There is a decidedly murky side to the legal dispute between Irish-registered Tuskar Resources, and Nigerian owned Cavendish Petroleum Nigeria, its Obe oil field partner in Nigeria. It is hard to believe but immediately after Tuskar had commenced legal action against Cavendish, a number of Tuskar employees were arrested by Nigerian police on allegations connected with the commercial dispute. And they were detained in Lagos and Abuja for a number of days without formal changes being brought against them. According to AfricaNews, Laniyan, Akintunde and Ibrahim, the solicitors to Tuskar, said the employees were not allowed access to counsel or informed in writing of the grounds for their arrest, and alleged "the arrest of our clients is at the instance of Cavendish Petroleum". The employees were subsequently released, but, in a sinister move, they were ordered to report weekly to police headquarters. These events illustrate the potential dangers of doing business with politically unstable countries; Nigeria is in transition from military control to civil rule. It has still to prove itself as a democracy. I would have thought the African press might have had murky things to say about Tuskar and perhaps defended some of the events. Not so. This is what AfricaNews, probably reflecting a local view, had to say: "the situation where the parties resort to self-help or use of the police to intimidate the other party in pursuit of civil matters such as commercial dispute governed by a contract is not healthy for foreign investment inflow. It would not also augur well for the administration of justice or due process of law under the present democratic dispensation." Tuskar has threatened it will have to go into liquidation unless the dispute is resolved. This follows its failure to resolve the row with Cavendish, and court action in London by one of its creditors, Brovig Offshore. Tuskar has alleged that Cavendish which has a 60 per cent stake in the licence (Tuskar, the operator has the other 40 per cent) failed to present the Nigerian authorities with the documentation required so that the oil could not be offloaded, transported and sold. It also alleged that Cavendish was aggressively seeking a larger share of the revenues from Obe, or wanted to force Tuskar to buy the Cavendish rights in Obe for cash. With no oil flowing, it was unable to keep its obligations with Brovig which handles the Obe oil, and, as a result, was insolvent, Tuskar said. This led to the request to Allied Energy which has a 47 per cent stake in the group, to apply to the High Court for a winding-up order. Cavendish has a counter suit. It alleges that Tuskar fraudulently used and applied the letterhead of Cavendish for the purpose of obtaining the approval of the Nigerian government to assign the 40 per cent stake to Tuskar. The rights or wrongs of these actions will now be decided by the Nigerian High Court. These, however, might be referred back to the London Court of International Arbitration. Sections in the farm-in agreement between Tuskar and Cavendish, dated January 1996, says "any dispute arising out of, or in connection with the said agreement, including any question regarding its validity or termination should be referred to and finally resolved by arbitration in London under the rules of the London Court of International Arbitration".

But in the meantime, Tuskar has little time on its hands. As it has stated it is insolvent, the directors could be held jointly and severally responsible for the company's debts; in the absence of a resolution, it will have to go into liquidation. Tuskar was remiss in not informing its shareholders of the potential problems prior to the a.g.m. last November. Its explanation that it did not want to give Cavendish's dispute any credence is no excuse. Indeed the seriousness for Tuskar shareholders is amply illustrated in the collapse in the share price last week following the liquidation announcement. In Dublin where the shares are dealt in blocks of 10, the price slumped from 34 cents to 3 cents before recovering to 8 cents. In London, the price fell to a low of 20p before recovering to 60p. Obviously some shareholders are betting on a resolution to the dispute.

It is sheer brinkmanship to announce an imminent liquidation, prior to the event. Indeed, the Tuskar board is taking a calculated risk. If a liquidator is appointed, revenues to both Tuskar and Cavendish, could be stopped for a long time during the liquidation process. In that scenario, the liquidator would seek a buyer - that party would have to be acceptable to the Nigerian government - for Tuskar's holding in Obe which has an estimated production rate of 7,000 barrels a day, with an estimated production of 15 million barrels. A natural buyer of the holding would be Allied. But as Allied and Tuskar have common directors - three of Allied's executives manage Tuskar - and share the same offices in Houston, Texas (the Irish office was closed in June 1999), such a deal would have to be scrutinised closely. And, ironically the new owners would still have to deal with Cavendish, unless that company were to sell its interest to another party.