Masri v Consolidated Contractors International Company SAL & Anor

In construing a commercial participation agreement, a stated basic allocation of benefits and burdens is the starting point. A substantial departure from that allocation should be expressed clearly and should not be inferred merely because the agreement deals expressly with a related item. A reference to a contractor’s oil entitlements under a production sharing agreement may include operating-cost recoveries where the participant must bear a corresponding share of operating costs. That construction does not give a double entitlement to development-cost recoveries or permit recovery of exploration costs which the participant did not bear. Commercial-contract presumptions against surplusage, and the expression-of-one-thing principle, are aids to construction rather than rigid rules.

Mr Masri appealed against part of an order made after a 12-day trial concerning his contractual participation in the Masila oil concession. Under the 1992 agreement, he was to receive 10% of the respondents’ 10% interest, while bearing 10% of specified development and operating costs and receiving specified oil entitlements and development-cost recoveries.

The High Court, in [2006] EWHC 1931 (Comm), held that the agreement did not entitle him to share in operating-cost recoveries. The respondents’ appeal had been struck out, leaving Mr Masri’s cross-appeal and application for permission to appeal. The central issue was whether the agreement included operating-cost recoveries within the relevant contractor oil entitlements.

Appeal allowed. The Court of Appeal, unanimously, granted permission to appeal and disagreed with the High Court’s construction.

1. The opening words of the agreement stated a basic principle: Mr Masri was to receive 10% of the respondents’ 10% interest, subject to express modifications. The detailed provisions should be construed consistently with that allocation. A striking distortion of the stated principle, such as requiring Mr Masri to bear operating expenses while denying him the corresponding recoveries, should be expressed explicitly rather than inferred.
2. The phrase Contractor Oil entitlements under the PSA, read in the context of the agreement and the production sharing agreement, included the contractor’s cost-recovery petroleum under section 9.1 in respect of operating expenses. Mr Masri therefore was entitled to share in those recoveries.
3. The construction did not give Mr Masri a double entitlement to development-cost recoveries, because the express development-cost provision remained operative. Nor did it entitle him to exploration-cost recoveries, since he had not borne or contributed to exploration expenditure. It was easier to imply a restriction relating to expenditure he had not borne than to infer a substantial exclusion relating to expenditure he had borne.
4. The court treated the presumption against surplusage as having little weight in commercial contract interpretation, consistently with The Eurus [1998] 1 Lloyd’s Rep 351, at 357. The expression of one thing as excluding another was a canon of construction, not a rule of law, as explained in Gregg v Richards [1926] Ch 521, at 528.

Lord Justice Longmore agreed with Lord Justice Lloyd’s reasoning and Lord Justice Tuckey agreed. The order required an interim payment of £85,000 on account of costs. Permission to appeal to the House of Lords and a stay pending a petition for such permission were refused.

• Court of Appeal (Civil Division) — [2007] EWCA Civ 688, 11 July 2007: granted permission to appeal and allowed Mr Masri’s appeal on the construction of the 1992 agreement.
• High Court of Justice, Queen’s Bench Division, Commercial Court — [2006] EWHC 1931 (Comm): after a 12-day trial, held that Mr Masri was not entitled to share in operating-cost recoveries.