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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ashborder BV & Ors v Green Gas Power Ltd. & Ors [2004] EWHC 1517 (Ch) (29 June 2004) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2004/1517.html Cite as: [2004] EWHC 1517 (Ch), [2005] 1 BCLC 623

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/06/2004

Index

Introduction	1-5
Summary of background facts	6-77
The issues	78-83
The trial	84-87
The witnesses	88-103
The Licences	104-111
The Security Documents
The Facility Agreement	112-126
The Debentures	127-135
The Earn-In Agreement	136-141
The JOAs	142-146
The Direct Agreement	147-154
The moral high ground	155-160
Fixed or floating charge	161-191
Ordinary course of business	192-227
Transfer to Cabot of 41% of PEDLs 11 and 12	228-286
Transfer of 10% interest in Original Licences	287-308
Sale of the OGL Shares and the After-Acquired Licences	309-368
Transfer of 90% interests to E&P in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43	369-441
Wrongful interference with the Drilling Rig and the Equipment	442-448
Summary of conclusions	448

Mr Justice Etherton:

Introduction

1. This action concerns a dispute as to the ownership of, and right to operate, various petroleum licences ("the Licences") granted by the Secretary of State for Trade and Industry ("the Secretary of State"), which permit the extraction of oil and gas from various regions within the United Kingdom.
2. There is also an issue as to the ownership of one half of the share capital of the First Defendant, which was formerly called Octagon Gas Limited ("OGL").
3. The Claimants and the Defendants seek rival declarations as to their ownership of the Licences and the disputed shares in OGL, and as to the person entitled to act as Operator of each of the Licences.
4. The Defendants further counterclaim that, if they are not the owners of, and have no entitlement to assignment of, any of the Licences or the disputed shares, there should be made an order for repayment of all sums expended by them in relation to the Licences and the shares.
5. OGL also counterclaims for a declaration that the Third Claimant ("Greenpark") has wrongfully interfered with a drilling rig ("the Drilling Rig") and ancillary equipment ("the Equipment"), and an order for delivery up of the same, and damages.

Summary of the background facts

6. The factual background to the dispute is complex. The following is a brief summary.
7. Octagon Energy Limited ("OEL") had two wholly-owned subsidiaries, namely Octagon (CBM) Limited ("OCL") and Octagon (CBM) Resources Limited ("OCRL").
8. In 1999 those three companies ("the Octagon Group Companies") were controlled by Mr John Garratt. He was the managing director and the controlling shareholder of OEL by virtue of his 14.8% stake in OEL's issued ordinary share capital and a 98.2% stake in the issued ordinary share capital of Exeter Oil & Gas Limited ("Exeter"), which owned in turn a further 50.7% stake in OEL.
9. Mr Garratt was also a director of OCL and OCRL.
10. At that time OEL owned 50 shares in OGL ("the OGL Shares"), which was half OGL's issued share capital. The remaining 50 shares were held by the Third Defendant ("Cabot").
11. Mr Garratt was also the managing director of OGL.
12. At that time OCL and OCRL held seven Licences ("the Original Licences") in respect of the following locations: EXL 273 (Warrington), EXL 284 (South Wales), PEDL 10 (Canonbie), PEDL 11 (Hickleton), PEDL 12 (Nottinghamshire), PEDL 13 (Whitehaven) and PEDL 43 (Maltby).
13. The Octagon Group Companies were engaged in the business of exploring and extracting coal mine methane ("CMM") and coal bed methane ("CBM") for use as clean burning fuel in industry.
14. For the purpose of their business, the Octagon Group Companies required funding. Between December 1999 and February 2000 they entered into financing arrangements for £11.5m with ECT Europe Finance Inc and Joint Energy Development Investments II L.P. as lenders ("the Enron Lenders"), and Enron Power Operations Limited ("EPOL"), which acted at that time as agent for the Enron Lenders.
15. The principal documents giving effect to, or otherwise relevant to, the financing arrangements ("the Security Documents") comprised the following: a facility agreement dated 22 December 1999, which was subsequently amended on 11 February 2000, 12 October 2001 and 25 July 2002 ("the Facility Agreement" meaning the facility agreement as so amended); debentures by each of the Octagon Group Companies ("the Debentures"), by which each of the Octagon Group Companies charged their assets; an Earn-In-Agreement ("the Earn-In-Agreement") between OCL, OCRL and the Second Defendant ("E&P"), which in broad terms provided for circumstances in which E&P was to obtain a 10% interest in the Existing Licences; and an agreement ("the Direct Agreement") between EPOL, the Octagon Group Companies and various counterparties, including E&P, under which, in particular, E&P accepted various direct obligations to EPOL with regard to the possible exercise of rights under a proposed detailed Joint Operating Agreement ("JOA") intended to regulate the future development and operation of each of the Licences, including the identity of the Operator and procedures for the removal and replacement of the Operator.
16. E&P's participation was the result of insistence by the Enron Lenders that the Octagon Group Companies bring in an operator experienced in CMM/CBM, who would take at least a 10% interest. E&P was a company which, at that time, was owned by people with experience in the CMM/CBM business.
17. A JOA was entered into between OCRL and OCL in respect of each of the Existing Licences.
18. Following the signing of the Security Documents, requests for funding were made during 2000. Some were met. Others were not. The Defendants maintain that there were serious delays in the provision of funding.
19. On 29 August 2000 OCL acquired four new licences from the DTI, namely PEDL 64 (Carlisle), PEDL 65 (Selby), PEDL 66 (Thurcroft) and PEDL 67 (Abercarn) ("the After-Acquired Licences").
20. Relations between the Octagon Group Companies and the Enron group of companies ("Enron") deteriorated.
21. On 11 April 2001 Enron Europe Finance & Trading Ltd ("EEFTL") wrote to OEL notifying OEL that an event of default had occurred under clause 20.1.23 of the Facility Agreement, and reserved all rights in respect of it.
22. In August and September 2001 OEL wrote to Enron Europe Ltd ("EEL") explaining that funding was required to make rental payments under the Licences and to enable wells to be drilled by the dates required by the Licences, and of the risk of termination of the Licences by the Department of Trade and Industry ("the DTI") in the event of non-compliance.
23. On 12 October 2001 an amendment agreement was made in relation to the Facility Agreement, providing for a further £700,000 of loan finance, and part of the transaction being a waiver of any prior default.
24. On 13 November 2001 Octagon requested EEL to permit a drawdown of £500,000 in respect of drilling finance. On 28 November 2001 Octagon made a further request for a drawdown of £200,000 for general corporate purposes.
25. None of the £500,000 drilling finance requested was advanced.
26. At the end of November or beginning of December 2001, various Enron companies filed for Chapter 11 bankruptcy.
27. On 18 December 2001 one or more of the Octagon Group Companies received £65,294 from Enron in respect of the drawdown request of £200,000.
28. On 16 January 2002 OEL wrote to EPOL's general counsel saying, among other things, that the balance of £135,131.70 in respect of its £200,000 drawdown request was urgently required, and that the Enron Lenders were in default of the Facility Agreement as a result of not providing those funds. A similar observation was made in relation to the failure of the Enron Lenders to advance the £500,000 drilling finance. The letter stated that Octagon was at risk of losing some of its most beneficial Licences and core assets. It further said that, if the Enron Lenders did not provide the £500,000 by 1 February 2002, then Octagon would take action to mitigate its losses, and would, if necessary, try and enter into a joint venture agreement whereby a third party carried out the required drilling for a percentage of the Licences concerned.
29. On 8 February 2002 the Enron Lenders indicated they were not in a position to fund the requested drawdown of £135,000 for corporate purposes, and were not willing to advance the £500,000 drilling finance requested.
30. On 26 March 2002 EPOL served a notice of default on the Octagon Group Companies.
31. On 12 April 2002 OCL and Quality Drilling (UK) Limited ("Quality Drilling UK") entered into an agreement for the drilling of a well by Quality Drilling UK on PEDL 12 for the sum of £250,000 payable by 31 December 2002 ("the Drilling Agreement"). The Drilling Agreement provided that, if such sum had not been paid by then, Quality Drilling UK would instead be entitled to a 41% earn-in interest in PEDL 11 and PEDL 12.
32. On 19 April 2002 Cabot agreed to purchase all of Quality Drilling UK's legal and beneficial interest under the Drilling Agreement ("the 41% Transfer Agreement").
33. In March 2002 Parkfield Management Limited ("Parkfield") acquired 49% of E&P. Mr Michael Grove and Mr John Atencio became directors of E&P in March 2002, on the initiative of Parkfield.
34. On 27 May 2002 ECT Europe Finance Inc ("ECT") replaced EPOL as agent and trustee in relation to the Facility Agreement.
35. On 5 June 2002 Mr Garratt, on behalf of OEL, wrote to Mr Grove, on behalf of E&P, stating, among other things, that it was agreed that under the Earn-In Agreement E&P had the right to a 10% interest in each of the Original Licences, and, following E&P's request, the 10% interest in each of the Original Licences together with a 10% interest in the JOA for each Original Licence would be assigned by OCL to E&P as soon as possible and submitted to the DTI for approval.
36. On 12 July 2002, OCL and E&P entered into deeds of assignment to E&P of 10% of the Original Licences. They also entered into an operating agreement novation and a JOA in respect of each Original Licence.
37. At this time the Octagon Group Companies were in discussions with Scottish & Southern Energy Plc ("SSE") for refinancing. On 7 June 2002 SSE had sent a letter setting out an indicative non-binding funding proposal for Octagon of up to £14m on behalf of itself and Orix Europe Limited ("Orix").
38. On 22 July 2002 OCL sent the DTI copies of the deeds of assignment in respect of the Original Licences. In due course the DTI gave consent to those assignments.
39. On 9 October 2002 the DTI wrote to OCRL stating that licence rental fees were outstanding in respect of PEDL 10 and EXL 284, and requested payment within seven days. On 18 October 2002, following a request by OCL for a further three months in which to pay those Licence rentals, the DTI wrote to OCL stating that OCL would be given the additional three months in which to settle those debts, but that was a last and final extension of the period in which the debts had to be paid, and if any were still outstanding as of 18 January 2003, the DTI would consider taking action to recover them. In that letter the DTI attached a schedule showing the payments due and outstanding in respect of EXL 273, EXL 284, PEDL 10 and PEDLs 64 – 67, amounting in total to £102,500.
40. By the end of 2002 the directors of the Octagon Group Companies were in negotiations with Enron to purchase the outstanding loan. No agreement, however, was ever reached.
41. On 20 January 2003 Cabot wrote to OCL stating that, as the £250,000 had not been paid under the provisions of the Drilling Agreement, there should be an assignment to Cabot of 41% of the interest in the Licences for PEDL 11 and PEDL 12.
42. On 21 January 2003 the DTI wrote to OCL stating that £102,500 was due in respect of the Licences, and that, in the event that the payments were not received by 1 March 2003, the Secretary of State would be minded to exercise the powers conferred upon him to revoke each Licence.
43. By 24 January 2003 SSE had withdrawn from re-financing negotiations.
44. On 24 January 2003 E&P wrote to OCL stating that it was evident that Octagon was not able to pay the Licence rentals on EXL 273, EXL 274 and PEDL 10, amounting to £85,000, and had no intention of paying the Licence rentals. In the letter E&P gave notice that it would pay the Licence rentals by 28 February 2003, and under clause 16.3 of the JOA in respect of each Licence, OCL and OCRL should transfer and assign those Licences to E&P.
45. Minutes of a meeting of the board of directors of OEL on 7 February 2003 recorded that it was agreed to assign EXL 273 and PEDL 10 to E&P at the earliest opportunity, and, unless a settlement could be completed with Enron concerning the Enron loan in the interim, it was agreed to assign EXL 284 to E&P before the DTI's deadline for payment of Licence rentals of 28 February 2003.
46. The minutes also recorded that OEL had borrowed £125,000 from OGL, and the directors agreed, following discussions with Cabot, that OEL sell the OGL Shares to Cabot for £60,000, on the basis that the £60,000 received from Cabot was paid to OGL in partial extinguishment of the £125,000 borrowings.
47. The minutes further recorded that it was agreed to sell the After-Acquired Licences to OGL for a total of £65,000, which would be set-off against the balance of the £125,000 borrowing from OGL.
48. Minutes of meetings of the boards of directors of OCL and OCRL on 7 February 2003 recorded the approval of those proposed transactions.
49. On 10 February 2003 deeds of assignment were executed transferring to E&P the outstanding 90% interest of OCL or OCRL, as appropriate, in EXL 273, EXL 284 and PEDL 10.
50. Minutes of the meeting of the board of directors of OEL on 7 February 2003 recorded the agreement of the directors that test rigs and associated equipment would be sold to OGL for £25,000, the office equipment would be sold to Exeter for £7,500, and the office lease would be sold to Exeter for £1,000. The minutes recorded that Mr Garratt had told the board that OEL could continue to use the office equipment on a temporary basis without payment, provided it was not required by Exeter and provided that OEL did not become insolvent or a proposal was made to the company and its creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs or an application to the Court for "an Order of bankruptcy" or placed into any form of administration, and that OEL could use the office on a temporary basis subject to the same conditions.
51. On 14 February 2003 sale and purchase agreements were entered into between OCL or OCRL, as appropriate, and OGL in relation to the After-Acquired Licences.
52. On 14 February 2003 a sale and purchase agreement was entered into between Cabot and OEL in relation to the OGL Shares.
53. On 20 February 2003 Cabot paid £60,300 to OEL (being £60,000 and £300 stamp duty) in respect of the sale of the OGL Shares.
54. On 25 February 2003 E&P paid £85,000 to the DTI in respect of rental arrears.
55. On 11 March 2003 a share certificate for 50 shares in OGL was issued to Cabot.
56. On 27 March 2003 deeds of assignment of a 41% interest, operating agreement novations and JOAs were entered into between OCL, Cabot and E&P in respect of PEDL 11 and PEDL 12.
57. On 1 April 2003 deeds of assignment between OCRL or OCL, as appropriate, and OGL were executed transferring to OGL the After-Acquired Licences.
58. Minutes of a meeting of the board of directors of OEL on 21 March 2003 recorded that rentals on PEDL 43 were overdue and the DTI had written letters requesting payment.
59. On 15 April 2003 the DTI wrote to OCRL seeking payment of the licence rents in respect of PEDL 43.
60. On 23 April 2003 minutes of a meeting of the board of directors of OCL recorded the agreement of the directors to assign PEDL 43 to E&P.
61. On 28 April 2003 a deed of assignment between OCL and E&P was executed transferring PEDL 43 to E&P.
62. On 8 May 2003 heads of terms for the funding and development of power plants were signed by Octagon with Maxim Power Corporation ("Maxim").
63. Minutes of a meeting of the board of directors of OEL on 6 June 2003 recorded that licence rents on PEDLs 11, 12 and 13 were overdue and the DTI was threatening legal action to recover them. The minutes also recorded that the CBM potential on PEDL 13 was small, and that the company was not in a position to test the potential or spend further money on the Licence rental payments. The board resolved to relinquish Licence PEDL 13 to E&P under the JOA, with E&P to be responsible for the Licence rentals.
64. A deed of assignment dated 13 June 2003 was executed by OCL and E&P in respect of PEDL 13.
65. In the minutes of a meeting of the board of directors of OGL on 16 June 2003, it was recorded that Cabot was prepared to subscribe for £750,000 worth of shares in OGL, on condition that OGL bought the Drilling Rig from Cabot and which was for sale for £750,000. The board agreed to issue 750,000 ordinary shares of £1 par value to Cabot and to complete the purchase of the Drilling Rig.
66. On 15 July 2003 an agreement was entered into between Cabot and OGL for the purchase of the Drilling Rig by OGL for £750,000.
67. On the same day, at a meeting of the board of directors of OGL, 750,000 ordinary shares in OGL were allotted to Cabot.
68. On 26 August 2003 ECT was removed as agent and trustee for the purposes of the Security Documents, and Beechchoice Limited ("Beechchoice") was appointed as agent.
69. The Second Claimant ("Cedarbase") was appointed as trustee.
70. Beechchoice demanded immediate repayment of all sums due under the Facility Agreement.
71. Cedarbase gave notice to the Octagon Group Companies of the conversion of the floating charge created by the Debentures into a fixed charge.
72. Cedarbase appointed administrative receivers of the Octagon Group Companies ("the Receivers").
73. A deed of release was executed by Cedarbase in favour of the Octagon Group Companies and Greenpark, whereby Cedarbase irrevocably released and discharged from the security created by the Debentures certain assets, including the Licences and the OGL Shares.
74. A sale agreement was entered into between the Octagon Group Companies and Greenpark whereby, in consideration of the sum of £1.1m, Greenpark purchased "whatever right, title and interest", if any, each of the Octagon Group Companies had in, among other things, the Licences, the OGL Shares, and any drilling rigs (other than those held under lease contract, as defined).
75. On 3 September 2003 OGL changed its name to Green Gas Power Ltd.
76. On about 6 or 7 January 2004 Greenpark caused the Drilling Rig and Equipment to be removed from their places of storage, and has thereafter refused to return them to OGL.
77. The present proceedings were commenced on 14 October 2003.

The issues

78. So far as concerns the Licences and the OGL Shares, the primary issue is whether, under the provisions of the Security Documents, the relevant Octagon Group Company was entitled to make the following transfers free of any charge imposed by the Debentures: (1) 41% of PEDL 11 and PEDL 12 to Cabot pursuant to the Drilling Agreement and the 41% Transfer Agreement, as being in the ordinary course of the business of OCL; (2) 10% of the Original Licences to E&P pursuant to the Earn-In Agreement, or as being in the ordinary course of the business of OCL and OCRL; (3) the After-Acquired Licences to OGL pursuant to clause 16.4 of the relevant JOA, or as being in the ordinary course of the business of OCL and OCRL; (4) the OGL Shares to Cabot, as being in the ordinary course of the business of OEL; (5) 90% of EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 to E&P pursuant to clause 16.4 of the relevant JOA, or as being in the ordinary course of the business of OCL and OCRL.
79. The Defendants also claim that the Drilling Agreement, and the transfers of the 10% interest in the Original Licences to E&P, were made with the express consent of persons acting on behalf of the Enron Lenders.
80. The Defendants also allege, in relation to certain of the transfers of interests in the Licences, that the Claimants are estopped from claiming that the assignments were unlawful or in breach of the terms of the Facility Agreement or the Debentures.
81. If the transfer of any of the Licences or any interest in any of the Licences by OCL and OCRL, or the sale of the OGL Shares by OEL, was contrary to clause 4.2 of the Debentures and is not binding on the Claimants, the Defendants counterclaim that they are entitled to repayment of all sums expended by them in relation to the Licences and the OGL Shares.
82. OGL claims that Greenpark has wrongly interfered with the Drilling Rig and the Equipment, and OGL is entitled to a declaration to that effect, together with an order for delivery up of the same.
83. There are two issues in respect of which it was agreed between the parties during the course of the trial that consideration of them should be adjourned to one or more subsequent hearings. The first of those matters is as to the identity of the person entitled to act as the Operator in respect of each of the Licences. The second matter is as to the amount of any damages recoverable by OGL in respect of any wrongful interference by Greenpark with the Drilling Rig and the Equipment.

The trial

84. In view of the pressing commercial urgency to establish the correct legal position as to the ownership of the Licences, and the person responsible for paying licence payments and complying with other conditions of the Licences, Mr Justice Evans-Lombe made an order on 22 January 2004 for an early trial of the claim.
85. The trial commenced on 17 May 2004 and concluded on 15 June 2004, spanning the Spring vacation.
86. In view of the commercial urgency, to which I have referred, and, in particular, the date for making payments under the Licences, I was asked to deliver my judgment prior to 30 June 2004. This has imposed a tight deadline for a judgment on complex issues and many areas of conflicting evidence.
87. At the trial, the Claimants were represented by Mr Gabriel Moss QC and Mr Edward Cohen; and the Defendants were represented by Mr Richard Adkins QC and Mr David Alexander.

