England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/03/2014

Mr Justice Males :

INTRODUCTION

1. This is a claim in deceit. The claimants' case is that the defendants, through their chief executive officer Dr Bill Higgs, fraudulently induced them to sell their 10% interest in an oil and gas exploration block offshore Malta known as Area 4 for substantially less than its true value when they would not otherwise have done so. The fraudulent representation on which the claimants rely was that the process for the "farming-out" of part of the defendants' 90% interest in the block "had not yet begun in earnest" and that the defendants were "not yet in negotiations or discussions (alternatively serious negotiations or discussions) with any potential farminee". This is said to have been implicit in what Dr Higgs told the claimants' chief executive officer Mr Neil Ritson in a telephone conversation on 10 July 2012.
2. The claimants do not contend that what Dr Higgs actually said, which was that a farm-out would be vital and that the defendants were opening a data room in London the following week, was untrue. On the contrary they accept that what he said was a true statement of the defendants' understanding (ie that a farm-out would be vital to any further progress of the parties' joint venture) and intention (ie that the defendants did intend to open a data room in London, as in fact they did). But they say that these statements made by Dr Higgs were deliberately intended to create a false impression as to the true state of affairs so as to give rise to a liability in deceit. This is, self evidently, a serious allegation to be made against a senior and experienced businessman.
3. It is also an allegation which, in my judgment, is entirely without substance. While such a claim is legally possible, as it is well established that a true statement may be misleading when account is taken of what has not been said -- or to put the matter another way, that a true express statement may involve the making of an untrue implied representation -- a claimant advancing such a claim has a considerable burden to discharge. I think it right to say at once that, for the reasons which I will explain, the claimants' case fails at every stage and, in particular, that there was in my judgment no question of any intention to mislead on the part of Dr Higgs. Mr Neil Kitchener QC for the claimants submitted that Dr Higgs "has no sense of commercial propriety" and that his conduct was characterised by "a degree of sophistication, or at least raw cunning, as a commercial operator". I reject those submissions. In my judgment they fall far wide of the mark.

THE LAW AND THE ISSUES

4. The elements of a claim in deceit are well established. They were succinctly summarised by Rix LJ in The Kriti Palm [2006] EWCA Civ 1601, [2007] 1 Lloyd's Rep 555 at [251]:

"The elements of the tort of deceit are well known. In essence they require (1) a representation, which is (2) false, (3) dishonestly made, and (4) intended to be relied on and in fact relied on."

The representation

5. It is important that a claimant should identify with clarity the representation on which it relies. As Rix LJ continued at [252]:

"At the basis of any claim in deceit is the representation in question. Its falsity, and the honesty of the representor, cannot begin to be considered until the representation in question has been identified."

6. In the present case the representation pleaded by the claimants is as set out in [1] above, that the process for the "farming-out" of part of the defendants' 90% interest in the block "had not yet begun in earnest" and that the defendants were "not yet in negotiations or discussions (alternatively serious negotiations or discussions) with any potential farminee."
7. Even if there had been an express statement in these terms, it would have been inherently ambiguous, begging such questions as what was meant by "in earnest", what was the difference between "negotiations" and "discussions", and what it would take for such negotiations or discussions to qualify as "serious". In cross-examination Mr Ritson struggled to define precisely what he understood by these terms, eventually settling on a formula broadly to the effect that the defendants had received an offer or offers from a substantial and capable third party which they were interested in accepting. Mr Antony Zacaroli QC for the defendants submitted that no reasonable representee in Mr Ritson's position could reasonably have understood that such a convoluted statement was being implicitly made to him as a result of the simple express statement that the defendants were about to open a data room. He accepted, however, that in a fraud case what matters is whether the defendant intended to make the implied statement in question and whether the claimant understood it as being made. These are subjective matters. Thus if a defendant intended his words (even if they were ambiguous) to be understood in a certain way and if the claimant did so understand them, it would not matter whether a reasonable person in the claimant's position would (or even could) have understood the words in the same way. As the Privy Council held in Akerhielm v de Mare [1959] AC 789:

"The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made."

8. In practice, however, the objective meaning of the statement is not irrelevant. As the Privy Council went on to say:

"This general proposition is no doubt subject to limitations. For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true."

9. In the same way, if a reasonable person in the claimant's position would not have understood that the statement in question was being made, that may make it unlikely that the defendant intended his words to be understood as making such a statement. As Mr Kitchener acknowledged, if the court is of the view that no reasonable representee could have inferred the representation contended for, it is highly unlikely that it will find either that this is what Dr Higgs intended or that this is what Mr Ritson in fact understood.
10. Although there is no dispute that Dr Higgs did say that the defendants were about to open a data room in London, determination whether this amounted to a wider representation about the state of any farm-out negotiations depends inevitably on the context in which that express statement was made. An understanding of that context requires consideration of the background leading up to the telephone conversation of 10 July 2012 (which is largely though not entirely uncontroversial), the purpose of the call as each party understood it to be (the claimants contend, and appear to have understood at the time, that Dr Higgs' purpose in making the call was to initiate a negotiation to buy out the claimants' 10% interest in Area 4; the defendants say that Dr Higgs' purpose was merely to provide information), and resolution of several disputes as to what was said during the conversation in relation to other related topics.

Falsity

11. Despite the ambiguity of the pleaded implied representation, it is not in dispute that if such a representation was made, it was false. That is because by the time of the telephone conversation of 10 July 2012, the defendants were in negotiations with Genel Energy Plc, a serious counterparty which had already made two offers to purchase part of their interest in Area 4. Although those were indicative rather than firm offers (that is to say, they were not capable of being accepted so as to give rise to an immediately binding contract) and the defendants were minded to negotiate further to see if the terms proposed could be improved, they were very interested in pursuing the negotiations and they hoped and expected that they would eventually lead to a successful farm-out agreement, as in the event they did. Nevertheless the defendants were aware that such negotiations could fail and had experience of previous farm-out negotiations having failed at the last minute.
12. On any view, however, as Mr Zacaroli accepted, the process for the "farming-out" of part of the defendants' interest had begun in earnest and the defendants were in serious negotiations with a potential farminee. Thus, even if terms such as "in earnest" or "serious negotiations" are to some extent ambiguous, if an express statement had been made that negotiations had not begun in earnest or that there had been no serious negotiations, such a statement would not have been true. It follows that if what Dr Higgs said amounted to an implied statement to that effect, that statement was not true.

Dishonesty and intention

13. There is no dispute that Dr Higgs would have known that whatever the precise meaning of such a statement, it would not have been true to say that the process for the "farming-out" of part of the defendants' interest had not yet begun in earnest or that the defendants were not in serious negotiations with a potential farminee, and that he could not honestly have made such a representation. The question is whether, by saying what he did, he intended to make such a representation or, in other words, whether this is the impression which he intended to convey to Mr Ritson by his statement that the defendants were about to open a data room. If he did, the dishonesty which is a necessary element of the tort of deceit will have been established.
14. It is also necessary for the claimants to show that the defendants intended the claimants to rely on the representation. In practice, however, at any rate on the facts of this case, this does not give rise to any separate question. The only reason suggested by the claimants as to why Dr Higgs would have intended to make the representation alleged was in order to induce them to sell their interest cheaply to the defendants. The question whether Dr Higgs intended to make the representation is therefore for all practical purposes the same question as whether he was seeking to mislead the claimants into agreeing to a sale on terms which he knew that they would not otherwise have agreed.

The claimants' understanding

15. As already noted, a claimant must show that it understood that the representation alleged was being made to it. Without such an understanding, there can be no question of any reliance on the representation. Mr Ritson said that this is indeed what he understood. Mr Zacaroli submitted, however, that the claimants had no contemporary understanding that any representation about the state of any discussions or negotiations which the defendants were having with potential farminees was being made to them in the telephone conversation of 10 July 2012 and that the representation now alleged is essentially a creature of hindsight. He submitted that although the claimants may have believed that the farm-out process had not begun in earnest (whatever precisely that may mean) or that the defendants were not in serious negotiations with any potential farminee, that belief was not the result of what Dr Higgs said to Mr Ritson in the telephone conversation about the defendants' intention to open a data room. Rather, he submitted, it was the result of the claimants' own belief (confirmed by other information given to Mr Ritson in the telephone conversation which is not alleged to have been false) that drilling a well was unlikely to be worthwhile and that accordingly a farm-out was unlikely to succeed.

Causation/inducement

16. Often, although not always, a claimant's case in a claim for deceit will be that the misrepresentation caused or induced it to enter into a contract when it would not otherwise have done so, either at all or on the terms in fact agreed. Christopher Clarke J summarised the law on inducement in such a case in Raffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd's Rep 123 at [153]:

"The authorities establish the following:

(a) A claimant who seeks to claim damages for misrepresentation must show that the representation in question played a real and substantial part in inducing him to enter into the contract in question.

(b) But it is not necessary for him to prove that the representation was the sole inducement to his decision or that it played a decisive part.

(c) It is not, however, sufficient for him to show merely that he was supported or encouraged in reaching his decision by the representation in question."

17. He went on to explain that this means that a claimant must show that "but for" the representation, the claimant would not have entered into the contract in question or would only have done so on different terms. The relevant enquiry is whether the claimant would have entered into the contract if the representation had not been made at all and not whether it would have done so if a different representation (ie the truth) had been made to it. See Raffeisen at [180]:

"Mr Zacaroli [also counsel for the defendant in that case] submitted that a claim for misrepresentation requires consideration of what the representee would have done if no representation had been made to him. That is, in my judgment, generally speaking, correct because the claimant must establish the causative impact of the representation on his decision. His essential complaint must be that he entered into the contact on the terms on which he did as a result of what he was told, ie that, had he not been told what he was told, he would not have done so. If he would have entered into the relevant contract even if the representation had not been made, he has no valid complaint ..."

18. There is a rebuttable presumption, in a fraud case, that a defendant to whom a fraudulent misrepresentation is made was induced by that representation to enter into the contract in question. In Dadourian Group International Inc v Simms [2009] EWCA Civ 169, [2009] 1 Lloyd's Rep 601 at [99] and [100] the Court of Appeal approved the following propositions:

"… (2) if the representation is of such a nature that it would be likely to play a part in the decision of a reasonable person to enter into a transaction it will be presumed that it did so unless the representor satisfies the court to the contrary …; … (4) the presumption of inducement is rebutted by the representor showing that the misrepresentation did not play a real and substantial part in the representee's decision to enter into the transaction; the representor does not have to go so far as to show that the misrepresentation played no part at all; …"

19. In the present case, therefore, the relevant question on inducement is whether the defendants can show that the claimants would have entered into the contract to sell their interest even if the statement about the data room had not been made. On the facts, however, this produces a potential complication because it was Mr Ritson's evidence that if nothing had been said about the farm-out, he would have asked Dr Higgs about it and that what he would then have done would have depended on what answer he had been given. What would have happened in those circumstances is necessarily hypothetical, although it is clear that Dr Higgs would not have told Mr Ritson any detail of the negotiations with Genel or even its identity. In all likelihood, if the question had been asked, Dr Higgs would have said something non-committal such as that there were people to whom the defendants were talking but that they were still planning to open the data room. If he had said that, it would have been true.
20. This led to a debate about the extent to which it is permitted to consider whether a claimant would still have entered into the contract on the same terms even if it had known the true position. Some cases suggest that as a matter of principle a dishonest defendant will not be allowed to seek to rebut the presumption of inducement by proving that the claimant would still have entered into the contract on the same terms even if it had known the true position (eg Downs v Chappell [1997] 1 WLR 426 at 433 and Parabola Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm) at [100]). Other cases suggest that if it can be proved what the claimant would have done if it had known the truth, that may, depending on the facts, enable the claimant to prove that it was indeed induced by the fraudulent representation to enter into the contract (Parabola also at [100]; Raffeisen at [184]) or it may enable the defendant to prove that the claimant was not so induced (Raffeisen at [185]).
21. In the event it will be unnecessary, on the factual findings made below, to consider this topic further.

Quantum

22. The claimants claim to have lost the difference between the value of what they received from selling their interest to the defendants and what they say was the true value of that interest. What they received was US $1 plus release from liabilities of about US $135,000. The parties served expert evidence addressing the value of the claimants' 10% interest in Area 4. The claimants' case, as I understand it, is that the true value of their interest was US $11 million and in any event not less than US $6.5 million, although the defendants say that it was very much less than this. However, in the course of the trial the parties agreed that the present trial should not deal with quantum issues, but should be limited to issues of liability and causation/inducement. I approved that course.

The issues for decision

23. In the light of the foregoing, the following issues arise for decision in the present trial:

a. What was said during the telephone conversation of 10 July 2012?

b. Did Dr Higgs intend to make the representation alleged?

c. Did Mr Ritson understand that such a representation was being made?

d. Did that representation cause the claimants to agree to sell their interest to the defendants on the terms agreed?

