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Judgment shows value of injunctions during ongoing disputes, says expert

Three oil mining companies have been held in contempt of court by a High Court judge after they breached an injunction preventing certain commercial activities while arbitration was ongoing.18 May 2017

The finding "highlights the range of ways that interim injunctions can be used in support of arbitration proceedings", according to civil fraud and asset recovery specialist Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com.

The companies were all parties to a joint operating agreement (JOA) over an oil mining lease offshore from Nigeria. A dispute arose over whether development of two oil wells at the site had been properly approved; with one of the companies, Pan Petroleum, considered the 'defaulting party' under the terms of the JOA.

An interim injunction, continued on 20 January 2017, prevented the parties from excluding Pan Petroleum from participating in, or voting in, any meetings of the operating committee ahead of arbitration proceedings in relation to the dispute. However, on 23 January 2017, a meeting of the operating committee was held at which a number of matters were voted on, including the approval of 'cash calls' in respect of the wells. Pan was given three minutes notice of the meeting by email and was not invited to participate.

Mr Justice Knowles, who granted the continuation of the injunction back in January, said that it was "plain beyond argument" that the parties' actions excluded Pan from participating in, and voting at, the meeting. All that was left to consider was whether their actions were "in respect of" the disputed wells.

"The resolutions concern approval of financial calls and budgets for work on or with those wells, rather than approval of the work itself," he said. "But on the plain and natural meaning of the words 'in respect of', excluding [Pan] from participating in a meeting approving a financial call or a budget for work on or with a well is exercising or purporting to exercise that right 'in respect of the' well."

For this reason, he found the parties to be in breach of the injunction and therefore in contempt of court.

Alan Sheeley said that the injunction ordered in this case was an example of a "prohibitory" injunction, preventing the operation of terms in a contract while arbitration was ongoing; rather than a "proprietary" injunction, to protect evidence or assets.

"The decision to find the defendants in contempt of court for breaching the order shows the importance of prohibitory injunctions as an essential tool to protect a party in an ongoing dispute," he said.

"A party to a disputed contract should ensure they are aware of terms which could be detrimental to them if applied while an arbitration is ongoing. Prohibitory injunctions should be sought at the outset of the dispute to prevent the operation of such terms. The English courts will uphold such an order and find the defendant in contempt of court if the prohibitory injunction is breached," he said.