CALDERWOOD & HARKNESS LLP Solicitors & International Arbitration Counsel
55 Bishopsgate London EC2N 3AH United Kingdom
Telephone: +44 (0)20 7496 8000 Facsimile: +44 (0)20 7496 8001 www.calderwoodharkness.com
March 10, 2022
Matter Number: 1016-00002
By Hand and by Email
Sir Malcolm Dunmore, KBE Founder & Chairman Dunmore Energy Holdings Ltd. 4th Floor, Harbour Place 103 South Church Street George Town, Grand Cayman KY1-1002 Cayman Islands
cc: Priya Nandakumar, Chief Executive Officer, Dunmore Energy Holdings Ltd., 27 Curzon Street, London W1J 5HT, United Kingdom
cc: Thomas Rearden, Chief Financial Officer, Dunmore Energy Holdings Ltd., 27 Curzon Street, London W1J 5HT, United Kingdom
Dear Sir Malcolm,
ENGAGEMENT LETTER Re: Dunmore Energy Holdings Ltd. v. Republic of Valderia ICSID Investor-State Arbitration — Concession No. HYD-2012-047 (Bloque Orinoco Sur)
1. Introduction and Purpose
Calderwood & Harkness LLP ("C&H" or "the Firm") is pleased to confirm its engagement by Dunmore Energy Holdings Ltd. ("DEH" or "the Client") to act as lead international counsel in connection with an investor-state arbitration claim before the International Centre for Settlement of Investment Disputes ("ICSID") against the Republic of Valderia (the "Respondent"). The Firm appreciates the confidence that the Client and its board of directors have placed in C&H by selecting the Firm for this significant and complex matter.
The claim arises from the expropriation by the Republic of Valderia of DEH's interest in Concession No. HYD-2012-047 (Bloque Orinoco Sur), a thirty (30) year oil and gas concession in the Valderian Orinoco Basin. The expropriation was effected through a series of presidential decrees and ministerial resolutions issued during 2021, which collectively resulted in the forced transfer of the concession to a state-owned enterprise, the revocation of operating licenses, the physical seizure of production assets, and the freezing of the concessionaire's bank accounts, all without any offer of compensation. The circumstances giving rise to the dispute are summarized in greater detail in Section 4 below.
This letter sets out the terms on which C&H will provide legal services in this matter, including the scope of the engagement, the staffing arrangements, the fee structure and billing practices, arrangements for coordination with local counsel and expert advisors, provisions regarding confidentiality and privilege, and other terms and conditions governing the Firm's relationship with the Client. The Firm's Standard Terms of Business, a copy of which is enclosed herewith, are incorporated by reference into this letter and shall apply to the engagement except to the extent that any provision of this letter expressly modifies or supersedes any provision of the Standard Terms of Business. In the event of any inconsistency between this letter and the Standard Terms of Business, the provisions of this letter shall prevail.
This engagement is conditional upon the Client's acceptance of the terms set out herein, as evidenced by the countersignature of an authorized representative of DEH in the space provided at the end of this letter. We would be grateful if you could arrange for the countersigned copy to be returned to the Firm at your earliest convenience, and in any event no later than March 31, 2022, so that the Firm may proceed with the conduct of the matter without delay.
2. The Client
For the purposes of this engagement, the "Client" is:
Full Legal Name: Dunmore Energy Holdings Ltd.
Entity Type: An exempted company incorporated under the laws of the Cayman Islands, with limited liability.
Registered Office: 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1002, Cayman Islands.
Principal Business Office: 27 Curzon Street, London W1J 5HT, United Kingdom.
Industry: Oil and gas exploration, production, and renewable energy development. DEH operates, directly and through subsidiaries, in multiple jurisdictions across West Africa, South America, and Southeast Asia.
The Client holds one hundred percent (100%) of the issued share capital in Dunmore Valderia upstream S.A. ("DVU"), a Sociedad Anónima incorporated under the laws of the Republic of Valderia, with its registered office at Avenida Libertador 1480, Piso 12, Puerto Valdés, Valderia. DVU was the named concessionaire under Concession No. HYD-2012-047 (Bloque Orinoco Sur) and the direct holder of the concession rights at the time of the expropriation. The relationship between DEH and DVU, and the jurisdictional basis upon which DEH brings its claim as an "investor" under the UK-Valderia BIT, will be addressed in the pleadings and is a central element of the case strategy.
The following key principals of DEH are authorized to instruct the Firm on all matters relating to this engagement:
(a) Sir Malcolm Dunmore, KBE — Founder and Chairman of the Board of Directors of DEH;
(b) Priya Nandakumar — Chief Executive Officer of DEH; and
(c) Thomas Rearden — Chief Financial Officer of DEH.
Day-to-day instructions relating to the conduct of the matter may be given by any of the above-named individuals or by their authorized delegates, provided that such delegates are identified to C&H in writing. However, the Client acknowledges and agrees that significant strategic decisions — including, without limitation, decisions relating to settlement authority, the acceptance or rejection of settlement offers, the withdrawal of claims or concession of arguments, the approval of material expenditures exceeding GBP 100,000 in any single instance, and the termination of co-counsel or expert engagements — shall require the prior written authorization of either Sir Malcolm Dunmore or Priya Nandakumar. C&H shall be entitled to rely upon instructions received from the authorized persons identified above without further inquiry as to whether such instructions have been duly approved within the Client's own governance structure.
