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Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd[2024] QSC 169

Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd[2024] QSC 169

SUPREME COURT OF QUEENSLAND

CITATION:

Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd [2024] QSC 169

PARTIES:

SANTOS TOGA PTY LTD

ACN 077 536 871

(first plaintiff)

AND

SANTOS TPY, LLC

ARBN 102 958 707

(second plaintiff)

AND

SANTOS TPY CSG, LLC

ARBN 84 108 566 052

(third plaintiff)

AND

SANTOS QUEENSLAND, LLC

ARBN 111 733 969

(fourth plaintiff)

AND

SANTOS TOG, LLC

ARBN 102 958 734

(fifth plaintiff)

AND

BRONCO ENERGY PTY LIMITED

ACN 121 979 664

(sixth plaintiff)

AND

VAMGAS PTY LTD

ACN 006 245 110

(seventh plaintiff)

AND

SANTOS QNT PTY LTD

ACN 083 077 196

(eighth plaintiff)

v

KGLNG E&P PTY LTD

ACN 146 143 339

(first defendant)

AND

TOTAL E&P AUSTRALIA

ARBN 112 603 880

(second defendant)

AND

TOTAL E&P AUSTRALIA II

ARBN 149 617 167

(third defendant)

AND

PAPL (UPSTREAM) PTY LTD

ACN 131 318 888

(fourth defendant)

FILE NO/S:

15114 of 2021

DIVISION:

Trial Division

PROCEEDING:

Claim

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

5 August 2024

DELIVERED AT:

Brisbane

HEARING DATES:

11 and 12 September 2023

JUDGE:

Bradley J

ORDER:

THE COURT DIRECTS THAT:

  1. Within 21 days, the parties confer and submit to the Associate to Bradley J, a draft order reflecting the findings and conclusions in these reasons, and including any orders sought to give effect to the parties’ agreed outcome as to the first to fifth plaintiffs’ costs of the arbitration between and them and Tri-Star Petroleum Company.
  2. If the parties are unable to agree on the draft order directed in paragraph 1 above, then, within 21 days, the plaintiffs and the defendants are to submit their own draft orders to the Associate to Bradley J together with any written submissions no longer than ten pages. 

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the plaintiffs and the defendants are parties to an unincorporated joint venture for the production of coal seam gas – where the plaintiffs had a pre-existing agreement (the “settlement agreement”) to pay a royalty to a third party (“Tri-Star”) on the coal seam gas produced on the joint venture’s land – where, as part of the joint venture, the defendants assumed an obligation to pay a share of the amount of the royalty payable to Tri-Star – where the settlement agreement provided for disputes to be resolved via arbitration in the State of Texas – where a dispute about the way in which the royalty payable to Tri-Star was to be calculated was referred to arbitration in this way – where the arbitrator gave an award whereby the royalty payable to Tri-Star would be significantly higher (the “Award”) – where the defendants submit that this Court would have interpreted the settlement agreement in a different way to the arbitrator – whether, on the proper construction of the relevant contracts, the defendants have an obligation to pay their share of the royalty payable to Tri-Star as calculated under the Award

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – PARTIES – GENERAL PRINCIPLES – where the plaintiffs provided the defendants with updates about the progress of the arbitration – where the defendants showed an interest in the progress of the arbitration – whether the circumstances give rise to a privity of interest so as to bind the defendants to the Award

Petroleum Act 1923 (Qld), s 9, s 23, s 40, s 61

Petroleum and Gas (Production and Safety) Act 2004 (Qld), s 10, s 26, s 28, s 117,

AWAP SGT 26 Investment Ltd v CN 2000 Holdings Ltd [2020] WASCA 74, cited

Begley v Attorney-General (NSW) (1910) 11 CLR 432; [1910] HCA 69, considered

Bruns v Colocotronis (1979) 2 Lloyds Rep 412; [1978] 10 WLUK 187, considered

Charrington & Co Ltd v Wooder [1914] AC 71; [1913] 12 WLUK 33, considered

Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] UKHL 38, cited

Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2010] QCA 363, cited

Ex parte Young; In re Kitchen (1881) 17 Ch D 668; [1881] 5 WLUK 18, considered

Freedom Willetton Pty Ltd v Commissioner of State Revenue (WA) [2021] WASCA 38, cited

Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510; [1977] 1 WLUK 828, considered

Mannai International Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; [1997] 5 WLUK 402, cited

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37, cited

Ramsay v Pigram (1968) 118 CLR 271; [1968] HCA 34, cited

Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28, considered

Young v Public Service Board [1982] 2 NSWLR 456, cited

COUNSEL:

S L Doyle KC, with S J Webster and S L Walpole, for the plaintiffs

N Owens SC and M Johnson KC with A Nicholas, for the defendants

SOLICITORS:

Allens for the plaintiffs

White & Case for the defendants

  1. [1]
    The plaintiffs (the Santos parties) and the defendants (the JV parties) are associated in an unincorporated joint venture (the Upstream JV) for the exploration, testing, evaluating, and production of coal seam gas (CSG),[1] from wells in areas of south-west Queensland.  Their rights to do these things were granted by the Crown in the form of petroleum leases (PLs), and earlier as authorities to prospect (ATPs), collectively the Tenements, in and around the Bowen Basin and the Surat Basin. Since about 2015, the Upstream JV has produced and sold CSG from the Tenements. 
  2. [2]
    Before the JV parties joined the Upstream JV, the first to fifth plaintiffs (the Santos Group) agreed to pay a royalty (the Tri-Star Royalty) to Tri-Star Petroleum Company (Tri-Star)[2] on petroleum produced and sold by the Upstream JV from the Tenements. 
  3. [3]
    After the JV parties had joined the Upstream JV, Tri-Star and the Santos Group came to be in dispute about the calculation of the Tri-Star Royalty for the period September 2015 to September 2020.  Tri-Star submitted that dispute to arbitration.  In May 2021, the arbitrator issued a final award (the Award).  The Award determined that the Santos Group were liable to pay Tri-Star $57,582,308.00 in additional payments for the Tri-Star Royalty, and simple interest (at 5% per annum) on that amount from 11 September 2019. 
  4. [4]
    On 27 August 2021, the District Court of Harris County, Texas, confirmed the Award.  The Santos Group paid Tri-Star the additional payments as determined by the Award.[3]

The issues

  1. [5]
    Amongst the disputes between the parties, these reasons concern only two.  It is convenient to refer to these as the deed dispute and the privity dispute.

The deed dispute

  1. [6]
    On 30 November 2021, the first plaintiff (Santos TOGA) invoiced each JV party for its share of the additional payments made pursuant to the Award.[4]  None of the JV parties has paid those invoices, or any part of them.  The deed dispute is about whether the JV parties are obliged to pay those invoices, on the proper construction of certain covenants in commercial instruments executed in buying and selling interests in the Upstream JV.   
  2. [7]
    For the reasons set out below, each JV party is bound to pay the Santos TOGA invoice because, on the proper construction of each Royalty Assumption Deed – Amerind, NationsBank and Tri-Star Royalty (RAD),[5] the JV party is bound to pay to Santos TOGA its percentage (the Buyer’s Percentage) of the total amount of the Tri-Star Royalty, including the additional amounts the Santos Group was obliged to pay to Tri-Star in accordance with the Award.

The privity dispute

  1. [8]
    The second dispute is whether the JV parties are bound by the Award as privies of the Santos Group. 
  2. [9]
    For the reasons set out below, the JV parties are not so bound. 

The evidence

  1. [10]
    The parties tendered a statement of agreed facts, a bundle of 63 documents, some aide memoires, and a consolidated pleadings matrix.  No party objected to the admission of any of these documents. 
  2. [11]
    These reasons proceed on the basis that the tendered documents are relevant as evidence of the instruments to be construed, the context in which those instruments were executed, the factual matrix known to the parties by that time, or other factual matters that explain how the parties came to be in dispute and the course of their disputes. 

The Santos parties

  1. [12]
    Santos TOGA is an Australian proprietary company.  Each of the second to fifth plaintiffs (Santos TPY, Santos TPY CSG, Santos Qld, and Santos TOGC) is incorporated in the United States and registered in Australia as a foreign company.  All five became subsidiaries of Santos Ltd[6] in about 2005. 
  2. [13]
    The sixth, seventh and eighth plaintiffs (Bronco, Vamgas, and Santos QNT) are Australian proprietary companies.  They are parties to the SPDs.  They are not parties to the RADs, the DOAs, or the Award. 

The JV parties

  1. [14]
    The first defendant (Kogas) is an Australian proprietary company.[7]
  2. [15]
    The second and third defendants (Total EPAI and Total EPAII) are corporations incorporated under the laws of France.[8]
  3. [16]
    The fourth defendant (PUPL) is an Australian proprietary company.[9]

Petroleum exploration and production in Queensland

  1. [17]
    Petroleum, including CSG, on or below the surface of any land in Queensland is the property of the Crown in right of the State.[10]  Parliament has authorised a relevant minister to grant rights in respect of petroleum, including by an ATP and a PL.
  2. [18]
    By an ATP, the minister permits the holder to carry out activities, including the exploration for and the testing and evaluation of petroleum production on specified land.[11]  Before 31 December 2004:[12]
    1. an ATP holder could apply to the minister to approve the vesting of all entitlements of the holder in another person (or persons), who would become the ATP holder (or holders), if approval was given;[13] and
    2. only the ATP holder could apply for a PL.[14]
  3. [19]
    Since then, others may also apply either jointly with the ATP holder or with their consent. 
  4. [20]
    By a PL, the minister permits the holder to carry out activities, including petroleum production, on specified land.[15]  If the PL holder produces petroleum under it, the petroleum becomes the holder’s property.[16]  Before 31 December 2004, a PL holder could assign or transfer it only with the prior consent of the minister.[17]  Since then, the transfer of an ATP or a PL (or a share in either) has no effect until it has been approved by the minister.[18]

The Tenements

  1. [21]
    On 1 November 1992, the minister granted ATP 526P to Tri-Star.  Since then, the minister has granted PLs over some areas formerly covered by this ATP, and the holders have relinquished their rights in respect of all other blocks and sub-blocks of land within it.[19]  The parties refer to ATP 526P and the related PLs as the Fairview tenements.
  2. [22]
    On 30 September 2002, the minister granted ATP 653P to Tri-Star.  Since then, the minister has granted PLs over some areas formerly covered by it, and the holders have relinquished their rights in respect of all other blocks and sub-blocks of land within it.[20]  The parties refer to ATP 653P and the related PLs as the Arcadia tenements.

