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CITE

Unreported Judgment

Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd[2025] QSC 49Cooper J
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Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd[2025] QSC 49

SUPREME COURT OF QUEENSLAND

CITATION:	Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd [2025] QSC 49
PARTIES:	AUSTRALIA PACIFIC LNG PTY LTD (first plaintiff) AUSTRALIA PACIFIC LNG (CSG) PTY LTD (second plaintiff) AUSTRALIA PACIFIC LNG (MOURA) PTY LTD (third plaintiff) v SANTOS TOGA PTY LTD (first defendant) BRONCO ENERGY PTY LTD (second defendant)
FILE NO/S:	BS 936 of 2023
DIVISION:	Trial division
PROCEEDING:	Application
ORIGINATING COURT:	Supreme Court at Brisbane
DELIVERED ON:	27 March 2025
DELIVERED AT:	Brisbane
HEARING DATE:	2 December 2024
JUDGE:	Cooper J
ORDER:	The following parts of the Second Further Amended Statement of Claim filed on 1 March 2024 are struck out: from paragraph 39, the words “by reason of the matters set out in column [5] of Annexure A or Annexure B (as applicable)”; from paragraph 41(a), the words “as identified in column [5] of Annexure B to this further amended statement of claim”; from Annexure A, the whole of column 5; from Annexure B, the whole of column 5. The plaintiffs have leave to replead in respect of those parts of the Second Further Amended Statement of Claim that have been struck out. The plaintiffs are to file and serve a third further amended statement of claim addressing the matters referred to in paragraphs 70, 85, 109,112, 115, 123, 124, 136, 141, 147 and 153 of the reasons for judgment, and any other amendments the plaintiffs wish to make. I will hear from the parties as to the date by which the plaintiffs are to file and serve that third further amended statement of claim. Paragraph 3 of the defendants’ application filed on 21 October 2024 is adjourned to a date to be fixed. I will hear from the parties as to costs.
CATCHWORDS:	PROCEDURE – PLEADINGS – STRIKING OUT – DISCLOSING NO REASONABLE CAUSE OF ACTION OR DEFENCE – where the plaintiffs and defendants were parties to joint operating agreements for the exploration, development and production of oil and gas – where the defendants (as operators) charged the plaintiffs for expenditure under the joint operating agreement – where those agreements were governed under the law of Texas – where the plaintiffs commenced proceedings against the defendants to claim adjustments to expenditure charged by the defendants in the form of a credit – where the plaintiffs allege they were denied access to information and records in audits to determine whether and to what extent they could claim adjustments against the defendants – where the plaintiffs, in a r 445 letter, provided particulars of their adjustment claim which raised the proper construction of Texan law – where the defendants contended that the content of Texan law was required to be pleaded as a material fact – whether the pleading should be struck out on the basis that it discloses no reasonable cause of action. PROCEDURE – PLEADINGS – STRIKING OUT – EMBARRASSING, TENDENCY TO CAUSE PREJUDICE, SCANDALOUS, UNNECESSARY ETC OR CAUSING DELAY IN PROCEEDINGS – where the defendants contended that the plaintiffs’ pleading lacked sufficient clarity in that the quantum and basis of the adjustments claimed by the plaintiffs were pleaded by way of cross-references to audit reports – where the defendants contended that the plaintiffs’ pleading provided inconsistent alternatives in that it alleged (on the one hand) that the defendants did not provide sufficient information to the plaintiffs’ auditors to permit them to determine whether expenses had been properly charged and (on the other hand) alleged that the defendants had improperly charged expenses – whether the pleading should be struck out, in whole or part, on the basis that it has a tendency to prejudice or delay the fair trial of the proceeding. PROCEDURE – DISCOVERY AND INTERROGATORIES – DISCOVERY AND INSPECTION OF DOCUMENTS – DISCOVERY OF DOCUMENTS – where the defendants applied to be relieved from disclosure on the basis that the deficiencies in the plaintiffs’ pleading meant that disclosure was unduly burdensome – whether the defendant should be relieved from disclosure. Ascherberg, Hopwood & Crew Ltd v Casa Musicale Sonzogno [1971] 1 WLR 1128, cited. Ashton v Dorante [2012] QCA 175, cited. Australian Automotive Repairers’ Association (Political Action Committee) Inc v NRMA Insurance Ltd [2002] FCA 1568, cited. Banque Commerciale SA (in liq) v Akhil Holdings Pty Ltd (1990) 169 CLR 279; [1990] HCA 11, cited. Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd [2011] QCA 252, cited. Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 359; [2010] FCAFC 133 cited. Bli Bli # 1 Pty Ltd v Kimlin Investments Pty Ltd [2010] QCA 136, cited. Bruce v Odhams Press Ltd [1936] 1 KB 697, cited. Equititrust Ltd v Tucker (No 2) [2019] QSC 248, cited. Kordamentha Pty Ltd v LM Investment Management Ltd [2016] QSC 183, cited. Meckiff v Simpson [1968] VR 62, cited. Murphy v State of Victoria (2014) 45 VR 119; [2014] VSCA 238 cited. Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54, followed. O'Donnell v Commonwealth of Australia [2021] FCA 1223, cited. QIC Logan Hyperdome Pty Ltd v Briridge Pty Ltd [2011] QSC 43, cited. Robert Bax & Associates v Cavenham Pty Ltd [2011] QCA 53, cited. Thiess Pty Ltd v FFE Minerals Australia Pty Ltd [2007] QSC 209, cited. Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, cited. Virgtel Ltd v Zabusky [2008] QSC 213, cited. Whittaker v Child Support Registrar [2009] FCA 188, cited. Uniform Civil Procedure Rules 1999 (Qld) rr 149, 161, 224, 366, 444, 445.
COUNSEL:	G Beacham KC and B O'Brien for the respondent plaintiffs AC Stumer KC with C Schneider for the applicant defendants
SOLICITORS:	King & Wood Mallesons for the respondent plaintiffs Allens for the applicant defendants

[1]
The parties to this proceeding are participants in five unincorporated joint ventures for the exploration, development and production of oil and gas. Each unincorporated joint venture is governed by its own joint operating agreement.
[2]
The first defendant is the operator under three of the operating agreements,^[1] and the plaintiffs (among others) are parties to those three agreements as non-operators. The second defendant is the operator under the other two operating agreements,^[2] and the second plaintiff (among others) is a party to those two agreements as a non-operator. Under the operating agreements, the defendants were entitled to charge certain costs incurred in undertaking the operations to joint accounts.
[3]
In this proceeding, the plaintiffs claim an entitlement to an adjustment of the joint accounts in the form of a credit in their favour on the basis that, in broad terms, they were overcharged by the operators for expenses of the joint operations.
[4]
The defendants apply, pursuant to r 171 of the Uniform Civil Procedure Rules (UCPR) or the court’s inherent jurisdiction, to strike out the second further amended statement of claim (2FASOC) in whole or in part on the grounds that it discloses no reasonable cause of action or otherwise tends to prejudice or delay the fair trial of the proceeding.
[5]
In the alternative, the defendants apply pursuant to r 161(1), r 366(3) or the court’s inherent jurisdiction for an order that the plaintiffs provide further particulars of particular paragraphs of the 2FASOC.
[6]
Finally, the defendants apply, pursuant to r 224(1), for an order that they be relieved from their duty of disclosure until further order.
[7]
The plaintiffs oppose the application. They accept that their pleading will not stay in its current form until trial. However, they emphasise that their claims to adjustment of the joint accounts rest in large part upon the allegation that the defendants failed to provide enough information to enable the expenses charged to the joint accounts to be properly audited to confirm whether those expenses were incurred in accordance with the requirements of the operating agreements. In those circumstances, the plaintiffs submit that they require disclosure from the defendants to further develop the pleading.

Relevant principles

[8]
The court has a discretion under r 171 to strike out all or part of a statement of claim if (among other bases) it discloses no reasonable cause of action, or it has a tendency to prejudice or delay the fair trial of the proceeding.
[9]
The focus of a strike out application is the pleading itself, such that the court ordinarily assumes that factual allegations made by the plaintiff can be established.^[3]
[10]
The function of a pleading is to state with sufficient clarity the case which must be met, thereby defining the issues for decision and ensuring procedural fairness.^[4]
[11]
To that end, a statement of claim must contain all the material facts which a plaintiff relies upon.^[5] A fact is material if it is necessary for the purpose of formulating a complete cause of action.^[6] If the statement of claim omits a material fact which is required to sustain the pleaded cause of action in law then that part of the pleading is liable to be struck out.^[7] A failure to plead all material facts may not be remedied through the use of particulars.^[8]
[12]
Beyond the failure to plead material facts (such that the pleading fails to disclose a reasonable cause of action), the circumstances where a pleading will be found to be deficient have been described in various ways: if the pleading is “ambiguous, vague or too general” such that the opposite party does not know what is alleged against it;^[9] if the pleaded case is not “advanced in a comprehensible, concise form appropriate for consideration both by the court, and for the purpose of the preparation of a response”;^[10] or, if the pleading is “difficult to follow or objectively ambiguous” or creates difficulty for the opposite party insofar as it contains inconsistencies.^[11]
[13]
Pleadings are not an end in themselves. They are a means to an end, that end being to give each party a fair hearing.^[12] Consequently, while the functions of pleadings must be kept in mind when considering their adequacy in a particular case, that should be done in “a reasonable, realistic and pragmatic way”.^[13]
[14]
As to the plaintiffs’ submissions concerning asymmetry of information between them and the defendants, there are authorities that indicate this is a relevant factor in exercising the discretion to strike out a pleading, particularly in circumstances where striking out the pleading would give rise to a real risk that the plaintiff will be unable to materially improve the pleading and therefore continue the case.^[14]

Key terms of the operating agreements

[15]
The operating agreements contain relevantly similar terms, save for the effect of a side deed and an amendment deed which relate to the Arcadia operating agreement and the Fairview operating agreement (addressed further below).
[16]
The operating agreements are governed by the law of the state of Texas (Art XIV cl B).
[17]
Each party’s respective percentage or fractional interests in the operations covered by the operating agreement is listed in Exhibit A to that agreement. All costs and liabilities incurred in performing the operations covered by the agreement are to be borne and paid by each party in accordance with its respective percentage or fractional interest (Art III cl B; see also Art VII cl A)
[18]
The party appointed as operator is to conduct, direct and have full control of all operations covered by the operating agreement (Art V cl A).
[19]
The operator is to promptly pay and discharge expenses incurred in performing the operations covered by the operating agreement and is to charge each of the parties with their respective proportionate shares upon the expense basis provided in the “Accounting Procedure” attached as Exhibit C to the agreement. (Art VII cl C).
[20]
The Accounting Procedure refers to a joint account, being the account showing the charges paid, and credits received, to conduct the joint operations and which are to be shared by the parties. The operator is required to keep an accurate record of this joint account showing expenses incurred and charges and credits made and received (Art VII cl C).
[21]
Further, the operator can elect to demand payment from the non-operator parties, in advance, of their respective shares of the estimated amount of the expenses to be incurred in operations under the agreement during the following month. An adjustment must then be made monthly between advances paid to the operator and actual expenses incurred such that each party shall bear and pay its proportionate share of actual expenses incurred and no more (Art VII cl C and Pt I cl 3 of the Accounting Procedure).
[22]
When the operator bills the non-operator parties for their proportionate share of the costs charged to the joint account it must also provide statements which identify the authority for expenditure, lease or facility, and all charges and credits, summarised by appropriate classifications of investment and expense (Part I cl 2 of the Accounting Procedure).