3. Scope of Engagement
3.1 Matters Within Scope
C&H is retained to represent DEH as lead international counsel in pursuing an ICSID treaty claim against the Republic of Valderia. The arbitration has been filed with the ICSID Secretary-General and has been registered as ICSID Case No. ARB/22/11, with the Request for Arbitration having been filed on March 15, 2022, and registration by the ICSID Secretary-General having been confirmed thereafter in accordance with Article 36(3) of the ICSID Convention.
The claim is brought pursuant to:
(a) The Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Valderia for the Promotion and Protection of Investments, signed on May 22, 2006, and entered into force on November 1, 2006 (the "UK-Valderia BIT" or the "Treaty");
(b) The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, opened for signature in Washington on March 18, 1965 (the "ICSID Convention"), both the United Kingdom and the Republic of Valderia being Contracting States to the ICSID Convention; and
(c) The United Kingdom's territorial extension declaration dated February 14, 2007, by which the UK-Valderia BIT was extended to the Cayman Islands as a British Overseas Territory, thereby conferring standing upon Cayman Islands-incorporated investors to bring claims under the Treaty.
The scope of C&H's engagement includes, but is not limited to, the following:
(a) The preparation, finalization, and filing of the Request for Arbitration and all subsequent written pleadings, including the Claimant's Memorial on the Merits, the Claimant's Reply to the Respondent's Counter-Memorial, any Post-Hearing Briefs, and any supplemental submissions as may be ordered or permitted by the tribunal;
(b) Jurisdictional analysis, including analysis of questions of ratione personae (the qualification of DEH as a "national of another Contracting State" within the meaning of Article 25 of the ICSID Convention and as an "investor" under the BIT), ratione materiae (the characterization of DEH's shareholding in DVU and DVU's concession rights as protected "investments" under both the ICSID Convention and the BIT), and ratione voluntatis (the existence of the Respondent's consent to arbitration under Article 8 of the UK-Valderia BIT and compliance with the six-month cooling-off period);
(c) Merits analysis of the Claimant's substantive claims for breach of the following provisions of the UK-Valderia BIT:
(i) Article 3 (Fair and Equitable Treatment; Full Protection and Security) — encompassing claims based on the frustration of the Claimant's legitimate expectations, arbitrary and discriminatory treatment, denial of due process, and the failure to provide full protection and security against the physical occupation of DEH's production facilities by military and state-enterprise personnel; and
(ii) Article 5 (Expropriation) — encompassing claims of both direct expropriation (through the forced transfer of the concession to PetroValderia S.A.) and indirect or creeping expropriation (through the progressive accumulation of regulatory and executive measures that rendered DEH's investment worthless), with particular attention to the absence of any offer of prompt, adequate, and effective compensation;
(d) Coordination of the quantum and damages case, including liaison with the damages experts at Pemberton Valuation Advisory LLC and the petroleum engineering experts at Ridgewell Subsurface Consultants Ltd., review and comment on draft expert reports, preparation of expert witnesses for cross-examination, and analysis of the appropriate valuation date and applicable discount rate;
(e) Participation in the tribunal constitution process, including the nomination of arbitrators on behalf of the Claimant. The Firm notes that the Claimant has nominated Professor Ingrid Svensson, a Swedish national and Professor of International Law at the University of Uppsala, as its party-appointed arbitrator, and C&H will continue to advise on this process, including any challenges to arbitrators;
(f) Management of document production, including the preparation and submission of Redfern Schedule requests, responses to the Respondent's document production requests, and the review and organization of documents produced by both parties;
(g) Witness identification, witness statement preparation, and witness preparation for direct examination and cross-examination at the evidentiary hearing;
(h) Management of the evidentiary record, including the preparation of bundles and exhibits;
(i) Advocacy at any oral hearing before the tribunal, including opening and closing statements, examination of fact witnesses, and examination of expert witnesses;
(j) Settlement negotiations, if and when authorized in writing by the Client, including the preparation of settlement proposals, analysis of settlement offers received from the Respondent, and advice on the relative merits of settlement as against continuation of the proceedings;
(k) Management of the proceedings during any dormancy or suspension period, including correspondence with the ICSID Secretary-General, monitoring of procedural deadlines, and maintenance of the case file;
(l) Applications for provisional measures under ICSID Arbitration Rule 39, if circumstances require, including any application to prevent the dissipation of Valderian state assets or the destruction of evidence; and
(m) Coordination with local Valderian counsel at Castaño Herrera & Asociados, as described in greater detail in Section 7 of this letter.
3.2 Matters Excluded from Scope
The scope of this engagement does not extend to the following matters, each of which would require a separate engagement if the Client wished to retain C&H or any other advisor:
(a) Advice on DEH's corporate governance, regulatory compliance, or general commercial matters unrelated to the ICSID arbitration, including board governance matters, shareholder agreements, or joint venture arrangements in other jurisdictions;
(b) Representation of DEH, DVU, or any affiliated entity in any separate proceedings before the domestic courts of the Republic of Valderia, whether arising from the same facts as the arbitration or otherwise. Should it become necessary or desirable to initiate or respond to proceedings in the Valderian courts, a separate engagement letter would be required, and such proceedings would likely be conducted by Castaño Herrera & Asociados or other appropriate local counsel;
(c) Tax advice of any nature, including advice on the tax implications of any award, settlement, or recovery in the arbitration. The Client is strongly advised to consult its own tax advisors with respect to any potential tax liabilities arising in connection with the dispute, the funding arrangement, or any eventual recovery;
(d) Negotiation, management, or restructuring of the Client's project finance facility with Commonwealth Capital Bank plc ("CCB"), including any standstill arrangements, waivers, or amendments to existing credit documentation. The Firm acknowledges that the expropriation and the resulting arbitration may have implications for DEH's obligations under such facilities, and C&H may, if separately instructed in writing, provide supporting correspondence or information in connection with the arbitration's relevance to those arrangements. Any such additional work would be subject to a separate scope agreement and would be billed at the rates set forth in this letter; and
(e) Enforcement of any eventual arbitral award, including proceedings under the ICSID Convention or proceedings for recognition and enforcement in the courts of any jurisdiction. Enforcement will be addressed under a separate engagement at the appropriate time, should the need arise.