The joint operating agreements

  1. [23]
    The work authorised by the Tenements[21] has been conducted in accordance with two relevant joint operating agreements (the JOAs).[22]  The JOA dated 15 May 1992 (the 1992 JOA) is in respect of rights that came to include the Fairview tenements.[23]  The other JOA dated 17 December 2002 (the 2002 JOA) is in respect of the Arcadia tenements. 

General terms of the JOAs

  1. [24]
    Each of the JOAs is a standard form,[24] with similar amendments marked in the text or added to it.  Each JOA is governed by the law of the State of Texas.[25]
  2. [25]
    Each party to each JOA is referred to as a “participant” and has a “percentage or fractional interest” under the JOA.  A party’s percentage or fractional interest has been referred to as the party’s “working interest”.[26]
  3. [26]
    The participants bear and pay the costs and liabilities incurred in operations under the JOA in accordance with their respective percentage or fractional interest.  They own the materials acquired in operations in their respective interests.[27]  Each participant’s liability is several, and not joint or collective.[28]

Interests under the 1992 JOA

  1. [27]
    At the commencement of the 1992 JOA, Tri-Star was the operator, and the participants included a joint venture linked to Tri-Star,[29] Santos TOGC,[30] Amerind Oil Company Ltd (Amerind), NationsBank of Texas NA[31] (NationsBank), other corporations, and some individuals.[32]
  2. [28]
    Until about 23 February 2005, Tri-Star was the sole holder of the Fairview tenements.  From about 26 April 1995 until about 25 November 2004, the participants’ respective interests in the rights to explore, test, and evaluate the feasibility of petroleum production and in the rights to any petroleum production under the Fairview tenements, were held by them as interests under the 1992 JOA. 
  3. [29]
    On 1 January 1997, by separate written agreements, one with Amerind and the other with NationsBank, Santos TOGC acquired their rights, title and interests arising under or created by the 1992 JOA, including their interests, through the 1992 JOA, in the Fairview tenements.  As a term of each acquisition agreement, Amerind and NationsBank retained a contractual right to be paid a certain percentage[33] of the gross proceeds of oil and gas produced and sold (less certain costs and taxes) under the Fairview tenements attributable to their interest under the 1992 JOA.  In each RAD, these payments are referred to as the Amerind Royalty and the NationsBank Royalty.  By these agreements, Santos TOGC[34] is obliged to make these payments.[35]
  4. [30]
    Prior to October 2004, Tri-Star had acquired working interests under the 1992 JOA by assignments from participants who are not parties to this proceeding.[36]  It is convenient to refer to this working interest as the 2.25% Working Interest.[37]

Interests under the 2002 JOA

At the commencement of the 2002 JOA, Santos TOGA was the operator.  The participants with interests under the 2002 JOA included the other Santos Group entities, Craig Ltd and Mary Blanton Kennedy.[38]

The Settlement Agreement

  1. [31]
    By October 2004, Tri-Star was in dispute with the other participants, including the Santos Group, about the operation of work on the Tenements under the JOAs.  The dispute involved legal proceedings in the District Court of Midland County, Texas, and proceedings in this Court. 
  2. [32]
    Tri-Star, the Santos Group, Craig Ltd, and Ms Kennedy resolved the dispute by a written agreement dated 30 October 2004 (the Settlement Agreement).[39]  The Tri-Star Royalty is payable pursuant to Exhibit C to the Settlement Agreement (Exhibit C). 
  3. [33]
    Between about 25 November 2004 and 23 February 2005, four relevant things happened pursuant to the Settlement Agreement.
    1. Tri-Star unconditionally resigned as operator under the 1992 JOA and was replaced by Santos TOGA.[40]
    2. Tri-Star sold the 2.25% Working Interest to Santos Qld.[41]
    3. Tri-Star, as the sole holder of the Tenements, prepared and lodged an application for the minister to approve the vesting of the then existing Fairview and Arcadia tenements[42] in the Santos Group, Craig Ltd, and Ms Kennedy, each in their respective percentage interest under the 1992 JOA.[43]
    4. With the minister’s approval, the then existing Tenements vested in the Santos Group, Craig Ltd, and Ms Kennedy. 
  4. [34]
    It is convenient to note some other provisions agreed by the parties to the Settlement Agreement. 
    1. By cl 7.d., the Santos Group agreed to ensure payment of the Tri-Star Royalty to Tri-Star on the due dates.
    2. By cl 16, the parties agreed to settle disputes arising out of or related to the Settlement Agreement (or the exhibits to it) by binding arbitration in accordance with the Texas General Arbitration Act.[44] 
    3. By cl 17, the parties agreed that it was made under the laws of Texas, and that the courts of Texas have exclusive jurisdiction in relation to its subject matter, save for duties and obligations performable in Queensland. 
    4. By cl 1.1(a) of Exhibit C, Tri-Star reserved, and the Santos Group agreed to pay, the Tri-Star Royalty, which was:

“the right of Tri-Star, reserved from the 2.25% Working Interest, to receive a royalty calculated and paid on the terms set out in Exhibit C … on and subject to the terms set out in Exhibit C.”[45]

  1. By cl 1.1(b) of Exhibit C, the Santos Group and Tri-Star agreed on the calculation and the process for payment of the Tri-Star Royalty, and the Santos Group agreed to pay it to Tri-Star, monthly in arrears. 
  2. By cl 1.3(b) of Exhibit C, the Santos Group agreed, relevantly, that they must not “sell, assign, transfer, … or in any other way … dispose of or alienate” all or any part of any of the Tenements in favour of a third party:

“unless [the Santos Group] first obtain[s] from the third party a written agreement to assume and discharge the obligations of [the Santos Group] under this Exhibit C to the extent of the interest acquired by the third party”. 

The GLNG Project

  1. [35]
    After the Settlement Agreement, the Santos Group acquired the interests in the Tenements held by the other participants in the JOAs. 
  2. [36]
    In about 2007, Santos Ltd announced the planned construction and development of the Gladstone LNG Project (GLNG Project).  The GLNG Project is a CSG to liquified natural gas (LNG) project involving an upstream component and a downstream component. 
  3. [37]
    The upstream component includes the extraction, production, processing, and sale of CSG from the Tenements by the Upstream JV.  The participants in the Upstream JV process and sell the CSG to a separate unincorporated joint venture (the Downstream JV) before it enters a gas transmission pipeline.  The point of sale is where the CSG is metered prior to entry into the gas transmission pipeline.  The Downstream JV also purchases CSG extracted from other tenements and from sellers not involved in the GLNG Project.  This CSG is comingled with CSG purchased from the Upstream JV members and transmitted through the same pipeline to the facilities, where it is then liquified to become LNG.[46]
  4. [38]
    The Downstream JV has a different operator.[47]  The Santos Group entities and the JV parties are not participants in the Downstream JV.[48]
  5. [39]
    Between about July 2008 and March 2011, each JV party became a participant in the Upstream JV.  In doing so, it acquired part of the undivided legal interest in and to the Tenements, the assets relating to the JOAs, and some other interests.[49]  In relation to the Tenements, these acquisitions were made in this way:
    1. In about July 2008, Santos TOGA sold part of its interest in the Tenements to PUPL. 
    2. In about January 2010, Santos TOGA and PUPL sold parts of each of their interests in the Tenements to Kogas. 
    3. In about May 2010, Santos TOGA and PUPL sold parts of each of their interests in the Tenements to Total EPAI. 
    4. In about March 2011, Santos TOGA sold part of its interest in the Tenements to Total EPAII.
  6. [40]
    In none of these transactions did Santos Qld sell, transfer, or assign any of its interests in the Upstream JV, including any of the 2.25% Working Interest, to any of the JV parties. 
  7. [41]
    In 2014, Bronco acquired Santos TOGC and Santos QNT’s interests in the Arcadia tenements.  In 2016, Bronco acquired their interests in the Fairview tenements.
  8. [42]
    Since March 2011.  the parties’ respective interests in the Upstream JV, including in the Tenements and the CSG produced from them, are set out in this table:

Party

%

Santos parties (and other subsidiaries of Santos Ltd)[50]

30.0

PUPL

27.5

Total EPAI

20.0

Kogas

15.0

Total EPAII

7.5

  1. [43]
    Santos TOGA has continued to be the operator of the Upstream JV under the JOAs.

The proper construction of the deeds

  1. [44]
    The covenants the subject of the deed dispute are in three deeds executed by each JV party: the Gladstone LNG Sale and Purchase Deed (SPD);[51] the Tri-Star Deed of Assumption – Settlement Agreement and Mutual Release (DOA); and the RAD.
  2. [45]
    The covenants in the SPD, DOA and RAD executed by each JV party are relevantly the same as those executed be each other JV party. 
  3. [46]
    Each SPD, DOA, and RAD is a deed recording the relevant parties’ commercial agreement.  It is common ground that each deed is to be construed as a whole.  Its meaning is to be determined objectively by reference to its text, context, and purpose.  The meaning is what a reasonable businessperson in the position of the parties to the deed would have understood it to mean.[52]  It must be construed to avoid making commercial nonsense or working commercial inconvenience.  It is construed practically, to give better effect to its purpose.  It is inappropriate to adopt a narrow or pedantic approach to its construction.[53]
  4. [47]
    The deeds are related.  By each SPD, the JV party agreed to execute a RAD and a DOA on or before completion under the SPD.  Each SPD included the RAD and DOA as schedules.  Each SPD and DOA are part of the context for the RAD, and vice versa. 
  5. [48]
    At the hearing, submissions were made by reference to the PUPL deeds.  No party submitted that the provisions in any SPD, DOA or RAD had a relevantly different meaning or effect to those executed by the other JV parties.[54]

The RADs

  1. [49]
    The JV parties say the title of each RAD is no coincidence, as “they are the specific and only deeds which deal with the [JV parties’] royalty obligations.”  For that reason, it is convenient to deal with the RADs before considering the DOAs and SPDs. 
  2. [50]
    In its RAD, each JV party (as the “Buyer”) joined with Santos TOGA and Santos TOGC[55] to recite that, by the SPD, “the Buyer acquired the Assigned Interests”[56] and that, pursuant to the SPD, “the Buyer has agreed to assume a pro-rata share of the liabilities relating to the Assumed Royalties.” The “Assumed Royalties” are defined as the “Amerind Royalty”, the “NationsBank Royalty”[57] and, relevantly, the “Tri-Star Royalty”. 
  3. [51]
    By cl 2.3(a) of each RAD, it was also relevantly agreed:

“2.3 Agreement to pay TriStar Royalty

  1. Subject to Completion occurring, the Buyer shall pay Santos TOGA on and from the Effective Date the Buyer’s Percentage of the Tri-Star Royalty on the terms set out in Section 3 of Schedule 2.  …”
  1. [52]
    It is common ground that, for the purposes of each RAD, “Completion” has occurred, and the “Effective Date” is about the date the JV party acquired its “Assigned Interests” in the Upstream JV and the Tenements.  The Buyer’s Percentage for each JV party is the same as their percentage interest in the Upstream JV, as set out in paragraph [42] above.
  2. [53]
    In each RAD, by section 3 of Schedule 2, it was relevantly agreed:

“3 Tri-Star Royalty payment terms

  1. The Buyer’s Percentage of the Tri-Star Royalty payable by the Buyer to Santos TOGA shall be calculated on a monthly basis and paid monthly in arrears on and from the Effective Date. 
  1. … Santos TOGA will provide the Buyer with a tax invoice in respect of the Buyer’s Percentage of the Tri-Star Royalty on the 20th day of each month …
  1. The Buyer will pay to Santos TOGA in Immediately Available Funds the Buyer’s Percentage of the Tri-Star Royalty as stated in the invoice issued pursuant to section 3(b) of this Schedule 2 on or before the 25th day of the month.”[58]
  1. [54]
    In cl 1.1 of each RAD, the relevant parties defined the “Tri-Star Royalty” as:

“the total amount of royalty payable by the Santos Group to Tri-Star on petroleum produced and sold from the Permits as calculated under Exhibit C to the Tri-Star Settlement Agreement.”

  1. [55]
    In each RAD, the “Santos Group” shares the same definition as it does in these reasons,[59] and the “Permits” relevantly include the Tenements. 

The JV parties’ submissions on the proper construction of the RADs

  1. [56]
    The JV parties submit that, in the definition of “Tri-Star Royalty”, the phrase “as calculated under Exhibit C” must mean “as correctly calculated under Exhibit C.”  The JV parties do not ask the Court to determine “the total amount of royalty payable … as calculated under Exhibit C” or “as correctly calculated”. 
  2. [57]
    The JV parties say that, in the Award, the arbitrator calculated the Tri-Star Royalty payable by the Santos Group by reference to the price at which LNG was sold by the Downstream JV.  They say this was an error because CSG is the only petroleum produced and sold from the Permits.  They say the arbitrator had an “erroneous approach” to the calculation of the Tri-Star Royalty and so did not “apply Exhibit C” to determine the royalty payable by the Santos Group to Tri-Star. 
  3. [58]
    The parties to the Settlement Agreement agreed to settle disputes arising out of or related to it by binding arbitration in Texas.  The Award has been made.  A Texas court has confirmed it.  This Court has no jurisdiction to correct any error in the Award. 
  4. [59]
    The matter to be decided is the meaning of the covenant in cl 2.3(a) of each RAD. 
  5. [60]
    The JV parties submitted that it would have been “a very simple matter” to draft an express provision in each RAD that the JV party is bound by the result of any arbitration between the Santos Group and Tri-Star in determining the JV party’s “liability to contribute to the Tri-Star Royalty, regardless of the correct calculation under Exhibit C.”  They submitted that the absence of such a clause was a reason to adopt their preferred interpretation of cl 2.3(a).  As in the balance of their submissions on this issue, they confuse the distinction between being bound by an award (which the JV parties are not) and agreeing to pay a fixed percentage of the sum that another person is bound to pay under an award.[60]
  6. [61]
    A reasonable businessperson in the position of the parties would have understood cl 2.3(a) in each RAD to refer to the sum actually payable by the Santos Group to Tri-Star.  The spellcheck tool for the draft of these reasons urged the deletion of the word “actually” from the last sentence, on the ground “more concise language would be clearer for the reader.”  The spellchecker is correct.  The word adds nothing to the sentence.  Its deletion does not change the meaning.  A reasonable businessperson in the position of the parties would not have understood the phrase to have a different meaning without the word “actually”.  In the absence of any objective indication in the text or the context, it is inappropriate to assume that the omission of an unnecessary word bears any significance in the interpretation of the covenant. 
  7. [62]
    On the JV parties’ interpretation, the “Tri-Star Royalty”, a percentage of which each of them is bound to pay to Santos TOGA, would not be the Tri-Star Royalty the Santos Group are bound to pay to Tri-Star.  Rather, it would be a theoretical amount the Santos Group would be bound to pay to Tri-Star if the Settlement Agreement had been concluded on materially different terms – in other words, without an agreement to settle disputes by binding arbitration.[61]
  8. [63]
    The JV parties postulate two different answers to the question: what is “the total amount of royalty payable by the Santos Group to Tri-Star on petroleum produced and sold from the Permits as calculated under Exhibit C”?  There would be the total amount the Santos Group is obliged to pay to Tri-Star, which for the period September 2015 to September 2020, was determined by the Award.  There would also be, what the JV parties say is a different figure, namely, the total amount that would have been payable if the obligation of the Santos Group were to be determined in accordance with Exhibit C by another decision-maker.  This might be “as construed by this Court”, and perhaps “as construed in accordance with the law in force in Queensland”. 
  9. [64]
    In each RAD, the Tri-Star Royalty is defined as the total amount payable “as calculated under Exhibit C”.  The obligation of the Santos Group to pay the Tri-Star Royalty arose before the JV parties acquired their respective interests in the Upstream JV.  In each SPD, the parties noted that the Santos parties disclosed the instruments relating to the Tri-Star Royalty in the due diligence process for each JV party. 
  10. [65]
    The evident purpose of the parties to each RAD was that the JV party would assume liability to pay its Buyer’s Percentage of the total amount of the Amerind Royalty (payable by Santos TOGC to Amerind), the NationsBank Royalty (payable by Santos TOGC to NationsBank), and the Tri-Star Royalty (payable by the Santos Group to Tri-Star).  In the RADs executed by PUPL and Total EPAII, PUPL and Total EPAII respectively promised Santos TOGA it would pay its Buyer’s Percentage to Santos TOGA.  In the case of the RADs executed by Kogas and Total EPAI, the solemn promise by each of Kogas and Total EPAI was for the benefit of both Santos TOGA and PUPL.[62]
  11. [66]
    After all the RADs were executed, the Santos parties had promises from the JV parties to pay a total of 70% of the Tri-Star Royalty, as commonly defined in each RAD.  This left Santos TOGA (and others in the Santos Group) with an exposure to 30% of the Tri-Star Royalty, which they were not entitled to recover from the JV parties.  The benefit conferred by Kogas and Total EPAI in their RADs was that PUPL’s liability to Santos TOGA was reduced from 40% of the Tri-Star Royalty to 35%, and then to 27.5%, in accordance with its reduced Buyer’s Percentage after the sales of parts of PUPL’s interest in the Upstream JV to Total EPAI and then to Kogas. 
  12. [67]
    The purpose of the covenant in cl 2.3(a) of the RAD was to allocate to each of the JV parties an obligation to reimburse Santos TOGA a share of the Tri-Star Royalty payable by the Santos Group.  Each JV party’s share was the same as its Buyer’s Percentage, i.e. its interest in the Upstream JV.  The covenant should be construed practically, to better give effect to its purpose.
  13. [68]
    As Lord Hoffmann said in Chartbrook Ltd v Persimmon Homes Ltd with respect to a defined term:

“[T]he contract does not use algebraic symbols.  It uses labels.  The words used as labels are seldom arbitrary.  They are usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition.  In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parts of the agreement.”[63]

  1. [69]
    In a speech on the same case, Lord Walker applied the principle that a court should “give weight to the natural meaning of words” to the definition in the commercial contract.[64]
  2. [70]
    By calling the defined term the “Tri-Star Royalty” and by defining it as “the total amount of royalty payable … as calculated under Exhibit C to the Tri-Star Settlement Agreement”, Santos TOGA, Santos TOGC and each JV party adopted a label readily identifiable as the royalty the Santos Group were bound to pay to Tri-Star under the Settlement Agreement.  There is no ambiguity.  If there were any, it would be resolved by the label adopted by the parties. 
  3. [71]
    At any point in time, “the royalty payable by the Santos Group to Tri-Star on petroleum produced and sold from the Permits as calculated under Exhibit C” could only be a specific amount.  When each RAD was executed, the parties, including the JV party giving the covenant in cl 2.3(a), knew any dispute between the Santos Group and Tri-Star about that specific amount, including about “the total amount of royalty payable”, would be determined by an arbitration in accordance with the Settlement Agreement.  The Santos Group could not be obliged to pay any other amount.  The “royalty payable by the Santos Group to Tri-Star” could not be any other amount. 
  4. [72]
    As Lord Steyn remarked of unilateral contract notices, in Mannai International Co Ltd v Eagle Star Life Assurance Co Ltd,[65] for the objective enquiry of what reasonable persons in the position of the actual parties would have had in mind, “the law generally favours a commercially sensible construction.” His Lordship explained:

“The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties.  Words are therefore interpreted in the way in which a reasonable commercial person would construe them.  And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”

