Outback Energy Hunter Pty Ltd v New Standard Energy PEL 570 Pty Ltd - [2018] SASC 8

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
OUTBACK ENERGY HUNTER PTY LTD v NEW STANDARD ENERGY PEL 570 PTY LTD
[2018] SASC 8
Judgment of The Honourable Justice Blue
7 February 2018
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT
ACTION
Action by plaintiff (Outback) for payment of monthly cash calls or alternatively amounts billed in monthly expenditure statements payable by the first defendant (NSE) and guaranteed by the second defendant (Sundance).
Outback and NSE were parties to a joint venture in respect of Petroleum Exploration Permit 570. Their rights and obligations were governed in part by an Implementation Agreement. NSE was obliged to contribute 25 per cent of exploration costs incurred by Outback. Outback was entitled to issue monthly cash calls to NSE in respect of anticipated expenditure during the following month. Outback was to issue monthly expenditure statements to NSE in respect of actual expenditure incurred during the previous month.
Outback sues the defendants for $4,169,119 the subject of cash calls issued from September 2015 to June 2017 or alternatively $4,051,070 the subject of monthly statements issued from September 2015 to July 2017. In the further alternative, Outback sues the defendants for $4,187,782 pursuant to a cash call issued in July 2017.
The defendants contend that the cash calls did not give rise to a liability to pay under the Implementation Agreement because they were not accompanied by forward estimates of expenditure to be incurred in the following two months. Outback contends that this was not a condition of validity of cash calls (but rather an independent promise) and alternatively that the defendants waived or are estopped from relying upon this condition.
The defendants deny liability to pay the monthly statements because Outback elected to issue cash calls instead and because an endorsement on the monthly statements indicated that they were not issued under clause 4 of the Implementation Agreement.
Held:
1.       Outback has failed to establish that the defendants waived any requirement that cash calls be accompanied by forward estimates (at [267]).
2.       Outback has failed to establish conventional estoppel or promissory estoppel precluding the defendants from asserting that cash calls were required to be accompanied by forward estimates (at [275] and [279]).
3.       On the proper construction of clause 4 of the Implementation Agreement, NSE’s obligation to pay a cash call is dependent on the cash call being accompanied by forward estimates (at [303]). The cash calls were therefore not effective to require payment (at [367]).
4.       Outback is not required to elect between issuing cash calls and monthly statements. Outback is not precluded from suing on the monthly statements because it issued cash calls (at [320], [334]).
5.       Endorsements on the monthly statements referring to the Joint Operating Agreement did not prevent the monthly statements being issued under clause 4 of the Implementation Agreement (at [337]).
6.       The quantum of costs incurred by Outback the subject of the monthly statements is to be determined at a subsequent trial if it cannot be agreed. Subject to any quantum issues, Outback is entitled to judgment against the defendants for the amount billed in the monthly statements (at [340]-[341]).
CROSS ACTION
Cross action by Sundance and NSE for damages for breach of contract by not granting consent to a change in control of NSE.
Clause 7 of the Implementation Agreement precludes the assignment of interests and changes in control of a party without the written consent of the counterparty. It provides that consent is not to be unreasonably withheld where a party would continue to have the requisite financial and technical capabilities.
In October 2015, Sundance made a putative request to Outback and the second defendant to counter claim (Santos Queensland) for consent to a change in control of NSE from Sundance to QMC Australia Pty Ltd. Sundance had negotiated an agreement in principle with the Quintanilla group (of which QMC Australia was part) that Quintanilla would purchase the shares in NSE together with 25 per cent of other assets that had been acquired by Sundance from New Standard Energy Ltd and other assets and Sundance would purchase from Quintanilla certain oil and gas leases and wells (the Quintanilla transaction).
Sundance and NSE sue Outback and Santos Queensland by way of cross action for damages for breach of clause 7 of the Implementation Agreement by not granting consent to a change in control of NSE.
Held:
1.       Outback and Santos Queensland are not precluded by conventional or promissory estoppel from contending that any promise not unreasonably to withhold consent to a change in control was made only between Outback and NSE (at [369] and [379]).
2.       On its proper construction, clause 7 contains a promise not unreasonably to withhold consent to a change in control (at [403]).
3.       On its proper construction, the promisors/promisees in respect of that promise are both the immediate joint venturers (Outback and NSE) and their parents (Santos Queensland and Sundance) (at [416]).
4.       It is an implied term of the Implementation Agreement that, after receipt of a request for consent under clause 7, the counterparties will cooperate and do all things necessary to enable the proponents to enjoy the benefit of clause 7 (at [425]-[426]).
5.       Outback and Santos Queensland did not breach clause 7 or the implied cooperation term. The cross action fails.
(a)     The Sundance parties made a proposal for change in control, enlivening the Santos parties’ obligations under clause 7 of the cooperation term (at [447]).
(b)     If the parties’ communications had reached culmination, NSE would have had the requisite financial and technical capabilities because Mr Quintanilla would have become a guarantor in place of Sundance (at [455]).
(c)     The Sundance parties were not in breach of the Implementation Agreement as at 15 October 2015 as alleged by the Santos parties and even if they were it would be no excuse for a breach by the Santos parties of clause 7 (at [458], [461], [465], [469]-[474]).
(d)     The Santos parties did not breach clause 7 of the cooperation term because at all times Sundance proposed not only a change in control of NSE but also a substitution of a Quintanilla entity for Sundance but never provided the requisite information or draft documentation to the Santos parties (at [487]-[505]).

6.       On the assumption (contrary to the above conclusion) that Outback and Santos Queensland had been in breach, Sundance would have established that the breach was a cause of the loss of the opportunity to enter into the transaction (at [527]) and there was an 80 per cent probability that the Quintanilla transaction would have proceeded to completion (at [611]-[612]).
7.       On the assumption (contrary to the above conclusion) that Outback and Santos Queensland had been in breach, NSE has not established that the breach caused any loss and would not be entitled to any damages (at [531]).
8.       On the assumption (contrary to the above conclusion) that Outback and Santos Queensland had been in breach, Sundance has not established that if it had entered into the Quintanilla transaction it would be better off than its actual position not having entered into the transaction. The cross action would in any event fail.
(a)     It is necessary to compare the actual and hypothetical positions of Sundance on the assumption that the entire Quintanilla transaction would or would not have proceeded. This includes the purchase by Sundance of the oil and gas leases and wells from Quintanilla (the EFSE purchase). Sundance has failed to prove the relevant values in respect of those oil and gas wells and hence its overall financial position with and without the Quinanilla transaction (at [636]).
(b)     The assessed loss (before discount to 80 per cent) if the NSE share sale is considered in isolation is US$8,000,000 less A$571,344 (at [664]).
(c)     The assessed loss (before discount to 80 per cent) if the New Standard US asset sale is considered in isolation is US$720,000 (at [675]).
(d)     The assessed loss (before discount to 80 per cent) if the Charlotte Ranch sale is considered in isolation is US$240,000 (at [682]).
(e)     Sundance has failed to prove the quantum of loss if the Elixir shares sale is considered in isolation (at [687]).
(f)      Sundance has failed to prove that it suffered a loss comprising attorney’s fees charged to it in negotiating the Quintanilla transaction (at [691]).
(g)     Sundance has failed to prove the quantum of loss if the EFSE purchase is considered in isolation (at [718]).

9. Cross action dismissed (at [726]).
Corporations Act 2001 (Cth) s 50AA; Internal Revenue Code 1986 (USA), referred to.
Byrnes v Kendle [2011] HCA 26, (2011) 243 CLR 253; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305; C Czarnikow Ltd v Koufos [1969] 1 AC 350; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, (2014) 251 CLR 640; European Bank Limited v Robb Evans of Robb Evans & Associates [2010] HCA 6, (2010) 240 CLR 432; Hadley v Baxendale (1854) 9 Exch 341; Haines v Bendall (1991) 172 CLR 60; Ideal Film Renting Company Limited v Nielsen [1921] 1 Ch 575; Johnson v Perez (1988) 166 CLR 351; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70, (2001) 210 CLR 181; Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; Mallett v McMonagle [1970] AC 166; McCann v Switzerland Insurance Australia Ltd [2000] HCA 65, (2000) 203 CLR 579; March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506; Robinson v Harman (1848) 1 Ex 850, (1848) 154 ER 363; Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443; Sellars v Adelaide Petroleum (1994) 179 CLR 332; St Barbara Ltd v Hockley [No 2] [2013] WASC 358; St Hilliers (Developments) Pty Ltd v Radmanovich [2002] NSWSC 524; Todorovic v Waller (1981) 150 CLR 402, considered.

OUTBACK ENERGY HUNTER PTY LTD v NEW STANDARD ENERGY PEL 570 PTY LTD
[2018] SASC 8
Civil:
BLUE J:

