BHP Billiton Ltd v Oil Basins Ltd - [2006] VSC 402

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

F5891
No. 2102 of 2005

BHP BILLITON LIMITED (ACN 004 028 077) AND OTHERS	Plaintiffs
v
OIL BASINS LIMITED (ACN 091 829 819)	Defendant

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JUDGE:	HARGRAVE J
WHERE HELD:	Melbourne
DATES OF HEARING:	18 and 19 September 2006
DATE OF JUDGMENT:	1 November 2006
CASE MAY BE CITED AS:	BHP Billiton Ltd v Oil Basins Ltd
MEDIUM NEUTRAL CITATION:	[2006] VSC 402

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Arbitration – adequacy of reasons for making award – relevant principles discussed – whether inadequacy of reasons an error of law – “technical” misconduct – relevant principles discussed – whether failure to deal with substantial and serious submissions and evidence constitutes technical misconduct - Commercial Arbitration Act 1984 (Vic) ss. 38, 42.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr B Walker SC and Mr D O’Callaghan SC	Middletons
For the Defendant	Mr R Macaw QC and Ms M Sloss SC	Arnold Bloch Leibler

TABLE OF CONTENTS

Introduction.................................................................................................................................... 1

Applicable Law.................................................................................................................................. 2

Duty of arbitrators to give reasons................................................................................... 2
Appeals against arbitral awards....................................................................................... 8
Setting aside arbitral awards for misconduct............................................................... 10
Evidence of foreign law.................................................................................................... 13

Facts................................................................................................................................................... 15

The Royalty Agreement................................................................................................... 15
The Statutory Regime....................................................................................................... 17
Post-agreement events...................................................................................................... 20

Contract Interpretation under New York Law.................................................................. 25

Issues in the arbitration............................................................................................................. 27

Decision of the Arbitrators...................................................................................................... 33

Error of Law on the Face of the Interim Award................................................................. 35

Question 1: Is there a technical meaning?.................................................................... 37
Question 2: Is a different meaning indicated?............................................................. 40

Technical Misconduct................................................................................................................. 45

Question 1: Is there a technical meaning?.................................................................... 46
Question 2: Is a different meaning indicated?............................................................. 46

Conclusion...................................................................................................................................... 49

HIS HONOUR:

Introduction

The plaintiffs comprise BHP Billiton Ltd and related companies and Esso Resources Pty Ltd. Together, they produce and recover hydrocarbons from the “Blackback” field, which is located in Bass Strait off the coast of Victoria. For convenience, unless the context otherwise requires, I will refer to the plaintiffs collectively and individually as “BHP”.

The proceeding concerns a major arbitration between the parties, involving a claim by the defendant, Oil Basins Ltd, for royalties which it alleges are due to it under a royalty agreement in respect of oil produced and recovered by BHP from certain blocks in the Blackback field.

The arbitration was conducted before an eminent arbitral panel comprising a retired judge of this Court, a retired judge of the Federal Court of Australia and a lawyer from the United States of America. There were substantial interlocutory steps, culminating in a 15 day hearing in 2005. The final day of hearing was 22 April 2005.

On 6 September 2005, the arbitrators published an interim award consisting of the majority decision of the two retired judges and a dissenting opinion of the third arbitrator. For convenience, I will refer to the majority arbitrators as “the arbitrators”.

The effect of the interim award is that BHP is obliged to pay Oil Basins the royalties which it claims. The royalties are in the order of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] VSC 402
Decision Date: 1 November 2006

CaseChat Overview and Summary

In the matter of BHP Billiton Ltd versus Oil Basins Ltd, the dispute arose from a decision made by an arbitrator which Oil Basins Ltd sought to have set aside. The case was heard in the Supreme Court of Victoria, with the primary focus being on the adequacy of reasons provided by the arbitrator for the award and whether the failure to address substantial and serious submissions and evidence constituted "technical" misconduct under the Commercial Arbitration Act 1984 (Vic). The Court was tasked with determining whether the inadequacy of reasons amounted to an error of law, and whether the arbitrator's failure to deal with critical submissions and evidence qualified as technical misconduct.

The legal issues before the Court encompassed the standard of review for the adequacy of reasons given by an arbitrator and the threshold for establishing "technical" misconduct. The Court examined the principles guiding the assessment of arbitrators' reasoning and the extent to which an arbitrator must address the parties' submissions and evidence. Specifically, the Court needed to ascertain whether the arbitrator's failure to adequately address certain key submissions and evidence constituted a failure so significant that it amounted to a miscarriage of justice.

In delivering the judgment, the Court found that the reasons provided by the arbitrator did not meet the required standard, resulting in an error of law. The Court emphasised that while arbitrators have a broad discretion in making awards, they must ensure that their reasons are sufficient to allow the parties to understand the basis of the decision. The Court also concluded that the failure to address substantial and serious submissions and evidence did not reach the level of "technical" misconduct as defined by the Commercial Arbitration Act 1984 (Vic). The Court highlighted that technical misconduct involves a failure so egregious that it results in a miscarriage of justice, which was not demonstrated in this case. Consequently, the Court set aside the arbitrator's award on the grounds of inadequate reasons but did not find the failure to address certain submissions and evidence to be technical misconduct.

The final orders of the Court included setting aside the arbitrator's award due to the inadequacy of reasons provided, and it directed the parties to return to arbitration for a reassessment of the dispute. The Court did not impose any further sanctions, as it did not find the failure to address certain submissions and evidence to be a case of technical misconduct.

Orders