  1. [73]
    On the JV parties’ interpretation, each of the JV parties would be obliged to pay their respective Buyer’s Percentage of an amount that might be less or more than the amount the Santos Group is bound to pay to Tri-Star.  The Santos Group would not have a residual, unreimbursed liability for 30% of the royalty that must be paid to Tri-Star.  Rather, the Santos Group’s liability might be greater or lesser than 30%. 
  2. [74]
    When each RAD was made, a reasonable businessperson in the position of the relevant parties would not have understood it to have introduced a risk of under-recovery or over-recovery by the Santos Group and consequential underpayment or overpayment by the JV parties. 
  3. [75]
    The JV parties say their interpretation of cl 2.3(a) of the RAD would serve the purpose of ensuring the JV parties can be “heard” as parties to any determination of the amount they are liable to pay.  Each of them has such a right, but it is a right to be heard as to whether any amount demanded by Santos TOGA is their Buyer’s Percentage of the Tri-Star Royalty payable by the Santos Group to Tri-Star.  The JV party is like a tenant who has agreed to pay a fixed percentage of the sum payable by the landlord for utilities or maintenance to the premises.  The amount each JV party is liable to pay to Santos TOGA is an agreed fixed percentage of a sum payable under an instrument to which they are not a party.  The bargain the JV party made with Santos TOGA and Santos TOGC does not permit the JV party to vary or avoid its contractual liability by contending that the sum payable to Tri-Star for the Tri-Star Royalty would be different if it were to be determined by a different decision maker or process. 
  4. [76]
    The JV parties’ interpretation of cl 2.3(a) serves no logical or commercial purpose.  It would require a second, separate and theoretical determination of the Tri-Star Royalty.  It would introduce risk and uncertainty.
  5. [77]
    The JV parties articulated other arguments as to why they were “not bound by” the Award.  These explain why they submit that neither the SPDs nor the DOAs bind [them] to the Award.  Like those considered above, these other arguments do not address or affect the proper interpretation of the operative covenant in cl 2.3(a) of each of the RADs.  It is convenient to deal with them briefly. 
  6. [78]
    The JV parties submit the Court ought to apply “by analogy and force of reasoning” the principle, in the words of Goff J in Bruns v Colocotronis (the Vasso),[66] to the liability of each of the JV parties to Santos TOGA under cl 2.3(a) of the relevant RAD. 
  7. [79]
    In this proceeding, Tri-Star is not seeking to enforce the Award against any JV party.  By the cl 2.3(a) covenant, the JV party did not guarantee to Tri-Star that the Santos Group would pay the Tri-Star Royalty or that the Santos Group would duly perform their obligations under Exhibit C (or that Santos TOGA would do so).  Tri-Star is not a party to any RAD (or SPD or DOA) and the covenant does not make any JV party responsible to Tri-Star for the payment of the Tri-Star Royalty, by way of security.  By the covenant, the JV parties did not indemnify Tri-Star for any loss caused by the failure of the Santos Group to pay the Tri-Star Royalty.  These important differences mean that the analogy the JV parties draw with the decision in the Vasso, and in Ex parte Young; In re Kitchen,[67] and Begley v Attorney-General (NSW),[68] and is not apt. 
  8. [80]
    On the proper construction of each RAD, the JV party is bound to pay Santos TOGA its Buyer’s Percentage of the Tri-Star Royalty the Santos Group must pay to Tri-Star pursuant to Exhibit C.  For the period September 2015 to September 2020, the amount the Santos Group must pay includes the additional amount determined by the Award. 
  9. [81]
    While this conclusion makes it unnecessary to deal with the parties’ respective submissions about the proper construction of the SPDs and DOAs, in the case there is error in this conclusion, it is appropriate to deal with them. 

The SPDs

  1. [82]
    By the SPDs, the relevant Santos parties (and PUPL) transferred interests in the Upstream JV to the JV parties.  As noted in paragraph [47] above, entry into the RAD and DOA was a condition precedent to completion of each SPD. 
  2. [83]
    The Santos parties contend that the JV parties agreed to reimburse them for the relevant percentage of the Tri-Star Royalty by reason of cll 4.1 and 4.2 of each SPD.  These clauses are relevantly as follows:[69]

“4.1 Assumed Liabilities

Subject to Completion occurring, … the Buyer is liable for and must assume the Assumed Liabilities and on and after Completion must pay, perform, honour and discharge the Assumed Liabilities when and how due and payable or performable.

4.2 Indemnity relating to Assumed Liabilities and the Assigned Interests

Despite any other provision of this deed, … the Buyer indemnifies and holds harmless and must keep indemnified the Sellers and each Seller Group Member against any Loss suffered or incurred by a Seller Group Member in relation to or in connection with:

  1. the Assumed Liabilities; and
  1. the Buyer’s ownership or use of the assets and interests in the Assigned Interests on and from the Effective Date,

and the Buyer must pay to the Sellers in Immediately Available Funds an amount equal to, [sic] any Loss suffered or incurred by the Sellers or the relevant Seller Group Member in relation to these matters within 5 Business Days after the Buyer receives written notice of the relevant Loss from the Sellers from time to time.”

  1. [84]
    In each SPD, “Sellers” includes Santos TOGA, and “Seller Group Members” includes the Santos Group. 
  2. [85]
    The parties to each SPD defined “Assumed Liabilities” in cl 1.2 as including the “Fairview Assumed Liabilities”, which, in turn, they defined as:

“… all Liabilities in relation to or in connection with the Fairview Interests regardless of whether or not such Liabilities have arisen from events and circumstances before, on or after the Effective Date, other than Liabilities:

1 relating to events or circumstances before the Effective Date where those Liabilities have been actually paid by a Seller as at the Effective Date (such that the Seller is not reimbursed for any past actual expenditures in relation to the Fairview Interest); or

2 which arise and are the subject of a written claim which has been made to the Sellers prior to the Effective Date outlining the precise nature and quantum of the Liability.”

  1. [86]
    The “Fairview Interests” are “the interests and assets referred to as being sold” to the JV party in a specified section of a schedule to the SPD.  In each instrument, these include percentage interests in the Fairview tenements, and the working interests under the JOAs.
  2. [87]
    The parties defined “Liabilities” as:

“any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, known or unknown, matured or unmatured, or determined or determinable, including all Environmental Liabilities and all obligations in respect of principal, accrued interest, penalties, fees and premiums, but excluding Tax Liabilities.”[70]

  1. [88]
    They defined “Loss” as:

“losses, Liabilities, damages, costs, charges and expenses including Tax.”

  1. [89]
    For present purposes, in Exhibit C of the Settlement Agreement, the Tri-Star Royalty is a percentage of all “Sales Proceeds”. 
  1. [90]
    In Exhibit C, “Sales Proceeds” is:

“the Revenue to the [Santos Group] from the Petroleum produced from the [Santos Group] Interests and Permits measured at the Delivery Point or, in the event sale occurs downstream from the Delivery Point, at the point of sale, without reduction for statutory royalty or any costs except the applicable percentage of all costs incurred beyond the Delivery Point.”

  1. [91]
    And Revenue is:

“that amount that would be determined as an arms length value that would be determined by the royalty section of the Department of Natural Resources, Mines and Energy under the Petroleum Act and means (exclusive of GST) all receipts, revenues, incomes, rights, entitlements and benefits (…), without any deductions, set offs or adjustments of any kind, other than as stated [in the definition of “Sales Proceeds”] above; provided, Revenue does not include proceeds from any sale of the [Fairview tenements] except to the extent such proceeds represent payment for Petroleum produced from the [Santos Group’s] Interests and Permits”. 

  1. [92]
    The Santos parties submit that the obligation to pay the Tri-Star Royalty is an Assumed Liability within the meaning of each SPD such that the JV party has a corresponding obligation to pay the Santos Group a relevant proportion of the Tri-Star Royalty.  This, they say, can occur under either cl 4.1 or cl 4.2. 
  2. [93]
    Mr Doyle KC for the Santos parties put the point in this way:

“Under clause 4.1, the obligation is to honour the Assumed Liabilities … which are liabilities in relation to or in connection with the Assigned Interests.  The Tri-Star Royalty is paid because gas is extracted from the tenements, including [each JV party’s] interest in the tenements, [and] is calculated on the volume of gas produced from the tenements ….  The [JOAs], which are an Assigned Interest, confer on the participants the right to receive the gas and then to sell it. 

All of the [Upstream JV] participants receive their gas and sell it to the [Downstream JV] participants under the gas sale agreements.  … [I]t’s the volume of that which is the subject of the calculation of the royalty.  That … is a liability which can be said to be related to or connected with both the interests under the [Fairview tenements] and the interests under the [JOAs], and those are Assigned Interests.

…

[Clause] 4.2 extends to also the Buyer’s ownership or use of the assets in the Assigned Interests.  [T]he Assigned Interests include the [Fairview tenements] and the working interests under the [JOA] which have been acquired ….  It is only by the ownership of those assets that [a JV party] acquires … the gas by reference to which the [Tri-Star Royalty] is paid and the volume and value determined.”

  1. [94]
    The phrase “in relation to or in connection with” (used in cl 4.2) is very broad.  The Tri-Star Royalty is a contractual obligation of the Santos Group in relation to or in connection with the settlement of their dispute with Tri-Star and the acquisition of Tri-Star’s former interests in the Fairview tenements. 
  2. [95]
    The Santos parties say that this construction of cll 4.1 and 4.2 is borne out by the recital contained in each RAD that, “Pursuant to the Sale and Purchase Deed, the Buyer has agreed to assume a pro-rata share of the liabilities relating to the Assumed Royalties.”  The submission based on this recital is less than compelling.  An open, simpler, and preferable reading of the RAD recital is that the parties are noting that, pursuant to the SPD, the Buyer agreed to execute the RAD. 
  3. [96]
    The JV parties submit that the obligation to pay the Tri-Star Royalty does not arise out of the SPDs by the following line of reasoning.
    1. Clause 1.1(a) of Exhibit C states that “[t]he right to the Tri-Star Royalty has been reserved in connection with and solely from the 2.25% Working Interest.”
    2. The “Fairview Interests” are defined in cl 1.2 of the SPD as meaning “the interests and assets referred to as being sold to the Buyer in section 1 of Schedule 8”.
    3. Schedule 8 to each of the SPDs makes no provision for the sale by Santos Qld of the 2.25% Working Interest.
    4. Therefore, the assigned interests the subject of each SPD, and the linked “Assumed Liabilities”, do not include or extend to the 2.25% Working Interest in respect of which the right to the Tri-Star Royalty was “solely reserved” pursuant to clause 1.1(a) of Exhibit C.
  4. [97]
    The Santos parties respond to this contention in their written submissions:
    1. “By clause 7(d) of the Settlement Agreement, the [Santos Group] are each obliged to ensure payment of the Tri-Star Royalty”.
    2. “Clause 1.1(a) of Exhibit C provides that the [Santos Group] (not just [Santos Qld]) ‘have agreed to pay’ the Tri-Star Royalty – that is, the obligation to pay is on each party.”
    3. “By clause 1.2(a) of Exhibit C, the Tri-Star Royalty is a royalty on an ‘undivided interest’ of all ‘Sales Proceeds’, which are defined as the Revenue to the [Santos Group] from gas produced from the relevant ‘Interests and Permits’ as a whole.”
  5. [98]
    Mr Owen SC for the JV parties made these submissions by reference to the Santos response.

“[As to (a),] the point is that clause 4.1 of the [SPD] … only imposes … an obligation to assume the … “Assumed Liabilities”, … defined by references to particular legal interests and the particular working interests that are transferred under [the SPD]. 

