This is an application by the Defendants for summary judgment under CPR 24.2; alternatively for an order that the Re-amended Particulars of Claim be struck out under CPR 3.4 (2) (a) and/or CPR 3.4 (2) (b).

The Claimant, Mr Mabanga, is a South African businessman. The first Defendant (“Ophir Energy”) is an oil and gas exploration company incorporated in England and Wales whose business focuses upon African oil and gas exploration. The second Defendant (“Ophir Services”) is a company incorporated under the laws of Western Australia and has at all material times been a wholly owned subsidiary of Ophir Energy.

The claim concerns alleged misrepresentations in connection with Mr Mabanga’s entry into an agreement with Ophir Services dated 19 March 2010 (“the Deed of Termination”). Pursuant to the Deed of Termination, Mr Mabanga agreed to relinquish a 5% net profit interest relating to an oil concession in Tanzania in return for payment of US$7.5 million. The claim is made in the tort of deceit (against Ophir Energy and Ophir Services) and under Section 2(1) of the Misrepresentation Act 1967 (against Ophir Services).

The factual background to the dispute is that Mr Mabanga had assisted the Ophir group to obtain Production Sharing Agreements with the Government of Tanzania (“PSAs”) relating to three offshore blocks close to the maritime boundary between Tanzania and Mozambique (“Blocks 1, 3, and 4”). The blocks were located in regions known as the “Mafia Deep Offshore Basin” and the “Ruvuma Basin”. The PSAs were entered into by companies within the Ophir group which were indirectly wholly owned subsidiaries of Ophir Energy.

Mr Mabanga’s main point of contact with Ophir was Dr Alan Stein. At all material times Dr Stein was the Managing Director of Ophir Energy and a director of Ophir Services.

The retainer initially agreed with Mr Mabanga was recorded in a manuscript document. It was later recorded in three separate consultancy agreements with Ophir Services, one each for Blocks 1, 3 and 4. The consultancy agreements provided that he was to be paid lump sums by reference to milestones in the exploitation of the concessions, and in addition “Mabanga or his nominee will be entitled to a 5% interest which will be financed by [Ophir Services] with costs repaid by Mabanga or his nominee from production at LIBOR plus 3%”. In paragraph 10 of the Re-amended Particulars of Claim this is explained as being “the Claimant’s entitlement, in the event of production from Blocks 1, 3 and 4, to a 5% interest in the net profits flowing from such production, the cost of such interest being treated as having been financed by the Ophir group at a cost of LIBOR plus 3% (the “Net Profit Interest”). In other words, the Claimant’s ultimate entitlement was to a 5% share of the net profits flowing from Block 1, 3 and 4 production less the financing cost (calculated at the rate of LIBOR plus 3%) of a deemed 5% share of the costs invested by the Ophir group in achieving production.” The Defendants’ interpretation, pleaded at paragraph 12 of the Defence, is essentially the same save that the net profit interest is alleged to have been in the Ophir group’s interest in the PSAs, such that the entitlement to profits was to 5% of the profits earned by the Ophir group under the PSAs, and not necessarily 5% of the profits earned from the blocks. For the purposes of the present application, nothing turns on that dispute.

In August 2007 Dr Stein made a proposal to replace Mr Mabanga’s interest with an agreement to pay success fees if certain production milestones were achieved. This offer was rejected by Mr Mabanga.

In late 2009 Ophir entered into negotiations with a series of third party oil companies regarding the terms of a “farmout” agreement under which the relevant Ophir company with the interest under the PSAs, as “farmor”, would transfer a fixed percentage of its participating interest under the PSAs to a “farminee”. During the course of the negotiations Mr Mabanga’s interest under the consultancy agreements, including his 5% net profit interest, was identified as a potential obstacle to a farmout transaction. Dr Stein accordingly entered into negotiations with Mr Mabanga for the termination of his interest under the consultancy agreements.

