New Standard Energy PEL 570 Pty Ltd v Outback Energy Hunter Pty Ltd - [2019] SASCFC 132

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
NEW STANDARD ENERGY PEL 570 PTY LTD & ANOR v OUTBACK ENERGY HUNTER PTY LTD & ANOR
[2019] SASCFC 132
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Nicholson and The Honourable Justice Lovell)
31 October 2019
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
The appeal concerns a joint venture between Outback Energy Hunter Pty Ltd (Outback) and New Standard Energy PEL 570 Pty Ltd (NSE). Outback is a wholly owned subsidiary of Santos QNT Pty Ltd (Santos). NSE is a wholly owned subsidiary of Sundance Energy Australia Ltd (Sundance). At all material times all four were parties to an Implementation Agreement with Santos and Sundance in the capacity as guarantor of their respective subsidiaries. Sundance wished to transfer its shareholding in NSE to the Quintanilla group of companies as part of a suite of asset sale and purchase transactions.
Clause 7 of the Implementation Agreement requires that a party must not, without the prior written consent of the other party, permit a change in control of that party to occur. The same clause also provides that, subject to certain consent parameters, such consent will not be unreasonably withheld. Ultimately, consent to the transfer of Sundance’s shareholding in NSE was not forthcoming.
The trial Judge found that: the obligation in clause 7 not to unreasonably withhold consent is promissory rather than only in the nature of a proviso; that clause 7 was to be supplemented with an implied term as to cooperation with respect to the process of obtaining and giving consent; that the promise not to unreasonably withhold consent was owed by Santos and Outback to Sundance and not just to NSE; that the preconditions to be satisfied to enliven the obligation not to unreasonably withhold consent had or would have been satisfied; but that, in any event, Santos and Outback had not breached the obligation not to unreasonably withhold consent. The Judge also found that losses, as claimed by Sundance, had not been established. The Judge dismissed Sundance's and NSE's claim.
All of these issues were re-agitated on appeal, having been raised by the appellants’ second notice of appeal and the respondents’ second notice of alternative contentions.
Held by Nicholson J (Kourakis CJ and Lovell J agreeing) dismissing the appeal:
1.       Clause 7 is not promissory in the material respect. Ground 1 of the respondents’ second notice of alternative contentions is upheld and this is sufficient to dispose of the appeal.
2.       No term requiring cooperation is to be implied.
3.       In any event, the Judge was correct to find that Santos and Outback had not breached any obligation not to unreasonably withhold consent.
4.       In the circumstances, it is unnecessary to consider the causation and assessment of loss grounds.
Held by Kourakis CJ:
5.       If the obligation not to unreasonably withhold consent were to be promissory, the obligation falls on the parent company, in this case, Santos, for the benefit of Sundance.
Held by Nicholson J (Lovell J agreeing):
6.       In the circumstances of this matter, any promissory obligation not to unreasonably withhold consent would have been owed to NSE but not to Sundance.
Ideal Film Renting Company Ltd v Nielsen [1921] 1 Ch 575, distinguished.
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Treloar v Bigge (1874) LR 9 Exch 151; Sear v House Property & Investment Society (1880) 16 Ch D 387; Harvey v Walker (1945) 46 SR (NSW) 180; Yared v Spier [1979] 2 NSWLR 291; Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385; Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534; St Barbara Ltd v Hockley (No 2) [2013] WASC 358; EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd (2010) 41 WAR 23, discussed.
Pryors Tours Pty Ltd v Minister for Transport [2003] WASCA 129; Scarcella v Linknarf Management Services Pty Ltd (in liq) [2004] NSWSC 360; Maclag (No 11) Pty Ltd v Chantay Too Pty Ltd [2010] QSC 299; Warren v Lawton (No 3) [2016] WASC 285; Skiwing Pty Ltd v Trust Company of Australia [2006] NSWCA 276; Butt v M’Donald (1896) 7 QLJ 68; Secured Income Real Estate (Aust) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 597; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, considered.

NEW STANDARD ENERGY PEL 570 PTY LTD & ANOR v OUTBACK ENERGY HUNTER PTY LTD & ANOR
[2019] SASCFC 132
Full Court: Kourakis CJ, Nicholson and Lovell JJ

KOURAKIS CJ: I would dismiss the appeal by New Standard Energy PEL 570 Pty Ltd (NSE) and Sundance Energy Australia Ltd (Sundance) for the reasons, save in one respect, given by Nicholson J and the following brief additional reasons.
In construing cl 7.2 of the Implementation Agreement dated 10 November 2014, I place very little weight on the drafting device of expressing the proviso in a separate clause. It was convenient to do so because the consenting party’s otherwise unfettered discretion to refuse consent pursuant to cl 7.1 is qualified only when the preconditions, described as ‘parameters’, of financial and technical capabilities are objectively met. It would have been difficult to incorporate that conditional proviso in cl 7.1. Of greater importance than the arrangement of the text is the text itself. The use of the passive voice contraindicates a construction in which the proviso operates as an active promise.
Nor is there any business efficacy in the construction propounded by the appellants. A transfer by NSE of its interest in Petroleum Exploration Licence 570 (PEL 570), or a change in control of NSE, does relieve Sundance of its warranty, under the Assignment, Assumption and Consent–Implementation Agreement dated 10 August 2015 (Tripartite Agreement), that NSE would continue to have the financial and technical capabilities to perform under the Implementation Agreement. Sundance could, therefore, have proceeded to assign its shares in NSE to the Quintanilla Group (Quintanilla) on the basis that Quintanilla would, in addition to providing any other consideration, indemnify it for any liability it incurred under the Implementation Agreement. If Santos QNT Pty Ltd (Santos) were to seek to enjoin the assignment, or to seek damages for breach of cl 7.1, after it was effected, the dispute would be resolved by a finding, one way or another, on the transferee’s financial and technical capabilities. A claim by Sundance for a declaration that it had validly assigned the transferred interest, and therefore was no longer bound by the Tripartite Agreement, would also be determined by the same factual enquiry. In that way, cl 7.2 has a reasonably confined and certain operation which protects the respective interests of Santos and Sundance in the transferability of their proprietary interests, through their wholly owned subsidiaries, in PEL 570. The mischief against which the proviso protects is the ‘locking in’ of the respective parties’ investment in PEL 570. Clause 7.2 protects the right to dispose of and liquidate the joint venturers’ respective interests in the exploitation of PEL 570 when the preconditions are met. It is a fundamentally important right in commercial investments of this kind.
On the other hand, a construction which gives cl 7.2 a promissory construction imposes an obligation of uncertain content on each party to facilitate the commercial dealings of the other, breach of which might expose the wrongdoer to extensive damages depending on the value, which may far exceed the value of the interest in PEL 570, of the other elements of that transaction.
The facts and issues in this case illustrate just how problematic such a construction is:
·Which standard of timeliness will the law apply in these circumstances?
·How is the law to take into account the constraints operating on the consenting party such as its own commercial difficulties or pre‑occupation?
·How are questions of the natural consequences of breach and remoteness to be taken into account in assessing damages?
·How are damages to be assessed when the value of assets is volatile?
The constructional choice, therefore, is between an operation of cl 7.2 which allows the parties to assign their interests in PEL 570, or assign their shares in the subsidiaries if the financial and technical capabilities necessary to perform the Implementation Agreement is assured, and one, which does that, but also exposes them to commercial and legal uncertainty and a substantial award of damages for loss to the other’s business if they do not prioritise the giving of consent or if their withholding of consent falls on the wrong side of the line drawn by cl 7.2. The reasonable observer would conclude that the parties did not intend the latter.
However, if contrary to my conclusion on a proper construction of cl 7.2 it is promissory, I would hold that the promisors are the joint venturers, and their parent companies, and that the promises are not to unreasonably withhold consent to the assignment or encumbering of a joint venturer’s interest in the exploitation of PEL 570, and to a change of control of a joint venturer respectively. The promise does not extend to a change in control of the parent company, again, because the mischief addressed by cl 7.2 is the arbitrary restriction on the parent company’s right to divest itself of its interest in the exploitation of PEL 570. It can be expected, as the facts of this case show, that the parent company will have a range of valuable assets held directly or through subsidiary companies. It would be surprising therefore if arrangements of this kind made in respect of any one or more of those assets were intended to restrict the trading of shares in the parent company.
It is convenient to start with cl 7.1(a). The ‘Party’ bound by the obligation not to assign or otherwise deal with an interest in the exploitation of PEL 570 is most naturally read to be each of the joint venturers who hold the respective interests in PEL 570. Only the joint venturers could be liable under cl 7.1 for damages for breach if they assign without consent, but Santos and Sundance are, in any event, guarantors of their obligations. Clause 7.1(a), however, is silent as to the party from whom consent must be obtained. That omission is understandable because the parent company and the joint venturer are unlikely to differ on whether or not to consent and the omission is therefore not practically important.
Clause 7.1(b) is more difficult to construe because of a drafting solecism. The object of the subclause is ‘that Party’, which must be the joint venturer subsidiary bound by subparagraph (a). But if the joint venturer is the predicate, subparagraph (b) is left without a subject. I acknowledge the force of the construction given to the subclause by Nicholson J, but I do not accept that the parties used such strained language to express an agreement that the respective joint venturers would suffer a change in control of themselves. An obligation so expressed and limited is not adapted to achieve this purpose because control in each joint venturer is held by their respective parent companies and only they could permit or forbid a change in control.
I would construe cl 7.1(b) on the premise that the drafter’s attempt at brevity has resulted in an elliptically expressed obligation. The intention of the parties was to impose on the parent company the obligation, in subparagraph (b), not to permit a change of control of its joint venturer, because it is the joint venturer which holds the exploitation interest in PEL 570, and is prohibited by subparagraph (a) from assigning or otherwise dealing with it.
Once corrected for that grammatical slip, the use of capitalisation is mostly consistent with cl 7 operating to control transactions which either directly impact on the respective interests held under the Implementation Agreement and in PEL 570 by transferring or encumbering them or, indirectly do so, by effecting a change in the control of the joint venturer.
Clause 7.2 operates on the party whose consent is required but, it too, is afflicted by a solecism. First, the introductory words should read ‘the consent required by a party under cl 7.1’ and not ‘of a Party’ because the consent cannot be demanded. It is required by the party who wishes to assign an interest or permit a change in control and the party requested has a discretion whether or not to provide it.
Secondly, subparagraph (a) of cl 7.2, like subparagraph (a) of cl 7.1, is silent as to which party must not unreasonably withhold consent. Again, the omission is not of any practical importance. If it is the joint venturer alone, the parent company will be liable for its breach. However, because the prohibition in subparagraph (a) of cl 7.1 is imposed on the joint venturer, the promise made by cl 7.2(a) must be to the joint venturer which requires consent to dispose of its interest in PEL 570. The damages in the event of breach will generally be for the lost commercial opportunity to sell.