The witnesses

88. A witness statement was made, on behalf of the Claimants, by Mr George Giard, Jr., the chief executive officer of Greenpark; Mr Andrew Marsden, who was employed by EEL between July 1997 and June 2002, and who, as head of Enron Principal Investments in Europe communicated with the Octagon Group Companies in relation to the loan by the Enron Lenders; and Mr Timothy Larrison, who, as an employee of EEFTL and a representative of ECT, became involved in matters relating to the loan to the Octagon Group Companies by the Enron Lenders after Mr Marsden's departure.
89. Mr Giard, Mr Marsden and Mr Larrison all gave oral evidence.
90. Mr Giard, who has been involved in the oil and gas exploration and production business for over thirty-five years, was a patently honest witness, who gave his evidence in a measured and careful manner. His evidence was, however, of limited assistance, since Mr Giard was not a party to, and had no personal knowledge of, the transactions with which I am principally concerned, other than the removal of the Drilling Rig and the Equipment in January 2004.
91. Mr Marsden and Mr Larrison were cautious and careful in their evidence relating to the material facts. I am satisfied that they were trying to give their evidence honestly and carefully, to the best of their recollection.
92. Witness statements were made, on behalf of the Defendants by Mr Garratt; Mr Alan Gravelius, a chartered accountant, the company secretary of the Octagon Group Companies, a director of OEL and the company secretary of OGL at the relevant times; Mr Julian Whately, a solicitor and senior partner of Lee & Pembertons, who was a director and the company secretary of Exeter at the relevant times; Mr Andrew Shrager, who has had extensive experience in banking and corporate finance, particularly in relation to the oil and gas and energy sectors and who was a director of OEL at the relevant times; Mr Michael Grove, who became a director of E&P in March 2002; Mr Peter Roscoe, who claims to be the principal beneficial owner of Cabot and has a minority shareholding in Parkfield; Mr Malcolm Aw, who claims to be a minority shareholder in Cabot; Mr Jay Vallabh, who is a Swiss fiduciary, and was a director of Cabot and appears to have acted on behalf of Parkfield since about March 2002; and Mr Edward Davenport, who claims to represent the majority shareholders of Parkfield.
93. Oral evidence was given by Mr Garratt, Mr Gravelius, Mr Whately, Mr Shrager, and Mr Roscoe. Mr Grove gave his oral evidence by video link from Denver, Colorado, USA.
94. I formed the view that the evidence of Mr Garratt should be treated with caution. He is plainly an intelligent and quick-witted person. It is clear, however, that on occasions he has acted with a distinct lack of candour. In his dealings, for example, with the DTI in connection with applications for consent to the various transfers of Licences or interest in Licences to the Defendants, which I describe in more detail subsequently in this judgment, some of his representations were, at the least, highly misleading. By way of another example, in Responses to a Request for Further Information in relation to the amended Defence and Counterclaim, in respect of which Responses Mr Garratt signed a statement of truth, it was stated that Mr Garratt did not know who owned the shares in Cabot. It was clear, however, from his oral evidence that he had had many dealings with Mr Roscoe, as the beneficial owner of Cabot; and, in cross-examination, he stated that he had discovered that Mr Roscoe had a beneficial interest in Cabot in about 1997. It was typical of his manner of giving evidence, in cross-examination, that he sought to justify his answer to the Request for Further Information, which I have mentioned, by saying that Mr Roscoe had told him that he had an interest, but he (Mr Garratt) did not know the details. At the very least, an honest and straightforward answer to the Request for Further Information would have been that Mr Garratt was made to understand by Mr Roscoe, and believed, that Mr Roscoe was the beneficial owner of, or had a beneficial interest in, the shares in Cabot. Generally, in many areas I found that his answers to questions in cross-examination were not straightforward, and often involved what appeared to be after-the-event rationalisation and a degree of obfuscation.
95. I am satisfied that Mr Gravelius, Mr Whately and Mr Shrager were doing their best to give honest evidence to the best of their recollection.
96. Mr Roscoe presented himself as a person of considerable wealth, operating through a network of foreign companies and foreign accounts, with accommodation addresses in numerous places throughout the world. Mr Moss sought to undermine his credibility by emphasising, among other things, that Mr Roscoe had formerly been adjudicated bankrupt in this country, and had left the country without discharging all his debts. In relation to the specific evidence he gave at the trial, however, there is nothing in the quality or consistency of his evidence to raise any cogent ground for disbelieving his evidence in any material respect.
97. Mr Grove, as I have said, gave his evidence on two occasions by video link. There were aspects of his evidence which were troubling; in particular, it was astonishing that, although he was, in effect, the managing director of E&P, he was unaware of the beneficial owner or owners of Parkfield, which, according to his evidence, was the ultimate owner of E&P. It was equally astonishing that, although he appears to have received his instructions from Mr Vallabh, representing the controlling shareholders of E&P, and although he keeps a file on E&P matters, his evidence was that there is not a single document which represents, or deals with, communications between Mr Vallabh and himself. Nevertheless, I formed the view that, although parts of his evidence had to be viewed with caution, his evidence concerning the absence of any control of Cabot and its affairs by Mr Garratt was honest and credible.
98. No directions were given, prior to the trial, for either side to adduce expert evidence. This was of particular relevance in relation to one area of evidence emphasised by Mr Garratt and his co-directors of the Octagon Group Companies, namely the "high-grading" or "farming-in" or "farming-out" of assets. This practice was described, in the following way, in Mr Shrager's witness statement:

"I supported the implementation of generally accepted oil industry practices to safeguard Octagon's principal assets. This was done by farm-outs or the acceptance of a dilution of our interests in licences where value could be achieved. It was also done by the relinquishment of licences which had limited potential or upon which payments had to be made for which the company did not have the funds. Putting it another way, the position was continually assessed by reference to the risk/reward of licences and other assets as well as the financial position of the company and the best steps taken to protect what at any given moment in time were thought to be the more valuable licences."

99. His evidence, in this respect, was elaborated upon by him in his evidence in re-examination as follows:

"I have seen many examples where a company will have an interest in a licence whether it is in the UK, or anywhere in the world, it has either a licence or a lease or some arrangement with the government, or just is a service agreement or a contract with the government where they may start with a 100 per cent interest in a licence.

They will then as a result of work they do, they may well decide, on the balance of risk and reward, that if they were to themselves go on to drill commitment wells, which they have an obligation to drill for a government and spend money, that perhaps it is better to share the risk with somebody else. This is usually called a farm-in where the other partner comes and is prepared to drill a well or pay money to government whether it is promotes or bonuses paid to government. So it is a very well known principle throughout the oil industry on a worldwide business where the partners then decide we can now become two partners, they may have 50/50 each, in the licence and they are in partnership on an individual basis for that particular licence. They do not create necessarily a company where they are shareholders, they have undivided business interest in that licence and they then have a joint operating agreement exactly as we have had in this case, and under that agreement that is the principal binding agreement which allows them then to finance their interest separately.

One of them might be chosen to be a partner, the operator, the operator usually does this because he is in the best position, he has the most knowledge, he then operates on behalf of the new partnership. It is not intended that the operator should take any incremental benefit out of it, he is merely an operator there on behalf of the other partners and he merely takes a fee for providing that service. So that is a farm-in, it is a worldwide exercise to share risk." (Transcript 28 May 2004 pp.89-90).

100. Mr Moss objected to evidence by the Defendants of farming-in/farming-out/high-grading on the basis that it was expert evidence, for which no permission had been given.
101. I take the view that the evidence of Mr Garratt and, in particular, Mr Shrager, on this subject should be admitted in evidence. I am satisfied that, in the case of Mr Garratt and Mr Shrager, the evidence represents, not simple expert opinion evidence, but a factual account of their own knowledge (possibly direct, possibly hearsay) of such a practice from their long experience in the oil and gas exploration industry. The Claimants were aware, from Mr Shrager's witness statement, that the Defendants intended to rely on such evidence.
102. Further, and in any event, the practice, as described by Mr Shrager, appears perfectly rational and commercially sensible; and its existence is, in some measure, borne out by the communications between Mr Garratt and the DTI in connection with the attempts to register the transfers to the Defendants of interests in the Licences, in which the DTI, far from being surprised at the transfer of partial interests in the Licences, appears to have a general procedure for the approval of re-organisation of different interests subsisting in a licence.
103. The witness statements of Mr Aw, Mr Vallabh and Mr Davenport were admitted as hearsay evidence.

The Licences

104. Licences EXL 273 and EXL 284 incorporated certain clauses of the model clauses for petroleum exploration and development licences in landward areas set out in schedule 3 to the Petroleum (Production) (Landward Areas) Regulations 1991 (SI 1991 No.981) ("the 1991 Model Clauses"). The other Licences incorporated certain clauses of the Model Clauses set out in schedule 3 to the Petroleum (Production) (Landward Areas) Regulations 1995 (SI 1995 No.981) ("the 1995 Model Clauses").
105. By each Licence, the Secretary of State, in consideration of the payments specified in the Licence and the performance and observance by the licensee of all its terms and conditions, granted exclusive licence and liberty during the continuance of the Licence, and subject to its provisions, to search and bore for, and get, petroleum in a specified area.
106. Each Licence was for an initial term of six years. In all cases, other than EXL 273 and EXL 284, there was provision for continuation for a further term of five years and beyond, if certain terms and conditions were satisfied including, in particular, the execution of a work programme. The initial term working obligations included an obligation to drill a well.
107. Each Licence contained terms for the licensee, at any time, to determine the Licence or surrender any part of the licensed area, by giving to the Secretary of State not less than six months' notice in writing to that effect.
108. Each Licence, other than EXL 273 and EXL 284, contained provision for the periodic payment of licence sums specified in schedule 2 to the Licence.
109. Clause 27 of the 1991 Model Clauses (applicable to EXL 273 and EXL 284) provided that the licensee should not, without the consent of the Secretary of State in writing, assign or part with any of the rights granted by the Licence in relation to the whole or any part of the licensed area or grant any sub-licence in respect of any such rights.

110. Clause 37 of the 1995 Model Clauses (applicable to all the other Licences) provided as follows:

110. Clause 37 of the 1995 Model Clauses (applicable to all the other Licences) provided as follows:

"37.-(1) The Licensee shall not, except with the consent in writing of the Minister and in accordance with the conditions (if any) of the consent do anything whatsoever whereby, under the law (including the rules of equity) of any part of the United Kingdom or of any other place, any right granted by this licence or derived from a right so granted becomes exercisable by or for the benefit of or in accordance with the directions of another person."

110. Clause 28 of the 1991 Model Clauses and clause 38 of the 1995 Model Clauses provided that the Secretary of State may revoke the Licence in certain specified circumstances, including any breach or non-observance by the licensee of any of the terms and conditions of the Licence.

The Security Documents

The Facility Agreement

111. Under the heading "Background", at the commencement of the Facility Agreement, it was recited that, at the request of OEL, the Enron Lenders were willing to provide a term loan facility of £11.5m, comprising four tranches of £2.5m each and one tranche of £1.5m to the Octagon Group Companies, such facility to be guaranteed by those companies and secured by the Debentures.
112. By clause 2.1, the Lenders agreed to make available to the Octagon Group Companies the facility, subject to the terms of the Facility Agreement.
113. By clause 2.2, each of the Octagon Group Companies agreed to use the proceeds of the first four tranches to finance general corporate purposes related to " the Specified Developments". That expression was defined by clause 1.1 of the Facility Agreement to mean:

"…the exploration, evaluation, preparation, development and operation of any vent, vent well, gob gas, conventional coal bed methane, evacuation, extraction, transportation, conversion, generation and transmission assets or projects related to the Specified assets and any electricity which may be generated utilising them."

114. Clause 2.5 of the Facility Agreement provided that all amounts due under the Facility Agreement would be secured by the Debentures.
115. By clause 19.1.6 of the Facility Agreement each of the Octagon Group Companies agreed as follows:

"19.1.6 Disposal of assets: It will not dispose of any of its Assets or any interest in any of its Assets (including, without limitation the Specified Assets) without the consent of the Agent or as permitted pursuant to the Power Purchase and Emissions Credit Agreement or the Earn In Agreement. It will also procure that none of its Subsidiaries will dispose of that subsidiary's Assets. This does not apply to disposals in the ordinary course of its or a Subsidiary's business, or to disposals of obsolete or unused Assets on an arm's length basis or as waste, or where such Assets are replaced with Assets of substantially the same nature and value, or to disposals up to a maximum net sale proceeds of £50,000 in any one year. For these purposes, a lease is treated as a disposal. Receipts from sales or disposals to which the Agent consents shall, unless the Agent otherwise agrees or they have been used in the purchase of replacement Assets, be applied in repayment of the Loan."

116. The expression "Assets" was defined in clause 1 of the Agreement as having the following meaning:

""Assets" of any person means all or any part of its present and future business, undertaking, property, assets, revenues, Rights (including any right to receive revenues), and uncalled capital, wherever situated."

117. The expression "Specified Assets" was defined in clause 1 of the Agreement as follows:

""Specified Assets" means the petroleum, coal bed, methane gas and other hydrocarbon assets to which the Licences relate."

118. Clause 19.1.7 of the Facility Agreement contained an obligation by each of the Octagon Group Companies as follows:

"Carry on business: It will carry on its business in the exploration, evaluation, preparation, development, operation, evacuation, extraction and transportation of the Specified Assets for use in the generation of electricity (alternative uses for the methane gas will be permitted subject to the prior written consent of the Agent, such consent not to be unreasonably withheld) and will procure that no substantial change is made to the general nature of the business of the Company, the Borrowers or the Group."

119. Clause 19.1.11 of the Facility Agreement, so far as relevant, contained covenants by each of the Octagon Group Companies as follows:

"19.1.11 Operating Agreements: It will:

a. …

b. …

c. not amend, waive or modify or concur in the amendment or waiver or modification of or cancel, terminate, suspend or surrender any Operating Agreement or the Earn In agreement in any material respect without the prior written consent of the Agent, such consent not to be unreasonably withheld;

d. not agree to the transfer by a person of that person's obligations under an Operating Agreement or the Earn In Agreement without the prior written consent of the Agent, such consent not to be unreasonably withheld;

e. maintain in full force and exercise all of its rights under the Operating Agreements and the Earn In Agreement;

f. …

g. without limiting (d) above, not agree to the appointment or replacement of the Operator, the Contractor or any Sub-Contractor or any new operator, contractor or sub-contractor without the prior written consent of the Agent such consent not to be unreasonably delayed: and

h. …"

120. The expression "Operating Agreement" was defined in clause 1 of the Facility Agreement to include the JOAs.
121. By clause 19.1.17 of the Facility Agreement each of the Octagon Group Companies covenanted, so far as relevant, as follows:

"19.1.17 Consents and Licences: It will:

i. obtain, maintain in full force and effect and comply with applicable Consents in relation to the Specified Developments and the Specified Assets except to the extent that failure to do so would not have a Material Adverse Effect;

ii. …

iii. …

iv. not abandon or relinquish any Licence or take any action which would permit an Agency to revoke, suspend or withdraw a Licence except to the extent that such abandonment, relinquishment or action would not have a Material Adverse Effect."

122. The expression "Consent" was defined in clause 1 of the Agreement to include the Licences.
123. The expression "Material Adverse Effect" was defined as follows in clause 1 of the Facility Agreement:

""Material Adverse Effect" means a material adverse effect:

a. on the financial condition of a Borrower or a Guarantor, as the case may be, or

b. on the ability of a Borrower or a Guarantor, as the case may be, to perform and comply with their respective obligations under the Finance Documents."

124. Part 1 of Schedule 1 to the Facility Agreement sets out the commitments of the Enron Lenders. Each of them was to contribute equally to each of the tranches.
125. Schedule 10 to the Facility Agreement specified the Licences. The Licences were the Original Licences.

The Debentures

126. Clause 1 of each Debenture provided that, except to the extent that the context required otherwise or as otherwise defined in the Debenture, terms and references defined in the Facility Agreement should have the same meanings and constructions when used in the Debenture.
127. By clause 1.1 of each Debenture, the expression "Investments" was defined to include securities and investments of any kind, including shares.
128. By clause 3.1 of each of the Debentures, the respective Octagon Group Company "with full title guarantee and as security for the payment and discharge of all capital Liabilities… [charged] in favour of the Trustee (as trustee for the Secured Creditors)":

"3.1.3 by way of first fixed charge:

i. …

ii. all its present and future Investments …

iii. …

iv. …

v. …

vi. the benefits of all Consents vested in the Company: and

3.1.4 by way of first floating charge, its undertaking and all its Assets, both present and future (including Assets expressed to be charged by Clauses 3.1.1, 3.1.2, and 3.1.3 or assigned by Clause 3.2)."

129. By clause 3.2 of each Debenture, the respective Octagon Group Company "with full title guarantee … [assigned] by way of security to the Trustee":

"3.2.5 the benefits of all Consents vested in the Company."

130. Clause 3.3 of each Debenture provided as follows:

"3.3 Ranking

The floating Charge created by Clause 3.1.4 shall rank behind all the fixed Charges created by or pursuant to this Debenture but shall rank in priority to any other Security hereafter created by the Company, except for Security permitted by Clause 4.1 to rank in priority and except for Security ranking in priority in accordance with Clause 9.3.5."

131. Clause 3.4 of each of the Debentures provided as follows;

"3.4 Creation of Fixed Charge

If the creation or purported creation of the fixed charges pursuant to Clause 3.1.2 (vi) over any of the Company's rights in respect of any Consent breaches any term of the relevant Consent and as a result of such breach any person seeks or is likely to seek to repudiate or cancel the relevant Consent or commences or is likely to commence proceedings for breach, repudiation or cancellation, the Trustee will release the relevant Consent from the fixed charges to the extent necessary to avoid a breach of that Consent."

132. The reference in clause 3.4 to clause 3.1.2(vi) would appear to be a mistaken reference to clause 3.1.3(vi).
133. Clause 4.2 of each Debenture provided as follows:

"4.2 Disposal

The Company shall not (and shall not agree to) assign to any Person all or part of the benefit of any Project Agreement or any interest therein or any of the revenues or proceeds thereof or make or concur in (whether by a single transaction or in a number of related or unrelated transactions and whether at one time or over a period of time) any sale, transfer, lease out, lend or other disposal of (whether outright, by a sale-and-repurchase or sale-and-leaseback arrangement, or otherwise) any of its Assets except for any such disposal permitted by Clause 19.1.6 of the Facility Agreement and not prohibited by any other Finance Document."

134. By clause 6.2 of each Debenture the relevant Octagon Group Company was precluded from exercising any rights attached to or connected with any charged investment, which included charged shares, if that would prejudice the interests of the secured creditors.

The Earn-In Agreement

135. The Earn-In Agreement was made between OCL, OCRL and E&P.
136. The Earn-In Agreement recited that OCL and OCRL between them held all the legal and beneficial interest in each of the Existing Licences, and that E&P wished to obtain, and OCL was willing to transfer to E&P, 10% of the legal and beneficial interest in the Licences and the joint operations resulting from them, and the Secretary of State had no objection in principle to the terms of the Agreement.
137. By clause 2.7 E&P undertook that it would abide by the terms of the relevant JOA in all matters associated with the Licences as if it were a signatory thereto.
138. Clause 2.7 also provided as follows:

"AND OCL AND OCRL HEREBY CONFIRM THAT effective as of the date hereof and until such time as the assignments and transfers referred to in Clause 3 below are effected or until E&P have forfeited their rights by going Non-Consent, OCL (providing E&P continues to abide by the terms of this Clause 2), will hold a ten percent (10%) interest in each of the Licences on trust for E&P and carry out E&P's instructions in connection with that interest with regard to all decisions taken under the relevant JOA and OCL and OCRL shall abide by all the terms thereof. "

139. The expression "Non-Consent" meant, by virtue of clause 2.6 of the Earn-In Agreement, an election by E&P under the provisions of a JOA not to participate in a well in accordance with the term of the JOA.
140. Clauses 3.1 and 3.2 of the Earn-In Agreement provided as follows:

"3.1 Immediately following the Commencement of Drilling of one (1) Well on each Licence in which E&P has participated, OCL shall assign to E&P a ten percent (10%) legal and beneficial interest in and under that Licence and a corresponding interest in and under the JOA for that Licence.

3.2 OCL shall apply for approval from the DTI for such assignments, and until such approval is obtained shall continue to hold the assigned interests in trust for E&P in accordance with clause 2.7 above."

The JOAs

141. A JOA was entered into in respect of each Licence. In some cases the parties to the JOA were OCRL and OCL. In other cases, E&P was also a party. In others, Cabot was also a party.
142. So far as relevant to the present proceedings, the provisions of each JOA were the same.
143. Article 4 provided that OCL should be the Operator, removable by the affirmative vote of parties owning a combined participating interest of 65% or more, after excluding the Operator's percentage interest in specified circumstances. Article 4 also contained provisions as to the selection of a successor.
144. Article 5 specified the rights and duties of the Operator. It provided, in particular, that, unless otherwise provided in the JOA, the Operator should have the exclusive right to conduct operations under the JOA.
145. Article 16.4 set out a procedure whereby a party, which desired not to pay its share of a payment in respect of a Licence, could be required to assign its interest to the other participating parties. It was in the following terms:

"16.4 Non-participation in Payments. A Party that desires not to pay its share of a rental, minimum royalty, or similar payment shall notify the other Parties in writing at least sixty (60) days before the payment is due. Operator shall then make the payment for the benefit of the Parties that do desire to maintain the Licence. In such event, or in the event that a Party does not pay its share of a rental within 30 days of the due date for the rental and having received due notice to pay by the Operator or in the case of the Operator by the other Participating Parties, the Non-participating Party shall assign to the Participating Parties, upon their request, the portions of its interest in the Licence maintained by the payment. The assigned interest shall be owned by each Participating Party in proportion to its Participating Interest. The assignment shall be made in accordance with Article 26 (Successors and Assigns)."

The Direct Agreement

146. This Agreement was made between EPOL, E&P, Enron Capital & Trade Resources Limited, Protocom Operating LLC, E&P Operating LLC, and the Octagon Group Companies. The Direct Agreement recited that E&P, in its capacity as a JOA counterparty, was a party to the Direct Agreement in anticipation of becoming a party to the JOAs.
147. It also recited that EPOL, as security trustee for "the Secured Creditors", held the benefit of the Direct Agreement on trust for the Secured Creditors.
148. Clause 1 of the Direct Agreement provided that terms defined and references construed in the Facility Agreement should have the same meaning and construction in the Direct Agreement, except to the extent that the context required otherwise.
149. By clause 2.1 of the Direct Agreement, E&P, among others of the parties, acknowledged receipt of a copy of the Debentures made between the relevant borrowers and the trustee, and by clause 2.2 consented to the security interests created by the applicable Debenture.
150. By clause 7 of the Direct Agreement each of the Octagon Group Companies acknowledged and notified to each counterparty that it was bound by the restrictions imposed under the Finance Documents on the exercise by the Octagon Group Companies of certain of their rights, powers and discretions under the Operating Agreements (including their rights to amend, waive, vary or assign the same).
151. Clause 8.1 of the Direct Agreement provided that E&P, among others of the parties, would give to EPOL written notice of any material breach of an Operating Agreement to which it was a party by any of the Octagon Group Companies as soon as reasonably practicable after it became aware of the same.
152. Clause 9.1 provided that E&P, among others of the parties, was to give EPOL at least 90 days' written notice prior to exercising any rights granted to it in respect of any default of any of the Octagon Group Companies under a JOA; and clause 9.2 provided that E&P would not exercise any such right if, within 90 days of due notice, the default in question was cured or remedied or EPOL acted otherwise than in accordance with the options contained in clause 9.2. Those clauses, so far as relevant, were in the following terms:

"9.1 Each Counterparty will give the Trustee at least 90 days notice prior to:

9.1.1 exercising any right to rescind, cancel or terminate an Operating Agreement to which it is a party;

9.1.2 suspending performance of its obligations thereunder; or

9.1.3 exercising any other rights granted to it (whether pursuant to such Operating Agreement or otherwise at law) in respect of any default, insolvency or winding-up of or by a Borrower under an Operating Agreement;

(together "Enforcement Action").

9.2 Each Counterparty confirms that it will not take any Enforcement Action and will continue to perform its obligations under the Operating Agreements to which it is a party if, within 90 days of notice given pursuant to Clause 9.1:

9.2.1 such default or situation is either (i) cured or remedied, or (ii) if not capable of cure or remedy, the event or circumstances giving rise to the right to terminate is not continuing; or

9.2.2 the Trustee has delivered a notice to the Counterparty pursuant to Clause 10.1 below of its intention to join an Additional Party or substitute a Substitute Party for the Borrower; or

9.2.3 the Trustee is conducting bona fide negotiations to acquire or dispose of the Borrower's interest in the Operating Agreement in question and in the Specified Assets and Specified Developments and within a further 30 days has delivered a notice to the Counterparty pursuant to Clause 10.1 below of its intention to join an Additional Party or substitute a Substitute Party for the Borrower; or

9.2.4 alternative arrangements are being made by the Trustee which are reasonably satisfactory to the Counterparty."