This is an action for payment of contributions to exploration expenditure incurred by the plaintiff Outback Energy Hunter Pty Ltd (Outback) pursuant to an Implementation Agreement and a cross action by the defendants New Standard Energy PEL 570 Pty Ltd (NSE) and Sundance Energy Australia Limited (Sundance) against Outback and Santos QNT Pty Ltd (Santos Queensland) for damages for breach of the Implementation Agreement by not granting consent to a change in control of NSE.
Outback effectively holds a 35 per cent interest in a joint venture (the Joint Venture) which owns the licensee’s interest in Petroleum Exploration Permit 570 (the Permit). NSE holds a 17.5 per cent interest in the Joint Venture. Outback is required under its agreement with Ambassador Exploration Pty Ltd (Ambassador) – the remaining 47.5 per cent interest holder – to expend the first $42.5 million in exploration costs under the Permit (the Earn-in Obligation). The Earn-in Obligation is divided as to 75 per cent to Outback and 25 per cent to NSE.
The respective rights and obligations of Outback and NSE are contained in an Implementation Agreement between Outback, Santos Queensland, NSE and New Standard Energy Limited (New Standard) executed in October 2014 (the Implementation Agreement). Pursuant to an Assignment, Assumption and Consent – Implementation Agreement between New Standard, Sundance, Outback, Santos Queensland and NSE executed in August 2015 (the Tripartite Agreement), New Standard assigned to Sundance its rights and obligations under the Implementation Agreement and effectively Sundance became a party thereto in lieu of New Standard. This included Sundance becoming a guarantor of the obligations of NSE under the agreement.
Clause 4 of the Implementation Agreement addresses the division of the Earn-in Obligation, requires Outback to issue to NSE monthly statements of expenditure and entitles Outback to issue to NSE cash calls for estimated expenditure in advance.
Clause 7 of the Implementation Agreement precludes the assignment of interests and changes in control of a party without the written consent of the counter party and provides that consent is not to be unreasonably withheld where a party would continue to have the requisite financial and technical capabilities.
Between September 2015 and June 2017 Outback issued to NSE monthly cash calls for amounts totalling $4,169,119.[1] Outback sues NSE and Sundance (collectively the Sundance parties) for this amount. They deny liability primarily because the cash calls were not accompanied by forward estimates for the following two months which they contend were essential for the cash calls to be valid and effective.
[1] All dollar figures referred to herein are rounded to the nearest whole dollar unless otherwise shown.
Between September 2015 and July 2017 Outback issued to NSE monthly expenditure statements (except in respect of April 2016) for amounts totalling $4,051,070.[2] Outback sues the Sundance parties for this amount in the alternative to its claim for payment of the cash calls. They deny liability primarily because they contend that Outback elected to issue cash calls in respect of the months for which the monthly statements were issued.
[2] The monthly statement for April 2016 showing expenditure of $102,463 was not served by Outback on NSE and Outback does not sue in this action for that amount. The total of the monthly statements including the statement for April 2016 that was not served is $4,153,532. This statement is included in the table at [333] below even though Outback does not sue for it.
In July 2017 Outback issued to NSE a cash call for $4,187,782 for August 2017 plus arrears. Outback sues the Sundance parties for this amount in the alternative to its claim for payment of the amounts of the monthly statements. They deny liability primarily because the two preceding cash calls did not contain forward estimates in respect of August 2017.
In August 2015 Sundance had acquired the shares in NSE from New Standard Energy Limited (New Standard) together with interests in certain oil and gas leases and wells in Texas and Colorado and certain shares in Elixir Petroleum Limited. At the time of this acquisition, Sundance had reached an agreement in principle with the Quintanilla group to on-sell 25 per cent of the assets to be acquired from New Standard together with 25 per cent of an oil and gas lease over approximately 1,600 acres in Texas (the Charlotte Ranch lease). In September 2015 this agreement in principle was varied such that the Quintanilla group would acquire 100 per cent of the shares in NSE instead of 25 per cent. It was a component part of the agreement in principle between Sundance and the Quintanilla group that Sundance purchase from the Quintanilla group certain oil and gas leases and wells in Texas.
In October 2015 Sundance made a putative request to Outback and Santos Queensland (collectively the Santos parties) for consent to a change in control of NSE from Sundance to QMC Australia Pty Ltd. There were communications between the parties concerning this request during October 2015 but no substantive response was ever given by the Santos parties to the request.
The Sundance parties sue the Santos parties by way of cross action for damages for breach of the Implementation Agreement by not granting consent to a change in control of NSE. Sundance claims damages assessed on a loss of opportunity basis in respect of:
1.Permit related assets and liabilities:
(a)     US$8 million being the price of the shares in NSE proposed to be sold by Sundance to the Quintanilla group;
(b)    A$1,934,656 being cash calls paid by Sundance that would have been reimbursed by the Quintanilla group upon the sale of the NSE shares;
(c)    A$8,613,118 being the balance of cash calls payable by Sundance as guarantor of the obligations of NSE pursuant to the joint venture agreement;
2.Other assets:
(a)     US$1,694,000 in relation to the proposed sale to the Quintanilla group of 25 per cent of New Standard’s US assets;[3]
(b)    US$358,000 in relation to the proposed sale to the Quintanilla group of 25 per cent of the Charlotte Ranch lease;
(c)    A$35,466 in relation to the proposed sale to the Quintanilla group of 25 per cent of the Elixir shares acquired from New Standard;
(d)    at least US$70,000 being legal costs charged to Sundance by its attorneys AM Hunter III & Associates in relation to the proposed transactions with the Quintanilla group.
PART A: BACKGROUND
The parties
[3]    Sundance claims in the alternative US$2,229,000 or US$3,257,250 as explained in Part G below.
The Santos group
Outback was at material times wholly owned by Santos Queensland[4] which in turn was wholly owned directly or indirectly by Santos Limited (Santos Limited). I refer to Santos Limited and its subsidiaries (including Outback and Santos Queensland) collectively as Santos.
[4] Santos Queensland acquired all of the issued shares in Outback from New Standard Energy Limited pursuant to an agreement dated 22 October 2014.
Outback and Santos Queensland did not engage their own staff but Santos staff performed all functions on their behalf. Santos Queensland conducted certain operations in the Northern Territory and the Cooper basin in its own right as well as owning the shares in Outback. Outback’s only function was to act as a joint venturer in respect of the Permit.
Santos was divided operationally into business units. One business unit was the Eastern Australian Business Unit (the EABU). A Vice President (level 2), reporting directly to the Chief Executive Officer (level 1), was in charge of the Unit (the Vice President). There was a restructure of the EABU announced on 31 August 2015 and the subject of a new organisation chart dated 7 September 2015 (the August restructure). It was part of a larger restructure of Santos implemented between August and October 2015.
James Baulderstone was the Vice President until the August restructure (when he became Vice President Corporate Development) and thereafter Brett Woods was the Vice President.
There were six General Managers (level 3) who reported to the Vice President. They were each in charge of a unit. Until the August restructure, Peter Cleary was General Manager Commercial & Planning[5] and thereafter Mark Greenwood became General Manager Commercial & Planning. Mr Greenwood was responsible amongst other things for commercial operations, planning and upstream joint venture commercial.
[5] Titles of the various positions mentioned herein before the August restructure often differed from the titles of positions after the restructure. The duties also differed to some extent but there was a relatively high degree of overlap in the duties before and after the restructure. Generally evidence was not given of the earlier titles. For convenience I refer to the positions by reference to their titles after the August restructure.
There were four Managers (level 4) who reported to the General Manager Commercial & Planning. Until the August restructure, Phillip Solomon was Manager Commercial and thereafter Mike Flynn became Manager Commercial. The Manager Commercial was responsible amongst other things for commercial arrangements with upstream and downstream parties. Jim Wilton was Commercial Manager Oil & Gas (level 5). He reported to Mr Solomon/Mr Flynn. Parimal Patil reported to Mr Wilton.