The ‘Party’ in cl 7.2(b) refers to each of the joint venturers which are required to have the same ‘financial and technical capabilities’ after the change in control as they did before it, just as the transferee or acquirer of an exploitation interest in PEL 570 must have the same capabilities. Again, cl 7.2(b) is silent on which party must not unreasonably withhold consent. It also fails to identify the party to whom the promise is owed. However, once again, the more obvious construction to draw is that it is owed to the party who requires consent, which for the reasons given above, in cl 7.1(b), is the parent. The damages will generally be for the lost commercial opportunity of the parent to sell the shares in the joint venture. It is not so obvious what the damages to the joint venturer would be if the promise were owed to it alone. It may be a loss of the additional working capital, but the provision of sufficient capital to exploit PEL 570 is guaranteed under the Implementation Agreement.
Accordingly, I would hold that if cl 7.2(b) is promissory, the obligation not to unreasonably withhold consent falls on the parent company, in this case Santos, for the benefit of Sundance.
NICHOLSON J.
Introduction
The proceedings the subject of this appeal concern a joint venture between Outback Energy Hunter Pty Ltd (Outback) and New Standard Energy PEL 570 Pty Ltd (NSE). Outback is a wholly owned subsidiary of Santos QNT Pty Ltd (Santos Queensland). NSE is a wholly owned subsidiary of Sundance Energy Australia Ltd (Sundance). NSE and Sundance (the Sundance parties) are the first and second appellants respectively. Outback and Santos Queensland (the Santos parties) are the first and second respondents respectively.
The matter came before a Judge of this Court for trial in the form of an action by Outback against NSE and Sundance, a cross-action by NSE and Sundance against Outback and a third party action by NSE and Sundance against Santos Queensland. The primary action was a contractual claim for payment of contributions to exploration expenditure incurred by Outback and said to be due pursuant to an agreement between the parties known throughout as the Implementation Agreement. The appellants, by their cross-action against Outback and third party action against Santos Queensland, sought injunctive relief and damages for breach by the Santos parties of the Implementation Agreement said to have been committed in the circumstances of their failure to give consent to a proposed change by Sundance in its control of NSE.
Petroleum Exploration Licence 570 (the Permit) confers exploration rights over three areas in the Moomba gas fields. Outback holds a 35 per cent interest in the Permit. NSE holds a 17.5 per cent interest. The remaining 47.5 per cent interest is held by Ambassador Exploration Pty Ltd (Ambassador). Ambassador was the entity to whom the Permit was initially granted on 5 September 2011.
In October 2014, the Implementation Agreement was executed. It had four parties: Outback, Santos Queensland as guarantor of Outback’s obligations, NSE and New Standard Energy Ltd (New Standard) as guarantor of NSE’s obligations. The express contractual rights which are the subject of the dispute are contained within the Implementation Agreement.
In August 2015, following a share transfer between New Standard and Sundance and consented to by the Santos parties, NSE became a wholly owned subsidiary of Sundance. Also in August 2015, New Standard, with the consent of Outback and Santos Queensland, assigned New Standard’s rights and obligations under the Implementation Agreement to Sundance. This was effected by the Assignment, Assumption and Consent – Implementation Agreement dated 10 August 2015 (the Tripartite Agreement). By the Tripartite Agreement, Sundance effectively became a party to the Implementation Agreement, in lieu of New Standard, as guarantor of NSE’s obligations.
The dispute arose in October 2015 when Sundance sought to sell its shares in NSE to QMC Australia Pty Ltd (QMC Australia). QMC Australia was part of a group referred to at trial as the Quintanilla Group (Quintanilla). The Judge found that, in the days leading up to 3 October 2015, the respective Chief Executive Officers of Sundance and Quintanilla had reached an agreement in principle for the sale of the shares in NSE to Quintanilla for US$8 million as part of a suite of asset sale and purchase transactions involving, inter alia, Texan oil and gas assets held by Quintanilla (in globo, the “Quintanilla Transaction”).
Clause 7 of the Implementation Agreement obliged the Sundance parties to obtain the consent of the Santos parties to this share sale. Clause 7 also provides that, subject to certain consent parameters, any such consent would not be unreasonably withheld. NSE and Sundance in their cross-action and third party action contended at trial that the clause 7 requirement for consent not to be unreasonably withheld was promissory and that Outback and Santos Queensland had breached clause 7 by unreasonably withholding their consent. They also asserted the existence of and failure to comply with an implied contractual duty to cooperate in what they maintain was the procedure necessary to enable such consent to be obtained.
The claim by Outback against NSE for contributions to exploration expenditure, as originally formulated, was dismissed by the Judge[1] and Outback has not challenged this finding. However, Outback was given permission late in the trial to amend its statement of claim to raise an alternative basis for relief. This basis succeeded[2] and this finding by the Judge has not been challenged by NSE. However, the quantum of Outback’s reformulated claim was, by consent, not determined. Thus, the grounds of appeal and the Santos parties’ alternative contentions concern only the Judge’s dismissal of the Sundance parties’ cross-action and third party action and matters consequential.
[1] Outback Energy Hunter Pty Ltd v New Standard Energy PEL 570 Pty Ltd [2018] SASC 8 (“Trial Reasons”) at [307].
[2] Trial Reasons at [339]-[341].

For the reasons that follow, I would dismiss the appeal and confirm the Judge’s dismissal of the cross-action and third party action. The Sundance parties’ ground of appeal concerning liability has not been made out. In addition, I would uphold a number of the Santos parties’ alternative contentions.
Further background
The evolution of the relationship between the previous and present parties to the Implementation Agreement, over time, is characterised by a level of complexity. However, the Santos parties, in their written submissions in support of their second notice of alternative contentions, have provided the following summary, sufficient for the purposes of the appeal.
This appeal concerns the rights and duties owed inter se by Outback, Santos Queensland, NSE and Sundance pursuant to a series of contractual agreements entered into by these four parties. These rights and obligations flow out of a joint venture originally between Ambassador Exploration Pty Ltd (Ambassador) and Outback, in relation to a petroleum exploration licence in outback South Australia described as PEL 570 (PEL 570).
On 5 September 2011, PEL 570 was granted to Ambassador for a term of 5 years. Ambassador was initially the sole legal and beneficial owner of PEL 570. On 6 December 2013, Outback and Ambassador entered into a Farm-in Agreement (Farm-in Agreement), pursuant to which:
Outback became the holder of the “Farmin Interest”, being a 52.5% “Participating Interest” in PEL 570; and
in consideration of the assignment of the Farmin Interest, Outback agreed to carry out, at no cost to Ambassador, all of the “Permit Operations” in respect of PEL 570, up to a maximum amount of $42.5 million.
Completion of the Farm-in Agreement, in the sense of the transfer of the 52.5% “Participating Interest” to Outback, occurred in February 2014. Outback had not relevantly expended the $42.5 million.
By deed dated 24 September 2014 and headed “Deed of Assignment and Assumption” Outback assigned the “Assigned Interest”, being a 17.5% interest in PEL 570 to NSE (NSE Assignment Agreement), with NSE agreeing to fund 25% of the “Earn-in Obligation” under the Farm-in Agreement (25% of the $42.5 million). Outback retained a 35% interest in PEL 570. At this point in time both Outback and NSE were wholly owned subsidiaries of New Standard, and it was a transaction entered in contemplation of the acquisition of the issued capital in Outback by a Santos Limited subsidiary.
Pursuant to a Share Sale Agreement dated 22 October 2014 (Share Sale Agreement), Santos Queensland acquired all of the issued shares of Outback from New Standard for $7.5m. Accordingly, Outback became a wholly owned subsidiary of Santos Queensland. NSE was also a party to this agreement.
Outback, NSE, New Standard and Santos Queensland entered the Implementation Agreement on or around 10 November 2014. Pursuant to the Implementation Agreement, NSE agreed to fund 25% of Outback’s remaining obligations under the Farm-in Agreement in respect of PEL 570 (the “Remaining Costs” to satisfy the “Earn-in Obligation” under the Farm-in Agreement were AUD$42,191,134). That 25% share was in order of AUD$10.5 million.
Subsequently, by a Share and Asset Sale Agreement dated 26 June 2015, Sundance acquired all of the issued shares in NSE from New Standard. The transactions contemplated by that Share and Asset Sale Agreement completed on 10 August 2015. NSE then became a wholly owned subsidiary of Sundance.
Pursuant to an Assignment, Assumption and Consent Agreement dated 10 August 2015 (Tripartite Agreement), Outback and Santos Queensland consented to Sundance acquiring all of the shares in NSE (clause 2.1), and Sundance both covenanted and warranted that NSE would continue to have the financial and technical capabilities to perform under the Implementation Agreement (clause 2.2(a)) and itself guaranteed all of NSE’s obligations under the Implementation Agreement (clauses 3(a) and (c)).
These transactions all pre-dated the proposed transaction between Sundance and the Quintanilla Group that founds the appellants’ claim for an alleged breach by Outback of the Implementation Agreement.
(Footnotes omitted)
Proposed transactions between Sundance and Quintanilla
Negotiations between Sundance and Quintanilla for entry into the Quintanilla Transaction commenced in or about July 2015. A component of this complex interconnected set of proposed transactions was the proposed transfer by Sundance of its shareholding in NSE to Quintanilla for US$8 million. A detailed chronology of these negotiations is set out in the Judge’s reasons.[3] His Honour made the following finding[4] that is not disputed.
From no later than 1 September 2015 onwards, Sundance and Quintanilla always negotiated on the basis that there would be a single composite transaction (the Quintanilla transaction) comprising multiple components, namely:
•    the EFSE purchase;
•    the NSE sale;
•    the New Standard US assets sale;
•    the Charlotte ranch sale; and
•    the Elixir shares sale.
The parties did not contemplate proceeding with one component (or more than one of the components) of the Quintanilla transaction unless all components proceeded.
The “EFSE purchase” was a reference to a suite of mining and exploration assets to be acquired by Sundance. The other components of the Quintanilla Transaction, including the “NSE sale” (Sundance’s shareholding in NSE) comprised assets to be acquired by Quintanilla. During the period 2 to 6 October 2015, email correspondence between representatives of Sundance and Quintanilla recorded an agreed (proposed) transaction summary.[5]
[3]    Trial Reasons at [121]-[140], [153]-[172] and [181]-[210].
[4] Trial Reasons at [134].
[5]    Trial Reasons at [137]-[139].
Dealings between Sundance and the Santos parties concerning the consent issue
The Judge provided the following summary, which is not challenged, of communications between representatives of the Sundance parties and the Santos parties, relevant to the consent issue, and which took place between 7 October and 15 October 2015 after Sundance and Quintanilla had reached their agreement in principle.[6] I have retained the Judge’s paragraph numbering in order to facilitate later reference and I have, on occasions, included in brackets after a name the party or organisation represented by the person making the communication or performing the action, for added clarity.
[6]    Trial Reasons at [141]-[152].
