On 6 December 2024 Mrs Justice Dias handed down judgment in TAQA Bratani Ltd & Others v Fujairah Oil and Gas UK LLC & Others [2024] EWHC 3146 (Comm), following a four-week trial in October this year.
The Claimants and the First Defendant (“UKCS8”) had each been party to licences in relation to oil and gas fields in the North Sea. A difference had arisen between UKCS8, the previous Operator, and the First Claimant (“TAQA”), the current Operator, about commercial strategy for the fields. In the context of that dispute the Second Defendant (“RockRose”), which owned UKCS8, sold it to a UAE state owned entity (“FIOGC”), in the belief that that would resolve the impasse (TAQA also being a UAE state owned entity). In addition, RockRose believed that the sale would enable UKCS8 to satisfy an immediate obligation to raise decommissioning security under the licences, since FIOGC was prepared to furnish a parent company guarantee to satisfy that obligation.
The sale was on a cash and debt free basis, to facilitate which UKCS8 declared a dividend of c.US$84m in favour of RockRose. The Claimants alleged that that dividend was a transaction at an undervalue which had been declared for the purpose of prejudicing their interests, since if UKCS8 failed to meet its obligations, the Claimants would have to do so under the terms of the licences. In that event, they contended, the dividend meant that UKCS8 would have less money to satisfy their claims against it. The Claimants brought claims under s.238 and s.423 of the Insolvency Act 1986 to reverse the dividend and in unlawful means conspiracy, for damages.
The court dismissed all three claims. In so doing, it applied the decision of the Court of Appeal in Feakins v Defra [2005] EWCA Civ 1513, emphasising that for the purposes of the 1986 Act, whether it is appropriate to treat “a single step in a series of linked dealings” as “a transaction”, or rather to focus on the entirety of the linked dealings: “clearly calls for a fact-specific assessment in every case.” The Claimants had argued that the Court of Appeal’s decision in BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112 was authority for the proposition that where a dividend has been declared, it alone is always the “transaction” for the purposes of a claim under the 1986 Act, but the Court held that that argument was wrong. While Sequana decided that a dividend is a transaction, it did not decide that “where a dividend is paid that is the only transaction which can ever be looked at.” Rather: “It is all a question of fact in the particular case.” In this case, the court agreed with the Defendants “that it would be wholly artificial to regard the dividend as the only relevant transaction, in isolation from the wider arrangement to which it owed its very existence.”
The purpose of that wider arrangement was, the court found, to break the deadlock between UKCS8 and TAQA and to enable the provision of security: “the dividend was declared for no other reason than that it was a necessary adjunct” to the sale of UKCS8 to FIOGC. An intention to injure the Claimants, which the Claimants had to prove if their claims under s.423 and in conspiracy were to succeed, was therefore absent. Conversely, the intention behind the transaction being to break the commercial deadlock and enable the provision of security, the Defendants were able to rely on the statutory defence in s.238(5).
While the decision touches on various matters of law (including the test of solvency under s.123 of the Act, the nature of consideration under s.238 and s.423 and, as above, the meaning of a “transaction” within the latter provisions), its principal significance is perhaps as an example of a case in which the defence under s.238(5) succeeded, and in illuminating the requirements of that defence. The court held that, in cases where the relevant transaction consists of a series of steps, the question of purpose under s.238(5)(a) must be judged in relation to the transaction as a whole. It held that the requirement of good faith in that provision means that there must be no intention to circumvent insolvency law. As for the requirement that the transaction must have been for the purpose of carrying on the company’s business, in the same way that the Court of Appeal determined in JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176 that it is sufficient simply to ask whether the transaction was entered into by the debtor for the prohibited purpose, the same is true in case of the s.238(5) defence: “If the transaction is entered into for the purpose of the company’s business, it is irrelevant that it may not have been the sole purpose.”
Jonathan Nash KC and Daniel Hubbard acted for the 2nd to 6th Defendants, instructed by DAC Beachcroft LLP. David Allison KC and Niranjan Venkatesan acted for the Claimants, instructed by CMS Cameron McKenna Nabarro Olswang LLP.
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