Until the August restructure Mr Greenwood was Manager Portfolio & Business Development (level 4). Thereafter Stephen Mudge was Manager Portfolio & Business Development. He was responsible amongst other things for farm in and farm out arrangements and other acreage alterations.
Until the August restructure Carl Greenstreet was General Manager Development (level 3).[6] Thereafter Chad Wilson became General Manager Development. Bronwyn Camac was Manager Cooper Unconventional Resources, responsible for underground exploration and production reporting to Mr Greenstreet/Mr Wilson.
[6] The actual title of his position was General Manager Unconventional Resources.
Ben Hughes was Legal Manager Eastern Australia in charge of internal legal work performed for the Unit. He reported directly to the Vice President. Andrew Galkowski and Amelia Senneck were solicitors working under Mr Hughes’ supervision.
The Sundance group
Sundance was at all material times a company whose shares were listed on the Australian Stock Exchange. At material times NSE was wholly owned by Sundance.[7]
[7] Sundance acquired all of the issued shares in NSE on 10 August 2015 from New Standard.
Eric McCrady was Sundance’s Chief Executive Officer. Cathy Anderson was its Chief Financial Officer. Grace Ford was its Chief Operating Officer. They were based in Denver Colorado.
SEA Eagle Ford LLC (Sundance Texas) was a wholly owned subsidiary of Sundance. It owned petroleum leases and wells (often in joint ventures) in the Eagle Ford field in South Texas.
AM Hunter III & Associates Limited (Hunter & Associates) were attorneys based in Denver Colorado. Kip Hunter was the principal attorney and he was assisted by a junior attorney Matt Schreiner. Hunter & Associates advised and represented Sundance in relation to the transactions with New Standard and the ex-New Standard US and Australian asset transactions with Quintanilla.
Boigon Law were attorneys based in Denver Colorado. Howard Boigon was the principal attorney. Boigon Law advised and represented Sundance in relation to the EFSE purchase from Quintanilla.
Baker & McKenzie Sydney were solicitors based in Sydney. They advised Sundance (often via Hunter & Associates) in relation to Australian aspects of the transactions with New Standard and Quintanilla.
The New Standard group
New Standard was at all material times a company whose shares were listed on the Australian Stock Exchange. Phil Thick was its managing director.
Outback was a wholly owned subsidiary of New Standard prior to November 2014 (when its shares were sold to Santos). NSE was a wholly owned subsidiary of New Standard prior to August 2015 (when its shares were sold to Sundance).
New Standard Energy Inc (NSE Colorado) was at all material times a wholly owned subsidiary of New Standard. NSE Colorado held interests in mineral leases in Colorado with a gross acreage of 3,171 acres[8] and a net acreage (NSE Colorado’s share) of 1,671 acres prior to August 2015 (when the leases were sold to Sundance).
[8] All acreage figures referred to herein are rounded to the nearest whole acre.
NSE Texas Inc (NSE Texas) was a wholly owned subsidiary of NSE Colorado and indirectly of New Standard prior to August 2015 (when its shares were sold to Sundance). NSE Texas held interests in:
·mineral leases in the Eagle Ford field with a gross acreage of 7,459 acres and a net acreage of 5,539 acres; and
·eight wells in the Eagle Ford field.
New Standard was the owner of 121,734,102 shares (the Elixir shares) in Elixir Petroleum Limited (Elixir) prior to August 2015 (when the Elixir shares were sold to Sundance). Elixir was a company whose shares were listed on the Australian Stock Exchange.
Murcia Pestell Hillard were solicitors based in Perth. They were New Standard’s principal solicitors.
The Quintanilla group
At all material times Quintanilla Management Company (QMC) was a company incorporated in Texas and owned by Leo Quintanilla (Mr Quintanilla) and his immediate family.
Mr Quintanilla was a director of QMC. Brad West was President, Chief Executive Officer and a director of QMC. Paul Perry was Executive Vice President, Chief Financial Officer and a director of QMC.
There were approximately 70 companies and entities in the Quintanilla group (Quintanilla) owned directly or indirectly by Mr Quintanilla and his family. Mr West was Chief Executive Officer and a director of the companies. Mr Perry was Executive Vice President and a director of the companies. QMC operated as the manager of companies and entities in the Quintanilla group.
Stacey Shivers was Senior Vice President for Exploration and Production of several companies in the Quintanilla group. Marcello Tamez was General Counsel of the Quintanilla group.
One of the Quintanilla companies was Eagle Ford Shale Exploration LLC (EFSE1). It was incorporated in 2012 to enter into a 50/50 joint venture with Sundance to drill and operate wells in the Eagle Ford field in respect of approximately 5,000 acres. It also entered into a 25/25/50 joint venture with Wellhauen (25 per cent) and Sundance (50 per cent) in respect of approximately 1,000 acres. As at January 2015 these joint ventures (collectively the Eagle Ford joint venture) had interests in 6,015 gross acres.
Another company was Eagle Ford Shale Exploration II LLC (EFSE2). It was incorporated in 2014 to enter into a 10/90 joint venture with Chesapeake Energy to drill and operate wells in the Eagle Ford field. I refer to EFSE1 and EFSE 2 collectively as EFSE. I refer to their assets collectively as the EFSE assets.
Another company was the Paloma Cattle Company Ltd (Paloma).
Quintanilla owned oil and gas leases over approximately 660 acres of land in the Eagle Ford field (the XTO assets) subject to leases to XTO and other lessees.
Mr Quintanilla owned oil and gas leases over approximately 15,000 to 20,000 acres of land in Texas.
On 27 and 28 July 2015 respectively QMC-NSE USA, LLC and QMC-NSE Australia LLC (QMC Australia US) were incorporated in Texas. They were both owned by Mr Quintanilla. Their directors included Mr Quintanilla, Mr West and Mr Perry.
On 14 October 2015 QMC Australia Pty Ltd (QMC Australia) was incorporated in Australia. It was wholly owned by QMC Australia US. Its directors were Mr West, Mr Perry and Ian Gregory.
Winstead Attorneys are attorneys based in San Antonio and elsewhere in Texas. They were Quintanilla’s principal attorneys. Steven Jacobs, Jon Ray and Noah Speck were attorneys who worked on the transactions with Sundance.
Jackson McDonald in Perth acted as solicitors for Quintanilla in relation to Australian transactions. Will Moncrieff and Tim Williams were attorneys who worked on the transactions with Sundance.
The Permit
On 5 September 2011 the Permit was granted to Ambassador for a term of five years. Ambassador was a subsidiary of Ambassador Oil & Gas Limited. The Permit gave exploration rights over three non-contiguous areas totalling approximately 2,400 square kilometres in the Moomba gas field. The Permit imposed minimum work requirements on the licensee, including to:
·drill one well in year one, two wells in each of years two, three and four, and one well in year five;
·undertake 2D seismic exploration over 300 kilometres in year one; and
·undertake 3D seismic exploration over 100 square kilometres in each of years one and two.
In September 2011 licence conditions were suspended for one year, which resulted in the Permit’s expiry date being extended by one year to 5 September 2017. In February 2013 licence conditions were suspended for one year, which resulted in the Permit’s expiry date being extended to 5 September 2018.
In December 2013 Outback (then wholly owned by New Standard) and Ambassador entered into a Farmin Agreement (the Farmin Agreement). Pursuant to the Farmin Agreement the parties formed the Joint Venture to undertake exploration, development and production operations within the area subject of the Permit. Outback acquired a 52.5 per cent interest in the Permit. Outback agreed to carry out all permit operations until the costs thereof amounted to $42.5 million (the Earn-in Obligation). Completion of the Farmin Agreement occurred in February 2014.
The terms of the Joint Venture were contained in schedule 2 (the Joint Operating Agreement). The parties agreed to negotiate in good faith a more complete joint operating agreement but this never apparently occurred.
In July 2014 licence conditions were suspended for six months, which resulted in the Permit’s expiry date being extended to 7 March 2019.
In July 2014 the minimum work requirements contained in the licence conditions of the Permit were varied to substitute the following:
·undertake geological and geophysical studies in years 1, 4 and 5;
·undertake 3D seismic exploration over 500 square kilometres in year 2;
·drill two wells in year 2 and one well in year 3.
In September 2014 Outback and NSE (both then wholly owned by New Standard) entered into a Transfer Agreement and a Deed of Assignment and Assumption pursuant to which NSE acquired a 17.5 per cent interest in the Permit and NSE agreed to fund 25 per cent of the Earn-in Obligation.
In October 2014 Drillsearch Energy Limited (Drillsearch) acquired all of the shares of Ambassador Oil & Gas Limited. Drillsearch thereby effectively acquired ownership and control of Ambassador’s 47.5 per cent interest in the Permit. Drillsearch did not acquire any other substantial assets apart from the 47.5 per cent interest in the Permit.
In October 2014 New Standard and Santos Queensland entered into a Share Sale Agreement to which NSE was also a party (the Share Sale Agreement). The Share Sale Agreement provided for the sale by New Standard to Santos Queensland of all of the issued shares in NSE for $7.5 million.
In October 2014 Outback, Santos Queensland, NSE and New Standard entered into the Implementation Agreement. The parties acknowledged that the remaining costs to be expended to satisfy the Earn-in Obligation were $42,191,134.
Clause 2.4 provided that the intention of the agreement was that the rights and obligations attributable to NSE’s 17.5 per cent interest were effectively passed through by Outback to NSE (except in respect of the Earn-in Obligation in respect of which NSE bore responsibility for only 25 per cent). Clause 3 addressed the work program and budget. Clause 4 addressed the division of the Earn-in Obligation and provided for a cash call process and monthly statements of expenditure. Clause 7 addressed the assignment of interests and changes in control of a party.
Effectively the participants in the Joint Venture became:
·Ambassador (ultimately owned by Drillsearch);
·Outback (ultimately owned by Santos Limited);
·NSE (ultimately owned by New Standard).
In March 2015 the minimum work requirements contained in the licence conditions of the Permit were varied to substitute the following:
·undertake geological and geophysical studies in year 1;
·undertake 3D seismic exploration over 240 square kilometres in year 2 and 275 square kilometres in year 5;
·drill two wells in year 2 and one well in each of years 3 and 4.
In January 2017 licence conditions were suspended for 12 months, which resulted in the Permit’s expiry date being extended to 6 March 2020.
The Eagle Ford field
The Eagle Ford or Eagle Ford Shale is an area of rock in South Texas which contains a narrower area productive of oil and gas (the Eagle Ford field). The Eagle Ford field is approximately 150 miles long and between approximately 10 and 40 miles wide. Oil and/or gas are present at depths ranging from 3,000 feet to 25,000 feet. Exploration is relatively low risk because the majority of wells drilled strike oil and/or gas. Sundance has drilled approximately 100 wells and all have struck oil and/or gas.
The Eagle Ford field produces approximately 1.1 million barrels of crude oil per day. This represents approximately 10 per cent of total United States onshore production. The Eagle Ford field also produces significant quantities of gas.
As at December 2014 the Quintanilla group had interests in wells and exploration licences in the Eagle Ford field and in addition had an entitlement to royalties of US$120 to US$150 million per year. Direct production (as opposed to royalties) by the Quintanilla group was approximately 1,600 barrels of oil equivalent (BOEs) of oil and gas.
As at December 2014 Sundance had interests in wells and exploration licences in the Eagle Ford field. It was producing approximately 9,500 BOEs per day in the Eagle Ford field. Sundance and the Quintanilla group were parties to several joint ventures in the Eagle Ford field.
As at December 2014 New Standard had interests in wells and exploration licenses in the Eagle Ford field. It was producing approximately 200 BOEs per day in the Eagle Ford field. Its two main leases were close to leases operated by Sundance.
Dealings between Santos, Quintanilla and Sundance
In 2013 Mr Baulderstone and others visited Quintanilla in Texas and met with Mr West. Mr Balderstone expressed interest in engaging Quintanilla to provide project management services to Santos in its oil and gas field development activities in Australia.
In September 2014 Mr West started investigating Quintanilla becoming involved in the Australian oil and gas market.
In December 2014 Mr Quintanilla, Mr West and Mr Shivers visited South Australia and met with Santos personnel. Mr Baulderstone invited Mr Quintanilla and Mr West to the test cricket match at Adelaide Oval. Mr Shivers visited Moomba hosted by Santos personnel.
There were discussions between Mr Balderstone and Mr Solomon and Mr West amongst other things about the possibility of Quintanilla undertaking drilling for Santos in the Cooper Basin on a contract and/or equity basis including in the area the subject of the Permit. Mr West spoke to a major shareholder of New Standard who suggested that Quintanilla buy New Standard.
At the same time Mr McCrady spoke to members of the board of New Standard who inquired whether Sundance was interested in purchasing New Standard.
Mr West and Mr McCrady exchanged a number of telephone calls. Mr West informed Mr McCrady of his interest in the Permit. Mr McCrady informed Mr West of his interest in acquiring New Standard’s interests in the Eagle Ford field. On 18 December 2014 Mr McCrady sent to Mr West information concerning New Standard including its interests in the Eagle Ford field and Cooper basin.
On 19 December 2014 Santos and QMC executed a confidentiality agreement as the prelude to Santos providing information to Quintanilla about Permit matters and another area in the Cooper basin in which Santos had an interest.
On 6 January 2015 Mr McCrady sent to Mr West information provided by New Standard concerning its joint venture arrangements with Ambassador and Santos in relation to the Permit.
By 5 February 2015 Mr McCrady and Mr West had agreed that, if Sundance were to acquire New Standard or its assets, Quintanilla would acquire 25 per cent of the assets acquired by Sundance for a 25 per cent uplift on the price paid by Sundance to New Standard. This was confirmed in an email by Mr McCrady to his fellow Sundance board members on 5 February 2015.
I accept Mr McGrady’s evidence that his interest was in acquiring New Standard’s interests in the Eagle Ford field and he was not interested in acquiring its interest in the Permit as such but was prepared to do so as part of an overall acquisition. I accept Mr West’s evidence that his primary interest was in acquiring an interest in the Permit and that he wished ultimately to acquire 100 per cent of New Standard’s interest therein. I find that Mr McCrady and Mr West did not fully disclose to each other where their respective primary interests lay at that point for tactical reasons.
On 17 February 2015[9] Quintanilla’s attorneys Winstead sent to Mr Solomon of Santos a draft term sheet for a contract operating arrangement.
[9] All dates for email and telephone communications between the USA and Australia are Australian dates. All dates for communications within the USA are US dates.
On 5 March 2015 Mr Tamez sent to Mr Balderstone a proposed confidentiality agreement between Quintanilla, Sundance and Santos in connection with upcoming discussions involving a possible transaction relating to New Standard.
Between 16 and 18 March 2015 Mr West, Mr Shivers and Mr Eustace visited South Australia. They met with several Santos personnel and were taken by Santos to Moomba.
On 19 March 2015 Mr West sent to Mr Balderstone a document containing information concerning Quintanilla and its interests in South Texas and New Mexico.
In the first quarter of 2015 Sundance and New Standard undertook negotiations. By the end of March agreement appeared imminent for Sundance to purchase all shares in New Standard but this did not eventuate.
EFSE assets
In around May 2015 Mr McCrady and Mr West agreed in principle that Sundance would purchase the assets of, or shares in, EFSE for US$50.5 million calculated as at 1 April 2015 and adjusted (as is customary in the US oil and gas industry) for depletion of oil and gas between that date and the date of completion of the transaction.
The price was negotiated on the premise of the crude oil price as at 1 April 2015. At that date the spot price of West Texas Intermediate crude oil (WTI) FOB at Cushing (the WTI price) was US$50.12 per barrel and was rising. The futures prices were also rising.
For the purposes of negotiations, Sundance’s Director of Reservoir Engineering (Mr Ramsden-Wood) prepared a spreadsheet forecasting future production, revenue and net cash flow from wells on the land the subject of the EFSE assets (the April 2015 EFSE forecast). He input future oil prices ranging from US$51.39 per barrel in April 2015 to US$61.84 per barrel in 2023/2024 (average US$61.43). The spreadsheet calculated cumulative net discounted income of US$77.928 million.[10]
[10] This figure is based on a gross net income figure of US$134.070 million discounted to the cumulative net income figure.
Mr McCrady and Mr West agreed that the purchase price would be paid partly in cash and partly in Sundance shares. The share component was to be calculated based on Sundance’s share price at 1 April 2015 which was $0.50 per share. The deduction for depletion of oil and gas was to be based on the revenue received by EFSE between 1 April 2015 and completion and was to be deducted from the cash component of the price.
Mr McCrady and Mr West subsequently agreed in principle that Sundance would purchase the XTO assets owned by Mr Quintanilla for US$12 million (half in cash and half in Sundance shares) conditional on the leases in favour of XTO and others being terminated.
The New Standard transaction
In the second quarter of 2015 Sundance recommenced negotiations with New Standard at the urging of New Standard’s bankers Credit Suisse. New Standard was not willing to negotiate to sell its US assets other than as part of a package including the sale of its interest in the Permit. Agreement was reached by mid June 2015.
On 17 June 2015 Mr McCrady sent to Mr West a draft of the ASX Announcement to be made upon execution of a contract with New Standard. The draft summarised the transaction broadly as summarised below. It included the following statement:
Upon closing of the SSA, Sundance will sell 25% of the New Standard assets and 400 net acres (25%) of Sundance’s Charlotte Ranch lease in Atascosa County, Texas to Quintanilla Management Company (“QMCTX”) for cash.
It had been agreed between McCrady and Mr West since December 2014/January 2015 that the Quintanilla group would acquire 25 per cent of the assets acquired by Sundance from New Standard for a 25 per cent uplift on the price paid by Sundance. At some point it was agreed that Sundance would sell a 25 per cent interest in its Charlotte Ranch lease in the Eagle Ford field to Quintanilla at the same time at the same price uplift.