141On 7 October 2015 (South Australian time) Mr Hunter [Sundance] and Mr Schreiner[7] [Sundance] telephoned Santos and asked to speak to Mr Solomon[8] [Santos]. They were told that Mr Solomon was busy with travel and other projects and were put through to his administrative assistant Maxine Green. Mr Hunter said that he and Mr Schreiner represented Sundance, which had recently acquired NSE which had an interest in a joint venture with Santos. He said that Sundance was negotiating to sell NSE to Quintanilla, a privately held US company. He said that he was phoning to request Santos’ consent to the transfer as a matter of priority. Ms Green said that Mr Hunter would need to speak to Mr Solomon to further progress securing Santos’ consent.
[7]    Mr Hunter and Mr Schreiner were US attorneys engaged by Sundance.
[8]    Mr Solomon was a Senior Manager in Santos Limited.
142On 7 October 2015 Mr Schreiner [Sundance] sent an email to Mr Solomon [Santos] and Ms Green as follows:
Further to our conversation with Maxine today, this will confirm that Sundance Energy Australia Ltd has negotiated a transaction whereby it is intending to sell New Standard Energy PEL 570 Pty Ltd, which it recently acquired from New Standard Energy Ltd, to QMC Australia Ltd Pty Ltd.
As we discussed with Maxine, Sundance would like to proceed as a matter of priority with Santos consent to this transaction. We were involved with the negotiation of the recent Assignment, Assumption and Consent – Implementation Agreement and are preparing a parallel agreement contemplating this transaction. We would like to discuss both the preparation of that agreement and any other necessary requirements that Santos may have in order to facilitate this agreement with you.
Also as we discussed with Maxine, we will try to call you again tomorrow at the same time in order to discuss this in further detail.
143On 7 October 2015 Mr Solomon [Santos] forwarded the email internally to Mr Hughes[9] [Santos] inquiring who could offer legal support to the request. Mr Hughes replied that he assumed that Sundance would prepare all relevant documentation and, if Santos consented, Santos could vet the documentation which presumably would simply be a consent from Santos and then signing the deed of Assumption and Assignment in due course. He said that there should not be much legal support required and he would probably ask Ms Senneck[10] [Santos] to assist. Mr Hughes copied the email exchange to Ms Senneck.
[9]    Santos Limited’s Legal Manager for Eastern Australia.
[10] A corporate lawyer within Santos Limited’s Eastern Australia Business Unit.
144On 8 October 2015 Mr Hunter [Sundance] and Mr Schreiner [Sundance] telephoned Santos and asked to speak to Mr Solomon. Mr Hunter left a message on Mr Solomon’s voicemail asking him to return his call.
145On 8 October 2015 Mr Schreiner [Sundance] sent an email to Mr Solomon [Santos] and Ms Green as follows:
Further to Kip’s voicemail, would it be possible to set up a time to speak with you sometime soon?
We are available the same time tomorrow and throughout your day. Also, if you are free today, Kip will be available through his evening. You can reach him at [phone number].
Kip was just hoping to go over the Assumption Agreement and Santos’ Consent. If you let me know a time that works for you I would be happy to set up a conference call.
146On 8 October 2015 Mr Solomon [Santos] forwarded the email internally to Mr Greenstreet[11] [Santos] inquiring who did his commercial work for the Permit and Mr Greenstreet responded that Mr Patil[12] [Santos] and Mr Wilton[13] [Santos] were his commercial support for this asset.
[11] A General Manager within Santos Limited’s Eastern Australia Business Unit.
[12] A Commercial Adviser in Santos Limited’s Eastern Australia Business Unit.
[13] An Economics Manager for Santos Limited.
147On 9 October 2015 Mr Solomon [Santos] sent an email to Mr West[14] [Quintanilla] letting him know that attorneys had been in contact re the sale of NSE from Sundance to Quintanilla and saying “[we’ll] look after necessary consents”. He said that Santos was downsizing and he would be finishing up at Santos at the end of the year.
[14] Chief Executive Officer of Quintanilla.
148On 9 October 2015 Mr Hunter [Sundance] and Mr Schreiner [Sundance] telephoned Dr Camac[15] [Santos]. Mr Hunter introduced Mr Schreiner and himself as Sundance’s legal representatives, referred to Sundance’s recent acquisition of NSE from New Standard and said that:
[15] A Manager in Santos Limited’s Eastern Australia Business Unit.
•    Sundance was entering into transactions with Quintanilla, which was a private investment company owned by a US partner with a high net worth;
•    the timing for the transactions was late next week;
•    one of the transactions was the sale of NSE by Sundance to Quintanilla which required Santos’ consent to the change in control pursuant to the Implementation Agreement;
•    the Australian entity to be used by Quintanilla was a private entity;
•    Quintanilla was excited about buying NSE;
•    this was a component part of a larger transaction which Sundance was undertaking with Quintanilla;
•    the consent to the NSE transfer ought to be straightforward given that Santos already knew Quintanilla and the parties could use essentially the same documentation utilised for the recent change in control from New Standard to Sundance;
•    Quintanilla had a private jet and Stacey Shivers may call today;
•    the transaction needed to close as quickly as possible and Santos needed to move quickly.
Dr Camac said that she would progress the matter of Santos’ consent.
149On 9 October 2015 Mr Schreiner [Sundance] sent an email to Dr Camac [Santos] copied to Mr Tamez[16] [Quintanilla] saying:
[16] General Counsel for Quintanilla.
Further to our discussion just now, we are grateful for your expressions of support. Further to that dialogue, once you have had an opportunity to discuss this matter with your colleagues please let us know how we can facilitate the drafting of an Assignment, Assumption and Consent – Implementation Agreement.
Please don’t hesitate to call me whenever you like if you would like to discuss this in further detail. My cell phone number is located in my signature below.
Thank you and have a good day.
150On 9 October 2015 Mr Solomon [Santos] sent an email to Mr Schreiner [Sundance] apologising for being hard to contact and saying that he was now on vacation for a week and Mr Wilton [Santos] would be dealing with the matter for Santos and encouraging Mr Schreiner to reach out to Mr Wilton the following week (as Mr Wilton was currently travelling). Mr Schreiner responded saying that they had just spoken with Dr Camac and looked forward to working with her and Mr Wilton on the matter.
151On 15 October 2015 Mr Patil [Santos] sent an email internally to Ms Senneck, Mr Wilton, Mr Mudge and Dr Camac [all Santos] attaching Mr Solomon’s email to Mr Schreiner of 9 October and saying that Sundance was now selling to QMC Australia the same stake in the Permit that it had recently purchased from New Standard. He said that there had been a flurry of calls from Mr Schreiner, Sundance was under some time pressures and Mr Schreiner wanted to have a chat with concerned personnel on the Assumption Agreement which was apparently based on the former Assumption Agreement. He said that, while it was a priority for Sundance, it was not for Santos and he understood that Ms Senneck was caught up in the strategic review process.
152On 15 October 2015 Mr Patil [Santos] sent an email to Mr Schreiner [Sundance] copied to Mr Wilton [Santos] and blind copied to Ms Senneck [Santos] forwarding Mr Solomon’s 9 October email and saying:
G’day Matt,
Apologies for the delay in getting back to you. However, as you might have heard there are a number of significant events on right now and in the short term it is not possible to get traction on this item with regard to our internal due diligence processes.
Jim or I will be in touch hopefully week after next [the week commencing 26 October] to progress further. In the meantime, please send us the draft documents and any associated queries for our consideration.
(Footnotes supplied)
After the email from Mr Patil to Mr Schreiner on 15 October 2015 there were no further communications between the parties until 27 October 2015. Sundance did not, at any time after 15 October 2015, produce any documentation to the Santos parties.
The Judge next summarised various dealings and negotiations between Sundance and Quintanilla over the period 8 October 2015 to 27 October 2015.[17] As at 27 October 2015, and with respect to the agreement in principle earlier arrived at between Sundance and Quintanilla, a number of contractual issues remained unresolved. The Judge made this finding.[18]
On 27 October 2015 Mr Tamez [Quintanilla] sent an email to Mr West [Quintanilla] listing issues and how Mr West would like them resolved based on his conversations with Mr McCrady [Sundance]. He said that Mr West proposed eliminating the trust concept. The US$2 million purchase price would be kept in escrow by Sundance; Quintanilla would provide a parent guarantee to Santos if required by Santos covering its share of the drilling budget; Quintanilla would pay the expenses for a one-year period; Sundance would try for one year to get the consent and if not would pay US$8 million plus expenses put into the project by Quintanilla. Mr West on forwarded the email to Mr McCrady.
[17] Trial Reasons at [153]-[172].
[18] Trial Reasons at [172].
The Judge returned to summarise further dealings between the Sundance parties and the Santos parties, between 27 October 2015 and 30 October 2015, in the following (uncontested) terms.[19] Again, I have retained the Judge’s paragraph numbering and have included references to the party or organisation represented by named protagonists.
[19] Trial Reasons at [173]-[180].
173On 27 October 2015 (South Australian time) Mr Schreiner [Sundance] sent an email to Mr Patil [Santos] in response to Mr Patil’s email dated 15 October. He said that he was writing to see if Mr Patil and his team were ready to move further on this issue. He said that if Mr Patil had any questions or concerns that could help move this forward could he please let him know.
174On 29 October 2015 Mr Schreiner left a voicemail message for Mr Patil. Mr Schreiner then sent an email to Mr Patil as follows:
Further to my voicemail moments ago, I was calling to check on where Santos stood in terms of moving forward on the Consent.
Is there anything in particular that you may need in order to help move this process forward? We’ll be happy to help in any way that we can.
…
If you have any questions or concerns please feel free to contact me. We appreciate your time.
175On 30 October 2015 Mr Patil sent a responding email to Mr Schreiner including the following message:
Thank you for your email. As indicated below, we’d appreciate draft copies of documents that would need to be executed as part of Santos providing consent. But it will still be difficult for Santos to proceed with this right now.
…
176On 30 October 2015 Mr Schreiner sent a responding email to Mr Patil as follows:
My boss is Mr Hunter who is copied above and he was hoping he could speak with you on your Monday morning some time.
Are you available? If so please give us a specific time and we will call you then.
Thank you and have a good day.
177On 30 October 2015 Mr Patil sent a responding email to Mr Schreiner as follows:
I apologise but I will not be available in the short term to have a chat on this.
Santos will progress this later in November when we were are able to.
178On 30 October 2015 Mr Tamez [Quintanilla] sent an email to Mr Hunter [Sundance] saying that he was in a meeting with Mr West [Quintanilla] and enquired to whom at Santos the consent request was sent. Mr Schreiner [Sundance] replied forwarding his communications with Mr Solomon [Santos] and Mr Patil [Santos] up to 28 October.
179On 30 October 2015 Mr Solomon [Santos] sent an email to Mr Patil [Santos] enquiring where Santos was at on the Sundance consent and saying that Quintanilla was calling him on it. Mr Patil replied as follows:
They have been calling me as well. This is not a priority for legal and so has fallen to the bottom of the pile.
…
Is there any reason we need to expedite/accommodate them? Jim agrees with the approach.
180There were no further communications between Santos and Sundance on the topic of consent.