4. Background to the Dispute
The following summary is provided for engagement purposes only and does not constitute a comprehensive statement of the facts or a legal analysis of the merits of the claim. A full factual narrative will be developed in the course of preparing the Claimant's Memorial.
Concession No. HYD-2012-047 (Bloque Orinoco Sur) was granted to Dunmore Valderia upstream S.A. ("DVU") on September 12, 2013, pursuant to the Valderian Hydrocarbons Law of 2009 (Ley de Hidrocarburos de 2009). The concession was granted for a term of thirty (30) years, expiring September 12, 2043, and covered an area of approximately 1,240 square kilometers in the Valderian Orinoco Basin. The concession entitled DVU to explore for, develop, produce, and transport crude oil and natural gas within the designated block, subject to applicable royalties and taxes.
Between 2014 and 2021, DEH, through DVU, invested approximately USD 347 million in total capital expenditure in the development of Bloque Orinoco Sur. This investment comprised the following principal categories:
(a) Exploration and development drilling: approximately USD 211 million, encompassing the drilling of twelve (12) exploration wells and eight (8) development wells, of which fourteen (14) were completed as producers;
(b) Surface infrastructure and pipeline construction: approximately USD 89 million, including the construction of the Central Processing Facility Orinoco Sur ("CPF Orinoco Sur"), associated gathering lines, a 67-kilometer export pipeline connecting the CPF to the Puerto Valdés Marine Terminal, camp and logistics facilities, and road access infrastructure; and
(c) Seismic acquisition and geological studies: approximately USD 47 million, including the acquisition and processing of approximately 2,800 line-kilometers of 2D seismic data and 1,200 square kilometers of 3D seismic data, together with associated geological and reservoir engineering studies.
By early 2021, DVU had achieved first oil production and was producing at a rate of approximately 18,000 barrels of oil equivalent per day ("boepd"), with plans to ramp up to a plateau production rate of approximately 35,000 boepd by 2024.
The expropriation of DEH's investment was effected through the following measures taken by the Republic of Valderia:
(a) Presidential Decree No. 2021-0417 (dated April 17, 2021): Decreed the nationalization of "strategic hydrocarbon assets" in the national interest, including all concessions in the Orinoco Basin region held by foreign investors. The decree purported to authorize the Minister of Energy and Natural Resources to take all steps necessary to implement the nationalization;
(b) Physical occupation of assets (May 3, 2021): Valderian military personnel and employees of PetroValderia S.A. ("PetroValderia"), the state-owned oil and gas company, physically occupied the Central Processing Facility (CPF Orinoco Sur), denying DEH and DVU staff access to the facility, seizing operational records, and assuming control of production operations. DEH expatriate personnel were escorted from the facility under military supervision and were subsequently denied re-entry to Valderia;
(c) Presidential Decree No. 2021-0623 (dated June 23, 2021): Ordered the formal transfer of Concession No. HYD-2012-047, along with all associated rights, infrastructure, and operational assets, to PetroValderia S.A. The decree stated that the transfer was in the "sovereign interest of the Valderian people" and made no provision for compensation;
(d) Ministerial Resolution No. MEN-2021-089 (dated August 5, 2021): Issued by the Minister of Energy and Natural Resources, revoking all operating licenses, environmental permits, and ancillary authorizations previously issued to DVU in connection with the concession. The resolution purported to act under the administrative powers conferred by the Hydrocarbons Law of 2009, but was issued without prior notice to DVU and without any opportunity for DVU to be heard; and
(e) Freezing of bank accounts (September 1, 2021): DVU's bank accounts at Banco Nacional de Valderia were frozen by order of the Valderian Attorney General, effectively depriving DVU of access to its in-country cash balances and working capital. No judicial order authorizing the freeze was presented, and no charges were brought against DVU or its officers.
In response to these measures, DEH sent a formal Notice of Dispute under Article 8 of the UK-Valderia BIT on October 14, 2021, addressed to the Minister of Foreign Affairs of the Republic of Valderia. The Notice of Dispute set out the factual basis for DEH's claims, identified the Treaty provisions alleged to have been breached, and invited the Republic of Valderia to enter into negotiations in accordance with the cooling-off period prescribed by Article 8(1) of the Treaty. The six-month cooling-off period expired on April 14, 2022, without any substantive response from the Respondent and without any progress toward an amicable resolution.
The total claim quantum, as currently estimated, is USD 867 million, comprising the following elements:
(a) Sunk capital expenditure: USD 347 million, representing the total capital investment made by DEH through DVU in the exploration and development of Bloque Orinoco Sur;
(b) Lost future profits: USD 312 million, calculated on a discounted cash flow ("DCF") basis and reflecting the net present value of the future income stream that DEH would have derived from the concession over the remaining term (through 2043) but for the expropriation, based on proved and probable (2P) reserves and reasonable assumptions as to commodity prices, production profiles, operating costs, and discount rates; and
(c) Consequential damages: USD 208 million, comprising, inter alia, loss of opportunity costs, reputational harm, costs associated with the disruption of DEH's broader business operations and project finance arrangements, and costs of the arbitration itself.