On 17 June 2015 Mr West suffered an injury to his eye. This resulted in a number of hospital admissions and absences from work from time to time over the next six months.
On 26 June 2015, as part of the New Standard transaction, Sundance acquired the Elixir shares from New Standard for $243,468.
On 29 June 2015 New Standard, NSE Inc and Sundance entered into a Share and Asset Sale Agreement (the New Standard agreement). The agreement provided for the sale (the New Standard transaction) by New Standard and NSE Colorado to Sundance of:
·NSE Colorado’s shares in NSE Texas;
·New Standard’s shares in NSE;
·the Elixir shares;
·the Colorado leases;
·hedges covering approximately 23,000 barrels of oil at an average floor price of $78 per barrel
(collectively the New Standard assets) in return for:
·payment by Sundance of the indebtedness of NSE Colorado and NSE Texas to Credit Suisse of approximately US$16 million;
·the issue of 6 million ordinary shares in Sundance to New Standard (valued at $3.18 million);
·the assumption by Sundance of New Standard’s working capital deficiency of approximately $0.9 million;
·payment of $243,468 for the Elixir shares (already made).
Completion of the New Standard transaction (except the Elixir shares) was subject to several conditions. One condition was New Standard shareholder approval. Another condition (under clause 4.1(e)) was New Standard having obtained the written consent (on terms reasonably acceptable to it and Sundance) of the Santos parties to:
·the change in control of NSE contemplated in the agreement; and
·the assignment of New Standard’s rights and obligations under the Implementation Agreement to Sundance with effect on and from completion.
On 29 June 2015 Sundance issued an ASX Announcement in relation to the New Standard agreement largely in terms of the draft that had been sent to Mr West on 23 June.
On 29 June 2015 New Standard issued an ASX Announcement in relation to the New Standard agreement identifying the total consideration for the sale of the assets as being approximately $24 million.
On 29 June 2015 Mr Patil sent an email to Mr Solomon saying that he thought that Mr Solomon was right that Sundance was selling 25 per cent to Quintanilla on completion of the transaction. Mr Solomon on forwarded the email to Mr Balderstone saying that Mr West had been busy, Sundance had bought out New Standard in Australia and Quintanilla had taken 25 per cent of what Sundance had purchased.
Dealings between New Standard/Sundance and Santos
On 29 June 2015 Mr Thick sent an email to Dr Camac attaching New Standard’s ASX announcement and asking her to advise the relevant people within Santos and Drillsearch.[11]
[11] The emails referred to herein were frequently copied (and sometimes addressed) to multiple persons as well as the primary addressee. However I generally only refer to the primary addressee.
On 7 July 2015 Mr Thick sent an email to Mr Greenwood and Dr Camac referring to clause 4.1(e) of the New Standard agreement, saying that New Standard and Sundance had jointly drafted the attached Deed of Assignment, Assumption and Consent (the draft tripartite agreement) and asking them to advise to whom it needed to go for action within Santos.
The draft tripartite agreement provided amongst other things that with effect on and from the date of completion of the New Standard agreement Sundance assumed all of the obligations of New Standard under the Implementation Agreement; Sundance warranted in favour of the Santos parties that NSE would continue to have the financial and technical capabilities to perform the obligations for which it is or will become responsible and Sundance has the financial and technical capabilities to perform the obligations for which it will become responsible pursuant to the assignment; the Santos parties released New Standard in respect of obligations under the Implementation Agreement and the Santos parties consented to the change in control of NSE and to the assignment by New Standard to Sundance of its rights and obligations under the Implementation Agreement.
On 10 July 2015 Dr Camac sent an email to Mr Thick attaching cash call projections for August to December 2015. It showed total projected expenditure of $17.113 million of which New Standard’s share was $4.278 million.
On 12 July 2015 Mr Thick sent an email to Mr Greenwood and Dr Camac asking for feedback on the draft tripartite agreement. On 13 July Mr Greenwood sent an email to Mr Mudge asking him to look at it with Dr Camac and respond. Mr Mudge sent an email to Dr Camac saying that he did not think that Santos had much cause to not provide consent and he recalled that Dr Camac was just waiting on Mr Galkowski to review the deed. Dr Camac sent an email to Mr Mudge saying that Mr Galkowski was looking at the draft tripartite agreement.
On 15 July 2015 Santos sent by email to Mr Thick a cash call for August 2015. It forecast expenditure in August of $3,923,000 of which NSE’s share was $980,750. One instalment of $585,215 was payable on 3 August and the balance of $392,300 was payable on 20 August. It stated that in addition a balance of $8,300 was outstanding from the cash call for July
On 15 July 2015 Mr Thick responded saying that New Standard could not pay the first instalment due on 3 August and asking for the date to be adjusted to allow Sundance to make payment post-completion. On 16 July Mr Thick sent an email to Mr McCrady attaching the cash call issued by Santos for August and saying that he had asked Santos to push the payment out to post-completion.
On 22 July 2015 Mr Thick sent an email to Mr Greenwood and Dr Camac saying that the Sundance transaction was due to close in less than two weeks and asking again for Santos’ response to the draft deed sent on 7 July.
On 23 July 2015 Mr Galkowski sent an email to Mr Mudge and Dr Camac attaching a revised version of the draft tripartite agreement. On 24 July Mr Mudge sent an email to Mr Thick attaching the revised version of the agreement. He said that he would revert to Mr Thick on 27 or 28 July concerning clause 4 which acknowledged no breach by New Standard.
On 29 July 2015 Mr Thick sent an email to Mr Mudge saying that “we” (who I infer was New Standard and Sundance) were happy with Santos’ changes to the draft agreement and asking for feedback on clause 4 so that it could be finalised.
On 3 August 2015 Mr Mudge sent an email to Mr Thick saying that Santos was happy with the draft agreement. Mr Thick sent an email to Mr Mudge enclosing the final agreement for execution.
On 3 August 2015 New Standard did not pay the first instalment of the cash call of $585,215 because it did not have the funds to do so.
On 4 August 2015 New Standard shareholders approved the New Standard transaction.
On 6 August 2015 Mr Mudge sent an email to Murcia Pestell Hillard, solicitors for New Standard, attaching an amended version of the draft tripartite agreement whereby Sundance’s assumption of liability was to apply to any outstanding cash calls issued on or after 14 July 2015 and not just from the completion date. This was intended to catch the cash call issued on 15 July and due on 3 August that New Standard was unable to pay.
On 7 August 2015 Sundance, New Standard and NSE executed the Tripartite Agreement.
On 10 August 2015 Murcia Pestell Hillard sent an email to Mr Mudge and Mr Galkowski attaching the executed Tripartite Agreement.
On 10 August 2015 Mr Solomon and Mr Mudge executed the Tripartite Agreement on behalf of the Santos parties.
On 10 August 2015 completion of the New Standard transaction occurred.
On 10 August 2015 Sundance issued an ASX Announcement that completion of the New Standard transaction had occurred (the 10 August ASX announcement). The announcement included a statement that:
Sundance plans to sell 25% of the assets acquired from NSE plus approximately 400 net acres (25%) of Sundance’s Charlotte Ranch lease in Atascosa County, Texas to Quintanilla Management Company (“QMC”) and expects closing of the transaction to occur within the next several weeks.
On 10 August 2015 Troy Kennewell of Santos sent an email to Sundance requesting payment of the overdue first instalment of the August cash call of $585,215 and noting that the second instalment of $392,300 would become due on 20 August.
On 13 August 2015 Mr McCrady approved payment by Sundance of $997,515 to Santos in payment principallyof the August cash calls. $585,215 was transferred by Sundance to a bank account of Santos in payment of the first instalment.
On 15 August 2015 Santos sent by email to Sundance a cash call for September 2015. It forecast expenditure in September of $3,434,000 of which NSE’s share was $858,500. It stated that there was an opening credit of $12,772 and the total to be paid would therefore be $845,728. One instalment of $502,328 was payable on 3 September and the balance of $343,400 was payable on 20 September.
On 21 August 2015 Sundance transferred $392,300 to a bank account of Santos in payment of the second instalment of the cash call for August.
On 21 August 2015 Santos issued an ASX announcement/media release. It announced that the board had decided to conduct a full strategic review to restore and maximise shareholder value in light of the impact of the fall in global oil prices on the Santos share price and approaches from other parties. Santos had engaged Deutsche Bank and Lazard to assist with the strategic review. The strategic review would examine asset disposals or selldowns.
On 25 August 2015 there was a technical meeting of the Joint Venture. It was attended by Dr Camac and three other personnel on behalf of Santos (Outback); four personnel on behalf of Drillsearch (Ambassador) and Mr Shivers as a representative of Sundance (NSE).
On 4 September 2015 Sundance transferred $502,328 to a bank account of Santos in payment of the first instalment of the cash call for September. On 21 September Sundance transferred $343,400 to a bank account of Santos in payment of the second instalment.
Dealings between Sundance and Quintanilla
On 14 July 2015 Mr Hunter sent an email to Mr McCrady attaching a draft Purchase and Sale Agreement between Sundance entities and EFSE for the purchase by EFSE of a 25 per cent interest in the Texas and Colorado leases and wells referred to at [29] and [30] above (collectively the New Standard US assets) and NSE’s 17.5 per cent interest in the Permit together with 30,433,525 Elixir shares all to be acquired by Sundance from New Standard (the 25% transaction).
On 15 July 2015 Mr Tamez sent an email to Mr Hunter confirming that Sundance anticipated that its acquisition of the New Standard assets would close in the first week of August and it was planned to close the 25 per cent transaction on 7 August. On 16 July Mr Tamez sent an email to Mr Hunter saying that he looked forward to working with him on the 25 per cent transaction. He said that Quintanilla had all hands on deck to finalise the EFSE deal (which I infer to be the EFSE purchase) and would work to finalise the 25% transaction as well in the coming days.
On 18 July 2015 Mr Ray of Winstead Attorneys sent an email to Mr Moncrieff of Jackson McDonald thanking him for his help in relation to the sale transaction for EFSE (which I infer to be the EFSE purchase) and saying that EFSE was planning another transaction also involving Sundance under which Sundance was to sell to EFSE 25 per cent of assets to be acquired by Sundance from New Standard. He said that EFSE would like their help in conducting due diligence at some level and also sought advice about an appropriate corporate entity to acquire the interest.
It is evident that Sundance and Quintanilla had exchanged drafts of an agreement for the EFSE purchase for some time before mid July but evidence of those negotiations was not adduced.
On 22 July 2015 Sundance provided to Quintanilla access to the due diligence materials for the New Standard transaction.
On 22 July 2015 Mr Hunter sent an email to Mr Tamez attaching an amended version of the draft Purchase and Sale Agreement. He said that there might be some post-closing conditions such as an effective transfer to Quintanilla of the Permit rights which may remain subject to a number of related party approvals in Australia.
On 29 July 2015 Mr Jacobs of Winstead Attorneys sent an email to Mr Hunter attaching version 2 of a draft Purchase and Sale Agreement (the New Standard US assets agreement) between Sundance entities and EFSE which now addressed only the United States assets. He said that Quintanilla’s Australian solicitors were preparing a document relating to the purchase of the interest in the Permit and the Elixir shares.
On 12 August 2015 Mr Jacobs sent to Mr Hunter version 1 of a draft share purchase deed (the NSE agreement) between Sundance, QMC Australia Pty Ltd[12] and NSE. The deed provided for the purchase by QMC Australia from Sundance of 25 per cent of the shares in NSE.[13] The deed also gave QMC Australia an option, following completion of the purchase of the shares, to require NSE to use its best endeavours to transfer 25 per cent of its interest in the Permit, namely a 4.375 per cent ownership interest in the Permit (the Buyer’s Permit Interest) in return for cancellation or transfer to Sundance for no consideration of the acquired shares. The best endeavours included NSE procuring any necessary consents from third parties and procuring an assignment, assumption or novation of the rights and obligations of NSE to QMC Australia in respect of the Buyer’s Permit Interest.
[12] This company was yet to be incorporated (not being incorporated until 14 October 2015) but its intended holding company QMC Australia US had been incorporated and Quintanilla intended to incorporate an Australian subsidiary by the time the share purchase deed was executed.
[13] The purchase price and completion date were blank in this draft.
On 17 August 2015 Mr Hunter sent an email to Mr Jacobs enclosing an amended version of the NSE agreement with comments and noted that the amendments were modest.
On 19 August 2015 Mr Ray of Winstead Attorneys sent an email to Mr Hunter attaching version 4 of the New Standard US assets agreement.
On 1 September 2015 Mr Tamez sent an email to Mr West who forwarded the email to Mr McCrady. The email set out the details of the agreement that Mr West told Mr Tamez he had reached (or confirmed) with Mr McCrady. The agreement comprised the following components:
1.Quintanilla would sell the EFSE assets and the XTO assets to Sundance for US$62.5 million as at 1 April 2015 less the value of oil and gas extracted since 1 April 2015 (estimated at US$5.5 million to date) (the EFSE purchase). The share component of the consideration was to be calculated at current market price.
2.Sundance would hold back payment of US$12 million in escrow (the holdback) subject to satisfaction of the condition that the XTO assets became available.
3. Sundance would sell to EFSE 100 per cent of its interest in the Permit for US$6 million (the NSE sale) and 25 percent of the other assets acquired from New Standard for US$6 million.
4.This would leave a balance for Sundance to pay in cash and shares at completion of US$33 million (with a further US$12 million payable if and when the XTO assets were sold to Sundance).
The sale of the other assets acquired from New Standard comprised the sale of the New Standard US assets (the New Standard US assets sale) and the sale of the Elixir shares (the Elixir shares sale).
On 1 September 2015 Mr McCrady sent an email to Mr Tamez confirming the agreement subject to:
1.the share component of the consideration to be calculated at the March 2015 share price of $0.497 per share;
2.noting that the estimated adjustment for oil and gas extracted since 1 April 2015 was US$6.5 million to date of completion;
3.US$6 million for 75 per cent of the NSE shares;
4.US$6.6 million for 25 percent of the assets acquired from New Standard (including 25 per cent of the NSE shares) plus 25 per cent of the Charlotte Ranch lease (the Charlotte Ranch sale) which included a premium of 25 per cent;
5.balance for Sundance to pay in cash and shares of US$31.4 million.
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.
On 19 September 2015 Mr Ray sent an email to Mr Hunter attaching revised versions of agreements for the proposed transactions between Sundance and Quintanilla comprising:
·version 10 of a draft purchase and sale agreement between EFSE, Sundance Texas and Sundance (the EFSE agreement) for the sale by EFSE to Sundance Texas of defined oil and gas leases and wells for US$62.5 million payable by cash and shares (subject to reduction by the amount of net proceeds of the sale of hydrocarbons derived from the wells received by EFSE since 1 April 2015 (clause 2(i)) and subject to a holdback of US$12 million for 24 months from the closing date in respect of a working interest of at least 50 per cent in at least gross 600 acres of XTO assets failing which the US$12 million would be returned to Sundance (clause 9(b) and (c));
·version 7 of a draft option agreement between Mr Quintanilla, Paloma, EFSE and Sundance Texas (the option agreement) whereby the Quintanilla parties granted to Sundance Texas an option to acquire defined oil and gas interests if they became available within 24 months for a price of at least $1,000 per acre cash and Sundance shares to the value of $500 per acre; and
·version 5 of the draft New Standard US assets agreement.
On 22 September 2015 Mr Jacobs sent to Mr Hunter version 6 of the draft NSE agreement. It showed a purchase price of US$8 million for the shares in NSE. It included a new clause under which Sundance was required to procure the written consent of the Santos parties to the change in control of NSE and the assignment of Sundance’s rights and obligations under the Implementation Agreement to QMC Australia (clause 4.2(a)(v)). It included a new clause providing for payment of 25 per cent of super profits to Sundance.
On 2 and 3 October 2015 Mr McCrady sent an email to Mr West enclosing a transaction summary and a supplementary email. The transactions comprised the following components:
1.EFSE assets sold for US$50.5 million as at 1 April 2015 less the value of oil and gas extracted since 1 April 2015 (estimated at US$6.6 million to date);
2.three quarters of the 17.5 per cent interest in the Permit - US$6 million plus a super profit interest (the net profit interest) plus refund of cash calls (estimated at $2.1 million);[14]
3.25 per cent of other New Standard assets (including one quarter of the 17.5 per cent interest in the Permit) based on cost to Sundance and a 25 per cent uplift (estimated at US$5.6 million);
4.25 per interest in Charlotte Ranch based on cost to Sundance[15] and a 25 per cent uplift (estimated at US$1.2 million);
5.balance for Sundance to pay of US$29.2 million[16] comprising $16.4 million[17] in cash and $12.6 million in Sundance shares;
6.the $12.6 million payable in Sundance shares comprised 36.6 million shares at $0.50 cents per share (based on the 1 April 2015 share price) and an exchange rate of US$0.69.
[14] The refund of cash calls was the subject of the supplementary email.
[15] Sundance had only purchased the Charlotte Ranch lease in March 2014.
[16] $31.3 million shown in the main email less $2.1 million refund of cash calls the subject of the supplementary email.
[17] $18.5 million shown in the main email less $2.1 million refund of cash calls the subject of the supplementary email.