The failure of the Quintanilla Transaction
Between 28 October and 15 December 2015, Sundance and Quintanilla continued with their negotiations in order to finalise the contractual terms of the Quintanilla Transaction and to permit “closure”, by which I understand the parties to have meant settlement, relatively promptly. As at 19 November 2015, Sundance and Quintanilla were talking about all agreements being signed by 26 November 2015 with “closing 45 days after signing”.[20]
[20] Trial Reasons at [199]. However, these “closing” parameters moved around during subsequent negotiations.
It is important to appreciate that Sundance and Quintanilla were negotiating about a very significant number of quite complicated components of the Quintanilla Transaction and its possible terms and conditions. The Judge provided a lengthy chronological description of these negotiations[21] which it is not necessary to repeat here. The negotiations were almost entirely unrelated to the consent issue concerning the NSE sale component. Indeed, early on in this period, the two parties were negotiating on a contingency basis that envisaged the Santos parties’ consent not being forthcoming for up to 36 months. The Judge described the position, as at 30 October 2015, this way.[22]
On 30 October 2015 there was a meeting between Mr West [Quintanilla], Mr McCrady [Sundance] and their respective attorneys. Mr Hunter [Sundance] sent an email to Mr Tamez [Quintanilla] confirming what was agreed. He said that all substantial matters in relation to the New Standard US assets agreement had been agreed. He set out six matters which had been agreed in relation to the NSE agreement. In relation to Santos’ consent, he said that it was agreed that Quintanilla would pay the purchase price to Sundance at closing and each would exert its best efforts to secure Santos’ consent. Quintanilla would receive all revenue and meet all expenses and Mr Quintanilla [owner of Quintanilla Group] would guarantee the payment of the expenses. If Santos had not consented within 36 months of closing, Sundance would have the option of buying back the asset for the purchase price plus expenses or transferring it to Quintanilla and indemnifying Quintanilla against any liabilities arising as a result of such assignment without consent. On its part, Quintanilla would have the option of acquiring at its own risk the asset without Santos’ consent.
[21] Trial Reasons at [181]-[210].
[22] Trial Reasons at [183].

Thereafter, and notwithstanding almost six more weeks of very detailed negotiations covering numerous aspects of the Quintanilla Transaction, how it was to be funded and how and when it was to close, no further mention was made of the NSE sale consent issue.
On 15 December 2015, Quintanilla advised Sundance that the latest set of terms proposed would not result in the desired transaction outcome from Quintanilla’s perspective and negotiations came to an end.[23]
[23] Trial Reasons at [210].
The cross-action and relevant contractual terms
The Sundance parties claimed against the Santos parties’ damages for breach of clause 7 of the Implementation Agreement and for breach of other terms propounded as forming part of the Implementation Agreement as being implied. The Sundance parties contended at trial that the Santos parties breached the Implementation Agreement in one or more of these respects from 15 October 2015 onwards by not considering the proposal for a change in the control of NSE put to them by the Sundance parties.
The breach or breaches are said to have caused Sundance the loss of the valuable commercial opportunity of benefitting from the Quintanilla Transaction including, but not limited to, the loss of the opportunity to sell the shares in NSE to Quintanilla and to thereafter be relieved of any further liability to make contributions to exploration expenditure with respect to the Permit.
Clause 7 of the Implementation Agreement provides as follows.
7.     No assignment or change in control
7.1     Requirement for consent
During the Earn-in Period a Party must not, without the prior written consent of the other party
(a)assign, transfer, grant an option in respect of, or otherwise Encumber, all or part of its right, title or interest under this agreement, the JOA or all or any part of their Participating Interest in the Permit, or
(b)     permit a Change in Control of that Party to occur
7.2     Consent parameters
The consent of a Party required under clause 7.1 will not be unreasonably withheld where
(a)in the case of a proposed assignment, the transferee or acquirer has the financial and technical capabilities to perform the obligations for which it is or will become responsible pursuant to the assignment, or
(b)in the case of a proposed Change in Control, after the Change in Control the Party will continue to have the financial and technical capabilities to perform the obligations for which it is or will become responsible
Subclause 1.1 of the Implementation Agreement contains the following definitions relevant to clause 7.
Change in Control means
(a)in relation to a Party which is a subsidiary of an ultimate holding company (as those terms are defined in the Corporations Act), that the Party ceases to be a subsidiary of its ultimate holding company, except where the shares of that Party or any of its holding companies are or will become listed on the ASX or other recognised stock exchange and such Party ceases to be a subsidiary of its ultimate holding company by reason of the allotment or transfer of, or any other dealing in, those shares, and
(b)in relation to any other Party, that there has been a change in Control (as that term is defined in the Corporations Act) of the party, except where the shares of that party are to become listed on the ASX or other recognised stock exchange
Earn-in Period has the meaning given in the Farm-in Agreement
JOA means the Joint Operating Agreement between OEH and Ambassador or in relation to the Permit on the terms set out in schedule 2 of the Farm-in Agreement (as modified by clause 5 3 of the Farm-in Agreement)
Participating Interest has the meaning given in the Farm-in Agreement
Permit has the meaning given in the Farm-in Agreement
Of potential significance, neither the term “Party” nor the term “party” is defined.
The Sundance parties pleaded the existence and breach of four further terms to be implied in the Implementation Agreement. As recorded by the Judge they were as follows.[24]
1.the consent to be provided under clause 7 would be provided within a reasonable time of request (the temporal term);[25]
2.the counter parties would do all things necessary to enable the proponents to enjoy the benefit of the Implementation Agreement (the cooperation term);[26]
3.the counter parties would act reasonably in considering any request for consent under clause 7 (the reasonableness term);[27]
4.the counter parties would act in good faith in considering any request for consent under clause 7 (the good faith term).[28]
(Footnotes in original)
[24] Trial Reasons at [417].
[25] Although their pleading is that this was a period not exceeding 14 days, the Sundance parties accepted during opening address that this is not part of the implied term and what will amount to a reasonable period will depend on all of the facts and circumstances existing at the time of the request.
[26] Although their pleading is expressed in terms of the Santos parties doing all things necessary for this purpose, plainly the term must be expressed in an equilateral manner.
[27] Although their pleading is expressed in terms of the Santos parties acting reasonably and in good faith, plainly the term must be expressed in an equilateral manner. In addition although they plead an integrated term requiring reasonableness and good faith, it is convenient to separate reasonableness from good faith because whether one or the other should be implied give rise to different considerations.
[28] Although their pleading is expressed in terms of the Santos parties acting in good faith, plainly the term must be expressed in an equilateral manner.
The Judge’s conclusions as to liability
Essential to the Sundance parties’ case was and is the proposition that the parties to subclause 7.2(b) agreed, in effect, that if the subsidiary and parent on one side of the joint venture (in this case NSE and Sundance) proposed a change in control of the subsidiary, the subsidiary and parent on the other side (Outback and Santos Queensland) promised not to unreasonably withhold consent provided the proponent subsidiary would continue to have the financial and technical capabilities to perform its obligations under the Implementation Agreement.
However, the Santos parties contend that subclause 7.2(b) is not promissory. Rather, it has the effect that, if consent were to be unreasonably withheld, a change in control may be effected without consent. In the alternative, if subclause 7.2(b) is promissory, it records a promise only as between the two subsidiaries. If this latter proposition were to be correct, then, according to the Santos parties, any loss of or associated with the Quintanilla opportunity suffered by Sundance (the parent of NSE) would not have been caused by a breach of any contractual obligation owed to Sundance and even if there had been a breach of contractual obligation owed to NSE such would not have caused any loss to NSE.
The Judge was also called on to determine a number of subsidiary and consequential issues. The Judge’s conclusions on all issues concerning liability are summarised in the following paragraphs.
The Sundance parties contended that the Santos parties were precluded from challenging the Sundance parties’ construction of clause 7 on the basis of conventional estoppel, representational estoppel and misleading or unconscionable conduct. His Honour rejected the Sundance parties’ case in these respects[29] and these issues have not been reagitated on the appeal.
[29] Trial Reasons at [352]-[381].
However, the Judge accepted the Sundance parties’ contention and found that, on its proper construction, subclause 7.2 contains a promise not to unreasonably withhold consent.[30] This finding is challenged by ground 1 of the Santos parties’ second notice of alternative contentions.
[30] Trial Reasons at [403]. His Honour’s reasoning in support of this conclusion is at [382]-[403].
The Judge also went on to uphold the Sundance parties’ contention that subclause 7.2(b), on its proper construction, contained a promise by both parent and subsidiary to the counterpart parent and subsidiary not unreasonably to withhold consent to a change in control of the counterpart subsidiary.[31] As a consequence, Sundance (who is alleged to have suffered the relevant loss) was entitled to sue on the promise. This conclusion is challenged by ground 2 of the Santos parties’ second notice of alternative contentions.
[31] Trial Reasons at [416]. His Honour’s reasoning in support of this conclusion is at [404]-[416].
The Judge then turned to consider the question of the four implied terms propounded by the Sundance parties. His Honour rejected the reasonableness, good faith and temporal implied terms[32] and these conclusions have not been challenged on appeal. However, his Honour did conclude that the Implementation Agreement contained an implied term requiring cooperation in the clause 7 process.
[32] Trial Reasons at [417]-[420], [427]-[433]. The temporal term as a separate or standalone implied term was rejected as being otiose because its essence was an aspect of the cooperation term which his Honour did find to be established.
His Honour held as follows.[33]
I conclude that, upon a request for consent to an assignment or change in control, the counter parties are obliged to cooperate in a timely fashion in responding to the request. This requires the counter parties within a reasonable time to respond identifying any further information required to decide whether or not to grant consent and after any further iterative process to respond either granting or refusing consent.
The Judge later, and as part of his conclusion on the question of terms, described this implied term in the following alternative language.[34]
It is an implied term (or inferred in clause 7) of the Implementation Agreement that, after receipt of a request for consent under clause 7, the counterparties will in a timely fashion cooperate and do all things necessary to enable the proponents to enjoy the benefit of clause 7 of the Implementation Agreement.
The existence of such an implied term is challenged by the Santos parties in ground 3 of their second notice of alternative contentions.
[33] Trial Reasons at [425]. His Honour’s reasoning in support of this conclusion is at [421]-[426].
[34] Trial Reasons at [435].
The Judge next turned to consider whether or not the Santos partes had breached clause 7 and/or the implied term requiring cooperation.[35] In doing so, his Honour first addressed a number of issues preliminary to his consideration of this ultimate question of breach.
[35] Trial Reasons at [436]-[505].
Contrary to the Santos parties’ contention, his Honour found that between 7 and 9 October 2015, Sundance requested Santos to give its consent to a change in control of NSE,[36] so as to enliven the clause 7 and cooperation obligations. This conclusion has not been challenged by the Santos parties.
[36] Trial Reasons at [447]. His Honour’s reasons for this conclusion are at [440]-[447].
According to clause 7, consent to a change in control will not be unreasonably withheld provided certain preconditions are satisfied. The preconditions are that:
The party will continue to have the financial and technical capabilities to perform the obligations for which it is or will become responsible.