The final quantum will be refined and supported by the expert reports of Pemberton Valuation Advisory LLC (damages) and Ridgewell Subsurface Consultants Ltd. (petroleum engineering and reserves), as discussed in Section 8 below.
5. Staffing and Key Personnel
The following C&H lawyers have been assigned to this matter and will form the core engagement team:
Responsible Partner: Vivienne St. Claire, Partner, Capital Markets practice group. Ms. St. Claire will have overall responsibility for the engagement, including strategic direction, quality assurance, and the client relationship. Ms. St. Claire will be the primary point of contact for Sir Malcolm Dunmore and Ms. Nandakumar on matters of strategy and will lead the Firm's advocacy at hearings. Ms. St. Claire has over twenty-two years of experience in international arbitration, including twelve ICSID and UNCITRAL investor-state proceedings.
Billing Partner: Robert Adeyemi, Partner, Capital Markets practice group. Mr. Adeyemi will have responsibility for billing matters, fee discussions, and the financial management of the engagement. He will also contribute substantive work, particularly in connection with jurisdictional issues and the coordination of the quantum case. Mr. Adeyemi has extensive experience in complex commercial and investment treaty arbitration, with particular expertise in the oil and gas sector.
Lead Associate: Jeffrey Park, Senior Associate, Litigation (General) practice group. Mr. Park will be responsible for the day-to-day conduct of the matter, including the drafting of all pleadings and internal memoranda, coordination with the Client's expert witnesses and co-counsel, management of the evidentiary record and document production process, and liaison with the ICSID Secretariat on procedural matters.
Working Associate: Audrey Zhou, Associate, Capital Markets practice group. Ms. Zhou will support the team with legal research, analysis of Valderian domestic law issues (in coordination with Castaño Herrera & Asociados), drafting of supporting submissions and research memoranda, and the preparation of exhibits and hearing bundles.
Additional associates, trainees, or paralegals may be assigned to the matter as the needs of the engagement require, particularly during periods of intensive activity such as memorial drafting, document production, and hearing preparation. The Client will be informed of material changes in staffing, including the addition of any new team members who are expected to have a significant role in the conduct of the matter.
Should the Client wish to request changes in the staffing of the matter — whether the addition, removal, or substitution of any member of the engagement team — C&H will use reasonable endeavors to accommodate such requests, having regard to the availability of appropriately qualified personnel and the requirements of the matter at the relevant time.
6. Fee Arrangements and Billing Rates
6.1 Billing Basis
C&H will bill the Client on a time-spent basis at the hourly rates set forth in Section 6.2 below. Invoices will be rendered monthly in arrears, typically within fifteen (15) business days following the end of each calendar month, and will contain a detailed narrative description of the work performed, the date on which each item of work was performed, the identity of the fee earner who performed the work, and the time spent on each item.
All time is recorded in six-minute increments (0.1 hours). Time spent by more than one fee earner on the same task (for example, attendance at the same meeting or conference call) will be recorded and billed for each fee earner in attendance, unless the circumstances make such duplication unreasonable.
The billing currency for C&H's professional fees is British Pounds Sterling (GBP). Disbursements and third-party costs incurred in currencies other than GBP (including, in particular, ICSID administrative fees, arbitrator fees, and expert fees denominated in US Dollars or other currencies) will be converted to GBP at the prevailing mid-market exchange rate on the date the disbursement is incurred or invoiced to C&H, as applicable.
6.2 Hourly Rates (2022)
The following hourly rates apply to the engagement for the calendar year 2022:
Hourly rates are subject to annual review, typically effective as of January 1 of each calendar year. The Client will be notified in writing of any changes to the applicable hourly rates at least thirty (30) days in advance of the effective date of such changes. Any rate increase will apply only to work performed on or after the effective date of the increase and will not be applied retrospectively to time already recorded.
6.3 Disbursements and Third-Party Costs
In addition to C&H's professional fees, the Client is responsible for all reasonable disbursements and third-party costs incurred by the Firm in connection with the conduct of this matter. Such disbursements and third-party costs include, but are not limited to, the following:
(a) ICSID registration fees and administrative charges levied by the ICSID Secretariat in accordance with the ICSID Administrative and Financial Regulations;
(b) Arbitrator fees and expenses, including the fees and travel expenses of the members of the tribunal, as determined in accordance with the ICSID Schedule of Fees or as agreed by the parties and the tribunal;
(c) Expert witness fees and expenses, including the professional fees and disbursements of Pemberton Valuation Advisory LLC (damages and quantum), Ridgewell Subsurface Consultants Ltd. (petroleum engineering and reserves), and any other experts retained in connection with the matter, each as set forth in their respective engagement letters;
(d) Travel and accommodation expenses reasonably incurred by C&H personnel in connection with hearings, tribunal procedural conferences, site inspections, witness interviews, meetings with the Client or its other advisors, and other activities directly related to the conduct of the matter. C&H's travel policy provides for business-class air travel for journeys exceeding five hours, economy-class or premium-economy air travel for shorter journeys, and hotel accommodation at a standard commensurate with the location and duration of the trip;
(e) Court reporter, hearing room, and transcript costs, including the costs of verbatim transcription of oral hearings and the provision of real-time transcript services if required;
(f) Translation and interpretation costs, including the translation of documents from Spanish to English (and vice versa) and the provision of simultaneous interpretation services at hearings if required;
(g) Document management and e-discovery platform costs, including the costs of hosting, processing, reviewing, and producing documents on an electronic document review platform, as well as any costs associated with forensic data collection or preservation;
(h) Courier, postage, and telecommunications charges directly attributable to the matter; and
(i) Any other reasonable out-of-pocket expenses incurred in the proper conduct of the matter.