153. Under clause 10.4 of the Direct Agreement EPOL confirmed that it had notice of the trust created in favour of E&P under the Earn-In Agreement, and acknowledged that the security created in favour of the Secured Creditors was subject to that trust. Clause 10.4.4 expressly acknowledged that no valid and binding assignment made in accordance with the terms of the Earn-In Agreement should breach the terms of the Facility Agreement or the Finance Documents.

The moral high ground?

154. Each side, for obvious reasons, clothed its legal case with the outer garments of a moral claim.
155. The Claimants sought to portray the Defendants as participants in an unlawful collusion, master minded by Mr Garratt who owned or controlled or directed all of them, and by which assets, known by all of them to fall within the Debentures, were shuffled out of the Octagon Group Companies for no or inadequate consideration in transactions that were masqueraded as ordinary business transactions but were actually initiated and executed solely to undermine the rights of the Enron Lenders.
156. The Defendants, on the other hand, and, in particular Mr Garratt and his co-directors of the Octagon Group Companies, portray their dealings with the Licences as reasonable and, indeed, necessary commercial transactions in order to stay in business - brought about by the unlawful conduct of the Enron Lenders in failing to provide the funding for the Octagon Group Companies pursuant to the contracts between them.
157. The resolution of the disputes, which are the subject of these proceedings, is not assisted by any pre-conceived or intuitive sense of the justice of either side.
158. The Enron Lenders agreed to a facility for the Octagon Group Companies on the terms of the Security Documents. Whether or not the Enron Lenders were in breach of any of the Security Documents, or the supplementary financing agreement made in October 2001, is not an issue before me, and is not a matter on which I can form any view. What is not apparently in dispute is that, at the time of the transactions which are the subject of these proceedings, the Octagon Group Companies owed substantial sums to the Enron Lenders in the region of £6m. What is also clear is that it is no part of the Defendants' case that the Enron Lenders were, and the Claimants are, precluded from enforcing the security conferred by the Debentures because the Enron Lenders failed to advance to the Octagon Group Companies money which the Defendants claim ought to have been advanced.
159. Accordingly, if the dealings by the Octagon Group Companies and the Defendants with the Licences were dealings permitted by the Security Documents, then they are free from the claims of the Enron Lenders and the Claimants, even though the effect of the dealings was to reduce the assets available by way of security for the loans to the Octagon Group Companies. On the other hand, if the transactions were not permitted by the Security Documents, then, even though they may have been prudent or even necessary for the financial survival of the Octagon Group Companies and even though the desperate financial condition of those Companies was brought about, in whole or in part, by the failure of the Enron Lenders to comply with their funding obligations, the assets are recoverable by the Claimants since that was the basis of the commercial deal reflected in the actual terms of the Security Documents.

Fixed or floating charge?

160. The Claimants contend that the Debentures created a fixed charge over the Licences, that is to say both the existing Licences and the After-Acquired Licences, and also the OGL Shares. The Defendants claim that the Debentures created a floating charge over those assets and not a fixed charge.
161. A chargor's unfettered freedom to deal with the charged assets in the ordinary course of business free from the charge is inconsistent with the nature of a fixed charge: Re Coslett (Contractors) Ltd [1998] Ch 495, 510 (Millett LJ).
162. In Agnew v Commissioner of Inland Revenue [2001] 2AC 710 Lord Millett, giving the judgment of the Privy Council, described in the following way, at para. [32], the two stage process to be undertaken by the Court in determining whether a charge is a fixed charge or a floating charge:

"In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or a floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or tenancy. The court must construe the grant to ascertain the intention of the parties: but the only intention which is relevant is the intention to grant exclusive possession: see Street v Mountford [1985] AC 809, 826 per Lord Templeman. So here: in construing a debenture to see whether it creates a fixed or a floating charge, the only intention which is relevant is the intention that the company should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge; or, to put the question another way, whether the charged assets were intended to be under the control of the company or of the charge holder."

163. It is common ground that, for the purposes of the first stage of the two stage process described by Lord Millett, the critical issue is the inter-relationship between clauses 3.1.3, 3.2 and 4.2 of the Debenture and clause 19.1.6 of the Facility Agreement.
164. Clauses 3.1.3 and 3.2 of the Debentures are not merely consistent with, but, taken on their own, a positive indication of the intention of the parties to create a first fixed charge in relation to the OGL Shares and, at the least, the Original Licences.
165. Clause 4.2 of the Debentures contains a broad prohibition, in relation to all the Assets of the relevant company, against any disposal "except for any such disposal permitted by Clause 19.1.6 of the Facility Agreement …".
166. The Defendants contend that, giving clause 19.1.6 of the Facility Agreement its natural and ordinary meaning, it permits all disposals in the ordinary course of the business of each of the Octagon Group Companies. Accordingly, the Defendants submit, clause 4.2 of the Debenture also permits disposals of all the assets of the relevant company in the ordinary course of its business, including the assets specified in clause 3.1.3 of the Debentures.
167. The Claimants, on the other hand, maintain that clause 4.2 of the Debentures and clause 19.1.6 of the Facility Agreement must be interpreted in a sensible commercial manner so as to give effect to the obvious intention of the parties that the assets specified in clause 3.1.3 of the Debentures should be subject to a first fixed charge, as distinct from a floating charge such as was expressly imposed in clause 3.1.4 of the Debentures.
168. Mr Moss, on behalf of the Claimants, submitted that such a commercial and sensible interpretation could be achieved by limiting clause 19.1.6 of the Facility Agreement to all those assets of the relevant company not expressed to be subject to the fixed charge in clause 3.1.3 of the Debentures and not caught by clause 3.2 of the Debentures.
169. He submitted that, in the alternative, the same result could be achieved, in a more technical way, by concentrating on the word "permitted" in the phrase "except for any such disposal permitted by clause 19.1.6 of the Facility Agreement…", and relating that word back to its appearance in clause 19.1.6 of the Facility Agreement in the phrase "without the consent of the Agent or as permitted pursuant to the Power Purchase and Emissions Credit Agreement or the Earn In Agreement." In other words, the exception to the prohibition in clause 4.2 of the Debentures is limited to disposals permitted pursuant to the Power Purchase and Emissions Credit Agreement and the Earn In Agreement.
170. Mr Moss supported this approach by emphasising that neither the OGL Shares nor the Licences formed part of the circulating capital or stock-in-trade, or part of a fluctuating body of assets, of any of the Octagon Group Companies. Mr Gravelius accepted that the Licences were properly treated in the accounts of the Octagon Group Companies as fixed assets.
171. Mr Moss, in this regard, referred to the reasoning and decision in Arthur D Little Ltd v Ableco Finance LLC [2003] Ch 217, which concerned a dispute over whether a charge in a debenture by the claimant over its entire shareholding in a subsidiary was a fixed or floating charge. The claimant carried on a management consultancy business. Roger Kaye QC, sitting as a Deputy High Court Judge, held that the debenture created a fixed charge over the shares. He said, at para. [40]:

"(2) I again remind myself that the company was not trading in shares and no one has suggested it did. The essential nature of its business cannot, in my judgment, be ignored. The shares in CCL were not part of the company's circulating capital and it did not need to sell them, to deal with them, or to substitute them as part of its ordinary business as a management consultant, nor to improve or assist its cash flow as part of that business. The shares were not part of a fluctuating body of assets which changed from time to time in the ordinary course of the company's business."

172. In Re Yorkshire Woolcombers Association Ltd [1903] Ch.D 284 at p.295 Romer LJ said:

"I certainly do not intend to attempt to give an exact definition of the term "floating charge," nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge. (1.) If it is a charge on a class of assets of a company present and future; (2.) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3.) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with."

173. Mr Moss submitted that neither the OGL Shares nor the Licences fell within Romer LJ's category (2)
174. Mr Moss emphasised that, although not decisive, the description applied by the parties to the charge in clause 3.1.3 of the Debentures, and the plain intention of the parties that the assets within clause 3.1.3 of the Debentures should be subject to a first fixed charge, rather than a floating charge, ought properly to be taken into account, and the cases are consistent with that approach.
175. He emphasised, further, that the express assignment provisions of clause 3.2 were strongly indicative of an intention to create a fixed charge in relation to, for example, the consents specified in clauses 3.2.5 and 3.1.3(vi). He submitted that the assignment was a legal assignment and not merely an equitable assignment. Indeed, in the course of Mr Adkins' closing submissions, Mr Adkins accepted that, if there was no fixed charge of the Licences, but only a floating charge, clause 3.2.5 of the Debentures was unnecessary and redundant.
176. Mr Moss also submitted that the provisions of clauses 3.3 and 3.4 of the Debentures reinforce both the intention of the parties to create a fixed charge over the assets in clause 3.1.3 of the Debentures and the importance the parties attached to the fixed charge.
177. Finally, Mr Moss submitted that, if the effect of clause 4.2 of the Debentures and clause 19.1.6 of the Facility Agreement was that all and any of the assets of the Octagon Group Companies could be disposed of in the ordinary course of their business, the entirety of clause 3.1.3 of the Debentures, which purported expressly to impose a first fixed charge over six specific categories of assets, was of no effect whatsoever.
178. In my judgment, the approach of the Defendants is to be preferred on this issue.
179. Giving clause 4.2 of the Debentures and clause 19.1.6 of the Facility Agreement their natural and ordinary meaning, they provide that each of the Octagon Group Companies can dispose of any of its assets if such disposal is in the ordinary course of its business and is not prohibited by any other Finance Document (as defined in the Facility Agreement). Neither clause 4.2 of the Debentures nor clause 19.1.6 of the Facility Agreement makes any distinction between different categories of assets. Clause 4.2 prohibits disposals by the relevant company of "any of its assets," but then excepts from such prohibition "any such disposal permitted by clause 19.1.6 of the Facility Agreement …". Clause 19.1.6 similarly contains a covenant by each of the Octagon Group Companies that it will not dispose "of any of its Assets or any interest in any of its Assets", and then provides five exceptions. The first exception is that disposals may take place with the consent of EPOL. The second, is that disposals may take place if permitted pursuant to the Power Purchase and Emissions Credit Agreement or the Earn-In Agreement. The third exception is that disposals may take place in the ordinary course of its business. The fourth exception is that disposals may take place "of obsolete or unused Assets on an arm's length basis or as waste, or where such Assets are replaced with Assets of substantially the same nature and value". Finally, clause 4.2 provides that disposals may take place up to maximum net sale proceeds of £50,000 in any one year. In none of those exceptions is a distinction made between different categories of assets, in particular assets within clause 3.1.3 of the Debentures and other assets.
180. As I have said, Mr Moss laid emphasis on the clear indications in clauses 3.1.3 and 3.2 of the Debentures that the parties intended there should be a first fixed charge on, among other things, the Licences. While it would be wrong to discount this factor entirely, too much emphasis upon it would undermine, and run directly contrary, to the two stage process specified by Lord Millett in Agnew and the principle that whether or not a fixed charge has been created depends upon the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets, rather than on the description that they have used in describing the nature of the charge. As Lord Millett said: "If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect to the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it." In short, it turns the process of analysis on its head, to say that clause 19.1.6 of the Facility Agreement must be construed so as to apply only to assets within the floating charge created by clause 3.1.4 of the Debentures since it is apparent from clause 3.1.3 that the parties intended to create a fixed charge in relation to the assets there specified.
181. Nor is it possible, in my judgment, fairly to interpret clause 4.2 of the Debentures as permitting only those disposals "permitted" pursuant to the Power Purchase and Emissions Credit Agreement or the Earn-In Agreement. This analysis rests entirely on establishing an intended link between the word "permitted" in the phrase "such disposal permitted by clause 19.1.6 of the Facility Agreement" in clause 4.2 of the Debentures and the word "permitted" in the phrase "as permitted pursuant to the Power Purchase and Emissions Credit Agreement or the Earn-In Agreement" in clause 19.1.6 of the Facility Agreement. As a purely grammatical matter, the "permitted" is not used in clause 19.1.6 in the sense specified in clause 4.2 of the Debentures, namely a disposal "permitted by" clause 19.1.6. For that reason, and also as a natural and reasonable reading of clause 4.2 of the Debentures and clause 19.1.6 of the Facility Agreement, the disposals "permitted by" clause 19.1.6 can only be a reference to all the five categories of exemption which I have summarised earlier.
182. Further, there is a danger in the present case in laying too great an emphasis on the nature of the assets in question, namely the Licences and the OGL Shares. The fact that assets are not part of a company's circulating capital or stock in trade, which it needs to sell as part of its ordinary business, can understandably have an important influence in the categorisation of a charge as a fixed charge, rather than a floating charge, in an appropriate case. In the present case, however, unlike, for example, Arthur D Little and Re Yorkshire Woolcombers Association, the parties have agreed an express provision permitting each of the Octagon Group Companies to dispose of assets in the ordinary course of its business. In accordance with Lord Millett's two stage process, what must be ascertained at the first stage, as a matter of standard interpretation of written documents, is whether, on the language used, the express power to dispose of assets in the ordinary course of business was limited to particular assets or applied to all assets of the company. Whilst, of course, the nature of the assets in question forms part of the factual background against which the standard process of documentary interpretation takes place, the ordinary and natural meaning of the words used is the primary touchstone. By contrast, in the absence of an express provision permitting disposals in the ordinary course of business, the nature of the charged assets assumes a much greater significance in the process of establishing whether the intention was to create a fixed charge or a floating charge over the assets in question.
183. So far as concerns clause 3.2 of the Debentures, I consider that this effected an equitable assignment rather than a legal assignment. An equitable assignment is not inconsistent with a floating charge over the assets specified in clause 3.2.
184. It is a matter of interpretation whether an assignment by way of security is intended to be an absolute and legal assignment, subject to an implied right to reassignment on redemption, or an equitable assignment. The Claimants have not alleged expressly in their Particulars of Claim that clause 3.2 effected an absolute and legal assignment. Indeed, it appeared that, until certain observations were made by me in the course of final submissions, the Claimants' position was that clause 3.2 only created an equitable assignment.
185. It appears inherently unlikely that the parties intended clause 3.2 to operate as a legal assignment. In relation to the benefit of the Licences, for example, it seems that it would have required the Enron Lenders, or possibly EPOL, to be registered with the DTI as the owners and operators of the Licences. That was not, in fact, ever done, and plainly was never the intention of the parties. Neither the Enron Lenders nor EPOL would have satisfied the requirements for registration (to which I shall refer in more detail later in this judgment), including, in particular, the need to show possession of the relevant mining expertise. Further, an absolute assignment of the benefit of the Licences would have involved the right of the Enron Lenders to receive the financial rewards of any successful mining operations. Again, there is no evidence, and it is inherently unlikely, that that was the intention of the parties.
186. Clause 3.2 of the Debentures must be interpreted against the background, and in the light of, the other provisions of the Security Documents. In the light of the ordinary meaning of clause 4.2 of the Debentures and clause 19.1.6 of the Facility Agreement, the more natural interpretation of clause 3.2 is that it created an equitable charge rather than an absolute legal charge.
187. Finally, it is to be observed that clause 3.1.4 of the Debentures, which expressly creates a floating charge, is expressed to extend to the "Assets expressed to be charged by Clauses 3.1.1, 3.1.2 and 3.1.3 or assigned by Clause 3.2". Mr Moss expressed the view that the reason the draftsman included within clause 3.1.4 the assets already purportedly charged by way of first fixed charge under clause 3.1.3 must have been to have a failsafe in case, for any reason, the first fixed charge did not take effect. He expressed the opinion that this was not an uncommon feature of Debentures. Mr Adkins, for his part, considered that the provision was unusual, and exemplified the poor standard of drafting.
188. I agree with Mr Adkins that the inclusion, in clause 3.1.4, of the assets already purportedly subject to a first fixed charge under clause 3.1.3, and subject to the assignment provisions of clause 3.2, is poor drafting. If Mr Moss is correct about the intention of the draftsman, that intention was not expressed, and certainly not clearly expressed, in the wording of clause 3.1.4. Such confusing and unsatisfactory drafting lends weight to the doubt that the draftsman really appreciated the legal consequences of the inter-relationship between clauses 3.1.3, 3.2 and 4.2 of the Debentures in the context of the distinction between fixed charges and floating charges.
189. Accordingly, for all those reasons, I conclude that the Debentures did not create a fixed charge over the Licences or the OGL Shares.
190. In the circumstances, it is not necessary for me to decide an issue between the parties as to whether, if clause 3.1.3(vi) created a first fixed charge, the After-Acquired Licences were subject to that charge.

Ordinary course of business

191. The parties do not agree on the proper legal interpretation of the expression "in the ordinary course of its … business" in clause 19.1.6 of the Facility Agreement.
192. The extent of the disagreement between the parties, at least in the opening positions of Mr Moss and Mr Adkins respectively, was striking.
193. Reduced to its essence, the primary submission of Mr Moss was that a transaction of one of the Octagon Group Companies was only in the ordinary course of its business if it was part of the common flow of business done by the company, forming part of the ordinary course of business which it carried on, calling for no remark and arising out of no special or particular situation.
194. The primary submission of Mr Adkins, on the other hand, was that a transaction was carried out in the ordinary course of business of one of the Octagon Group Companies if the transaction was not fraudulent, was within the ambit of the memorandum of association of the company, and was not calculated to bring the business of the company to an end.
195. I was referred to numerous English, Australian and New Zealand authorities on this aspect. Some of the English authorities cited were from the very early period of the development of the jurisprudence concerning floating charges in the latter part of the 19^th century. In those, and in other cases, the facts under consideration were so different from those with which I am concerned, and the statements of principle about, for example, the jurisprudential nature of a floating charge, were expressed in such loose and general terms, that they are of little, if any, assistance in relation to the proper meaning and effect of clause 19.1.6 of the Facility Agreement. It must always be borne in mind that the Court is engaged in the present case on the proper interpretation of a particular phrase in a written document, forming part of a group of associated documents for the purpose of a particular business.
196. Mr Moss' primary submission was derived from the language of the New Zealand Court of Appeal in Julius Harper Ltd v F W Hagedorn & Sons Ltd [1991] 1NZLR 530. The issue in that case was whether two assignments of goods by Harper to the defendant, a related company, were in contravention of a debenture given by Harper to the National Bank of New Zealand Ltd - which created a floating charge over certain of Harper's assets, with a provision that Harper was not to be at liberty to sell or dispose of such property or assets covered by the floating charge "except in the ordinary course of carrying on its business" - or were fraudulent conveyances under s.60 of the Property Law Act 1952 as an alienation with intent to defraud creditors.
197. Mr Moss relied particularly upon the following passage in the judgment of Somers J, giving the judgment of the Court of Appeal, at p.543:

"In referring to a provision in a bankruptcy act having reference to a purchase "in good faith and for valuable consideration and in the ordinary course of business" Rich J in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463, at p 477 said of the last requirement:

"… it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation."

That in our view is the usual meaning of the words "ordinary course of business"; in this case it is to be applied to the particular business of Harper by reason of the use of the words "carrying on its business"."

198. Mr Adkins relied upon some of the early English authorities including, in particular, Re Borax Company [1901] 1Ch 326. The material facts in that case were that Borax Company Ltd ("Borax") issued debentures which created a floating charge on the undertaking of the company. Borax sold the whole of its property and assets, including the goodwill, with the exception of certain securities, to a new company formed for the purpose of acquiring and working the old company's business and similar undertakings, and Borax agreed not to carry on any similar business otherwise than in conjunction with and for the benefit of the new company. One of the debenture holders brought proceedings against Borax claiming that the charge created by the debentures had, by virtue of the sale, immediately attached to the relevant assets. The Court of Appeal held that the plaintiff's claim failed. Mr Adkins relied upon the following passage in the judgment of Lord Alverstone CJ at pp.337-338:

"In my opinion, in order to enable the debenture-holder to insist on payment of his debentures in such a case as this he must shew, either that the act complained of is ultra vires, or that, to use the language of Lord Macnaghten, "the undertaking has ceased to be a going concern," or that the terms of the debenture which he holds give him the express right to veto or negative the operations which the company are proposing to carry out within their powers.

In my opinion, the facts in this case do not support any of the above positions. There is nothing in the debenture to prevent the company from carrying out this particular operation, if it is, as I hold it to be, within the memorandum of association; and in my opinion Farwell J. ought to have declined to give the plaintiff and the dissenting debenture-holders he represents any special rights in respect of the 16,800l. brought into court, and ought to have treated them as having the same rights as the debenture-holders who had assented."

199. Mr Adkins also relied upon the following passage in the judgment of Rigby LJ at p.338:

"In this case North J., on an interlocutory motion, granted, on March 21, 1899, an injunction until the hearing, restraining the defendants from carrying out a sale of all their assets to the defendants De Friese and Borax Consolidated, Limited, without first making due provision for the payment of the debenture-holders whose assent to such transfer had not been obtained.

No previous authority is cited for such a finding when, as in the present case, the company is only doing what is plainly authorized by the memorandum of association, and a substantial and independent business has throughout remained to be carried on."

200. In my judgment, the opening position of each side, as I have described them, is too extreme.
201. The proper starting point is that the words in the expression "ordinary course of its … business" are ordinary words of the English language which must be given the meaning which ordinary business people in the position of the parties to the Facility Agreement and the Debentures would be expected to give them against the factual and commercial background in which those documents were made. Mr Adkins' approach would accord little, if any, weight to the word "ordinary".
202. On the other hand, such businessmen would not be likely to take so narrow a view of "ordinary course of business" that it would not embrace a transaction for the preservation and continuance of a company's business, merely because it was not a transaction that had ever been carried out before.
203. The weight of authority supports that intuitive interpretation of the expression "ordinary course of its … business" in clause 19.1.6.
204. In Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422, the Court of Appeal of New South Wales considered whether an unusual trading transaction by the company was contrary to an equitable mortgage and floating charge which it had given to a bank. In the course of his judgment Mahoney JA said at p.428:

"The principle by reference to which it is to be determined whether a subsequently created interest is held free of a floating charge is clear. The reason why the charge is not fixed but floating is that, if it were fixed, the company could not, in a practical sense, continue to carry on business: subsequent interests created by it in the course of its business might be held to be subject to the prior equitable charge. Therefore, for example, where it is provided that the charge is a floating charge, or where the intention that it be such appears from the terms of the charge: United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 at 681-2, 686; or where it is the intention of the parties that the company continue to deal with the charged asset as part of a continuing business: Illingworth v Houldsworth [1904] AC 355; the company will be entitled, while the charge continues to float, to deal with such assets free of it. The test conventionally adopted for determining whether what the company has done is within this principle is: was it done by the company in the ordinary course of business? Mr Grieve, for the bank, submitted that the transaction of 8 September 1982, was not such.