The Judge made a number of subsidiary findings related to this issue[37] to which it will be necessary to return. His Honour concluded as follows.[38]
In consequence of these findings, if the communications between the parties had reached culmination, NSE would have had the requisite financial and technical capability after the proposed change in control because Mr Quintanilla would have become guarantor in Sundance’s place (and if necessary Sundance would have remained as guarantor). However, neither of these contingencies were communicated to the Santos parties.
(Emphasis in original)
[37] Trial Reasons at [453]-[454].
[38] Trial Reasons at [455].
By the fourth ground of the second notice of alternative contentions, the Santos parties complain that the Judge erred in failing to find that the preconditions to subclause 7.2(b) had not been satisfied and therefore any obligation upon the Santos parties not to unreasonably withhold consent had yet to arise.
The Santos parties also argued before the Judge that the Sundance parties were, themselves, in breach of the Implementation Agreement in a number of respects so as to be precluded from relying on any breach of clause 7 by the Santos parties. His Honour rejected this argument[39] and this conclusion has not been challenged on appeal.
[39] Trial Reasons at [456]-[474].
Finally, insofar as liability is concerned, the Judge concluded that, on the facts, the Santos parties had not breached either clause 7 of the Implementation Agreement or the implied term requiring cooperation and, for this reason, dismissed the Sundance parties’ cross-action.[40] The Sundance parties challenge this conclusion by way of ground 1 of the second notice of appeal.
[40] Trial Reasons at [475]-[505].
Summary of issues, as to liability, arising on appeal
I will deal with the issues raised by the second notice of appeal and the second notice of alternative contentions concerning liability in the following order.
(i)Is clause 7 promissory in a material respect?
(ii)If clause 7 is promissory, by whom and to whom is the promise owed?
(iii)If clause 7 is promissory, is there also an implied term as to cooperation in the clause 7 process, and, if so, what is its content?
(iv)If clause 7 is promissory, had the preconditions necessary to enliven the promissory obligation been satisfied?
(v)Assuming (i), (ii), (iii) and (iv) were to be resolved in favour of the Sundance parties, was the Judge correct to find that neither clause 7 nor the implied term as to cooperation had been breached by the Santos parties?
In dealing with the issues on appeal, the Court has been assisted by the parties’ extensive written and oral submissions.
As far as the second notice of appeal is concerned, the following written submissions were provided and have been considered.
(i)The Sundance parties’: appellants’ written submissions; appellants’ supplementary written submissions;[41] appellants’ reply submissions and appellants’ supplementary reply submissions.
(ii)The Santos parties’: respondents’ submissions in respect of the appellants’ appeal; and respondents’ supplementary written submissions.
[41] The appellants briefly raised a pleading complaint in the “Appellants’ Written Submissions” which had not featured in the original notice of appeal. During the hearing of the appeal the appellants were given permission to file a second notice of appeal and the parties provided supplementary written submissions on the amendment to appeal ground 1 raising the pleading point.
As far as the second notice of alternative contentions is concerned, the following written submissions were provided and have been considered.
(i)The Santos parties’: respondents’ submissions as to the notice of alternative contentions; and respondents’ reply submissions as to the notice of alternative contentions.
(ii)The Sundance parties’ appellants’ responding submissions on the notice of alternative contentions.
Is clause 7 of the Implementation Agreement promissory?
Ground 1 of the Santos parties’ second notice of alternative contention is in these terms.
The Learned Judge erred in law (at [403]) in finding that, on its proper construction, subclause 7.2 of the Implementation Agreement contains a promise not to unreasonably withhold consent to a change and control of the counter-party which is capable of suit for breach, as opposed to a qualification to the promise of the counter-party not to permit a change in control without consent.
It will be of assistance to set out clause 7 again.
7.     No assignment or change in control
7.1     Requirement for consent
During the Earn-in Period a Party must not, without the prior written consent of the other party
(a)assign, transfer, grant an option in respect of, or otherwise Encumber, all or part of its right, title or interest under this agreement, the JOA or all or any part of their Participating Interest in the Permit, or
(b)     permit a Change in Control of that Party to occur
7.2     Consent parameters
The consent of a Party required under clause 7.1 will not be unreasonably withheld where
(a)in the case of a proposed assignment, the transferee or acquirer has the financial and technical capabilities to perform the obligations for which it is or will become responsible pursuant to the assignment, or
(b)in the case of a proposed Change in Control, after the Change in Control the Party will continue to have the financial and technical capabilities to perform the obligations for which it is or will become responsible
It is common ground that, had a Quintanilla entity acquired all of Sundance’s shares in NSE as part of the Quintanilla Transaction, such would have constituted a change in control of NSE as contemplated by subclause 7.1(b). And further that such ought not take place “without the prior written consent of the other party” subject to the meaning to be given to subclause 7.2.
The Judge held that subclause 7.2 contained a contractual promise not to unreasonably withhold consent to a Change in Control of NSE which would sound in damages in the event of breach. His Honour’s reasons for this conclusion[42] can be briefly summarised as follows.
(i)The text of subclause 7.2 indicates as much rather than merely providing, as the Santos parties contend, that consent is not required in certain circumstances as defined by paragraph (b) of subclause 7.2.
(ii)The use of the words “will not be unreasonably withheld” is a strong indication that the party whose consent is required is promising not unreasonably to withhold consent.
(iii)The context of subclause 7.2 within clause 7 and the structure of clause 7 indicates a prohibition of relevant change without consent and a promise not to withhold consent in defined circumstances.
(iv)The evident purpose of subclause 7.2 is to impose an obligation not to refuse consent in defined circumstances.
(v)The ability of a party to transfer its interest to a qualifying third-party is commercially important and valuable which suggests a promise not to withhold consent in defined circumstances.
(vi)The Judge noted that the Santos parties had cited a number of authorities which have construed “an integrated clause prohibiting assignment without consent providing that consent is not unreasonably withheld” as permitting assignment when consent is unreasonably withheld but with no independent promise not to withhold consent. However, his Honour distinguished these cases and found them to be of no assistance because of the particular language and integrated structure of the clause in each case.
(vii)The Judge placed reliance on the decision in Ideal Film Renting Company Ltd v Nielson[43] which his Honour found supported the construction of subclause 7.2 contended for by the Sundance parties.
[42] Trial Reasons at [391]-[403].
[43] [1921] 1 Ch 575.
The Sundance parties, in their responding submissions, adopted the Judge’s reasoning on which they elaborated in some detail. They also argued that the Santos parties’ reliance on various cases dealing with similar clauses was misconceived because of the different language and structure of the clause in each case. They contended that orthodox principles of construction, as applied by the Judge, supported the conclusion his Honour came to.
The issue before the Judge and on appeal is one of the proper construction of clause 7. A plurality in the High Court in Electricity Generation Corporation v Woodside Energy Ltd[44] has provided the following summary of the relevant principles.
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
(Citations omitted)
[44] [2014] HCA 7; (2014) 251 CLR 640 at [35] (French CJ, Hayne, Crennan and Keifel JJ).

I turn first to consider the asserted purpose or function of clause 7 in the context of the parties’ relationships. The Santos parties and the Sundance parties have agreed to venture with each other and not with others. Bearing in mind the nature of and the commercial significance of the obligations assumed by each party, the identity of each party and its capacity to perform its obligations is of paramount importance to the counter-parties. So much is evident from the terms of paragraphs (a) and (b) in subclause 7.2.
Accordingly, the starting point is that neither side of the transaction is permitted to assign its interest or obligations[45] or effect a similar outcome through a change in control of a party. However, the parties, being experienced commercial operatives, can be taken to have been cognizant, at the time they contracted, of the possibility that circumstances might change during the course of the venture. It made commercial sense that, as events were to transpire, it might be beneficial to one or other side of the transaction for it to assign its interest or participate in a change in control notwithstanding the proscription in subclause 7.1; hence the qualifier “without the prior written consent of the other party”.
[45] Which, as to the latter, is the common law position.
In this case, the primary purpose of the requirement on a party to obtain consent is to provide the consenting party with a sufficient opportunity to examine and satisfy itself of the credentials of any proposed assignee or of a remaining party, itself, were a proposed change in control to be effected. In particular, will that party be willing and able to perform its contractual obligations for the balance of the joint venture? The requirement provided for in subclause 7.2 reflects the degree of importance the parties have attached to the qualified right of each party to deal with its valuable rights under the contractual arrangements governing the joint venture. It reflects the commercial importance to the consenting party of it not being put in a position of disadvantage as compared with its original contractually agreed position.
The new circumstances might be such that there would be no disadvantage to the other side of the transaction. As such, a bare requirement of prior consent might leave the proponent party at the mercy of the consenting party, for no good commercial or other reason. It is not difficult to imagine situations where an absolute right to refuse consent might be relied on by the consenting party, oppressively, so as to obtain an advantage to which it is otherwise not entitled and which is unrelated to that party’s legitimate contractual interests.[46]
[46] There is no suggestion of this in the present case.
Either side might find itself in the position of needing to obtain the consent. It is therefore mutually advantageous to have some form of further protection built in to a provision such as clause 7, to the effect that whilst consent is required it is not to be unreasonably or arbitrarily withheld.
The authorities which canvass the meaning of “unreasonably” or “arbitrarily” and cognate notions in the landlord and tenant and other contractual contexts and which illustrate the application of these descriptors to disparate factual situations are extensive. Contracting parties, by agreeing to qualify a right to withhold consent in such a way, expressly expose themselves to this regime.
Such provisions typically, but not universally,[47] have been construed in the sense of being a proviso or qualification to the right to withhold consent rather than a contractual promise to that effect. As such, where consent has been withheld in breach of such a proviso the courts have held the proponent party to be relieved of the requirement to obtain consent and to be entitled to proceed to assign or effect a change in control without it. In such a case, the proponent party will not be in breach of contract. If necessary, the proponent party can seek from a court urgent declaratory relief in order to obtain comfort before proceeding with the assignment or change in control.[48]
[47] See, for example, Ideal Film Renting Company Ltd v Nielsen [1921] 1 Ch 575.
[48] Although not in New South Wales prior to the Judicature Act reforms. See Harvey v Walker (1945) 46 SR (NSW) 180.
It can be seen that the object of such clauses, recognised by the course of authority dealing with them principally, but not only, in the landlord and tenant context, is to ensure that assignments or changes in control that do no harm can be effected, in accordance with the parties’ intention as at time of contracting. In the usual case, it is unnecessary and arguably counterproductive to also characterise a proviso requiring consent not to be unreasonably withheld as promissory such as to give rise to a damages claim if not observed.
With this background and before turning to consider the structure and text of clause 7, I shall briefly refer to some of the authorities referred to by the parties.
The Santos parties submitted that clauses in the nature of clause 7 have a long established and well settled meaning and operation. In support of that proposition they cited a number of authorities primarily dealing with the assignment of leaseholds.[49] According to the Santos parties:
A construction of clause 7 that does not involve a promise not to withhold consent unreasonably, but instead a proviso to an assignment clause is consistent with the meaning that has been authoritatively ascribed to similar clauses, and the proposition that there is no breach of contract giving rise to a right to sue for damages in the event that consent is unreasonably withheld has also been authoritatively established.
