QOGT Inc v International Oil & Gas Technology Ltd

Joint contractual obligations require each appointed manager to participate in providing the services, although tasks may be allocated and delegated between them. Managers appointed jointly must work constructively and cooperatively, resolve differences and adopt a cohesive approach. A fundamental and sustained breakdown in that relationship may constitute material breach before consequential damage has become irremediable.

A notice alleging breach must enable a reasonable recipient, with the relevant background knowledge, to understand the contractual basis and nature of the breach and to assess and remedy it. Where a contract requires breach to be remedied to the other party’s reasonable satisfaction, the court examines whether that conclusion was reasonable on the evidence.

QOGT Inc, one of two joint investment managers, claimed damages for the alleged wrongful termination of an investment management agreement by International Oil & Gas Technology Ltd, the fund company.

The fund alleged that the managers had materially breached their joint obligations by ceasing to work constructively and cooperatively. It served a notice requiring the relationship to be restored and later terminated the agreement when the breach was not remedied. The fund also counterclaimed for alleged contractual and fiduciary breaches concerning investments in portfolio businesses.

The issues were whether the managers’ joint obligations required cooperative performance, whether the notices were valid, whether the breach had been remedied, and whether the counterclaim succeeded.

1. Construction of the IMAA. The appointment of QOGT and QEP as joint managers required both entities to participate in providing the investment management services. Clause 20 permitted some delegation between them but did not permit one manager to assume the whole function or remove the other from participation.
2. The managers were required to work constructively and cooperatively as a team. They did not have to agree on every matter, and tasks could be allocated according to the interests of efficient management. Major decisions required input from both managers and, where disagreement arose, they had to resolve their differences and adopt a single cohesive approach. Clauses 18 and 5.5 provided only limited, occasional or emergency mechanisms; they did not transfer day-to-day management to the independent directors.
3. By 28 May 2010 the relationship between the managers had fundamentally and irretrievably broken down. Their inability to work together was a material breach. The breach did not depend on waiting for further damage to occur. The fund was entitled to act before inevitable and substantial damage became irremediable.
4. The notice of breach was valid. Applying the approach in Mannai v Eagle Star Assurance Ltd [1997] AC 749 and the contractual construction authorities, it was sufficiently clear to identify the contractual right invoked, the failure to provide services jointly, and the steps required to remedy that failure.
5. The breach had not been remedied by 1 July 2010. The parties had devoted themselves to securing appointment as sole manager rather than restoring a cooperative relationship. The fund’s conclusion that the breach remained unremedied was reasonable, indeed the only reasonable conclusion. The termination was therefore valid and the claim failed.
6. The proposed gardening-leave solution was not authorised by the agreement. In any event, if liability had been established, damages could not be assessed on a counterfactual involving conduct that the contract did not permit. The court also found that the Estill agreement was not a material breach.
7. The counterclaim failed. The investments in QMENA and SQ5 fell within the investment policy or were approved by the board, and the alleged conflict did not establish breach. There was no gross negligence, wilful default or fraud requiring determination under clause 21.3.

The claim and counterclaim were dismissed.