The negotiations were carried out by correspondence in letters and emails, and at a meeting which took place in Johannesburg. Neither side relies upon anything said at that meeting. The important communications, for the purposes of the present application, are the following:

By a letter of 9 March 2010 from Mr Mabanga to Dr Stein, Mr Mabanga rejected an offer of US$ 3 million as “grossly inadequate” and set out his arguments for a higher valuation of his interest. It was a detailed three page letter and sought to value his interest by reference to various different criteria. The letter referred to the market capitalisations of companies which Mr Mabanga claimed to be comparable; it referred to recent rounds of capital raising undertaken by Ophir, seeking to value the interest in the concession by reference to the equity value of Ophir; and it referred to what were said to be precedent transactions. It is clear from the terms of the letter that Mr Mabanga is a sophisticated businessman who had his own views on appropriate methodologies for reaching a value for his interest, and that he had researched the data to support these views.

On 12 March 2010 Dr Stein responded to Mr Mabanga in an undated letter sent as an attachment to an email of that day (“the 12 March 2010 letter”). In this letter Dr Stein proposed a counter offer of US$ 6.15 million. The sum was calculated by deriving a value for Ophir’s 100% interest in the PSAs by reference to the proposed terms of the farmout transaction which was then in the final stages of negotiation with third parties; and then making adjustments to reflect the 5% profit interest held by Mr Mabanga. This is the critical document in the case, and I shall return to its full terms below.

Mr Mabanga responded by an email of 15 March 2010. In that email Mr Mabanga stated that he had “studied carefully the numbers in your letter”. Mr Mabanga countered with an offer to accept US$ 10.85 million. The email argued, amongst other things, that the farminee’s proposal was not necessarily a fair benchmark for valuing Mr Mabanga’s stake.

Dr Stein responded by email on 16 March 2010. He maintained the offer of US$ 6.15 million to reflect the value of Mr Mabanga’s 5% net profit interest, on the basis advanced in the 12 March 2010 letter, but added to it a further sum to reflect the discounted value of the cash milestone payments recorded in the consultancy agreements, bringing the total offer up to US$ 7.5 million. This offer was accepted by Mr Mabanga.

The Deed of Termination was subsequently executed by Mr Mabanga and Ophir Services dated 19 March 2010. Following advanced negotiations with several companies, on 16 April 2010, Ophir entered into an agreement with BG International Limited (“BG”) under which BG acquired a 60% interest in the PSAs for Blocks 1, 3 and 4 (“the BG Farmout Agreement”).

The 12 March 2010 letter, upon which the Claimant’s claim is founded, provided in its relevant parts as follows:

The farminee proposes to pay 85% of costs to acquire a 60% interest in all three of the Tanzanian PSA’s.

The minimum investment obligation is to pay 85% of the cost of three exploration wells and acquire up to 4,000 km of 3D seismic at a cost of US$175 million. The farminee has the option to withdraw following completion of the minimum investment. Ophir will retain 40% and will pay for 15% and will therefore be carried through 25% of the programme for US$43.75 million.

In the event that the farminee elects to continue beyond this minimum investment obligation, then they will pay 85% of gross expenditure until US$575 million has been spent. Ophir will retain 40% and will pay for 15%. Opir [sic] will therefore be carried through 25% of the programme for US$143.75 million. Thereafter each party will pay its pro-rata share of costs.

The offer to make available to Mr Mabanga copies of the farmout agreement in its final negotiated form for his review was not taken up by Mr Mabanga. Mr Mabanga had not seen the terms of the BG Farmout Agreement prior to commencing these proceedings. However a copy of the BG Farmout Agreement was provided after service of the Particulars of Claim, prior to service of the Reply and prior to the amendments which have been made to the Particulars of Claim.

In the remainder of this judgment I shall refer to the three bullet points giving the detail of the terms of the proposed farmin transaction as the first, second and third bullet points. I will refer to the sentence which follows (“In effect, Ophir is selling 60% of the PSA’s for a consideration that ranges between US$43.75 million and US$143.75 million”) as the “statement of consideration”.