It was agreed between Mr McCrady and Mr West that the split of the purchase price between the US assets and the Australian assets being sold by Sundance to EFSE could be adjusted by mutual agreement in the mutual interests of Sundance and Quintanilla.
On 6 October 2015 Mr Tamez sent an email to Mr West and Mr Perry saying that the transaction summary from Mr McCrady looked right to him.
On 7 October 2015 Mr Jacobs sent to Mr Hunter version 7 of the draft NSE agreement. It included the sale of the Elixir shares, gave to Sundance an option to repurchase the shares 15 months after completion of the second test well and showed a blank purchase price.
Dealings between Sundance and Santos[18]
[18] All dates in this section are South Australian time.
On 7 October 2015 (South Australian time) Mr Hunter and Mr Schreiner telephoned Santos and asked to speak to Mr Solomon. 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.
On 7 October 2015 Mr Schreiner sent an email to Mr Solomon 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.
On 7 October 2015 Mr Solomon forwarded the email internally to Mr Hughes 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 to assist. Mr Hughes copied the email exchange to Ms Senneck.
On 8 October 2015 Mr Hunter and Mr Schreiner 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.
On 8 October 2015 Mr Schreiner sent an email to Mr Solomon 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.
On 8 October 2015 Mr Solomon forwarded the email internally to Mr Greenstreet inquiring who did his commercial work for the Permit and Mr Greenstreet responded that Mr Patil and Mr Wilton were his commercial support for this asset.
On 9 October 2015 Mr Solomon sent an email to Mr West 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.
On 9 October 2015 Mr Hunter and Mr Schreiner telephoned Dr Camac. 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:
·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.
On 9 October 2015 Mr Schreiner sent an email to Dr Camac copied to Mr Tamez saying:
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.
On 9 October 2015 Mr Solomon sent an email to Mr Schreiner apologising for being hard to contact and saying that he was now on vacation for a week and Mr Wilton 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.
On 15 October 2015 Mr Patil sent an email internally to Ms Senneck, Mr Wilton, Mr Mudge and Dr Camac 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.
On 15 October 2015 Mr Patil sent an email to Mr Schreiner copied to Mr Wilton and blind copied to Ms Senneck 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.
Dealings between Sundance and Quintanilla
On 8 October 2015 Mr McCrady sent an email to his fellow Sundance directors attaching an analysis of the proposed Quintanilla transaction.
On 8 October 2015 Mr Tamez sent an email to Mr Ray and Mr Jacobs copied to Mr Hunter saying that Mr West and Mr McCrady had agreed on an allocation of the New Standard assets being sold by Sundance to Quintanilla of US$10.8 million for the US assets and US$2 million for the Australian acquisition by QMC Australia. I infer that this was mutually advantageous for Sundance and Quintanilla for revenue or like purposes but that the parties would revert to the original commercial allocation if a transaction needed to be reversed.
On 9 October 2015 Mr Tamez sent an email to Mr Hunter saying that Mr West had told him that Sundance would at closing of the EFSE transaction hold back the US$2 million sale price pending closing of the sale of NSE.
On 10 October 2015 Mr Tamez sent an email to Mr Boigon. He said that he understood that closing of the New Standard US assets sale was anticipated to occur substantially simultaneously with the closing of the EFSE purchase (with perhaps one day apart). He said that he understood with respect to the closing of the NSE transaction that, if Santos did not provide their consent by the time of closing, there was in contemplation an escrow mechanism whereby the US$2 million sale price would be held back by Sundance [from the net amount payable by Sundance under the Quintanilla transaction] to give Santos an opportunity to issue its consent.
On 13 October 2015 (Australian time), the Sundance board resolved to proceed with the Quintanilla transaction.
On 13 October 2015 Mr McCrady sent an email to David Lazarus and Jonathan Harms at Morgan Stanley setting out an overview of the EFSE purchase. He said that Sundance was looking to draw US$15 to $20 million on the Accordion facility and increase the borrowing base (total facility limit) by that amount. He said that Sundance was targeting a sign and close in the next two weeks.
On 13 October 2015 Mr Jacobs sent to Mr Hunter version 8 of the draft NSE agreement incorporating matters suggested by Quintanilla’s Australian counsel and some of the matters from the draft New Standard US assets agreement. The purchase price was now shown as US$2 million reflecting the allocation agreement between Mr West and Mr McCrady referred to at [154] above.
On 14 October 2015 Mr Speck sent an email to Mr Hunter inquiring amongst other things whether any parties will request replacements of the previous parent company guarantee in connection with the purchase of the NSE shares.
On 15 October 2015 Mr Jacobs sent an email to Mr Hunter saying amongst other things that if Santos’ consent was not obtained and Quintanilla exercised its rescission right, the amount to be “paid back” by Sundance to Quintanilla should be US$8 million rather than US$2 million.
On 15 October 2015 Mr Speck sent an email to Mr Hunter attaching draft closing checklists for the Quintanilla transaction with a closing date shown as “_ October 2015”.
On 16 October 2015 Mr McCrady made a note (in the form an email to himself) rejecting the concept of Quintanilla being paid back US$8 million if Quintanilla exercised its rescission right if Santos’ consent was not obtained and suggesting instead that Sundance hold the assets on trust for Quintanilla so that Quintanilla would have the economic benefits and risk, indemnifying Sundance for any liabilities.
On 16 October 2015 Mr Speck sent an email to Mr Hunter attaching version 9 of the NSE agreement. It added to the clause relating to consent that the consent was to be obtained without requiring a guarantee from an affiliate of the buyer.
On 19 October 2015 Mr McCrady and Mr West agreed that the Quintanilla transaction should close that week without obtaining Santos’ consent. The beneficial/economic (benefits and burdens) ownership of the shares would transfer from Sundance to QMC Australia at closing but legal title would not be transferred until the consent was obtained. Sundance agreed to obtain Santos’ consent within one year and thereafter would continue to seek it if required by QMC Australia. Liability under Sundance’s warranty as to title to the shares would be capped at US$2 million. From completion, Sundance would act as QMC Australia’s agent for the purpose of obtaining Santos’ consent and as legal owner of the shares.
On 19 October 2015 Mr Ray sent an email to Mr Hunter attaching version 8 of the New Standard US assets agreement. The purchase price was now shown as US$10.8 million reflecting the allocation agreement between Mr West and Mr McCrady referred to at [154] above..
On 20 October 2015 Mr Speck sent an internal email to Mr Williams and Mr Moncrieff at Jackson McDonald confirming the discussion between Mr West and Mr McCrady and seeking their advice on amendments to the NSE agreement to reflect these matters. Mr Williams responded with an amended version of the NSE agreement but advised that it still may breach the change in control provisions in the Implementation Agreement. He recommended that consideration be given to a trust/trustee arrangement with less direct control given to the buyer or considering whether the consequences of a breach of the change in control provisions may not be too adverse. On 21 October Mr Williams sent to Mr Speck an amended draft NSE agreement adopting the trust/trustee arrangement.
On 20 October 2015 Mr Tamez sent an email to Ms Anderson attaching a draft funds flow memorandum for the Quintanilla transaction showing closing of the EFSE purchase on day one and of the New Standard transactions on day two.
On 22 October 2015 Mr Speck sent an email to Mr Hunter attaching version 10 of the NSE agreement reflecting the 19 October agreement between Mr West and Mr McCrady.
On 26 October 2015 Mr Hunter sent an email to Mr Ray enclosing version 10 of the New Standard US assets agreement containing only minor amendments and comments.
On 26 October 2015 Mr Speck sent an email to Mr Schreiner attaching updated drafts of the closing checklists.
On 27 October 2015 Mr Tamez sent an email to Mr West listing issues and how Mr West would like them resolved based on his conversations with Mr McCrady. 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.
Dealings between Sundance and Santos[19]
[19] All dates in this section are South Australian time.
On 27 October 2015 (South Australian time) Mr Schreiner sent an email to Mr Patil 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.
On 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.
On 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.
…
On 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.
On 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.
On 30 October 2015 Mr Tamez sent an email to Mr Hunter saying that he was in a meeting with Mr West and enquired to whom at Santos the consent request was sent. Mr Schreiner replied forwarding his communications with Mr Solomon and Mr Patil up to 28 October.
On 30 October 2015 Mr Solomon sent an email to Mr Patil 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.
There were no further communications between Santos and Sundance on the topic of consent.
Dealings between Sundance and Quintanilla
On 28 October 2015 Mr Tamez sent an email to Mr Boigon and Mr Hunter and others saying that Mr West had asked him to suggest getting the attorneys in a room to complete the documentation so the deals could be closed and offering to make available Quintanilla’s plane to pick up Sundance’s attorneys. Mr Boigon responded that he was meeting with Mr McCrady that day to finalise the documents and thought a meeting was unnecessary.
On 30 October 2015 Mr Boigon sent an email to Mr Tamez enclosing proposed changes to version 10 of the option agreement.
On 30 October 2015 there was a meeting between Mr West, Mr McCrady and their respective attorneys. Mr Hunter sent an email to Mr Tamez 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 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.
On 30 October 2015 Mr McCrady sent an email to Mr Tamez saying that once the agreements were finalised Sundance needed a couple of days to get final approvals at which time it would pay a deposit and there would be two weeks to close the transaction.
On 2 November 2015 Mr Shivers sent an email to Mr West saying that he was very concerned about the Washington well flow rates for gas.
On 4 November 2015 Mr Boigon sent to Mr Tamez a revised draft of the New Standard US assets agreement. He said that there were still a few open items reflected in comments, mostly having to do with how the two transactions (EFSE assets and New Standard assets) would be combined.
On 5 November 2015 Ms Anderson, Mr Tamez and Mr Perry spoke about the netting/combining concept. Ms Anderson said that she would arrange a telephone conference with Sundance’s section 1031 experts Petroleum Strategies later that day to discuss the concept. Ms Anderson sent an email to Mr Tamez confirming this conversation.
On 5 November 2015 Mr Tamez sent an internal email to Mr West saying that Mr Perry was content with Sundance’s netting proposal provided that Sundance would agree to indemnify Quintanilla for adverse tax consequences. Mr West on forwarded the email to Mr McCrady.