24. In order to succeed in their claim the claimants need to win on each of the last three issues.

THE WITNESSES

25. I should at this stage record my assessment of the three witnesses who gave evidence, although my findings are principally based upon the contemporary documents and the inherent probabilities of the case. There were three witnesses of fact. Each of the participants in the 10 July 2012 telephone conversation gave evidence and the defendants also called Dr Sergio Morandi, their Chief Operating Officer. Although all three witnesses had provided lengthy witness statements which they duly confirmed, the difficulties in getting at a witness's real evidence in the witness's own words through such a witness statement are well known. I therefore required counsel to take Mr Ritson and Dr Higgs through their evidence about the telephone conversation by oral examination in chief. This proved to be helpful.
26. The claimants' only witness was Mr Ritson. I do not doubt that Mr Ritson was seeking to give accurate and truthful evidence, but he had clearly persuaded himself of the correctness of the claimants' case and tended in some answers to argue their case accordingly. In some respects I found his account of the critical telephone conversation not only unconvincing but contrary to the plain meaning of his own contemporary note of it.
27. For example, as explained below, Mr Ritson's note referred to a "comfort letter" from the Maltese Government in a context which made clear that this was something said by Dr Higgs. Mr Ritson, however, insisted that this part of the note did not refer to anything said by Dr Higgs but to a suggestion by him that the defendants should obtain a comfort letter. He said that if Dr Higgs had told him that the defendants already had such a letter, he would have asked for a copy and would have been very angry. But it is apparent from the note, as well as from other matters, that this is what Dr Higgs did tell him and that he did not react to the information at all apart from noting what Dr Higgs had said. As a result I am not able to place reliance on Mr Ritson's recollection of the call itself to the extent that it goes beyond the contemporary documents. Similarly, although I accept that Mr Ritson was doing his best to reconstruct his state of mind during the relevant period, his evidence about how he would have reacted if he had been told about the comfort letter was so clearly wrong as to undermine more generally his evidence about his state of mind – including not only whether he understood at the time that Dr Higgs was telling him that there were no (or no serious) farm-out negotiations under way, but also what he would have done if he had not understood that such a representation was being made.
28. There is no doubt that, on the defendants' case, Dr Higgs succeeded in pulling off an extremely good deal for MOG and was anxious that LGO should not find out that this was so before that deal was concluded. It is perhaps understandable that, when Mr Ritson did find out about this, he jumped immediately to the conclusion that he must have been misled in some way and that, had he not been, the outcome would have been very different, either because he would have been able to negotiate much better exit terms for LGO or even because LGO would have retained its 10% interest. In my view this belief, which is not objectively justified, coloured much of his evidence.
29. On the critical issues Dr Higgs was a frank and straightforward witness in my view. Despite vigorous and even hostile cross examination in which he was personally accused of deliberate fraud over almost a day and a half, his answers were for the most part clear and compelling. They were also, in my view, in accordance with both the contemporary documents and the inherent probabilities of the case. To the extent that his account of the critical telephone conversation was in conflict with Mr Ritson's, I have no hesitation in preferring Dr Higgs' evidence. That is not to say that there are no areas in which his evidence can be criticised. For example, I found it hard to accept that the defendants would have made a decision to commit to drilling a well without Dr Higgs having a much better understanding than he appeared to accept that he had of the economic prospects for such a well. But such matters do not affect my view of Dr Higgs' essential honesty, in particular as to the absence of any intention to deceive Mr Ritson by making the implied representation alleged.
30. The defendants also called Dr Morandi, their COO who had been their CEO from 2007 to May 2011 and then again, on an interim basis, from November 2011 to March 2012 when Dr Higgs was appointed. He did not take part in the 10 July 2012 telephone conversation. He was clearly an honest and reliable witness on the topics with which he was able to deal and I accept his evidence. That is so despite the fact that he was the author of some deliberately misleading e-mails in circumstances described below. However, he was clearly uncomfortable about those e-mails, not only in his evidence but at the time and, paradoxically, that discomfort reinforced the general reliability of his evidence.

BACKGROUND

31. Although the disclosure and evidence in the case ranged widely over the parties' dealings, the issues for decision fall into a fairly narrow compass as explained above. In this section of my judgment I set out the background leading up to the telephone conversation of 10 July 2012 in order to put that conversation into context. This background is largely uncontroversial.

The parties

32. The second claimant Leni Gas & Oil Plc is an AIM listed company which, either itself or through subsidiaries of which the first claimant Leni Gas & Oil Investments Ltd is one, owns oil and gas producing assets in Trinidad and Spain. For the purpose of this action it is unnecessary to distinguish between the two claimants and henceforth I refer to either of them or to both together as "LGO". Mr Ritson, who has worked in the oil and gas industry since 1977 and who has held senior positions in BP and other companies, has been the CEO of both claimants since November 2010.
33. The defendants are subsidiaries of Mediterranean Oil & Gas Plc, generally known as "MOG", which is also an AIM listed company. It holds, also through subsidiary companies, a number of producing and exploration assets in France, Malta and Italy. The defendants in this action, Malta Oil Pty Ltd and Phoenicia Energy Company Ltd, have also been referred to in this action as "MOG" without distinguishing between different companies in the group. I shall do likewise. MOG's CEO since March 2012 has been Dr Higgs, who was previously employed for 23 years by Chevron, also in senior positions.

The Area 4 Agreements

34. On 24 March 2005 MOG entered into an Exploration Study Agreement with the Government of Malta relating to Area 4, which comprises approximately 5,700 square km in Maltese waters and lies 150 km offshore. It is in what is referred to as a "frontier" exploration region where no drilling has previously taken place, and is thus typically considered to be high risk.
35. On 17 July 2008, the Exploration Study Agreement was converted into a Production Sharing Contract ("PSC") between MOG and the Government of Malta, acting through the Maltese Ministry for Resources. Under a typical production sharing contract, the government of a country which lacks the expertise or capital to develop its own mineral resources (usually oil) awards the right to carry out exploration and production activities to an oil company which bears the mineral and financial risk and explores, develops and ultimately produces the field. If oil is discovered, the oil company recovers the cost of its investment from the oil produced, and the remaining oil revenues are split between the government and the oil company.
36. On 18 July 2008 the Government of Malta approved the assignment of a 10% interest under the PSC to LGO. Thus LGO's interest in Area 4 was 10% and MOG's was 90%.

The Joint Operating Agreement

37. The relationship between LGO and MOG was governed by a Joint Operating Agreement dated 19 October 2010. MOG was the "Operator", with responsibility to take charge of and conduct the joint operations. So far as relevant for present purposes and in summary the Joint Operating Agreement provided that:

a. LGO would pay when due its 10% share of expenses incurred (clause 3(3)(C)).

b. MOG would provide certain information to LGO (clause 4.4).

c. An Operating Committee (or "OpCom") would be established with representatives of each party which would (among other matters) approve all budgets and work programmes (clauses 5.1 to 5.3).

d. Either party could call an OpCom meeting by giving 14 days notice (clause 5.5).

e. With some exceptions, OpCom decisions required the affirmative vote of two or more parties entitled to vote and having collectively at least 70% of the participating interests (clause 5.9(A)); in practice, therefore, as there were only two parties, such decisions had to be unanimous, although that could change in the event of a farm-out of part of MOG's interest as MOG and the farminee (two parties together holding a 90% interest) would then be in a position to outvote LGO.

f. Some decisions, however, including approval of Development Plans, the annual budget and joint account expenses, had to be unanimous decisions of those entitled to vote (clause 5.9(B)).

g. However, if no agreement on a budget or work programme could be reached, the proposal capable of satisfying the "Minimum Work Obligation" under the PSC which received the largest number of votes would be deemed to have been adopted (clause 6.1(C)); in short, this ensured that the parties would not be in breach of their obligations under the PSC and prevented either of them from vetoing work or expenditure which was necessary for that purpose.

h. A party that failed to pay its share of expenses when due would be in default (clause 8.1(B)). In that event a "Default Notice" could be given, the consequence of which would be that the "Defaulting Party" would lose the right to attend or vote at an OpCom and to receive or have access to information under clause 4.4 until the default was remedied (clauses 5.9(B) and 8.2(A)).

i. A party wishing to transfer all or part of its interest to a third party was required first to offer that interest to the other party but, if the other party did not wish to acquire it, consent to the transfer could only be denied if the proposed transferee did not have the financial or technical capability to perform its obligations under the agreement (clause 12.2).

j. However, no such transfer could be made if the result was to leave the transferring party with an interest of less than 10% (clause 12.2(A)).

38. Although in the course of the evidence it was put to MOG's witnesses that MOG failed in various respects in its duty to provide information to LGO, which information would have been relevant to enable LGO to assess the value of its 10% interest, there is no pleaded claim for breach of the Joint Operating Agreement in this or any respect. The only claim made in this action is for the tort of deceit. These matters, therefore, are only relevant to the extent if any that they shed light on whether Dr Higgs deceived Mr Ritson in the 10 July 2012 telephone conversation.

The drilling deadline

39. The PSC provided for a "First Exploration Period" of 6 years, divided into three "Exploration Phases". The "First Exploration Phase", of three years' duration, began on the date of the PSC, 17 July 2008. Under section 6 of the Production Sharing Contract, MOG and LGO were obliged to drill a first exploration well to a minimum depth of 2,500 metres, with minimum exploration expenditure of US $5 million, within that three year period, thus by 17 July 2011. This deadline was extended to 17 January 2013 by an Addendum dated 17 May 2011, but with two important conditions. The first was that the parties would acquire 1,000 square km of new long-offset seismic data. The second was that if no first exploration well was drilled by 18 January 2013 the Government of Malta could terminate the PSC, in which case the parties would be liable to pay a penalty of US $5 million. Thus the extension committed the parties to significant expenditure, first in order to acquire the new data and then either to incur the cost of drilling a well or to pay their respective shares of the US $5 million penalty.

Farming-out

40. However, it was never contemplated that MOG would itself incur the full 90% of the very substantial cost (estimated in June and July 2012 as being of the order of US $30 to US $36 million) of drilling such a well. It did not have the financial resources to do so. Instead, and as is common practice in the oil industry where exploration rights are granted under a production sharing contract to a relatively small company or companies, MOG intended to "farm-out" part of its interest to a partner with the resources to finance the drilling of an exploration well. This concept is explained in the leading textbook, Daintith and Hewitt: UK Oil and Gas Law, 2^nd edition, September 2013 issue, para 1-650:

"A farm-out is an agreement whereby a third party agrees to acquire from one or more of the existing licensees an interest in a production licence, and in the operating agreement relating to it, for a consideration which, in oil industry practice, will normally consist of the carrying out of a specific work obligation, known as the earning obligation, usually the drilling of one or more wells. In practice the drilling will be conducted by the operator but the farmor-in will bear the farmor-out's share of the costs of the specified wells, or their costs up to a specified monetary ceiling."

41. In entering into such an arrangement, the owner of the interest (the "farmor-out") reduces its exposure to the risk of significant lost capital expenditure if no oil is discovered, while still retaining a share of the potential upside if oil is discovered. The partner, referred to in the passage quoted above as the "farmor-in", is also known in the industry (and was referred to at the trial) as the "farminee". For MOG to find a suitable farminee was critical to the success of the Area 4 venture, as both parties understood at all times. Without such a partner, there was no possibility that even an initial well could be drilled and whatever costs had been incurred in getting to the stage where a well was ready to be drilled would be wasted.
42. MOG had been looking for a suitable farminee since at least early 2010. It had instructed Stellar Energy Partners Limited ("Stellar"), an energy consultancy, to run the farm-out process on its behalf, and had opened a data room in Rome. A data room is a physical room where a potential farminee can inspect (subject to a suitable confidentiality agreement) the available seismic data as part of the process of assessing its interest in taking an interest in the field. This process had resulted in some expressions of interest, some of which progressed further than others, but none of these reached the stage of a concluded farm-out agreement. The proposal which came closest was from a company called Dominion Petroleum Ltd, but this proposal foundered in July 2011 when Dominion failed at the last moment to obtain shareholder approval to raise the US $55 million in working capital which it needed in order to proceed. This caused considerable disappointment to MOG and left it committed to pay for its full 90% share of the cost of acquiring the new long offset seismic data which the Maltese Government had required as a condition of the extension which had been granted.

LGO's objective

43. LGO's position was different. The Joint Operating Agreement required a minimum holding of 10%, so that it was not open to LGO to farm-out part of its interest. It was therefore required either to retain its entire 10% interest, and accordingly to bear its 10% share of the costs (including either 10% of the cost of drilling a well or, if applicable, its US $500,000 share of the non-drilling penalty) or to dispose of that interest in its entirety. For MOG to acquire a farminee would not relieve LGO from these liabilities as, while a farminee would be expected to take over (or "carry") some or all of MOG's share of the cost of drilling a well, LGO would still have to fund its share of that cost. Despite press announcements and other statements by LGO that there was "an ongoing farm-out effort" by both parties jointly, this was never the case. While MOG was seeking a farminee, LGO was seeking a separate sale of its entire interest. However, if MOG were to conclude a deal with a farminee of good standing in the industry, that would amount to a vote of confidence in the viability of the project which might assist LGO to find a buyer for its interest or improve the terms on which it could expect to sell.
44. At any rate from the time of Mr Ritson's appointment as CEO in November 2010, LGO's firm policy, which it made known to MOG, was to dispose of its interest. Mr Ritson regarded LGO's interest in Area 4 as a non-core part of its business and did not wish to spend the company's limited funds on this venture. It is, I suppose, a theoretical possibility that LGO could have changed its mind about wishing to dispose of its interest, but in the event this never happened and, if it were to retain that interest it would need to commit itself to incurring its share of the costs of the venture which it would have found very difficult and perhaps even impossible to do. Between November 2010 and the end of 2011 LGO made substantial efforts to find a buyer for its interest, but with no success. In November 2011 Mr Ritson was recommending to the LGO board of directors that no further capital should be injected into Malta and that LGO's interest (effectively, its liability to pay its share of expenses) should be offered for sale at any price down to US $1.