Third-party fees for local Valderian counsel at Castaño Herrera & Asociados ("CH&A") will be invoiced separately by that firm directly to DEH, unless the Client directs C&H in writing to manage those invoices on a pass-through basis, in which case CH&A's fees and disbursements will be included in C&H's monthly invoices and identified as third-party pass-through charges.
6.4 Fee Estimates
C&H's current estimate of its own professional fees through to the completion of the arbitration (assuming full proceedings through to the issuance of an award, including the memorial phase, document production, an evidentiary hearing of approximately two weeks' duration, and post-hearing submissions) is in the range of GBP 4,500,000 to GBP 7,000,000, exclusive of disbursements and third-party expert costs.
This estimate is provided on an indicative and non-binding basis only and should not be treated as a fee cap, fixed fee, or guarantee of total cost. Actual fees will depend on a number of factors that cannot be predicted with certainty at this stage, including but not limited to: the complexity and duration of the proceedings; the Respondent's conduct and the extent of any preliminary objections, bifurcation applications, or other procedural motions; the volume and complexity of document production; the number of fact and expert witnesses; the number and duration of hearing sessions; any periods of dormancy, suspension, or settlement negotiation; and the need for any ancillary proceedings (such as applications for provisional measures or annulment proceedings). C&H will endeavor to keep the Client informed of the developing cost profile and will provide updated estimates as the matter progresses.
C&H notes that a third-party litigation funder, Beaufort Litigation Capital LLP ("Beaufort"), has committed funding of up to GBP 8,500,000 in respect of legal costs and disbursements incurred in connection with this matter, as more fully described in Section 9 below. However, C&H's engagement is with DEH, and DEH remains the Firm's client and is primarily liable for all fees, disbursements, and other charges incurred in connection with the engagement, regardless of the existence or terms of the funding arrangement between DEH and Beaufort. C&H will look to DEH for payment of all invoices, and the availability or non-availability of funding from Beaufort does not affect or qualify DEH's payment obligations under this letter.
6.5 Payment Terms
Invoices are payable within thirty (30) days of the date of issuance. Payment should be made by wire transfer to C&H's client account at Camberwell Bancorp, details of which will be provided on each invoice.
C&H reserves the right to charge interest on any invoice that remains unpaid after the expiry of the thirty (30) day payment period, at a rate of four percent (4%) per annum above the Bank of England base rate then in effect, calculated on a daily basis from the date payment was due until the date of actual payment. This right is without prejudice to any other rights or remedies available to C&H under this letter, at law, or in equity.
C&H may, from time to time, request the Client to provide a retainer or advance payment on account of fees and disbursements anticipated to be incurred during a forthcoming period, particularly in advance of hearing preparation, intensive memorial drafting phases, or other significant phases of work. Any such retainer or advance payment will be held in C&H's client account in accordance with the SRA Accounts Rules and will be applied against invoices as they are issued. Any balance remaining upon the conclusion of the matter or the termination of the engagement will be returned to the Client promptly.
7. Coordination with Local Valderian Counsel
C&H will coordinate with Castaño Herrera & Asociados ("CH&A"), a law firm organized under the laws of the Republic of Valderia, with offices at Calle Bolívar 742, Torre Empresarial, Piso 8, Puerto Valdés, Valderia. CH&A has been separately engaged by DEH to provide advice on matters of Valderian domestic law relevant to the arbitration.
The lead partner at CH&A for this matter is Dr. Gabriel Castaño Herrera, founding partner, who has extensive experience in Valderian energy law and government relations. He will be supported by Lic. Isabella Montoya Ruiz, an associate at the firm with expertise in Valderian administrative and regulatory law.
CH&A's role in connection with this matter includes:
(a) Advising on questions of Valderian domestic law relevant to the arbitration, including the interpretation and application of the Valderian Hydrocarbons Law of 2009 (Ley de Hidrocarburos de 2009), the legal effect and validity of Presidential Decree No. 2021-0417, Presidential Decree No. 2021-0623, and Ministerial Resolution No. MEN-2021-089 under Valderian constitutional and administrative law;
(b) Providing expert evidence on Valderian law, if required, or assisting in the identification and briefing of an independent Valderian law expert;
(c) Advising on local enforcement matters, including the enforceability of an ICSID award against assets of the Republic of Valderia located within Valderia;
(d) Monitoring and advising on any domestic court proceedings in Valderia that may be initiated by the Respondent or its instrumentalities in connection with the dispute, and, if necessary, defending or prosecuting such proceedings on behalf of DVU; and
(e) Assisting with the collection and preservation of documents and evidence located in Valderia, to the extent that such activities can be safely and lawfully conducted.
C&H will serve as lead counsel on all international arbitration matters and will coordinate CH&A's work product to ensure consistency with the overall case strategy developed by C&H in consultation with the Client. C&H will provide CH&A with appropriate guidance and direction, will review and comment on CH&A's work product as necessary, and will participate in periodic calls with the CH&A team to ensure alignment on key issues.
The Client acknowledges that CH&A is engaged separately by DEH under its own terms of engagement, and that C&H does not assume responsibility for CH&A's fees, disbursements, or other charges, nor for the quality, accuracy, or timeliness of CH&A's work product. C&H will, however, endeavor to ensure appropriate coordination and to bring any concerns regarding CH&A's work to the Client's attention.