There is a debate between the parties whether damages should be assessed, and the valuation of NSE’s 17.5 per cent interest in the Permit should be undertaken, as at the date of breach (last quarter of 2015) or at the date of trial (mid-2017). It is unnecessary to resolve that debate in relation to this component or indeed any of the other components for reasons which will appear.
The Santos parties contend that Ms Adair’s reports were admitted subject to a relevance objection due to what they contend is a misconceived approach to the assessment of loss and in particular as to timing and I should uphold that objection. The Sundance parties take issue with both contentions. I reject the Santos parties’ relevance objection. The issue of timing does not go to admissibility but to a substantive issue in the case (which I do not need to resolve).
Ms Adair’s current value of negative $4,114,000 (negative US$3,090,000) is vitiated by a combination of her original misunderstanding that Santos had written off its investment and her evidence that the interest in the Permit has no value because it had not been demonstrated that there are any valuable gas reserves in the Permit area. I do not accept that the latter is a reason why the investment in the Permit necessarily has no value. This is inconsistent for example with the three market transactions in 2014 to which Ms Adair refers and upon which she relies.
The Santos parties criticise Ms Adair for making an assumption about the relationship between domestic Australian gas prices and world crude oil prices. The Santos parties did not prove that this assumption is incorrect but in any event, whatever the relationship may be between those prices, it is inherently likely that if world crude oil prices fall domestic Australian gas prices are unlikely to rise.
The Santos parties contend that Ms Adair should have valued NSE’s interest in the Permit by reference to Santos’ carrying value of its own interest in the Permit, albeit subject to a discount for want of control. However Mr White did not express the opinion that this was appropriate and on the contrary, in the context of the value of the Charlotte Ranch lease sold to PetroEdge, he gave evidence that the carrying value in the accounts of a company will not necessarily have any correlation to market value. In addition, Santos has other interests in the Cooper basin and it may be that the carrying value of its expenditure in the Permit area is justified wholly or partially by the benefit to its other interests.
In the circumstances it is appropriate to adopt for the purposes of the assessment of loss Ms Adair’s market approach valuation of $2,506,000 (US$1,882,000). Sundance relies on this valuation as a fallback to its primary case based on Ms Adair’s negative $4,114,000 valuation. There is no reason to suppose that the value of the interest was higher in October 2015 (if damages are assessed as at the date of breach) or July 2017 (if damages are assessed as at the date of trial) than it was in October 2014. Given that the crude oil price was lower as at the later dates compared to October 2014, the lack of promising results from Santos’ exploration program and the scaling back by Santos of the exploration program, it is likely that the value as at the later dates would be lower but I am not in a position to assess to what degree it would be lower. I note that Mr White expressed the opinion that a current valuation of $2,506,000 (US$1,882,000) is reasonable.
Sundance claims the difference between the sale price of the NSE shares of US$8 million under the Quintanilla transaction if it had proceeded to completion and the value of the NSE shares (which I have assessed at $2,506,000. The evidence establishes that US$8 million was the sale price of the NSE shares under the Quintanilla transaction and the Santos parties do not contend otherwise.
Sundance also claims $1,934,656 being cash calls paid by Sundance that would have been reimbursed by Quintanilla upon the sale of the NSE shares. It was a term of the Quintanilla transaction that this sum be reimbursed by Quintanilla to Sundance. If that transaction had proceeded, Sundance would have been reimbursed that sum. Sundance’s loss by reason of the Quintanilla transaction not proceeding includes this amount. This is consistent with the basis on which Ms Adair arrived at the market based valuation of NSE’s interest in the Permit of $2,506,000.
The Santos parties contend that the cash calls were in respect of capital expenditure which of its nature is designed to improve the value of the underlying asset both from the perspective of Santos and the perspective of NSE. However Outback was contractually bound to Ambassador to make this expenditure and NSE was contractually bound to Outback to reimburse it 25 per cent thereof. In any event, for the reasons given above I am satisfied that, after the expenditure represented by the cash calls, the value of the Permit did not exceed $2,506,000.
Santos contends that loss of reimbursement of the cash calls is too remote to be recoverable. I reject that contention. On any formulation of the remoteness test, such a loss was a natural and probable consequence of a breach of clause 7 of the Implementation Agreement.
Sundance also claims $8,613,118 being the balance of cash calls payable by Sundance as guarantor of the obligations of NSE pursuant to the Implementation Agreement. However Ms Adair arrived at her valuation by deducting the present value of these cash calls. As they have already been taken into account, they cannot be recovered as a separate head of damages.
I assess the loss suffered by Sundance as a result of the NSE shares component of the Quintanilla transaction not proceeding, considered in isolation, as US$8 million less $2,506,000 plus $1,934,656 giving a net sum of US$8 million less $571,344.
The New Standard US assets sale
Sundance formulates its claim in respect of this component of the Quintanilla transaction as US$1,694,000 calculated as:
(a)US$3,600,000 being the sale price of 25 per cent of the New Standard US assets as part of the Quintanilla transaction;
(b)less US$3,942,750 being 25 per cent of Ms Adair’s valuation of the gross assets of US$15,771,000 as at 1 July 2017;[118]
(c)plus US$2,035,935 being 25 per cent of Sundance’s net cash outflow of US$8,143,739 on the gross assets between 1 June 2015 and 30 June 2017.[119]
[118] The valuation was for various Peeler Ranch leases and wells. Ms Adair did not include in her valuation the Eppright or Lagunillas leases/wells that had been sold to PetroEdge in December 2016, nor certain leases that had expired or were uncommercial.
[119] The cashflows to 28 February 2017 are actual and thereafter are estimates.
The net cash outflow of $8,143,739 in (c) comprises US$8,776,751 revenue less US$1,087,669 expenses less US$15,832,820 capital expenditure.
The Santos parties do not challenge the figure of US$3,600,000 in (a) or Ms Adair’s valuation of US$15,771,000 in (b) or the net cash outflow of US$8,143,739. However they challenge the conceptual basis of the formulation on the ground that the calculation should be the difference between the sale price under the Quintanilla transaction and the market value of the assets as at the date of breach being October 2015. They also challenge the conceptual basis of the component in (c) relating to capital expenditure.
I suspect that it would not have been possible for Sundance to sell a 25 per cent interest of the New Standard US assets to anyone but Quintanilla because a minority interest without control would not be attractive and Quintanilla was only interested because of the existing relationship and trust between Sundance and Quintanilla. If this were so, it might justify an approach based on current valuation rather than a valuation as at the date of breach. However, Sundance did not adduce any evidence to this effect or any evidence whether it took any steps in 2016 or the first half of 2017 to attempt to sell such an interest.
Moreover, the result of the formulation does not pass an elementary smell test. Quintanilla agreed to pay a premium of 25 per cent over the cost to Sundance of acquiring the New Standard US assets from New Standard. A sale price of 25 per cent of those assets to Quintanilla at US $3.6 million indicates that the cost to Sundance of acquisition of the gross assets was US$11,520,000. However Sundance’s formulation indicates that after a net cash outflow of US$8,144,000 the gross assets were worth only US$15,771,000. This suggests either that Sundance paid US$4 million more to New Standard for the assets than their true value (which is highly unlikely) or that Sundance wasted US$4 million in capital expenditure (which is also highly unlikely). Sundance did not adduce any evidence of any adverse changes in the market or otherwise that would account for a large fall of US$4 million in the value of the New Standard US assets between mid-2015 and mid-2017. For example, the crude oil price in mid-2017 was higher than it was in mid-2015.
In addition Sundance did not adduce any evidence of a valuation of the New Standard US assets as at the date of breach so as to enable a comparison between the quantum of damages assessed as at the date of breach (as contended by the Santos parties) and as at the current date (as contended by Sundance). While I accept that, absent large changes in the market or otherwise over the relevant two-year period, the methodology advocated by Sundance ought in theory to produce a fair and reasonable assessment of damages, it is a much more complex calculation than a simple assessment as at the date of breach and hence more likely to be inaccurate or erroneous.
If all the circumstances, it is not appropriate to adopt the methodology advanced by Sundance.
I observe for completeness that on 1 December 2016 Sundance sold a group of assets to PetroEdge for US$7,100,000. These included three Laguinillas wells and a McCarty well and associated leases acquired from New Standard as part of the New Standard US Assets. Sundance does not appear to have deducted these proceeds in its loss calculation. However, as the Santos parties do not raise this issue and there may be a reason of which I am unaware why these proceeds have apparently been ignored, I do not rely on it in rejecting Sundance’s loss calculation.
Sundance formulates an alternative claim being US$3.6 million less either 25 per cent (US$342,750) or 100 per cent (US $1,371,000) of the difference between an implied value of the gross assets as at October 2015 of US$14.4 million (4 times US$3.6 million) and Ms Adair’s valuation of the gross assets as at July 2017 of US$15,771,000. There is no logical or rational basis on which to adopt such an approach and I reject it.
The evidence of Mr McCrady and Mr West was clear, and it was corroborated by the contemporaneous documents, that Quintanilla agreed to pay a premium of 25 per cent over the cost to Sundance of acquiring the New Standard US assets from New Standard. A sale price of US$3.6 million indicates that the premium over Sundance’s purchase price, which it is reasonable to assume represented market value, was US$720,000.
I assess the loss suffered by Sundance as a result of the New Standard US assets component of the Quintanilla transaction not proceeding, considered in isolation, as US$720,000.
The Charlotte Ranch lease sale
Sundance formulates its claim in respect of this component of the Quintanilla transaction as US$358,000 calculated as:
(a)US$1,200,000 being the sale price of 25 per cent of the Charlotte Ranch as part of the Quintanilla transaction;
(b)less US$842,000 being 25 per cent of the sale price of the gross asset of US$3,369,000 on 1 December 2016.
On 1 December 2016 Sundance sold a group of assets including the Charlotte Ranch to PetroEdge for US$7,100,000. Ms Anderson gave evidence, which I accept, that Sundance allocated the total proceeds of the sale between the assets based on book value.
Ms Adair did not give any evidence in relation to the Charlotte Ranch lease. Mr White in his report said that in his experience book value does not necessarily have any correlation to market value. He expressed the opinion that the assets sold to PetroEdge should be valued as at 1 December 2016 and the sale proceeds allocated pro rata to the valuations rather than to book value.
The Santos parties do not challenge the figure in (a). However they do challenge the methodology. They challenge the conceptual basis of the formulation on the ground that the calculation should be the difference between the sale price under the Quintanilla transaction and the market value of the assets as at the date of breach being October 2015. They also challenge the figure in (b) on the ground that the sale proceeds of the transaction with PetroEdge should be allocated pro rata to the valuations thereof rather than their book value (in accordance with the opinion expressed by Mr White).
Sundance did not adduce any evidence of the market value of the Charlotte Ranch lease either at October 2015 or December 2016. Nor did it adduce any evidence of its market value at any other time such as for example to prove that there was a diminution in its market value between October and December 2015 when Sundance arguably could not have sold the lease due to the ongoing negotiations with Quintanilla. Nor did Sundance adduce evidence of cash inflows or outflows over the period between October 2015 and December 2016 (in contrast to its evidence in respect of the New Standard US assets). Even if the value of the Charlotte Ranch lease as at December 2016 was US$3,369,000, it may be that Sundance received net cash inflows over the period between October 2015 and December 2016 equal to the difference between US$4,800,000 and US$3,369,000.
Mr McCrady’s email to Mr Tamez of 1 September 2015 shows that Quintanilla agreed to pay a premium of 25 per cent in respect of the Charlotte Ranch lease. A sale price of US$1.2 million indicates that the premium over Sundance’s purchase price, which it is reasonable to assume represented market value, was US$240,000.
I assess the loss suffered by Sundance as a result of the Charlotte Ranch lease component of the Quintanilla transaction not proceeding, considered in isolation, as US$240,000.
The Elixir shares sale
Sundance formulates its claim in respect of this component of the Quintanilla transaction as $35,466 calculated as:
(a)$60,867 being 25 per cent of the book value of the Elixir shares of $243,468 in Sundance’s accounts;
(b)less $25,403 being 25 per cent of the sale price of the gross asset of $101,613 on 2 September 2016.
The Elixir shares were listed on the Australian Stock Exchange. Sundance did not adduce evidence of the movement in the share price between October 2015 and September 2016. In particular it did not adduce evidence explaining why it sold the shares in September 2016 or why it did not sell them shortly after 15 December 2015 when Quintanilla decided not to proceed with the Quintanilla transaction. Sundance did not adduce evidence that the Elixir shares suffered a diminution in value between October and December 2015 when arguably it could not have sold the shares due to the ongoing negotiations with Quintanilla.
In contrast to the New Standard US assets sale, no evidence was adduced to suggest that Quintanilla agreed to pay any premium over the market price of the Elixir shares and there is no evident reason why it would have agreed to do so.
I also note for completeness (although it is not necessary for my decision) that Sundance did not adduce evidence of the market price of the Elixir shares as at October 2015. Prima facie this should be the starting point for the calculation of loss unless Quintanilla agreed to pay the market price of the shares as at 26 June 2015 when Sundance acquired them from New Standard, of which Sundance did not adduce evidence.
In the circumstances, Sundance has failed to prove that it suffered any loss as a result of the Elixir shares component of the Quintanilla transaction not proceeding, considered in isolation.
Hunter & Associates
Sundance claims “at least US$70,000” being legal costs charged to Sundance by Hunter & Associates in relation to the Quintanilla transaction. Invoices by Hunter & Associates for July to December 2015 totalling US$202,462 were tendered. However itemised non-redacted entries for only US$19,195 (during October 2015) were tendered. I do not know how Sundance calculates the figure of at least US$70,000 claimed.
Sundance’s loss claim as a whole is premised on the Quintanilla transaction proceeding. All other claims for loss are measured by reference to that scenario. If the Quintanilla transaction had proceeded, Sundance would have incurred legal costs with Hunter & Associates. This amount is therefore not recoverable per se.
Sundance might perhaps have claimed an identified and relatively small proportion of the costs charged by Hunter & Associates as costs thrown away by reason of the Santos parties’ hypothesised breach (for example, costs of chasing up Santos for a response). However it has not attempted to do so.
In the circumstances, Sundance has failed to prove that it suffered any recoverable loss as a result of incurring the Hunter & Associates legal costs.
The EFSE purchase
Sundance does not claim any loss by reason of the EFSE purchase component of the Quintanilla transaction not proceeding. Sundance did not request Ms Adair to value the EFSE assets nor did it adduce any other expert evidence of their value as at October 2015 or any other date. Nor did the Santos parties adduce expert evidence of the value of the EFSE assets as at October 2015 or any other date.
Mr White in his report undertook an elementary (back of the envelope type) comparison between the purchase price under the EFSE purchase component of the Quintanilla transaction in 2015 and the purchase price under the 2016 EFSE purchase. Mr White made an error in relation to the purchase price under the 2016 EFSE purchase. Correcting for that error, Mr White’s comparison can be summarised in the following table (all figures are in US $millions):