The transaction was, as Mr Grieve submitted, an extraordinary one. But, within this principle, "ordinary" is not to be confined to what is in fact ordinarily done in the course of the particular business of the company. Transactions will be within this principle, even though they be, in relation to the company, exceptional or unprecedented. Thus, in Willmott v London Celluloid Co (1886) 34 Ch D 147, a fire had destroyed most of the company's business and the insurance moneys were taken by the directors on a garnishee in respect of debts due to them personally: it was held that they took them free of the equitable charge. In the Borax Company litigation [1901] 1 Ch 326, the company joined with other companies in selling the whole of its assets (excluding certain of its securities) for shares in a new holding company. The Court of Appeal accepted the finding that, in holding shares in the holding company, the company did not "cease to be a going concern": at 337, 339; cf at 342. And Re H H Vivian & Co Ltd [1900] 2 Ch 654, a company having three businesses, or branches of a business, sold one: it was held to pass free of the charge."

205. As Mahoney JA observed in that passage, Borax is, indeed, English Court of Appeal authority that a transaction may be in the ordinary course of business even if it is exceptional or unprecedented.
206. In Julius Harper the New Zealand Court of Appeal distinguished those observations of Mahoney JA in Reynolds Bros on the basis that the relevant clause in Julius Harper referred to the "ordinary course of its business", that is to say Harper's business (see p.543 cited above). I cannot agree with the proposition that the principle stated by Mahoney JA in Reynolds Bros can be distinguished on such a technical and narrow basis. It would introduce a fundamental distinction between the case of a floating charge which, by virtue of the nature of the charge, does not preclude disposals in the ordinary course of a company's business, and a floating charge in which there is an express written exception for disposals "in the ordinary course of its business".
207. Many of the cases, describing the effect of a floating charge, where the documentation does not contain any such express exception, refer to disposals of the property of the company while carrying on "its" business in the ordinary course: see, for example, Re Florence Land and Public Works Company (1878) 10 Ch 530, p.541 (Jessel MR); Re Hamilton's Windsor Ironworks (1879) 12 Ch 707, 712 (Malins VC). In Driver v Broad (1893) QBD 744, the Court of Appeal considered the nature and effect of a debenture which created a floating charge and contained an express provision that the company should be at liberty to dispose of the charged property "in the ordinary course of its business". Kay LJ thought there was no distinction between a debenture containing such an express provision and one which did not. He said, at pp.748-749:

"It was urged that this was a "floating" security. That term only expresses what is more fully expressed in the conditions indorsed on the debentures, viz., that the company shall, notwithstanding the debentures, be at liberty to carry on its business, and in the ordinary course of such business to dispose of the property, as if the debentures did not exist. That is the ordinary meaning of the term "floating security." It does not mean that there is not to be a charge, and an immediate charge, on the property, but merely that, notwithstanding the existence of the charge on all the property, including the real property, of the company, power is reserved to dispose of the property if in the ordinary course of carrying on the company's business it becomes necessary to do so. The charge is none the less a charge because such a power is reserved. In the case of In re Florence Land, &c., Co., Ex parte Moor , already referred to by the Master of the Rolls, I observe that Jessel, M.R., said, with regard to this kind of security, that it was intended to be "a security on the property of the company as a going concern, subject to the powers of the directors to dispose of the property of the company while carrying on its business in the ordinary course.""

208. In Torzillu Pty Ltd v Brynac Pty Ltd (1983) 8 ACLR 52 Helsham CJ, sitting in the Equity Division of the Supreme Court of New South Wales, considered whether a particular disposal of property by a company subject to a floating charge under a debenture fell within an express exception for dealings with assets "in the ordinary course of business". Helsham CJ said at p.53:

"I can imagine circumstances in which the severance of the part of a business might be considered necessary for the orderly conduct of a business for its reconstruction, for its survival. Such may, in particular facts, amount to a dispersal of assets which could be said to be in the ordinary course of business. It may be that even a transmogrification of the owner of the business into a new entity may involve dealing with the assets of a business in a way that could be regarded as not affecting the operations carried on otherwise than in the ordinary course of business. But I cannot see that a plan made between the proprietor and one other interested party to dissemble the various aspects that go to make up the entity of a business in order to bring it to an end in a way best calculated to serve those who have an interest in its assets can be labelled in its execution as dealing with those aspects in the ordinary course of business. It was put that the dealing with assets in the ordinary course of bringing a business to an end can be characterised as being in the ordinary course of business. I am not persuaded that this could be so but it is not necessary to decide that here."

209. The distinction made by Helsham CJ between an exceptional transaction necessary for the survival of a business, and a transaction intended to bring the business to an end is one generally recognised in relation to the operation of a floating charge: see, for example, Fire Nymph Products Ltd v The Heating Centre Pty Ltd (1992) 7 ACSR 365; Lightman and Moss on the Law of Receivers and Administrators of Companies (2000 ed.) para 3-011.
210. On the other hand, I do not accept Mr Adkins' submission that Borax is binding English authority that any transaction is to be regarded as in the ordinary course of a company's business, for the purpose of the implied or an express exception from the prohibition against disposals under a floating charge, merely because it is not fraudulent, is within the company's memorandum, and is not with a view to the termination of the business of the company. In that case, Vaughan Williams LJ expressed himself as follows, on this aspect, at p.342:

"The difficulty of the plaintiff is that it cannot be denied that generally it is true to say that a debenture-holder who takes a floating charge on the undertaking and property of a company cannot complain of anything which is done by the company intra vires and in the ordinary course of business; and Farwell J., following North J., has, in effect, held that the sale or amalgamation agreement of the company with De Friese was intra vires and in ordinary course of business, because he has held that, notwithstanding the sale, the company has not ceased to carry on business. This decision may be right or may be wrong, but it cannot be discussed because there is no appeal by the plaintiff against it." [my emphasis]

211. Many of the cases were reviewed by the Privy Council in Countrywide Banking Corporation Ltd v Dean [1998] AC 338. That case concerned the issue whether a transaction by Countrywide Banking Corporation Ltd ("Countrywide") should be set aside, following its liquidation, on the basis that it was a preference within the Companies Act 1955 (of New Zealand) ss.266-270. The applicant applied to the High Court of New Zealand under s.268(2) for an order that the transaction should not be set aside on the ground that it had taken place in the ordinary course of business. Gault J, giving the judgment of the Privy Council, emphasised the diversity of contexts in which the Courts had given consideration to "the ordinary course of business". Some, for example, were in relation to statutory provisions concerning fraudulent preference and personal and corporate insolvency; others concerned the disposal of assets subject to a floating charge.
212. In the latter context Gault J referred to Reynolds Bros, Julius Harper, Downs (cited in both Reynolds and Julius Harper), and Re Modern Terrazzo Ltd (unrptd.10 Oct 1997).
213. Following his review of the authorities, Gault J said at p.349:

"There are difficulties in drawing upon formulations in different words of statutory tests and treating them as applicable in all circumstances. Such difficulties are increased where those formulations originate in different legal or factual contexts. This is particularly so where the test is essentially one of fact in any event. For these reasons, as presently informed by the argument in this case, their Lordships do not adopt any particular formulation. Nor is it necessary for this case to make any comprehensive statement, suitable for all cases, of the criteria for determining when a transaction is to be held to have taken place in the ordinary course of business for the purpose of section 266 and the corresponding section in the Act of 1993."

214. Those observations of Gault J provide further support for the conclusion that the restrictive approach of the New Zealand Court of Appeal in Julius Harper - that an unprecedented or exceptional transaction could never properly fall within an express exclusion, from a floating charge of, transactions in the ordinary course of the company's business - based as it was upon a statement by Rich J in Downs, a case concerning statutory provisions relating to wrongful preference in the context of liquidation, was erroneous.
215. Although the Privy Council in Countrywide Banking declined to adopt any particular formulation, or comprehensive statement, suitable for all cases, of the criteria for determining when a transaction is to be held to have taken place in the ordinary course of business, some general observations of the Privy Council, albeit made in the specific context of s.266 of the New Zealand Companies Act 1955, may appropriately be viewed as having a wider application, extending to transactions in the ordinary course of a company's business in the context of a floating charge. In particular, Gault J commented that the transaction must be examined in the actual setting in which it took place, which defines the circumstances in which it is to be determined whether it was in the ordinary course of business. He further observed that the determination is to be made objectively by reference to the standard of what amounts to the ordinary course of business. It must be such that it would be viewed by an objective observer as having taken place in the ordinary course of business: see p.349.
216. Reference was made by both sides to Willmott v London Celluloid Company (1887) 34 Ch 147. The facts of the case were that two directors of the company loaned it money from time to time. The company's premises were burnt down, and an insurance company admitted liability to pay in respect of the damage. The directors brought proceedings against the company for the money they had loaned, and, pursuant to board resolutions which they had passed that the company should instruct solicitors to consent on behalf of the company to immediate judgment, they obtained immediate judgment by consent. The directors then obtained a sum of money from the insurance company under garnishee orders, and applied it in part payment of the debts due to themselves from the company. The company was at that time practically insolvent. Following the making of a winding up order against the company, the proceedings were brought by the holder of a debenture issued by the company, on behalf of himself and the holders of other debentures issued by the company, each of which created a floating security, for repayment of the sum recovered by the directors from the insurance company and other relief. The debentures expressly provided that the company might "in the course of its business" deal with the property charged in such manner as the company might think fit. A claim based on fraudulent preference under Companies Act 1962 s.164 was dismissed at first instance by Bacon VC. The Court of Appeal held that the decision of the Vice-Chancellor on the question of fraudulent preference was correct; and, secondly, that the payment to the directors was a dealing by the company in the course of business within the debentures; and, accordingly, the appeal was dismissed.
217. Mr Moss submitted that the decision in Willmott was no longer good authority, and should not be followed by me. He relied upon the decision of the Court of Appeal in West Mercia Safetyware Ltd v Dodd [1988] BCLC 250. The facts in that case were that West Mercia Safetyware Ltd ("West Mercia") was a wholly owned subsidiary of A J Dodd & Co Ltd ("Dodd"). The respondent was a director of both companies. Both companies banked with the same bank. Dodd's overdraft at the bank was personally guaranteed by the respondent. In May 1984 West Mercia owed Dodd about £30,000. At that time both companies were in financial difficulties. The respondent transferred £4,000 from the West Mercia account to the Dodd account. Shortly afterwards both companies went into liquidation. The liquidator of West Mercia applied for a declaration that the respondent was guilty of misfeasance and breach of trust and that he be ordered to repay the £4,000 transferred from West Mercia to Dodd. The Court of Appeal granted the relief sought by the liquidator. Dillon LJ, with whom the other members of the Court of Appeal agreed, said (at pp. 252-253):

"We have been referred to quite a number of authorities on this topic. For my part I find helpful, and would approve, the statement of Street CJ in Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 730, where he said:

'In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company's assets. It is in a practical sense their assets and not the shareholders' assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.'

In the present case, therefore, in my judgment Mr Dodd was guilty of breach of duty when, for his own purposes, he caused the £4,000 to be transferred in disregard of the interests of the general creditors of this insolvent company. Therefore the declaration sought in the notice of motion ought to be made as against Mr Dodd."

218. West Mercia was not a case concerned with the operation and effect of a floating charge either generally, or in the specific context of a transaction in the ordinary course of the company's business.
219. What is clearly established by Willmott, and other cases, none of which were referred to in West Mercia, is that the mere fact that a payment by the company may be a fraudulent or wrongful preference, in the context of a winding up, does not necessarily render the same payment, in the absence of a winding up, a transaction outside the ordinary course of the company's business. This was explained by Cotton LJ in Willmott as follows at p.149:

"This is an appeal from a decision of Vice-Chancellor Bacon. The ground on which the case was argued on behalf of the Plaintiff before the Vice-Chancellor was that the payment of the insurance moneys to the Defendants in respect of their claims against the company must be treated as a fraudulent preference within the 164th section of the Companies Act, 1862, which provides that any act relating to property which would in bankruptcy be a fraudulent preference of the creditors shall be considered as such in the winding-up of a company, so that money recovered under a claim on account of fraudulent preference would be recovered for the general creditors as if it had been recovered by the trustee in bankruptcy, and that therefore the moneys so paid to the Defendants must remain subject to the security of the Plaintiff. The Vice-Chancellor held that the section did not apply, and dismissed the action so far as it related to this claim. I think he did so rightly, because the section is only intended to apply in the case of a winding-up and for the benefit of the general creditors. Here the Plaintiff is seeking to enforce his claim independently of the winding-up. And in the case of Ex parte Cooper it was decided that the doctrine of fraudulent preference is not to be taken advantage of by a mortgagee, but only for the benefit of the whole body of creditors. That was a bankruptcy case. The 164th section relates only to a case similar in all respects to that which arises in bankruptcy. I think, therefore, that the decision of the Vice-Chancellor was right on that point."

220. The same point was made in Reynolds Bros. In that case Glass JA said, at p.424:

"There was also some suggestion in argument that because the transaction may have given Esanda a preference over other unsecured creditors in the event of a subsequent liquidation, it could not be within the course of the dealer's business. This would appear to be an irrelevant consideration. In Re Quality Camera Co Pty Ltd [1965] NSWR 1330 McLelland J held that although payments made by a company which had given a floating charge over its assets and later became insolvent were void as preferences against the liquidator they nevertheless fell within the licence of the mortgagor and were valid against the receiver."

221. Priestley JA said, at pp.430-431:

"The appellant's argument that the objective observer could see that at the time the challenged transaction took place the business was bound soon to come to an end does not require the conclusion that the transaction was not in the ordinary course of business but rather the opposite. This point was made by Lord Blackburn in a bankruptcy case: Tomkins v Saffery [1877] LR 3 AC 213 at 235.

"Now I think you must say that it is not with a view to give an undue preference, if a man makes a payment to a creditor in the ordinary course of business. Supposing a bankrupt, although knowing that he is very likely to stop payment next week, struggles on and makes a payment without being particularly asked; supposing he pays his debts and sends his money to meet his bills on those days on which they become due, and does other things so as to keep himself alive and in good credit for the time; that would not have been undue preference I think, because those payments were not made "in favour of" certain creditors as against others, but were made in the hope – a desperate hope perhaps – that if he were able to keep himself alive something might turn up in his favour. Nor do I think it would be an undue or fraudulent preference if there was a demand upon him, and a yielding to that demand, by making a payment which might not otherwise have been made so soon."

Everything mentioned by Lord Blackburn in that paragraph was regarded by him as being "in the ordinary course" of the trader's business."

222. The principle was reiterated by Millett J in Re M.C.Bacon Ltd [1991] Ch 127. In that case he said, at p.137:

"An application to set aside a voidable preference can be made only by a liquidator or administrator and in the absence of a liquidation or administration order cannot be made at all: see section 239(1) of the Act of 1986. It cannot be made by an administrative receiver. This is so provided by the relevant legislation because a payment or other transaction in the course of business binds the debenture holder even if its effect is to prefer another creditor: see Willmott v. London Celluloid Co. (1886) 34 ChD 147. Cotton L.J. pointed out, at p. 150, that the preference section, then section 164 of the Companies Act 1862, was "only intended to apply in . . . a winding up and for the benefit of the general creditors." It was thus established long before 1986 that any sum recovered from a creditor who has been wrongly preferred enures for the benefit of the general body of creditors, not for the benefit of the company or the holder of a floating charge. It does not become part of the company's assets but is received by the liquidator impressed with a trust in favour of those creditors amongst whom he has to distribute the assets of the company: see In re Yagerphone Ltd. [1935] Ch. 392. The actual ratio in that case was that the payment of a debt due to an unsecured creditor prior to the crystallisation of the floating charge bound the debenture holder. The liquidator submits that the last paragraph of Bennett J.'s judgment in which he stated that the money received by the liquidators was impressed in their hands with a trust for the general body of creditors was obiter and wrong. The passage in question may strictly have been obiter but in my judgment it follows logically from the ratio and I agree with it.

It follows, in my judgment, that a claim to set aside a voidable preference is not a claim to realise or get in any asset of the company. That must be so whether the preference took the form of the payment of a debt or the grant of a security. The only difference is that in the latter case the claim wears a greater semblance of being a claim to get in the assets of the company because the assets comprised in the security belong to the company. But in truth the claim is not to get in the assets comprised in the security but to set aside the security."

223. It is to be remembered, in this context, that is well settled law that, apart from the principles applicable on insolvency, a person may pay his debts in any order: Re Sarflax Ltd [1979] Ch 592, 603 and 612.
224. This is not to say that the principle in West Mercia is of no relevance in the context of deciding whether a transaction by a company is in the ordinary course of its business for the purposes of a floating charge. If a transaction is carried out at a time when it is insolvent, in breach of the directors' fiduciary duties, that may be a factor, possibly an important one, in concluding that, in all the circumstances, the transaction was precluded by the charge.
225. So far as concerns the decision in Willmott on the facts of that case, it is not necessary to consider whether it would be decided in the same way to-day. As was pointed out in Julius Harper, a possibly significant feature of Willmott was that the express terms of the debentures in that case provided that the company might deal with the property charged "in the course of its business". The omission of the word "ordinary", which is usually to be found in express provisions in a floating charge, and is present in clause 19.1.6 of the Facility Agreement, and is the qualification that applies by implication in the absence of an express provision for dealing by the company notwithstanding the floating charge, is a material distinction.
226. With the same caution, and for the same reasons, as were mentioned by the Privy Council in Countrywide Banking, I do not propose to attempt any particular formulation of the test for determining whether a transaction falls within the ordinary course of a company's business for the purpose of a floating charge, or to make any comprehensive statement of the criteria for determining when a transaction is to be held to have taken place in the ordinary course of business for that purpose. On the other hand, it may be helpful to summarise briefly the following conclusions that I have reached from the decided cases that I have reviewed: (1) The question whether a particular transaction is within the ordinary course of a company's business in the context of a floating charge is a mixed question of fact and law; (2) it is convenient to approach the matter in a two stage process; (3) first, to ascertain, as a matter of fact, whether an objective observer, with knowledge of the company, its memorandum of association and its business, would view the transaction as having taken place in the ordinary course of its business, and, if so (4) second, to consider whether, on the proper interpretation of the document creating the floating charge, applying standard techniques of interpretation, the parties nonetheless did not intend that the transaction should be regarded as being in the ordinary course of the company's business for the purpose of the charge; (5) subject to any such special considerations resulting from the proper interpretation of the charge document, there is no reason why an unprecedented or exceptional transaction cannot, in appropriate circumstances, be regarded as in the ordinary course of the company's business; (6) subject to any such special considerations, the mere fact that a transaction would, in a liquidation, be liable to be avoided as a fraudulent or otherwise wrongful preference of one creditor over others, does not, of itself, necessarily preclude the transaction from being in the ordinary course of the company's business; (7) nor does the mere fact that a transaction was made in breach of fiduciary duty by one or more directors of the company; (8) such matters in (6) and (7) may, however, where appropriate and in all the circumstances, be among the factors leading to the conclusion that the transaction was not in the ordinary course of the company's business; (9) transactions which are intended to bring to an end, or have the effect of bringing to an end, the company's business are not transactions in the ordinary course of its business.

Transfer to Cabot of 41% of PEDLs 11 and 12

227. The commercial rationale for the transaction with Quality Drilling UK and Cabot, pursuant to the Drilling Agreement and the 41% Transfer Agreement, is conveniently summarised in the following evidence of Mr Garratt in cross-examination:

"… if you consider what happened with 11 and 12: at the 31^st March, at that point in time we were going to lose both licences. We were actually going to lose our very best licences and where all the major value of the company was situated. We could not find anybody to fund it, if you like, except for quality drilling and Cabot Energy.

Now, that frankly was very beneficial for us, and by doing that, we preserved our assets. Enron were very pleased that we did that. If we did not do that, then we would have lost basically our major asset and we really would have had a problem. Now the fact is we entered into a joint venture, that joint venture at the time was the fact that for £250,000, if we paid £250,000 by 31^st December 2002 we would have kept 100 per cent of the licences. The fact is that we were not able to pay because we were not funded by 31^st December 2002.

However, we had every expectation that we would be funded and that we would not have to, if you like, release the 41per cent to Cabot which is also why we had a significant time period. It was during this time period that we had an offer from Scottish and Southern which finally unfortunately collapsed."

(Transcript 24 May 2004 pp.177-178).

