Blade Petroleum Philippines Ltd v Peak Oil & Gas Philippines Ltd
[2012] WASC 235
•22 JUNE 2012
BLADE PETROLEUM PHILIPPINES LTD -v- PEAK OIL & GAS PHILIPPINES LTD [2012] WASC 235
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 235 | |
| Case No: | CIV:1895/2012 | 22 JUNE 2012 | |
| Coram: | ALLANSON J | 22/06/12 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application for stay of proceedings granted | ||
| B | |||
| PDF Version |
| Parties: | BLADE PETROLEUM PHILIPPINES LTD BLADE PETROLEUM LTD PEAK OIL & GAS PHILIPPINES LTD PEAK OIL & GAS LTD PEAK ROYALTIES LTD |
Catchwords: | Practice and procedure Stay of proceedings Commercial Arbitration Act 1985 (WA) Discretion whether to stay proceedings Existence of valid arbitration agreement Turns on own facts |
Legislation: | Commercial Arbitration Act 1985 (WA), s 49, s 53 |
Case References: | Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [1999] WASCA 144 Huddart Parker Limited v The Ship (Mill Hill) [1950] HCA 43; (1950) 81 CLR 502 Manningham City Council v Dura (Australia) Constructions Pty Ltd [1999] VSCA 158; [1999] 3 VR 13 Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd [2001] QCA 471; [2002] 2 Qd R 514 Welker v Rinehart (No 2) [2011] NSWSC 1238 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
BLADE PETROLEUM LTD
Second Plaintiff
AND
PEAK OIL & GAS PHILIPPINES LTD
First Defendant
PEAK OIL & GAS LTD
Second Defendant
PEAK ROYALTIES LTD
Third Defendant
Catchwords:
Practice and procedure - Stay of proceedings - Commercial Arbitration Act 1985 (WA) - Discretion whether to stay proceedings - Existence of valid arbitration agreement - Turns on own facts
(Page 2)
Legislation:
Commercial Arbitration Act 1985 (WA), s 49, s 53
Result:
Application for stay of proceedings granted
Category: B
Representation:
Counsel:
First Plaintiff : Mr M A MacLennan
Second Plaintiff : Mr M A MacLennan
First Defendant : Mr G R Donaldson SC
Second Defendant : Mr G R Donaldson SC
Third Defendant : No appearance
Solicitors:
First Plaintiff : Lavan Legal
Second Plaintiff : Lavan Legal
First Defendant : Clayton Utz
Second Defendant : Clayton Utz
Third Defendant : Clayton Utz
Case(s) referred to in judgment(s):
Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [1999] WASCA 144
Huddart Parker Limited v The Ship (Mill Hill) [1950] HCA 43; (1950) 81 CLR 502
Manningham City Council v Dura (Australia) Constructions Pty Ltd [1999] VSCA 158; [1999] 3 VR 13
Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd [2001] QCA 471; [2002] 2 Qd R 514
Welker v Rinehart (No 2) [2011] NSWSC 1238
(Page 3)
1 ALLANSON J: The plaintiffs commenced proceedings against the first two defendants in this court, seeking relief including:
A. A declaration that a farm in agreement (the FIA) between the plaintiffs and defendants, made on or about 23 December 2010, has been validly terminated pursuant to cl 16.2(c) of that agreement.
B. An order for specific performance requiring the first and second defendants to perform their obligations under cl 16.2(c) of the agreement.
C. Damages in lieu of or in addition to specific performance.
2 The first plaintiff (Blade) and the first defendant (Peak) are both companies incorporated under the laws of the British Virgin Islands. There is no evidence before me about where their place of business is.
3 The second plaintiff and the second defendant are unlisted public companies registered and incorporated in Australia.
4 The third defendant is also incorporated under the laws of the British Virgin Islands and is a wholly-owned subsidiary of the second defendant. It was incorporated for the limited purpose of holding property on behalf of others. No relief is sought against the third defendant (Peak Royalties).
5 Blade and VenturOil Philippines Inc are the legal and beneficial owners of rights granted under a service contract by the Petroleum Board of the Philippines. This service contract entitles them to take and dispose of a market share of all petroleum produced from an area known as the Cadlao Production Area. Blade and VenturOil hold those rights in the proportions of 80% and 20% respectively.