Notwithstanding the absolute terms in which that submission by the Santos parties has been put, it is not the case that clauses in the nature of clause 7 will inevitably be construed in this manner. Nevertheless, the authorities to which the attention of the Court has been directed, whilst they concern different clauses containing different language, typically have adopted the construction advocated by the Santos parties. Given that each such clause must be construed in accordance with its own language, purpose and context, it would not be helpful to analyse all of the authorities, ad infinitum. I will consider some only of the leading cases by way of illustration.
[49] The cases to which the Court was referred include Treloar v Bigge (1874) LR 9 Exch 151; Sear v House Property & Investment Society (1880) 16 Ch D 387; Ideal Film Company Ltd v Nielsen [1921] 1 Ch 575 at 581-2 per Eve J; Harvey v Walker (1945) 46 SR (NSW) 180 at 182 per Dixon J and at 185 per Williams J; Yared v Spier [1979] 2 NSWLR 291 at 297-8 per Waddell J; Pryors Tours Pty Ltd v Minister for Transport [2003] WASCA 129 at [29]-[35] per McKechnie J (with whom Malcolm CJ and Parker J agreed); Scarcella v Linknarf Management Services Pty Ltd (in liq) [2004] NSWSC 360 at [12] and [17] per Hamilton J; Maclag (No 11) Pty Ltd v Chantay Too Pty Ltd [2010] QSC 299 at [132] per McMurdo J; Warren v Lawton (No 3) [2016] WASC 285 at [151]-[152] per Le Miere J. See also Skiwing Pty Ltd v Trust Company of Australia [2006] NSWCA 276.
In Treloar v Bigge,[50] a lessee claimed damages against a lessor for breach of covenant in a lease. The lease contained the following covenant.
And the said [plaintiff/lessee] doth covenant with the said [defendant/lessor] that he shall not nor will assign this present lease, or let, etc, or otherwise part with the premises hereby demised, or any part thereof, without the consent in writing of the said [defendant/lessor] such consent not being arbitrarily withheld.
Immediately following this covenant was a proviso for re-entry in these terms.
Provided, always, that if the said [plaintiff/lessee] shall at any time assign, let, etc, the said premises, or any part thereof, without the consent in writing of the said [defendant/lessor] first had and obtained, but such consent is not to be arbitrarily withheld, then it shall be lawful for [the defendant/lessor] to re-enter.
[50] (1874) LR 9 Exch 151.
A jury found that the defendant/lessor had arbitrarily refused to consent to a proposed sublease. However, on the question of whether or not the words in the lease constituted a covenant on the defendant/lessor’s part, Kelly CB, when sitting in the Court of Exchequer[51] said this.[52]
Now the rule of law, no doubt, is that any words in a deed which impose an obligation upon another amount to a covenant by him; but the words must be so used as to shew an intention that there should be an agreement between covenantor and covenantee to do or not to do a particular thing. I cannot find any such intention here. The words, taken grammatically, do not seem to me to amount to an undertaking by the lessor, but are a part of the same sentence as that containing the lessee’s covenant, and qualify its generality. They prevent that covenant operating in any case of arbitrary refusal on the part of the lessor, that is, in any case where, without fair, solid and substantial cause, and without reason given, the lessor refuses his assent. I have known in my own experience several cases in which actions have been brought for the arbitrary withholding of consent by a landlord. But in all (as in the case of Sheppard v Hong Kong and Shanghai Banking Corporation) there was a covenant in express terms, so as to give the lessee a right of action. In the present case, for the reasons I have given, I think there was no such covenant.
(Citation omitted)
The Chief Baron then considered whether the proviso for re-entry contained such a covenant and observed as follows.[53]
Then it is contended that a covenant is contained in the proviso, and it is quite possible that if the words there used, and on which reliance is placed, had been used in another part of the deed, they might have been properly construed as amounting to a covenant. But the two clauses which follow each other must be taken together. The language is somewhat varied in the proviso, but substantially is to the same effect as that used in the covenant. It shews the description of refusal which is to give the right of re-entry. The qualified covenant not to assign is followed by the qualified covenant for re-entry.
[51] Kelly CB had also been the trial Judge.
[52] Treloar v Bigge (1874) LR 9 Exch 151 at 154-5. To similar effect, see Amphlett B at 156-7.
[53] At 155.
In Sear v House Property & Investment Society,[54] Hall VC said with respect to a lease covenant of this nature:
The question is one of construction of the language of the deed. Do the words contained in the clause “but such consent not to be unreasonably withheld” amount to a contract upon the part of the lessor that he will not unreasonably withhold his consent, or do they merely amount to a qualification of the covenant in which they are found, and which was entered into by the lessee, so that if the consent could be unreasonably withheld, the lessee assigning does not break his covenant? If I were to decide the question quite irrespective of authority, I should say that a fair reading of the covenant would be that the words referred to merely qualify the obligation contained in the clause itself – that the lessee would not assign without consent. The words are inserted in the lessee’s covenant, and they are put in a form which looks more like a qualification than a contract, “but such consent not to be unreasonably withheld”. If it were unreasonably withheld he would say “I am not under any obligation to perform the covenant”.
[54] (1880) 16 Ch D 387 at 391.
In Yared v Spier,[55] Waddell J had occasion to consider a lessee’s covenant in the following terms.
[T]he lessee … will not, during the continuance of the lease … sublet … the demised premises … without the consent in writing of the lessor, but such consent shall not be refused in the case of a proposed respectable and responsible … tenant.
His Honour undertook a review of the relevant authorities and then observed.[56]
It seems to me that it has been taken to be settled law for many years that, in the absence of an express covenant by a lessor not to refuse his consent, provisos of the kind under discussion have been regarded as not exposing him to any liability in damages for such a refusal. There is, I think, no justification for departing from this settled view of the law.
It is to be noted that the form of the covenant that was before Waddell J is very close to that of clause 7, when stripped to its essentials and read in an integrated form as demonstrated later in these reasons.
[55] [1979] 2 NSWLR 291.
[56] At 297.
In Harvey v Walker,[57] Dixon J said this.
A condition, covenant or agreement in a lease against assigning a term without consent qualified by a proviso that the consent will not be unreasonably withheld has an established meaning and operation. There are not cross-covenants or promises, one on the lessee’s part not to assign and the other on the lessor’s part not to withhold consent unreasonably. There is but one condition, covenant or stipulation. The proviso qualifies the provision against assigning without consent so that it forbids such an assignment unless upon request for consent the lessor unreasonably refuses or withholds it. In that event, the lessee may assign without breach of condition or covenant.
[57] (1945) 46 SR (NSW) 180 at 182.
A similar approach has been adopted with respect to conditions arising in contexts other than that of landlord and tenant.[58] Indeed, in Cathedral Place Pty Ltd v Hyatt of Australia Ltd,[59] which concerned the assignment of rights under a hotel management agreement, Nettle J made the point that whilst the terms of each contract are paramount, when construing a clause not to unreasonably withhold consent to an assignment of contractual rights, assistance was to be drawn from cases dealing with clauses of this nature in the lease context. His Honour said this.[60]
Most of the authorities which bear on consents to assignments are to do with questions of whether landlords have acted unreasonably in refusing their consents to assignments of leases. Consequently, not all of the considerations which have been regarded as significant are applicable in a case like this. But logic dictates that the approach should be similar. The ordinary principles of contract apply to leases as much as to other contracts, and there is authority in England and in New Zealand that the principles applicable to consent to the assignment of leases apply to other forms of contract.
(Citations omitted)
[58] See for example, Warren v Lawton (No 3) [2016] WASC 285 (covenant not to alter a joint tenancy without the written consent of a vendor); Pryors Tours Pty Ltd v Minister for Transport [2003] WASCA 129 (contract for the provision of school bus services).
[59] [2003] VSC 385.
[60] At [18].
There will be cases, as recognised in the authorities including those summarised above,[61] where the language used will be clear and often express, to the effect that a contractual promise not to unreasonably withhold consent is intended. In my view, Ideal Film Renting Co v Nielsen,[62] a case relied on by both the Sundance parties and the Judge in support of the argument that the proviso in subclause 7.2 is promissory, is an example of an express covenant or promise to this effect. This case does not support the Sundance parties’ argument, other than as being an illustration of where clear language will override the settled position generally adopted with respect to clauses of this nature.
[61] See, for example, the observation by Waddell J in Yared v Spier [1979] 2 NSWLR 291 at 297 earlier quoted.
[62] [1921] 1 Ch 575.
In Ideal, the provision relied upon by the underlessee who wished to assign the demised premises was in these terms.
[The underlessee] will not assign, underlet, or part with the possession of the said premises, or any part thereof, without the previous consent in writing of the lessor, but the lessor covenants with the [underlessee] not unreasonably to withhold such consent in the case of a respectable and responsible assignee or under-tenant.
There followed a proviso for re-entry in conventional terms.
Eve J held[63] that the language employed gave rise to separate and distinct covenants rather than to a covenant by the lessee which was merely qualified by a requirement that the lessor was not unreasonably to withhold his consent. His Honour held that in the lease before him, whilst there was a qualification introduced by way of proviso to the lessee’s covenant, it was a proviso that was “in the shape of an express covenant by the lessor not to withhold his consent”. Plainly, the language employed – the use of the term “covenant” to describe the lessor’s undertaking – was significant to this conclusion. Ideal is simply an example where the language disclosed an “express covenant” by the lessor as referred to by Waddell J in Yared.
[63] At 581-2.
Of course, and as the cases just discussed exemplify, it is a truism that every contractual provision must be construed according to its terms. The question before the Judge and this Court is whether the particular provision agreed to by these parties, on its proper construction, was promissory or merely a proviso as earlier described.
Clause 7 has been drafted to cater for two different situations both of which are underpinned by the same commercial imperative, as earlier described. The following discussion refers to those aspects of clause 7 that cater for the change in control situation. However, the same structure and language, in material respects, is used with respect to the assignment situation.
Stripped to its essentials, paragraph (b) of subclause 7.1 contains the following promise or undertaking.
… a Party must not, without the prior written consent of the other party permit a Change in Control of that Party to occur.
Stripped to its essentials, paragraph (b) of subclause 7.2 provides for this qualification.
The consent of a Party required under clause 7.1 will not be unreasonably withheld where … after the Change in Control the Party will continue to have [prescribed financial and technical capabilities] … .
Clause 7 has been structured so as to provide for the undertaking in one subclause but for the qualification to appear in another subclause. The Sundance parties and the Judge have contrasted this structure with a more “integrated” structure often employed when drafting contractual provisions of this nature. The Sundance parties rely on the fact that the parties had adopted this structure as being an indicator of their intention that subclause 7.2 was to be promissory. It is contended that this structure allows many of the authorities relied on by the Santos parties, where integrated contractual provisions of this type have not been construed as promissory, to be put to one side. I do not find this argument based on structure to be persuasive.