Seismic data

45. When the PSC was concluded in 2008, the parties had available to them some pre-existing seismic data, including some 3D seismic data acquired by Shell in 1993 as the operator of a previous joint venture relating to Area 4. In 2011 this data was reprocessed using a technique known as pre-stack depth migration. As computers have become more powerful and processing techniques have become more sophisticated, it has become common for seismic data acquired in earlier years to be reprocessed using these more advanced techniques, thus providing (so it is hoped) information from the existing data which could not have been derived at the time when that data was originally acquired. Interpretation of this existing data in 2011 identified various "prospects" at the Lower Eocene geological horizon.
46. I should explain that in oil industry terminology a "prospect" is defined as "a project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target", while a "lead" is "a project associated with a potential accumulation that is currently poorly defined and requires more data acquisition and/or evaluation to be classified as a prospect". A "play" is a more generic term which includes both a prospect and a lead.
47. In addition to this reprocessing of old data, in 2011 the parties were required to commission the acquisition of a further 1,000 square kilometres of new 3D long offset seismic data. "Long offset" seismic data is designed to obtain information relating to deeper geological horizons than the Eocene period (ie the Cretaceous period and below). The parties were interested in verifying the existence of exploration prospects in the Cretaceous level, and the purpose of acquiring new long offset seismic data was to improve the imaging of the deeper horizons.
48. The first stage of this exercise, namely the acquisition of the raw data, was carried out by Fugro Geoteam Pty Ltd in November and December 2011 and cost US $5 million. The next stage was for the data to be processed, which involved a series of computerised processing steps in order to put the data in a form that could be interpreted. This processing was carried out by Fugro in the United Kingdom and was finally completed in June 2012, although much of the processing had been done by March 2012 so that the next and final stage, the work of interpretation of the data, could begin. This interpretation involved integrating the processed seismic data with other geoscientific information in order to enable an assessment to be made, again with the assistance of sophisticated computer processes, of where and if so in what quantities oil and gas reservoirs may be accumulated. Although it would be possible for experienced geophysicists and geologists to make an approximate assessment of these matters relatively quickly, accurate interpretation of the processed data is a time-consuming exercise.
49. By July 2012 some initial results of the interpretation of the new data had been obtained, but the work of interpretation was still continuing. As such results became available, they were placed in MOG's Rome data room where they were available to be viewed by any prospective farminee.

LGO's non payment of invoices

50. By the end of 2011, the relationship between the parties was under strain. As at 15 December 2011 LGO had failed to pay US $110,000 which was its share of expenditure during the first half of 2011 and US $275,000 which was its share of the cost so far invoiced of acquiring the new long-offset seismic data. At a meeting on that date Mr Ritson told Dr Morandi that LGO would pay the invoice for US $110,000 but that it was in the process of selling its interest and would be submitting a notice under clause 12(F) of the Joint Operating Agreement shortly. That was a provision which required a party wishing to transfer all or part of its interest to a third party to give 28 days notice to the other party before entering into a transfer agreement with the third party concerned. In fact, although LGO was attempting to interest prospective buyers, it was a long way from concluding any deal and it was nowhere near being in a position to give a clause 12(F) notice. Mr Ritson went on to say that until LGO had sold its interest, it would be unable to pay MOG's remaining invoices, and that (because of the potential impact on any sale) it would be in MOG's interests not to serve a default notice on LGO.
51. MOG was not impressed by this, but agreed to give LGO 30 days to pay the outstanding cash calls before serving a notice of default. However, despite redoubling its efforts to find a buyer, including contacting a number of potentially interested parties, LGO was unable to find anyone interested in purchasing its stake and did not pay the outstanding sums. Accordingly on 18 January 2012 MOG issued a formal notice of default. It threatened also to serve a statutory demand and issue a petition to wind up LGO if the outstanding sums (by this time amounting to US $438,383 plus interest) were not paid.
52. On 1 February 2012 LGO offered to transfer its interest to MOG in return for MOG agreeing to forgive the outstanding sums, but MOG rejected this offer. Eventually, on 20 February 2012, LGO paid the debt together with interest and legal costs.
53. Not surprisingly, this episode soured the relationship of the parties.

Zeus

54. In early March 2012 there was at last an expression of interest from a potential buyer of LGO's interest. It came from a Maltese special purpose vehicle called Zeus Energy Ltd, but Zeus made it clear that its interest was subject to the Government of Malta agreeing to extend the deadline for an initial well beyond 18 January 2013. By the time of the 10 July 2012 telephone conversation, discussions with Zeus had effectively lapsed. Moreover, MOG's view, after a meeting with Zeus on 18 April 2012 which LGO arranged, was that in any event Zeus was unlikely to be acceptable to the Ministry which would have to approve any buyer of LGO's interest.

The March 2012 OpCom

55. On 24 March 2012 an OpCom meeting took place in Rome. MOG presented its draft 2012 budget, split between firm and contingent expenditure. Its presentation indicated that processing of the new long offset seismic data was expected to be complete by the end of March 2012, when interpretation would begin. MOG presented also the result of its reinterpretation of the reprocessed old seismic data, which was said to have provided the basis for a new "Prospectivity Map" including a revision of the Lower Eocene shallower target and for the first time a complete new mapping for the deeper Cretaceous target. The parties agreed to engage a consultancy called ERC Equipoise to analyse the interpreted data to provide basin modelling and "updated volumetrics". It was recognised that the January 2013 deadline for drilling a well was fast approaching and that it would be necessary to approach the Maltese Government for a further extension, for which purpose a meeting had been arranged for 4 April. It was obvious too that much would depend on the interpretation of the data, in particular whether a prospect at the Cretaceous level could be identified. Although the possibility had not been ruled out of drilling a well to the Eocene level only, both parties were hoping for a deeper prospect. MOG also told the LGO representative, LGO's technical director Fergus Jenkins, that it was actively looking for farminees at this time.

The comfort letter

56. A meeting was held with the Maltese Government on 4 April 2012 which LGO did not attend, but which was attended by Dr Higgs and Dr Morandi. Although not recorded in the official minutes of the meeting, there was discussion of a possible extension of the drilling deadline. MOG reported to LGO that an indication of the Government's position about this was expected in early May.
57. On 4 May 2012 MOG (represented by its chairman Mr Keith Henry and Dr Morandi) met the Maltese Minister for Resources and Rural Affairs. After updating the Minister on the status of the latest data, the possibility of a drilling extension was discussed. The Minister said that he was not willing to grant a formal extension, but would be prepared to provide a "comfort letter" which would state that the Government would consider an extension for a further 12 months provided MOG could demonstrate by 10 January 2013 that it was in a position to commit to drilling an exploration well. In order to do this, MOG would need to have concluded a farm-out agreement. The Minister agreed that such a letter could be shown to potential farminees, but because of political sensitivities was not willing for the comfort letter to be the subject of any public or press statements. Although this is not specifically mentioned in Mr Henry's e-mail report of the meeting, it was Dr Morandi's evidence (which I accept) that the Minister stated expressly that the comfort letter should not be shown to LGO, apparently because he was concerned about LGO's practice of issuing press statements to generate favourable publicity, but that it was only provided for the purpose of MOG's farm-out process.
58. Although Mr Henry appears to have told the Minister that MOG's farm-out discussions were "effectively on hold", that was not entirely accurate. MOG was still in touch with several potential farminees, some of whom were waiting to see the results of the latest data, and was also preparing to launch a more structured marketing push (see [69] below). However, it was well understood that a farm-out was essential if the project was to proceed and that any potential farminee would need reassurance that the January 2013 drilling deadline would not be enforced.
59. However, the Minister's instruction that the comfort letter should not be shown to LGO created a dilemma for MOG. On the one hand, the fact that a letter had been issued was important information to which LGO was entitled under the Joint Operating Agreement. To say the least, for MOG to conceal this fact would not be conducive to a good relationship between the parties. On the other hand, MOG was dependent on the goodwill of the Maltese Government, particularly if the comfort letter was to be non-binding as a matter of law, and would not wish to disregard the Minister's instruction.
60. The letter which the Government provided to MOG was dated 10 May 2012 and was addressed (but not sent) to LGO as well as MOG, both parties being party to the PSC. It stated:

"Without any prejudice whatsoever to the terms and conditions of the [PSC], the Government of Malta will have no objection to grant a further extension of 1 year to the First Exploration Phase, provided that by not later than 30 December 2012, Malta Oil provides sufficient documented evidence to the satisfaction of Government that the necessary funds to drill the well are available and that preparations for the drilling of the well are at an advanced stage and that within the said extension period of one year of the First Exploration Phase, that is by not later than 18 January 2014, the obligatory exploration well will be spudded."

61. These conditions could only be satisfied if a farm-out of a significant part of MOG's interest was completed within the reasonably near future and if a commitment to drill the first well (which inevitably meant commitment of expenditure) was undertaken during the second half of 2012.

LGO's requests for information

62. Meanwhile Mr Jenkins reported back on the March OpCom meeting to Mr Ritson. Mr Ritson's immediate concern was to know the likelihood that the new seismic data would suggest the existence of "a large Cretaceous structure". With a view to getting a better understanding of this, on 21 March 2012 LGO asked for a copy of the final report on the interpretation of the reprocessed old seismic data. MOG had presented much of the information contained in the report at the March OpCom and promised to provide the report itself, but despite several chasers it failed to do so, although it did provide an annex to the report, a prospect inventory and a volumetric estimate, which identified and gave volumetric estimates for various prospects. In addition, MOG invited LGO to attend a meeting at Fugro's premises at Swanley (which LGO did attend) and to have a technical meeting in Rome where LGO could be updated on prospectivity (which it did not).
63. Despite this, LGO was entitled to receive the report and there was no good reason why it was not provided. However, I accept the evidence of Dr Morandi, who was clearly frustrated that the report had not been provided, that (despite some suspicion on the part of LGO) the failure to provide the report was not deliberate or for any sinister reason, but was simply a failing, probably due to pressure of work, at a subordinate level within MOG. At all events the report was eventually provided to LGO at the end of June 2012 and LGO was therefore aware of its contents by the time of the 10 July telephone conversation.
64. LGO was also asking for news during this period of the Maltese Government's position. MOG responded by telling LGO the substance of what was said in the comfort letter, but without revealing the fact that the letter itself existed. As Dr Morandi put it in an e-mail dated 25 May 2012:

"Regarding our discussion with MRA and Maltese Government it is advancing well; everybody seems now comfort [sic] in providing us at least twelve months of extension if we can demonstrate to have a financial commitment to show them by the end of the current year. I will keep you updated on it."

65. This message was misleading in several respects and Dr Morandi became increasingly uncomfortable about this situation, particularly after 26 June 2012 when LGO repeated its request for "information on the potential extension of the drilling obligation" in terms which indicated that it had not appreciated that this was already the stated position of the Maltese Government. LGO asked again for an "update on the negotiations with the Maltese authorities" on 28 June 2012. Once again Dr Morandi's response was rather less than the whole truth:

"Regarding MRA and Maltese Government we are actively and positively discussing how to optimize the exploration timetable. The government seems comfortable to grant to us an extension of the drilling deadline if, following the final technical assessment, we can demonstrate within the current year that the JV is committed to drill the well."

66. In the same e-mail Dr Morandi indicated that MOG planned to call an OpCom meeting in August to tell LGO the results of its interpretation of the new seismic data.
67. LGO passed on to Zeus what Dr Morandi had said about the Maltese Government's position and inquired, hopefully but without much expectation, whether Zeus was still interested in pursuing the purchase of LGO's interest.

Further default by LGO

68. On 1 June 2012 LGO failed to pay invoices totalling US $82,345.78 which were due for its share of the cost of processing the new seismic data. It was therefore once again in default.

Progress of the farm-out

69. As noted above, MOG told LGO at the March OpCom meeting that it was actively looking for farminees. In reality, although this process had never formally stopped, there had been something of a lull in this activity during the period of acquisition and processing of the long offset seismic data. Obviously any prospective farminee would want to know something about what this new data had revealed. By early April 2012, however, MOG was ready to renew its efforts and requested Stellar to produce a formal marketing proposal. Stellar did so, suggesting that selected companies be approached and invited to attend either the data room in Rome or a new data room to be established in London.
70. In addition to this formal marketing process with Stellar, MOG was in touch through its own contacts with several companies during the second quarter of 2012 about a possible farm-out. Some of these expressed serious interest and visited the Rome data room where the results to date on the new data were available, but no offers (or even indicative offers) resulted from these contacts at this stage. One company, Chariot Oil & Gas, indicated that it would decide whether to make a proposal after it had analysed the new data but that in any event it was unlikely to be interested in taking more than a 50% share. By the end of May Chariot had decided to withdraw.

Genel

71. In mid May, however, MOG received an approach from Genel Energy, a well regarded Anglo-Turkish exploration and production company listed on the London Stock Exchange which had substantial cash available and was interested in building up a portfolio of assets in the Mediterranean region.
72. Genel and MOG met in London on 6 June 2012. Genel indicated that it was "very keen", and signed a confidentiality agreement on or about 13 June 2012. On 27 June 2012 Genel visited MOG's data room in Rome and received a detailed presentation about Area 4 from MOG. Genel appeared to be "quite enthusiastic", as Dr Morandi reported back to Dr Higgs. The information in the data room included analysis of the new long offset seismic data and Genel must have been told about the content of, and may well have been shown, the Maltese Government's comfort letter. Following the visit MOG provided Genel with some technical information in response to specific questions and on 2 July 2012 Dr Lipparini of MOG sent Genel a draft, only just received from ERC Equipoise and not even considered by MOG yet, of ERC Equipose's report on the costs and economics of Area 4. I accept the evidence of Dr Higgs and Dr Morandi that this was done without their knowledge or approval.
73. This draft report was not provided to LGO. It considered 11 potential drilling scenarios for different prospects in Block 7 of Area 4, and concluded with an "Economic Evaluation", which was a discounted cashflow valuation of all 11 cases. Making various assumptions, the analysis suggested a positive Net Present Value in 10 out of the 11 cases considered. Although very provisional, this led to a reference to the "very positive economics" in the marketing bulletin which was being prepared by Stellar to be sent out to potential farminees.
74. It is important to understand the sense in which the economics referred to in this draft report were said to be positive. That conclusion was very far from meaning that going ahead with the venture would inevitably or even probably lead in due course to the successful and profitable commercial exploitation of the field. Indeed the ERC Equipoise analysis concluded, after making the best assessment it could of the risks involved, that the "Chance of Success" was only 11%. "Chance of Success" is another oil industry term of art which refers to the chance of finding hydrocarbons at all and not to the chance of successful commercial exploitation. Another way of describing the ERC Equipoise analysis was therefore to say that there was an 89% chance that the costs of drilling a well would ultimately be wasted because there were no oil or gas resources to be found.
75. In what sense, therefore, could the "economics" in such a case be regarded as "very positive"? The answer, as Mr Kitchener submitted, is that this can be compared in a general way with the purchase of a lottery ticket. If the prize is £100 and there is a 10% chance of winning, it may be said (at any rate by some) that the value of the ticket is £10 and that, if a ticket can be purchased for less than that, the economics are "positive". Mr Zacaroli rejected this analogy as too simplistic, pointing out that the value of the prize (the future revenue stream) is unknown, depending as it does on future energy prices, the quantity of oil and gas if any capable of being extracted, and the appropriate discount rate to arrive at a present day value; so too is the cost of the ticket (the cost of drilling, a cost which is notoriously unpredictable). While this is a valid criticism, and the ERC Equipoise analysis made assumptions about these risks which would not necessarily turn out to be correct, I regard the analogy as broadly helpful in illustrating the sense in which they concluded that the economics of drilling a well were positive.
76. On 4 July 2012 in an e-mail from Mr Charles Proctor of Genel to Dr Higgs, Genel made an offer (albeit subject to agreement on final terms, as all of Genel's offers were) to purchase a 75% interest in Area 4 for a cash payment of US $5 million plus an agreement to bear the costs of the first exploration well up to a ceiling for the well of US $30 million. In other words, if the well cost US $30 million, Genel would pay US $27 million, representing its own 75% share of the cost together with the 15% share which MOG would retain. If the well cost more than US $30 million, MOG would have to fund the full cost of its 15% share of the excess. There were other elements of Genel's offer, including an agreement to work together to evaluate adjacent blocks which although intangible would be of some reputational value to MOG.
77. Dr Higgs regarded this offer as "very interesting", forming the view (correctly as it turned out) that there was "room to negotiate". However, the decision was made very quickly to reject Genel's offer without countering. This was done by telephone on 6 July 2012. Meanwhile MOG pressed ahead with its plan to find a farminee by means of the marketing which Stellar was to undertake and the bulletin which Stellar had prepared was issued to a large number of selected companies on or about 6 July 2012.