228. In short, the Defendants' case is that PEDL 11 and PEDL 12 were at risk of being lost unless certain work, required by the Licences, was carried out; that work involved drilling operations on the land to which PEDLs 11 and 12 related; the Octagon Group Companies did not have the money to procure the drilling operations to be carried out pursuant to conventional arrangements with conventional drilling operators, since they had not been put in funds by Enron; and the arrangements with Quality Drilling UK and Cabot enabled the work to be carried out, with a deferral of a fixed or "turnkey" price of £250,000 for a period of time within which, it was anticipated, re-financing of the Octagon Group Companies would be negotiated and agreed.
229. The work specified in the Drilling Agreement was in due course executed. OCL did not, however, pay the £250,000 due under the Drilling Agreement. Accordingly, deeds of assignment dated 27 March 2003, transferring to Cabot a 41% interest in PEDL 11 and PEDL 12 respectively, were in due course executed. Applications were sent by Mr Garratt to the DTI for consent to those assignments under cover of a letter dated 1 August 2003. That letter was, apparently, not received by the DTI until 28 August 2003, which was after the date of the appointment of the Receivers and the sale to Greenpark. By reason of those intervening events, the DTI refused to process the applications for consent.
230. In my judgment, aspects of the Drilling Agreement, the 41% Transfer Agreement and the subsequent consent applications to the DTI for registration, taken separately or together, are so unusual that the transfer of the 41% interest in PEDLs 11 and 12 cannot be described as disposals in the ordinary course of OCL's business within clause 19.1.6 of the Facility Agreement.
231. Both the passage in Mr Garratt's cross-examination, which I have cited above, and paragraph 61 of his witness statement refer to the need for a well to be drilled on PEDL 11 and PEDL 12 in order to keep those Licences. It appears from Mr Garratt's evidence that the critical date was 31 March 2002. The Drilling Agreement, however, was not executed until 12 April 2002. It was recorded in minutes of a meeting of the directors of OEL on 25 April 2002 that, in relation to PEDL 11, the fact that gas was already being produced "has been accepted for ongoing extension and we now have no need to separately drill". The same minutes recorded, in respect of PEDL 12, that "we did have a drill rig on site by 31 March, and have been granted a second term". To my mind, the evidence, both written and oral, never clearly explained the inter-relationship between the need to carry out work on or before 31 March 2002, the agreement of the DTI to extensions of PEDL 11 and PEDL 12 recorded in the minutes of the meeting of OEL on 25 April 2002, and the urgent need to enter into the Drilling Agreement on 12 April 2002.
232. It was that urgency and that commercial necessity which are relied upon by the Defendants as justification for entering into a transaction which, on the face of it, is very surprising.
233. The Drilling Agreement was with Quality Drilling UK. Quality Drilling UK had an issued share capital of £100. It had no assets of any significance. Quality Drilling UK had hired the Drilling Rig and the Equipment from Cabot pursuant to an agreement dated 14 December 2000. Cabot was a Liberian company with a Swiss P.O.Box address, the assets of which were unknown. Mr Garratt confirmed in his oral evidence that the 41% Transfer Agreement and the Drilling Agreement were known to him to be all part of the same transaction.
234. On the basis of the OCL directors' statement of affairs, sworn by them following the appointment of the Receivers, 41% of PEDLs 11 and 12 had an estimated realisation value on 26 August 2003 in excess of £6m. A default position, under which Cabot would receive an interest of that value, in the event of non-payment of £250,000, is certainly surprising.
235. Those features of the transaction, surprising and extraordinary as they appear, could be commercially justified if, as is the Defendants' case, it was imperative to enter into the Drilling Agreement in order to save PEDLs 11 and 12, and there was no practical alternative.
236. It is true to say, in favour of the Defendants, that the evidence is that the Octagon Group Companies were in financial difficulties at that time. There is a factual dispute between the parties as to whether the Octagon Group Companies were offered by Enron an advance of £135,000 in February 2002, and, if so, on terms which the Octagon Group Companies might reasonably be expected to have accepted rather than enter into the Drilling Agreement. Mr Garratt's evidence was that there was never any firm offer for an advance of £135,000 at that time, and, in any event, that amount would not have been sufficient to pay for the necessary drilling works. For the purpose of the present analysis, I am prepared to assume in favour of the Octagon Group Companies and Mr Garratt on that issue.
237. Further, Mr Roscoe explained the commercial basis for the Drilling Agreement and the 41% Transfer Agreement, from Cabot's perspective. He explained that Cabot had, for a limited period of time (prior to 30 January 2001), held an interest in Quality Drilling's parent company, Quality Drilling Limited ("Quality Drilling") and had provided funds for that company. The £250,000 "turnkey" price was commercially attractive since it would enable Cabot to recoup some of the costs of funding Quality Drilling. His evidence was that the 41% interest in PEDLs 11 and 12, in default of payment of the £250,000, was in the nature of a "poison pill". He understood that Mr Garratt was seeking finance, and he was looking forward to getting the £250,000. He explained that the reason for taking a default interest in PEDL 11, which, according to the minutes of the meeting of the directors of OEL on 25 April 2002, there was no longer any need separately to drill, was because PEDL 11 was producing an income, whereas it would have been necessary to spend even more money on PEDL 12 in order to obtain an income from it. Mr Roscoe further explained that he asked for a 51% interest, but, following negotiations, agreement was struck at 41%. He explained the rationale behind his negotiations over the percentage as being that he was taking a risk of a mining problem within the area or some other reason why it was not possible to take out gas. It was not, however, foremost in his mind that he would ever obtain 41% of PEDLs 11 and 12. What he sought was a guarantee in case the £250,000 was not paid.
238. Mr Roscoe also explained, in his oral evidence, the basis for the provisions of clause 3.4 of the 41% Transfer Agreement, under which Cabot was to pay £120,000 to Quality Drilling UK for the purchase and assignment of the Drilling Agreement, but only £75,000 of which was to be paid in cash. Clause 3.4 provided that, of the balance, £45,000 was to be treated as having been paid: £20,000 on 22 January 2001 or thereabouts and £25,000 on 18 February 2002 or thereabouts. Mr Roscoe explained, in his oral evidence, that those payments, which were treated as having been made even before the date of the 41% Transfer Agreement, were intended to be by way of repayment of the funding or part of the funding by Cabot of Quality Drilling.
239. It was also pointed out, on behalf of the Defendants, that, in addition to the payment of £120,000 by Cabot, clause 3.5 of the 41% Transfer Agreement provided for the waiver by Cabot of all hire and associated charges for the hire of the Drilling Rig since 13 December 2002. I was not told, however, the total value of the amount so waived.
240. Further, it can be said, in favour of the Defendants' case, that, although Cabot was a Liberian company the assets of which were unknown to the directors of the Octagon Group Companies, Cabot had been involved with the Octagon Group Companies since 1997 when, in consideration of loans made by Cabot to OGL, OEL agreed that half the shares in OGL should be allotted to Cabot.
241. Notwithstanding the evidence given by Mr Garratt, Mr Roscoe and the other witnesses for the Defendants as to the commercial rationale of the Drilling Agreement, the following features, in my judgment, preclude any reasonable depiction of the transaction, and the associated 41% Transfer Agreement, as being transactions in the ordinary course of OCL's business within clause 19.1.6 of the Facility Agreement.
242. The persons controlling Quality Drilling UK at the time of the Drilling Agreement were Mr Martyn Bacon and Mr Gary Wells. They were the directors of Quality Drilling. They were also the directors of Quality Drilling UK, and Mr Bacon was the company secretary. The evidence is that Mr Bacon negotiated the price of the Drilling Agreement, on behalf of Quality Drilling UK. Mr Bacon was also, however, a consultant to the Octagon Group Companies. There is no evidence that OCL ever consulted any other person or expert in connection with the terms of the Drilling Agreement. At least one of the directors, Mr Gravelius, who was present at the meeting on 25 April 2002 of the directors of OEL, was unaware that Mr Bacon was a director of Quality Drilling UK.
243. Mr Garratt said, in cross-examination, that he helped to draft the Drilling Agreement, and provided most, or at any event a great deal, of the material for the 41% Transfer Agreement. The essence of that agreement was that Cabot would be entitled to receive the £250,000 payable by OCL under the Drilling Agreement or, in default, the 41% interest in PEDLs 11 and 12. The consideration payable by Cabot to Quality Drilling UK was £120,000, of which only £75,000 was to be paid in cash. The involvement of Cabot as the ultimate recipient of the benefit of the Drilling Agreement was not, however, recorded in the minutes of the meeting of the board of directors of OCL on 12 April 2002 and of OEL on 25 April 2002. Mr Gravelius was present at both meetings. It is clear, from his evidence in cross-examination, that he was unaware that Cabot was involved in the transaction at that stage. Indeed, it would appear that he was unaware of the involvement of Cabot, as the recipient of the benefit of the Drilling Agreement, even as late as 21 March 2003, when, according to the minutes of the meeting of the board of directors of OEL on that day, the directors discussed a request for assignment of the 41% interest in PEDLs 11 and 12 by "the drilling company", pursuant to the Drilling Agreement. It appears, from Mr Whately's evidence in cross-examination, that he was similarly ignorant of Cabot's rights pursuant to the Drilling Agreement and the 41% Transfer Agreement.
244. Mr Garratt's concealment from the directors of OCL and OEL of the 41% Transfer Agreement, and the role of Cabot in the transaction, was matched by a similar obfuscation by Mr Garratt in his dealings with Enron at the time.
245. On 15 February 2002 Mr Marsden spoke to Mr Garratt on the telephone. In a contemporaneous written note of that telephone conversation Mr Marsden recorded as follows, in connection with this part of the conversation:

"He told me that he had had to resort to selling an interest in the Hickleton and Nottinghamshire licences in order to get them drilled to keep the licences. When asked who he had done this deal with he said "a combination of companies" and it was "rather complicated" and that he "didn't have the details with him". He was extremely evasive (I told him so). This would be in contravention with our agreement as we have security over all assets."

246. Mr Garratt confirmed, in cross-examination, that he had indeed been evasive.
247. Mr Garratt's evidence, in cross-examination, was that Mr Marsden's contemporaneous attendance note was incorrect in recording that Mr Marsden told Mr Garratt that the sale would be in contravention of the Security Documents. I have no hesitation in rejecting that evidence of Mr Garratt. Not only is it inherently improbable that Mr Marsden would have mis-recorded such an important matter, but the point was made again in an e-mail sent by Mr Marsden to Mr Garratt on the same day as the telephone conversation. In that e-mail Mr Marsden said:

"I should be grateful if you would provide me with details of the sale of half of your licence interest that you described to me on the telephone this morning as we would need to agree any such sale given our security over the assets."

248. In an e-mail from Mr Garratt to Mr Marsden on 23 February 2002, Mr Garratt explained the arrangement as follows:

"… As has been notified a joint venture agreement has been entered into to drill a well on the Nottinghamshire Licence in order that it does not terminate on 31 March 2002 in accordance with the Licence commitments. This only involves the third party drilling the well. We have made no arrangements with any third party concerning provision of cash. …"

249. Insofar as that was a reflection of the transaction ultimately recorded in the Drilling Agreement and 41% Transfer Agreement, it was highly misleading. It made no disclosure of any kind about the involvement of Cabot, or its entitlement, should the £250,000 turnkey price not be paid, to claim an assignment of 41% of PEDLs 11 and 12.
250. Mr Garratt wrote Mr Marsden a letter dated 21 April 2002 enclosing a copy of the Drilling Agreement "as discussed". He explained in the letter that, if the £250,000 was not paid by 31 December 2002, then "Quality Drilling Ltd (or its assignee) will be assigned a 41% interest in Licences PEDL 11 & PEDL 12." Not only did Mr Garratt fail to send Mr Marsden a copy of the 41% Transfer Agreement, which was plainly of importance to Enron, but the letter gave the wholly misleading impression that there had been no transfer of the benefit of the rights of Quality Drilling UK to Cabot, even though the 41% Transfer Agreement was dated 19 April 2002.
251. I take the view that Mr Garratt deliberately withheld from Mr Marsden details of Cabot's rights under the 41% Transfer Agreement, even though, on Mr Garratt's own oral evidence, it formed part of a single transaction with the Drilling Agreement. The most likely explanation for Mr Garratt's deliberate non-disclosure is that he was concerned that Mr Marsden, in the light of his earlier observations in February 2002 to which I have referred, would take the view that the Drilling Agreement and the 41% Transfer Agreement or one or other of them would be an infringement of the rights of the Enron Lenders under the Security Documents.
252. As I have indicated already, the non-disclosure by Mr Garratt to his co-directors of Cabot's involvement in, and rights under, the Drilling Agreement and the 41% Transfer Agreement continued beyond the execution of the assignments of 27 March 2003 in favour of Cabot. The minutes of the meeting of the directors of OEL on 23 April 2003 refer to a request for assignment of the 41% interest in PEDL 11 and PEDL 12 under the Drilling Agreement. The minutes note that the 41% interest had been assigned "to a third party", but no express reference was made to Cabot, let alone its involvement from the inception of the transaction. The minutes of a subsequent meeting of the directors of OEL on 6 June 2003 recorded: "Further, the drilling company also has a 41% interest in PEDLs 11 and 12." That, again, was inaccurate and misleading, since the 41% interest had at all relevant times been vested in Cabot and not Quality Drilling UK.
253. The transaction had the following further oddity. As I have already said, the applications for consent to the transfers of the 41%interest were sent to the DTI under cover of a letter from Mr Garratt dated 1 August 2003. The delay between 27 March 2003 and 1 August 2003 is remarkable. Mr Garratt's explanation, in cross-examination, was that he was very busy at the time. It is to be noted that the minutes of the meeting of the directors of OEL on 23 April 2003, in which it was recorded that there had been a request for assignment of the 41% interest in PEDL 11 and PEDL 12, were written in language clearly indicating that it was only at that meeting that the directors agreed to the assignment of the 41% interest: "In accordance with the drilling agreement the board agreed to carry out the assignment of the 41% interest in PEDL 11 and PEDL 12…" The minutes are, accordingly, inconsistent with the due execution of the transfers on the date they bear, namely 27 March 2003. There has been no satisfactory explanation of these discrepancies, which raise the possibility that the transfers were back-dated, or, alternatively, the transfers were executed without the knowledge of, and prior to the approval of, the directors of OEL and OCL.
254. Mr Moss submitted that a letter from Mr Garratt to Mr Grove of E&P dated 17 June 2003 is further evidence that the transfers dated 27 March 2003 were back dated, or alternatively they were being concealed. In particular, he relied upon the following passage:

"However, as mentioned before, PEDLs 11 and 12 are by far the most important Licences and we cannot relinquish any interest in these …"

Bearing in mind the context of the letter of 17 June 2003, and all the other circumstances, I do not consider that the letter is a secure evidential base for the inference which Mr Moss seeks to draw.

255. The Claimants seek to draw the same inference from the evidence that Mr Grove had no knowledge of any interest of Cabot in PEDLs 11 and 12, even though Mr Vallabh acted as Cabot's representative and also authorised Mr Grove's letters and actions on behalf of E&P. Again, however, unlike the minutes of the meeting of OEL of 23 April 2003, I do not consider those matters to be a secure evidential basis for the inference which the Claimants seek to draw.
256. The letter from Mr Garratt, to the DTI dated 1 August 2003, enclosing the application forms for consent to the assignment of a 41% interest in PEDLs 11 and 12 to Cabot, said the following of Cabot: "Cabot Energy Ltd funded and drilled wells including the Dinnington No1 well on Octagon's PEDL 12 Licence. Under the drilling agreement Cabot Energy Ltd is entitled to a 41% interest in the Licences PEDLs 11 and 12. Cabot Energy Ltd … has bought a drilling rig for drilling onshore UK."
257. The two consent applications relating to PEDL 11 and PEDL 12 respectively contained the following statement: "Cabot Energy Ltd funded and were responsible for drilling wells on the Licences including the Dinnington No1 well".
258. In an earlier letter from the DTI to Mr Garratt dated 24 February 2003 Mr Mike Hawkins, the head of licence administration at the DTI, had explained the conditions that would need to be met in the case of the Licence assignments in respect of EXL 273, PEDL 10 and the After-Acquired Licences, which would have the effect of creating a new single-company licensee, namely E&P in the case of EXL 273 and PEDL 10, and OGL in respect of the After-Acquired Licences. Mr Hawkins stated that the DTI would need to be satisfied with the assignee's competence, both technical and financial, to perform the role of Operator; and that competence would have to be in many respects UK-based. Mr Hawkins drew attention to the information usually required about an assignee described on the DTI's website, and, in particular, the part describing the assignee's financial capacity. The DTI would require to be satisfied that the assignee was solvent and likely to remain so, and it would usually be necessary to require production of two copies of the latest annual report and accounts, and, if appropriate, those of the company's ultimate parent.
259. It is possible that the information given by Mr Garratt in the letter of 1 August 2003 to the DTI concerning Cabot was directed to meeting the matters highlighted by Mr Hawkins in his letter of 24 February 2003. Whether that be the case or not, the information which Mr Garratt gave was misleading and untrue. It gave the clear impression that Cabot was a drilling company, with drilling experience, and had carried out the drilling of wells, including the Dinnington No1 well. The truth was, as Mr Garratt well knew, Cabot itself had never carried out any drilling of wells and was not entitled, under the Drilling Agreement, to which it was not a party, to the 41% interest in PEDLs 11 and 12. Cabot is and was a Liberian corporate investment vehicle. Mr Garratt was cross-examined on those statements by him in the letter of 1 August 2003 to the DTI. That part of his oral evidence proceeded as follows:

"Q. It says Cabot Energy Limited funded and drilled wells. What other wells did it fund, Mr Garratt?

A. I cannot remember, it certainly funded and drilled the Dinnington number one well.

Q. This is just a blatant lie, Mr Garratt, is it not?

A. No, I do not remember the details.

Q. What other wells did it fund?

A. I do not recall.

Q. It is just untrue, is it not? Mr Garratt, this is untrue, is it not?

A. I do not recall, I am sorry, I do not recall precisely what the situation was."

260. I regard those answers of Mr Garratt as dissembling and untrue. I consider that he knew full well that the statements in his letter to the DTI of 1 August 2003 were misleading and inaccurate.
261. The Defendants claim that, in any event, the Enron Lenders, through Andrew Marsden, expressly consented to the Drilling Agreement.
262. In paragraph 61 of his witness statement Mr Garratt said that, in a conversation with Mr Marsden in early 2002, he told Mr Marsden that a well had to be drilled on PEDL 12 and probably another on PEDL 11 to keep those Licences, and that, if Enron did not provide the funding, the Licences would have to be farmed out, that is to say a third party would take a substantial interest in them in return for drilling a well. In his witness statement, Mr Garratt's evidence was that:

"Andrew Marsden said that that was best solution and that Octagon should try to do that because Enron would not provide the funds."