The essence of both paragraph (b) of subclause 7.1 and paragraph (b) of subclause 7.2 lends itself quite readily to being read in the following integrated manner.
... a Party must not, without the prior written consent of the other party permit a Change in Control of that Party to occur [which consent] will not be unreasonably withheld where … after the Change in Control the Party will continue to have [prescribed financial and technical capabilities] … .
In this form it is very similar to, if not materially the same as, that which was before Waddell J in Yared v Spier.[64] Indeed, in Yared, the critical words were “such consent shall not be refused in the case of …”. The word “shall” is more strongly dictatorial than the word “will” and, if anything, presents a stronger case for a promissory construction.
[64] [1979] NSWLR 291 at 292.
In this integrated reading, the commencing phrase in subclause 7.2, “The consent of a Party required under clause 7.1” has been replaced by the simpler phrase “which consent”. This is grammatically and syntactically unexceptional. But it is only practicably available to the integrated form I have posited because I have not also incorporated paragraph (a) of subclause 7.1 and paragraph (a) of subclause 7.2 into the integrated form.

The Judge found that the Santos parties were not in breach of clause 7 or the cooperation term. In so finding, his Honour’s essential reasoning[105] was as follows.
[105] Trial Reasons at [475]-[488].
(i)The Sundance parties contended that the Santos parties were in breach by failing to consent to a change in control of NSE from Sundance to QMC Australia and in this respect relied, particularly, on Mr Patil’s 15 October 2015 email to Mr Schreiner, Mr Patil’s emails of 30 October to Mr Schreiner, Mr Patil declining to take the telephone call from the attorneys for the Sundance parties and Santos not in fact addressing the question of consent.[106] It would appear that his Honour’s reference[107] in this context to Mr Patil’s email of 29 October is a misprint.[108]
(ii)The overarching answer by the Santos parties was that the Sundance parties were at all material times proposing not just a change in control of NSE pursuant to clause 7 but also an assignment of Sundance’s rights and obligations under subclause 21.6 and that this was at all material times conveyed to the Santos parties. However, the Sundance parties at no time provided a foreshadowed parallel Tripartite Agreement (the new Tripartite Agreement) despite express requests by Mr Patil made on 15 and 30 October 2015.
(iii)The Judge accepted that Mr Patil’s emails of 15 and 30 October 2015, his unavailability to take telephone calls, and the Santos parties’ failure to provide any substantive response to the 7 October request for consent would have manifested a breach of clause 7 and the obligation to cooperate if:
·the Sundance parties’ had merely requested consent to a change in control of NSE on the basis that Sundance would remain a party and guarantor of NSE’s obligations;
·the Sundance parties had made no mention of the preparation of a parallel or new Tripartite Agreement;
·the Sundance parties had requested the giving of consent by a simple unilateral document expressing consent to the proposed change in control; and
·the Sundance parties had not received any requests for a document dealing with the consent or comprising a parallel or new Tripartite Agreement.
(iv)The position hypothesised in (iii) above did not exist. Rather, the Sundance parties made it clear that they were seeking not only consent to a change in control of NSE but also, as an integral part of the transaction, consent to the substitution of QMC Australia (or some other Quintanilla entity) for Sundance as a party to the Implementation Agreement. The Sundance parties also had proposed a new Tripartite Agreement to implement both changes and the consents required and had foreshadowed providing the same to the Santos parties.
[106] For these communications see Trial Reasons at [152] and [174]-[177], as set out earlier in these reasons.
[107] Trial Reasons at [475].
[108] According to the chronology of interactions extracted from the Trial Reasons and set out earlier, it would appear that Mr Patil sent two emails to Mr Schreiner on 30 October 2015 but not one on 29 October 2015. However, Mr Schreiner left a voicemail message for Mr Patil and sent an email to Mr Patil on 29 October 2015 as shown in Trial Reasons [174] set out earlier in these reasons.
The evidence relied upon by the Judge for the making of the findings in (ii) to (iv) above has earlier been set out and was again addressed by the Judge during his consideration of the breach issue.[109]
[109] Trial Reasons at [481]-[487].
The Judge reasoned further as follows.
(i)The fact that an assignment of Sundance’s rights and obligations under the Implementation Agreement was an integral part of the proposed transaction for which consent was being sought was reinforced by two additional matters: (1) this was precisely how the previous transaction between New Standard and Sundance had been structured to the knowledge of both parties; and (2) objectively assessed, it was commercially unlikely that Sundance would have wished to remain a guarantor of NSE after it had lost ownership and control of NSE.[110]
(ii)The identity of the parties to the proposed new Tripartite Agreement was obviously a critical matter from the point of view of the Santos parties, the Sundance parties and Quintanilla. Objectively, it must have been evident to the Sundance parties that the Santos parties would not accept QMC Australia as a substitute for Sundance, the former being a newly incorporated shell company with no assets, in the absence of a guarantee from a substantive Quintanilla entity.[111]
(iii)Given that the Sundance parties were proposing not only a change in control of NSE but also the assignment of Sundance’s rights and obligations it was incumbent on them to identify the Quintanilla entity to whom it was proposed Sundance’s rights and obligations would be assigned and to provide the Santos parties with the proposed new Tripartite Agreement that would effect the change in control, the assignment of Sundance’s rights and obligations and the consents thereto.[112]
[110] Trial Reasons at [483].
[111] Trial Reasons at [484].
[112] Trial Reasons at [487].
I interpolate with respect to (iii) above that, plainly the purpose of making this information and documentation available was to enable the Santos parties to make a fully informed decision as to whether or not to consent to the proposed integrated transaction.
The Judge concluded in the following terms.[113]
In the absence of the Sundance parties providing this information and documentation, particularly in light of the two requests by Mr Patil, the Santos parties were not in breach of clause 7 or the cooperation term until this information and documentation was provided to them. As it was never provided to them, they did not breach clause 7 or the implied cooperation term.
The Judge then proceeded to identify and address a number of contentions put by the Sundance parties in support of their argument that the Santos parties had breached clause 7 and/or the implied term of cooperation.[114] His Honour rejected each of the arguments put forward by the Sundance parties and concluded as follows.[115]
It does not matter why the Sundance parties did not provide a draft new Tripartite Agreement to the Santos parties. Whatever the reason, the failure to provide it is fatal to the Sundance parties’ case. For the sake of completeness, I find that the reason that a draft new Tripartite Agreement was not provided was due to a lack of communication between Mr Schreiner [Sundance] and Mr Hunter [Sundance]. I accept Mr McCrady’s [Sundance] evidence that, if he had been told of the requests by Mr Patil [Santos], he would have instructed Hunter & Associates to prepare and submit a draft agreement. I accept his evidence that he was not told of Mr Patil’s requests. Mr Schreiner was aware of the requests because he received Mr Patil’s emails but he was a very junior attorney and would not have taken the initiative of seeking instructions from Sundance unless directed to do so by Mr Hunter. If Mr Hunter had turned his mind to the requests and their significance, there is no reason why he would not have sought instructions from Sundance nor recommended providing a draft agreement to the Santos parties. The only rational explanation for this not occurring is that he did not turn his mind to the requests or to their significance. I cannot accept Mr Hunter’s explanation for not providing a draft agreement to the Santos parties for the reasons given above.
The Santos parties were not in breach of clause 7 of the Implementation Agreement or the cooperation term. The cross action must be dismissed.
[113] Trial Reasons at [488].
[114] Trial Reasons at [489]-[503].
[115] Trial Reasons at [504]-[505].
The Sundance parties, on appeal, raised four primary contentions by way of challenge to the Judge’s reasoning and conclusion.
(i)The Santos parties did not plead that the request for consent to a change in control of NSE was inseparably linked with the request for consent to an assignment or novation of Sundance’s obligations under the Implementation Agreement such that the Judge was precluded from assessing the reasonableness of the Santos parties’ conduct on this basis or in this context.
(ii)The Judge erred in not finding a breach by reference solely to the request for consent to a change in control of NSE, that is, independently of the proposed assignment/novation (the independent basis breach).
(iii)The Judge erred in not finding a breach even on the basis of the Judge’s actual findings concerning the parties’ communications (the integrated basis breach).
(iv)Mr Patil’s conduct disclosed a lack of cooperation irrespective of whether or not the Sundance parties provided the requested documentation relevant to the proposed assignment or novation (Mr Patil’s conduct basis).
The pleading complaint
The Sundance parties complain that the Santos parties did not plead key matters relied on by his Honour in determining the question of breach. In particular, the Santos parties did not plead: that the Sundance parties were seeking not only consent to a change in control of NSE but also as an integral part of the transaction it was seeking consent to a novation; and, that the Santos parties withheld consent and were entitled to do so because they had not received documents and information from the Sundance parties required for the novation.
It is contended by the Sundance parties that the Judge erred in this respect by not confining the Sundance parties to their pleaded case. The Sundance parties developed their submissions in support of their position at some length[116] and relied on the following proposition taken from St Barbara Ltd v Hockley (No 2).[117]
It is only to the pleaded reasons for withholding consent that attention must be given in determining whether the withholding of consent was unreasonable.
[116] Particularly in their supplementary written submissions.
[117] [2013] WASC 358 at [108] and [146] (Beech J). See also, EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 at [135] (Buss JA, Owen and Newnes JJA agreeing).
The Santos parties proffer a number of responses to this complaint. First, they rely upon and adopt the Judge’s reasoning for dismissing this contention at trial.[118]
The Sundance parties contend that Santos has not pleaded that the Santos parties needed the draft new Tripartite Agreement to consider whether or not to grant consent. I reject this contention. This point is explicitly pleaded (if it needed to be pleaded) in paragraph 11.3 (and again in paragraph 16.12) of the Santos parties’ Reply.
[118] Trial Reasons at [503].
Second, the Santos parties maintain that they expressly pleaded the following matters.
(i)Neither Santos nor Outback received draft copies of the documents that would need to be executed as part of Santos providing its consent to the proposed change in control of NSE and notwithstanding requests for the same in emails sent by Mr Patil to Mr Schreiner on 15 and 30 October 2015.
(ii)The Sundance parties contemplated preparing and providing to the Santos parties a draft document to effect the consent, should it be forthcoming.
(iii)Neither of the Santos parties was required to grant written consent so as to permit a change in control unless and until the terms upon which that consent was sought had been proffered.
In this respect, the Santos parties specifically rely upon their pleaded case at paragraphs 8.1, 8.11, 8.13, 8.14, 11.2, 11.3, 11.5.2, 11.6, 16.12 and 16.13 of the fifth reply and defence to counterclaim and third party action.
Third, the Santos parties maintain that the issue, that the consent to change in control of NSE was to be considered in the context of the Sundance parties’ intention to enter into a novation or assignment of its obligations generally in favour of Quintanilla, was a contested issue by the parties throughout the trial. In this respect, the Santos parties have drawn attention to: the manner by which they opened their case including a written opening provided before the commencement of the trial; the manner by which they closed their case on the basis that it was not unreasonable to have withheld consent in the absence of the draft documentation contemplated by both sets of parties; the fact that the topic was the subject of evidence in the form of contemporaneous written exchanges and evidence adduced from witnesses called by the Sundance parties; and the fact that the issue of whether the Sundance parties were seeking an assignment or a novation contemporaneously with the request for consent was raised by the Judge at the commencement of the trial.