The Claimant sought to amend his Particulars of Claim in response to the current application. The Defendants consented to the amendments. In response to a further criticism advanced in the skeleton argument served on behalf of the Defendants for this application, the Claimant served, on the day before the hearing, a draft Re-amended Particulars of Claim. The Defendants do not object to the re-amendments, and the parties have agreed that the application should be considered and determined by reference to the case advanced in the Re-amended Particulars of Claim.

The Claimant alleges four misrepresentations contained expressly or by implication in the 12 March 2010 letter. They are pleaded in the following terms:

that the farm-in transaction details contained in the 12 March 2010 Letter, as until then negotiated with potential farminees, had been accurately set out in the said letter (the “ First Representation ”);

that, pursuant to the farm-in transaction described in the 12 March 2010 Letter, the First Defendant (or relevant member(s) of the Ophir group) would be selling a 60% stake in respect of the Block 1, 3 and 4 PSAs for a consideration from the farminee that would range between US$43.75 million and US$143.75 million (see [the statement of consideration]) and/or that he (Dr Stein) honestly and reasonably believed that consideration to be in the said range (the “Second Representation”);

that Dr Stein honestly believed that the figure of US$6.15 million that he put forward represented the fair market value of the Claimant’s Net Profit Interest based on the “extensively market tested” details of the farm-in transaction described in the 12 March 2010 Letter (the “Third Representation”): and

that, on the basis of the said farm-in transaction, there were reasonable grounds for quantifying the fair market value of the Claimant’s Net Profit Interest under the Consultancy Agreements at about US Dollars 6.15 million (“The Fourth Representation”).”

As to the First Representation, the Claimant pleads that it was untrue by virtue of the Second Representation being untrue. There is no allegation that the farmin transaction details as then negotiated with potential farminees were inaccurately set out in the 12 March 2010 letter in any other respects. It is not suggested on behalf of the Claimant that the terms set out in the bullet points are an inaccurate or inadequate reflection of the terms of the BG Farmout Agreement. Nor is it suggested that the terms which were being negotiated with potential farminees at the date of the 12 March 2010 letter were in any material respect different from the terms which were ultimately concluded with BG.

Paragraph 21 of the Re-amended Particulars of Claim alleges that the Second Representation, the statement of consideration, was untrue because of the terms of the farmin transaction which were set out in the bullet points. The allegation of falsity is made in the following terms:

The farminee’s minimum investment obligation, as represented by Dr Stein, was to be 85% of the cost of three exploration wells and acquisition of up to 4000 square kilometres of 3D seismic data at a cost of US$ 175 million, meaning therefore that the farminee’s minimum contribution for its 60% stake would be 85% x US$ 175 million = US$ 148.75 million;

On the same approach, the farminee’s investment contribution if gross expenditure reached US$ 575 million, as indicated by Dr Stein, would be 85% x US$ 575 million = US$ 488.75 million;

Accordingly, on the basis of gross expenditure in the range of US $ 175 million to US$ 575 million as indicated by Dr Stein, the range of the farminee’s investment contribution in return for its 60% stake would be US$ 148.75 million to US$ 488.75 million; and

The alternative range of US$ 43.75 million to US$ 143.75 million put forward by Dr Stein was not the full consideration provided by the farminee for its 60% stake; rather it represented only part of the consideration provided by the farminee, namely, the 25% portion of costs in respect of which the farminee would “carry” the First Defendant (or the Ophir group)”.

As to the Third Representation, paragraph 23 of the Re-amended Particulars of Claim pleads that the Third Representation was false, to Dr Stein’s knowledge, in that “Dr Stein could not honestly have been of the opinion that the fair market value of the Claimant’s Net Profit Interest was merely US$6.15 million.” Two matters are pleaded in support:

It is alleged that the valuation was based on the Second Representation, so that the knowing falsity of the Second Representation necessarily involved the Third Representation being untrue to Dr Stein’s knowledge.