263. Mr Marsden gave oral evidence that he did recall telling Mr Garratt that Enron would not be funding the drilling of the well on PEDL 12 and another on PEDL 11 to keep those Licences, and that he recalled discussions or e-mails raising concerns about losing the Licences if the wells were not drilled. He said he did not recall making any remarks that "the best solution" was for the Licences to be farmed out.
264. In my judgment, the overwhelming probability is against Mr Marsden having given any consent to, or indication of approval of, a transaction such as the Drilling Agreement or the 41% Transfer Agreement. The contemporaneous written material to which I have referred is inconsistent with any such consent: in particular, the attendance note made by Mr Marsden of his telephone conversation with Mr Garratt on 15 February 2002 and Mr Marsden's e-mail to Mr Garratt of the same date. Those documents plainly show that, from what Mr Marsden understood of the proposed transaction and the terms of the Security Documents, he considered that it could only proceed with the consent of Enron.
265. Furthermore, and in any event, it is equally clear from those documents and other evidence to which I have already referred, that Mr Garratt did not disclose full or accurate details of the proposed transaction to Mr Marsden. For that reason, even if, contrary to my conclusion, consent of some kind was indicated by Mr Marsden, it would not have operated as an effective consent or waiver of rights in relation to the actual transaction which took place in the form of the Drilling Agreement and the 41% Transfer Agreement.
266. The Defendants also rely upon the letter from Mr Garratt to Mr Marsden dated 21 April 2002, which stated that a copy of the Drilling Agreement "as discussed" was enclosed, and the fact that neither Mr Marsden nor anyone else on behalf of the Enron Lenders ever responded with objections to the transaction or challenging what was said in the letter.
267. Mr Garratt gave oral evidence that "the fact is that Enron were actually delighted, because if we had not that agreement we would have lost the Licences and there could not be anything here today …" (Transcript 24 May 2004 pp.15-16).
268. I reject, without hesitation, Mr Garratt's evidence that anyone, on behalf of Enron, expressed delight at the Drilling Agreement. No such evidence was given in Mr Garratt's witness statement. He did not give any particulars in his oral evidence as to the identity of the person who expressed any such delight, and when and where. His evidence runs to the contrary to the contemporaneous written documentation of Mr Marsden.
269. Bearing in mind the warnings which Mr Marsden gave Mr Garratt about the proposed transaction, as he understood it in the light of Mr Garratt's evasive explanations, and bearing in mind that Mr Garratt had never fully explained the entire transaction, including the role of Cabot and Cabot's rights under the 41% Transfer Agreement, the absence of any formal response to the letter of 21 April 2002 did not amount to any clear promise or representation by Enron on which any of the Octagon Group Companies or Cabot was entitled to rely, and is of no legal significance. There is no inequity, in all the circumstances, in the Claimants enforcing their legal rights.
270. In summary, I conclude that (1) the non-disclosure by Mr Garratt to his co-directors of the Octagon Group Companies about the involvement of Cabot in, and its rights under, the Drilling Agreement and the 41% Transfer Agreement, and all the material terms of those Agreements of which he was aware, (2) the involvement of Mr Bacon in the transaction, on behalf of Quality Drilling UK, even though he was the drilling consultant for the Octagon Group Companies, set against the background that Cabot was only paying £75,000 cash to Quality Drilling UK, but receiving the right to receive £250,000, and, in default, a 41% interest in PEDLs 11 and 12 which had a value of many times that amount, and (3) the deliberately misleading information given by Mr Garratt to the DTI in connection with the transfer of the 41% interest to Cabot, take the transfers of the 41% outside the scope of the ordinary course of business of OCL for the purposes of clause 19.1.6 of the Facility Agreement.
271. I would have reached that conclusion even in the absence of the lack of clarity, to which I have referred, as to the inter-relationship between the need for carrying out works in respect of PEDL 11 and PEDL 12 by 31 March 2002, the execution of the Drilling Agreement on 12 April 2002 and the execution of the 41% Transfer Agreement on 19 April 2002, and the fact that the minutes of the meeting of 25 April 2002 of OEL record that there was no need to drill separately PEDL 11, and a second term had been granted for PEDL 12, as well as obscurity as to whether the actual assignments of the 41% to Cabot were executed on the date which they bear or were executed without the knowledge of, and prior to the approval of, the board of OCL. All those matters, however, give further weight to the extraordinary nature of the assignments.
272. For the sake of completeness, I should briefly comment on a number of other submissions made on behalf of the parties relating to this aspect of the case.
273. I do not accept the submission of the Claimants that the mere fact that the assignments to Cabot, pursuant to the Drilling Agreement and the 41% Transfer Agreement, constituted 41% of the two most valuable Licences would be sufficient, of itself, to take the transaction outside the ordinary course of the business of the Octagon Group Companies. If such disposal was the only reasonable commercial means open to the Octagon Group Companies to preserve the balance of the interest in those Licences, and there were no other such unusual features as I have described, then it seems to me that the transactions could properly be described as being in the ordinary course of their business.
274. Mr Moss submitted that the minutes of the meeting of the board of directors of OCL on 12 April 2002 and of OEL on 25 April 2002 make clear that the arrangements discussed at those meetings were to provide only for a possible 41% of PEDL 12 to be transferred, and there was no discussion or agreement for a transfer of 41% of PEDL 11, which was the most valuable Licence and the only one producing income. In the light of the evidence of Mr Garratt, Mr Shrager, Mr Gravelius and Mr Whately, I conclude, on a balance of probabilities, that the minutes of both meetings were drawn up in error in failing to record the proposal that, in default of payment of the £250,000 under the Drilling Agreement, a 41% interest would be transferred in both PEDL 11 and PEDL 12.
275. In the closing written submissions of the Claimants, it was suggested that there is no plausible evidence that, even if the terms of PEDL 12 were not complied with, PEDL 12 would have been lost. The Claimants appear to rely upon the patience of the DTI over the lack of progress generally in relation to drilling, the fact that Mr Garratt was blaming the difficulties on Enron, and what was said to be Mr Garratt's remarkable ability to placate the DTI. I do not consider that, in the light of all the evidence, including the oral evidence of the directors of the Octagon Group Companies, those directors were unreasonable on or unrealistic in taking a commercial course of action in fear that, if work was not carried out as required by PEDL 12, that Licence was in danger of being lost.
276. The Claimants claim that the directors of OCL and OEL did not make any proper assessment of the value of a 41% interest in PEDL 11 and PEDL 12. They did not have that stake independently valued or exposed to the market, on an arm's length basis. Further the Claimants claim that the directors did not make a proper assessment of the risk that the 41% interest would be lost and, with it, assuming E&P had already validly been assigned a 10% interest, the majority interest and control in the two most valuable assets of the Octagon Group Companies.
277. In the light of all the evidence, I consider that the directors of OCL and OEL formed the view, and were entitled to do so, that there was, at the least, a reasonable prospect of obtaining re-financing before 31 December 2002. This is born out by the indicative funding proposal put forward by SSE and ORIX Europe Limited to OEL in a letter dated 7 June 2002 to Ernst & Young.
278. So far as concerns the absence of an independent valuation of a 41% stake, it is clear that Mr Garratt and his co-directors were fully aware that a 41% interest in PEDLs 11 and 12 was of very considerable value, well in excess of the £250,000 turnkey price for the drilling. The consolidated accounts of the Octagon Group Companies for the year ended 31 March 2001 showed the Licences as having a net book value (at cost) of just under £4.5m; and the directors' report indicated that the Licences were of considerable value. I see no reason, however, to disbelieve Mr Roscoe's account, which I have set out earlier in this judgment, as to his thought processes, and the course of the negotiations, concerning the transfer of that substantial interest in PEDL 11 and PEDL 12, in default of payment of the £250,000.
279. As to the criticism that the 41% stake was not exposed to the market on an arm's length basis, this is unrealistic. The evidence from the directors of the Octagon Group Companies was that, prior to the Drilling Agreement, they had already sought to raise funds or obtain a new co-venturer, but without success. Further, the issue of transfers to Quality Drilling UK and Cabot of a 41% interest in PEDL 11 and PEDL 12 only arose in the course of, and for the purpose of, the negotiations leading to the Drilling Agreement and the 41% Transfer Agreement. On the Defendants' case, there was simply no time to allow for the independent marketing of that share.
280. Mr Moss submitted that the economic effect of the Drilling Agreement and the 41% Transfer Agreement was that Cabot was lending OCL £75,000 on the security of a 41% interest in PEDL 11 and PEDL 12. I do not accept that as a fair analysis of the commercial transaction, certainly from the perspective of Quality Drilling UK and Cabot, or even from the perspective of the Octagon Group Companies. There is no evidence that anyone involved in the transaction at the time approached the transaction along those lines. As I have said, I have no reason to disbelieve Mr Roscoe's oral account, in cross-examination, of his approach to the negotiations and his commercial objectives.
281. In paragraph 5 of the Particulars of Claim the Claimants allege that "Cabot and/or the shares in and/or the officers of [that company] are owned and/or controlled and/or directed (whether directly, indirectly, wholly or partly) by Mr Garratt". Mr Garratt and Mr Roscoe gave evidence that Mr Garratt had no such ownership or control or powers of direction.
282. Mr Roscoe explained, in cross-examination, how he acquired 95 of the 100 shares in Cabot, and how Mr Malcolm Aw acquired the other 5 shares.
283. The Claimants have not discharged the burden of proving that, on a balance of probabilities, Mr Garratt owned or controlled or directed Cabot or the shares in Cabot or the officers of Cabot.
284. In paragraph 47 of the Claimants' written closing submissions it is alleged that, without the Court needing to make any finding as to the precise nature and extent of Mr Garratt's interest in or association with Cabot, the Court can properly draw the inference that Cabot was not simply an independent third party dealing at arm's length with the Octagon Group Companies but, on the contrary, Mr Garratt "had a close connection with" Cabot. There are set out in 12 sub-paragraphs of paragraph 47 of the Claimants' written closing submissions the matters on which the Claimants rely. I do not accept the accuracy of all the facts alleged in those sub-paragraphs. In particular, Mr Garratt did not say that he was chiefly responsible for drafting the 41% Transfer Agreement, as alleged in sub-paragraph 47(4), although he did accept that he provided much of its substance. Further, many of the matters alleged are no more than suspicions and speculations. The allegations in those sub-paragraphs do not, either singly or together, constitute cogent evidence of the matters alleged in paragraph 5 of the Particulars of Claim. Short of proof of those allegations, the speculations and suspicions and other matters set out in the sub-paragraphs of paragraph 47 of the Claimants' written closing submissions do not advance the Claimants' case.

Transfer of 10% interest in the Original Licences

285. Deeds of assignment of a 10% interest in EXL 273, EXL 274, PEDL 10, PEDL 11, PEDL 12, PEDL 13 and PEDL 43 were executed by OCL in favour of E&P dated 12 July 2002.
286. Each of those deeds of assignment recited that the assignment was pursuant to the Earn-In Agreement.
287. Paragraph 7.3 of the re-amended Defence alleges that those deeds of assignment were executed pursuant to the Earn-In Agreement "and/or with the express consent (through Andrew Marsden and/or Tim Larrison) of the Enron Lenders…"
288. The Claimants contend that the assignments of the 10% interest were not permitted disposals within clause 19.1.6 of the Facility Agreement since, at the time they were executed, E&P was not entitled under the Earn-In Agreement to the transfer of such an interest, and the assignments were made in breach of the promises of each of the Octagon Group Companies in clause 19.1.11(c) and (e) of the Facility Agreement not to amend, waive or modify the Earn-In Agreement in any material respect, and to maintain in full force and exercise all its rights under the Earn-In Agreement.
289. In my judgment, the assignments of a 10% interest in EXL 273, EXL 284 and PEDL 12 were properly made pursuant to the provisions of the Earn-In Agreement, and were therefore expressly permitted by to clause 19.1.6 of the Facility Agreement. Assignments of the 10% interest in respect of the other Original Licences were not, however, pursuant to the terms of the Earn-In Agreement, and were not permitted or authorised under clause 19.1.6 of the Facility Agreement.
290. Clause 3.1 of the Earn-In Agreement provided that, immediately following the commencement of the drilling of a well in respect of each Licence in which E&P participated, OCL should assign to E&P a 10% legal and beneficial interest in and under that Licence and a corresponding interest in and under the JOA for that Licence. The evidence is that, prior to the assignment of a 10% interest in EXL 273, EXL 274 and PEDL 12, that express drilling condition was satisfied in respect of each of those Licences.
291. The Claimants contend that, nonetheless, E&P had no entitlement to an assignment of a 10% interest in respect of those Licences since E&P was in breach of the provisions of clause 2 of the Earn-In Agreement under which E&P was obliged to make the payments specified there. In this connection, the Claimants rely particularly upon the express confirmation by OCL and OCRL in clause 2.7 of the Earn-In Agreement that, until such time as the assignments and transfers referred to in clause 3 were effected, or until E&P had forfeited its right by going Non-Consent, OCL, "(providing E&P continues to abide by the terms of this clause 2)", would hold a 10% interest in each of the Licences on trust for E&P and would carry out E&P's instructions in connection with that interest with regard to all decisions taken under the relevant JOA.
292. In my judgment, on the proper interpretation of the Earn-In Agreement, the entitlement of E&P to a transfer of a 10% interest under clause 3.1 was not subject to a precondition that it had complied with all the provisions of clause 2. Clause 3.1 contains no such express condition, and there is no need to import such a condition in order to make the Earn-In Agreement workable. Indeed, it is to be noted that clause 3.1 of the Earn-In Agreement does not mirror the express qualification in clause 2.7 to which I have referred - "(providing E&P continues to abide by the terms of … clause 2)". That part of clause 2.7 which contains that proviso is plainly dealing, and dealing only, with the period prior to the satisfaction of the conditions specified in clause 3.1 of the Earn-In Agreement and the ensuing assignment of the 10% interest in the relevant Licence.
293. The Claimants further maintain that, by a letter of 5 June 2001 from OCL to E&P's attorneys, OCL had already forfeited E&P's rights under the Earn-In Agreement for failure to comply with the provisions of that Agreement. The Claimants cannot, in my judgment, properly raise any such argument. Termination of the Earn-In Agreement, without the prior written consent of EPOL, would have been a breach of clause 19.1.11 of the Facility Agreement. It is not suggested that EPOL or any other Enron entity ever gave consent, whether written or otherwise, to any such termination. Further, there is no evidence that the Enron Lenders or any other Enron entity ever relied upon any such termination effected by the letter of 5 June 2001. Further, it is apparent that, following the letter of 5 June 2001, OCL and E&P conducted their relations between themselves, and acted generally, on the basis that the Earn-In Agreement continued to be in force.
294. The assignment of a 10% interest in PEDL 10, PEDL 11, PEDL 13 and PEDL 43 was outside the terms of the Earn-In Agreement, since the drilling condition in clause 3.1 was not satisfied in those cases. The agreement to assign a 10% interest, and the subsequent deeds of assignment, in those cases constituted a waiver or modification of the Earn-In Agreement in a material respect, without the written consent of EPOL, and was in breach of clause 19.1.11(c) and (e) of the Facility Agreement. They were, accordingly, not within the express permission contained in clause 19.1.6 of the Facility Agreement for dispositions "permitted pursuant to … the Earn-In Agreement".
295. Mr Garratt, in his evidence in cross-examination, sought to explain and support the assignments of a 10% interest in PEDL 10, PEDL 11, PEDL 13 and PEDL 43 on the ground that it was in the commercial interests of the Octagon Group Companies that E&P should be made to participate in expenses associated with those Licences sooner rather than later. I consider, however, that it is clear that a transaction in breach of clause 19.1.11(c) or (e) of the Facility Agreement was not intended by the parties to the Facility Agreement to constitute, and does not constitute, a transaction in the ordinary course of business within clause 19.1.6 of the Facility Agreement.
296. The Defendants claim that Mr Marsden and Mr Larrison approved all the assignments of a 10% interest in the Licences, to which I have referred. The allegation of consent or approval was introduced, at the beginning of the trial, by re-amendment of the Defence. Mr Garratt's oral evidence, in cross-examination, was that Mr Marsden consented before the assignments were executed, and Mr Larrison confirmed the position afterwards.
297. Both Mr Marsden and Mr Larrison gave evidence in their witness statements that they did not give any such consent or approval, and had no authority to do so. In cross-examination Mr Marsden confirmed that he was not aware of having given any such consent or approval, and he had no recollection of giving consent or approval. Mr Larrison, in cross-examination, said he had no specific recollection. I am satisfied, having regard to all the evidence, that neither Mr Marsden nor Mr Larrison gave consent or approval.
298. Mr Marsden had left his employment with Enron well before the date of the deeds of assignment, namely 12 July 2002. The minutes of the meeting of the directors of OCRL on 5 June 2002 recorded that Mr Marsden had been informed about the agreement to assign a 10% interest in the Original Licences to E&P and that he approved the arrangement and the assignments. Mr Marsden gave oral evidence, however, which I accept, that he was abroad for a 3-4 week holiday at that time, and was uncontactable for much of the time. Moreover, in his oral evidence in cross-examination, Mr Garratt said that Mr Marsden had given his consent in April or May. Mr Garratt's witness statement, however, made no reference whatsoever to any consent given by Mr Marsden to the assignments. On the contrary, in paragraph 63 of his witness statement he expressly refers to agreement by Mr Larrison, without any mention of Mr Marsden.
299. Further, I accept Mr Marsden's evidence that he had no authority to give any such consent.
300. In view of the discrepancies in the evidence as to the timing of any consent by Mr Marsden, the absence of any written consent by him, the absence of any reference to any consent by Mr Marsden in Mr Garratt's witness statement, and the lateness of the relevant re-amendment of the Defence, and taking into account the relative credibility generally of Mr Garratt and Mr Marsden, I hold that the overwhelming probability is that Mr Marsden gave no such consent as the Defendants allege.
301. So far as Mr Larrison is concerned, Mr Garratt's evidence, as I have said, was that Mr Larrison "confirmed the position afterwards" (Transcript 24 May 2002 p.8). No evidence was given, on behalf of the Defendants, as to precisely when, where, or in what circumstances Mr Larrison expressed such approval.
302. I accept Mr Larrison's evidence that he had no authority to express any such approval. There is no contemporaneous written evidence of any approval having been given by him. On the contrary, copies of the assignments were sent, not to Mr Larrison, who took over from Mr Marsden towards the end of May 2002, but to Enron's general counsel in Houston, Texas, under cover of a letter of 22 July 2002. That letter states that the documents had been discussed previously with Andrew Marsden, but made no reference to any approval by Mr Larrison.
303. In the light of all that evidence, and taking into account my assessment of the reliability of Mr Garratt's evidence, I have no hesitation in concluding that the overwhelming probability is that no such approval was given by Mr Larrison, as is alleged by the Defendants.
304. I can see no sound basis for Mr Adkins' further submission that, even if Mr Marsden or Mr Larrison did not have actual authority to give approval, they had ostensible authority to do so. There is no evidence before me that persons in their position were able to give such approval or consent within their usual authority, and I am aware of no cogent evidence that there was any holding out by the Enron Lenders, EPOL or any other Enron entity that they had authority to give any such consent or approval. On the contrary, all the contemporaneous documentary material, including, in particular, communications by Enron and its agents or representatives with Mr Garratt, emphasised the limited authority of Mr Marsden and Mr Larrison to make decisions in relation to the Security Documents and the loans to the Octagon Group Companies and the need for decisions to be obtained and clearance to be given by Enron in the United States.
305. Unlike the other transfers which are the subject of dispute in these proceedings, the Defendants do not raise a separate defence of estoppel in relation to the transfers to E&P of a 10% interest in the Original Licences: cf. para. 22 of the re-amended Defence, the wording of which appears to be inapposite to include the 10% assignments in 2002.
306. For the sake of completeness, however, I should say that no case of estoppel could be made out on the facts. As I have said, copies of the assignments of a 10% interest in the Original Licences were sent by Mr. Garrett to ECT under cover of a letter dated 22 July 2002. The Defendants have not adduced any evidence, however, that Enron was aware, then or thereafter, that the transfers of a 10% interest in the Original Licences, other than EXL 273, EXL 274 and PEDL 12, were not properly made in accordance with the terms of the Earn-In Agreement. In all the circumstances, the absence of any objection by Enron after receipt of the letter of 22 July 2002 did not amount to any clear promise or representation on which the Octagon Group Companies or the Defendants are entitled to rely, and there is no inequity in the Claimants relying on their strict legal rights.

Sale of the OGL Shares and the After-Acquired Licences

307. The minutes of a meeting of the board of directors of OEL on 7 February 2003 record that it was agreed, among many other things, that OEL would sell its total shareholding in OGL for £60,000 to Cabot, and that the £60,000 was to be paid to OGL partially to extinguish outstanding borrowings of £125,000 by OEL from OGL.
308. The same minutes also record a decision to sell the After-Acquired Licences to OGL for a total of £65,000, and that OGL would take on the liabilities which went with those Licences. It was recorded that the £65,000 to be received from OGL for the sale of the After-Acquired Licences would be set-off against the £65,000 balance of the outstanding borrowings from OGL.
309. Minutes of meetings of the directors of OCL and OCRL on 7 February 2003 also record the decision of those directors to sell the companies' interests in the After-Acquired Licences. The purchase price was to be £50,000 in the case of the sale by OCL for the sale of PEDLs 65-67, and £15,000 in the case of OCRL for PEDL 64.
310. On 14 February 2003 a sale and purchase agreement relating to the OGL Shares was concluded between Cabot and OEL.
311. Minutes of a meeting of the board of directors of OEL on 14 February 2003 record that, in accordance with the discussions at the board meeting on 7 February 2003, it was agreed that the assignments of the After-Acquired Licences to OGL be carried out at the earliest opportunity.
312. Minutes of meetings of the directors of OCL and OCRL on 14 February 2003 also record decisions that the assignments of the After-Acquired Licences to OGL be carried out at the earliest opportunity, in accordance with the discussions at the board meetings on 7 February 2003.
313. On 14 February 2003 a sale and purchase agreement was entered into between OGL and OCL in relation to PEDLs 65-67; and a sale and purchase agreement was entered into between OGL and OCRL in relation to PEDL 64.
314. On 11 March 2003 a share certificate for a further 50 shares in OGL was issued to Cabot.
315. Deeds of assignment dated 1 April 2003 were executed between OGL and OCL, and between OGL and OCRL, were executed for the transfer of the entire interest of OCL and OCRL respectively in the After-Acquired Licences.
316. Mr Garratt sent the DTI application forms for consent to the assignments of the After-Acquired Licences to OGL.
317. As I have previously mentioned, Mr Hawkins of the DTI wrote a letter to Mr Garratt dated 24 February 2003, in which he pointed out the requirements of the DTI in the case of proposed assignments which would have the effect of creating a single new company licensee. In particular, he stated that the DTI would require to be satisfied with the assignee's competence, both technical and financial, to perform the role of an Operator, and would therefore require certain information from the assignee. He also observed, as I have mentioned previously, that in many respects such competence would have to be UK based. The DTI would not accept all such operations could be directed entirely from North America. He drew the attention of Mr Garratt to the DTI's website, which set out the usual requirements of the DTI for an assignee, and mentioned in his letter the particular requirement concerning the need for the DTI to be satisfied that the licensee is solvent and likely to remain so, and the common requirement of the DTI that two copies of the latest annual reports and accounts be provided, and, if appropriate, those of the company's ultimate parent. If the company is a subsidiary that would rely on support from its parent, the DTI would need a letter of support from the parent stating that it would ensure that adequate financial and technical resources would be made available to the prospective licensee to meet its share of licence obligations and liabilities. Mr Hawkins summarised his position, at the conclusion of his letter, by saying that he would consider the application for approval of the proposed assignments of the After-Acquired Licences upon receipt of, among other things, the information required from OGL concerning its financial and technical capacity, as outlined in the letter.
318. Mr Garratt responded by letter dated 25 February 2003, in which he proposed, "in order to make the whole assignment process easier", that there be an assignment of a 90% interest in the After-Acquired Licences "so that Octagon has a 10% interest after assignment and Octagon Gas Ltd has a 90% interest after assignment and Octagon (CBM) Ltd and Octagon (CBM) Resources Ltd remain operators of the respective licences."
319. Under cover of a letter dated 7 March 2003 Mr Garratt sent to the DTI fresh application forms for consent to the assignment of the After-Acquired Licences. The application forms briefly described the transaction as "Assignment of 90% of Licence interest … to affiliate Octagon Gas Ltd."
320. The Defendants' case, and the evidence on their behalf, was that the disposals of the OGL Shares and of the After-Acquired Licences were an attempt to ease the critical financial position of the Octagon Group Companies.
321. The last funds from Enron had been received in March 2002. By February 2003 rental payments were outstanding on the Licences. The DTI had written Mr Garratt a letter dated 21 January 2003 referring to outstanding rental payments in respect of the Licences, and referring to the power of the Secretary of State under clause 38 of the 1995 Model Clauses to revoke any Licence in the event that the payments mentioned in clause 9 of the Licence were in arrears or unpaid for two months after the date on which they fell due. The letter stated that, subject to any representations to be made by Mr Garratt, the Secretary of State was minded to exercise his powers to revoke each of the Licences, in the event that the payments set out in the letter had not been received by 1 March 2003.
322. The re-financing discussions with SSE lapsed on 23 January 2003. In his witness statement Mr Garratt said that, accordingly, in January and early February 2003 he spoke to people he knew in the industry to see if he could interest anyone in buying Licences EXL 273, EXL 274, PEDL 10, PEDL 13, PEDL 43, and PEDLs 64-67. He said he asked Mr Shrager, Mr Whately and Mr Gravelius, but they did not know of anybody, especially at short notice. He said he tried to find someone interested in buying the OGL Shares to provide some cash, "but it was almost impossible to interest anybody because of the complications and difficulties in explaining the whole situation".
323. Mr Garratt's evidence in his witness statement is that there was not enough income from PEDL 11, at the time, to keep the Octagon Group Companies "on a firm cash-flow footing". Mr Garratt was not being paid and had not been paid for his services since July 2002. Similarly, Mr Gravelius and the other directors were not being paid. He says, in paragraph 78 of his witness statement, that there was no prospect of acquiring funds in the very near future.
324. Mr Roscoe, in his oral evidence in cross-examination, described Mr Garratt at this time as "running around … like a headless chicken" looking for money to keep the Octagon Group Companies going.
325. In my judgment, neither the sale of the OGL Shares, nor the sale of the After-Acquired Licences were in the ordinary course of the business of the Octagon Group Companies, within 19.1.6 of the Facility Agreement.
326. As I have said, the Defendants' case is that the sales of the OGL Shares and of the After-Acquired Licences were desperate measures taken, in conditions of great financial difficulty, by the directors of the Octagon Group Companies in order to keep their business afloat. In the light of the outstanding rental payments due under the Licences, the threat of the DTI to invoke the right to revoke the Licences, the outstanding debt due from OEL to OGL, as well as all the other trade and other debts of the Octagon Group Companies, and the absence of any prospect of further loan finance on the horizon, they claim that the steps were reasonable and necessary in all the circumstances.
327. As evidence in support of the genuinely independent nature of the negotiations regarding the sale of the OGL Shares, they rely upon the evidence, given by Mr Garratt and by Mr Roscoe, that Mr Garratt initially wanted £100,000 for the OGL Shares; but, in the light of Cabot's existing right to purchase them for £50,000 in certain circumstances, pursuant to a 1997 pre-emption agreement between them, Cabot's initial position was that it was prepared to offer only £50,000. After negotiations, the price was agreed at £60,000.
328. The minutes of the meetings of the directors of the Octagon Group Companies on 7 February 2003 and 14 February 2003 set out in detail the various commercial considerations which, the Defendants say, the directors took into account in deciding on the sale of the OGL Shares and the After-Acquired Licences.
329. Mr Moss submitted that the Octagon Group Companies were insolvent at that time, and, consequently, neither the sale of the OGL Shares nor the sale of the After-Acquired Licences could have been within the ordinary course of the business of the Octagon Group Companies since they were intended to result, and did result, in the total discharge of the £125,000 borrowing by the Octagon Group Companies from OGL in preference to the other creditors of the Octagon Group Companies.
330. The witnesses for the Defendants were not prepared to accept, in cross-examination, that the Octagon Group Companies were insolvent at that time. They relied on various matters in support of that contention, including agreements by creditors to extend the time for payment of amounts due and the prospect of re-financing in the future. Taking the evidence as a whole, I am satisfied that the Octagon Group Companies were indeed insolvent at the time, certainly on a balance sheet basis, and probably on the basis of an inability to pay debts as they fell due.
331. On the other hand, for the reasons I have set out earlier in this judgment, I do not consider that, merely because the sale of the OGL Shares and of the After-Acquired Licences resulted in a preferential payment of the outstanding indebtedness of the Octagon Group Companies to OGL, the transactions for that reason alone fell outside the ordinary course of business of the Octagon Group Companies.
332. Neither the sale of the OGL Shares nor the sale of the After-Acquired Licences increased the cash available to the Octagon Group Companies for furthering their business. All the proceeds were applied in discharging borrowings, said to amount to £125,000, from OGL. The evidence seems clear, however, that the motivation for those sales was not pressure by OGL for repayment. There is no suggestion to that effect in any of the witness statements. Moreover, and importantly, Mr Roscoe's oral evidence was that the issue of the repayment of the indebtedness of the Octagon Group Companies to OGL only arose after the initiation by Mr Garratt of discussion of the sales, and in the course of their negotiation.
333. Mr Garratt gave evidence, in his cross-examination, that it was not the intention, at the time, that the £60,000 paid by Cabot for the sale of the OGL Shares would be paid to OGL in reduction of the indebtedness due from the Octagon Group Companies. Mr Moss drew Mr Garratt's attention to the following clear statement to that effect in the minutes of the meeting of the directors of OEL on 7 February 2003:

"In view of the above and the company's limited funds it was agreed, following discussions with the other shareholder in Octagon Gas, that the company sell its total shareholding in Octagon Gas for the sum of £60,000 to the other shareholder in Octagon Gas on the basis that the £60,000 received from the other shareholder is paid to Octagon Gas to partially extinguish the temporary borrowings."