[23]
The Accounting Procedure confers rights on the non-operator parties to seek to verify that the operator charged costs to the joint account in accordance with the terms of the Accounting Procedure and to seek an adjustment where costs are charged improperly. The non-operator parties have the right to audit the operator’s accounts and records relating to the joint account for any calendar year, within the two-year period from the end of that calendar year (Pt I cl 5 of the Accounting Procedure).
[24]
The non-operator parties also have the right to take written exception to the correctness of expenses charged to the joint account and make a claim on the operator for an adjustment of the joint account, provided that occurs within two years from the end of the calendar year in which the expenses were charged. If no exception is taken within that two year period then all bills rendered by the operator “shall conclusively be presumed to be true and correct” (Pt I cl 4 of the Accounting Procedure). The conduct of an audit does not extend the two-year period for the taking of written exception to costs charged to the joint account (Pt I cl 5 of the Accounting Procedure).
[25]
Parts II and III of the Accounting Procedure identify the expenses which the operator may charge to the joint account and bill to the other parties in their proportionate shares: namely “Direct Charges”^[15] and “Overheads”.^[16]
[26]
The Direct Charges recoverable by the operator comprise the following expenses:
1. lease rentals and royalties;
2. labour costs;
3. employee insurance, pensions, bonuses and other like benefits;
4. the cost of materials;
5. the cost of transporting employees and materials;
6. the cost of contract services, equipment and utilities provided by outside sources;
7. costs associated with the use of equipment and facilities owned by the operator;
8. costs or expenses necessary for the repair or replacement of damaged property;
9. legal expenses;
10. taxes;
11. insurance costs; and
12. any other expenditure not covered or dealt with by the forgoing categories or by the “Overhead” allowance provided for in Part III of the Accounting Procedure (discussed below) and which the operator incurs in the necessary and proper conduct of the operations.

[27]
For some of the categories of Direct Charges, the amount which the relevant operator may charge to the joint account is further qualified by the terms of the Accounting Procedure. For example, Pt II cl 2(a) provides that the operator may only charge labour costs associated with certain employees directly employed on the “Joint Property” (defined as meaning the real and personal property the subject of the operating agreement) in the conduct of the operations covered by the operating agreement. A similar qualification is set out in Pt II cl 6 regarding the cost of contractors.
[28]
As to Overheads, Pt III cl 1 of the Accounting Procedure provides that, as compensation for administrative, supervision, office services and warehousing costs, the operator shall charge the joint account on a fixed rate basis in the amounts set out in that clause.
[29]
In October 2013, the parties to the Arcadia operating agreement and the Fairview operating agreement entered into a side deed which provides (among other things) that:
1. for any audits conducted under those operating agreements after execution of the side deed, the operator must fully disclose to the plaintiffs, in accordance with standard industry practice, all information reasonably required to support costs charged to the joint accounts;
2. the operator is not, however, required to disclose payroll data to the plaintiffs.
[30]
In May 2015, the parties to the Arcadia operating agreement and the Fairview operating agreement entered into an amendment deed which amended aspects of the Accounting Procedure for those agreements. The amendments took effect from 1 January 2015. By the amendments, Part II (Direct Charges) and Part III (Overheads) were deleted from the Accounting Procedure and replaced by Part II (“Cost Allocation Principles”) and Part III (“Charges”) set out in Appendix A to the amendment deed.
[31]
The changes introduced by these amendments to the Accounting Procedure under the Arcadia operating agreement and the Fairview operating agreement included:
1. a requirement that the operator implement a “Cost Allocation Methodology” to address the allocation of costs incurred in undertaking activities which benefit both the joint operations covered by the operating agreement and other activities undertaken by the operator (or its affiliates) and to provide for the equitable allocation of a portion of such mixed costs to the joint account;
2. the removal of the prohibition on charging the joint account with labour costs of employees and contractors not directly engaged on the Joint Property;
3. the removal of the requirement that charges for administrative overhead expenses be limited by reference to a fixed rate, and the introduction of a method for allocating such costs to the joint account using a time writing allocation procedure;
4. the introduction of new specific “non-recoverable costs” which are not able to be charged by the operator to the joint account, including costs associated with certain functions of the operator’s corporate group and costs associated with downstream gas activities.
[32]
Following the amendments, the operator under the Arcadia operating agreement and the Fairview operating agreement retained the right to charge to the joint account any other costs or expenditure which it incurred as operator for the necessary and proper conduct of the operations covered by the operating agreement.

The plaintiffs’ pleaded case

[33]
Certain aspects of the 2FASOC are not contentious for the purpose of the present application. These parts plead:
1. the parties to the proceeding (paragraphs 1 to 5);
2. the entry into the various operating agreements and subsequent changes to the parties and interests under those agreements (paragraphs 6 to 12);
3. the relevant terms of the operating agreements (including the Accounting Procedure) set out in at [17]-[28] above (paragraphs 13 to 16);
4. an implied term of each operating agreement that the operators were obliged, for the purposes of an audit, to provide the plaintiffs or their auditors with a copy of or full access to the operator’s accounts and records relating to the costs charged to the joint account and billed to the plaintiffs (paragraph 16(c));
5. the entry into the side deed and the amendment deed for the Arcadia operating agreement and the Fairview operating agreement and the relevant terms of those deeds (paragraphs 18 to 21);
6. the conduct of audits for the calendar years ending 31 December 2014 and 31 December 2015 (the 2014/2015 audit), for the calendar years ending 31 December 2018 and 31 December 2019 (the 2018/2019 audit), for the calendar years ending 31 December 2020 and 31 December 2021 (the 2020/2021 audit) and the preparation of reports for each of those audits (paragraphs 23 to 26, 29 to 32 and 34 to 36);
7. the provision of the audit reports to the defendants and, on the basis of findings in the various audit reports, the raising of written exceptions and the making of claims on the defendants for adjustment of the joint accounts in accordance with cl I(4) of the Accounting procedure (paragraphs 27, 33 and 37);
8. the plaintiffs and the defendants having not resolved the findings in the audit reports with those disputed findings being set out in two annexures to the 2FASOC titled Annexure A and Annexure B (paragraph 38).
[34]
The defendants’ complaint about the 2FASOC centres upon the plaintiffs’ pleading of their entitlement to an adjustment of the joint accounts in paragraphs 39 to 43.
[35]
Paragraph 39 pleads that the defendants were not entitled under the operating agreements to charge the plaintiffs with expenses identified in Annexure A and Annexure B to the 2FASOC because “the expense or category of expense … was not charged on the expense basis provided for in [the Accounting Procedure] (or otherwise in accordance with the Amendment Deed in respect of the Fairview and Arcadia Operating Agreements)” by reason of matters set out in Annexure A or Annexure B (as applicable).
[36]
Paragraph 40 goes on to plead that, in the premises of paragraph 39, the plaintiffs are entitled to an adjustment of the joint accounts in the form of a credit in their favour. The amount of the credit claimed is the full amount of some of the items set out in Annexure A and Annexure B, but for other items the claim is for a credit that represents the plaintiffs’ respective percentage or fractional interests under the operating agreements. The particulars to paragraph 40 state that the basis and quantum of the credit adjustment (being the amount necessary to ensure that the plaintiffs have only been charged with their respective proportionate shares upon the expense basis provided in the Accounting Procedure) will be further particularised following the completion of interlocutory steps, including disclosure by the defendants.
[37]
Annexure A and Annexure B to the 2FASOC both have the same format, comprising five columns:
1. column 1 identifies the audit years to which the challenged expense relates;
2. column 2 identifies the audit finding within the relevant audit report to which the challenged or expense relates;
3. column 3 provides a description of the relevant audit finding or the challenged expense;
4. column 4 sets out the amount of the challenged expense (for some, but not all, of the challenged expenses);
5. column 5 sets out the reasons for exclusion; that is, the reason why (as pleaded in paragraph 39 of the 2FASOC) the expense was not charged to the joint account on the expense basis provided for in the Accounting Procedure or (for the Arcadia operating agreement and the Fairview operating agreement) in accordance with the amendment deed.
[38]
Annexure A identifies 16 categories of expense which are challenged by the plaintiffs: three arise from the 2014/2015 audit, four arise from the 2018/2019 audit and nine arise from the 2020/2021 audit.
[39]
Column 4 in Annexure A records the amount of each challenged category. The amounts range from $542.62 (for service rewards expenses challenged in audit finding A.2 from the 2018/2019 audit) to $18,260,228 (for close out and commissioning expenses challenged in audit finding 2.02 from the 2014/2015 audit).
[40]
Annexure B identifies 19 categories of expense which are challenged by the plaintiffs: five arise from the 2014/2015 audit, six arise from the 2018/2019 audit and eight arise from the 2020/2021 audit.

[41]
Column 4 of Annexure B does not record an amount for every challenged expense. The entries in column 4 of Annexure B fall into the following groups:
1. three expense categories for which nothing is recorded in column 4;^[17]
2. three expense categories for which the entry in column 4 is “General exception $TBA”;^[18]
3. the remaining thirteen expense categories for which the entry in column 4 is “General exception” followed by a specific money amount. These expense categories are challenged in amounts that are, for the most part, significantly higher than the expense categories challenged in Annexure A. The largest expense category challenged in Annexure B is a general exception in audit finding 2.01 from the 2014/2015 audit where the amount of the challenged expense is identified as being AU$2,559,482,610 and US$69,122,653.
[42]
In both Annexure A and Annexure B, the entries in column 5 do not themselves identify the reasons the plaintiffs say the expense was not charged to the joint account on the expense basis provided for in the Accounting Procedure or (for the Arcadia operating agreement and the Fairview operating agreement) in accordance with the amendment deed. Instead, those entries cross-refer to pages of the audit reports which the plaintiffs rely upon in challenging the identified expenses.
[43]
The defendants describe the basis for the entitlement to an adjustment pleaded in paragraphs 39 and 40 of the 2FASOC as the improper charges claim.
[44]
Paragraph 41 then pleads a further basis for the plaintiffs’ entitlement to a credit adjustment to the joint accounts. The defendants describe this further basis as the deficient information claim. That claim can be summarised as follows:
1. the defendants did not provide information to the plaintiffs, in compliance with their obligations under Article VIIC of the operating agreements, cl I(2) of the Accounting Procedure or the implied term pleaded at paragraph 16(c) of the 2FASOC, in respect of the expenses referred to in Annexure B: see paragraphs 41(a) and (b);
2. by reason of that failure to provide information, the plaintiffs raised general exceptions in the audit reports to the expenses referred to in Annexure B: see paragraphs 41(c) to (f);
3. in those premises, the plaintiffs are entitled to an adjustment to the joint accounts in the form of a credit in their favour. The amount of the credit claimed is pleaded as being “the proportionate amount of the total sum of the adjustment necessary to ensure that the plaintiffs have only been charged with their respective proportionate shares upon the expense basis provided in the Accounting Procedure … that represents the plaintiffs’ respective percentage or fractional interests under the Operating Agreements”: see paragraph 41(g).

[45]
The relief which the plaintiffs claim in the 2FASOC is:
1. a declaration that the plaintiffs are entitled to an adjustment of the joint accounts in amounts representing their respective percentage or fractional interests under the operating agreements for the months during the period 1 December 2014 to 31 December 2015, 1 April 2018 to 31 December 2019 and 1 January 2020 to 31 December 2021 (inclusive);
2. an order that the defendants adjust the joint accounts in the plaintiffs’ favour in respect of those months; and
3. interest on the sum of the required adjustments to the joint accounts.
[46]
Save for the period of 1 January 2020 to 31 December 2021, the months identified in the prayer for relief do not coincide precisely with the periods which are the subject of the audit reports pleaded as expressing the reasons for excluding costs from the joint accounts are taken (column 5 in both Annexure A and Annexure B).