It is alleged that Dr Stein’s lack of honest belief in the representation was evidenced by his proposal to the Claimant on or about 6 August 2007 to convert the Net Profit Interest into cash payments based on milestones; it is alleged that the offer valued the interest at that time as being in the region of US$ 25 million.

As to the Fourth Representation, in paragraph 27 of the Re-amended Particulars of Claim the Fourth Representation is pleaded as being false because “…Dr Stein did not have reasonable grounds for presenting the figure of US$6.15 million as a fair market value for the Claimant’s Net Profit Interest”. Three matters are advanced to support that allegation:

Reliance is placed on the reasons advanced for knowing falsity of the Second and Third Representations;

It is alleged that the Claimant’s Net Profit Interest was in the nature of a Net Profit Share Interest rather than an equity interest, as Dr Stein acknowledged in the 12 March 2010 letter, and was more valuable than an equivalent equity interest taken by a farminee. The effect was said to be to undervalue the Claimant’s Net Profit Interest by 18 percent.

It is alleged that Dr Stein’s valuation of US$ 6.15 million assumed that there was a 66% likelihood of the project being completed in full by the farminee in relation to each of Blocks 1, 3 and 4; whereas, it is alleged, in the light of a significant discovery of gas reserves made in an area immediately to the south of Block 1, the likelihood of the project being completed in full should reasonably have been assessed by Dr Stein as being not less than 75%.

The Re-amended Particulars of Claim aver that had Dr Stein made proper allowances in respect of each of the four representations he ought to have valued the Claimant’s Net Profit Interest at US$ 36.16 million; that Mr Mabanga relied upon the representations in entering into the Deed of Termination and relinquishing his rights under the consultancy agreements; and that he would not have done so but for the representations. The loss claimed is therefore US$ 28.66 million, being the difference between the valuation of US$ 36.16 million and the US$ 7.5 million received by Mr Mabanga under the Deed of Termination.

The relevant principles which govern applications for summary judgment and applications to strike out statements of case are not in dispute.

Before giving summary judgment under CPR 24(a)(i) the Court must be satisfied that the Claimant has no real prospect of succeeding on the claim; and that there is no other compelling reason why the case should be disposed of at a trial.

As to the first, the Court’s task is to decide whether the Claimant’s prospects of success are “real”. The Claimant does not have to show that he will probably succeed at trial, but his prospects must be more than barely arguable. He must have a realistic prospect of success, one that is more than merely fanciful. The same test applies to applications to strike out under CPR 3.4(2)(a), which permits the court to strike out a statement of case which discloses no reasonable grounds for bringing the claim. See Three Rivers DC v Bank of England (No 3) [2001] 2 All ER 513.

The relevant principles applicable to claims based on misrepresentation, which are relevant both to the tort of deceit and to claims under Section 2(1) of the Misrepresentation Act 1967, include the following.

Whether any, and if so what, representation was made has to be judged objectively according to the impact that whatever is said may be expected to have had on a reasonable representee in the position, and with the known characteristics, of the actual representee. See MCI WorldCom International Inc v Primus Telecommunications Plc [2004] EWCA Civ 957 per Mance LJ at paragraph 30; Raiffeisen ZentralBank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm); [2011] 1 Lloyd’s Reports 123, per Christopher Clarke J at paragraph 81. The reference to the characteristics of the representee is important. In this case Mr Mabanga was, or could reasonably have been expected to have been, familiar with the structure of agreements relating to oil and gas exploration and their financial parameters; he claims to have been instrumental in securing the PSAs from the Government of Tanzania. It is clear from the letter of 9 March 2010 that Mr Mabanga had his own views as to the methodology of valuing his interest and was a sophisticated commercial businessman capable of forming his own views as to the value of his interest. The concept of a carry cost would have been familiar to him.

