Leni Gas & Oil Investments Ltd & Anor v Malta Oil Pty Ltd & Anor

In a deceit claim based on an alleged implied representation, the claimant must identify the representation with clarity and prove that it was intended, understood, false, dishonest and relied upon. The meaning of an alleged representation is assessed principally by reference to the defendant’s intended meaning and the claimant’s actual understanding, although its objective meaning and context remain relevant. A statement that a new data room is about to open does not, without more, represent that farm-out negotiations have not already begun. Inducement requires a real and substantial causal contribution. In a fraud case, inducement may be presumed, but the presumption is rebuttable. The claim was dismissed because no implied representation was intended or understood and, in any event, it did not cause the sale.

The claimants alleged that the defendants fraudulently induced them to sell a 10% interest in an offshore oil and gas exploration block for approximately US $1, together with an assumption of liabilities. They relied on an alleged implied representation that the defendants’ farm-out process had not begun in earnest and that they were not in serious negotiations with a potential farminee.

The defendants accepted that a farm-out was vital and that a London data room was to open, but denied any intention to mislead. The trial concerned liability and inducement; quantum was left over. The central issues were what was represented, whether it was intended and understood, and whether it caused the sale.

1. Claim dismissed. Judgment was entered for the defendants. The claimants failed on each essential issue.
2. A claimant in deceit must identify the representation relied on before its falsity or the representor’s honesty can be assessed. The alleged representation was ambiguous, particularly as to the expressions “in earnest”, “negotiations” and “serious negotiations”.
3. The relevant meaning of an alleged representation is principally subjective. The court must consider whether the defendant intended the words to convey the alleged meaning and whether the claimant understood them in that sense. Objective meaning remains relevant because an implausible interpretation may make the alleged intention and understanding unlikely. The surrounding context is critical.
4. The statement that a London data room would open the following week did not imply that the farm-out process had only just begun. The Rome data room had already been open for about two years, MOG had previously told LGO that it was actively seeking farminees, and the opening of a further data room could form part of an existing process. The statement was not objectively understood in the alleged sense.
5. The judge accepted Dr Higgs’s evidence that he did not intend to mislead. He intended to discuss defaults, the Maltese comfort letter, the marketing bulletin, the data room and the proposed OpCom meeting. His later request for the price of an exit followed Mr Ritson’s threat to oppose a proposed well and was not the original purpose of the call.
6. Even assuming that the alleged representation had been made and understood, it did not induce the sale. LGO had long regarded Area 4 as non-core, had been unable to find another buyer, lacked the funds needed to remain involved and decided after learning that no Cretaceous prospect had been found that it simply needed to exit.
7. The court considered but did not need to resolve the wider question whether a fraudulent defendant may rebut inducement by proving what the claimant would have done if told the truth. On the facts, MOG proved that LGO would have entered into the same agreement without the alleged representation.