MOG's discussion of LGO

78. On 5 July 2012 Dr Higgs and Dr Morandi had a telephone discussion, together with Mr Chris Kelsall, MOG's finance director, to review the position reached with LGO. There were several areas of concern. These included the fact that LGO was already in default on some invoices and that others would fall due in August 2012; the need to update LGO about the interpretation of the new seismic data and the economic analysis carried out by ERC Equipoise; and the increasingly urgent need to tell LGO about the Maltese Government's comfort letter. Dr Morandi was particularly concerned about this last point, expressing the view that MOG had an obligation to tell LGO about the comfort letter and that it ought to do so promptly, not least because of the risk that such information might leak to LGO during the farm-out process when the letter would be seen by a number of potential farminees. Dr Morandi repeated his position about this in an e-mail sent to Dr Higgs on 6 July 2012 in which he also floated the idea that LGO should be invited to include its 10% interest in the farm-out process or alternatively to sell it to MOG.
79. It was following the 5 July 2012 discussion that Mr Kelsall telephoned Mr Ritson on 6 July 2012 to arrange a meeting between Mr Ritson and Dr Higgs. Mr Kelsall had hoped to arrange a meeting for later that day, but in the event it proved impossible to find a mutually convenient slot, and Mr Ritson suggested that Dr Higgs should telephone him. This was the call which was to take place on 10 July 2012.

Genel's second offer

80. Thus at the time when the call was arranged there was no offer from Genel in being, its first offer having been (or was in the process of being) rejected. However, on 9 July 2012, Genel made a second offer or, strictly speaking, indicated that it would be prepared to consider an increase in its offer. For a reduced equity interest of 70% (instead of 75%) it was prepared to increase its proposed cash payment from US $5 million to US $7 million and to fund the entire 90% of the cost of the first exploration well, with no cap. This removal of the cap was potentially very valuable to MOG because the capital investment required for a well was already very high and drilling costs were notoriously uncertain. Dr Higgs responded in non-committal terms, offering to meet Mr Proctor if he was available later in the week.

Summary

81. Thus, at the beginning of July matters were coming to a head. No budget had been agreed for the second half of 2012 and LGO was in default (albeit that formal notice of default had not been given) for non-payment of invoices. No explanation for this default had been given, although it was known to both parties that LGO was keen to sell its interest. A decision would have to be made very shortly whether to commit to drilling a first exploration well. A decision to do so would require a commitment to expenditure of tens of millions of dollars, which could only be made if the prospects for a farm-out of part of MOG's 90% interest were at least sufficiently encouraging for MOG to make that commitment. Those prospects would be dependent on the interpretation of the latest seismic data, which although well advanced was not complete. Moreover, unless the parties demonstrated that commitment to the Maltese Government, including a demonstration that the necessary finance was available and thus that a successful farm-out agreement had been concluded, the Government would not extend the January 2013 drilling deadline, the US $5 million penalty would be payable and the entire Area 4 venture would come to an end. Although LGO had not been told that there was a comfort letter in existence which set out the Government's position, it had been told that the Government seemed willing to give an extension if such a demonstration could be given.

THE 10 JULY TELEPHONE CONVERSATION

82. This was the background to the 10 July telephone conversation. I now describe the call itself.
83. Mr Ritson made a note of the call which he said, and I accept, he made while it was actually taking place. The call lasted in all for about ten minutes, so Mr Ritson's note could not hope (and did not attempt) to record everything which was said, but it included most of the main points. It did not, however, identify which of the comments recorded were made by Mr Ritson and which by Dr Higgs. For the most part this is either obvious or not in dispute, although in some respects there is a significant dispute about who said what. I set out the note below adding in square brackets (a) line numbers for convenience of reference, (b) the initials of the person speaking according to Mr Ritson's evidence, and (c) where necessary, an explanation of some of the abbreviations used by Mr Ritson:

"[NR] Not a core asset. [1]

[BH] Sergio – Defaults on CC [cash calls] [2]

troubles the board [3]

[?] Trying to exit [4]

[BH] Concerned with the non-pay [5]

[BH] BoD [board of directors] Monday [6]

[BH] Farm-out will be vital, data room soon. [7]

[NR] Lack of data to LGO [8]

[BH] * Call an op com, in late July; August [9]

[BH] Interpretation ongoing [10]

[BH] Seeing the same shallow prospect. [11]

[BH] Not enough time to derisk the deep. [12]

[BH] Committed to progress [13]

[NR] Comfort letter from MRA [Malta Resources Authority] - commit to the well. [14]

[BH] LGO not committed to drill Eocene. [15]

... Catch 22! [16]

... Zeus? [17]

[BH] Liability outstanding [18]

[NR] What would it take to get LGO out. [19]"

84. The first topic discussed, at lines 1 to 6, was LGO's failure to pay the invoices which were due. Dr Higgs expressed concern about this and warned that MOG was due to have a board meeting on the following Monday, the implication being that the board might decide to serve a default notice, as it had done before. Mr Ritson explained that the reference to "Sergio" was made because Dr Higgs said that Dr Morandi had prepared a list of the outstanding cash calls. Dr Morandi had indeed done this, in his email of 6 July 2012 (see [78] above).
85. To this Mr Ritson gave what had become his standard response, namely that LGO did not regard its interest in Area 4 as a core asset and was trying to dispose of it. Although Mr Ritson's evidence was that he was not sure who made the comment at line 4 about "Trying to exit", this had been his response when the question of non-payment of invoices had arisen in the past and he had said it to Dr Higgs on the only previous occasion when they had spoken, at a meeting in April. I find that this was a comment made by him. Moreover, it had been Mr Ritson's expectation (and, I add, hope) that Dr Higgs' purpose in making the call was to attempt to buy out LGO's interest. I consider below whether that expectation was correct. I think it probable that Mr Ritson made this comment in order to encourage Dr Higgs to make such an offer. However, Dr Higgs did not do so, at any rate at this stage.
86. The conversation then turned at line 7 to what is the critical statement in this case. Dr Higgs said that a farm-out would be vital. This was not news to anyone. It had been obvious throughout. Dr Higgs did say that MOG would be opening a data room. However, although Mr Ritson wrote down the word "soon", his evidence (with which Dr Higgs agreed) was that what Dr Higgs actually said was that MOG would be doing so "next week". Moreover, both parties knew that MOG's data room in Rome had already been open for many months. What Dr Higgs was telling Mr Ritson was that a second data room, in London, was about to be opened. There is a dispute whether Dr Higgs also told Mr Ritson that Stellar had sent or was sending out its marketing bulletin to potential farminees. I address this at [141] below.
87. It is common ground that what Dr Higgs said about the farm-out and the data room was volunteered by him and was not said in response to any enquiry by Mr Ritson. There had been nothing in the earlier part of the conversation or in the parties' previous exchanges to suggest that Mr Ritson wanted such information. It is LGO's case that this was a deliberately misleading statement by Dr Higgs, intended to convey the impression that the farm-out process had not begun in earnest, and to induce LGO to part with its 10% interest cheaply. It is Dr Higgs' evidence that, simply as a matter of courtesy and not as a softening up process in any such scheme, he wanted to tell Mr Ritson about the London data room and the marketing bulletin: Mr Ritson was likely to hear about them anyway from others in the industry, and Dr Higgs wanted to ensure that Mr Ritson heard about them first from him. This is the principal issue in the case and I address it at [142] below.
88. Mr Ritson's immediate response to the information he was given was to complain, at line 8, about "lack of data to LGO". He did not ask for any further information about the farm-out process or the stage which it had reached, although he knew (as he accepted in evidence) that MOG had been speaking to potential farminees independently of the plan to open a new data room. Instead he complained that LGO had not been provided with information about the results, including interpretation, of the new seismic data. Expressly or by implication he was contrasting the fact that such information would be available to potential farminees when, he protested, it had not been provided to MOG's existing 10% partner. LGO's case is that Mr Ritson was so thoroughly deceived by Dr Higgs' statement into believing that the farm-out process was in its infancy that it did not occur to him that this might not be the case. MOG on the other hand, contends that Mr Ritson was either not particularly concerned to find out more, or that it was his own belief (not induced by anything said by Dr Higgs) that drilling a well was unlikely to be worthwhile and that accordingly the prospects for a successful farm-out were remote. I deal with the issue of what Mr Ritson understood at [164] below.
89. Dr Higgs responded to Mr Ritson's complaint about lack of information by saying at line 9 that MOG intended to call an OpCom in late July or August at which such information would be provided. Mr Ritson marked this information with an asterisk in his note to indicate that this was a point on which action would be required.
90. Dr Higgs continued at lines 10 to 12 to summarise some of the information which MOG had obtained from the new data. He said that the work of interpretation was ongoing (ie was not yet complete) but that MOG was "seeing the same shallow prospect". This referred to the prospect, using that term in the technical sense, in the Eocene level about which the parties already knew from the pre-existing data. Dr Higgs explained that there was no equivalent prospect found in the Cretaceous level. Mr Ritson did not write this down in his note, but he did record it in e-mail reports of this conversation which he sent later on the same day and there is no doubt that this was said. The news that there was no Cretaceous prospect came as a great disappointment to Mr Ritson. His view had been that unless such a prospect was found, it was certainly not worth the expense of drilling a well to the Eocene level. It had been hoped that the new long offset seismic data would reveal the existence of a Cretaceous prospect, but the information that it had not done so confirmed Mr Ritson in his view that LGO had no further interest in this venture and needed to dispose of its interest. Once he learned that there was no Cretaceous prospect, Mr Ritson effectively lost any remaining interest in continued participation in Area 4 and his tone in the conversation changed noticeably.
91. There was some dispute as to the meaning of the comment at line 12 that there had not been "enough time to de-risk the deep". Mr Ritson said initially that this referred to the absence of a prospect at the Cretaceous level. In fact, however, as Dr Higgs explained, what Dr Higgs was saying here was that interpretation of the data had identified some possible leads at the lower Jurassic level, but that there had not been time to analyse these. Mr Ritson accepted ultimately that this may indeed have been what Dr Higgs was saying, even if he had not understood this at the time.
92. Having given this summary of what the new data had revealed, Dr Higgs told Mr Ritson at line 13 that MOG was committed to progress, that is to say that it was committed to going ahead with the venture and drilling a first exploration well. Mr Ritson's evidence was that in view of the imminent drilling deadline of January 2013 he responded to this at line 14 by making the suggestion that MOG should get a comfort letter from the Maltese Government. Dr Higgs, however, said that this entry referred to him telling Mr Ritson about the comfort letter which the Government had already provided. This is, as already noted at [27] above, an important point of dispute about this conversation on which a firm conclusion can be reached, which casts helpful light on the respective reliability of Mr Ritson's and Dr Higgs' evidence about it. For the reasons explained at [137] below I have no doubt that on this point Dr Higgs' evidence is correct.
93. The statement by Mr Ritson at line 15 that LGO was not committed to drill at the Eocene level is a rather compressed summary of the next stage of the conversation. Having been told that MOG was committed to drilling a well, which meant, in the absence of a Cretaceous prospect, a well at the Eocene level, Mr Ritson said not merely that LGO was not committed to such a well but that it would vote against any such proposal at the forthcoming OpCom meeting and would thereby block the proposal.
94. What Mr Ritson had in mind was the requirement for unanimity in approving such decisions in the Joint Operating Agreement. He believed that LGO would be in a position to block the proposal by voting against it, and therefore that LGO possessed sufficient leverage to bring about a stand off between the parties. In fact Mr Ritson was mistaken. The parties were required to drill a well under the PSC, so that this was part of the "Minimum Work Obligation" under clause 6.1(c) of the Joint Operating Agreement and unanimity was not therefore required (see [37] above). That was a misapprehension under which LGO continued to labour.
95. There is a dispute whether Dr Higgs was under the same misapprehension. It is true, as Mr Kitchener points out, that Dr Morandi had correctly understood that LGO would not be entitled to veto a well because of the "Minimum Work Obligation" and had set this out in his e-mail to Dr Higgs on 6 July 2012. However, it is obvious that Dr Higgs had not grasped this point. If he had, there would have been no reason why he would not immediately have told Mr Ritson that his threat (because there is no doubt that it was a threat and was intended to be understood as such) was ineffective.
96. Instead Dr Higgs responded at lines 18 and 19 by referring to LGO's "liability outstanding" and asking what it would take "to get LGO out". (The entries at lines 16 and 17, "Catch 22!" and "Zeus?", probably represent Mr Ritson's notes to himself rather than anything actually said). Mr Ritson's evidence was that the reference to LGO's outstanding liability was a reference to the fact that LGO would have to pay its US $500,000 share of the penalty payment if no well were drilled. I would accept that this was referred to. In other words Dr Higgs, believing wrongly that LGO was in a position to block the well, pointed out that doing so would cost LGO its share of the penalty payment. However, the conversation also referred to the fact that LGO had already failed to pay the invoices which were due and that by serving a notice of default MOG would be able to prevent it from voting at the forthcoming OpCom meeting.
97. Finally, Dr Higgs asked what it would cost for MOG to buy LGO out. Mr Ritson agreed that he would consider this with his board and would revert to Dr Higgs within 36 hours. It is LGO's case that really this is what the conversation had always been about, and that Dr Higgs had been preparing the ground for this enquiry throughout the conversation by giving Mr Ritson unrelenting bad news about the lack of progress with any farm-out and the failure to find any Cretaceous prospect, while suppressing the good news about the Genel interest and the "positive economics" shown by the ERC Equipoise analysis of the economics of a well drilled to the Eocene level. Dr Higgs' evidence, however, is that it was not the purpose of the call to initiate negotiations to buy LGO's interest and that his enquiry only came at the end of the conversation in response to the admittedly hostile threat by Mr Ritson to block further progress (and thereby render MOG's 90% interest valueless) by voting against a well at the OpCom meeting.
98. Dr Higgs' own evidence about the conversation in chief was as follows:

"Q. I am going to ask you a few questions about the telephone discussion that you had on 10 July with Mr Ritson. It is common ground that this was set up at MOG's instigation. Can I ask you first of all, what was your purpose in setting up the call?