2015 transaction 2016 transaction Difference

1 Starting purchase price $50.5 $16

3 Oil and gas depletion -$6.6 -$0.5

4 Net starting price $43.9 $15.5 $28.4

Mr McCrady gave evidence responding to Mr White’s elementary comparison. While Mr McCrady made a number of adjustments to Mr White’s figures, nevertheless his approach was also relatively elementary and cannot be compared to a valuation or other independent expert analysis comparing the two transactions. Nor did it purport to be more than a critique of Mr White’s approach. Mr McCrady’s analysis can be summarised in the following table (all figures are in US $millions):

2015 transaction 2016 transaction Benefit/
detriment

1 Starting purchase price $50.5 $16

2 Share price drop April to October 2015 -$4.8

3 Oil and gas depletion effective date to closing -$6.6 -$0.5

4 Net starting price $39.1 $15.5

5 Oil and gas depletion November 2015 to June 2016 -$10.0

6 Increased cost of capital by share issue -$2.5

7 San Miguel ranch option -$2.7

8 Additional rights in 2016 +$0.2[120]

9 Adjusted purchase price $26.4 $13.5 $12.9

10 Share price drop April 2015 to June 2016 -$4.8

11 Oil price fall -11.7

12 Net detriment -$3.4
[120] Mr McCrady valued these rights at US$100,000 to US$200,000. Given the range I have taken the higher figure.

In relation to the share price drop (row 2), Mr McCrady gave evidence that the market price of 36.6 million Sundance shares as at 1 April 2015 was US$12.6 million compared to the market price of 36.6 million Sundance shares as at 12 October 2015 which was US$7.8 million.