In this latter respect, the following exchange occurred between the Judge and senior counsel for the Sundance parties during their opening at the commencement of the trial.[119]
[119] Trial Transcript (TT) 42.32-43.32. The issue was raised in an exchange with the Judge at TT47.1-47.13 and TT57.25-58.32.
HIS HONOUR:    You said then, and you say in your written opening that here was just change in control, it wasn't a novation but earlier on you did refer to there being an assignment from New Energy to Sundance. Given the prior recent transaction whereby Sundance did replace New Standard Energy so there was a novation, would not Santos have expected here that it would be a concomitant of the transaction that Quantanilla would be substituted for Sundance?
COUNSEL:In due course, as I think one of the communications in Santos referred to. In due course, that is not what was urgent.
HIS HONOUR:    What do you mean by in due course, before the transaction was completed, do you mean?
COUNSEL:Which transaction?
HIS HONOUR:    Again if we go back to the prior example, there was a simultaneous consent by Santos, or at least a formal consent by Santos in the same document as the novation.
COUNSEL:Yes.
HIS HONOUR:    So it was a three-way transaction?
COUNSEL:Correct.
HIS HONOUR:    Would that not have been contemplated here again, they just do the same thing?
COUNSEL:No.
HIS HONOUR:    No?
COUNSEL:Not necessarily, no, not at all.
HIS HONOUR:    If your client didn't spell out either Sundance is happy to stay in as the guarantor and the indemnifier, doesn't want to be released from that and doesn't propose Quantanilla replace it, unless your client said that Santos would expect it to go across, wouldn't it?
COUNSEL:Perhaps if I take your Honour to the events that followed. If your Honour is suggesting that there is some misunderstanding we would say that there could be no possible evidence to that effect.
Could I take your Honour through to the communications which follow?
The Santos parties further contend that the Sundance parties addressed this issue at trial[120] and were, in effect, at all times sufficiently on notice of it yet the first time they raised the pleading objection was in their written closing submissions in reply which was the submission rejected by the Judge in the extract from the trial reasons set out above.
[120] Citing by way of example the exchange between the Judge and counsel for the Sundance parties at TT365.34-366.17.
The Santos parties also contend that even if the issue had not been expressly or sufficiently pleaded the Sundance parties have suffered no prejudice from the manner by which the case was conducted. In their supplementary written submissions, the Sundance parties submit that prejudice follows because had they been properly on notice of this aspect of the Santos parties’ case they may well have conducted the trial differently including “may have also sought to adduce evidence from [various nominated persons]”.
In my view, the question of whether or not prejudice has been suffered by the Sundance parties does not arise. I am satisfied, on my review of the pleadings and the course of the trial,[121] that at all material times from commencement of the trial, the Sundance parties were on notice of the case in fact presented by the Santos parties and, ultimately, adopted by the Judge. I accept, as a complete answer to the Sundance parties’ complaint here the following submissions put by the Santos parties in their supplementary written submissions.
On a proper characterisation of the Reasons, the Judge did not isolate the fact that there was a request for novation that was indivisible from the request for consent, but instead assessed the appropriateness of the conduct of the Santos parties in a context where [the Sundance parties] proposed a provision of a draft Tripartite Agreement to give effect to the consent as well as the novation, indicated that they were preparing the documentation but never did, and where the Santos parties had made requests for the provision of the documentation that would “need to be executed as part of Santos providing consent”.
. . . .
The case was fought on the basis that the failure to provide the draft Tripartite Agreement was central to the question of whether the Santos parties were in breach of the Implementation Agreement in not providing their consent to a change in control. Inevitably, that called into question the purport and effect of the documentation that had been promised in the Schreiner email of 6 October 2015 pleaded at [11.2.2.2] of the Defence to Counterclaim (and reiterated in conversation pleaded by the appellants at [29.6 of the Counterclaim and in the Schreiner email of 8 October 2015 pleaded at [11.2.2.3] of the Defence to Counterclaim). As the Judge found, this documentation was known by both parties to encapsulate a novation, just as the previous transaction between Sundance and New Standard Energy had proceeded.
(Emphasis supplied)
(Footnotes omitted)
[121] As demonstrated in the various transcript references referred to by the Santos parties in this context.
The independent basis breach
The Sundance parties contend that their request for consent to the proposed change in control of NSE was unqualified, that is, it was never communicated to the Santos parties that it was to be conditional on the Santos parties agreeing to enter into a novation agreement. It was never communicated, nor did anyone at Santos (in particular Mr Patil) understand, that the Sundance parties did not seek consent to the change in control in the absence of the Santos parties also consenting to the novation.
In other words, the Sundance parties sought from the Santos parties only their consent to the proposed change in control of NSE, simpliciter. This was the only request for consent to which the Santos parties were required to respond. Had the Judge viewed the issue before the Santos parties as whether or not to consent to the proposed change in control of NSE independently of any novation or assignment for which consent might also be sought, such consent should readily have been given and was unreasonably withheld.
However, the independent basis for seeking consent to the change in control of NSE is not supported by the evidence of the interactions which took place between the Sundance parties and the Santos parties, as summarised earlier in these reasons. The Judge made the following finding which in my view is amply supported by the evidence.[122]
[T]hroughout the communications, the Sundance parties made it clear that they were seeking not only consent to a change in control of NSE but also as an integral part of the transaction consent to the substitution of QMC Australia (or perhaps another Quintanilla entity) for Sundance as a party to the Implementation Agreement, proposed that a new Tripartite Agreement would implement both the changes and the consents and foreshadowed providing to the Santos parties a draft new Tripartite Agreement.
[122] Trial Reasons at [480].
His Honour then summarised the evidence upon which he relied in support of this conclusion.[123] Again, I accept the Santos parties’ primary submission in opposition to the Sundance parties’ contention that the question of breach should have been determined on the independent basis, that is, that there was only a request for consent to a change in control of NSE.
Sundance's second contention proceeds on the premise that the request for a Change in Control can be viewed in isolation from its request to enter into a novation agreement. Whether or not that is possible as a matter of law, the question at hand is whether the Santos Parties breached a duty of cooperation given, as the judge held, there was no refusal of consent by the Santos Parties.[124] That can only be assessed in the context of the dealings as they actually proceeded, by which Sundance never conveyed to the Santos Parties a proposal for a mere Change in Control of NSE without an assignment of Sundance's rights and obligations.[125] It is entirely irregular to postulate that a normative assessment of the conduct of the Santos Parties (whether they failed to cooperate) is to be assessed on the basis of a hypothesis (that Sundance was not seeking a novation, and not promising draft documentation to effect both the novation and the consent) that is inconsistent with the actual dealings between the parties.
(Emphasis supplied)
(Footnotes in original)
[123] Trial Reasons at [481]-[502].
[124] Trial Reasons at [453], [491].
[125] Trial Reasons at [490].
The integrated basis breach

The Sundance parties further contend that, even on the basis as found by the Judge, that is, that an assignment of rights and obligations under the Implementation Agreement was an integral part of the proposed transaction for which the Santos parties’ consent was sought, the Judge should have concluded that the Santos parties were in breach by unreasonably withholding consent.
The Sundance parties contend that the question of unreasonableness in this context is to be determined on the basis of all the facts and circumstances.[126] They further contend that the facts and circumstances in the present case include:
(i)the Sundance parties’ communications to the Santos parties;
(ii)the Santos parties’ communications to the Sundance parties; and
(iii)the Santos parties’ internal communications.
It is submitted that the Judge focussed on the matters in (i) but did not take into account (ii) and (iii) when considering whether or not the Santos parties were in breach.
[126] Citing EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 at [115] (Buss JA with whom Owen and Newnes JJA agreed).
A review of the Judge’s reasons demonstrates that his Honour did take into account the matters referred to in (ii) and (iii) above. The Judge identified the relevant communications early in his judgment[127] and had regard to these communications when forming a number of his conclusions.[128] It is not the case that the Judge ignored this evidence and the Sundance parties’ quite detailed submissions on this topic are really to the effect that the Judge was in error as to the proper inferences to be drawn from this evidence, the weight to be given to aspects of this evidence and, ultimately, the Judge’s analysis of the evidence.
[127] Trial Reasons at [143], [146], [151], [444] and [445].
[128] Trial Reasons at [446], [485], [486], [488], [491], [492], [494], [496] and [498].
A number of submissions put on appeal on this topic replicate those that were put to the Judge and ultimately rejected by the Judge. I have reviewed the evidence sought to be relied upon by the Sundance parties in this context, the Judge’s reasons and the Sundance parties’ extensive submissions. Again, I can find no error in the Judge’s analysis. The Judge’s findings and ultimate conclusion were open to his Honour on the evidence. It was made plain to the Sundance parties that before the question of consent could be advanced the proposed new Tripartite Agreement that was to effect the consent to the change in control and the assignment of Sundance’s rights and obligations had to be provided to the Santos parties. In addition, as the Judge found, it was incumbent on the Sundance parties to identify the Quintanilla entity to whom it was proposed that Sundance’s rights and obligations would be assigned. It was open to the Judge to find, in all the circumstances, that:[129]
In the absence of the Sundance parties providing this information and documentation, particularly in light of the two requests by Mr Patil, the Santos parties were not in breach of clause 7 or the cooperation term until this information and documentation was provided to them. As it was never provided to them, they did not breach clause 7 or the implied cooperation term.
[129] Trial Reasons at [488].
Mr Patil’s conduct alone constituted a breach
The Sundance parties’ contentions with respect to this issue really are a subset or component of the contention just dealt with, that is, even if the integrated analysis were sustained, there was nevertheless a breach. The Judge had regard to all of the evidence in the trial bearing on Mr Patil’s involvement when concluding that the Santos parties did not breach clause 7 or any implied term as to cooperation. Again, having reviewed the evidence, I am not satisfied that the Judge erred in his assessment of Mr Patil’s role.
Conclusion as to appeal ground 1
I would dismiss appeal ground 1 of the Sundance parties’ second notice of appeal. The Judge did not err in concluding that the Santos parties had not breached clause 7 of the Implementation Agreement or any implied term as to cooperation. His Honour’s findings and conclusions with respect to breach were well supported by the evidence and open to his Honour.
Conclusion
For the reasons given, I would dismiss the Sundance parties’ appeal. It is not necessary to consider grounds 2 and 3 of the second notice of appeal or grounds 9, 10 and 11 of the Santos parties’ second notice of alternative contentions[130] which deal with questions of causation and assessment of loss.
[130] Grounds 5, 6, 7 and 8 in the first notice of alternative contentions were abandoned in the second notice.
LOVELL J: I agree for the reasons given by Nicholson J that the Sundance parties’ appeal should be dismissed.