8. Coordination with Experts
C&H will coordinate the engagement and management of the following expert advisors, who are being retained to provide independent expert evidence in support of DEH's claim:
8.1 Damages and Quantum Expert
Pemberton Valuation Advisory LLC ("Pemberton"), 300 Park Avenue, Suite 2200, New York, NY 10022, United States. Pemberton has been retained to serve as the damages and quantum expert for the Claimant.
The lead expert is Dr. Elaine Cho, CFA, ASA, a Managing Director at Pemberton and a Chartered Financial Analyst and Accredited Senior Appraiser with over eighteen years of experience in damages quantification in international arbitration, including investor-state disputes in the energy sector. Dr. Cho will be supported by Marcus Whitfield, a Vice President at Pemberton who will serve as the supporting analyst responsible for financial modeling and data analysis.
Pemberton has been retained under a separate engagement letter to prepare a comprehensive damages report quantifying DEH's losses using discounted cash flow ("DCF") and comparable-transactions methodologies, with appropriate sensitivity analyses and a discussion of the applicable valuation date, discount rate, country risk premium, and other key assumptions. Pemberton will also prepare a rebuttal report in response to the Respondent's quantum expert, if required, and Dr. Cho will be available to provide oral testimony at the evidentiary hearing.
8.2 Petroleum Engineering Expert
Ridgewell Subsurface Consultants Ltd. ("Ridgewell"), 700 – 6th Avenue SW, Suite 1400, Calgary, AB T2P 0T8, Canada. Ridgewell has been retained to serve as the petroleum engineering and reserves expert for the Claimant.
The lead expert is Dr. Alistair Greaves, P.Eng., a Principal Consultant at Ridgewell and a licensed Professional Engineer with over twenty-five years of experience in reserves evaluation, production forecasting, and technical assessment of oil and gas assets. Dr. Greaves will be responsible for preparing an independent assessment of the proved and probable (2P) reserves and contingent resources attributable to Concession No. HYD-2012-047, together with production profiles and technical assumptions that will underpin the DCF analysis to be performed by Pemberton.
Each expert will be engaged under separate terms of engagement, either directly by DEH or through C&H, as the Client may direct. C&H will manage the experts' work to ensure that reports are produced in accordance with ICSID procedural requirements, any applicable tribunal directions or procedural orders, and the schedule established by the tribunal for the exchange of expert evidence. C&H will also coordinate between the experts to ensure that the assumptions underlying the damages report and the petroleum engineering report are consistent and mutually supportive.
9. Third-Party Litigation Funding
The Firm acknowledges that DEH has entered into a litigation funding agreement dated February 28, 2022 (the "Funding Agreement") with Beaufort Litigation Capital LLP ("Beaufort"), a limited liability partnership registered in England and Wales, with its principal office at 14 St. James's Square, London SW1Y 4LG, United Kingdom. The principal contact at Beaufort for the purposes of this matter is Jonathan Hargreaves, Managing Partner.
Under the terms of the Funding Agreement, Beaufort has committed to provide funding of up to GBP 8,500,000 (approximately USD 10,455,000 at the prevailing GBP/USD exchange rate of 1.23 as of the date of the Funding Agreement) for legal costs and disbursements incurred by DEH in connection with the ICSID arbitration against the Republic of Valderia. In consideration of this funding commitment, Beaufort is entitled to receive a success fee equal to twenty-two percent (22%) of any net recovery obtained by DEH in the arbitration (after deduction of all legal costs and disbursements), whether by way of award, settlement, or otherwise.
The Firm further notes that adverse costs insurance has been placed by DEH with Oakshield Underwriting Syndicate Ltd. (Sundial Indemnity Co.), under Policy No. OUS-2022-ARB-4417, providing coverage with a limit of indemnity of GBP 3,000,000 in respect of any adverse costs order made against DEH by the tribunal. The Client should ensure that the terms and conditions of this insurance policy, including any notification and cooperation requirements, are complied with throughout the duration of the proceedings.
C&H's duty of care and professional obligations in connection with this engagement are owed exclusively to DEH, and not to Beaufort or any other third party. C&H does not have a solicitor-client relationship with Beaufort, and nothing in this letter or in the conduct of the engagement shall be construed as creating any such relationship, any duty of care to Beaufort, or any right of Beaufort to direct, control, or influence C&H's conduct of the matter or the advice given by C&H to DEH.
The Firm understands, however, that DEH has agreed, under the terms of the Funding Agreement, to provide periodic status updates and reports to Beaufort regarding the progress of the proceedings and the financial position of the matter. C&H will assist the Client with the preparation of such reports as may be reasonably requested by the Client, including the provision of summary status updates, budget reports, and assessment of material developments. Any information shared with Beaufort will be subject to appropriate confidentiality protections, and C&H will discuss with the Client the scope and content of any such disclosures in advance.
The Client should be aware that Beaufort retains the contractual right under the Funding Agreement to terminate the funding commitment upon ninety (90) days' written notice if the proceedings remain dormant (i.e., no substantive procedural step is taken or ordered) for a continuous period of more than twenty-four (24) consecutive months. The Client should monitor this provision carefully and should consult with C&H before agreeing to any extended suspension or dormancy of the proceedings that might trigger this termination right. The consequences of a termination of the Funding Agreement — including DEH's ability and willingness to continue to fund the arbitration from its own resources or from alternative sources — should be carefully considered.