A. I think, my Lord, it is useful to set a little bit the scene for what was happening in early July. You know, in early July things were really coming to a head for the joint venture partners. We, as the operator, had committed to do a quick pass interpretation of the new long offset 3D seismic data that was going to be completed in late June, early July, on which the joint venture partners would be able to make a drill decision. In addition, we had received a comfort letter from the Maltese government and that comfort letter offered up the option for an extension, but at the same time it came with conditions. They were one, that we had to demonstrate that we had the funds available which meant that Mediterranean Oil and Gas needed to achieve a farm-out partner, and the second condition was that we needed to demonstrate to the satisfaction of the Maltese government that we had progressed our planning for preparedness to drill the well. That meant that we needed to progress the work programme for the second half of 2012.

What we had also -- the situation we were also in at that point, of course, was our joint venture partner was not paying the cash calls and they were a defaulting party under the JOA. It was on the basis of that that on 5 July, myself, Sergio Morandi and Chris Kelsall had a telephone conversation and talked about the broad issues around LGO and progressing the joint venture partnership. Indeed we also talked about the fact that we were just about to launch the formal marketing effort for our farm-out process. In the call we decided it was a good idea to contact LGO and basically to inform them at this point about the comfort letter. On the morning of 6 July, I asked Mr Kelsall to phone up Mr Ritson to see if we could meet that day. Mr Ritson's calendar didn't -- he wasn't available at such short notice and he suggested that we phone the next day.

So the key points that we wanted to talk to them about was obviously their default. We wanted to tell them about the comfort letter and the conditions associated therein and we also wanted to tell them out of courtesy that we were -- about that day, we were going to be sending out bulletins to his industry peers.

Q. Now to the best of your recollection at this distance, can you tell his Lordship what you recall of the telephone call on that day, on 10 July?

A. Yes. The first part of the call was really sort of laying out the agenda and the first point being that I wanted to talk to Mr Ritson about the defaults and whether they were going to get resolved and express to him the concerns that I was getting from our board and that we had a board meeting coming up on the following Monday, 16 July. And that I was going to come under pressure from the board to issue a default notice. Mr Ritson offered that it was a non-core asset, Area 4 was a non-core asset to LGO and they were looking to exit, which of course was not new news to me as they had obviously made that very clear at other times.

I then moved on to tell Mr Ritson that Stellar had sent out bulletins on the previous Friday to start the formal marketing effort and that we were opening a data room in London the following week. I can't remember whether Mr Ritson mentioned anything about not receiving data at that point but I know we did move on to talk about the fact that the team had been very busy working on trying to finalise this first pass interpretation. Mr Ritson asked me about how that was going and I offered to him that we were seeing the same -- essentially the same Eocene prospects we had seen on the PSDM [pre stack depth migration] but that, unfortunately, we weren't seeing a deeper Cretaceous prospect underneath the (inaudible) Eocene prospect. This was obviously very disappointing. It was disappointing news to us, it was very disappointing news to Mr Ritson, it was a noticeable change in his tone on the call. I then went on to describe that we were on the new long offset seismic data, seeing some deeper reflections which was new data to us and not been seen before and there were some early leads but it would take a very long time for us to mature those and maybe never into prospects, but it was work that certainly wouldn't satisfy our need to drill the first exploration well.

I think I then went on to say that we, Mediterranean Oil and Gas, were very committed to the project, that it was important for us to progress to the Area 4 opportunity and that we were committed to drilling the Eocene well only. I then said that the MRA had issued a comfort letter but that that comfort letter was for a one year extension but had the two conditions of needing to demonstrate funding and needing to progress the work programme for 2012.

It was at that point, I think, that Mr Ritson said that LGO would not support drilling in the Eocene only well. I think he may have made some reference to the fact that they saw it was too risky but they could understand why us, as a farm-out partner, would want to proceed. I emphasised that we needed to call an opcom and the purpose of that opcom would be to approve the work programme and budget which was unapproved at that point, for the second half of 2012, with the goal of enabling us, as operator, to progress the necessary work that needed to be done, to achieve the second condition that was being set by the Maltese government, of making sure we had our plans in place to execute the well.

I believe it was then at that point that Mr Ritson said something to the effect again, that LGO wouldn't support the drilling of the Eocene well and would not support approval of a budget to progress the work. I believe that I then mentioned again, that obviously we would be issuing a default notice if the LGO did not settle the cash calls and clearly that was said and I am sure Mr Ritson understood that the reason for saying that was that if they were in default, they had no opportunity to block the approval of the budget. Mr Ritson responded with the fact that he would pay or they would pay their -- something along the lines of they would pay their cash calls and come to the opcom and vote against us. It was really based on that threat that I then said to him, "You know, this is at an impasse and we need to find a way out of this situation. It doesn't benefit either of us to be where we are and, you know, what would it take to -- for LGO to exit this investment?" I asked him to go away and think about it and come back to me.

He offered that he would come back to me within 36 hours and essentially the call ended.

Q. Can I ask you to take the core bundle which I think again is in front of you there. At page 38, this is Mr Ritson's note of the call that he had on that date. I want to ask you just one question about the note. You will see there is a reference about half way down to -- he says: "Farm-out will be vital. Data room soon." Do you recall that aspect of the conversation, mentioning data room to him?

A. Yes, as I say, I mentioned it as sort of in passing as part of the comment about the bulletins going out and the fact that we needed to achieve a farm-out partner to progress the asset. That was very clear.

Q. As best you can at this distance, trying to remember the call, when you made that comment, did you understand at the time, you were making to him any further implied statement?

A. Well not really, other than the fact that I was saying that we were keen to progress the asset and we were moving ahead with our formal marketing process. That was really what I was trying to communicate."

99. Dr Higgs suggested in this passage that he told Mr Ritson, or was trying to communicate, that Stellar had sent out bulletins on the previous Friday to start the formal marketing effort. He repeated the expression "formal marketing process" or "formal process" a number of times in cross examination. Ultimately, however, he made clear that he did not have sufficient recollection of the conversation to be able to say one way or the other whether such words had actually been used. For his part Mr Ritson did not suggest that any such expression had been used and in my view there is no basis for concluding that it had. To the extent, therefore, that Mr Kitchener's submissions place reliance on Dr Higgs' use of this expression in the conversation, I consider that they miss the mark.
100. After the telephone conversation was concluded, Mr Ritson viewed a video available on the internet of an interview which Dr Higgs had given recently. In that interview Dr Higgs had referred to the new seismic data and had said that MOG would be opening a data room in July. Mr Ritson agreed that the information given in the interview about this was in material respects the same as what Dr Higgs had told him in the telephone conversation.
101. Mr Ritson also wrote a number of e-mails on 10 July 2012 reporting on his conversation with Dr Higgs. The first of these was to Mr Fergus Jenkins, LGO's technical director, and is worth quoting in full:

"Just had Bill Higgs on the phone. Basically as expected they are looking for our final "offer" to exit.

Some snippets:

The Maltese will extend only if the JV commits to a well

MOG can't commit to a well as we can block it as the well costs are not in the budget

Interpretation is ongoing BUT they don't have a deep prospect!

MOG nevertheless want to commit to the shallow well.

They will open a dataroom next week (begs the question again of informing us on the interpretation – he said they were too busy)

I made it clear that LGO would not support drilling the Eocene prospect level alone.

They have a Board meeting on Monday and will apparently issue default notices in order to shut us out. I indicated we would remedy any default to remain in a controlling position. Thus the licence is in a Catch-22 and there is a Mexican Standoff going on. Worth also remembering if we don't drill then we have to pay 10% of $3 million to the Maltese.

Thinking strategically, we just need to get out. We don't want to use any more cash on this and the prospectivity doesn't now merit proceeding. Zeus are no longer in exclusivity as has not been extended, so we can offer it to them, but quicker to go via MOG.

My suggestion is that we offer our 10% for our share of the cost of the 2011 work programme less outstanding costs in 2012. They pay us circa. $350k and we walk away………..

I agreed to make a firm offer in next 36 hours."

102. I would make six observations about this message. First, it demonstrates that Mr Ritson had understood Dr Higgs' purpose in making the call to have been to acquire LGO's interest, which is what he had expected in advance of the call. Second, the comment that "the Maltese will extend only if the JV commits to a well" corresponds to line 14 of Mr Ritson's manuscript note and explains the reference in that note to the words "commit to the well". That is consistent with Dr Higgs' evidence that line 14 represents what he said to Mr Ritson and inconsistent with Mr Ritson's evidence that the first half of line 14 ("Comfort letter from MRA") represents a suggestion which he made to Dr Higgs. Indeed on Mr Ritson's evidence the words in the second half of line 14 ("commit to the well") have no sensible explanation. Third, and as in the conversation itself, the focus of Mr Ritson's interest in the comment about the data room was LGO's complaint that it had not itself been provided with sufficient information regarding interpretation of the data. Fourth, the e-mail confirms LGO's belief that it would be in a position to block a well, albeit that in order to do so it would need to pay the outstanding invoices and thus to nullify any default notices that MOG might serve. Fifth, the reference to 10% of US $3 million was a mistake, the correct figure being 10% of US $5 million. Sixth, and perhaps most important of all, Mr Ritson's firm view was that "we just need to get out" without spending any more money on this venture. This conclusion was based upon "the prospectivity", that is to say on the geological information available to him.
103. Mr Ritson's second e-mail report was to Mr David Lenigas, the chairman of LGO. This made clear that he now regarded LGO's 10% interest as a liability and not as an asset. He reported on the conversation in the following terms:

"In summary; they have not found a Cretaceous prospect for drilling and now want to commit to drill the Eocene. My view is that this means that Area 4 has moved from a highly prospective idea to a liability.

In order to get an extension from the Maltese to drill a well they have had to commit to drill the well.

I have told them we will block the well budget. However, in order to do that we have had to avoid a default (we owe $125k)."

104. Once again, the middle paragraph quoted above is consistent with and supports Dr Higgs' evidence regarding the comfort letter.
105. It is notable that there is no reference in either of these internal e-mail reports to the fact that the farm-out process had not begun in earnest, let alone that Dr Higgs had made any implied statement to this effect. There was a reference to the prospects for a farm-out in a further e-mail which Mr Ritson set on 10 July 2012, this time to Mr Steve Horton, a non-executive director of LGO. This too indicates his state of mind following his conversation with Dr Higgs. He stated:

"We have a stand-off now which is why they are willing to negotiate. We offered them this deal in December and again in February and again in April; but only now that they can see we can actually block them opening a dataroom are they willing to negotiate.

What has really changed for me is that this is not a great prospect any longer. My guess: < 400 million bbls at a risk of 1 in 15. That will not excite the majors who are opportunity rich, so the farm-out may well fail. For a $25-30 million well the EMV [Estimated Monetary Value] is negative, so why bother."

106. Although his view was that "the farm-out may well fail", this view was based on his understanding of the geological findings and there is nothing here to suggest that Dr Higgs had said anything material about the stage which the process had reached. Indeed Mr Ritson was equating blocking the opening of a data room (which LGO obviously could not do) with blocking approval of a well (which he mistakenly thought that it could).
107. It was on the basis of these e-mail reports that the LGO board members approved Mr Ritson's proposed strategy of disposing of its 10% interest to MOG on the best terms which could be negotiated.
108. Finally, Mr Ritson sent an e-mail to his contact at Zeus:

"We have received some further information from Mediterranean Oil and Gas (MOG) which is germane to the issue.

MOG have been told by the Maltese Resource Agency that the PSA will only be extended if there is a firm commitment to drill a well.

So far the interpretation of the seismic data has not revealed a drillable Cretaceous prospect.

MOG wish to proceed to commit to drill the Eocene prospect. For that they will need LGO's agreement.

LGO will not be willing to commit to an Eocene well, which we consider high risk on oil charge, and therefore there is a current impasse. We have therefore asked MOG to make us an offer for our 10% and if that is acceptable we will be inclined to accept. MOG will then hold 100% and will open a dataroom to locate partners for the well.