334. Mr Garratt's evidence was that this statement in the minutes was incorrect and a mistake. I do not accept his evidence on this point. Mr Garratt, in his capacity as chairman of the meeting, signed the minutes as being accurate. The minutes were prepared by Mr Gravelius as secretary to the board of directors. He also signed the minutes, in his capacity as company secretary, as being accurate. Furthermore, Mr Gravelius in his cross-examination, when he was taken to the above passage in the minutes of the meeting of the directors of OEL on 7 February 2003, did not question the accuracy of the minutes, but indeed confirmed that the £60,000 received was to go partially to extinguish the temporary borrowings from OGL, and so no monies would actually come into the Octagon Group Companies for the general benefit of its creditors.
335. There was no independent valuation of either the OGL Shares or the After-Acquired Licences. As I have said, the evidence on behalf of the Defendants, and in particular the oral evidence of Mr Garratt, was that attempts had been made earlier in 2003 to find people interested in buying the After-Acquired Licences and other Licences and the OGL Shares. I was shown no contemporaneous note of, or relating to, any communications with any such people, nor any other contemporaneous written material showing any analysis of the value of those assets.
336. Further, in relation to the sale of the After-Acquired Licences, Mr Garratt was on both sides of the transaction, with conflicting interests and duties. He was the managing director of OGL as well as the managing director of the Octagon Group Companies. The assignments of the After-Acquired Licences were, in fact, signed by the same persons, including Mr Garratt, on behalf of all parties.
337. Mr Garratt gave oral evidence, in cross-examination, that he "specifically stated at the board meeting that [he] was not prepared to vote and .. was not prepared to either suggest that it should or should not go through." (Transcript 25 May 2004 p.125).
338. There is, however, nothing whatever in the minutes of any of the relevant meetings of the boards of directors of the Octagon Group Companies or OGL which supports that evidence. Nor is his evidence, in this regard, reflected in his witness statement or in any evidence given by any of his co-directors. On the contrary, my clear impression from the evidence is that the overwhelming probability is that the other directors relied heavily on Mr Garratt's views.
339. Further, the transactions took place at the same time as, and must be viewed in the context of, other unusual transactions. So, the minutes of the meeting of the board of directors of OEL on 14 February 2003 not only dealt with the transfer of the After-Acquired Licences, and noted that the sale and purchase of the OGL Shares had been completed and "the temporary borrowings from Octagon Gas returned", but they also record decisions of the directors to sell test rigs and associated equipment to OGL for £25,000, to sell the office equipment to Exeter for £7,500, including computers, and to sell the office lease to Exeter for £1,000. The minutes record that Mr Garratt informed the board that OEL could continue to use the office equipment on a temporary basis without payment, provided it was not required by Exeter and provided OEL did not become "insolvent bankrupt or a proposal was made to the company and its creditors for a composition in satisfaction of its debts or a scheme or arrangement of its affairs or the application to the Court for an Order of bankruptcy or placed into any form of administration." The minutes also record that Mr Garratt told the board that OEL could continue to use the office on a temporary basis on similar conditions to those for the office equipment.
340. A series of transactions by which the Octagon Group Companies parted with, in favour of associated companies, the lease of their office premises, the office equipment, the test rigs and associated equipment, all the After-Acquired Licences, and the entire shareholding in OGL, without raising any substantial new cash for their business purposes, has all the hallmarks of an attempt to find a safe-haven for the assets of the business so that it could continue to be carried on by, or under the control of, Mr Garratt notwithstanding the insolvency of the Octagon Group Companies and the terms of the Security Documents, including, in particular, the Debentures.
341. That inference is strongly reinforced by the highly unusual terms, carefully recorded in the minutes, to which I have referred, enabling OEL to continue to use its business equipment and its business premises on licence from OEL, but terminable in the event of liquidation or "any form of administration" or merely, apparently, becoming "insolvent bankrupt".
342. The inference is also further strongly supported by the failure of the Octagon Group Companies to make any contact with Mr Giard, who had held meetings with Mr Garratt in the second half of 2002 with a view to the possibility of providing development funding in respect of the Licences or acquiring the assets of the Octagon Group Companies, including the Licences. The minutes of the meeting of the directors of OEL on 14 February 2003 show that the directors were aware that Mr Giard was trying to buy the Licences from Enron at that time. Mr Garratt and the other witnesses for the Defendants gave various reasons for the absence of any communication with Mr Giard in 2003, prior to the decisions to sell the OGL Shares and the After-Acquired Licences to Cabot and OGL respectively, including, in particular, the difficulty of locating and contacting Mr Giard and the unattractiveness of the proposals previously made by Mr Giard. Bearing in mind, however, the particularly acute financial difficulties which the Octagon Group Companies were experiencing in early 2003, on which the Defendants rely to justify the transactions to which I have referred, it seems remarkable that, if Mr Garratt really wished to obtain further finance for the Octagon Group Companies by sale of its assets in arm's length transactions, he did not have discussions with Mr Giard.
343. The inference of an unusual attempt to find a safe-haven, or series of safe-havens, from which Mr Garratt could continue to run the business of the Octagon Group Companies, rather than genuine commercial sale arrangements at arm's length, is further reinforced by the deliberate decision, carefully recorded in the minutes of the relevant boards of directors on 14 February 2003, not to give advance notice to Enron.
344. In my judgment, it is reasonable to conclude that the reason why a deliberate decision was taken not to notify Enron in advance of the transactions in February 2003, including, in particular, the sale of the OGL Shares and of the After-Acquired Licences, was because Mr Garratt was particularly concerned that the Enron Lenders would object to the transactions on the basis that they were not authorised by the Security Documents, and, in particular, were not in the ordinary course of the business of the Octagon Group Companies within clause 19.1.6 of the Facility Agreement.
345. In any genuine, independent arm's length transaction, both Cabot and OGL, whose agents or representatives were aware of the security held by the Enron Lenders over the assets of the Octagon Group Companies, would have made enquiries of, or sought reassurances from, the Enron Lenders as to the likelihood of challenge by the Enron Lenders. There is no evidence of any kind that any such enquiries were made or assurances sought.
346. The collusive nature of the transactions involving the sale of the After-Acquired Licences and the OGL Shares, and the absence of the usual characteristics of arm's length commercial transactions, is further illustrated by the following features of the sale of the After-Acquired Licences.
347. Mr Garratt was well aware, since it appears on the face of each of the deeds of assignment, that the Secretary of State's consent was required to the assignments. It is also clear from his oral evidence that he was aware that the DTI would require to be satisfied about the suitability of the assignee of a Licence before being willing to register the assignment. The requirements as to suitability were set out in the letter from Mr Hawkins of the DTI to Mr Garratt dated 24 February 2003.
348. At the time of the assignments of the After-Acquired Licences, it was the intention of OEL to sell the OGL Shares to Cabot, upon which OGL would become the wholly owned subsidiary of Cabot, a Liberian registered private investment company, which had no published accounts.
349. By the date of the applications to the DTI for consent to the assignments, a formal sale and purchase agreement had been entered into between Cabot and OEL in relation to the OGL Shares.
350. In those and all the other circumstances I have mentioned, I consider that Mr Garratt could not have had any real or reasonable expectation that the requirements specified in Mr Hawkins' letter could or would be satisfied in relation to OGL, as the assignee of the After-Acquired Licences. It was not, in my judgment, in the ordinary course of the business of OCL and OCRL to execute assignments to an assignee, without the prior consent of the DTI, in circumstances in which the After-Acquired Licences were exposed to the right of the DTI to revoke the Licences for breach of the requirement for consent in the 1995 Model Clauses. In particular, there is no evidence before me to indicate that either OGL or Cabot, its parent company, could provide, or would be willing to provide, the financial evidence required by the DTI. It is significant, in my judgment, that when Mr Garratt wrote his letter of 25 February 2003, in response to Mr Hawkins' letter of 24 February 2003, and he described OGL, he said nothing whatever about the agreement to transfer the remaining OGL Shares to Cabot and said nothing whatever about Cabot itself. The clear impression created by Mr Garratt's letter ("Octagon Gas has been a subsidiary for some 6 years and the same technical team and competence applies as to Octagon overall") was that nothing had changed, and no change was currently underway, as to OGL's status as a subsidiary of OEL. I consider that, in that respect, the letter was deliberately misleading.
351. Doubtless to overcome that difficulty, Mr Garratt, apparently entirely on his own initiative, suggested in his letter of 25 February 2003 that the agreement to assign dated 14 February 2003 could in some way be unscrambled so as to provide that only 90% of the interest in the After-Acquired Licences be transferred to OGL. Indeed, as I said earlier in this judgment, revised applications were submitted on that basis under cover of a letter from Mr Garratt dated 7 March 2003.
352. This was, on any footing, a remarkable state of affairs. There appears to be no contemporaneous documentary evidence, including minutes of board meetings, that Mr Garratt's proposal in his letter of 25 February 2003 to Mr Hawkins or the revised applications were the subject of any discussion or decision at meetings of the directors of the Octagon Group Companies or OGL or, indeed, the subject of discussions and agreement between Mr Garratt or anyone else representing the Octagon Group Companies and Cabot and its representatives. Minutes of meetings of the directors of the Octagon Group Companies on 21 March 2003, for example, simply note "that the assignments of Licences PEDL 64, PEDL 65, PEDL 66 and PEDL 67 to Octagon Gas were being progressed".
353. The actual assignments dated 1 April 2003 were of the entire interest of OCL and OCRL in the After-Acquired Licences, and so were inconsistent with the revised applications to the DTI. I have not seen any agreement to reassign or any actual reassignment of any part of the interest in the After-Acquired Licences previously assigned to OGL by those assignments dated 1 April 2003, so as to give effect to the proposal to Mr Hawkins and the revised applications to the DTI.
354. Far from being a transaction in the ordinary course of the business of the Octagon Group Companies, the transaction involving the transfers of the After-Acquired Licences was, in all these circumstances, remarkable and extraordinary.
355. The Defendants, in paragraph 22 of the re-amended Defence, allege that the Claimants are estopped from claiming that the assignments are unlawful or in breach of the terms of the Facility Agreement or the Debentures. No similar claim of estoppel is alleged in relation to the sale of the OGL Shares.
356. I can see no proper basis for a claim of estoppel as alleged.
357. In support of the alleged estoppel, the Defendants rely upon the notification given by letter to the general counsel of ECT by letter dated 17 February 2003 from Mr Garratt, which stated that the board of OEL had resolved to sell the After-Acquired Licences to OGL for £65,000, with OGL to be responsible for licence rentals from 8 September 2002 and any work commitments that pertained to the Licences, and which enclosed copies of the agreement dated 14 February 2003 for the sale to OGL of the After-Acquired Licences, as well as a copy of the agreement for the sale of the OGL Shares by OEL to Cabot.
358. The Defendants claim that the failure of the Enron Lenders or their agent to object to those agreements, within a reasonable time of their disclosure, constituted an unequivocal indication of the intention of the Enron Lenders not to insist on their strict legal rights to challenge them. I reject that contention.
359. My conclusion from the evidence of Mr Marsden and Mr Larrison, to which I referred earlier in this judgment, and the other evidence I have seen, leads me to conclude that Mr Garratt and his co-directors of the Octagon Group Companies were at all relevant times fully aware that the Enron Lenders wished to insist on their strict legal rights. Mr Garratt and his co-directors had no reason to believe, and did not believe, in my judgment, that the Enron Lenders or their agent were willing to take a less strict a view of the transactions concerning the OGL Shares and the After-Acquired Licences. As I have said, Mr Garratt and the other directors of the Octagon Group Companies took the deliberate decision, recorded in the minutes of the meetings of the boards of directors on 14 February 2003, not to give prior notice to Enron of the assignments of the After-Acquired Licences. As I have said, I conclude, from the evidence as a whole, that the motivation for that decision was that they were concerned that the Enron Lenders would object to the transactions.
360. Further, and in any event, even if that is incorrect, there is no evidential basis for concluding that the Enron Lenders or their agent were aware of all of the facts and matters, to which I referred earlier in this judgment, which colour the true nature of the sale of the OGL Shares and of the After-Acquired Licences, including, for example, the fact that it was always intended that the entire proceeds of the sales should be applied in discharging the outstanding borrowing of the Octagon Group Companies from OGL, the fact that there were no independent valuations of any of the assets transferred, the contemporaneous sale of the office premises and the office equipment of the Octagon Group Companies as well as other assets, the absence of any consent to the assignments by the DTI and the absence of any real basis for supposing that the DTI would consent to a transfer of the After-Acquired Licences to OGL, in view of the qualities and financial circumstances of that company and Cabot, its parent company, in the context of the requirements of the DTI for approval of transfers of licences.
361. In short, the Enron Lenders made no clear or unequivocal promise or representation, whether of fact or otherwise, to OGL or, for that matter, Cabot, that the Enron Lenders would not rely upon their strict legal rights, and rendering it inequitable for them to do so.
362. In the re-amended Defence, the Defendants claim that, if OGL is not the owner of the After-Acquired Licences, OGL should be repaid the purchase price paid for those Licences and all sums expended by OGL in relation to such Licences.
363. The Defendants also claim that, if Cabot is not the sole legal and beneficial owner of the OGL Shares, Cabot should be repaid all sums expended by it in relation to those shares.
364. In the Defendants' written closing submissions, the Defendants put the matter in the following way. They claim that, since the Claimants are seeking restitution of the After-Acquired Licences in equity, it would be inequitable to allow such restitution without, at the same time, allowing for recoupment of sums of money expended to develop or preserve the Licences, including licence rental payments to avoid forfeiture, such expenditure being in the nature of salvage.
365. The claim that an order in favour of the Claimants in respect of the After-Acquired Licences and the OGL Shares should be conditional on recoupment of the expenses of OGL and Cabot is, in my judgement, misconceived. No authority was cited to me by Mr Adkins in support of this part of his case. The legal position seems to me to be that the Claimants are asserting a property right, based upon the prior equitable interest of the Enron Lenders arising from the Debentures. The Defendants do not claim to be purchasers, in good faith, without notice of the Debentures and the rights which such Debentures conferred on the Enron Lenders and their successors in title. Indeed, it is clear from the evidence that the Defendants were at all relevant times aware of the Debentures and the rights under them. In those circumstances, and in the absence of any estoppel, there is no basis for the Court imposing on the Claimants the suggested qualification of their assertion to a property interest in the After-Acquired Licences and the OGL Shares.
366. The question whether OGL or Cabot has any claim against the Octagon Group Companies in relation to the sale of the After-Acquired Licences and for the OGL Shares does not arise for my decision in this case, and was not the subject of any submissions to me.

Transfers of 90% interests to E&P in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43

367. As I have explained earlier in this judgment, a 10% interest in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 was transferred to E&P by deeds of assignment dated 12 July 2002.
368. E&P claims to have acquired, and to be entitled to retain as against the Claimants, the 90% balance of the interest in those Licences by deeds of assignment dated 10 February 2003 (in respect of EXL 273, EXL 284 and PEDL 11), a deed of assignment dated 28 April 2003 (PEDL 43) and a deed of assignment dated 13 June 2003 (PEDL 13).
369. Briefly summarised, the Defendants' case in relation to the transfer of the 90% interest in those Licences is as follows. On a number of occasions between 13 July 2002 and the end of 2002, E&P wrote to the Octagon Group Companies expressing concern that licence payments were not being made and that wells were not being drilled, with the consequence that the Licences might be lost. E&P also expressed the same concern to Enron. E&P made it clear that E&P would make those licence payments, but that the consequence would be that, under the relevant JOAs in respect of those Licences, the interests of the Octagon Group Companies in them would have to be relinquished to E&P.
370. The Defendants' case is that, by the beginning of 2003, given the financial position of the Octagon Group Companies, those companies had to farm-out their assets in order to ensure that the most valuable Licences, namely the remaining interest of the Octagon Group Companies in PEDL 11 and PEDL 12, would be retained.
371. On 21 January 2003 the DTI wrote to Mr Garratt stating that, if the outstanding licence payments were not made by 1 March 2003 in respect of EXL 273, EXL 284 and PEDL 11, among other Licences, the Secretary of State was minded to exercise the power conferred on him by clause 38 of the 1995 Model Clauses to revoke each Licence.
372. E&P was told of the threat of the Secretary of State, and that Octagon could not pay. E&P's response was to say that it would make the rental payments and take over the Licences.
373. The Defendants say that, in view of the inability of the Octagon Group Companies to pay what was due on those Licences, the choices were, first, to allow the Licences to lapse with the consequence that the Octagon Group Companies would still be responsible for the outstanding rental payments; alternatively, provided that E&P was prepared to take over those payments, to accede to the relinquishment requests from E&P. The Defendants' case is that the Octagon Group Companies had no choice but to agree to E&P's requests, in order to prevent the Licences being lost to the DTI and the Octagon Group Companies being pursued for the licence fees.
374. As I have said, deeds of assignment of the 90% interest held by the Octagon Group Companies in EXL 273, EXL 284 and PEDL 10 were executed in favour of E&P on 10 February 2003.
375. E&P subsequently paid the sum of £85,000 due to the DTI in respect of those Licences.
376. Under cover of a letter dated 16 February 2003 Mr Garratt sent ECT copies of the signed documentation.
377. By letter dated 7 March 2003 from E&P to Mr Garratt, E&P stated that, if the licence rentals due on PEDLs 13 and 43 were not paid on time, E&P would have to pay them to preserve the Licences, and the Octagon Group Companies would be liable to forfeit all their rights and title to their interest in those Licences.
378. On 15 April 2003 the DTI requested payments in respect of PEDL 43 within 14 days.
379. As I have said, OCL's 90% interest in PEDL 43 was transferred to E&P by an assignment dated 28 April 2003.
380. Copies of the documentation in relation to that assignment were given to ECT under cover of a letter from Mr Garratt dated 2 May 2003.
381. On 2 June 2003 the DTI wrote to OCRL seeking payment in respect of, among other Licences, PEDL 13 and threatening them with legal proceedings in the absence of payment.
382. As I have said, an assignment of OCL's 90% interest in PEDL 13 was transferred to E&P by an assignment dated 13 June 2003.
383. Copies of the documentation in relation to that assignment were sent to ECT under cover of a letter from Mr Garratt dated 18 June 2003.
384. PEDL 10 has now lapsed.
385. In the re-amended Defence it is alleged that those transfers to E&P of the 90% interest of OCL and OCRL in EXL 273, EXL 284 PEDL 10, PEDL 13 and PEDL 43 were:

"16.1 In accordance with the provisions of the JOAs executed pursuant to the Earn In Agreement; and/or

