Having seen how warmly received my last article about this wonderful AIM investment company was, I have been itching to do another one, but wanted to wait to see the outcome of the “Smart Win” summary judgement hearing which took place in New York on Thurs. The side that TXO are on – Empire Energy is the defendant, but have a counter claim for $3Bn. Tacky US legal tactic: you sue me for $Ms, I countersue for $Bns, you back down and drop the whole thing, or we spend ages and loads of money on lawyers creating a complete pantomime, which just makes the highly principled and well intentioned US legal system look like the Keystone Kops. So what is the case about? It all starts back in the 70’s when “Mad” Malcolm Bendall had a vision from God showing him oodles of oil under Tasmania. “ GSLM and its predecessor companies were established as a result of a vision that founder and current CEO, Malcolm Bendall, received from God in 1977. In this vision, Mr Bendall saw large structures on onshore Tasmania. It has now been 35 years since this vision” There is then a great saga involving conspiracy theories around a Chinese Government inspired plot to steal all this oil from Mad Malc, which I will tell in future articles, along with how TXO ended up with a 25% interest in 50% of the award from this $3Bn countersuit. But for now Investors need to understand the recent history The whole legal process has been dragged out for over 4 years from first filing. But in April 2014 Smart Win were finally able to raise the documentation for a trial without jury, as the contract clearly states that both parties irrevocably waive their right to trial by jury. Empire’s Counsel – Paul Batista comes back with “we demand trial by jury” – no justification, but a clear delaying tactic to have more motions and hearings, but no actual trial. Smart Win say let’s forget the trial, it is so blindingly obvious that Empire breached the contract and their counter claims are nonsense, why waste time and money on a trial, give us summary judgement. Friday's RNS actually explains that really rather well, by quoting verbatim a statement from Paul Batista : “Under New York law, a motion for summary judgment is a process by which one party seeks to avoid trial by asserting that the facts are so clear that the party moving for summary judgment should win solely on the basis of information contained in affidavits and other documents. When summary judgment is denied, the issues as to which summary judgment were sought are reserved for trial.” And as Friday’s RNS says: “Justice Oing explicitly ruled that summary judgment could not be granted to Smart Win on all four of the causes of action it had asserted in the complaint Smart Win filed in 2010.” Summary judgement was denied because there were holes and uncertainties in the reams of filings over the 4 year period, in a sad way this is not all that surprising. The 4 motions were: get the loan back from Empire, foreclose on collateral and get what is left from Mad Malc under his personal guarantee (these 3 will always go the same way) and dismiss the ridiculous counter claims. Therefore the issues all go to trial, there has been no victory of one side over the other, again the RNS says that: “Mr. Batista notes that nothing in today's rulings by Justice Oing can be viewed as a prediction as to whether Smart Win or Empire will prevail in whole or in part on their respective claims against each other.” There needs to be another session to sort out a date for the trial and whether it is by jury or not, so nothing is actually going to happen until 2015. That is if there is a trial. TXO shareholders have funded a lot of what has gone on up until now. TXO have said they do not intend to fund the trial (intentions can change), but seeing as they need all the money recently raised to keep the lights on and pay down debt and those all-important directors fees, now capped for non-execs (not execs) at double the national average salary, TXO would probably struggle to pay, even if they thought they could get away with changing their minds. So who is going to fund this (Mad Malc needs others to pay his hotel bills!)? But surely this was all really good news for the TXO side? No not really, the only really substantive judgement the judge made that does affect things going forward is: “Justice Oing also determined that the 2008 agreement between Empire and Smart Win, while it did contain language relating to a joint venture between Empire and Smart Win, also indicated that a further, more detailed agreement was required for a formal joint venture and that such an additional formal document, while prepared in draft, was never executed. Justice Oing noted that a joint venture could arise from an oral agreement, as Mr. Batista and Empire had argued, but that under the relevant original contract documents, although they referred to a "joint venture" between Smart Win and Empire, it was essential that a further document be executed." Oh dear! that is the key plank in the relatively sane case Paul Batista tried to make kicked out. I will explain the whole JV thing in future articles. Which I guess leaves total reliance on lunatic conspiracy theories, which I will also explain in future articles. The really really important thing that TXO shareholders need to understand, but most don’t, is that Smart Win is a BVI incorporated shell, which only had A$5m put in by 2 mainland Chinese, HKSE listed companies. Well that A$5m has gone and there is nothing else. An award against Smart Win would just result in immediate bankruptcy and a “you can have the sign on the door of a Hong Kong Office and any paper clips you can find inside.” So where is that $3Bn going to come from (assuming there is someone mug enough to fund the trial and by some miracle EEGC win)? In exceptional cases, it is possible to pierce the veil of incorporation, but what would be the legal basis for doing that in this case? Presumably that case would need to be heard first in BVIs where Smart Win is incorporated. How easy will that be, how likely would it be to succeed, presumably it would have to rely on the absurd conspiracy theory again. After goodness knows how many more years and how much more money, if successful, maybe they get to go after those 2 Chinese companies who do have money. Great! in a Chinese court with Chinese judge and Chinese lawyers, they make their case that Chinese companies owe $3Bn because the Chinese Government was involved in a conspiracy to steal a licence, which by then will have expired a decade ago, that the Competent Persons Report at the time gave a best COS of 2%. See my last article for what TXO’s own broker said about what a great prospect it wasn’t. TXO have never given this background. They have put links to certain filings on their website, but only the biased ones produced by Paul Batista. They have never explained that the chances are better of winning the jackpot in the national lottery just buying 1 line for 1 week than they are of TXO actually seeing any money. However Paul Batista did in correspondence with an Empire shareholder: “Once the court rules on it [summary judgement] we will move to a trial which should take place either by the end of this year or early next year. Smart Win seeks $4 million in their suit and EEGC seeks up to $3 billion in a counter suit. Smart Win is a shell set up by two major Chinese companies and has no assets. A win by EEGC will result in EEGC having to go after them in China using a Chinese Lawyer and we don't know how that will work out.” TXO’s current Nomad knows all about it, but has done nothing to make sure ordinary TXO shareholders know. So when a pretty well written, for a change, RNS comes out, most ordinary shareholders really are not aware of the key background facts and think this is some great victory, just a step away from a share in $3Bn! And then there is unregulated PR like this awful Proactive Investors article that leaves out all the caveats and twists the words deliberately in order to suck in PIs and get the BBM’s high fiving each other: “TXO said a New York judge denied a A$2mln motion by Smart Win while ruling that Empire could proceed on its breach of contract counterclaim against the firm.” Factually incorrect because key words from the RNS have been missed out and utterly misleading! 10M shares were dumped at close on Fri, presumably by Bergen (we will find out when the next holding’s RNS comes out) they would have been dumped at 50% profit to what Bergen actually paid. Bergen has only managed to dump 8M over the previous 2 weeks prior to the announcement of this great legal victory. Clear as day, pre-meditated (or is it so automated they don’t even need to think about it?) and orchestrated market abuse! I understand FCA has been made aware and we are all waiting with baited breath for nothing to happen.