We anticipate receiving MOG's offer tomorrow and I will let you know how we choose to proceed."

109. It is clear from the tone of this message that, far from attempting to revive negotiations for the sale of LGO's interest to Zeus, Mr Ritson was explaining why he saw no purpose in further discussion with Zeus. Again, however, it is clear also that the first bullet point corresponds to what Mr Ritson had been told by Dr Higgs at line 14 of his manuscript note of the conversation. Mr Ritson was saying that this was new information which MOG had provided. In particular, what was new appears from the contrast between "MOG have been told" and what LGO had been told previously, which was that the Government merely "seems comfortable" to grant an extension (see [65] above).

SUBSEQUENT EVENTS

Negotiations for the sale of LGO'S 10% interest

110. Although Mr Ritson had promised to revert to Dr Higgs within 36 hours, LGO was very keen to conclude a sale of its interest, preferably before Mr Ritson left for a holiday which he was about to do. In fact he e-mailed Dr Higgs later on 10 July 2012, confirming that LGO had no interest in drilling an Eocene only well and offering "to resolve the current impasse" by a sale of LGO's interest on the following terms:

"The offer we have from a third party is for cash of US $500,000 plus various contingent payments, and has an effective date of 1^st January 2012 i.e. does not expose us to any 2012 cash costs. However, in order to resolve the current impasse as simply as possible the LGO Board propose the following:

* LGO assigns its entire 10% interest in the Area 4 JOA and PSA to Mediterranean Oil and Gas (MOG) effective 1.1.2012

* In consideration MOG repay LGO's 2^nd half 2011 costs, reduced by the unpaid 1^st half costs; a total of US$425,000

* LGO is willing to take payment in cash or in MOG shares at a 10% discount to the prevailing market and with customary orderly trading restrictions

* That the Assignment Agreement settles all outstanding issues and claims between the parties

* Transaction to be completed on or by end July 2012"

111. On receipt of this offer Dr Higgs noted that:

"It would seem that we are in a closed period again: Genel, Trajan, Canoel and Leni O&G are all active and closing to 'real' deals."

112. In this email Dr Higgs was warning his board and senior colleagues that because of their knowledge of these potential imminent deals they should not for the time being trade in the company's shares. Mr Kitchener suggested that a plan to purchase LGO's 10% interest must have been discussed with MOG's chairman, Mr Henry, before the telephone call of 10 July 2012, and thus that this was the real purpose of that call, because there was no positive evidence that Mr Henry was told about the outcome of the call before this email was sent, and therefore if he had not been told about the plan in advance he would not have understood the reference to an active deal with LGO. I do not consider that such an inference is justified. It is equally possible that Mr Henry was told about the call before receiving this email or, for that matter, that he did not immediately know what the reference to a deal with LGO referred to. The important information in the email was that there should be no dealing in the company's shares.
113. Further negotiations followed over the next two days. Mr Ritson sought to get the best terms he could for LGO but he recognised that LGO was in a weak position. On 11 July 2012 he advised his board in the following terms (Mr Ritson's underlining):

"After quite a few exchanges with Bill Higgs at MOG I think the best deal we are going to get from MOG is a straight walk-away where they bear all the 2012 cost to date ($125k) and we sell to them for $1.

If we try to tough it out they will serve a default notice for the outstanding amounts on Monday and we will be obligated to remedy in 5 days. When in default we can't vote and they may be able to engineer an OpCom to get their well approved. There is also a long term liability here as without a well we have to pay $500k net to the MRA and with a well and no farm-out that liability could go to $5 million our share very quickly.

A sale to a 3^rd party is possible, but is also fraught with difficulty and will anyway require we remedy a default next week and we don't have the $125k available.

I have reserved our position to speak to the Board (i.e. you guys) and I will have one more go to get some cash or shares ($100k?), however, I am now seeking approval to sell our 10% in Malta for $1 effective 1.1.12 should I be unable to get a better deal."

114. The necessary approval was given. Another internal email shows Mr Ritson's thinking at the time:

"… I don't like being bullied, but they have the upper hand here. The only alternative option I can see is to issue a default notice against them for derogation of their duties as operator. They will then issue a counter claim for $82k unpaid invoices. To stay in the game we would have to pay those, and the further $40k due by end July. If we did that we could then threaten to vote out the well which will incur a $500k cost to us and $4.5 million to them. At that point we would have some leverage as their costs at [sc. are] 9 times ours and they need to open a dataroom or lose the PSA. Chances of winning? Maybe 50%, but we have to put $625k on the line to do it.

Choice: cut and run, or stand and fight?"

115. The choice which LGO's board made was to cut and run. Running throughout these internal e-mails was a recognition of LGO's weak negotiating position, not only because its only leverage was to vote against (and thereby, as it understood, to block) a well which would inevitably cost it US $500,000, but also because in order to be in a position to cast such a vote ("to stay in the game") it would have to pay all the outstanding invoices. As Mr Ritson put it, to do this "we have to put $625k on the line". But this was money which LGO did not have available. Indeed, as he acknowledged in the e-mail quoted at [113] above, LGO did not even have funds of US $125,000 available to remedy its default if MOG served a default notice, and in fact (as Mr Ritson accepted in evidence) LGO's cash flow was so weak that his own salary had not been paid since September 2011.
116. In the event although Mr Ritson reiterated his threat to "vote against a well at the OpCom and thus delay any progress towards a farmout", this time in writing, he was unable to obtain materially better terms. On 12 July 2012 agreement was reached in principle for MOG to acquire LGO's 10% interest for US $1 as well as agreeing to assume liabilities amounting to about US $135,000. MOG also agreed not to serve a default notice pending finalisation of the deal.

The July 2012 OpCom

117. Meanwhile, also on 12 July 2012 MOG gave notice of an OpCom meeting for 27 July 2012 to discuss various matters. These included the results of the interpretation of the 2011 long offset seismic data and of field development feasibility studies, a commitment to drilling a first exploratory well and approval of a budget for the second half of 2012 and 2013.
118. Dr Morandi sent a presentation for the OpCom meeting to LGO on 19 July. Although the presentation included a cut and paste of a table in the draft ERC Equipoise report, it omitted any reference to that report or to the economic analysis and Chance of Success percentages contained in it. LGO's case is that this information was deliberately suppressed in order to ensure that LGO did not have any cause to reassess the value which it had assigned to its 10% interest and renegotiate the agreement reached on 12 July which was not yet binding. See further [158] and [159] below. In fact LGO decided that it would not attend the OpCom. It recognised that if it indicated an intention to attend, MOG might well issue a default notice, in which case it would need to pay the outstanding invoices in order to be entitled to receive information or to vote.

Finalisation of the Genel deal

119. As MOG was reaching agreement in principle for the purchase of LGO's interest, its farm-out negotiations with Genel were continuing. On 12 July 2012 Dr Higgs had a meeting with Mr Proctor of Genel with a view to improving further the terms of Genel's offer, followed by a telephone call in which he told Mr Proctor that MOG was negotiating to buy LGO's interest and offered Genel 50% of that interest (ie an extra 5%) if a deal was reached. Mr Proctor accepted that offer, but agreed that MOG should continue to lead the negotiations with LGO. Dr Higgs said that this was because negotiations between MOG and LGO were at an advanced stage. Although they were, it was also the case that Dr Higgs did not want LGO to find out about its negotiations with Genel.
120. On the following day, 13 July 2012, Genel made a revised offer, this time to acquire a 70% interest for US $10 million in cash, funding two wells up to a cap of US $30 million each and agreeing to work with MOG to "evaluate and access" LGO's interest which was to be split equally between the parties. Thus, if all went well, Genel would have a 75% interest and MOG would have 25%.
121. Armed with the agreement in principle reached with LGO and Genel's latest offer, Dr Higgs prepared a presentation for MOG's board on 16 July 2012. The presentation described Genel's offer as creating value of US $22 million for MOG. Dr Higgs' calculation was that this was the value of the US $10 million cash which Genel would pay plus the "carry" of MOG's remaining share of drilling the first and second wells. Mr Kitchener placed considerable emphasis on Dr Higgs' description in the board presentation of how the purchase of LGO's interest had come about. Under the heading "MOG approach to Leni Gas & Oil" it stated:

"On the basis of the first offer from Genel Energy we approached LGO with a goal to secure their 10% working interest."

122. Mr Kitchener submitted that this confirmed that the purpose of the 10 July 2012 telephone call had indeed been to negotiate a purchase of LGO's interest. Dr Higgs maintained, however, that the presentation was inaccurate in this respect and represented "a more positive spin on why we would have made the offer" which was affected by the hindsight knowledge that terms had been agreed with LGO, when in reality the negotiations had been prompted by Mr Ritson's threat in the telephone conversation to block the budget for which MOG needed approval in order to go further with the venture.
123. It is unnecessary to describe in detail the remaining course of MOG's negotiations with Genel. On 23 July 2012 MOG and Genel entered into a non-binding Letter of Commitment, which included a (binding) exclusivity period ending on 30 September 2012 during which MOG agreed not to negotiate with any other purchaser. MOG was very wary about news of the Genel deal leaking to LGO before the LGO sale agreement could be made final. Dr Higgs pressed for the prompt execution of the sale agreements with LGO, but Mr Ritson was on holiday in France and no progress was made until his return.
124. Stellar, in ignorance of the Genel deal, asked MOG if it should send out the Information Memorandum to Genel and another company, Petroceltic. Only at that point did Dr Higgs inform Stellar that MOG had entered into an exclusive Letter of Commitment with Genel and that Stellar should not send out any more documents to the market. Dr Higgs and Dr Morandi were both anxious not "to signal to LGO that something is up". As Dr Morandi put it in an email, "if it leaks out that there is strong interest in the farm-out on the part of a third party, LGO could complicate the exit agreement".
125. The sale agreements between LGO and MOG, comprising a Sale and Purchase Agreement, Deed of Assignment and Novation of PSC and Deed of Novation of Joint Operating Agreement, were finally executed on 31 July 2012. Dr Higgs was delighted with the deal, commenting (with some exaggeration) to one of MOG's non-executive directors that:

"This is good news – especially when the market realises that we have converted $1 into $10 million!"

126. Dr Higgs then told Stellar that it should now notify other interested companies that MOG had entered into an exclusive period with a potential farminee and would be back in touch if the deal was not closed. Mr Dave Fassom of Stellar described the deal with LGO as "somewhat of a coup", to which Dr Higgs replied that:

"I suspect that LGO might be unhappy when they find out, but they have wanted to exit for a long time."

127. On 23 August 2012 the making of the Genel Farm-In Agreement between MOG and Genel, which had been executed the previous day, was publicly announced. The final terms were that Genel would acquire a 75% interest in return for payment of US $10 million in cash on completion and agreed also to pay MOG's entire costs of the first well and its costs of the second well up to a ceiling of US $30 million; for MOG's costs of the second well in excess of US $30 million Genel agreed to provide finance at an interest rate equivalent to 3 month LIBOR plus 4%. In addition, as discussed from the outset, the parties agreed to enter into an Area of Mutual Interest Agreement to work together with MOG on a 90/10 basis in relation to adjacent areas in Malta, Libya and Tunisia.
128. This was an excellent deal for MOG. Area 4 remained a high risk venture, but MOG had acquired a highly regarded and substantial farminee and was therefore in a position (subject to formal approval by the Maltese Government which was eventually obtained although the process of obtaining approval was not as straightforward as might have been expected) to continue with the venture. It would have no liability for the cost of the first well. Its liability for the costs of the second well (its 25% share of any costs in excess of US $30 million) would be financed on favourable terms. It no longer had, I would add, a partner which had shown itself unwilling or unable to pay its share of expenses. Specifically in relation to LGO, it had acquired LGO's 10% interest cheaply and "flipped" half of that interest to Genel very advantageously.
129. Conversely, and as expected, LGO was indeed very unhappy when it saw the announcement of the Genel deal. LGO's solicitors immediately wrote to MOG expressing surprise and concern about the announcement of the farm-out within three weeks of LGO's sale of its interest. It is apparent from this letter, however, that LGO's assumption was that in order for Genel to be willing to farm-in on these terms, it must have been provided by MOG with information that there was an economically drillable Cretaceous prospect, contrary to what Dr Higgs had told Mr Ritson. That assumption was wrong and it is not suggested otherwise. However, the focus of much of the early correspondence was devoted to LGO's attempts to ascertain whether it had been misled by MOG about the existence of a Cretaceous prospect. The misrepresentation on which this action was founded was only identified at a later stage.

WHAT WAS SAID DURING THE TELEPHONE CONVERSATION OF 10 JULY 2012?

130. I have set out at [82] to [109] above an account of the telephone conversation of 10 July 2012, including the evidence which was given about it by the participants and the contemporary documents which describe it. Although much of what was said in the conversation is not in dispute, some issues remain for decision.