10. Conflict Clearance
C&H has conducted a comprehensive conflict check across all offices and practice groups of the Firm and confirms that, as of the date of this letter, no conflict of interest exists that would prevent C&H from acting for DEH in this matter.
In particular, C&H confirms the following:
(a) C&H does not currently act, and has not at any time during the preceding thirty-six (36) months acted, for the Republic of Valderia, PetroValderia S.A., or any ministry, agency, instrumentality, or political subdivision of the Republic of Valderia, in any capacity or in connection with any matter;
(b) C&H does not currently act for either of the Respondent's known counsel — Ortega & Bernal, Abogados (Puerto Valdés, Valderia) or Harcastle Fenton LLP (London, United Kingdom) — in any matter adverse to DEH or in any matter that could reasonably give rise to an actual or potential conflict with the interests of DEH in this engagement;
(c) C&H does not currently act for Commonwealth Capital Bank plc ("CCB") in any capacity adverse to DEH. The Firm notes, however, that other partners within C&H may from time to time advise CCB on unrelated transactional or regulatory matters in the ordinary course of the Firm's practice. C&H will maintain appropriate ethical screens and information barriers as between the team working on this engagement and any team advising CCB, if and when necessary, to ensure that no confidential information relating to this engagement is inadvertently disclosed or used in connection with any other matter.
The Client consents to C&H continuing to act for other clients in the oil and gas sector, including other upstream exploration and production companies, midstream and downstream operators, oilfield service companies, and sovereign wealth funds, provided that no direct conflict arises with this engagement. For these purposes, a "direct conflict" means a matter in which C&H is asked to act against DEH or against the interests of DEH in the ICSID arbitration or any matter directly related thereto.
If a conflict of interest or a potential conflict of interest arises during the course of the engagement, C&H will notify the Client promptly and in writing, and will take such steps as are necessary to manage or resolve the conflict in accordance with the Firm's professional obligations and the applicable rules of conduct. Such steps may include the implementation of information barriers, the obtaining of informed written consent from all affected clients, or, in exceptional circumstances where the conflict cannot be adequately managed, declining to continue to act for one or more of the affected clients.
11. Confidentiality and Privilege
All information provided by the Client to C&H in connection with this matter, including documents, data, instructions, communications, and any other materials or information of whatever nature (collectively, "Confidential Information"), will be treated as strictly confidential and will be subject to legal professional privilege (attorney-client privilege and litigation privilege, as applicable). C&H will take all reasonable steps to ensure that Confidential Information is protected from unauthorized access, use, or disclosure.
C&H will not disclose Confidential Information to any third party without the Client's prior written consent, except in the following circumstances:
(a) Where disclosure is required by law, regulation, or order of a court or tribunal of competent jurisdiction, or by the rules or requirements of any regulatory body to which C&H is subject, including the Solicitors Regulation Authority;
(b) To the extent necessary to discharge C&H's professional duties in connection with the conduct of the matter, including disclosure to ICSID, to the tribunal, or to the Respondent as required or permitted by the ICSID Rules of Procedure for Arbitration Proceedings, the ICSID Administrative and Financial Regulations, or any procedural order or direction of the tribunal;
(c) To the Client's other professional advisors engaged in connection with this matter — including Castaño Herrera & Asociados (local Valderian counsel), Pemberton Valuation Advisory LLC (damages expert), and Ridgewell Subsurface Consultants Ltd. (petroleum engineering expert) — to the extent necessary for the proper conduct of the matter and subject to appropriate confidentiality protections being in place with each such advisor;
(d) To Beaufort Litigation Capital LLP, to the extent authorized by the Client under the terms of the Funding Agreement and in accordance with Section 9 of this letter, and subject to appropriate confidentiality obligations binding upon Beaufort; and
(e) To other members, partners, employees, or agents of C&H who have a need to know the information in connection with the proper conduct of the engagement, subject to the Firm's internal confidentiality policies and information-barrier arrangements.
C&H will maintain appropriate technical and organizational measures to protect the security and confidentiality of the Client's information, including the use of encrypted communications, secure document management systems, password-protected access controls, and physical security measures at the Firm's offices and archive facilities.
C&H will process personal data provided by the Client in accordance with applicable data protection legislation, including the United Kingdom General Data Protection Regulation (UK GDPR) and the Data Protection Act 2018. A copy of C&H's Privacy Notice, which sets out the Firm's data processing activities and the rights of data subjects, is enclosed with this letter.
12. Document Retention
C&H will retain the Client's documents, files, and other materials relating to this matter in accordance with the Firm's document retention policy, a summary of which is available upon request.
Under the current policy, files relating to contentious matters are retained for a minimum period of seven (7) years following the conclusion of the matter (including any enforcement proceedings, annulment proceedings, or other post-award proceedings). For these purposes, the "conclusion of the matter" means the later of: (i) the date of the final award or other disposition of the arbitration; (ii) the date of conclusion of any enforcement or annulment proceedings; and (iii) the date on which all outstanding fees and disbursements have been paid in full.
Electronic files will be maintained on the Firm's secure, encrypted servers, which are hosted in data centers located in the United Kingdom and are subject to rigorous access controls, backup procedures, and disaster recovery arrangements. Physical files, including any original documents, hard-copy correspondence, or other tangible materials (if any), will be stored in the Firm's secure archive facility.
Upon conclusion of the matter, the Client may request the return of original documents that were provided to C&H by the Client during the course of the engagement. C&H will arrange for the return of such original documents within a reasonable time following receipt of such a request. The Client may also request the destruction of documents held by C&H, subject to C&H's regulatory and professional obligations, including any obligation to retain documents for the purposes of the Firm's own records, regulatory compliance, or the defense of any claim against the Firm.