The FIA
6 It is not necessary for present purposes to describe the FIA in detail. The following, however, are important terms:
(1) The parties acknowledge that Peak Royalties had entered into a binding sale and purchase agreement for the acquisition of certain royalty interests attaching to the Cadlao Production Area (Acquired Concession Rights) on behalf of Peak Royalties and as the agent of Blade, and held those rights beneficially as to a 37.5% interest for Blade and 62.5% for Peak Royalties: cl 3.1.
(Page 4)
- (2) Clause 16 deals with project funding. Under cl 16.1, Peak must secure funding for not less than the Project Funding Amount on or before 30 June 2011, or such later date as may be agreed by Blade: cl 16.1(a). Blade must provide Peak with all reasonable assistance requested by Peak for the purpose of obtaining project funding: cl 16.1(c).
(3) By cl 16.2, if Peak fails to satisfy cl 16.1(a), Blade may give Peak written notice of its intention to exercise the remedy in cl 16.2(c) (the Blade Notice). The remedy is not available if:
(i) Blade fails to comply with 16.1(c);
(ii) Blade fails to give Peak a Blade Notice within 270 days of the Project Funding Date; or
(iii) within 30 days of the Blade Notice, Peak provides Blade with:
A. written notice (Peak Notice) of its intention to proceed with securing the Project Funding; and
B. documentary evidence that reasonably satisfies Blade of the availability of funds in connection with the Project Funding, and
Peak completes the Project Funding within 90 days of the Peak Notice (or such later date the Principal Parties agreed).
(5) Finally, and critically to the present application, cl 23.1(a) provides:
any controversy, claim or dispute directly or indirectly based upon, arising out of, relating to or in connection with this agreement (including but not limited to any question relating to the interpretation, existence, validity or termination of this Agreement …) shall be referred to and finally resolved by arbitration in accordance with the arbitration rules of the Australian Centre for International Commercial Arbitration (ACICA).
(Page 5)
7 The law governing the arbitration agreement is the law in Western Australia: cl 23.4
8 The second plaintiff and the second defendant guarantee the obligations of the first plaintiff and the first defendant under the FIA.
9 The plaintiffs claim that Peak did not secure funding for not less than the Project Funding Amount on or before 30 June 2011, and that on 27 February 2012 Blade gave written notice of its intention to exercise the remedy in cl 16.2(c) of the FIA. They further claim that on 9 May 2012, Blade, by written notice, exercised its rights to terminate the agreement, and acquire any interest Peak had in the Initial Interest and all of Peak's and Peak Royalties' right title and interest in the Acquired Concession Rights.
10 Proceedings were commenced on 21 May 2012.
11 The plaintiffs have pleaded their case. The defendants have not pleaded. The defendants seek an order that the court stay the plaintiffs' action on the basis that cl 23 is an arbitration agreement between the parties. The defendants say they are ready and willing to have the dispute determined by arbitration and have commenced arbitration proceedings by giving notice to ACICA.
12 The application for a stay is brought under s 53 of the Commercial Arbitration Act 1985 (WA).
13 In an affidavit of David Steketee, a director of all the defendants, dated 14 June 2012, the defendants outline the nature of their defence (pars 33 and following, with a summary in par 39). In substance, the defendants say:
(1) Peak complied with its obligation to secure funding in accordance with cl 16.1(a) when it entered into a loan agreement with Legavi Capital Inc on or about 3 October 2011. The defendants provided the plaintiffs with the details of the loan agreement before it was made and sought their consent to the agreement.
(2) Peak sent a Peak Notice pursuant to cl 16.2(b)(iii)(A) on 28 March 2012 and provided documentary evidence of the availability of funds in connection with the project funding.
(3) On its proper construction, the FIA provides for an objective standard as to whether evidence 'reasonably satisfies' the plaintiffs
- and whether the documentary evidence which accompanied the Peak Notice objectively should have satisfied Blade.
- (4) Alternatively, the time for Peak to complete the project funding had not then expired (it expired on 26 June 2012, after the hearing of the application).
(5) Alternatively, Blade failed to comply with its obligation to provide reasonable assistance for the purpose of obtaining project funding. That allegation is not fully particularised, although the defendants refer to the conduct of Blade in attempting to withdraw consent to the loan agreement with Legavi as 'one instance' of frustrating conduct.
14 The defendants also say that the quantum of the Project Funding Amount, as defined in the FIA, is in dispute between the plaintiffs and the defendants. They submit that the determination of the dispute between them will require the determination of the quantum, and will require expert evidence.
