Brick Court Victory in $1.6bn Energy Dispute

10/09/13

On 10 September 2013, Mr Justice Christopher Clarke handed down a summary of his decision in Excalibur Ventures v. Texas Keystone & Ors, one of the longest-running and financially most significant cases in the Commercial Court in recent times. The Court dismissed a US$1.6 billion lawsuit over oil rights in Iraqi Kurdistan - ending a case that saw an unsuccessful attempt by the Claimant to stay its own action in favour of arbitration in New York, a 5-month trial in the Commercial Court and a spotlight on the Claimant's third-party funding arrangements

Gulf Keystone Petroleum Limited is a high-profile, AIM-listed oil and gas exploration company. It has rights to a number of oilfields in Iraqi Kurdistan, pursuant to production sharing contracts with the Kurdistan Regional Government. These petroleum blocks contain vast quantities of oil, larger than the petroleum volumes from the North Sea.

The claimant, Excalibur Ventures LLC, alleged that it had entered into a Collaboration Agreement with Gulf Keystone and another company, Texas Keystone, under which the parties agreed to collaborate in bidding for petroleum blocks in Iraqi Kurdistan, and which entitled it to an interest in the four production sharing contracts awarded to Gulf Keystone. Excalibur claimed specific performance of the Collaboration Agreement, alternatively damages on various bases in excess of US$1.6 billion.

In December 2010, Excalibur commenced proceedings both in the Commercial Court and in a New York arbitration against Texas Keystone, Gulf Keystone Petroleum Limited, Gulf Keystone Petroleum International Limited and Gulf Keystone Petroleum UK (the "Gulf Defendants"). At the same time, they sought, but failed to obtain, from the English Court a worldwide freezing injunction over the Defendants' assets. The Gulf Defendants contended, among other things, that they were never party to the Collaboration Agreement and that, in any event, any such agreement could not give Excalibur any entitlement to an interest in the petroleum blocks.

In advance of the trial, there were a number of heavy and important applications. In June 2011, Mrs Justice Gloster (as she then was) granted the Gulf Defendants an exceptional anti-arbitration injunction restraining Excalibur from pursuing its arbitration proceedings and dismissing its attempt to stay the proceedings in the Commercial Court: see Commercial Court grants exceptional anti-arbitration injunction, reported in [2011] 2 Lloyd's Rep. 289. In July 2012, Mr Justice Popplewell ordered Excalibur to provide disclosure relating to its ability to fund the obligations that it would have as a participant in the project, given that Excalibur's ability to invest in an oil project and its intentions as to the operation of its alleged interests were issues in the case. This included disclosure as to its ability to finance the lawsuit, which revealed, among other things, the identity of its shadowy third party litigation funders (a New York hedge fund, a New York litigation funder, and Greek shipping magnates with an offshore company in the Cayman Islands). The Defendants also obtained documents through discovery proceedings in three US District Courts against other third parties with whom Excalibur had entered into financing discussions. In addition, the Court also ordered Excalibur, on two occasions, to provide security for costs to the Defendants, in a total sum of £18 million.

After a 5-month trial, Mr Justice Christopher Clarke dismissed all of Excalibur's claims (which involved a total of 16 different causes of action under English and New York law) and he found for the Gulf Defendants on every issue. A summary of his decision is here. The full Judgment will be handed down at a later date.

An article in The Lawyer is here.

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