Pan Petroleum Aje Ltd v Yinka Folawiyo Petroleum Co Ltd & Ors

A court order, particularly an injunction enforceable by contempt, must be construed strictly and must have a clear and unequivocal meaning before breach is established. Its words nevertheless receive their natural and ordinary meaning in their full historical context and in light of the order’s object.

A party cannot avoid contempt by adopting an interpretation that is not reasonably arguable. Legal advice does not provide a defence to breach, although it may be relevant to mitigation. Where an injunction restrains exclusion from decision-making in respect of specified development wells, it may prohibit exclusion followed by resolutions concerning those wells, whatever default is relied upon to justify the exclusion.

The claimant, Pan Petroleum, held a minority participating interest in a Nigerian offshore oilfield governed by a joint operating agreement. Disputes arose over proposed Aje-6 and Aje-7 wells and associated cash calls. Pending London arbitration, the Commercial Court granted an interim injunction under section 44 of the Arbitration Act 1996.

The injunction restrained the defendants from exercising specified rights under article 8 of the agreement in respect of the Aje-6 or Aje-7 development wells. The appellants later excluded Pan Petroleum from an Operating Committee meeting, relying on default in other cash calls, and passed resolutions concerning those wells. Knowles J held that conduct to be contempt and granted declaratory relief: [2017] EWHC 1102 (Comm).

The appeal concerned the construction of the injunction, the certainty required for contempt, and the adequacy of the judge’s reasons.

1. Appeal dismissed. The injunction clearly and unequivocally prohibited the appellants from excluding Pan Petroleum from the Operating Committee and then passing resolutions concerning Aje-6 and Aje-7. The appellants were therefore in contempt, and the declaratory relief was justified.

2. The applicable approach to construction was that stated in JSC BTA Bank v Ablyazov (No. 10) [2015] UKSC 64. The question was what the order meant, rather than whether it ought to have been granted in those terms. Because breach had penal consequences, the order had to be strictly construed and clear before contempt could be found. Its language was nevertheless to be given its natural and ordinary meaning in its context, including the history and object of the order.

3. The connecting words “in respect of the Aje-6 or Aje-7 development wells” qualified the rights and remedies being exercised. They did not restrict the injunction to an exclusion based on a default in cash calls for those wells. The appellants’ construction required additional words and was inconsistent with the fact that no Aje-7 cash call existed when the order was made.

4. The background confirmed that construction. The injunction was intended to hold the ring pending arbitration by preventing both forfeiture of Pan Petroleum’s interest and its exclusion from decision-making about the disputed wells. The resolutions passed after its exclusion sought substantially the result which the injunction was intended to prevent.

5. An interpretation of an order that is not reasonably arguable does not prevent a finding of contempt merely because the party acted without actual knowledge of breach or on legal advice. The advice could bear on mitigation only. The judge applied the correct certainty test and gave sufficient reasons.

• Court of Appeal (Civil Division): dismissed the appellants’ appeal and upheld the finding of contempt and declaratory relief: [2017] EWCA Civ 1525 .
• High Court, Commercial Court: Knowles J held that the appellants had breached the interim injunction and were in contempt: [2017] EWHC 1102 (Comm) .