In relation to [(b)], … exhibit C records an agreement by all of the [Santos Group] to pay it, but the answer is the same again.  … [W]hen one looks at what the [SPDs] are doing, they’re doing something far narrower than attributing to us an obligation to deal with all of the Santos companies’ obligations.  …

The third point in [(c)] is that the calculation of the royalties on all sales proceeds – in other words, the sales proceeds from the whole project … [W]e accept that, but that is to confuse, we say, with respect, a distinction between the integers that are used to calculate a royalty, to calculate the dollars, as opposed to the asset or interest which gives rise to the obligation to pay the royalty in the first place. 

Now, the same answer, we say, applies to clause 4.2(b), which again is fundamentally tied to this concept of Assumed Liabilities.  And we say, with respect, that that’s really a sufficient answer to limit the scope of 4.2(b).  … [O]ne can accept the words ‘relating to’ are broad.  But, equally, the authorities make clear just how broad and just what sort of connection they impart depends, of course, on the context. 

[I]f they were given the breadth that our learned friends seem to give them, it would start to pick up all manner of liabilities, because the fact that our operation of the legal interests in the tenements and our operation of other working interests causes gas to be extracted which then feeds into the calculation of a royalty which means that it is larger, it is very difficult to see, then, how on that construction our liability would be limited to that portion, as it were, attributable to our particular interest.  It would really start to open up quite [unqualified] indemnity of all manner of things. 

[W]e say [cl 4.2] is … a far more traditional concept, which is when someone sells an asset to someone, it is an indemnity given to the seller to say that, ‘I will now, being the new owner, indemnify you for any liabilities that arise in relation to the thing that I’m now the owner of.’ So we say that for all those reasons, the [SPD] can be put to one side, not completely but as a source of obligation under which we need to contribute to the payment of the Tri-Star royalty.”

  1. [99]
    I do not accept the JV parties’ submissions about the effect of the words in clause 1.1(a) of Exhibit C.  As the Settlement Agreement makes clear, Santos Qld was a new corporation formed under the laws of the State of Colorado for the purposes of the Settlement Agreement.  It was a subsidiary Santos TPY.  It was the transferee of the 2.25% Working Interest.  It had no other interest in the Tenements or the JOAs.  Pursuant to the Settlement Agreement, Santos Qld gave Tri-Star a first ranking deed of charge and a first priority security interest to secure the obligations of Santos Qld including the payment of the Tri-Star Royalty.  Santos Qld's only asset would be the entitlements with respect to the 2.25% Working Interest transferred by Tri-Star.  That transfer was subject to the right of Tri-Star, “reserved from the 2.25% Working Interest”, to receive the Tri-Star Royalty.  It seems apparent that the right to the Tri-Star Royalty “reserved in connection with and solely from the 2.25% Working Interest” is a security interest.  Tri-Star could look to the 2.25% Working Interest to recover the Tri-Star Royalty. 
  2. [100]
    The Santos parties put their case on the basis that obligations under Exbibit C fix on the Sales Proceeds realised from the Fairview tenements.  The Sales Proceeds are the result of the sale of CSG by the Upstream JV.  The rights of the Santos and JV parties to sell the CSG is conferred by the Tenements.  So, the obligation to pay the Tri-Star Royalty might be said to be an obligation of the Santos parties in relation to or in connection with the exercise of the rights conferred on them by the Tenements. 
  3. [101]
    The relationship or connection between the Tenements and the obligation to pay the Tri-Star Royalty is rather attenuated.  The obligation to pay the royalty has a direct connection with Tri-Star disposing of its remaining interest under the JOA (including in the Fairview tenements and its role as operator) and with Santos TOGA becoming the operator under the 1992 JOA. 
  4. [102]
    Each of the SPD transactions was a sale of an interest free of encumbrance.[71] Had the Santos parties borrowed to acquire the Fairview tenements, it seems doubtful that their obligation to repay the principal borrowed and pay interest would be among the Assumed Liabilities within the meaning of cll 4.1 and 4.2.  The position would be the same had the Santos parties secured such borrowing in the same way they secured their obligation to pay the Tri-Star Royalty, by a charge over Santos Qld’s interest. 
  5. [103]
    When the SPDs were executed, as the operator under the JOAs, Santos TOGA was likely to have debts, liabilities, and obligations incurred in the operation of the Upstream JV.  By the definition of “Fairview Assumed Liabilities” in cl 1.2, the parties made clear that the Santos parties were not to be “reimbursed for any past actual expenditures in relation to the Fairview Interest”.  Nor were the Santos parties able to recover any liabilities “the subject of a written claim which has been made” prior to the Effective Date outlining the precise nature and quantum of such a claim.  This left liabilities for sums not yet paid by the Santos parties and not yet the subject of a precise claim. 
  6. [104]
    The Tri-Star Royalty was known; as were the Amerind Royalty and the NationsBank Royalty.  The parties specifically agreed on the reimbursement of the Buyer’s Percentage of each royalty in the RAD.  These royalty obligations were different in nature to other obligations incurred by Santos TOGA in operating the Upstream JV. 
  7. [105]
    On balance, I am not persuaded that the Tri-Star Royalty is a liability related to or connected with the interests under the Fairview tenements and the 1992 JOA.  On the proper construction of each SPD, the Tri-Star Royalty is not an Assumed Liability. 
  8. [106]
    As the parties identified, the construction of the SPD in respect of an obligation to pay the Tri-Star Royalty does not affect the separate question of whether the same obligation arises under either the RAD or DOA. 

The DOAs

  1. [107]
    It is common ground that the DOAs were brought into existence because of the obligation of the Santos Parties under cl 1.3(b) of Exhibit C.  That clause reads:

“1.3 Dealings

  1. …
  1. The [Santos] Parties must not Deal With all or any part of a Tenement or other part of the [Santos] Parties Interests in favor of any third party unless the [Santos] Parties first obtain from the third party a written agreement to assume and discharge the obligations under this Exhibit C to the extent of the interest acquired by the third party and provide corresponding security.”
  1. [108]
    By cl 2.1(a) of each DOA, the parties agreed:

“2.1 Buyer to assume from Completion

  1. Subject to Completion occurring, Buyer shall assume and discharge the Santos Group Covenants on and from the Effective Date.

…”

  1. [109]
    The “Santos Group Covenants” are defined in cl 1.1 of each DOA to mean:

“the covenants, agreements and obligations contained in Exhibit C to the Tri-Star Settlement Agreement to be observed and performed by Santos Group to the extent of the Assigned Interests.”

  1. [110]
    The term “Assigned Interests” is defined in the same clause to mean either the “Buyer’s Percentage legal interest in the Permits” or the “Buyer’s Percentage working interest in the Joint Operating Agreement”.
  2. [111]
    The Santos parties contend that cl 2.1(a) of each DOA renders the JV parties liable to reimburse them for the Tri-Star Royalty amount as determined under the Award.  As Mr Doyle KC for the Santos parties put it:

“[T]he language of 2.1(a), where it speaks of assuming and discharging the Santos group covenants, suggests in effect they are stepping into the shoes of the Santos group.  There’s no other way to assume those obligations except by … stepping in the shoes, and there’s certainly no other way of discharging except by discharging completely.  And that can only be at the symmetry between Santos obligation to the Tri-Star and Petronas’ obligation to Santos. 

And the Santos group covenants are defined in a way consistently with that, as ‘covenants, agreements and obligations contained in exhibit C to be observed and performed by the Santos group’.  What are those covenants, etcetera? They plainly mean those informed by reading exhibit C as part of the Settlement Agreement.”

  1. [112]
    In their written submissions, the Santos parties contend that:

“The conclusion urged by the [JV parties] is … inconsistent with the obligation in fact assumed by them under clause 2.1(a) of the [DOAs] to discharge the covenants, which can only occur if their performance in fact discharges the actual obligations of the Santos Companies to Tri-Star.”

  1. [113]
    To make the same point, and consistently with the purpose of the DOAs, the Santos parties also refer to the second recital to each DOA, which reads:

“In order to comply with clause 1.3(b) of Exhibit C to the Tri-Star Settlement Deed, the Buyer has agreed to enter into this deed pursuant to which it agrees to assume and discharge the obligations of the Santos Group under Exhibit C to the Tri-Star Settlement Agreement to the extent of the Assigned Interests acquired by the Buyer.”

  1. [114]
    The JV parties say that the Tri-Star Royalty arises from the 2.25% Working Interest and only from that interest.  They submit cl 2.1 has no relation to the payment of the Tri-Star Royalty because the “Assigned Interests” do not include the 2.25% Working Interest. 
  2. [115]
    A further argument is raised in their written submissions about the use of the words “contained in” in the definition of the term “Santos Group Covenants”. 
  3. [116]
    The Santos parties are bound by the Award because of cl 16 of the Settlement Agreement.  The JV parties submit that the Award cannot be relevant to the calculation of liabilities the JV parties must assume and discharge under Exhibit C because cl 16 is not “contained in” Exhibit C.  The JV parties say:

“The words ‘contained in’ reveal a clear objective intention of the parties to limit the assumption of obligations to those that are within, or bounded by, the terms of Exhibit C itself.  The definition of ‘Santos Group Covenants’ does not say it includes the obligations of the Santos Group ‘contained in clause 16 of the Tri-Star Settlement Agreement’, or the obligations of the Santos Group to be bound by the result of an arbitration with Tri-Star.  The parties agreed on express terms to put identifiable boundaries and limits around the obligations that were being assumed, by reference to only those ‘contained in Exhibit C’.

  1. [117]
    Absent express words within Exhibit C making any arbitral award binding on the Santos parties, the JV parties submit Exhibit C alone (and not the Award) is relevant to calculating any obligation to pay the Tri-Star Royalty they may have assumed and must discharge.
  2. [118]
    The Santos parties say that this argument is misconceived in the broader context of the agreements.  As Mr Doyle KC put it:

“[T]he Santos group covenants are defined … as ‘covenants, agreements and obligations contained in exhibit C to be observed and performed by the Santos group’.  … They plainly mean those informed by reading exhibit C as part of the Settlement Agreement.  The defendants want to say that it means the promises contained within the silo of exhibit C, and they put emphasis on the words ‘contained in’ as giving rise to that.  And that, in our submission, can’t be reconciled with the language.  The words ‘contained in’ probably do no more than identify the particular nature of the obligations being referred to. 

…

The covenants, agreements and obligations in exhibit C – contained in exhibit C, under exhibit C – … are defined by and must be construed in accordance with the [Settlement Agreement] as a whole, …

[It is] a distortion to refer to exhibit C on its own as containing the covenants, agreement and obligations.  The exhibit can recite certain things, but the consideration for that to make it an enforceable covenant, agreement or obligation is the making of a binding agreement in the Settlement Agreement, that is, to give it the quality of a covenant, agreement or obligation, requires it to be read together with the Settlement Agreement. 