In the case of an express statement, the court has to consider what a reasonable person would have understood from the words used in the context in which they were used: IFE Fund SA v Goldman Sachs International [2007] 1 Lloyd’s Reports 264 per Toulson J at paragraph 50 (upheld by the Court of Appeal at [2007] 2 Lloyds Reports 449). The answer to that question will depend on the nature and the content of the statement, in the context in which it was made, the characteristics of the maker and of the person to whom it was made and the relationship between them: Raiffeisen ZentralBank v RBS per Christopher Clarke J at paragraph 82.

In the case of an express statement which is made in a document, the context will include the other terms of the document and the terms of surrounding documents passing between the parties. When considering a written representation, the task is to determine how the words would have been understood by the parties, not in a vacuum, but having regard to all the surrounding circumstances known to the parties. It is important in this context, just as when seeking to determine the true construction of a contract, to consider the full terms of the relevant document, not merely the extract which is said to contain the express statement amounting to a misrepresentation. This is not some arbitrary rule of construction. It accords with the commercial expectations of businessmen. One sentence in a letter is not written or read in isolation. It is written or read in the context of the whole letter and would be intended and understood as such.

In the case of an implied representation the Court has to perform a similar task, except that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context: IFE Fund SA v Goldman Sachs ; Raiffeisen ZentralBank v RBS at paragraph 83.

Statements of opinion are not normally actionable if they consist of no more than contentions or arguments as to the effect of a document whose terms are equally known to both parties. So in Kyle Bay Limited (t/a Astons Nightclub) v Underwriters Subscribing Under Policy Number 019057/08/01 [2007] 1 CLC 164, the Court of Appeal held that a statement as to the nature of a policy made to a loss adjuster who had a copy of the policy schedule was a “contention or argument” rather than an actionable misrepresentation.

Statements of opinion will generally carry with them an implied representation that the opinion is honestly held. In such cases there is no misrepresentation if the opinion was expressed in good faith: Economides v Commercial Union Assurance [1998] QB 587. A statement of opinion may also carry with it an implied statement of fact that the maker knows facts which justify his opinion or has reasonable grounds for expressing the opinion. Such an implication may more readily be drawn where the representor is in a stronger position than the representee to know of, or to ascertain, the relevant facts: see Smith v Land and House Property Corporation (1884) 28 Ch.D. 7; Brown v Raphael [1958] Ch 636. Whether such implication in fact arises depends in each case on the express terms of the representation and the circumstances in which it was made, including the characteristics of the representor and representee, the relationship between them, and the relative state of their knowledge. As Kennedy LJ put it in BG PLC v Nelson Group Services (Maintenance) Limited [2002] EWCA Civ 547 at paragraph 36:

As is apparent from the Re-amended Particulars of Claim, the case based on the First Representation stands or falls with that based on the Second Representation, because the bullet points in the 12 March 2010 letter accurately set out the terms of the proposed farmin transaction. This misrepresentation claim therefore depends in the first instance upon whether the statement of consideration was false.

Before turning to that question, it is worth emphasising the nature of the farmin transaction accurately revealed by the bullet points:

The farminee is to acquire a 60% interest in the three PSAs (first bullet point).

The farminee will pay 85% of the costs if and to the extent expenditure reaches US$ 575 million, and thereafter it will pay its pro rata share of costs at 60% (first bullet point and last sentence of third bullet point).

For the period in which the farminee was to pay an enhanced proportion of the costs, a period during which Ophir had a 40% participating interest but only an obligation to pay 15% of the costs, Ophir was being “carried” through 25% of the programme (second and third bullet point). The concept of a carry cost is a familiar one in the oil and gas exploration industry and was familiar to Mr Mabanga, as is apparent from paragraph 14 of his witness statement in which he refers to his net profit share entitlement of 5% as a “carried investment”.