The defendants’ response to the pleaded case

[47]
The plaintiffs filed and served the 2FASOC on 1 March 2024.
[48]
On 6 March 2024, the solicitors for the defendants wrote to the solicitors for the plaintiffs stating that the 2FASOC disclosed no reasonable cause of action and had a tendency to prejudice or delay the fair trial of the proceeding. Nevertheless, the defendants proposed to file a defence “in an effort to most efficiently progress these proceedings”.
[49]
The defendants filed and served their defence on 20 May 2024.
[50]
By that defence, the defendants plead that paragraphs 39, 40 and 41 of the 2FASOC are vague, embarrassing and ought to be struck out because:
1. paragraph 39 does not identify:
  1. material facts upon which it is alleged that the defendants were not entitled to charge to the joint accounts each of the expense items set out in Annexures A and B, including the reason why it is alleged that the charging of those expense items to the joint accounts was not in accordance with the Accounting Procedure (or the amendment deed in respect of the Fairview and Arcadia operating agreements); and
  2. the “expense basis” provided for in the Accounting Procedure (or the amendment deed in respect of the Fairview and Arcadia operating agreements) which referred to in that paragraph;
2. in respect of paragraph 40:
  1. the paragraph does not identify material facts upon which it could be alleged, or the contractual basis for alleging, that the plaintiffs’ are entitled to an adjustment of the joint accounts in the form of a credit in their favour;
  2. the matters set out in Annexures A and B are not sufficient to enable the defendants to determine what adjustments are alleged to be required in respect of each of the joint accounts and how the plaintiffs’ respective fractional interests under the operating agreements correspond to the amounts challenged;
3. paragraph 41 does not identify:
  1. the information that the plaintiffs allege was not provided;
  2. the basis upon which the plaintiffs allege the defendants were required to provide such information;
  3. the charges allegedly made to the joint accounts which are said to be subject to the general exceptions set out in Annexure B.
[51]
Nevertheless, the defence also engaged with the various items in Annexures A and B by including a column 6 in those annexures which contains one or more of the following responses:
1. “Not a valid claim”, by which the defendants assert that the plaintiffs’ claim in respect of the relevant expense item was not validly made under cl I(4) of the Accounting Procedure (and upon the expiry of the two-year period the bills issued by the defendants are conclusively presumed to be true and correct) because as properly construed under Texan law, the making of a valid claim means either the commencement of legal proceedings or, alternatively, the making of a written demand which specifies each item in relation to which an adjustment is sought and, for each such item, the amount of the adjustment sought;
2. “Not a valid written exception”, by which the defendants assert that no valid written exception and claim was made by the plaintiffs in respect of the relevant expense item under cl I(4) of the Accounting Procedure (and upon the expiry of the two-year period the bills issued by the defendants are conclusively presumed to be true and correct) because as properly construed under Texan law, the making of a valid written exception and claim requires a specific and detailed identification of the charges the subject of the exception and claim, as well as the basis of the exception and claim;
3. “Claim resolved”, by which the defendants assert that the claim in respect of the relevant expense item has been resolved as between the parties;
4. “Claim altered”, by which the defendants assert that in correspondence dated 13 April 2023, the plaintiffs revised the alleged adjustment required to the joint accounts in respect of the relevant expense item;
5. “Outside the claim period” by which the defendants assert that, to the extent that claim for relief in relation to the relevant expense item is alleged to arise out of amounts charged to the joint accounts under the operating agreement between 1 January 2014 to 30 November 2014 and 1 January 2018 to 31 March 2018, those claims fall outside the period the subject of the plaintiffs’ prayer for relief in the 2FASOC;
6. “No adjustment arises”, by which the defendants assert that the 2FASOC does not identify any alleged adjustment required to the joint accounts in respect of the relevant expense item and no adjustment is capable of arising.

Correspondence about the pleaded case

[52]
On 18 July 2024, the solicitors for the defendants sent a letter to the solicitors for the plaintiffs pursuant to r 444 of the UCPR. In summary, that letter asserted that the 2FASOC does not:
1. identify the basis upon which the plaintiffs allege that they are entitled to an adjustment of the joint accounts (including a complaint that the plaintiffs do not identify the particular terms of the operating agreements on which they intend to rely to establish the entitlement to an adjustment, and a complaint that the pages of the audit reports identified in column 5 of Annexures A and B do not fairly identify the basis upon which the plaintiffs allege that the defendants were not entitled to charge the expenses to the joint accounts);
2. set out the adjustments that are alleged to be required or the amounts of the credits to be applied by reference to the plaintiffs’ percentage or fractional interests under the operating agreements;
3. identify any terms of the operating agreements the plaintiffs rely on as giving rise to an entitlement to an adjustment of the joint accounts, or an entitlement to raise general exceptions to the joint accounts, due to the alleged failure by the defendants to provide information;
4. identify the information that the plaintiffs allege was not provided or the basis upon which the plaintiffs allege the defendants were required to provide such information to them.
[53]
On 9 August 2024, the solicitors for the plaintiffs wrote a letter to the solicitors for the defendants pursuant to r 445 of the UCPR, responding to the defendants’ complaints about the 2FASOC. By that letter, the plaintiffs provided the following particulars of their claim to a contractual entitlement to an adjustment of the joint accounts:
1. as particulars of the contractual entitlement to an adjustment pleaded in paragraph 40(a) of the 2FASOC:

“Under the law of the state of Texas

a contract is to be interpreted:

to give effect to the objective intent of the parties, as expressed in the contract, at the time of execution;
as a whole; and
in a way that avoids rendering any provision meaningless or superfluous;

further, the guidelines issued by COPAS (as defined and referred to in paragraph 14 of the 2FASOC) can be used in interpreting the Operating Agreements:

as the commercial context for the agreements;
as evidence of industry, custom and practice relevant to the agreements;
to the extent the terms in the agreements are ambiguous, as extrinsic evidence.

Having regard to the content of the law of the state of Texas set out in the preceding paragraph:

on the proper interpretation of the Operating Agreements:
1. Article VII, clauses A and C of the Operating Agreements are to be interpreted such that the Non-Operators are liable only for their proportion of expenses charged in accordance with the accounting procedures set out in Exhibit C to the Operating Agreements;
2. Paragraphs 4 and 5 of Section I of Exhibit [sic, C] of the Operating Agreements are to be interpreted as conferring on the Non-Operators a right to an adjustment of the Joint Account in accordance with the Operating Agreement, where the Non-Operators raise a valid written exception under paragraph 4;
3. the adjustment to which a non-Operator is entitled is:
  1. the removal of the entire charge to which a valid exception is taken, and a credit to the non-Operator of its proportionate share of that charge;
  2. alternatively, the removal of such lesser amount of the charge to the extent that the Operators produce adequate documentation to support the expense or charge following the taking of the valid exception, and a credit to the non-Operator of its proportionate share of that amount;

the interpretation of the Operating Agreements set out in subparagraph (a) is supported by COPAS Model Form Interpretation MFI-43 (Joint Interest Expenditures Documentation Requirements), particularly on page 3 in the penultimate paragraph.”

as particulars of the contractual entitlement to an adjustment pleaded in paragraph 41(g) of the 2FASOC:

“The plaintiffs rely on the particulars to paragraph [sic, 40(a)] above.

In addition, by reason of:

Article VII, clause C of the Operating Agreement, which obliges the Operators to keep accurate records of the Joint Account (showing expenses incurred and charges and credits made and received);
Paragraph 5 of Section I of Exhibit C of the Operating Agreements, which provides, on its proper construction, for a right to audit all Operators accounts and records relating to the expenses incurred in respect of which charges were made to the Joint Account and billed to the plaintiffs;
COPAS Model Form Interpretation MFI-43 (Joint Interest Expenditures Documentation Requirements) which provides that Operators should credit the Joint Account where adequate documentation to support the charge or expense is or cannot be provided,

under the law of the state of Texas, on the proper interpretation of the Operating Agreements, a ‘general exception’ based on a lack of adequate information or documentation to support an expense or charge is a valid exception under paragraph 4, Section I of Exhibit C of the Operating Agreements and gives rise to a right of adjustment to the Joint Account in accordance with the Operating Agreement.”

[54]
Otherwise, the plaintiffs did not accept the defendants’ complaints about the 2FASOC in circumstances where they assert there is a significant information asymmetry between them and the defendants. They stated that they would not be able to materially improve their pleading until after disclosure and the appropriate course was to defer the defendants’ complaints until the plaintiffs have had an opportunity to amend their pleading with the benefit of disclosure. The plaintiffs advised the defendants that they would not be amending their pleading at that time.
[55]
On 24 September 2024, the solicitors for the defendants sent a further letter to the solicitors for the plaintiffs pursuant to r 444. In that letter, the defendants:
1. denied the existence of any significant information asymmetry as between the plaintiffs and the defendants and, instead, asserted that the plaintiffs are in possession or control of information that would enable them to amend the 2FASOC to rectify the issues raised in the previous r 444 letter;
2. stated that the provision of particulars was not a sufficient or appropriate means of pleading a cause of action and did not cure the deficiency in the 2FASOC identified in the previous r 444 letter;
3. indicated (for the avoidance of doubt) that, notwithstanding the defendants’ position about particulars not curing the deficiency in the 2FASOC, to the extent the plaintiffs rely on any further particulars, including those set out in the r 445 response, those particulars should be incorporated into an amended pleading or, otherwise, filed and served;
4. raised a new complaint that the allegations in paragraphs 39 to 40 of the 2FASOC (that expenses identified in Annexure B had been improperly charged to the joint accounts) could not sensibly stand together with the allegation in paragraph 41 (that the defendants did not provide the plaintiffs with the information they required to understand the basis upon which the expenses identified in Annexure B were charged).

[56]
The defendants also rejected the suggestion that disclosure should occur before the plaintiffs further amend the 2FASOC, asserting that the issues in dispute arising from the paragraphs the subject of the previous r 444 letter are incapable of reasonable definition and there is a risk that the defendants would incur unnecessary costs in disclosing documents which are not directly relevant to the real issues in dispute in the proceeding. In that regard the letter referred, as one of several examples, to the fact that the expenses set out in Annexures A and B to the 2FASOC include expenses charged to the joint accounts between 1 January 2014 to 30 November 2014 which was outside the period which is the subject of the relief the plaintiffs claim. It also raised concerns about the scope of disclosure arising from the exceptions and claims for adjustment set out in Annexures A and B.
[57]
On 11 October 2024, the solicitors for the plaintiffs sent a further letter to the solicitors for the defendants pursuant to r 445. In that letter, the plaintiffs:
1. repeated their argument concerning significant information asymmetry, asserting that it was the defendants’ failure to provide information and documents at the time of the audits which necessitated the making of written exceptions under the operating agreements as set out in Annexures A and B of the 2FASOC;
2. denied the suggestion that the information identified by the defendants in the second r 444 letter would permit them to plead with more precision because that information did not provide the specificity which was required by the auditors to confirm the amounts charged to the joint account by the defendants;
3. rejected the defendants’ argument that disclosure would be premature because, in circumstances where any lack of definition in the pleaded case arises from the lack of information provided to the auditors, disclosure would aid in further defining the pleaded issues;
4. accepted that the defendants would not make disclosure in respect of the period from 1 January 2014 to 30 November 2014 unless a document was relevant to supporting a charge to the joint accounts during the periods which are the subject of the claim for relief, but otherwise rejected the defendants’ complaints about the scope of disclosure and stated that those issues can be dealt with by engagement between the parties;
5. stated that they would formalise the particulars set out in the previous r 445 letter and file that as a separate document at an appropriate time;
6. rejected, once again, the defendants’ complaints about the 2FASOC and confirmed that they would not be amending the 2FASOC prior to disclosure.

