Landmark decision on directors' duties. Commonwealth Oil and Gas Company Limited v (1) Nicholas Baxter and (2) Eurasia Energy Limited

22 January 2008

On 14 December 2007, Lord Reed issued his opinion in Commonwealth Oil and Gas v (1) Nicholas Baxter and (2) Eurasia Energy. His Lordship's opinion contains the most comprehensive consideration in modern Scots law of the nature and scope of a director's fiduciary duties.

The case concerned a "memorandum of understanding" entered into by the first defender on behalf of the second defender, giving exclusive rights to negotiate an oil exploration and production agreement with the state oil company of Azerbaijan. At the material time, the first defender was a non-executive director of the pursuer, which was also interested in opportunities in the Azeri oil and gas industry. Lord Reed upheld the pursuer's claim that the first defender had acted in breach of his fiduciary duty to the pursuer, but rejected the pursuer's claim that, by virtue of its "knowing receipt" of the memorandum, the second defender might also be liable to the pursuer. The first defender has marked a reclaiming motion, and the pursuer is to cross-appeal in relation to the liability of the second defender.

The Dean of Faculty of Axiom, acted for the pursuer. Heriot Currie, QC, and Mark Lindsay, also of Axiom, acted for the defenders. Lord Reed's opinion can be accessed at the undernoted link:

http://www.scotcourts.gov.uk/opinions/2007CSOH198.html