The minimum and maximum figures of US$ 43.75 million and US $ 143.75 million respectively have been calculated as the 25% carry cost for the two relevant periods. This is patent from the arithmetic articulated in the second and third bullet points. It must have been apparent to Mr Mabanga when he said in his subsequent email that he had “studied carefully the numbers in your letter”. This was the fundamental basis of the valuation which Dr Stein was putting forward as the foundation for the offer in his letter. The US$ 43.75 million and US$ 143.75 million were clearly the 25% carry cost for the respective periods of the programme. They were the costs which the farminee was agreeing to bear in excess of the 60% which would have been borne in any event if all that were being farmed out were a simple 60% interest or stake which involved an entitlement to 60% of income and an obligation to contribute 60% towards costs and expenditure.

The terms being described, therefore, are terms under which the farminee is to acquire a right to a 60% interest in the benefits derived from the PSAs with a concomitant obligation to pay 60% of the costs; in addition the farminee is to pay a premium consisting of the carry cost of 25% which will be a minimum of US$ 43.75 million and a maximum of US$ 143.75 million.

I have little hesitation in concluding that there was no inaccuracy in the statement of consideration (“In effect, Ophir is selling 60% of the PSA’s for a consideration that ranges between US$43.75 million and US$143.75 million”). It was an accurate summary of the terms set out in the bullet points and meant that the 25% carry cost was the price the farminees were paying for a 60% participation in the PSAs in the sense that that was what was being paid as the premium to share in 60% of the benefits and burdens of the PSAs. This is obvious from a number of aspects of the statement in its context.

The statement of consideration immediately follows the bullet points. The words “in effect” link it to the bullet points. It purports to be a summary of the effect of the terms which have been set out in the bullet points. It falls to be construed in that context because any reasonable reader in Mr Mabanga’s position as the recipient of the letter would have read the sentence immediately after reading the content of the bullet points and would have read the sentence by reference to the content of the bullet points. That is so of any reasonable reader, but especially one who was, as Mr Mabanga was, studying the numbers carefully in order to reach his own views as to the value of his asset for the purposes of a sale which would be measured in millions of dollars.

The three bullet points spell out the essential terms; they explain with perfect clarity that the figures of US$ 43.75 million and US$ 143.75 million are calculated as being the carry cost of 25% for the minimum and maximum amounts of expenditure to which it fell to be applied. No reasonable reader of the terms of the letter taken as a whole could have thought that the figures of US$ 43.75 million to US$ 143.75 million were being treated as the entire cost to be borne in return for the share of income under the PSA. The way in which those figures have been calculated and what they represent is clearly set out in the bullet points. Mr Mabanga said that he studied the figures carefully, which is what the surrounding circumstances would have led one to assume, given that this was a commercial negotiation between parties seeking to look after their own commercial interests, exchanging arguments as to how such interests should be valued for the purposes of reaching agreement for their sale and purchase. The first bullet point identified that the farminee would pay 85% of the costs to acquire a “60% interest in all three of the Tanzanian PSA’s”. The figures of US$ 43.75 million to US$ 143.75 million were self evidently not calculated as 85% of the total costs for the relevant periods.

The Claimant’s argument is that there is a conflict between the first bullet point and the statement of consideration. That is an unpromising basis on which to invite the Court to find a misrepresentation. It is telling in this connection that paragraphs 21 and 22 of the Re-amended Particulars of Claim do not plead the falsity of the Second Representation by reference to facts extraneous to those set out in the 12 March 2010 letter; on the contrary they plead that the falsity is to be derived from the very terms of the letter itself. If the pleader can derive, and did derive, what is averred as being the true position from the terms of the letter itself, it is unlikely that a reasonable reader in Mr Mabanga’s position would have taken a different view. Of course it is conceptually possible for a person to recite the terms of a transaction accurately and then to append a summary which is inaccurate. But it is necessary to construe the letter as a whole, and in particular to take account of the fact that a reasonable reader reading the summary would read it in a way which was consistent rather than inconsistent with what had gone immediately before. If the statement of consideration were only capable of being read in a sense which is inconsistent with the first bullet point, then the reader would have to grapple with the apparent inconsistency. But if it were capable of being understood in a consistent way, that is how the reasonable reader would understand it. In this case it is capable of a consistent construction and that is its natural interpretation in context.

