying to get a counter-party to agree that they will tell you about third party approaches might require some skillful negotiation for obvious reasons.  The point here is that in a legal dispute, the court will always start with what duties the parties agreed should exist (or did not agree as the case may be) going in to the relationship.

4. If particular matters are important to your decision-making process in the lead up to a possible transaction, there is nothing to stop you from asking questions during the course of negotiations.  The other party might not have any legal duty to answer but if they answer and that answer is false or misleading, you may have a right to rescind (unwind) the transaction or claim damages.  In the absence of a positive duty to disclose things and in the absence of a false or misleading statement, any claim will be very difficult to say the least.

5. If you should suffer from buyer's regret (or seller's regret), it is important not to lose perspective.  Reflect carefully on whether you have been actively misled or whether it is just a case of having imperfect information through no fault of anyone.  Take advice from solicitors with genuine expertise in the relevant area before embarking on legal action that might be difficult to extract yourself from later on.

The Memery Crystal team was led by Bree Taylor and included Peter Reynolds and Victoria Prince.

LGO was represented by Mishcon de Reya.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.