In other words, to give it the descriptor which the parties have chosen involves reading it as part of an agreement.  …”

Conclusion on the proper construction of each DOA

  1. [119]
    There is much overlap between the parties' submissions on this instrument and their submissions on the RADs.  A reasonable businessperson in the position of the parties to each DOA would understand the references in the DOA to “covenants, agreements and obligations contained in Exhibit C” as references to those covenants, agreements and obligations with the meaning and effect each has as part of the Settlement Agreement.  I reject the contrary submission for the JV parties that the parties to each DOA intended to refer to Exhibit C shorn of its context in, and the effect given to it by, the Settlement Agreement. 
  2. [120]
    The Settlement Agreement is comprised of two recitals and 25 numbered clauses, some operative, and some explanatory.  These are followed by the witnessed execution of the document by each party.  Then, there are nine “Exhibits”, including Exhibit C.  Some exhibits are the forms of applications or notices the parties have agreed to sign by operative clauses of the agreement.  Others are separate agreements the parties have similarly agreed to execute, complete with separate execution clauses.  Some are short sets of clauses specific to a particular topic.  Exhibit C deals with the Tri-Star Royalty.  Although it includes eight definitions, it also uses terms defined in the Settlement Agreement.  It does not include any separate execution clause.  It takes effect only as part of the Settlement Agreement. 
  3. [121]
    On the proper construction of the DOAs, each of the JV parties agreed to assume and discharge the Santos Group’s obligation under Exhibit C to pay (to the extent of its percentage interest in the Tenements or the JOA) the Tri-Star Royalty to Tri-Star.  For the period September 2015 to September 2020, that obligation is to pay the amount determined by the Award. 
  4. [122]
    It follows that on the proper construction of each DOA, the relevant JV party bound itself to assume and discharge the obligation of the Santos Group to pay Tri-Star the Tri-Star Royalty, to the extent of the JV party’s interest in the Tenements or the 1992 JOA. 

The privity issue

  1. [123]
    In the alternative to their deed case, the Santos parties submit that the JV parties are bound by the Award as privies of the Santos Group.  So, the JV parties are estopped from denying that the further amount is payable under Exhibit C according to the Award.  The JV parties deny that they are so bound. 
  2. [124]
    The Santos parties’ case about privity is relevant only if, on the proper construction of the deeds, each JV party is not bound to pay Santos TOGA their respective percentages of the Tri-Star Royalty as determined by the Award. 
  3. [125]
    Given the conclusions at [80] and [122] above, it is unnecessary to comprehensively determine the Santos parties’ alternative case.  I will set out the conclusions in brief, with some reference to authority. 
  4. [126]
    An arbitral award can give rise to an issue estoppel.[72]
  5. [127]
    The JV parties were not parties to the Settlement Agreement.  They were not parties to the arbitration that resulted in the Award. 
  6. [128]
    The Santos parties contend that the JV parties are to be taken to be the privies of the Santos parties, “so as to be bound by the issues determined by” the Award, due to their interest with the Santos Group in the outcome of the arbitration.
  7. [129]
    The Santos parties say there is a relevant privity of interest “without any extension of well-settled principle and by analogy with categories of legal relationship that have been recognised [as] giving rise to a privity of interest”.  Alternatively, they say privity can be found here “by adoption and application of the principle in Gleeson v J Wippell & Co Ltd[73].”

Facts said to give rise to a privity of interest

  1. [130]
    The Santos parties submit the following facts establish the relevant privity of interest:
    1. The parties share an interest in the Upstream JV;
    2. They are obliged “to share the burden of the Tri-Star Royalty”;
    3. The JV parties knew of the nature of the obligation to pay the Tri-Star Royalty and knew of the provisions as to arbitration in the Settlement Agreement;
    4. The Santos parties communicated with the JV parties in the course of the arbitration to provide updates; and
    5. The JV parties “demonstrated an interest in the progress” of the arbitration and “did not then contend that the [arbitration] was irrelevant to their interests.”

Well-settled principles

  1. [131]
    The principles governing privity of interest were considered in Tomlinson v Ramsey Food Processing Pty Ltd.[74] French CJ, Bell, Gageler, and Keane JJ referred with evident approval to “the principle governing privity of interest … in Ramsay v Pigram”[75]:

“That principle, in the language of Barwick CJ, is that the ‘basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy’.”[76]

  1. [132]
    After surveying the three types of estoppel, the doctrine of abuse of process, and the equitable rule preventing a person from recovering more than once for a loss from breach of an obligation, the majority returned to this point:

“[31] Barwick CJ’s explanation of the application of that statement of principle in Ramsay v Pigram is useful in illustrating its content.  The result was to deny that the Government of New South Wales, then sued by the respondent for damages in negligence arising out of a collision with a police car, was privy in interest with the police officer driving that car, who had earlier sued the respondent for damages in negligence arising out of the same collision.  His Honour explained:

‘In every respect the action between the respondent and the police officer was personal to each of them, neither being in any sense in relation to the action or any of the issues involved in it, representative of another.  Nor can it be said that the Government in any sense claims under or in virtue of the police officer or of any right of his, or that it derives any relevant interest through him.’

[32] It is important to recognise that Barwick CJ’s explanation of the application of his statement of principle had two limbs.  The conclusion that the Government was not privy in interest with the police officer was based on the absence of either representation of interest or derivation of interest.

[33] Consistently with the rationale for the principle, the explanation demonstrates that a party to a later proceeding (A) can be privy in interest with a party to an earlier proceeding (B) on either of two bases.  One basis is that A might have had some legal interest in the outcome of the earlier proceeding which was represented by B, or that B has some legal interest in the outcome of the later proceeding which is represented by A.  … The other basis is that, after that earlier proceeding was concluded by judgment, A might have acquired from B some legal interest in respect of which B would be affected by an estoppel which A then relies on in the later proceeding.

…

[35] Subsequent applications of the principle in Ramsay v Pigram have for the most part correctly emphasised that the interest of the privy must in each case be a legal interest: an economic or other interest on the part of A in the outcome of the earlier proceeding is insufficient.  Those applications have also correctly emphasised that, absent a legal interest, such influence as A might have had over the conduct of the earlier proceeding is irrelevant even if that influence amounted to control.  …”[77]

  1. [133]
    Their Honours then discussed and approved the decision in Young v Public Service Board:[78]

“[36] … There, government employees claiming a declaration that their employer, the Public Service Board, had not determined their ordinary hours of work were held not to be estopped by a contrary finding of fact made in the course of resolving an earlier dispute between the Board and an industrial association of which they were members.  The reasoning of Lee J in support of that conclusion acknowledged that the industrial association had in that earlier dispute made a claim which it was in the interests of its members collectively to assert.  The reasoning acknowledged also that the claim was one which would, if accepted, have resulted in an award which was made binding by statute on the employees as well as the Board.  But it emphasised that the claim was made by the association in an industrial context in which members individually had no capacity to appear in or control the proceedings which resulted in the resolution of the dispute.  …

[37] The first strand of reasoning in Young illustrates that a person does not become bound by an estoppel by reason of a party having represented legal interests of that person in an earlier proceeding merely as a consequence of that party having lawfully asserted a claim which, if accepted, would have resulted in a determination enhancing or enforcing a legal entitlement of the person.  In the absence of the person having authorised the assertion of the claim, the representation must at least have been of such nature as to have protected the person from being unjustifiably subjected to an unwanted estoppel.

[38] Why that should be so is not difficult to explain.  It is a principle at the core of our legal system that a party claiming or denying the existence of a legal right or obligation should have an opportunity to present evidence and arguments to establish the facts and law on which the claim or denial is founded.  There are countervailing considerations, some of which operate to create exceptions to that principle.  Finality and fairness, including maintaining the certainty of past adjudicated outcomes and ensuring the predictability of future adjudicated outcomes, are amongst those countervailing considerations, and the estoppels informed by those considerations are amongst the exceptions to the principle.  The operation of an estoppel, it must be remembered, is to preclude the assertion in a subsequent proceeding of what is claimed to be the truth.

[39] The justice of binding to an estoppel a person who was a party to an earlier proceeding is readily apparent: the person has already had an opportunity to present evidence and arguments.  The justice of binding to an estoppel a person whose legal interests stood to benefit from the making or defending of a claim by someone else in an earlier proceeding will often also be apparent.  With the benefit of the claim or defence also comes the detriment of the estoppel.  That, at least, is the underlying theory.  But it is a theory which has limitations.  It would be quite unjust for such a person to be precluded from asserting what the person claims to be the truth if the person did not have an opportunity to exercise control over the presentation of evidence and the making of arguments in the earlier proceeding and if the potential detriment to the person from creating such an estoppel was not fairly taken into account in the decision to make or defend the claim in the earlier proceeding or in the conduct of the earlier proceeding.

[40] Traditional forms of representation which bind those represented to estoppels include representation by an agent, representation by a trustee, representation by a tutor or a guardian, and representation by another person under rules of court which permit representation of numerous persons who have the same interest in a proceeding.  To those traditional forms of representation can be added representation by a representative party in a modern class action.  Each of those forms of representation is typically the subject of fiduciary duties imposed on the representing party or of procedures overseen by the court (of which opt-in or opt-out procedures and approval of settlements in representative or class actions are examples), or of both, which guard against collateral risks of representation, including the risk to a represented person of the detriment of an estoppel operating in a subsequent proceeding outweighing the benefit to that person of participating in the current proceeding.”

  1. [134]
    As this analysis shows, generally, for there to be a privity of interest, the interest protected in the earlier litigation must be a legal interest, and it must be identical to the interest sought to be protected in the later litigation.  The mere fact that a party’s legal interests were affected by the earlier litigation is insufficient.[79]  The exceptions to this are where: the party in fact authorised or controlled the earlier litigation; or the interests of the party were represented by a party which owed them fiduciary obligations or whose representation of them was subject to court oversight.