Does the 2FASOC disclose a reasonable cause of action?

[58]
The defendants submit that the 2FASOC does not plead material facts which are necessary to sustain the plaintiffs’ pleading, in paragraphs 40 and 41(g) of the 2FASOC, that they are entitled to an adjustment of the joint accounts in their favour. On the defendants’ argument, there is no pleading that the claimed entitlement to an adjustment arises on the proper construction of any of the terms of the operating agreements. They submit that the matters set out in the particulars provided in the first r 445 letter (at [53] above) – the content of Texan law, the content of extrinsic documentary evidence and the use that can be made of that evidence under Texan law, and the proper construction of various clauses of the operating agreements under Texan law – are material facts which are necessary to sustain the plaintiffs’ pleading of the contractual entitlement to an adjustment of the joint accounts.
[59]
The plaintiffs submit that, because the defendants do not suggest that the matters set out in the particulars provided in the first r 445 letter are not sufficient to make out a valid basis for the claimed entitlement, this aspect of the strike out application is based entirely on the distinction drawn between material facts and particulars.
[60]
On the plaintiffs’ argument, the relevant material fact – their entitlement to an adjustment of the joint accounts – has been pleaded in the 2FASOC.^[19] The matters set out in the first r 445 letter provide details of that allegation and, consequently, were properly provided as particulars. The plaintiffs accept that foreign law is a matter of fact but submit that does not mean that it must always be a material fact which must be pleaded.
[61]
In considering this aspect of the strike-out application, it is important to bear in mind the reason a distinction is drawn between material facts and particulars.
[62]
In Whittaker v Child Support Registrar, Lindgren J observed:^[20]

“It may be that the distinction between material facts and particulars is not insisted upon as strictly nowadays as it was a few decades ago. An advantage of maintaining the distinction is that it emphasises, for the benefit of both the parties and the Court, that the applicant’s position is that it is the facts pleaded in the text of the statement of claim, no more and no less, that the applicant needs to prove in order to establish the asserted cause of action. So long as the distinction is understood and observed, there will not be the confusion that arises when either party, if and when it suits its own purposes, refers to the particulars as if they formed an undifferentiated part of the pleading.”

[63]
Having regard to this distinction, the question to be resolved in determining whether the matters set out as particulars in the first r 445 letter should properly be characterised as material facts becomes: would a failure by the plaintiffs to plead the relevant matters in the text of the pleading, or to prove those matters at trial, be fatal to their claim to an entitlement to an adjustment of the joint accounts?
[64]
It seems to me that this question must be answered in the negative because of the presumption that foreign law is the same as the law of the forum.
[65]
This presumption was invoked by a majority of the High Court in Neilson v Overseas Projects Corporation of Victoria Ltd,^[21] a case which considered how a Chinese court would construe a provision of a Chinese law. It was open to the parties to adduce evidence of how the provision was administered in Chinese courts. They did not do so, whether by describing the matters which a Chinese court would consider relevant to that question or by pointing to any particular examples of its consideration.^[22] The evidence of Chinese law was limited to a translated text of the Chinese provision and expert evidence about the application of the provision which was said, on one view, to be deficient.
[66]
In that context, Gummow and Hayne JJ stated:^[23]

“If there is thought to be some deficiency in the evidence, the ‘presumption’ that foreign law is the same as the law of the forum comes into play. That would then require an Australian court to approach the task of construing [the relevant provision of foreign law] as it would approach the construction of an Australian statute. Neither the absence of pleading the relevant content of foreign law nor the absence of proof would be fatal to the case of the party relying on the relevant provision of foreign law. If the presumption was applied it would follow that the relevant power or discretion would be exercised, as it would by an Australian court under an Australian statute, having regard to its scope and the objects for which it was conferred.”

[67]
By analogy, I do not consider that an absence of pleading the relevant content of Texan law or the plaintiffs’ construction of the relevant terms of the operating agreements under Texan law, or failing to prove those matters at trial, would be fatal to the case in the sense of failing to plead or prove a fact necessary to establish the plaintiffs’ cause of action. If the presumption was applied, the court would approach the task of construing the operating agreements as it would approach the task of construing a contract under the laws of this state. It is not necessary for the purposes of the present application to assess the merits of competing constructions of the relevant provisions of the operating agreements (pleaded in paragraphs 13 to 16 of the 2FASOC) if the presumption was applied. For me to conclude that the 2FASOC discloses a reasonable cause of action, even though the matters provided as particulars in the first r 445 letter are not pleaded as material facts, it is sufficient that it be reasonably arguable that the provisions pleaded by the plaintiffs are capable of being construed:

as conferring an entitlement to seek adjustment of the joint accounts where expenses are shown have been charged otherwise than in the manner required by the Accounting Procedure; and
on the basis that a general exception arising from a lack of adequate information or documentation to support an expense is a valid exception which gives rise to a right of adjustment of the joint accounts.

[68]
I am satisfied it is reasonably arguable that the relevant contractual provisions should be construed in this manner if the presumption was applied. Accordingly, I do not accept that a failure by the plaintiffs to plead the matters provided as particulars in the first r 445 letter, as facts they intend to prove to establish their entitlement to an adjustment of the joint accounts, is fatal to their claim.
[69]
For these reasons, I do not accept the defendants’ submission that the matters provided as particulars in the first r 445 letter are material facts. I am not persuaded that the plaintiffs’ failure to plead those matters in the text of the 2FASOC provides a basis to strike out paragraphs 40 and 41(g) pursuant to r 171(1)(a).
[70]
This is not to say that the matters provided as particulars in the first r 445 letter do not need to be stated in the plaintiffs’ pleading; they plainly do. However, in my view, that is not because they are material facts; it is because they are matters that, if not stated specifically, may take another party by surprise.^[24] On that basis, the plaintiffs should be required to amend the 2FASOC to incorporate those particulars.

Does the 2FASOC have a tendency to prejudice or delay a fair trial?

[71]
The defendants submit that the 2FASOC does not fulfil the function of a pleading, and consequently has a tendency to prejudice or delay a fair trial of the proceeding, because:
1. the allegations pleaded in the 2FASOC lack the level of clarity required to properly identify the allegations of fact which the defendants are required to respond to and that the court must determine;
2. the 2FASOC pleads inconsistent allegations which cannot sensibly stand together, thereby creating embarrassment for the defendants who are unable to understand the case they are required to meet.

Lack of clarity

[72]
On the defendants’ submission the facts which must be clearly pleaded in the 2FASOC are:
1. for the case pleaded in paragraph 39 of the 2FASOC:
  1. each impugned expense or category of expense charged during the periods in respect of which the plaintiffs claim relief;

the relevant joint account to which the impugned expense or category of expense was charged;
the relevant parts of the Accounting Procedure (or the amendment deed where it applies to the Arcadia operating agreement and the Fairview operating agreement) which apply to the impugned expense or category of expense;
the reason or reasons why the plaintiffs say that the relevant expense or category of expense was not charged to the relevant joint account in accordance with the applicable contractual provisions;
whether the whole of the impugned expense or category of expense was improperly charged or only part of it; and
the adjustment claimed by the plaintiffs in relation to the impugned expense or category of expense.

for the case pleaded in paragraph 41 of the 2FASOC:
1. each impugned expense or category of expense charged during the periods in respect of which the plaintiffs claim relief;

the relevant parts of the operating agreements and the Accounting Procedure (or the amendment deed where it applies to the Arcadia operating agreement and the Fairview operating agreement) which apply to the impugned expense or category of expense;
the information or categories of information which the plaintiffs say was required to be provided with respect to the impugned expense or category of expense, but was not; and
the adjustment claimed by the plaintiffs in relation to the impugned expense or category of expense.

[73]
The defendants submit that the plaintiffs’ cross-references to identified pages in the audit reports do not clearly set out those necessary facts.
[74]
The plaintiffs argue that the defendants’ criticisms of the 2FASOC should be rejected because the form of exceptions they have raised in the 2FASOC include general exceptions which, by their nature, cannot be described in a way that addresses the various matters identified by the defendants. The plaintiffs submit that their entitlement to raise general exceptions (a matter arising under Texan law) is the subject of a dispute in the proceeding but should be assumed in the plaintiffs’ favour on an application of this type. In that context, what is needed to plead a claim must be whatever is necessary to make out a valid claim to an exception under the operating agreements. This, in turn, will depend upon the basis of the claimed exception. That is, a general exception will raise different requirements as compared with an exception based on a lack of justification for the impugned expense, or an exception based on sufficient information which shows that the impugned expense is outside the categories permitted by the Accounting Procedure (or the amendment deed where it applies to the Arcadia operating agreement and the Fairview operating agreement).
[75]
As already noted, the plaintiffs accept that the 2FASOC cannot stay in its current form until trial. They submit disclosure must occur before they can further develop the pleading and that the defendants’ criticisms of the 2FASOC are fundamentally unfair when many of the audit exceptions arise from the contention that information was not provided by the defendants to the auditors and while the defendants refuse to provide disclosure of documents which (the plaintiffs submit) would allow the claims in the 2FASOC to be further developed.
[76]
To address these submissions, it is necessary to consider the parties’ submissions on specific audit findings which are the subject of the plaintiffs’ claims.

Audit finding 2.01 from the 2014/2015 audit

[77]
Audit finding 2.01 is the first line item which appears in Annexure B to the 2FASOC. Consequently, it forms part of the improper charges claim pleaded in paragraphs 39 and 40 of the 2FASOC, as well as the deficient information claim pleaded in paragraph 41.
[78]
Column 3 of Annexure B describes audit finding 2.01 as a general exception. Column 4 sets out the amount of the expenses the subject of the finding (being AU$2,559,482,610 and US$69,122,653). Column 5 states that the reasons for the general exclusion claimed under this audit finding are set out in pages 15 to 18 of the 2014/2015 audit report.
[79]
Those pages commence with the auditors noting that the operators refused to provide the level of information necessary for the auditors to determine the validity of expenses charged to the joint accounts. The auditors refer to a schematic, described as Attachment A to the audit finding, which shows the flow of direct and indirect allocations and expenses charged to the joint accounts subject to the 2014/2015 audit from various entities and the level of transparency provided by the operators for those various entities. Some of the entities depicted on that schematic are identified as having been the subject of full transparency by the operators, others as the subject of partial transparency and others as the subject of no transparency.
[80]
The auditors also state that access to supporting documents was restricted for items determined by the operators to be outside the scope of the audit. Attachment B to the audit finding lists the areas which the operators considered to be out of scope.
[81]
The auditors ultimately set out the following conclusion:

“Conclusion

The auditors have been unable to conduct a full Non-Operator Audit on the records of the Joint Account, (that is attest to the validity, accuracy, and veracity of the invoice billings to the ‘Joint Account’), due to the restrictions imposed by the Operators. As such, this audit report has been issue [sic] as a Limited Scope Review.

RECOMMENDATIONS

The following recommendations are made:

…

2. The auditors are taking a general exception to all billings to the Joint Account, as they pertain to the audit period 1 January 2014 through 31 December 2015, due to Operator’s failure to comply with its full and transparent disclosure obligations for all records and information related to Joint Operations.

The term, (‘General Exception’), is used to ensure that the audit rights associated with the audit finding are retained until such times as the Participants have had the opportunity to complete any review required in order to attest to the validity, accuracy, and veracity of the transactions, amounts, and valuation apportionments billed, (i.e. invoiced), to Joint Operations.