The purpose of the call

131. I include within these remaining issues the prior question of the purpose of the call. As already noted at [97] above, LGO's case is that Dr Higgs' purpose in making the call was to initiate a negotiation for the purchase of LGO's interest, while Dr Higgs' evidence (set out at [98] above) was that there were several things which MOG wanted to raise with LGO or to tell it, including LGO's non payment of invoices, the comfort letter and the Stellar bulletin.
132. Despite the terms of Dr Higgs' later board presentation ("we approached LGO with a goal to secure their 10% working interest": see [121] and [122] above), which on its face appears to provide strong support for LGO's position, I accept Dr Higgs' evidence about this. Although in the event the telephone call did not take place until 10 July, Dr Higgs had attempted to set up a face to face meeting with Mr Ritson on 6 July, immediately after MOG had discussed the current situation regarding LGO internally (see [78] above). It was apparent from Dr Morandi's email of 6 July 2012 that topics needing to be discussed with LGO included the current status of LGO's payments, the calling of an OpCom in late July or early August to update LGO on developments and to approve a budget, and the comfort letter. The fact that Stellar was sending out a marketing bulletin on 6 July was also something which LGO was likely to learn about from other sources and it made sense for Dr Higgs to want to tell Mr Ritson about this as a matter of courtesy between CEOs of partners in a joint venture. Likewise, once the bulletin was sent out, potential farminees would come to know about the comfort letter and LGO might well hear about it from other sources which would be embarrassing if MOG had not disclosed its existence. Indeed, an internal manuscript note of Mr Kelsall (who arranged the call) on 6 July makes clear his understanding that the call was to be about (at least) the comfort letter ("Bill to call re comfort letter").
133. I would add that LGO's theory that the real purpose of the call was to initiate a negotiation assumes a degree of confidence that the farm-out with Genel would proceed which did not yet exist on 6 July 2012 when the call was arranged. Welcome encouragement as Genel's first offer of 4 July 2012 had been, on 6 July MOG had decided to reject it without countering. Although Dr Higgs hoped and expected (in the event correctly) that Genel would not walk away, there was no guarantee as to how it would react to this rejection of its initial offer.
134. It is true that Dr Morandi's email of 6 July 2012 also raised the possibility that LGO might be asked either to include divestment of its interest in any farm-out negotiations or to sell its 10% interest to MOG (although he envisaged offering a cash payment which Dr Higgs was never prepared to pay), and I would accept that this possibility must have been in Dr Higgs' mind, but I find that it was not the purpose of the call. The actual course of the call, as set out in Mr Ritson's note (see [83] above) also strongly accords with Dr Higgs' evidence, as he did raise the things which he said that he intended to raise, and only asked what it would take to buy out LGO in response to Mr Ritson's threat to block any further progress by voting against a well. I find that he only did so as a result of Mr Ritson's threat.
135. For these reasons I consider that, surprising as this may seem, what was said in the board presentation was indeed a rationalisation after the event and did not correctly record Dr Higgs' purpose at the time.
136. This conclusion is important. LGO's theory of the case is that the reason for Dr Higgs' deception in conveying to Mr Ritson that the farm-out negotiations had not begun in earnest was that this was part of the bad news about future prospects for Area 4 intended to soften up LGO into parting with its 10% interest cheaply. But if, as I find, this was not the purpose of the call, much of the motive for the alleged deception disappears.

The comfort letter

137. I have already referred to the issue whether Dr Higgs told Mr Ritson about the comfort letter and indicated my conclusion that he did (see [27] and [92] above). In summary, my reasons are as follows. First, this conclusion is consistent with and makes much better sense of line 14 of Mr Ritson's contemporary note of the conversation and of his email reports of it later on the same day (see [101] to [104] above). Second, it was one of the purposes of the call to tell LGO about the comfort letter, a matter which Dr Morandi regarded as urgent. Dr Higgs and Dr Morandi both said that a decision to do so had been made in the 5 July 2012 conversation referred to at [78] above. I accept that evidence, not only because they were credible witnesses but also because it is supported by Mr Kelsall's contemporary note (see [132] above). Third, Mr Ritson's evidence was that the only reference to a comfort letter in the conversation was his suggestion that MOG should attempt to get such a letter from the Maltese Government. However, to suppose that he made such a suggestion and that Dr Higgs then failed to mention that in fact MOG had already got such a letter would require a degree of duplicity on the part of Dr Higgs which in my view is unrealistic.
138. This is also an important conclusion. Once again, LGO's theory of the case is that in addition to the conveying of bad news about future prospects for Area 4 in order to soften up LGO into being receptive to the idea of disposing of its interest cheaply, Dr Higgs deliberately suppressed any good news, including the comfort letter. Although not alleged to be independently wrongful (there is no pleaded case that MOG was in breach of the Joint Operating Agreement or that it had otherwise any positive duty to disclose information), this suppression of good news is said to support the conclusion that what Dr Higgs said about the opening of a data room was intended to convey a misleading impression about the state of the farm-out process. I will come in due course to the other elements of good news which Dr Higgs is alleged to have suppressed. However, if (as I find) he did tell Mr Ritson about the comfort letter during this telephone call, and whatever may be said about the failure to tell LGO about it previously, that element of the "suppression of good news" case falls away.
139. Further, as already explained at [27] above, the fact that Mr Ritson is wrong about this matter undermines his evidence more generally.
140. I have not overlooked the rather surprising fact that on any view Dr Higgs did not tell Mr Ritson that the comfort letter was confidential. As that was a point which had been of some concern to the Maltese Government (see [57] above), he might have been expected to do so. However, Dr Higgs' failure to say anything about this, which he was not really able to explain, does not affect my conclusion that he clearly did tell Mr Ritson about the comfort letter, and that is what line 14 of Mr Ritson's note refers to.

The Stellar bulletin

141. The final issue about what was said is whether, in addition to telling Mr Ritson about the data room in London which was about to be opened, Dr Higgs also mentioned the sending out of the Stellar bulletin to potential farminees. Although there is no mention of this in Mr Ritson's note or in his email reports, I find that Dr Higgs did so. It was one of the things which he intended to say and there was no reason not to do so. LGO was likely to find out about this anyway and it was not in any way secret. Second, the absence of any reference to the bulletin in Mr Ritson's note and emails is not surprising. It was not particularly important information and, in any event, it is accepted that his note of this part of the conversation at line 7 is not completely accurate as what Dr Higgs said about the London data room was that it would be opened "next week" and not "soon". The note does not purport, therefore, to be a verbatim record of this part of the conversation and Mr Ritson acknowledged that it was possible that Dr Higgs had mentioned the Stellar bulletin even though he did not remember it. Mr Ritson did not ask to see a copy, but if he had, there is no reason to think that MOG or Stellar would not have provided one.

DID DR HIGGS INTEND TO MAKE THE REPRESENTATION ALLEGED?

142. I come now (at last) to the central issue in the case which is whether, by saying that MOG would be opening a data room in London in the following week, Dr Higgs intended to make an implied representation (or, in ordinary language, to lead Mr Ritson to understand) that the process for the farming-out of part of the defendants' 90% interest in the block "had not yet begun in earnest" and that the defendants were "not yet in negotiations or discussions (alternatively serious negotiations or discussions) with any potential farminee".
143. I conclude, accepting Dr Higgs' evidence on this point, that he did not. I consider that Dr Higgs was prepared to drive a hard bargain and was a skilled and successful negotiator. That was shown by the way in which he was willing to reject attractive terms offered by Genel and LGO at various stages of the respective negotiations in order to obtain even better terms. But I see no reason to doubt his honesty. Indeed, if anyone was bending the truth slightly in the negotiations for the sale of LGO's interest it was Mr Ritson, who represented to Dr Higgs that LGO had a cash offer of US $500,000 for its interest (see [110] above), when that was not true. However, that was a very venial untruth, no more than the kind of thing that people sometimes say in negotiating from a weak position, not really expecting to be believed (after all, if there was a better offer from a third party, why not take it?) and Dr Higgs clearly did not take it seriously.
144. In addition to my assessment of Dr Higgs' honesty, my reasons for this conclusion are, first, that what Dr Higgs said would not have been understood by a reasonable objective person in the position of Mr Ritson as making the implied representation alleged; second, that there is no reason to conclude that Dr Higgs intended to convey a meaning over and above what a reasonable representee would have understood; third, that what Dr Higgs said during the telephone call with Mr Ritson was no different from what he had said publicly; fourth, that the findings already made as to the purpose of the call and disclosure of the existence of the comfort letter remove most of what is alleged to have been Dr Higgs' motivation for wishing to deceive Mr Ritson; and fifth, that the remaining elements of what I have called LGO's "suppression of good news" case do not justify a conclusion that what Dr Higgs said about the data room was intended to deceive. While some of these reasons should be self explanatory, others require some explanation.

The reasonable objective meaning

145. In determining whether a reasonable representee in the position of Mr Ritson on the 10 July 2012 telephone call would have understood that the alleged implied representation was being made by Dr Higgs, the context is important. That context included, as Mr Ritson agreed, that the statement about the data room was not made in response to any question from Mr Ritson as to the state of MOG's farm-out process, or as part of any wider discussion of that process, and that nothing which Mr Ritson had said would have suggested to Dr Higgs that he was looking for information about it. Similarly, Mr Ritson accepted that nothing which Dr Higgs said led him to believe that Dr Higgs was purporting to tell him everything about the farm-out process which he thought that Mr Ritson might want to know.
146. The context included also the facts, known to both parties, that MOG's data room in Rome had already been open for two years, that as and when new data (including the results of the interpretation of the long offset seismic data) became available, it would be placed in that room, and that any potential farminee would have been able to visit it at any time. So on any view the opening of a second data room in London was not the initiation of a new process but a boost to an existing process. Indeed, MOG had told LGO in March 2012 that it was actively looking for farminees (see [55] above).
147. Moreover, the opening of a data room is not necessarily the first step in any farm-out process and it does not therefore follow that until a data room is opened there have been no (or even no serious) negotiations with a potential farminee. Mr Ritson's own evidence was that opening a data room is "not always" a first step in a farm-out. From this it follows that a reasonable oil company can and may well start the farm-out process before the opening of a data room. Indeed the process will generally be commenced by marketing to a select group of potential farminees, with those interested being asked to sign a confidentiality agreement before being given access to data.
148. Even if serious negotiations are under way, unless they have reached a stage where a period of exclusivity is agreed, that would be no reason not to open a data room. Such negotiations, however promising, may well founder at the last minute, as MOG was acutely aware from its experience with Dominion, a point of which LGO was also aware (see [42] above). I accept that Genel appeared to be both serious and keen but nevertheless, in the circumstances prevailing in July 2012, with real urgency to find a farminee in view of the imminent deadline for satisfying the Maltese Government, it would have been surprising to abandon the plans for a data room when the Genel deal, promising as it appeared to be, could easily come to nothing.
149. In all these circumstances, I consider that the statement that MOG was about to open a data room in London did not mean, and would not reasonably have been understood to mean, that MOG was not currently engaged in negotiations with a potential farminee independently of any new marketing effort. On the contrary, a reasonable person in Mr Ritson's position would have understood that MOG might be engaged in such negotiations, which might already have included the making of offers or counter offers, and that, if it was, there was no reason why such negotiations would not be pursued further, if possible to a successful conclusion, despite the opening of a new data room.

Dr Higgs' public statements

150. As noted at [100] above, what Dr Higgs told Mr Ritson about opening a data room in July was not materially different from what he had said in an interview available on the internet very shortly before. Mr Ritson was asked whether, if the two statements were to the same effect, that would mean that if Dr Higgs was intending to deceive him by the statement in the telephone call, he must also have been intending to deceive the world by what he said in the interview. His answer was:

"Yes, I think that, unfortunately, would be the consequence of making that."

151. In my judgment this answer demonstrates a loss of perspective on the part of Mr Ritson. It is far more probable, and I find, that not only were both statements true statements of MOG's intention, but neither was intended to deceive anyone.

LGO's "suppression of good news" case

152. I have already referred to some aspects of LGO's case that Dr Higgs was deliberately suppressing the positive and emphasising the negative. Further aspects of this case were that Dr Higgs did not tell Mr Ritson about the "positive economics" identified by ERC Equipoise; that he did not explain the deeper Jurassic leads revealed by the interpretation of the long offset seismic data; that he did not mention the negotiations with Genel during the call; that the 19 July 2012 OpCom presentation deliberately suppressed important information from the ERC Equipoise draft report; and that MOG was very careful to ensure that LGO did not find out about Genel at any time after the call precisely because if it did, "LGO could complicate the exit agreement" (see [124] above).
153. LGO had been invoiced for its share of the cost of the work done by ERC Equipoise referred to at [72] to [75] above. However, the analysis carried out by this independent consultancy was not mentioned by Dr Higgs during the 10 July 2012 conversation. Dr Higgs sought to distance himself from the draft report which ERC Equipoise had prepared, saying that he had not seen it at the time of the 10 July 2012 conversation, although he clearly had seen it by the time of the board meeting on 16 July 2012. However, he agreed that he did know at least in general terms that "the initial economics were showing some positive results". In fact Dr Higgs was copied on an email to Stellar dated 6 July 2012 in which Dr Lipparini put the matter rather more enthusiastically ("we are receiving very positive results from the ongoing economic evaluation done with Equipoise"). Dr Higgs said that although he did not mention these results during the telephone conversation, it was implicit in his telling Mr Ritson that MOG was committed to drilling an Eocene-only well that MOG regarded it as economic to do so. I accept that. Nobody could have thought that MOG would commit to the very substantial costs of drilling unless it regarded the economics of doing so (in the sense discussed at [74] and [75] above) as likely to be positive. I would add that Dr Higgs' statement of commitment must also have implied a degree of confidence in MOG's ability to conclude in the reasonably near future a successful farm-out agreement, which Dr Higgs had already said would be vital.
154. While one natural way in which the conversation might have developed would have been for Dr Higgs to seek to persuade Mr Ritson to support the decision to drill by referring to the economic assessment made by ERC Equipoise, Mr Ritson very quickly made clear LGO's opposition to that course and its intention to vote against it at the OpCom. That declaration of intent represented a critical change in the parties' relationship. LGO, which was already failing without explanation to live up to its payment obligations, was now threatening to do what it could to block a decision to drill a well and thereby to bring the whole Area 4 project to a rapid end. In such circumstances I do not find it surprising, once that threat had been made, that Dr Higgs did not mention the results of the work done by ERC Equipoise during this telephone call. In any event, the natural forum for a full discussion of this work would have been the OpCom meeting which was foreshadowed earlier in the call. There was, moreover, no question of any attempt to keep secret the fact that positive economic results were being received. The Stellar bulletin said precisely that, referring to "very positive economics".
155. I have already rejected the suggestion that Dr Higgs did not mention the deeper Jurassic leads (see [91] above). Similarly, the OpCom presentation of 19 July 2012 did refer to the existence of leads at the Jurassic level, making clear however that these were leads and not prospects.
156. It is true that Dr Higgs did not mention the negotiations with Genel by name or even the fact that MOG was in negotiations with a potential farminee. That is not in the least surprising. Such information would have been regarded as highly confidential and MOG was under no duty to disclose it. The fact that Dr Higgs did not do so does not give rise to any inference that what he did say, namely that a data room was about to be opened in London, was intended to mislead.
157. Thus, of the various matters which, according to LGO, Dr Higgs failed to mention during the telephone call itself, concealment of which is relied on as showing his intention to mislead, the only matters not in fact mentioned were the ERC Equipoise "positive economics" and the Genel approach itself. For the reasons which I have given, the fact that Dr Higgs did not mention either of these things gives no support to LGO's case.
158. The position after the telephone call is materially different. Here I would accept that the 19 July 2012 OpCom presentation was less forthcoming than might have been expected. Although it included some references to the work done by ERC Equipoise, it did not include any of the detailed figures contained in the latter's report. Dr Higgs and Dr Morandi suggested that these figures and the positive economics which they revealed would have been explained at the meeting scheduled for 27 July. Perhaps they would have been: the presentation refers to case studies which had been developed which would no doubt have been discussed. However, it seems to me unrealistic for MOG to have expected that an important economic decision (whether or not to drill a well) could sensibly be made by LGO at that meeting without a prior opportunity to study the figures on which that decision would be based. Just as MOG's own decision to commit to a well had in part at least been based upon the ERC Equipoise figures, it would have been reasonable for LGO, if it were being asked to make such a decision, to be provided with those figures in advance of the meeting.
159. I do not think that the evidence would justify a finding that Dr Lipparini (who prepared the OpCom presentation but did not give evidence) was deliberately suppressing important and positive information from LGO or that, even if he were, Dr Higgs was privy to any such decision to do so. If MOG had wanted to conceal information, it could have served a notice of default, in which case LGO would have lost the right to receive any information until it remedied the default by paying the outstanding sums. But in any event, a conclusion that MOG was suppressing such information in the 19 July 2012 presentation would not mean that Dr Higgs was being deliberately misleading in what he said about the data room in the 10 July conversation. That is because of the significant change in the parties' relationship as a result of Mr Ritson's threat at the end of the 10 July conversation to vote against a well. That threat put an end to whatever trust remained between the parties. As Dr Higgs commented in an internal email on 12 July 2012 when canvassing views whether to agree not to serve a default notice:

"… it seems that [a default notice] does not have much value now. Although I don't trust them."

160. As it happens Dr Higgs was right not to trust LGO to stick to the agreement in principle which had been reached for the sale of its interest to MOG. It is common ground that LGO was not legally committed. It did not regard itself as morally committed either. Mr Lenigas had already observed in an internal email to Mr Ritson that:

"We can still dump the deal next week."

161. MOG was well aware of the risk that LGO might seek to "dump the deal", using whatever leverage it had (or thought that it had) to extract better terms. That risk fully explains any caginess or lack of openness towards LGO after Mr Ritson's threat to block a well towards the end of the 10 July 2012 telephone conversation. Nothing in (or missing from) the OpCom presentation would justify (or even support) a conclusion that Dr Higgs' statement about the data room at an earlier stage of the 10 July conversation was intended to mislead.
162. For the same reason MOG's desire to ensure that LGO did not find out about the potential Genel deal after the 10 July 2012 call is fully explained not only by the commercial confidentiality of those negotiations but also by the obvious risk that LGO was likely to use that information in order to seek to extract better terms for its exit than those agreed in principle on 12 July. But that does not mean that Dr Higgs was dishonest in what he said on 10 July.
163. For all these reasons I conclude that he was not. That conclusion means that LGO's claim must fail. I go on, however, to consider the remaining issues.

DID MR RITSON UNDERSTAND THAT SUCH A REPRESENTATION WAS BEING MADE?

164. Even if Dr Higgs had dishonestly intended to lead Mr Ritson to believe that the farm-out process had not begun in earnest or that there had been no serious negotiations, LGO must prove that Mr Ritson did understand that this was what he was being told. Although Mr Ritson's evidence was that he did understand this, and I accept that this is now his genuine belief, I do not accept that this was his understanding at the time. My reasons are as follows.
165. First, I have found that Dr Higgs' statement that MOG was about to open a data room in London would not have been understood by a reasonable person in Mr Ritson's position as meaning that MOG was not currently engaged in negotiations with a potential farminee (see [149] above). There is no reason why Mr Ritson should have had any different understanding.
166. Second, there is no trace in any of Mr Ritson's contemporary reports of the conversation of anything to suggest that he did in fact understand Dr Higgs as making any such statement. Instead the impact which Dr Higgs' statement actually made on him was that it was unfair that information would be available in a data room to potential farminees which had not yet been shared with LGO (see [88] above).
167. Third, if he had understood that Dr Higgs was or even might be making any such statement, I can see no reason why he would not have asked Dr Higgs what the position was and, specifically, how MOG could have decided to commit to drilling a well if it was right at the beginning of the farm-out process the success of which Dr Higgs had already said would be vital. This suggests that either Mr Ritson did not have any such understanding or that the matter was not important to him as, once the hope of a Cretaceous prospect was crushed, he lost further interest in the venture.
168. Fourth, far from concluding that MOG was not in negotiations with any potential farminee, Mr Ritson's evidence in cross examination was that he was sure that MOG was having discussions with potential farminees ("I am sure there were discussions. There should have been discussions …"). His attempt to explain this by drawing a distinction between discussions and negotiations struck me as highly artificial. While it is possible that discussions could take place and probably would take place before the stage was reached of an offer being made, there is no basis for thinking that the distinction between discussions and negotiations (defined by Mr Ritson as meaning that serious offers were being made and considered) was present to his mind at the time.
169. Finally, it is of some significance that the implied statement now relied upon is not the misrepresentation on which LGO first founded its complaint. Rather its initial complaint was that it had been misled about the existence of a Cretaceous prospect, and it took LGO a while to formulate the case which is now being advanced. Although I would not regard this as decisive, it is nevertheless a factor.
170. I would add that Mr Ritson may have believed in July 2012 that MOG was not in serious negotiations with a potential farminee. Certainly his view was that "the farm-out may well fail" (see [105] and [106] above). But that belief was based upon his own assessment of the situation once he was told that the new data had not revealed the existence of any Cretaceous prospect.

DID THE REPRESENTATION CAUSE LGO TO AGREE TO SELL ITS INTEREST ON THE TERMS AGREED?

171. If (contrary to the conclusions reached so far) Dr Higgs did intend to convey that the farm-out process had not begun in earnest or that MOG was not in negotiations (or serious negotiations) with any potential farminee and if that is what Mr Ritson understood him to be saying, the question arises whether LGO was induced by that misrepresentation to sell its interest to MOG on the terms of the agreement in fact concluded between MOG and LGO. On that question the burden is on MOG to prove that LGO would have entered into the same agreement even if the representation had not been made (see [17] to [19] above).
172. While it is not attractive, and will generally be unconvincing, for a fraudster (which for the purpose of this issue MOG must be taken to be) to assert that its fraud, which it may have gone to some lengths to perpetrate, has actually made no difference, on the facts of this case I consider that MOG has discharged that burden. I do not accept Mr Ritson's evidence that, if Dr Higgs had not told him about the new data room, he would himself have asked about the progress of the farm-out. That is necessarily a hypothetical question (what would have happened if …?) and as already noted, for example at [27] above, I do not regard Mr Ritson's evidence about his state of mind during the 10 July 2012 telephone conversation as reliable. I think it probable that, if Dr Higgs had not volunteered what he said about the data room, the topic would not have been mentioned at all.
173. In any event, even in response to a direct question if one had been asked, the likelihood (as already indicated) is that Dr Higgs would have said something non-committal and that Mr Ritson would have left the matter there. Dr Higgs would not have been obliged to say anything more and would not have done so. There is in my judgment no possibility that Dr Higgs would have told Mr Ritson the identity of Genel or anything about the terms which were under discussion with Genel. It is therefore unnecessary to consider further what LGO would have done if it had known about these matters or whether that is a permissible consideration (see [20] and [21] above).
174. My conclusion that Mr Ritson would not have asked about the farm-out if Dr Higgs had not mentioned the data room is supported by the fact that even though the agreement in principle reached on 12 July 2012 did not become legally binding until 31 July (see [125] above) and even though LGO would have been perfectly willing to "dump the deal" if it thought that it could get better terms (see [160] above), LGO never asked MOG anything about the farm-out process in the period between the telephone conversation on 10 July and the final execution of the agreement on 31 July. At most, however, any representation which Mr Ritson might have understood Dr Higgs to be making related only to the position as it stood on 10 July. It was perfectly possible that in the intervening three weeks that position might have changed materially. Within that time the London data room would have been opened and potential farminees would have been able to view the data which it contained. It was possible that potential farminees might within that time have entered into serious negotiations with MOG, including the making of offers. If the absence of such negotiations (as, for this purpose, MOG must be assumed to have represented the position to be as at 10 July) had been a material consideration for LGO in concluding the agreement in principle on 12 July 2012, it is surprising that LGO never asked for an update on the information which it had been given. The fact that it did not undermines Mr Ritson's evidence that, but for Dr Higgs' statement, he would have asked about the position and is also an important factor leading to the conclusion that the alleged representation played no part in LGO's decision as to the terms on which it would sell its 10% interest to MOG. LGO formed its own view that a successful farm-out was unlikely and saw no need to ask about this.
175. In fact LGO was extremely keen to sell its interest and had been for a long time. Mr Ritson had been hoping for an approach from MOG and interpreted the telephone conversation, mistakenly as I have found, as having been set up for that purpose. He had made clear, both to MOG and in public statements, that LGO's interest in Area 4 was for sale as being a "non-core" or "non-strategic" interest, and he had told his board as long ago as November 2011 that no further capital should be injected into Malta and that LGO's interest should be sold, if necessary for only US $1 and a release from liabilities (see [44] above). Nothing had happened since to cause a change in that strategy and for Mr Ritson the strategy was emphatically vindicated by the information provided by Dr Higgs in the 10 July 2012 telephone conversation that the new data showed that there was no Cretaceous prospect. That had been, so far as he was concerned, effectively his last hope. As he put it immediately after the conversation, "we just need to get out. We don't want to use any more cash on this and the prospectivity doesn't now merit proceeding" (see [101] above).
176. However, LGO had so far failed completely to find a buyer for its interest. The only possible candidate had been Zeus, but the discussions with Zeus had lapsed, principally because of Zeus' insistence that it would only proceed further if the Maltese Government agreed to extend the January 2013 drilling deadline (see [54] above). However, the Government had not been prepared to do so unconditionally and the conditions contained in the comfort letter were conditions which, so far at any rate, had not been met.
177. If LGO had failed to find a buyer in the past, Mr Ritson saw no hope of attracting a buyer now that the absence of a Cretaceous prospect had been confirmed. Accordingly LGO's only hope of a sale was to sell its interest to MOG, but it remained his view that LGO should take whatever terms it could get.
178. That was so despite the fact that, as I have found, Mr Ritson was given two important pieces of information which on their face appeared to indicate good news during the 10 July 2012 telephone conversation. The first was that MOG had decided to commit to drilling a well. As indicated at [153] above, that did at least indicate that MOG regarded it as economic to do so and implied a degree of confidence in MOG's ability to conclude a successful farm-out. The second was that the Maltese Government had now given a comfort letter, a matter about which LGO had been asking for some time. But neither of these pieces of information deflected Mr Ritson from his determination "to get out". Indeed the very fact that MOG was prepared to acquire LGO's 10% interest might have told Mr Ritson something, if only that MOG was sufficiently encouraged to take on the risk of being required to fund an additional 10% of the cost of drilling a well or alternatively to pay an additional US $500,000 of the non-drilling penalty. I think it highly unlikely in these circumstances that LGO's position would have been any different if the new data room had not been mentioned.
179. A further crucial consideration is that LGO did not have the luxury of time to wait and see how matters developed or the cash available which it needed "to stay in the game" (see [114] and [115] above). Mr Ritson acknowledged in cross examination, as well as in his contemporary internal e-mails, that LGO did not have the US $125,000 available which it would have needed in order to remedy its default. He maintained, however, that LGO would have been able, if it had needed to, to raise the funds to pay off the outstanding calls and even to pay its share of the cost of funding a well. I regard this as rather unlikely in circumstances where LGO's cash flow was so tight that Mr Ritson's salary had been unpaid for almost a year.
180. However, even if LGO would have been able to raise the necessary funds, it is unlikely in the extreme that it would have been willing to do so in order to put money into a non-core asset. If it had used up whatever ability it had to raise finance in order to put money into Area 4, that would have at the very least detracted from its ability to finance its ongoing operations in its core areas of business. Even if, hypothetically, LGO had known about Genel's interest, there was no concluded farm-out agreement until late August. LGO had to make its decision before then, first to pay the outstanding invoices and then to decide how to vote at the July OpCom. The idea that LGO would have chosen to commit funds in order to stay in Area 4 merely because of the possibility (or even the reasonably strong possibility) of MOG concluding a farm-out agreement with Genel seems far fetched.
181. Thus while I accept that Dr Higgs and Dr Morandi were right to be concerned that if LGO found out about the negotiations with Genel it would seek to use that knowledge as leverage in order to extract better terms for the sale of its 10% interest, that is very different from saying that if Dr Higgs had not made the representation alleged during the 10 July 2012 telephone conversation, LGO would not have agreed to sell its interest on the terms which it did. I conclude that it would have done so.

DISPOSAL

182. For the reasons which I have given, MOG neither made nor intended to make the implied representation on which LGO's case is founded and LGO did not understand it to have done so. Even if it had, that representation did not cause LGO to sell its interest to MOG and LGO has therefore suffered no loss. Accordingly LGO's claim is dismissed and there will be judgment for MOG.
183. To borrow the oil industry terminology explained above, it may have seemed to LGO that the prospectivity for these proceedings and the amount at stake were such that the economics of this litigation were positive. However, litigation like the oil business is a high risk activity and LGO has failed to strike oil.