Consideration of the well-established principles

  1. [135]
    On the deed issue, I have concluded that the deeds evidenced an intention that the Santos Group’s 30% net residual liability for the Tri-Star Royalty would align their interests with the interests of each JV party.[80] It follows that, in any dispute with Tri-Star, the Santos Group could be expected to act in the common interest of all Upstream JV participants.  As the Santos parties put their case on the privity issue only in the alternative, it is appropriate to consider it on the basis that each JV party is not bound to pay Santos TOGA its Buyer’s Percentage of the Tri-Star Royalty including the further amount determined by the Award. 
  2. [136]
    The parties share the benefit of the success of the Upstream JV and share the detriment of the obligation to pay the Tri-Star Royalty.  This bare interconnection of the parties’ “interests” in their joint business ventures is irrelevant to the establishment of a privity of interest.  The parties arranged their respective obligations in the terms of their written agreements.  They did so after the rights and obligations of Tri-Star and the Santos Group had been fixed by the Settlement Agreement. 

Was there an identical legal interest?

  1. [137]
    In the arbitration, the Santos Group were protecting their legal interest in the obligation to pay the Tri-Star Royalty under the Settlement Agreement.  This is different to the JV parties’ legal interests in the obligation to pay to Santos TOGA their share of the Tri-Star Royalty under the various RADs.  If, by the deeds, the JV parties did not bind themselves to pay the additional amount determined by the Award, then the JV parties’ legal interests were not at stake in the arbitration. 
  2. [138]
    The Santos parties say that the JV parties had another relevant legal interest because of the JV parties’ contractual obligation under cl 4 of each RAD.  By this covenant, each JV party bound itself to enter into a written agreement directly with Tri-Star, by which it would agree to assume and discharge its Buyer’s Percentages of the obligations of the Santos Group under the Settlement Agreement.  This legal liability was contingent on Santos TOGA making a request.  No request was made.  No legal liability arose. 
  3. [139]
    Despite a lack of equivalence between their respective legal interests, the practical reality that the arbitration could affect the JV parties’ interests under each RAD would give rise to a privity of interest if the JV parties authorised or exercised control over the litigation of the arbitration, or if their relationship with the Santos Group was analogous to a fiduciary one. 

Did the JV parties authorise or control the conduct of the arbitration?

  1. [140]
    In each RAD, the parties agreed that nothing in those instruments gave “a party authority to bind any other party in any way”. 
  2. [141]
    The Santos parties advised the JV parties when Tri-Star demanded an arbitration and when Tri-Star applied for a court order to enforce the arbitration clause.  They provided the JV parties with copies of the Tri-Star arbitration documents, noted that the dispute was about a royalty “in respect of which each of the upstream participants pay their participating interest share”, and informed the JV parties that a “legal action plan for the defence of the arbitration [was] being developed.”
  3. [142]
    The evidence shows the JV parties demonstrated an interest in the progress of the arbitration.  They sought briefings and updates from the Santos parties.  They enquired about the legal costs incurred and paid their respective proportions of those costs.  They did not contend that the arbitration was irrelevant to their interests.  It is likely that, wisely, the JV parties considered that any award might have an effect on their legal or economic interests. 
  4. [143]
    The JV parties did not exercise control over the Santos parties’ conduct in the arbitration or in the subsequent Texas court proceedings.  There is no evidence of consultation between the Santos parties and the JV parties about the evidence to be adduced or the submissions to be made in the arbitration.  In a letter dated 2 July 2021, the Santos parties’ view was that “[n]either the RAD nor the DOA contain any requirements for consultation or input” with the JV parties.  The JV parties had no opportunity to exercise control over the evidence and arguments the Santos parties relied on in the arbitration.  They did not seek any.

Was the relationship analogous to a fiduciary relationship?

  1. [144]
    In each RAD, the parties agreed that nothing in those instruments imposed “any fiduciary duties on a party in relation to any other.”
  2. [145]
    There is no evidence that the Santos Group considered any potential detriment to any JV party from creating an estoppel in an award or judgment in their decision to defend against the Tri-Star claim in the arbitration.  Nor is there evidence of such consideration in the conduct of the arbitration, or in the subsequent Texas court proceedings.  The Santos Group did not act as if they owed fiduciary-like duties to the JV parties in respect of the arbitration. 
  3. [146]
    Applying the well-established principles, the JV parties were not privies of the Santos Group in respect of the arbitration or the Award. 

The principle in Gleeson v J Wippell & Co Ltd

  1. [147]
    In Tomlinson, it was not argued that “some wider principle … should now be adopted in Australia” like the principle the Santos parties draw from Gleeson v J Wippell & Co Ltd.[81] In Tomlinson, the majority expressed the view that “[o]ther bases on which a person might potentially be privy in interest with a party need not be explored.” In separate reasons, Nettle J referred to Gleeson and some judicial and extrajudicial criticism of it, before concluding:

“The approach in this country, therefore, remains one of identifying characteristics of a relationship between party and privy which, although not amounting to a shared same interest or established legal or equitable relationship like agency or trusteeship, are sufficiently analogous to the established categories of sufficient connection to warrant inclusion in the concept.  And, for present purposes, the important characteristics of the established forms of representation which emerge from the decided cases appear to be that a principal is generally able to control the conduct of an agent, and that the imposition of fiduciary duties on certain kinds of representatives has the effect of guiding the representative’s conduct and providing remedies to the principal on default.”[82]

  1. [148]
    The Santos parties submit that there is “a sufficient degree of identification” between the Santos Group and the JV parties “to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party.”[83]
  2. [149]
    For the reasons set out above, including the absence of any control by the JV parties of the conduct of the Santos parties in the arbitration and the disclaimer by all parties of any fiduciary duty, it would not be just to bind the JV parties in this way.  This is so notwithstanding the degree of identification between the parties in respect of the determination of the further amount payable for the Tri-Star Royalty. 
  3. [150]
    If, contrary to the conclusion above on the deed issue, each JV party did not bind itself to pay its Buyer’s Percentage of the sum payable by the Santos Group to Tri-Star under Exbibit C (as determined by an award after arbitration of a dispute), then, in the circumstances, it would be unjust to preclude the JV parties from asserting what they claim to be the proper construction of Exhibit C, even if that is different from the construction determined by the Award.

Costs of the arbitration and form of orders

  1. [151]
    Before the hearing commenced, the parties agreed to resolve the claims and counterclaims relating to legal costs (including legal costs incurred in the arbitration) on the basis that, if the Santos parties were successful on the deed issue or on the privity issue, including after any appeal, then:
    1. The Santos parties would retain the amounts the JV parties have already paid for legal costs in relation to the arbitration that resulted in the Award; and
    2. The JV parties will each pay the further sums set out in paragraphs 209(a)-(d) of the third further amended statement of claim, less an amount – which is to be agreed or assessed by a costs assessor jointly appointed by the parties – for the costs of preparing the JV parties’ affidavit evidence addressing the costs issues in this proceeding. 
  2. [152]
    The Santos parties have been successful on the deed issue.  Subject to any appeal, the agreed outcomes should apply.  To the extent that the parties require any order to give effect to that outcome, the Court will direct that draft orders be submitted within 21 days. 
  3. [153]
    The Court will also direct the parties to submit orders reflecting the findings and conclusions in these reasons within 21 days.

Footnotes

[1]CSG is “a substance consisting of hydrocarbons that occur naturally in the earth’s crust” and so “petroleum” within the meaning in the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (the 2004 Act), s 10(1)(a). 

[2]Tri-Star is a company domiciled in Houston, Texas.

[3]$57,582,308.00 in respect of the Tri-Star Royalty, $5,758,230.80 for GST, and $4,795,896.00 in interest.

[4]This is the JV party’s “Buyer’s Percentage”, which is the same as its percentage interest in the Upstream JV: see paragraph [42]. 

[5]The RAD executed by PUPL was titled simply “Royalty Assumption Deed”.  Nothing turns on this. 

[6]Santos Ltd ACN 007 550 923 is not a party to this proceeding. 

[7]Kogas is a subsidiary of Korea Gas Corporation, a company organised under the laws of the Republic of Korea. 

[8]Total EPAI and Total EPAII are subsidiaries of TotalEnergies SE, a public company registered in accordance with the corporate law of the European Union.

[9]PUPL is a subsidiary of Petronas International Corporation Ltd of Kuala Lumpur (Petronas).  Petronas is a party to the PUPL SPD by which it agreed to guarantee certain obligations of PUPL. 

[10]Petroleum Act 1915 (Qld), s 4; Petroleum Act 1923 (Qld) (the 1923 Act), s 9; 2004 Act, s 26.

[11]2004 Act, Ch 2, Part 1, Division 1.

[12]The date of commencement of s 117 of the 2004 Act.

[13]1923 Act, s 23.

[14]1923 Act, s 40.

[15]2004 Act, Ch 2, Part 2, Division 1.

[16]2004 Act, s 28(1)(a).

[17]1923 Act, s 61(1). 

[18]1923 Act, Part 6N.

[19]On 30 August 2021, ATP 526P ended when a PL was granted in respect of the only remaining area.

[20]On 13 October 2014, ATP 653P ended because a PL was granted in respect of the only remaining area of the ATP.

[21]Namely, exploring for petroleum, testing and evaluating the feasibility of petroleum production, and petroleum production.

[22]There is another operating agreement, dated 25 November 2003 in respect of ATP 745, but it is of no present relevance. 

[23]ATP 526P appears to have been granted upon the conditional surrender of ATP 419P and ATP 490P.  Nothing turns on this background matter.  It serves only to explain why the 1992 JOA predates the grant of ATP 526P and refers to ATP 419P and ATP 490P.

[24]American Association of Petroleum Landmen Form 610-1977 Model Form Operating Agreement. 

[25]art XIV, cl B. 

[26]A participant’s percentage or fractional interest (or working interest) under a JOA may be different at different stages of operations under the JOA.  Those stages are: in production; in leasehold ownership and lease operating expenses; and in acquisition, drilling, development, workover, and capital costs.  A participant’s interest is also different before and after “Project Payout”.  “Project Payout” is defined as “recovery by working interested participants of all expenditure incurred hereunder.” In Australian Energy Limited v Lennard Oil NL (unreported) No 2948 of 1984, 14 March 1985, McPherson J described it as “the time at which the total of accumulated revenue derived from sales of petroleum less normal operating expenses is equal to the total accumulated exploration expenses”.

[27]JOA art III, cl B.

[28]JOA art VII, cl A.

[29]Australia Petroleum JV.

[30]Then called Tipperary Oil and Gas Corporation. 

[31]As trustee for trusts 1190, 1191, 1362, 1363 and 1364.

[32]The address for notice purposes for each of the participants was in the United States of America, and all corporate participants appear to have been incorporated there. 

[33]In respect of the transaction with Amerind, this royalty was 10%, while it was 25% for the transaction with NationsBank. 