The aggregate amounts of the general exceptions are outlined on the following page.

Joint Venture Billings (AUD)

2014 $2,085,496,791 (448,270 transactions)
2015 $473,985,819 (345,878 transactions)

Total $2,559,482,610 (794,148 transactions)

Joint Venture Billings (USD)

2014 $62,590,696 (1,197 transactions)
2015 $6,531,867 (1,846 transactions)

Total $69,122,563 (3,043 transactions)”

[82]
That conclusion identifies that the general exception raised in audit finding 2.01 is an exception taken to all the expenses charged to the joint account of each joint venture. It also identifies the material facts underpinning the allegation that the expenses were not charged to the joint accounts in accordance with the operating agreements; namely, that the defendants did not provide information, which they were obliged to, to justify the charging of those expenses.
[83]
I am unable to accept the defendants’ submission that the relevant pages of the 2014/2015 audit report suggest that some of the expenses charged to the joint accounts between 1 January 2014 and 31 December 2015 were accepted by the auditors as being amounts properly charged in accordance with the operating agreements. The auditors’ conclusion set out above is inconsistent with that submission. To the extent that the defendants’ submission is based on the depiction of some entities in Attachment A to the audit finding as having been the subject of full transparency, it ignores the interrelationship between the various entities and the fact that expenses charged in respect of entities for which only partial transparency, or no transparency, was provided fed into entities for which full transparency was provided. Ultimately, I do not accept that the auditors’ depiction of different levels of transparency for the different entities in Attachment A detracts from the clear statement in the conclusion extracted above that, due to the restrictions on information provided by the defendants, the auditors were not able to confirm that expenses were charged to the joint accounts in accordance with the requirements of the operating agreements.

[84]
In those circumstances I do not accept that, for the defendants to properly understand the claim they are required to meet in respect of this audit finding, the plaintiffs must list out each expense charged to each joint account.
[85]
As to the scope of the adjustment claimed by the plaintiffs, having regard to the exchange of correspondence referred to at [56] and [57](d) above, I accept the defendants are aware that, although audit finding 2.01 addresses expenses charged to the joint accounts in the period from 1 January 2014 to 31 December 2015, the plaintiffs’ claim to an adjustment is limited by the claim and the prayer for relief in the 2FASOC to those expenses which were charged from 1 December 2014 to 31 December 2015. Further, it is clear from paragraphs 40(b) and 41(i) of the 2FASOC that the adjustment the plaintiffs seek is a credit of their respective proportionate shares of the expenses charged to each of the joint accounts during that claim period. However, in circumstances where the plaintiffs will be required to make amendments to the 2FASOC to address other matters arising from this judgment, they should also be required to amend the 2FASOC to address the scope of the adjustment claimed by reason of audit finding 2.01.
[86]
I am satisfied that the information which the plaintiffs allege the defendants did not provide to the auditors has been sufficiently identified in Attachments A and B to audit finding 2.01 (which are referred to in the relevant pages of the audit report). Attachment A identifies the extent to which the following information was provided for specified entities: transactional data (inputs); sample invoices, purchase orders and contracts (supporting documentation); and allocation journals or true-ups (outputs). Attachment B identifies the areas which the operators considered to be outside the scope of the audit. I accept that the general terms in which the auditors have described this information is sufficient to inform the defendants of the case which they have to meet in this regard. It is not realistic to expect the auditors or the plaintiffs to describe, in greater detail, the information which was not provided.
[87]
The case which the plaintiffs wish to advance is that there should be an adjustment to exclude any expenses charged to the joint accounts for which insufficient information has been provided to justify that those expenses have been charged in accordance with the requirements of the operating agreements. In respect of audit finding 2.01 in the 2014/2015 audit report, that case is very broad, extending to every expense charged to each of the joint accounts in the period for which the plaintiffs seek relief.
[88]
On the present application, I am not concerned with the merits of that case. It is not necessary to consider issues such as whether the auditors were correct to conclude that the defendants did not provide sufficient information to justify any of the expenses charged to any of the joint accounts or, if they were, whether the operating agreements (properly construed) permit the plaintiffs to raise a general exception of this type. Instead, the issue on the present application is whether the 2FASOC in its current form, including the cross-reference in Annexure B to the relevant pages of the 2014/2015 audit report, pleads the case with sufficient clarity that it fulfils the function of a pleading.
[89]
On that issue, the defendants submit that they are entitled to be told, by express words in the 2FASOC, what the plaintiffs say is the effect of the pages of the 2014/2015 audit report which they rely on to explain the basis of their claim to an adjustment.^[25] The plaintiffs argue that this case is different than those cited by the defendants because they have identified specific pages of the 2014/2015 which set out their case with sufficient clarity. They submit that there is no need for them to seek to improve the articulation of that case in the body of the 2FASOC by restating the auditors’ findings in the body of the 2FASOC.
[90]
Ultimately, the resolution of this issue turns on whether the plaintiffs’ incorporation of the relevant pages of the 2014/2015 audit report fulfils the function of a pleading and complies with the requirements of a pleading set out in r 149(1) to an extent that it would not have a tendency to prejudice or delay the fair trial of the proceeding.
[91]
Although the question is finely balanced, my view is that there is sufficient prospect of debate about the effect of what the auditors have said in the relevant pages of the 2014/2015 audit report to make it necessary that the plaintiffs plead the effect of the statements they rely upon from that report in the 2FASOC itself.
[92]
The most obvious aspect of the need for clarification of the plaintiffs’ case in respect of audit finding 2.01 arises from a consideration of the third recommendation the auditors made in that finding. By that third recommendation, the auditors state that they are taking a specific exception to:
1. invoices/billings “not performed on the Joint Property” or not previously agreed by the parties (save for such invoices/billings charged to the Arcadia joint account or the Fairview joint account from 1 January 2015);
2. the Operators’ refusal to provide contracts, agreements, purchase orders and other related documents for items listed as out of scope in Attachment B to audit finding 2.01;
3. all third-party vendor billings to the joint accounts that are not in compliance with the relevant provisions of the Operating Agreements.
[93]
The first difficulty is that the plaintiffs plead the further exceptions raised in this third recommendation in paragraph 41(c)(ii) of the 2FASOC, but in terms which differ from the language used in the recommendation itself (including by pleading that the exceptions are general exceptions, rather than the auditors’ description of them as specific exceptions).
[94]
More importantly, nothing the plaintiffs have pleaded in the 2FASOC indicates how (if at all) they rely upon the further exceptions expressed in this third recommendation in their claim for an adjustment in respect of audit finding 2.01. If the plaintiffs do rely on those further exceptions, the 2FASOC does not articulate whether they support a claim for an adjustment of all expenses charged to the joint accounts, or only some of the expenses charged to the joint accounts. Based on the plaintiffs’ submissions on this application, I do not understand their case in respect of audit finding 2.01 to be for only some of the expenses charged to the joint accounts. Nevertheless, on the present state of the 2FASOC, the potential for confusion exists. In my view, the appropriate means of addressing this is to strike out from column 5 in Annexure B the cross-reference to pages of the 2014/2015 audit report which address audit finding 2.01 and give the plaintiffs leave to replead the effect of the statements made by the auditors in those pages in the 2FASOC itself.

[95]
Finally, the defendants raise concerns about the scope of disclosure that will follow from the pleading of the general exception raised in audit finding 2.01. I do not accept that those concerns provide a basis for striking out the 2FASOC more broadly than I have just identified.
[96]
To an extent, the defendants’ concerns proceed from their submission that only some of the expenses the subject of the audit finding are impugned, such that requiring the defendants to complete disclosure for all expenses (including those expenses which are not impugned) would be unduly burdensome. As previously observed, the plaintiffs’ case is that, by audit finding 2.01, they have taken a general exception against all expenses charged to the joint accounts during the claim period of 1 December 2014 to 31 December 2015. On that basis, the unfairness asserted by the defendants does not arise. Otherwise, the defendants point to the extensive scope of disclosing documents relevant to each expense charged to the joint accounts. I accept that disclosure of documents relevant to the audit finding 2.01 claim is likely to be extensive (as it is also likely to be for the general exceptions raised in the other audit findings addressed later in these reasons), but it does not follow that the likely requirement for extensive disclosure is the result of a deficiency in the 2FASOC. For reasons already given, I am not satisfied that it does.

Audit finding 2.04 from the 2014/2015 audit

[97]
Audit finding 2.04 from the 2014/2015 audit report deals with General & Administrative (G&A) expenses charged to the joint accounts. It appears as a line item in both Annexure A and Annexure B.
[98]
The relevant line items in Annexure A and in Annexure B form part of the improper charges claim pleaded in paragraphs 39 and 40 of the 2FASOC. Only the relevant line item in Annexure B forms part of the deficient information claim pleaded in paragraph 41.
[99]
Column 4 of the relevant line item in Annexure A records the amount of the impugned expenses as being $7,991,196. The relevant line item in Annexure B does not record any amount in column 4. Column 5 of the relevant line item in both Annexure A and Annexure B states that the reasons for the exclusion of the expenses are contained in pages 25 to 29 of the 2014/2015 audit report.
[100]
Those pages commence with a background section, in which the auditors state that the finding relates solely to G&A expenses emanating from Santos Company Code 26109. They further state that the finding does not include any G&A expenditure emanating from Santos Company Code 70000 or from Residual Cost Pools as the Operator denied audit rights associated with G&A expenditure from those sources.
[101]
The auditors then address the audit of G&A expenses emanating from Santos Code 26109 and raise four matters in a section titled “Issues”. The fourth of those matters is described as “Outcome of Sample Testing”. Under that heading, the auditors refer to Attachment B to audit finding 2.04 which sets out a list of exceptions noted during the audit. They refer to different categories of exceptions set out in Attachment B and explain the reason why they took exception to the expenses identified in each category. Attachment B to audit finding 2.04 lists 90 expenses to which the auditors took specific exception. The total value of those exceptions is identified as being $7,991,195.70. In recommendation 4 of the audit finding, the auditors request that the Operator provide a response for each of the exceptions itemised in Attachment B to audit finding 2.04. Given the amount recorded for the expenses the subject of audit finding 2.04 in Annexure A of the 2FASOC, it seems clear that these are the expenses which are the subject of the line item for audit finding 2.04 in Annexure A of the 2FASOC.
[102]
At the conclusion of the audit finding, the auditors set out recommendation as follows:

“As a result of issues outlined in the body of this audit finding, the auditors are taking a ‘General Exception’ to all General & Administrative (G&A) billing emanating from Santos Company Code 26109 (for which limited transparency was provided by Operator), G&A Expenditure emanating from Santos Company Code 70000 or from Residual Cost Pools (for which Operator denied audit rights) and as such remain unaudited.”