16.2 In the ordinary course of the business of Octagon CBM and/or Octagon Resources."

386. In my judgment, the 90% interest assignments in respect of EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 were not executed pursuant to the relevant JOAs and were not effected in the ordinary course of the business of any of the Octagon Group Companies.
387. The contemporaneous documentation clearly shows that the intention of OCL and OCRL and E&P was that each of those assignments was to be effected pursuant to clause 16.4 of the relevant JOAs. The following are important examples.
388. In a letter from Mr Grove, on behalf of E&P, to Mr Garratt dated 24 January 2003, Mr Grove stated that E&P gave notice that it would pay the licence rentals for EXL 273, EXL 284 and PEDL 11 by 28 February 2003 and, under "clause 16.3" of the JOA in respect of each of those Licences, OCL and OCRL should transfer and assign the Licences to E&P. It is clear from Mr Grove's oral evidence that the reference to clause 16.3 of the JOA was a mistake, and he intended to refer to clause 16.4.
389. The minutes of meetings of the directors of the Octagon Group Companies on 7 February 2003 record that, since licence rentals had not been paid, E&P had the right to take over the relevant Licences according to the JOAs; and since the licence rentals had not been paid, certain Licences had to be assigned to E&P to satisfy their demands. The minutes record that, in view of those matters, and the limited funds available to the Octagon Group Companies, it was agreed to assign EXL 273 and PEDL 10 to E&P at the earliest opportunity, and to assign EXL 284 to E&P before the DTI's deadline for payment of licence rentals of 28 February 2003 unless a settlement could be completed with Enron concerning the Enron loan in the interim.
390. At the same time as the deeds of assignment were executed on 10 February 2003 in respect of EXL 273, EXL 284 and PEDL 10, deeds of "licence assignment" were also executed in respect of the same Licences, each of which recited that the assignments were pursuant to the relevant JOA.
391. Mr Garratt sent the DTI application forms in respect of the assignments of EXL 273, EXL 284 and PEDL 10 under cover of a letter dated 10 February 2003. In those application forms it was stated, by way of a brief description of the transaction, that 90% of the licence interest was transferred from OCL and OCRL to E&P "pursuant to existing Joint Operating Agreement."
392. In the letter of 16 February 2003 from Mr Garratt to ECT, under cover of which Mr Garratt sent copies of the assignment documents relating to the transfer of the 90% interest in EXL 273, EXL 284 and PEDL 10, Mr Garratt stated that "Octagon has now forfeited its 90% interest" in those Licences. That could only have been a reference to clause 16.4 of the relevant JOAs.
393. In the letter of 7 March 2003 from Mr Grove, on behalf of E&P, to Mr Garratt with regard to rental payments due on PEDL 13 and PEDL 43, among other Licences, Mr Grove stated that, if the rental payments were not made on time and E&P had to pay them to keep the Licences on foot, the Octagon Group Companies "would be liable to forfeit" all their rights and title to their interests in the Licences. Again, this could only have been a reference to clause 16.4 of the relevant JOAs.
394. Minutes of meetings of the directors of the Octagon Group Companies on 21 March 2003 recorded that rental payments on PEDL 43 were overdue, and E&P had been pressing for the payments to be paid, failing which they would "take over the Licence in accordance with the JOA".
395. Although, on the evidence before me, the next meeting of the directors of each of the Octagon Group Companies was not until 23 April 2003, Mr Garratt wrote to E&P on 1 April 2003 stating that, because of the current situation "and your rights", the Octagon Group Companies had agreed to transfer and assign to E&P its 90% interest in PEDL 43.
396. Minutes of meetings of the directors of the Octagon Group Companies on 23 April 2003 recorded that rental payments on PEDL 43 were overdue, and E&P had been pressing for them to be paid, failing which "they will take over the Licence in accordance with the JOA". The minutes recorded that, in consideration of those and other matters, the board resolved "to relinquish the Licence to E&P … under the JOA".
397. In the letter from Mr Garratt to ECT dated 2 May 2003, under cover of which Mr Garratt sent copies of documents relating to the assignment of the 90% interest in PEDL 43, Mr Garratt stated that OCL "has now forfeited" its 90% interest in PEDL 43 to E&P.
398. In minutes of meetings of the directors of the Octagon Group Companies on 6 June 2003 it was recorded that rental payments on PEDL 13, among others, were overdue, and E&P had been pressing for them to be paid, failing which they would take over the Licences "in accordance with the JOA." It was further recorded that, in consideration of those and other points, it was "resolved to relinquish Licence PEDL 13 to E&P … under the JOA."
399. In the letter of 18 June 2003 from Mr Garratt to ECT, under cover of which Mr Garratt sent copies of the assignment documentation relating to the transfer of the 90% interest in PEDL 13 to E&P, Mr Garratt stated that OCL "has now forfeited" its 90% interest in PEDL13.
400. All those references to the rights of E&P to acquire the 90% interest in the relevant Licences pursuant to the JOAs could only be a reference to clause 16.4 of the JOAs, as is also the case as regards all references to forfeiture of the 90% interest to E&P.
401. It is clear, however, that none of the transfers of the 90% interest of the Octagon Group Companies in EXL 273, EXL 285, PEDL 10, PEDL 13 and PEDL 43 was in accordance with the procedure set out in clause 16.4 of the JOAs. The 60 day written notice of desire not to make a payment was not given.
402. The assignments of the 90% interests in those Licences, purportedly pursuant to clause 16.4 of the relevant JOAs, was, in the circumstances, a breach by the relevant Octagon Group Companies of clauses 19.1.11(c), (d) and (e).
403. Further, by failing to give 90 days' prior notice to ECT of E&P's exercise of its rights under clause 16.4 of the relevant JOA, E&P was in breach of its obligations under clause 9.1 of the Direct Agreement.
404. So far as concerns the Defendants' alternative claim that the assignments of the 90% interests of OCL and OCRL in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 were in the ordinary course of the business of OCL and OCRL, a disposition, purportedly pursuant to clause 16.4 of the relevant JOA, which was not in fact in accordance with the terms of the JOA and was in breach of the obligations of OCL and OCRL under clause 19 of the Facility Agreement, and in breach of the obligations of E&P under clause 9 of the Direct Agreement, cannot have been intended by the parties to fall within, and in my judgment, did not fall within the expression "in the ordinary course of its … business" within clause 19.1.6 of the Facility Agreement.
405. The Claimants allege, in addition, that the transactions fell outside the ordinary course of business of the Octagon Group Companies since Mr Garratt was, in reality, involved on both sides of the transactions.
406. It appears that, during the course of 2002, Parkfield, a British Virgin Island company, acquired a 49% interest in Protocom Operating LLC and E&P Operating LLC, which owned 100% of E&P. There is also evidence that, by virtue of its 49% interest, Parkfield effectively controls the affairs of E&P.
407. In paragraph 5 of the Particulars of Claim, the Claimants allege that Parkfield and/or the shares in and/or the officers of Parkfield are owned and/or controlled and/or directed (whether directly, or indirectly, wholly or partly) by Mr Garratt.
408. In paragraphs 37- 39 of the written closing submissions of the Claimants a large number of matters are set out in support of the Claimants' case that E&P cannot accurately be described as a third party acting independently of Mr Garratt or the Octagon Group Companies and generally at arm's length in relation to the impugned assignments.
409. I do not propose to address each of the matters there set out. It is certainly true, as the Claimants allege, that there is a remarkable dearth of evidence as to precisely who owns the majority beneficial interest in Parkfield. Absolutely no documentary evidence has been disclosed by E&P on this aspect, even though it is an issue directly raised in the Particulars of Claim. Mr Grove said, in his oral evidence, that he does not know who are the beneficial owners of Parkfield. His evidence was that he received his instructions from Mr Vallabh, but that there is not a single document on his files recording any of his communications with Mr Vallabh.
410. I also agree with the Claimants that it is clear from Mr Grove's evidence, and from the contents of correspondence written to the Octagon Group Companies and others by Mr Grove, on behalf of E&P, that Mr Garratt must have played a significant role in relation to the contents and wording of that correspondence.
411. Nevertheless, having regard to the evidence as a whole, and particularly what I was told by Mr Grove, and notwithstanding the suspicions raised by the various matters mentioned in the paragraphs of the Claimants' written closing submissions to which I have referred, I find that there is insufficient evidence to establish, on a balance of probabilities, that Mr Garratt owned or controlled or directed Parkfield, or its shares or its officers as alleged in paragraph 5 of the Particulars of Claim.
412. Mr. Moss further submitted that the transfers of the 90% interest in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 were not in the ordinary course of the business of OCL or OCRL since the Octagon Group Companies were then left with inadequate assets to continue to trade and, in particular, to enable any re-financing to take place. There is insufficient evidence before me to justify that conclusion. The Octagon Group Companies were left with a significant holding in the two most valuable Licences, as well as other assets.
413. On the other hand, there are a number of unusual features surrounding the transfers of the 90% interests of OCL and OCRL in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 which, quite apart from the breaches of clause 19.1.11 of the Facility Agreement and clause 9.1 of the Direct Agreement, take the transactions outside the ordinary course of the business of those companies within clause 19.1.6 of the Facility Agreement.
414. Like the sale of the After-Acquired Licences to OGL and the sale of the OGL Shares to Cabot, the transfers of the 90% interest took place at a time when negotiations with the Enron Lenders had come to an end, the Octagon Group Companies were in severe financial difficulties, and, in my judgment, insolvent, and they were effected in favour of an entity apparently controlled or directed by persons known to Mr Garratt personally, namely Mr Grove and Mr Vallabh. The transactions took place notwithstanding the absence of any independent valuation of the interest being transferred, and without any new money being injected into the Octagon Group Companies.
415. A deliberate decision was taken not to inform the Enron Lenders in advance of the transactions. The obvious and proper inference to be drawn, in all the circumstances, is that Mr Garratt and his co-directors of the Octagon Group Companies were concerned that the proposed assignments of the 90% interest might be prohibited under the terms of the Security Documents and the Enron Lenders or their representatives might object to them.
416. The most unusual and remarkable aspect of the transactions, however, is the attempt by Mr Garratt, apparently of his own initiative, to re-jig the assignments, in his dealings with the DTI, in order to avoid the complications arising from the DTI's requirements in the case of assignments of a 100% interest in existing licences to a new Operator.
417. The transfer of the 90% interest in EXL 273, EXL284, PEDL 10, PEDL 13 and PEDL 43, in conjunction with the prior assignments of a 10% interest, resulted in assignments of 100% of the interest of OCL and OCRL in those Licences to E&P. The assignments were made, however, without the consent in writing of the Secretary of State, contrary to the provisions of the 1991 Model Clauses and the 1995 Model Clauses. Each of the relevant Licences was, therefore, subject to revocation by the Secretary of State.
418. On the evidence before me, it was highly improbable, at the least, that the Secretary of State would have approved E&P as assignee, in the light of the personal qualifications required to be met by the DTI, as mentioned by Mr Hawkins in his letter to Mr Garratt of 24 February 2003. Mr Grove accepted in his oral evidence, for example, that E&P was insolvent. It is highly unlikely, on the evidence before me, that E&P's ultimate parent company would have been willing to supply the evidence of its financial position, as specified in Mr Hawkins' letter.
419. So far as concerns the DTI's requirements for technical competence, and a UK basis for operations, it is also doubtful if the DTI would have been satisfied with E&P's qualifications.
420. In his letter of 25 February 2003, in reply to Mr Hawkins' letter of 24 February 2003, Mr Garratt stated:

"Information was provided on E&P … at the time of signing the Enron Agreements. It is a UK company which will use some of the existing consultants that Octagon has used on the Licences in addition to expertise from the USA. Some of the US personnel have worked in the UK on UK onshore Licences."

421. That statement was, at best, highly misleading. It did not accurately reflect the facts, as known to Mr Garratt, that the original personnel of E&P ,who had considerable relevant technical expertise, withdrew from the operations of E&P when Parkfield acquired its interest in 2002. The two new directors of E&P, who were not based in the UK, were Mr Grove and Mr John Atencio. Mr Grove, who was principally responsible for managing the affairs of E&P, had never been involved in any CMM or CBM operations, and had never been involved in drilling any wells. Mr Grove's evidence was that Mr Atencio was active in the oil and gas business, especially in CBM leasing. Mr Grove agreed with Mr Moss, however, that Mr Atencio did not play any significant role in any of the key decisions or the writing of any letters. There is no evidence before me that Mr Atencio had ever worked in the UK on UK on-shore licences, as stated in the letter of 25 February 2003. There is no evidence that any of the companies directly or indirectly owning or controlling E&P had any technical experience of any kind in relation to the work required to be, and anticipated to be, carried out pursuant to the Licences.
422. Doubtless it was in order to deal with these difficulties that Mr Garratt, when he sent to the DTI the original application forms in respect of the assignments of a 90% interest in EXL 273, EXL 284 and PEDL 10, stated in each of the application forms that E&P had "been involved in the exploration of the Licence since February 2000", without any regard to the changes that had taken place in the personnel and ownership of E&P when Parkfield acquired its interest in 2002.
423. The assignment of a 90% interest in EXL 273, EXL 284 and PEDL 10, without the prior written consent of the Secretary of State, in circumstances in which it was highly unlikely that the Secretary of State would ever accept E&P as a proper owner of a 100% interest in those Licences, and thereby exposing the Licences to the real possibility of revocation by the Secretary of State, could not properly be described as being a transaction in the ordinary course of the business of any of the Octagon Group Companies.
424. Furthermore, and remarkably, in order to circumvent the difficulties of satisfying the requirements in Mr Hawkins' letter of 24 February 2003, Mr Garratt proposed, in his letter to Mr Hawkins of 25 February 2003, that the assignments be re-jigged so that only an 80% interest was to be treated as transferred, and so that E&P had a 90% interest after assignment and the Octagon Group Companies had a 10% interest after assignment, and there was no change in the Operator, notwithstanding that the deeds of assignment in respect of EXL 273, EXL 284 and PEDL 10 had already been executed.
425. Pursuant to that proposal, revised application forms were submitted to the DTI under cover of a letter from Mr Garratt to the DTI dated 7 March 2003, each of which briefly described the transaction as "Assignment of 80% of Licence interest from [OCL] to the other Licensee, [E&P], pursuant to the existing Joint Operating Agreement." Each of those revised applications forms contained the same statement as the original forms that E&P had been involved in the exploration of the relevant Licences since February 2000.
426. As in the case of the revised proposals and revised applications for the transfer of the After-Acquired Licences to OGL, there appears to be no contemporaneous documentary evidence, including minutes of board meetings, that the re-jigging of the transfers to E&P was the subject of any discussion or decision at meetings of the directors of the Octagon Group Companies or of E&P or the subject of discussion and agreement between Mr Garratt or anyone else representing the Octagon Group Companies and E&P and its representatives.
427. So far as concerns the assignments of the 90% interest in respect of PEDL 13 and PEDL 43, which were executed on 13 June 2003 and 28 April 2003 respectively, they were executed without the prior written consent of the Secretary of State, and with Mr Garratt's knowledge of the requirements specified in Mr Hawkins' letter of 24 February 2003. They were, accordingly, executed by OCL in the knowledge that it was highly improbable that the Secretary of State would consent to the assignments.
428. Remarkably, on 1 August 2003, Mr Garratt wrote to the DTI stating that an 80% interest in PEDL 13 and PEDL 43 had been transferred from OCL to E&P which, when combined with the 10% interest previously transferred to E&P in respect of those Licences, resulted in E&P holding a 90% interest and OCL holding a 10% interest after the assignments. Those assignments of an 80% interest in PEDL 13 and PEDL 43 were said by Mr Garratt, in the letter of 1 August 2003, to have been transferred "following your comments in your letter of 15 July 2003 regarding Open Permission …". That was a reference to a letter sent by e-mail by Mr Robert Bailey of the DTI to Mr Garratt on 15 July 2003 in which Mr Bailey explained that, if a transaction is not a licence assignment "which would involve one or more parties entering and/or leaving a Licence", but merely an internal reorganisation of the allocation of rights agreed amongst existing licensees, Mr Garratt should consider whether, by virtue of the provisions of "the Open Permission (Operating Agreements)", permission had already been granted in respect of the assignments for EXL 273, EXL 284 and PEDL 10.
429. The statements in Mr Garratt's letter to the DTI of 1 August 2003 in respect of the assignments for PEDL 13 and PEDL 43 were bald untruths. The assignments were not of an 80% interest, but were of a 90% interest which, together with the previously transferred 10% interest, assigned to E&P 100% of the interest in those Licences. Further, the assignments had not taken place following the DTI's letter of 15 July 2003, since they had already been executed on 28 April 2003 and 13 June 2003.
430. Once again, there is no contemporaneous documentary evidence that Mr Garratt's purported revision of the interest transferred to E&P in respect of PEDL 13 and PEDL 43 was discussed with, let alone agreed by, either Mr Garratt's co-directors of the Octagon Group Companies or E&P, and there is no evidence that there was ever any re-assignment of any interest transferred by the assignments executed on 28 April 2003 and 13 June 2003.
431. Whether or not there was any oral discussion and agreement between the directors of OCL or OCRL and also between E&P and OCL/OCRL (as to which there was no cross-examination), in all the circumstances the purported assignments to E&P of a 90% interest in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 could hardly be described as being in the ordinary course of the business of any of the Octagon Group Companies.
432. As in the case of the assignment to Cabot of the After-Acquired Licences, the Defendants claim that the Claimants are estopped from denying the validity of the assignments in respect of the 90% interest in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43, or from claiming that those assignments were in breach of the terms of the Facility Agreement or the Debentures.
433. Among other things, the Defendants rely upon the fact that the relevant assignments were provided to ECT under cover of letters from Mr Garratt dated 16 February 2003, 2 May 2003 and 18 June 2003. The Defendants rely upon the absence of any response by ECT or the Enron Lenders or any other representative of them, within a reasonable period of time after being notified of the assignments, objecting to the assignments.
434. In my judgment, there is no proper basis for any such estoppel as is alleged. There is no evidence before me that the Enron Lenders or anyone acting on their behalf knew of all the various facts and matters which I have set out above and which preclude the transactions from being fairly described as having been carried out in the ordinary course of the business of OCL or OCRL. There is no evidence, for example, that they were aware that the procedure specified in clause 16.4 of the relevant JOAs had not been satisfied, or that the facts and circumstances were such that it was highly probable that the Secretary of State would not consent to the assignments, or that Mr Garratt, in order to attempt to procure the consent of the Secretary of State, would resort to the untruths and the purported revisions of the interests assigned which I have described above in connection with the applications to the DTI for consent.
435. In summary, the Enron Lenders made no clear or unequivocal promise or representation to the Octagon Group Companies or E&P that the Enron Lenders would not rely on their strict legal rights, or rendering it inequitable for them or the Claimants to do so.
436. As in the case of the sale of the After-Acquired Licences to OGL, and of the OGL Shares to Cabot, E&P claims that, if it is not entitled to a declaration that it is the owner of 100% of the legal and beneficial interest in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43, E&P is entitled to repayment of all sums expended by it in relation to those Licences.
437. For the same reasons as I have mentioned in connection with a similar claim by OGL and Cabot in relation to the After-Acquired Licences and the OGL Shares, I hold that E&P is not entitled to an order for such repayment. In short, in the absence of any estoppel, Greenpark asserts its rights by virtue of the superiority of its property interest over that of E&P, since the equitable interest of the Enron Lenders, through which Greenpark derives title, is earlier in time than the creation of the equitable interest purportedly transferred to E&P, and E&P does not claim to be purchaser of the legal interest in the relevant Licences without notice.
438. As I have said, no authority was cited to me by Mr Adkins in support of the Defendants' case on this aspect.
439. Once again, the question whether E&P has any claim against OCL or OCRL in relation to the transfers of a 90% interest in EXL 273, EXL 284, PEDL 10, PEDL 13 and PEDL 43 does not arise for my decision in this case, and was not the subject of any submissions to me.

Wrongful interference with the Drilling Rig and the Equipment

440. The Defendants counterclaim that OGL was at all material times the legal and beneficial owner of the Drilling Rig and the Equipment; and that on 6 or 7 January 2003 Greenpark, or those acting on its behalf, removed the Drilling Rig and the Equipment, or caused them to be removed, from where they were stored by OGL; and Greenpark thereby wrongfully interfered with OGL's property.
441. OGL seeks a declaration that the Drilling Rig and the Equipment are its property, an order that Greenpark forthwith deliver up the Drilling Rig and the Equipment to OGL, and damages for wrongful interference.
442. It appears, both from the re-amended Defence to Counterclaim, and the evidence that was given on the Claimants' behalf, that the Claimants do not deny that the Drilling Rig and the Equipment were removed from their existing places of storage by Greenpark, but they put OGL to proof that the Drilling Rig and the Equipment were previously owned by Cabot, from which company OGL claims to have purchased them.
443. I am satisfied, from the evidence of Mr Roscoe and the documentary evidence, including invoices, that, on a balance of probabilities, the Drilling Rig and the Equipment were purchased by Cabot and Cabot subsequently sold them to OGL. Mr Roscoe's oral and written evidence described in detail the circumstances and the manner in which Cabot purchased the Drilling Rig and the Equipment and then sold them to OGL. The available documentary evidence, including invoices, supports his account.
444. Greenpark has refused or failed to return the Drilling Rig and the Equipment to OGL, notwithstanding a demand for their return in a letter dated 9 January 2004 from OGL to Greenpark.
445. In the light of those findings, no arguable defence was advanced by the Claimants to the allegation of wrongful interference with OGL's property.
446. Accordingly, OGL is entitled to its counterclaim for a declaration that Greenpark has wrongfully interfered with the Drilling Rig and the Equipment, and an order for delivery up of the same. So far as concerns the claim to damages, as I have said earlier in this judgment, the parties are agreed that, in all the circumstances, I should order an enquiry.

Summary of conclusions

447. In summary, my conclusions on the issues which arose for determination at the trial are as follows:

i. the transfers to Cabot of 41% of PEDL 11 and PEDL 12 were not within the ordinary course of OCL's business;

ii. the transfers to E&P of a 10% interest in EXL 273, EXL 284 and PEDL 12 were expressly permitted by clause 19.1.6 of the Facility Agreement and, accordingly, clause 4.2 of the Debentures; but the transfers to E&P of a 10% interest in PEDL 10, PEDL 11, PEDL 13 and PEDL 43 were outside the terms of the Earn-In Agreement and were not in the ordinary course of the business of OCL or OCRL within clause 19.1.6 of the Facility Agreement;

iii. the transfers to OGL of the After-Acquired Licences were not in the ordinary course of the business of OCL or OCRL and were not otherwise permitted by clause 19.1.6 of the Facility Agreement;

iv. the sale to Cabot of the OGL Shares was not in the ordinary course of the business of OEL;

v. the transfers to E&P of 90% of EXL 273, EXL 284, PEDL 10, PEDL 11, PEDL 13 and PEDL 43 were not in the ordinary course of the business of OCL or OCRL and were not otherwise permitted by clause 19.1.6 of the Facility Agreement;

vi. Greenpark is not precluded, by any consent given on behalf of the Enron Lenders, or by any estoppel, from asserting its rights in respect of those assets the disposals of which were not permitted by clause 19.1.6 of the Facility Agreement;

vii. none of the Defendants are entitled to repayment of any sums expended by them in relation to the Licences and the OGL Shares, as a condition of the enforcement by Greenpark of its property interests pursuant to my findings;

viii. Greenpark has wrongly interfered with OGL's rights in respect of the Drilling Rig and the Equipment, and must deliver up the same to OGL.