[34]And its successors or assigns.

[35]The acquisition agreements also provided that all disputes arising with respect to their terms (or any obligations assumed) were to be submitted to binding arbitration.  The arbitration would be subject to the American Arbitration Association rules, with one modification.

[36]By an assignment from Kirk Miller dated 1 January 2002 and an assignment from Bert C Wallace dated 1 February 2002. 

[37]The actual interest Tri-Star acquired, measured as a percentage, differed between the Fairview and Arcadia tenements, at each stage of operation under the 1992 JOA, and before and after Project Payout.  It seems to have been called a 2.25% Working Interest because, in relation to the Fairview tenements, it was a 2.25% interest in the acquisition, drilling, development, workover, and capital costs stage of operation, before Project Payout.  This likely was the stage of operation when the Settlement Agreement (see [32]) was made. 

[38]These participants had notice addresses in the United States.  Other participants related to Origin Energy and the Oil Company of Australia shared a common notice address in Australia.

[39]It is assumed these were the then participants with interests under the JOAs.  Nothing turns on this assumption. 

[40]Settlement Agreement, cl 2.  As noted above, Santos TOGA was already the operator under the 2002 JOA. 

[41]Ibid, cl 5, and Exhibit E. 

[42]Tri-Star also transferred ATP 745P, which has no separate significance for the deed dispute. 

[43]Settlement Agreement, cl 3.a., Exhibit A.

[44]Civil Practice and Remedies Code Title 7 Ch 171.

[45]Settlement Agreement, cl 1.k.  The definition of “Tri-Star Royalty” in this clause seems also to include references to two securities charging Santos Qld’s interests in the Tenements, the 1992 JOA, and other associated property. 

[46]The LNG is then stored, transferred to ships, and sold.  This has occurred since about October 2015.

[47]GLNG Operations Pty Ltd.

[48]However, other members of their corporate groups participate in the Downstream JV.  Those entities each belong to a corporate group which participates in the Downstream JV through other subsidiaries of that corporate group.  These other subsidiaries are not parties to this proceeding. 

[49]For the purposes of this decision, it is not necessary to further describe these other interests.

[50]The identities of these entities is not material to these reasons. 

[51]Some of the SPDs executed by the defendants have different titles.  Nothing turns on this. 

[52]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Limited (2015) 256 CLR 104, [46]-[52] (French CJ, Nettle and Gordon JJ), [109] (Kiefel and Keane JJ), [112] (Bell and Gageler JJ). 

[53]This summary is drawn from that in Freedom Willetton Pty Ltd v Commissioner of State Revenue (WA) [2021] WASCA 38, [84] (Buss P, Murphy and Vaughan JJA).

[54]The PUPL RAD omits Santos TPY CSG from the definition of the Santos Group.  No party submitted that anything turned on this omission. 

[55]PUPL is also a party to the RAD with each of Kogas and Total EPAI.  This is because PUPL sold part of its interest in the Upstream JV to Kogas (5%) and to Total EPAI (7.5%) when each became a participant in the Upstream JV.  See Error! Reference source not found.. 

[56]In each RAD, the parties defined “Assigned Interests” by reference to cl 1.2 of the relevant SPD.  For present purposes, it is sufficient to observe that the Assigned Interests are the legal interests in the Upstream JV, including the Tenements and the working interests under the JOAs.

[57]The “Amerind Royalty” and the “NationsBank Royalty” are the payments to be made by Santos TOGC to Amerind and NationsBank referred to in paragraph [29]. 

[58]Cl 1.2 of each SPD defines “Immediately Available Funds” as “cash, bank cheque, or telegraphic or other means of transfer of cleared funds into a bank account nominated in advance by the payee.”

[59]Other than the PUPL RAD, which omits Santos TPY CSG from the definition of “Santos Group”.  No party submitted this omission affected the proper interpretation of the RAD. 

[60]I also find the submission unappealing for the reasons expressed by Lord Dunedin about such a submission in Charrington & Co Ltd v Wooder [1914] AC 71 at 82. 

[61]Perhaps also with different choice of law and jurisdiction.

[62]See [66]. 

[63][2009] 1 AC 1101, [17]. 

[64]Ibid, [94]. 

[65][1997] AC 749, 771.

[66](1979) 2 Lloyds Rep 412 (Goff J).

[67](1881) 17 Ch D 668, 672 (James LJ).

[68](1910) 11 CLR 432, 439-440 (Griffith CJ). 

[69]These have been extracted from the PUPL SPD, but the clauses in each of the SPDs are identical in all material respects.

[70]It was not contended that the Tri-Star Royalty was an Environmental Liability or a Tax Liability. 

[71]Save for “Permitted Encumbrances”, such as mechanics’, carriers’, workers’, repairers’, and other similar encumbrances, conditions in leases, and zoning regulations and restrictive covenants and easements of record.

[72]Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2010] QCA 363, [39] (Muir JA).

[73][1977] 1 WLR 510 at 514-515.

[74](2015) 256 CLR 507.

[75](1968) 118 CLR 271, 279 (Barwick CJ).

[76](2015) 256 CLR 507, 515 [17]. 

[77][2015] 256 CLR 507, 520-522 (citations omitted).

[78][1982] 2 NSWLR 456.

[79]As in Young (above).  See also AWAP SGT 26 Investment Ltd v CN 2000 Holdings Ltd [2020] WASCA 74, [67] (Buss P, Mitchell JA and Hill J).

[80]PUPL 27.5%, Total EPAI 20%, Kogas 15% and Total EPAII 7.5%.

[81][1977] 1 WLR 510, 515.

[82](2015) 256 CLR 507, 540 [98],

[83][1977] 1 WLR 510, 515 (Megarry V-C).

Close

Editorial Notes

  • Published Case Name:

    Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd

  • Shortened Case Name:

    Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd

  • MNC:

    [2024] QSC 169

  • Court:

    QSC

  • Judge(s):

    Bradley J

  • Date:

    05 Aug 2024

  • White Star Case:

    Yes

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2024] QSC 16905 Aug 2024Proceedings arising out of dispute as to amounts payable between parties to various deeds relating to coal seam gas project: Bradley J.
Notice of Appeal FiledFile Number: CA 11657/2402 Sep 2024Notice of appeal filed.
Appeal Determined (QCA)[2025] QCA 11424 Jun 2025Appeal dismissed: Flanagan JA (Burns and Ryan JJ agreeing).

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
AWAP SGT 26 Investment Ltd v CN 2000 Holdings Ltd [2020] WASCA 74
2 citations
Jump To
Cite 1 - [2020] WASCA 74
Cite 2 - [2020] WASCA 74
Begley v Attorney-General of New South Wales [1910] HCA 69
1 citation
Jump To
Cite 1 - [1910] HCA 69
Begley v Attorney-General of NSW (1910) 11 CLR 432
2 citations
Jump To
Cite 1 - (1910) 11 CLR 432
Cite 2 - (1910) 11 CLR 432
Bruns v Colocotronis (1979) 2 Lloyd's Rep 412
2 citations
Jump To
Cite 1 - (1979) 2 Lloyd's Rep 412
Cite 2 - (1979) 2 Lloyd's Rep 412
Bruns v Colocotronis [1978] 10 WLUK 187
1 citation
Jump To
Cite 1 - [1978] 10 WLUK 187
Charrington & Co Ltd v Wooder [1913] 12 WLUK 33
1 citation
Jump To
Cite 1 - [1913] 12 WLUK 33
Charrington & Co. Ltd. v Wooder [1914] , A.C. 71
2 citations
Jump To
Cite 1 - [1914] , A.C. 71
Cite 2 - [1914] , A.C. 71
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38
1 citation
Jump To
Cite 1 - [2009] UKHL 38
Citing Chartbrook Limited v Persimmon Homes Limited [2009] 1 AC 1101
2 citations
Jump To
Cite 1 - [2009] 1 AC 1101
Cite 2 - [2009] 1 AC 1101
Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2010] QCA 363
2 citations
Jump To
Cite 1 - [2010] QCA 363
Cite 2 - [2010] QCA 363
Ex parte Young; In re Kitchen [1881] 5 WLUK 18
1 citation
Jump To
Cite 1 - [1881] 5 WLUK 18
Freedom Willetton Pty Ltd v Commissioner of State Revenue (WA) [2021] WASCA 38
2 citations
Jump To
Cite 1 - [2021] WASCA 38
Cite 2 - [2021] WASCA 38
Gleeson v J Wippell & Co [1977] 1 WLR 510
4 citations
Jump To
Cite 1 - [1977] 1 WLR 510
Cite 2 - [1977] 1 WLR 510
Cite 3 - [1977] 1 WLR 510
Cite 4 - [1977] 1 WLR 510
Gleeson v J Wippell & Co Ltd [1977] 1 WLUK 828
1 citation
Jump To
Cite 1 - [1977] 1 WLUK 828
Mannai International Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 5 WLUK 402
1 citation
Jump To
Cite 1 - [1997] 5 WLUK 402
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (1997) AC 749
2 citations
Jump To
Cite 1 - (1997) AC 749
Cite 2 - (1997) AC 749
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37
1 citation
Jump To
Cite 1 - [2015] HCA 37
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
2 citations
Jump To
Cite 1 - (2015) 256 CLR 104
Cite 2 - (2015) 256 CLR 104
Ramsay v Pigram (1968) 118 CLR 271
2 citations
Jump To
Cite 1 - (1968) 118 CLR 271
Cite 2 - (1968) 118 CLR 271
Ramsay v Pigram [1968] HCA 34
1 citation
Jump To
Cite 1 - [1968] HCA 34
Re Kitchin, ex parte: Young (1881) 17 Ch D 668
2 citations
Jump To
Cite 1 - (1881) 17 Ch D 668
Cite 2 - (1881) 17 Ch D 668
Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28
1 citation
Jump To
Cite 1 - [2015] HCA 28
Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507
5 citations
Jump To
Cite 1 - (2015) 256 CLR 507
Cite 2 - (2015) 256 CLR 507
Cite 3 - (2015) 256 CLR 507
Cite 4 - (2015) 256 CLR 507
Cite 5 - (2015) 256 CLR 507
Young v Public Service Board [1982] 2 NSWLR 456
2 citations
Jump To
Cite 1 - [1982] 2 NSWLR 456
Cite 2 - [1982] 2 NSWLR 456

Cases Citing

Case NameFull CitationFrequency
KGLNG E&P Pty Ltd v Santos TOGA Pty Ltd [2025] QCA 1142 citations
1

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