[103]
The auditors record that they have taken this general exception to ensure that the plaintiffs right to verify, upon audit, that expenses had been validly charged to the joint accounts was preserved.
[104]
The defendants complain that the wording of the general exception in recommendation 1 is inconsistent with the auditors’ earlier statement (in the background section) that audit finding 2.04 does not include any G&A expenditure emanating from Santos Company Code 70000 or from Residual Cost Pools. They note that the expenses which are the subject of the general exception taken by the auditors in audit finding 2.04 appear to include the 90 expenses itemised in Attachment B to audit finding 2.04, but to also form part of the larger group of expenses to which general exception was taken in audit finding 2.01 (addressed above). In that context, the defendants also complain that the auditors’ description in recommendation 1 of the Operator providing “limited transparency” for Santos Code 26109 is inconsistent with the depiction of that same entity in Attachment A to audit finding 2.01 (referred to in [79], [83] and [86] above) as being the subject of full transparency.
[105]
The plaintiffs submit that I should reject these complaints.
[106]
As to the assertion of inconsistency between the background section and recommendation 1, the plaintiffs assert that the statement in the background section refers to the findings made in respect of the 90 expenses emanating from Santos Company Code 26109 which are itemised in Attachment B to audit finding 2.04 (and the subject of the line item for audit finding 2.04 in Annexure A to the 2FASOC). They submit that, having raised the specific exception to those 90 itemised expenses, the auditors then take the further exception set out in recommendation 1 which is not limited to Santos Company Code 26109, but extends to Santos Company Code 70000 and the Residual Cost Pools. I accept that this interpretation of the statements made by the auditors in audit finding 2.04 is open. However, the fact that the statements can be interpreted in that way does not deny the potential for confusion if the plaintiffs are not required to plead that this is the effect of the auditors’ statements in the 2FASOC itself.
[107]
As to the assertion of inconsistency between the auditors’ description of the transparency provided by the Operator for Santos Company Code 26109 in recommendation 1 of audit finding 2.04 and in Attachment A to audit finding 2.01, the plaintiffs submit that the defendants complaint ignores the fact (identified in Attachment A to audit finding 2.01) that expenses emanating from Residual Cost Pools (for which the auditors were provided only partial transparency) and Santos Company Code 70000 (for which the auditors were provided no transparency) fed into expenses emanating from Santos Company Code 26109 and justified taking a general exception to the latter category of expenses even though, considered in isolation, those expenses were the subject of full transparency. Again, I accept that this interpretation of the auditors’ statements is open, but my view remains that, unless the plaintiffs are required to plead the effect of these statements in the 2FASOC itself, the potential for confusion or misinterpretation remains.

[108]
For completeness, my finding at [84] above concerning the general exception taken in audit finding 2.01 – that it is not necessary for the plaintiffs to list out each expense charged to the joint accounts in order for the defendants to properly understand the claim they are required to meet – also applies to the general exception taken in audit finding 2.04.
[109]
However, unlike the conclusion I reached at [86] above concerning the general exception taken in audit finding 2.01 about the identification of information the plaintiffs say ought to have been (but was not) provided by the defendants during the audit, pages 25 to 29 of the 2014/2015 audit report do not identify (even in general terms) the information that the defendants failed to provide which forms the basis of the adjustment the plaintiffs claim by reason of the general exception raised in audit finding 2.04. It may be that the relevant information is the same as that referred to in audit finding 2.01, or there may be other information which the plaintiffs say should have been provided. The 2FASOC should be amended to make this clear.
[110]
For these reasons, I am satisfied that it is appropriate to strike out from column 5 in Annexure B the cross-reference to pages of the 2014/2015 audit report which address audit finding 2.04 and give the plaintiffs leave to replead the effect of the statements made by the auditors in those pages in the 2FASOC itself.
[111]
As I have noted in [101] above, the claim for an adjustment by reason of the specific exception under audit finding 2.04 claimed in Annexure A of the 2FASOC is expressed more clearly in the relevant pages of the 2014/2015 audit report. Nevertheless, in circumstances where I am requiring the plaintiffs to expressly plead the effect of the auditors statements relied on as the basis for the general exceptions taken under audit finding 2.04 (as well as audit finding 2.01) I consider that the specific matters discussed in [101] above (the identification of the 90 expenses in Attachment B to audit finding 2.04 and the explanation of the reasons why specific exception was taken to various categories of expenses as outlined under the heading “Outline of Sample Testing”) should also be pleaded in the 2FASOC itself. Accordingly, I will strike out the cross-reference to the pages of the 2014/2015 audit report addressing audit finding 2.04 from column 5 in Annexure A and give the plaintiffs leave to replead.
[112]
As to the overlap between the specific exception in audit finding 2.04 (claimed in Annexure A to the 2FASOC) and the general exception in audit finding 2.04 (claimed in Annexure B to the 2FASOC) or the general exception in audit finding 2.01, the plaintiffs submit this is neither a cause for confusion nor a basis to strike out the 2FASOC. They say that there is nothing inherently confusing or unfair about expenses being challenged on multiple bases. I accept the correctness of that submission, provided that the pleading in question clearly identifies that expenses are being challenged on multiple bases in the alternative. I am not satisfied that this is presently the case in the 2FASOC. My concern arises from the pleading of the quantum of the adjustment claimed by the plaintiffs in paragraph 40(b) which refers to the proportionate amount of the “total sum set out in the last row of column [4] of Annexure A or Annexure B (as applicable)”. I note that the last row of column 4 in each of Annexure A and Annexure B relates to a specific audit finding; no total sum of the various exceptions recorded. However, if (as appears to be the case) the quantum of the adjustment the plaintiffs claim is to be assessed by aggregating the value of exceptions raised under the various audit findings then the 2FASOC should be amended to clearly identify which expenses are being challenged on multiple, alternative bases.

Audit finding 2.10 from the 2014/2015 audit

[113]
Audit finding 2.10 deals with expenses charged to the joint accounts from what are referred to by the auditors as “Resource Cost Pools” or “RCPs”.^[26] It is the third line item which appears in Annexure B to the 2FASOC. Consequently, it forms part of the improper charges claim pleaded in paragraphs 39 and 40 of the 2FASOC, as well as the deficient information claim pleaded in paragraph 41.
[114]
Column 4 of Annexure B describes audit finding 2.10 as a general exception with the amount of the expenses the subject of the finding being $616,994,668 (of which $368,277,527.81 is allocated to Corporate Charges and $248,717,139.78 is allocated to RCP Clearings). Column 5 states that the reasons for the general exception claimed under this audit finding are set out in pages 38 to 44 of the 2014/2015 audit report.
[115]
Those pages commence with an introduction in which the auditors describe the costs allocated to the joint accounts from the RCPs. The auditors then set out a section on the requirements of the operating agreements. In respect of that section, the defendants submit that the 2FASOC does not state whether the plaintiffs adopt everything the auditors say about the meaning of the operating agreements, or only parts of it (and if that is the case, which parts). I accept that is a valid criticism of the current form of the 2FASOC. The plaintiffs should amend the 2FASOC to expressly plead what parts (if any) of the auditors’ construction of the operating agreements they rely upon to advance their claim for an adjustment by reason of audit finding 2.10.

[116]
The auditors then set out a request for information which they issued to the operators on 3 March 2016 and note that the operators’ response did not address the issues raised in the request and did not provide the level of transparency required by the terms of the operating agreements.
[117]
At the conclusion of the audit finding, the auditors set out two recommendations. The making of two recommendations reflects the fact that the amendment deed to the Arcadia operating agreement and the Fairview operating agreement took effect from 1 January 2015.
[118]
The first recommendation is expressed to apply to all five operating agreements for the period 1 January 2014 to 31 December 2014, but to only the Angry Jungle operating agreement, the ATP 745 operating agreement and the ATP 804 operating agreement for the period 1 January 2015 to 31 December 2015. This recommendation is expressed as follows:

“The auditors are taking a general exception to all invoice billings (RCP apportionments), due to Operator’s failure to comply with its full and transparent disclosure obligations for all records and information related to Joint Operations, and their failure to comply with the OA mandated obligations relating to allowable costs being ‘on the property’.”

[119]
The second recommendation is expressed to apply only to the Arcadia operating agreement and the Fairview operating agreement for the period from 1 January 2015 to 31 December 2015. This recommendation is expressed as follows:

“The auditors are taking a general exception to all invoice billings (RCP apportionments) due to Operator’s failure to comply with its full and transparent disclosure obligations for all records and information related to Joint Operations as mandated by the DOA.”

[120]
The defendants make several further complaints about the plaintiffs’ incorporation of these pages of the 2014/2015 into Annexure B of the 2FASOC:
1. the auditors’ statements do not identify the basis upon which it is alleged that the expenses which are the subject of audit finding 2.10 were not charged in accordance with the requirements of the operating agreements;
2. the auditors have not allocated the aggregate value of the expenses to which the general exception has been taken as between those expenses which are the subject of the first recommendation and those expensed which are the subject of the second recommendation;
3. the auditors have not identified what information should have been provided during the audit but was not provided;^[27]
4. to the extent that the first recommendation applies to expenses charged to the joint accounts between 1 January 2014 and 30 November 2014, those expenses fall outside the period which is the subject of the plaintiffs’ claim for relief.

[121]
The plaintiffs submit that the claim to an adjustment based on the general exceptions taken in audit finding 2.10 is not materially different to the claims for an adjustment based on the general exceptions taken in audit findings 2.01 or 2.04.
[122]
I accept the plaintiffs’ submission in this regard, but that does not answer the defendants’ complaints. It seems to me that the first three criticisms set out above raise enough uncertainty about the plaintiffs’ claims in relation to this audit finding to make it appropriate to require them to plead the effect of the auditors’ statements they rely upon. On that basis, I am satisfied that it is appropriate to strike out from column 5 in Annexure B the cross-reference to pages of the 2014/2015 audit report which address audit finding 2.10 and give the plaintiffs leave to replead the effect of the statements made by the auditors in those pages in the 2FASOC itself.
[123]
Further, it seems to me that the general exception raised under this audit finding will also overlap with (at least) the general exception raised under audit finding 2.01. In those circumstances, the comments made at [112] above about expenses being challenged on multiple, alternative bases apply equally to this audit finding.
[124]
Finally, having regard to the fourth criticism raised by the defendants, the comments made at [85] above about the period for which an adjustment of expenses is sought apply equally to this audit finding.

Audit findings A1, A2, A4 and A5 from the 2018/2019 audit

[125]
These audit findings are referred to in a single line item which appears in Annexure B to the 2FASOC. Consequently, they form part of the improper charges claim pleaded in paragraphs 39 and 40 of the 2FASOC, as well as the deficient information claim pleaded in paragraph 41.
[126]
Column 3 of the relevant line item describes the audit findings as relating to an “error rate applied to 2018/2019 invoices for Annexure A Findings and/or Expense or Category of Expense”. Column 4 notes that this is a general exception and that the amount of the expenses the subject of the findings is “$TBA”. Column 5 states that the reasons for the general exception claimed under this audit finding are set out in pages 7 to 9 of the 2018/2019 audit report.
[127]
Those pages contain section 3.1 which is headed “Incorrect charges to the Joint Account”. The introductory paragraph states that, through testing of a sample of JV charges, the auditors identified seven instances for which costs had been incorrectly allocated to the joint account. This references to seven instances may be a mistake in the introductory paragraph because the rest of section 3.1 comprises six findings of incorrect allocations labelled A1 to A6. The sections which set out each of those findings contain columns identifying the following matters: the year in which a sample expense was found to have been incorrectly allocated; the sample number used to identify the expense; the operating agreement under which the expense was charged to the joint account (identified by the relevant ATP number); the total cost impact of the incorrect allocation on the joint account; and the plaintiffs’ share of that cost impact based on their percentage ownership interest in each joint venture.
[128]
Finding A1 states that entertainment expenses were identified as having been charged to the joint accounts. The auditors further state that those charges do not meet the requirements of Direct Charges under Part II of the Accounting Procedure and instead represent overheads which should be accounted for under the provisions of Part III of the Accounting Procedure.
[129]
Finding A2 states that service rewards to Santos employees were identified as having been charged to the joint accounts. The auditors note that such rewards are not included in the allowable charges listed as Direct Charges under Part II of the Accounting Procedure and do not come within the employee benefits allowed to be charged under the operating agreements. They also state that they have been unable to substantiate if the employees who received the service awards contributed to the joint venture for the whole time period to which the service awards relate.
[130]
Finding A4 states the auditors have identified that expenditure has been charged to the joint accounts for activities that occurred outside the area covered by the relevant joint venture. It identifies the location of the sample expenditure said to have occurred outside the joint venture area.
[131]
Finding A5 states that Santos’ legal expenses for tenement audit issues have been charged to the joint account. The auditors state that under cl 9 in Part II of the Accounting Procedure those legal expenses may only be charged to the joint account when previously agreed by all parties to the joint venture and, further, that no supporting documentation had been provided to demonstrate that Santos’ legal expenses had been agreed to by the joint venture parties.
[132]
The defendants complain that nothing in these pages of the 2018/2019 audit report refer to or identify an error rate, nor do they set out:
1. the basis for the alleged error rate, including the expenses charged during the 2018/2019 audit period from which the error rate is said to have been calculated;
2. the application of the alleged error rate to the expenses described in audit findings A1, A2, A4 and A5;
3. the link between the alleged error rate and the plaintiffs’ claim that expenses were not charged in accordance with the Accounting Procedure (or the amendment deed in respect of expenses charged under the Arcadia operating agreement and the Fairview operating agreement);
4. the adjustments to the joint accounts which the plaintiffs contend ought to be made because of the application of this alleged error rate.
[133]
The plaintiffs submit that the basis for the exception based upon the error rate, and the resulting adjustment the joint accounts, was explained to the defendants in the following correspondence:
1. in a letter dated 30 June 2022 attaching the 2018/2019 audit report, the plaintiffs explained that they claimed an adjustment for:

“Incorrect charges to the Joint Accounts as identified in section 3.1 of [the 2018/2019 audit report] which, according to [the auditors’] sampling error rate of 7.3%, (18/246) represents $88,701,373 of the direct vendor charges for the period 1 January 2018 to 31 December 2019.”

in a letter dated 13 April 2023, the plaintiffs explained that they had revised their claimed adjustment as follows:

“Incorrect charges to the Joint Accounts as identified in section 3.1 of [the 2018/2019 audit report] have been reduced by 2, to a total of 16 out of 246, because of the additional information included in Operators Response Letter. This represents a sampling error of 6.5% across direct vendor charges and a total of $78,845,665.10 for the period 1 January 2018 to 31 December 2019 (See Appendix A, sections A1 to A6).”

[134]
The fact that the first of these letters was sent to the defendants (with the 2018/2019 audit report) is pleaded in paragraph 33 of the 2FASOC, but that paragraph does not make any reference of the plaintiffs’ claim to an adjustment by reason of these audit findings. The plaintiffs do not submit that (by reason of paragraph 33 of the 2FASOC) the letter dated 30 June 2022 was incorporated into the pleading. They accept it was not. Instead they submit that, once the defendants had been put on notice of the basis for the claim to an adjustment of the joint accounts by reason of the error rate, they could have made a request for particulars of that claim.^[28]
[135]
I do not accept that submission. It seems to me that the letters the plaintiffs wrote to the defendant disclose matters that the plaintiffs are aware of and which should be pleaded in the 2FASOC: namely, the basis upon which the plaintiffs allege they are entitled to take a general exception which leads to the application of an error rate to make an adjustment to the joint accounts; what that error rate is and how it is calculated; and the amount of the resulting adjustment and how that adjustment is calculated. The cross-reference to pages 7 to 9 of the 2018/2019 audit report does not have the effect of including any of those matters into the 2FASOC.
[136]
Ultimately, I am persuaded that it is appropriate to strike out from column 5 in Annexure B the cross-reference to pages of the 2018/2019 audit report which address audit findings A1, A2, A4 and A5 and give the plaintiffs leave to replead the effect of the auditors’ statements in the 2FASOC itself. The plaintiffs must also amend the 2FASOC to address the further matters identified in [135].

Conclusion

[137]
The parties did not make submissions on the claims for an adjustment based on other audit findings identified in Annexure A and Annexure B and I have not addressed those other claims individually.
[138]
Nevertheless, I consider that the appropriate course is to strike out the whole of column 5 from each of Annexure A and Annexure B to the 2FASOC.
[139]
I will also strike out:

from paragraph 39 of the 2FASOC, the words “by reason of the matters set out in column [5] of Annexure A or Annexure B (as applicable)”; and
from paragraph 41(a) of the 2FASOC, the words “as identified in column [5] of Annexure B to this further amended statement of claim”.

[140]
As I have previously indicated, I will grant leave to replead.
[141]
The effect of this is that the plaintiffs will have to amend to plead:
1. in respect of each audit finding identified in Annexure A and Annexure B which forms part of the case pleaded in paragraphs 39 and 40 of the 2FASOC, the reason the plaintiffs say (or the basis of the plaintiffs’ allegation) that the expenses the subject of each audit finding were not charged on the expense basis provided for in the Accounting Procedure (or the amendment deed for the Arcadia operating agreement and the Fairview operating agreement after that amendment deed took effect), including, so far as might be relevant, the effect of statements made by auditors in the various audit reports which the plaintiffs rely on to explain the basis of those allegations;
2. in respect of each audit finding identified in Annexure B which forms part of the case pleaded in paragraph 41(a) of the 2FASOC, the information which the plaintiffs say was not provided to them, including, so far as might be relevant, the effect of statements made by auditors in the various audit reports which the plaintiffs rely on to identify that information.
[142]
In reaching this conclusion, I have had regard to:
1. the statements made in the authorities relied upon by the defendants referred to at [89] above;
2. the position I have reached in respect of the claims based on the audit findings I have addressed above; and
3. the need for consistency in the pleading.

Contradictory allegations

[143]
The defendants submit that the plaintiffs’ allegations in paragraph 41 of the 2FASOC cannot sensibly stand alongside the allegations in paragraphs 39 and 40. The effect of the submission is that the plaintiffs cannot, on the one hand, allege in paragraph 41 that the defendants did not provide the information required to enable the plaintiffs to assess whether expenses which are the subject of the audit findings set out in Annexure B were charged to the joint accounts in accordance with the requirements of the Accounting procedure while, on the other hand, positively alleging that those same expenses were improperly charged.
[144]
The plaintiffs reject this suggestion. They submit that the defendants’ failure to provide the information they are obliged to provide during audits conducted pursuant to the operating agreements has two consequences.
1. first, it would lead to a conclusion that the expense has not been justified by the defendants as having been charged in accordance with the requirements of the operating agreements. That is, expenses are not to be considered as having been properly charged to the joint accounts until the defendants provide information which demonstrates compliance with the relevant requirements. On the plaintiffs’ submission, this conclusion constitutes a proper basis to positively allege that expenses were improperly charged to the joint accounts. This is the case the plaintiffs seek to pursue in respect of the Annexure B audit findings under paragraphs 39 and 40 of the 2FASOC;
2. secondly, it would entitle the plaintiffs to raise a general exception by reason of the defendants’ failure to comply with their contractual obligations to provide information as part of the audit process. On this basis, the claim for an adjustment of the joint accounts in respect the expenses referred to in Annexure B is breach of the contractual obligation to provide information, not on an allegation that those expenses were not justified. This is the case the plaintiffs seek to pursue in respect of the Annexure B audit findings under paragraph 41 of the 2FASOC.
[145]
I accept that, as explained in the plaintiffs’ submissions, the allegations they make in paragraphs 39 and 40, on the one hand, and paragraph 41, on the other hand, can sensibly stand together. I do not accept the defendants’ description of those allegations as being inconsistent and confusingly intermixed. In that regard, it is important to note that (contrary to the defendants’ submissions) paragraph 41 of the 2FASOC does not allege that the consequence of the defendants’ failure to provide information is that the plaintiffs are unable to determine whether expenses have been charged to the joint accounts in accordance with the requirements of the operating agreements. The paragraph goes no further than pleading that the failure to provide information meant that the defendants did not comply with their obligations to do so under the operating agreements. The consequence which follows from that is a gloss which the defendants have added in their submissions.
[146]
Accordingly, I do not accept that the 2FASOC contains inconsistent or confusingly intermixed allegations or, because of this, that it has a tendency to prejudice or delay the fair trial of the proceeding. That aspect of the defendants’ complaints does not provide a basis for striking out the 2FASOC more broadly than I have set out above.
[147]
Having said that, the two cases explained in the plaintiffs’ submissions (see [145] above) cannot be easily discerned by reading paragraphs 39 and 41 of the 2FASOC (in combination with Annexure B) in their present form. In circumstances where the plaintiffs will be required to make amendments to the 2FASOC to address other matters arising from this judgment, they should amend to clearly articulate the different cases they propose to advance under those paragraphs in relation to the expenses set out in Annexure B.

The plaintiffs’ claim for interest

[148]
Pursuant to r 159(3) of the UCPR, if (as is the case here) a party intends to apply for an award of interest, that party must set out particulars in the pleading of:
1. the amount or amounts on which the interest is claimed;
2. the interest rate or rates claimed;
3. the day or days from which interest is claimed;
4. the method of calculation.
[149]
The defendants submit that paragraph 43 of the 2FASOC, and paragraph 3 of the plaintiffs’ prayer for relief, do not include particulars of the interest rate or rates claimed or the day or days from which interest is claimed. On that basis, the defendants submit that paragraph 43(b) should be struck out with leave to replead so that the defendants and the court can be properly informed of the nature and scope of the plaintiffs’ claim for interest.
[150]
The plaintiffs reject the suggestion that the defendants have not been properly informed about the nature and scope of the claim for interest. They rely upon the first r 445 letter sent on 9 August 2024 (referred to at [53] above) which explained to the defendants that:
1. the plaintiffs seek pre-judgment interest under s 58 of the Civil Proceedings Act 2011 (Qld);
2. the rate of interest claimed is the pre-judgment interest rate under the relevant Supreme Court of Queensland practice direction;
3. the entitlement to interest was claimed on the amount of money which they paid in response to cash calls made under the operating agreements, but which they were not required to pay;
4. due to the lack of information in the plaintiffs’ possession prior to disclosure they are unable to particularise the precise amount they overpaid.
[151]
The plaintiffs submit that the defendants would not be prejudiced by permitting the plaintiffs to amend at a later stage, after disclosure, to include the requisite particulars of the claim for interest.
[152]
I accept the plaintiffs’ submission about the lack of prejudice. I also accept that the plaintiffs will inevitably have to amend to include further particulars of the interest claim after disclosure. I decline to strike out paragraph 43(b) of the 2FASOC.
[153]
Nevertheless, as the point has been taken at this stage, and in circumstances where the plaintiffs will be required to make amendments to the 2FASOC to address other matters arising from this judgment, the plaintiffs should amend the 2FASOC to provide the best particulars of the interest claim that they are presently able to.

Relief from disclosure

[154]
At this stage of the proceeding, I am not satisfied that it is appropriate to make any order pursuant to r 224(1) of the UCPR relieving the defendants of their duty of disclosure.
[155]
The defendants’ application for such an order was premised on the basis that deficiencies in the 2FASOC would make compliance with the duty of disclosure unduly burdensome. Although I have accepted some of the defendants’ complaints about the 2FASOC, I do not accept that the extent of disclosure is the result of deficiencies in the 2FASOC (see [96] above).

[156]
I consider that this aspect of the defendants’ application should be deferred until the plaintiffs have amended their pleading to address the matters raised in this judgment and the defendants have filed and served their defence to that amended pleading. On that basis, I will adjourn paragraph 3 of the defendant’s application filed on 21 October 2024 to a date to be fixed.