In relation to oil and gas depletion from November 2015 to June 2016 (row 5), Mr McCrady asked a Sundance employee to prepare a spreadsheet for the purpose of the action representing a variation of the April 2015 EFSE forecast advancing the beginning dates of the forecast by 14 months from April 2015 to June 2016 and the end dates by 14 months (the hypothetical EFSE forecast). Various oil and gas quantities and prices were input into the spreadsheet, resulting in the calculation of various gross revenues. Various taxes and other operating expenses were either input into the spreadsheet or calculated by formulas (it not being apparent on the face of the spreadsheet which was the case). The spreadsheet calculated estimated net cash flow of US$43.942[121] million. This was less than the figure contained in the April 2015 EFSE forecast of $60.461[122] million by US$16.6 million. This was inclusive of the estimated depletion by US$6.6 million from April to October 2015 and hence the component in respect of the period from November to June 2016 was US$10 million.
[121] his figure relates only to PDP wells. It does not include PUD, PRB and POS wells. The grand total shown for all types is much higher. In addition, Mr McCrady’s figure is not discounted back to the present value. There appears to be good reason for Mr McCrady's approach given his limited purpose, but the figures he used should not be understood as values of the EFSE assets.
[122] This figure relates only to PDP wells. It does not include PUD, PRB and POS wells. The grand total shown for all types is much higher. In addition, Mr McCrady’s figure is not discounted back to the present value. There appears to be good reason for Mr McCrady's approach given his limited purpose, but the figures he used should not be understood as values of the EFSE assets.
In relation to the increased cost of capital by share issue (row 6), Mr McCrady said that, if the Quintanilla transaction had proceeded in October 2015, the majority of the price would have been funded by debt through the Morgan Stanley facility and the weighted average cost of that debt was around 6.4 per cent. Mr McCrady said that in June 2016 Sundance was not able to access that debt and Sundance raised the money needed to pay Quintanilla for the 2016 EFSE purchase by issuing shares. He said that the equity cost of capital which Sundance applied in respect of that transaction was 20 per cent. Mr McCrady said that the difference in cost to Sundance of financing the transaction by equity rather than debt amounted to approximately $2.5 million.
In relation to the San Miguel Ranch option (row 7), Mr McCrady said that the Quintanilla transaction included an option over certain property on the northern part of the San Miguel Ranch. He said that by June 2016 that property had been released by Quintanilla so that it could no longer grant an option. He said that Sundance valued the option at US$2.7 million in a spreadsheet prepared by a Sundance employee in 2015 in relation to the Quintanilla transaction, this value being based on his analysis of the spreadsheet in respect of rows where the operator was shown as SEA Shannon.
In relation to the additional rights in 2016 (row 9), Mr McCrady said that in 2016 Sundance negotiated additional surface locations on Mr Quintanilla’s ranch in respect of which it was given rights to drill and access minerals from other land leased by Sundance. He said that Sundance also negotiated a two-year extension in which there was no minimum drilling obligation for a number of wells that had to be drilled. He said that the total value of those rights to Sundance was approximately US$100,000 to $200,000.
In relation to the share price drop from October 2015 to June 2016 (row 10), Mr McCrady said, in the context of comparing the value of the EFSE assets the subject of the Quintanilla transaction with the value of the assets purchased in the 2016 EFSE purchase:
there was a further fall in the value of Sundance’s shares. This meant that 36.6m shares were worth $4.8m less in June 2016 than they were in April 2015.
In relation to the oil price fall (row 11), Mr McCrady said that, when the lower oil prices used by Ms Fenton in the May 2016 EFSE forecast are input into the April 2015 EFSE forecast prepared by Mr Ramsden-Woods and applied to the estimate of reserves contained in Mr Ramsden-Woods’ spreadsheet, in the absence of hedging, the value of the assets that Sundance would have acquired would have fallen and did fall by US$11.7 million. He went on to give evidence in relation to Sundance’s hedging practices on which he was cross-examined at some length.
Mr McCrady also gave evidence that there were some non-quantified differences between the EFSE purchase component of the Quintanilla transaction and the 2016 EFSE purchase. Under the former Mr Quintanilla had an option of joining the Sundance board. Ms Anderson gave evidence that under the latter some of the leases in existence in 2015 had expired or been terminated.
The Santos parties contend that the onus lies on Sundance to prove the quantum of the benefit or detriment received or suffered by Sundance as a result of the EFSE purchase component of the Quintanilla transaction not proceeding in 2015 and Sundance has failed to discharge that onus. Conversely, Sundance contends that the onus lies on the Santos parties to prove this quantum and they have not discharged that onus.
The parties make competing submissions in relation to many of the items summarised in the table at [694] above. Without setting out those submissions, I deal broadly with the controversial items in the manner set out below.
I have held above that the onus lies on Sundance to prove the quantum of the benefit or detriment received or suffered by Sundance as a result of the EFSE purchase component of the Quintanilla transaction not proceeding in 2015. It has failed to discharge that onus whether the question is considered at a macro or micro level. Indeed it clarified at the conclusion of Mr McCrady’s evidence that his evidence does not purport to be a valuation capable of discharging the onus if, contrary to its contention, the onus of proof lies on Sundance rather than the Santos parties.
First and most fundamentally, at a macro level I have referred above to the debate between the parties whether damages should be assessed as at the date of breach (October 2015) or as at the date of trial. If damages are assessed as at the date of breach, Sundance has failed to adduce any expert evidence of the value of the EFSE assets as at October 2015 which can be compared to their purchase price under the terms of the EFSE purchase component of the Quintanilla transaction. If damages are assessed as at the date of trial, Sundance has failed to prove the difference between its actual financial position (whether including the 2016 EFSE purchase or ignoring it) and the position in which it would have been if the Quintanilla transaction had proceeded to completion in 2015.
Secondly, at a macro level, Mr McCrady is not an expert valuer and does not have the qualifications or experience to conduct a valuation of the EFSE assets or the 2016 EFSE assets. Moreover, as the Chief Executive Officer of Sundance, he obviously has a self interest insofar as he makes an attempt to value those assets or compare the financial position of Sundance under the alternative scenarios that are considered. In the circumstances, I am not prepared to act on Mr McCrady’s opinion as to the matters referred to above and summarised in the table at [694] above.
Thirdly, at a micro level, disregarding the questions of Mr McCrady’s expertise and self-interest, either I am not prepared to accept his evidence in relation to, or his evidence does not establish, several of the components summarised in the table at [694] above.
In relation to oil and gas depletion from November 2015 to June 2016 (row 5), I am not satisfied that the reduction is as high as $10 million. As Sundance was the operator in respect of 90 per cent of the leases in question and since August 2016 has presumably inherited data in relation to the remaining leases, there is no reason why actual data could not be used as opposed to the complex forecasts used by Mr McCrady. Mr McCrady did not sufficiently explain the methodology used to derive the hypothetical EFSE forecast. I am not in any event satisfied that it is an appropriate methodology to calculate the relevant value of the oil and gas depletion. In addition, Mr McCrady gave evidence that the depletion between 1 April and the end of October 2015 was US$6.6 million (just under US$1 million per month). The settlement statement in respect of the 2016 EFSE purchase showed depletion from 1 May to the end of July 2015 was only US$0.5 million (less than US$0.2 million per month). The April 2015 and May 2016 EFSE forecasts show that generally monthly production and revenue declined over time. These figures suggest that depletion of US$10 million over eight months is excessive.
In relation to the increased cost of capital by share issue (row 6), the premise of this adjustment is that the EFSE purchase would have been funded from borrowings rather than equity. However Mr McCrady gave evidence, and I find, that even if Sundance had temporarily funded the purchase from borrowings, it would only have been for a short time while Sundance raised equity to repay the borrowings. In any event, by the end of November 2015 Morgan Stanley were insisting on an equity raising. Moreover, Mr McCrady did not adequately explain how the cost of equity was calculated at 20 per cent or the figure of US$2.5 million was derived. I am not persuaded that the adjustment should be made as a matter of principle regardless of the specific facts. I reject this adjustment.
In relation to the San Miguel Ranch option (row 7), Sundance did not adduce evidence as to the likelihood of the option being exercised. Mr McCrady did not sufficiently explain how the figure of US$2.7 million was calculated.
In relation to the share price drop from October 2015 to June 2016 (row 10), the manner in which Mr McCrady expressed his evidence suggests that this fall of US$4.8 million is the same fall as the drop from April to October 2015 which has already been taken into account at row 2. Alternatively, if Mr McCrady intended to suggest that there had been a total fall from April 2015 to June 2016 of US $9.6 million (two lots of US$4.8 million), Sundance did not adduce evidence to prove this fact. In any event, any change in the Sundance share price between October 2015 and June 2016 is irrelevant to the comparison to be made. I reject this adjustment.
In relation to the oil price fall (row 11), Mr McCrady did not sufficiently explain how he derived the figure of US$11.7 million. In any event, to the extent that the price of the EFSE assets was lower in 2016 pursuant to the 2016 EFSE purchase than it would have been in 2015 pursuant to the EFSE purchase component of the Quintanilla transaction due to a fall in the oil price, this was a benefit to Sundance because otherwise it would have already purchased those assets at the higher price.
Mr McCrady gave some general evidence about Sundance’s hedging practices and suggested that, if Sundance had acquired the EFSE assets in 2015, he would have followed those hedging practices. However, Mr McCrady did not quantify the extent (if at all) to which Sundance’s financial position would have been relevantly improved by reason of hedging for the purposes of the comparison in question. In any event, as a matter of principle, as the crude oil price had already suffered a large fall since 1 April 2015 by November 2015 when it is hypothesised that Sundance would have closed the Quintanilla transaction, and as the crude oil price in May 2016 was higher than the price in November 2015, there is no basis on which to find that Sundance’s financial position would have been relevantly improved by reason of hedging undertaken in October/November 2015 for the purposes of the comparison in question. I reject this adjustment.
I am not satisfied that the mere possibility that Mr Quintanilla might have chosen to join the Sundance board if the Quintanilla transaction had proceeded to completion gave rise to a significant financial benefit to Sundance. If Mr Quintanilla had an interest in joining the board, he could have been invited to join the board regardless of whether the Quintanilla transaction proceeded. While he may have had a greater incentive to do so if the Quintanilla transaction had proceeded because Quintanilla would have been a shareholder of Sundance, this is not likely to have been the principal factor in his decision whether to join the board.
The fact that under the 2016 EFSE purchase some of the leases in existence in 2015 had expired or been terminated is unlikely to have resulted in a significant financial difference between the two scenarios because those leases are unlikely to have had any significant value to Sundance if the Quintanilla transaction had proceeded to completion. Moreover, this was not an impediment to Sundance’s formulation of loss in respect of the New Standard US assets.
In respect of the contentious matters summarised in the table at [694] above, although Mr McCrady addressed the matters in greater detail than Mr White, overall his approach was still in the nature of a glorified back of the envelope calculation. While this may well have been sufficient to throw sufficient doubt on the Santos parties’ case if they had borne the onus, it is manifestly insufficient to discharge Sundance’s onus. In order to do so, it was incumbent on Sundance to adduce evidence from an independent expert including independent expert valuation evidence.
Conclusion
Because the EFSE purchase was an integral and major component of the Quintanilla transaction, Sundance has failed to discharge its overall onus of proving the amount (if any) by which it would have been in a better financial position if the Quintanilla transaction had proceeded to completion compared to the financial position in which it has actually found itself. There is therefore no quantum to which the 80 per cent derived from my loss of opportunity assessment can be applied.
Remoteness
The Santos parties contend that all of the claims made by Sundance for loss, with the exception of the claim in respect of NSE’s interest in the Permit (not including the claims by reference to cash calls) are too remote. Sundance takes issue with this contention although it submits for its own purposes that any claim it might have made in respect of the EFSE purchase component of the Quintanilla transaction would be too remote.
In the nineteenth century, the remoteness principle was formulated by Alderson B in Hadley v Baxendale[123] in the following terms:
Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may be reasonably supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.[124]
[123] (1854) 9 Ex 341.
[124] At 354.
In C Czarnikow Ltd v Koufos[125] Lord Reid reformulated the rule in the following terms:
The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or the loss of that kind should have been within his contemplation.[126]
[125] [1969] 1 AC 350.
[126] At 385.
Lord Reid’s reformulation has been approved by the High Court.[127]
[127] See for example Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 667 per Wilson, Deane and Dawson JJ; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 92 per Mason CJ and Dawson J and 99 per Brennan J.
When the parties entered into the Tripartite Agreement in August 2015, under the doctrine of novation as articulated by the High Court the parties entered into a new agreement rather than just amending the Implementation Agreement. It follows that the knowledge and contemplation of the parties is to be assessed as at August 2015 rather than when the Implementation Agreement was executed in October 2014. By August 2015, the Santos parties were aware from Sundance’s 29 June 2015 ASX announcement that Sundance was contemplating a sale to Quintanilla of an interest in the assets to be acquired by Sundance from New Standard.
Given my conclusion in relation to quantum of loss, it is not necessary to decide the remoteness issues. However, if any loss suffered by Sundance in respect of the New Standard US assets, the Charlotte Ranch lease and the Elixir shares is not too remote, any loss suffered by Sundance in respect of the EFSE purchase would also not be too remote. In this respect, the contemplation of the parties is not to be defined in too specific or narrow terms confined only to the specific transaction referred to in the ASX announcement. Rather the contemplation of the parties would be that Sundance may well enter into a commercial transaction with another party involving multiple components, only one of which comprised the transfer of the NSE shares.
PART H: CONCLUSION
Outback is entitled to judgment for expenditure incurred and billed in the monthly statements issued for the months of August 2015 to June 2017 (excluding April 2016). Any issues as to the amount of expenditure incurred are to be determined in a second trial unless they are agreed.
The cross action by NSE and Sundance must be dismissed.
I will hear the parties as to the orders to be made in light of my reasons for judgment.

2015 transaction	2016 transaction	Difference
1	Starting purchase price	$50.5	$16
3	Oil and gas depletion	-$6.6	-$0.5
4	Net starting price	$43.9	$15.5	$28.4

2015 transaction	2016 transaction	Benefit/ detriment
1	Starting purchase price	$50.5	$16
2	Share price drop April to October 2015	-$4.8
3	Oil and gas depletion effective date to closing	-$6.6	-$0.5
4	Net starting price	$39.1	$15.5
5	Oil and gas depletion November 2015 to June 2016	-$10.0
6	Increased cost of capital by share issue	-$2.5
7	San Miguel ranch option	-$2.7
8	Additional rights in 2016	+$0.2[120]
9	Adjusted purchase price	$26.4	$13.5	$12.9
10	Share price drop April 2015 to June 2016	-$4.8
11	Oil price fall	-11.7
12	Net detriment	-$3.4