13. Limitation of Liability
C&H's aggregate liability to the Client arising out of or in connection with this engagement — whether in contract, tort (including negligence), breach of statutory duty, misrepresentation, restitution, or otherwise — shall not exceed GBP 50,000,000 (fifty million British Pounds Sterling).
This limitation applies to the aggregate of all claims arising out of or in connection with the engagement, and is not a per-claim or per-incident limit. It applies regardless of the number of matters, incidents, acts, or omissions giving rise to the claim or claims.
The foregoing limitation shall not apply in cases of fraud, willful default, or reckless disregard by C&H, its members, or its employees.
The Client acknowledges that Calderwood & Harkness LLP is a limited liability partnership registered in England and Wales under the Limited Liability Partnerships Act 2000 (registered number OC345821), and that the liability of individual members (partners) of the Firm is limited in accordance with the terms of the LLP agreement. No individual member of the Firm shall have any personal liability to the Client in respect of any claim arising out of or in connection with this engagement, except to the extent required by law.
The Client further acknowledges that C&H has advised the Client to consider whether the limitation of liability set out in this section is appropriate in light of the nature and value of the matter, and that the Client has had the opportunity to seek independent legal advice on this point.
14. Termination
Either party may terminate this engagement at any time by giving written notice to the other party. No reason need be given for the termination, although the Firm would appreciate the opportunity to discuss any concerns that the Client may have before a decision to terminate is made.
Upon termination of the engagement, the following provisions shall apply:
(a) C&H will be entitled to payment in full for all professional fees accrued and all disbursements incurred up to and including the date of termination, together with any fees and disbursements reasonably incurred by C&H after the date of termination in connection with the orderly wind-down of the Firm's involvement in the matter;
(b) C&H will take all reasonable steps to protect the Client's interests during the transition period, including complying with any procedural deadlines falling due during the transition, preserving the confidentiality and integrity of the case file, and refraining from any action that could prejudice the Client's position in the arbitration;
(c) C&H will cooperate in the orderly transfer of all files, documents, work product, and other materials to successor counsel nominated by the Client, subject to C&H's right to retain copies of the file for the Firm's own records and in accordance with its professional obligations, and subject to the payment of all outstanding fees and disbursements; and
(d) Any provisions of this letter that by their nature are intended to survive termination — including, without limitation, the provisions relating to confidentiality, privilege, limitation of liability, document retention, and governing law — shall continue in full force and effect.
C&H reserves the right to cease acting for the Client and to terminate this engagement in the following circumstances:
(a) The Client fails to pay invoices rendered by C&H within a reasonable time after the expiry of the payment period specified in Section 6.5, and such failure continues for a period of fourteen (14) days after C&H has given written notice to the Client requesting payment;
(b) The Client fails to provide instructions, information, or documentation necessary for the proper conduct of the matter within a reasonable time after being requested to do so by C&H;
(c) A breakdown in the relationship of trust and confidence between C&H and the Client renders the continued conduct of the engagement impracticable; or
(d) Continued representation of the Client would place C&H in breach of its professional obligations, including its obligations under the SRA Standards and Regulations, the SRA Code of Conduct for Solicitors, or any other applicable rules of professional conduct.
In any event, C&H will exercise its right of termination in a manner that is consistent with its professional obligations and that minimizes, to the greatest extent reasonably practicable, any prejudice to the Client.
15. Regulatory and Professional Obligations
Calderwood & Harkness LLP is authorized and regulated by the Solicitors Regulation Authority ("SRA") of England and Wales. The Firm's SRA registration number is 612874.
C&H's professional indemnity insurance is maintained in accordance with the SRA Indemnity Insurance Rules and provides coverage at levels that meet or exceed the minimum requirements prescribed by the SRA. Details of the Firm's professional indemnity insurance arrangements are available upon request.
The Client's attention is drawn to C&H's complaints procedure, which sets out the process by which the Client may raise any concerns about the quality of service received from the Firm. A summary of the complaints procedure is enclosed with this letter. If the Client is not satisfied with the outcome of the Firm's internal complaints process, the Client may be entitled to refer the complaint to the Legal Ombudsman, an independent complaints body established under the Legal Services Act 2007.
16. Governing Law and Jurisdiction
This engagement letter, and the terms and conditions of the engagement set out herein and in the enclosed Standard Terms of Business, shall be governed by and construed in accordance with the laws of England and Wales.
Any dispute arising out of or in connection with this engagement letter, the terms of the engagement, or the provision of legal services by C&H to the Client under this engagement — including any dispute as to the existence, validity, or termination of this letter or as to any non-contractual obligations arising out of or in connection with it — shall be subject to the exclusive jurisdiction of the courts of England and Wales.
17. Acceptance
We trust that the foregoing terms are acceptable to you and to the board of Dunmore Energy Holdings Ltd. We look forward to working with you on this important matter and are confident that C&H can provide the highest standard of representation in these proceedings.
If you are in agreement with the terms set out in this letter, please confirm your acceptance by signing and returning a copy of this letter in the space provided below. As noted above, we would be grateful if the countersigned copy could be returned to us by March 31, 2022.
Should you have any questions regarding the terms of this engagement or any other aspect of the matter, please do not hesitate to contact Vivienne St. Claire directly at +44 (0)20 7496 8112 or by email at v.stclaire@calderwoodharkness.com.
Yours faithfully,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Vivienne St. Claire