Orders

[157]
The orders I make are:

The following parts of the Second Further Amended Statement of Claim filed on 1 March 2024 are struck out:
1. from paragraph 39 of the 2FASOC, the words “by reason of the matters set out in column [5] of Annexure A or Annexure B (as applicable)”;
2. from paragraph 41(a) of the 2FASOC, the words “as identified in column [5] of Annexure B to this further amended statement of claim”;
3. from Annexure A, the whole of column 5;
4. from Annexure B, the whole of column 5.
The plaintiffs have leave to replead in respect of those parts of the Second Further Amended Statement of Claim that have been struck out.
The plaintiffs are to file and serve a third further amended statement of claim addressing the matters referred to in paragraphs 70, 85, 109,112, 115, 123, 124, 136, 141, 147 and 153 of the reasons for judgment, and any other amendments the plaintiffs wish to make.
I will hear from the parties as to the date by which the plaintiffs are to file and serve that third further amended statement of claim.
Paragraph 3 of the defendants’ application filed on 21 October 2024 is adjourned to a date to be fixed.
I will hear from the parties as to costs.

Footnotes

[1] These three agreements concern oil and gas operations conducted on areas covered by ATP 653P (the Arcadia operating agreement), ATP 526P (the Fairview operating agreement) and ATP 745 (the ATP 745 operating agreement).

[2] These two agreements concern oil and gas operations conducted on areas covered by ATP 631 (the Angry Jungle operating agreement) and ATP 804 (the ATP 804 operating agreement).

[3] Equititrust Ltd v Tucker (No 2) [2019] QSC 248, [10]; Kordamentha Pty Ltd v LM Investment Management Ltd [2016] QSC 183, [25].

[4] Banque Commerciale SA (in liq) v Akhil Holdings Pty Ltd (1990) 169 CLR 279, 286-287; Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 359, 373 [49]; Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd [2011] QCA 252, [27].

[5]UCPR, r 149(1)(b).

[6] Bruce v Odhams Press Ltd [1936] 1 KB 697, 712 cited in Ashton v Dorante [2012] QCA 175, [69]

[7]Ashton v Dorante [2012] QCA 175, [69].

[8] Bruce v Odhams Press Ltd [1936] 1 KB 697, 712-713 cited in Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd [2011] QCA 252, [28] and in Equititrust Ltd v Tucker (No 2) [2019] QSC 248, [14].

[9] Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd [2011] QCA 252, [27] citing Thiess Pty Ltd v FFE Minerals Australia Pty Ltd [2007] QSC 209, [37] and Meckiff v Simpson [1968] VR 62, 70. See also Equititrust Ltd v Tucker (No 2) [2019] QSC 248, [13].

[10] Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd [2011] QCA 252, [27] citing QIC Logan Hyperdome Pty Ltd v Briridge Pty Ltd [2011] QSC 43, [10].

[11] Robert Bax & Associates v Cavenham Pty Ltd [2011] QCA 53, [16].

[12] British Airways Pensions Trustees Ltd v Sir Robert McAlpine & Sons Ltd [1994] 72 BLR 26, 33-34 cited in Bli Bli # 1 Pty Ltd v Kimlin Investments Pty Ltd [2010] QCA 136, [26]. See also Equititrust Ltd v Tucker (No 2) [2019] QSC 248, [15] citing Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, [13] and Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 293.

[13]Virgtel Ltd v Zabusky [2008] QSC 213, [15].

[14]O'Donnell v Commonwealth of Australia [2021] FCA 1223, [104]-[105] citing Murphy v State of Victoria (2014) 45 VR 119, 129 [35].

[15]These are addressed in Part II of the Accounting Procedure.

[16]These are addressed in Part III of the Accounting Procedure

[17]Audit finding 2.04 from the 2014/2015 audit (G&A allocations); audit finding 2.11 from the 2014/2015 audit (unrecovered overhead – production & operations and drilling & completions); and audit finding 2.16 from the 2014/2015 audit (early termination / severance/ termination and redundancy payments)

[18] Audit findings A.1, A.2, A.4 and A.5 from the 2018/2019 audit (error rate applied to 2018/2019 invoices for Annexure A findings and/or expense or category of expense); audit finding C.2 from the 2020/2021 audit (unsubstantiated reconciling items between the contribution statements and transaction listings); and audit findings A.1 to A.9 and B.1 to B.3 from the 2020/2021 audit (error rate applied to 2020/2021 invoices for Annexure A, B1, B2 and B3 findings and/or expense or category of expense)

[19]This assumes that the plaintiffs’ allegations about expenses being charged improperly, and the defendants having failed to provide sufficient information to the auditors to substantiate the correctness of the charges, are otherwise made out.

[20][2009] FCA 188, [23]. This was one of two statements by Lindgren J cited by the plaintiffs to the effect that the distinction between material facts and particulars is no longer insisted upon as strictly as it once was. The second statement was in Australian Automotive Repairers’ Association (Political Action Committee) Inc v NRMA Insurance Ltd [2002] FCA 1568, [17].

[21](2005) 223 CLR 331, 372 [125] (Gummow and Hayne JJ), 411 [249] (Callinan J),416 [267] (Heydon J).

[22]Ibid, 371 [123].

[23]Ibid, 372 [125] (citations omitted).

[24]See UCPR r 149(1)(c). See also Ascherberg, Hopwood & Crew Ltd v Casa Musicale Sonzogno [1971] 1 WLR 1128, 1131.

[25]Bloeman v Atkinson [1977] Qd R 291, 295; United Petroleum Pty Ltd v 7-Eleven Stores Pty Ltd [2013] 1 Qd R 272, 280 [24].

[26] In other parts of the 2014/2015 audit report the auditors use the term “Residual Cost Pools”. The application was argued on the basis that these terms are synonymous.

[27] The defendants submitted that this deficiency has particular importance to audit finding 2.10 because the expenses constituted by RCP apportionments largely reflect employee costs and in circumstances where following the parties entry into the side deed referred to at [29] above, the Operator was not required to provide payroll data in respect of either the Arcadia operating agreement or the Fairview operating agreement

[28]Transcript 1-49:42 to 1-50:7.

Editorial Notes

Published Case Name:
Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd
Shortened Case Name:
Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd
MNC:
[2025] QSC 49
Court:
QSC
Judge(s):
Cooper J
Date:
27 Mar 2025

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited List of Cases Cited by this judgment

Case Name	Full Citation	Frequency
Ascherberg, Hopwood & Crew Ltd v Casa Musicale Sonzogno di Pietro Ostali	View on:ICLRUK[1971] 1 WLR 1128	2 citations Jump To Cite 1 - [1971] 1 WLR 1128 Cite 2 - [1971] 1 WLR 1128
Ashton v Dorante	[2012] QCA 175	3 citations Jump To Cite 1 - [2012] QCA 175 Cite 2 - [2012] QCA 175 Cite 3 - [2012] QCA 175
Australian Automotive Repairers' Association v NRMA Insurance Ltd	View on:JADE[2002] FCA 1568	2 citations Jump To Cite 1 - [2002] FCA 1568 Cite 2 - [2002] FCA 1568
Banque Commerciale SA en Liquidacion v Akhil Holdings Limited	View on:JADE[1990] HCA 11	1 citation Jump To Cite 1 - [1990] HCA 11
Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd	View on:JADE(1990) 169 CLR 279	3 citations Jump To Cite 1 - (1990) 169 CLR 279 Cite 2 - (1990) 169 CLR 279 Cite 3 - (1990) 169 CLR 279
Barr Rock Pty Ltd v Blast Ice Creams Pty Ltd	[2011] QCA 252	5 citations Jump To Cite 1 - [2011] QCA 252 Cite 2 - [2011] QCA 252 Cite 3 - [2011] QCA 252 Cite 4 - [2011] QCA 252 Cite 5 - [2011] QCA 252
Betfair Pty Ltd v Racing New South Wales	View on:JADE[2010] FCAFC 133	1 citation Jump To Cite 1 - [2010] FCAFC 133
Bli Bli # 1 Pty Ltd v Kimlin Investments Pty Ltd	[2010] QCA 136	2 citations Jump To Cite 1 - [2010] QCA 136 Cite 2 - [2010] QCA 136
Bloeman v Atkinson	[1977] Qd R 291	1 citation Jump To Cite 1 - [1977] Qd R 291
British Airways Pensions Trustees Ltd v Sir Robert McAlpine & Sons Ltd	[1994] 72 BLR 26	1 citation Jump To Cite 1 - [1994] 72 BLR 26
Bruce v Odhams Press Ltd	View on:ICLRUK(1936) 1 KB 697	3 citations Jump To Cite 1 - (1936) 1 KB 697 Cite 2 - (1936) 1 KB 697 Cite 3 - (1936) 1 KB 697
Equititrust Ltd v Tucker (No 2)	[2019] QSC 248	5 citations Jump To Cite 1 - [2019] QSC 248 Cite 2 - [2019] QSC 248 Cite 3 - [2019] QSC 248 Cite 4 - [2019] QSC 248 Cite 5 - [2019] QSC 248
Kordamentha Pty Ltd v LM Investment Management Ltd	[2016] QSC 183	2 citations Jump To Cite 1 - [2016] QSC 183 Cite 2 - [2016] QSC 183
Meckiff v Simpson	View on:VR(1968) VR 62	2 citations Jump To Cite 1 - (1968) VR 62 Cite 2 - (1968) VR 62
Murphy v State of Victoria	View on:VR(2014) 45 VR 119	2 citations Jump To Cite 1 - (2014) 45 VR 119 Cite 2 - (2014) 45 VR 119
Murphy v Victoria	View on:JADE[2014] VSCA 238	1 citation Jump To Cite 1 - [2014] VSCA 238
Neilson v Overseas Projects Corporation of Victoria Ltd	View on:JADE(2005) 223 CLR 331	2 citations Jump To Cite 1 - (2005) 223 CLR 331 Cite 2 - (2005) 223 CLR 331
Neilson v Overseas Projects Corporation of Victoria Ltd & Anor	View on:JADE[2005] HCA 54	1 citation Jump To Cite 1 - [2005] HCA 54
QIC Logan Hyperdome Pty Ltd v Briridge Pty Ltd	[2011] QSC 43	2 citations Jump To Cite 1 - [2011] QSC 43 Cite 2 - [2011] QSC 43
Robert Bax & Associates v Cavenham Pty Ltd	[2011] QCA 53	2 citations Jump To Cite 1 - [2011] QCA 53 Cite 2 - [2011] QCA 53
Thiess Pty Ltd v FFE Minerals Australia Pty Ltd	[2007] QSC 209	2 citations Jump To Cite 1 - [2007] QSC 209 Cite 2 - [2007] QSC 209
Thomson v STX Pan Ocean Co Ltd	View on:JADE[2012] FCAFC 15	2 citations Jump To Cite 1 - [2012] FCAFC 15 Cite 2 - [2012] FCAFC 15
United Petroleum Pty Ltd v 7-Eleven Stores Pty Ltd	[2013] 1 Qd R 272; [2012] QCA 172	1 citation Jump To Cite 1 - [2013] 1 Qd R 272
Virgtel Ltd v Zabusky	[2008] QSC 213	2 citations Jump To Cite 1 - [2008] QSC 213 Cite 2 - [2008] QSC 213

Cases Citing List of cases on Queensland Judgments citing this Judgment

Case Name	Full Citation	Frequency
Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd (No 2)	[2025] QSC 80	2 citations
McShelly Pty Ltd v VHS Holding Company Pty Ltd	[2025] QSC 159	3 citations

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Australia Pacific LNG Pty Ltd v Santos Toga Pty Ltd[2025] QSC 49