The critical phrase in the sentence is “60% of the PSA’s”. This is the subject matter of what was described as being sold by Ophir for the stated consideration. Paragraph 17(d) of the Re-amended Particulars of Claim pleads the representation as being in respect of “a 60% stake” in the PSAs. This is the expression used repeatedly in the pleading; see for example the Reply at paragraphs 26, 28 and 30. A 60% stake in the PSAs involves assuming 60% of the burden as well as enjoying 60% of the benefit. Ophir had a 100% “stake” in the PSAs. That involved 100% of the burdens as well as the benefits.

The Claimant’s argument assumes that the expression “60% of the PSA’s” is synonymous with a 60% Participating Interest as defined in the BG Farmout Agreement, comprising solely the benefit to be derived from the PSAs. But this is not the expression used. The expression used is a natural one to use to mean a 60% participation in the concessions, comprising 60% of the benefits and burdens conferred and imposed by the PSAs.

To put it another way, the obligation to contribute 60% towards the costs to be paid under the PSAs is part of the 60% interest or stake in the PSAs which is being transferred, not part of the consideration for the transfer of such stake.

This is an interpretation which is particularly apt in the given context of using price to measure value. As Dr Stein and Mr Mabanga were of course aware, a participation in a PSA comprises a bundle of rights and obligations. In the simplest terms the rights and obligations under a PSA involve the bearing of costs of the various stages of exploration, appraisal, development and production of a field or concession; and for a sharing of the income from the exploitation of the rights in respect of a field or concession. The value to a participant of its participation in a PSA must therefore take account not only of the benefit which may accrue from the rights, but also of the burdens which are imposed by the obligations. When a participating interest is farmed out, the form of the transaction is not normally one of novation of the PSA in which the farminee directly undertakes to the Government an obligation to bear a proportion of the costs; the form is one of assignment of a share of the participants’ rights under the PSA in return for an undertaking given to the farmor to bear a share of the burden of the latter’s obligations towards the Government under the PSA. But in commercial terms it is equivalent to a transfer of a share of the farmor’s participation in the PSA, an economic transfer of both rights and obligations.

When parties talk of valuing a PSA, or a participating interest or a stake in a PSA, a natural interpretation of what they are addressing is the value of the bundle of rights and obligations which arise in relation to the PSA. The “interest” or “stake” encompasses the obligation to contribute to expenditure as much as the right to enjoy the benefit of income.

Accordingly the value of participation in a PSA is not synonymous with total cost, nor with total benefit. It may be more readily based on anticipated profit, being an assessment of the perceived prospects of an excess of income over expenditure. Indeed, participants may value their interest in a PSA as having a negative or a nil value rather than as having a positive value. All will depend upon the circumstances as perceived by the parties, including in particular their perception of the prospects of discovery of commercial quantities of hydrocarbons and of the economic exploitation of the field (and other factors such as political risk and the financing available to the parties). For example, a participant with an obligation to fund drilling of an exploration well which he perceives as having no realistic prospect of success may treat his interest in the PSA as having a negative value. This may be so for a 100% participant who has undertaken that obligation towards the Government under a PSA; or for a farminee with a minority share who has an obligation to pay a proportion of the cost which he regards as greater than any prospective reward. Such a participant would not regard his interest in the PSA as having a positive value.

