SCS Corporation, Ltd. (SCS), a unit of Houston oil and gas drilling company Hyperdynamics Corporation (“Hyperdynamics”), has filed parallel actions in the Southern District of Texas (4:16-cv-00076) and before the American Arbitration Association against two partners who SCS alleges used an FCPA investigation into Hyperdynamics as a pretext for breaching their joint exploration agreement.
SCS and its partners, Tullow Guinea Ltd. (“Tullow”) and Dana Petroleum (E&P) Limited (“Dana”), have been engaged under a joint operating agreement to explore deposits off the coast of Guinea. In 2013, the U.S. Securities and Exchange Commission began an FCPA investigation into Hyperdynamics, which was eventually settled in the fall of 2015. Nevertheless, in 2014, while the FCPA investigation was open, Tullow declared force majeure and halted all work on the exploration project. Tullow eventually withdrew its declaration of force majure, but, according to SCS, has not resumed sufficient activity to meet the drilling timelines required by the Guinean government which expire in the fall of 2016. The Complaint alleges that Tullow does not have the funds to fulfil its portion of the exploration and that its declaration of force majure and subsequent delays are merely a diversion designed to stall the enterprise. Dana is similarly alleged to have undertaken a dilatory course of conduct.
The parallel actions seek (1) a determination that Tullow and Dana are in breach of the joint operating agreement, (2) orders requiring Tullow and Dana to move forward with their exploration and drilling activities, and (3) damages stemming from the delays.
According to the Complaint, Tullow had ulterior motives when it declared force majure based on the ongoing FCPA investigation. If Tullow truly believed that force majure applied, however, then its declaration may have bell that could not be unrung. Although Tullow eventually withdrew its declaration, it has, at least by SCS’s account, not commenced work since the declaration and may now be in breach of contract.
Of course, corporations must be concerned when their partners become the subject of FCPA investigations. They should not, however, take any unnecessarily drastic steps. Independent counsel can investigate and assess a corporation’s potential liability for the acts of its partner and should be consulted whenever a concern arises. Taking the time to evaluate one’s own potential liability may save the working relationship and avoid litigation tangential such as this.