One can posit a farmout of a 60% interest in a PSA in which a farminee agrees to take a simple 60% participation, that is to say to pay pro rata 60% of the costs and to be entitled to 60% of the income, with no additional premium. In effect 60% of the benefit and burden under the PSA is simply being transferred. It would be natural to describe such a farminee as not paying a price for that transferred participation, but simply joining the venture on the same risk and reward terms as the existing participants. That would be so whatever percentage participation were taken, provided no premium were paid. If value is in the present context to be equated with price, it would be natural to describe such a transaction as valuing the participation which was being effectively transferred at nil. The value of the interest acquired would depend upon the perceived risk/reward ratio of the project, not simply the percentage participation effectively transferred, still less the cost element of the participation effectively transferred.

This approach is implicit in the 12 March 2010 letter. No value is attributed to the period after the carry cost obligation expires and the farminee remains liable for 60% of the costs. The right to 60% of the income in return for 60% of the costs for that period is treated as having no value in the calculation.

Mr Choo-Choy QC relied upon the valuation report of an expert, Mr David Aron. At paragraph 20, Mr Aron said:

There is room for debate whether this is a sound methodology of valuation, and indeed as to precisely what it is that Mr Aron is purporting to value as “the 60% interest”, and when he treats that interest as accruing. But however that may be, it is not advanced as the only possible methodology which could be used for valuation. What matters for present purposes is that such methodology was clearly not the basis being put forward by Dr Stein’s letter of 12^th March 2010.

That the reference to “60% of the PSAs” is a reference to a 60% stake comprising both benefit and burden under the PSAs is borne out not only by the fact that the consideration is identified in the bullet points as being the 25% carry cost, not the 85% then 60% total cost contribution, but also from the fact that the consideration or price is being used to derive a value for an entire 100% participation interest held by Ophir in the concessions. The sentence which follows the statement of consideration (“This implies total valuation of a 100% interest in the three Blocks to be in the range US$72.91 million to US$239.58 million.”) grosses up the 60% figures by a ratio of 100/60 to reach the stated value of “a 100% interest in the three Blocks”. This is using 100% interest in the sense of both benefit and burden, not merely the interest in income. The 60% is used in the same sense in the previous sentence.

Indeed it is striking that this is apparently how Mr Mabanga himself understood it when the claim was first formulated in the letter before action. His understanding at that stage must have been that the consideration referred to in the statement of consideration was the 25% carry cost. His solicitor’s letter of 17 June 2011 set out the terms of the bullet points in the 12 March 2010 letter and characterised the content of the following sentence (i.e. the statement of consideration) in the following terms:

This letter correctly identified that the statement of consideration referred to the 25% carry cost as being the benefit to Ophir of having that cost borne by the farminee. This was exactly what Dr Stein was saying and it involved no inaccuracy in summarising the terms of the anticipated farmin agreement. The complaint in the letter before action was that the use of this valuation methodology “alone” was “highly questionable”. Whether it was a valuation methodology which should be treated as valid, in isolation from others or at all, was a matter for Mr Mabanga to decide. Dr Stein was putting it forward as the suggested methodology to explain his offer, without in any way misrepresenting the facts on which it was based.

For these reasons I have reached the clear conclusion, as a matter of construction of the letter as a whole, that the statement of consideration was true and accurate. The claim based on the First and Second Representations must therefore fail.

The Defendants also submitted that the statement of consideration was not actionable because it merely constituted a statement of opinion commenting on the effect of the terms which had been set out in the bullet points, and was no more than argument or contention. Had I been persuaded that the statement was inaccurate, or that it was deliberately ambiguous with a dishonest intention to deceive, I would not have accepted this submission. It was a statement of the terms of the proposed farmin transaction, not merely a commentary on the terms set out in the bullet points, albeit that it fell to be construed in the light of what was said in the bullet points. As such it was a statement of fact. It is in a different category from the statement in the Kyle Bay case.

Despite the breadth of the pleading, in the course of argument Mr Choo-Choy QC accepted that the case based on the Third and Fourth Representations could not succeed unless the statement of consideration was inaccurate. I have held that it was not inaccurate and so the case based on the Third and Fourth Representations has no real prospect of success.

The pleaded claim has no real prospect of success. There will be summary judgment for the Defendants.