The application for a stay
15 Section 53 of the Commercial Arbitration Act states:
(1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied -
(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and
(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,
may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.
(2) An application under subsection (1) shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.
(Page 7)
16 Before dealing with the application of this section, there are some matters which are not in dispute: first, that cl 23 of the FIA is an arbitration agreement; second, that the dispute between the plaintiffs and the first and second defendants comes within cl 23; and third, that the defendants were at the time the proceedings were commenced and still remain ready and willing to do all things necessary for the proper conduct of the arbitration. There is, in any event, sufficient evidence for me to be satisfied that s 53(1)(b) is met. Accordingly, the focus in the application is on s 53(1)(a), and the exercise of the discretion. The application was made by the defendants before they had taken any other step in the proceedings and the question of leave under s 53(2) does not arise.
17 The section confers discretion on the court to stay proceedings, subject to the court being satisfied of the matters set out in pars (a) and (b). The discretion is not expressly limited. It must, of course, be exercised judicially. The circumstances which will induce the court to exercise its discretionary power to refuse to stay cannot be defined: see Mustill and Boyd: Commercial Arbitration, 2nd ed (426); Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [1999] WASCA 144 [57]. But, in practical terms, the findings made in relation to whether pars (a) and (b) have been satisfied will often be decisive.
18 Section 53(1)(a) requires the court to consider whether there is 'no sufficient' reason why the matter should not be referred to arbitration in accordance with the agreement. In Huddart Parker Limited v The Ship (Mill Hill) [1950] HCA 43; (1950) 81 CLR 502, 509, Dixon J said of similar words in s 5 of the Arbitration Act 1928 (Vict):
This language might appear to place the burden upon the defendants applying for a stay. But the Courts begin with the fact that there is a special contract between the parties to refer, and therefore in the language of Lord Moulton in Bristol Corporation v John Aird & Co, consider the circumstances of a case with a strong bias in favour of maintaining the special bargain or as Scrutton LJ said in Metropolitan Tunnel and Public Works Ltd v London Electric Railway Co, 'A guiding principle on one side and a very natural and proper one, is that parties who have made a contract should keep it.' At the same time, as is shown by the two cases cited, the Court's discretion has not been restricted by any exclusive definition of the circumstances which will warrant a refusal of a stay: see per Lord Parker in Aird's Case, and per Scrutton LJ in the Metropolitan Tunnel Case. (citations omitted)
19 The nature of the burden placed on the party seeking to litigate in the face of an arbitration agreement was described by Philips JA in
(Page 8)
- Manningham City Council v Dura (Australia) Constructions Pty Ltd [1999] VSCA 158; [1999] 3 VR 13 in these terms:
[T]he courts have taken the view that as the parties have entered into a contract referring all disputes to arbitration, they should be kept to their bargain unless good reason is shown to the contrary … The onus is one to remove a presumption created by evidence of the special agreement, not one resting upon a party to displace a statutory presumption arising under the section [35].
The discretion whether or not to grant the stay is obviously wide. The starting point for a consideration of its exercise is that the parties should be held to their bargain to resolve their dispute in the agreed manner. This factor was emphasised by the House of Lords in Channel Tunnel, by the High Court in Dobbs and Huddart Parker Ltd v The Ship Mill Hill and Her Cargo [1950] (1950) 81 CLR 502 (an arbitration case) and by Gillard J in Badgin. However, a stay will not be granted if it would be unjust to deprive the plaintiff of the right to have his claim determined judicially or, to put it slightly differently, if the justice of the case is against staying the proceeding. The party opposing the stay must persuade the court that there is good ground for the exercise of the discretion to allow the action to proceed and so preclude the contractual mode of dispute resolution. The onus is a heavy one. The court should not lightly conclude that the agreed mechanism is inappropriate [8].
21 The parties have joined issue in their affidavits and submissions on whether there is a sufficient reason why the matter should not be referred to arbitration in accordance with their agreement. The plaintiffs give two reasons for not doing so: first, the presence of Peak Royalties as a party to the proceedings in this court; and second, the plaintiffs' assertion that their claim is urgent and can be more expeditiously resolved under the system of commercial case management in this court, rather than arbitration.
The involvement of Peak Royalties
22 Peak Royalties is not a party to the arbitration agreement. It is a party to the proceedings as a result of my interlocutory decision that the plaintiffs should have leave to serve notice of the writ on Peak Royalties out of the jurisdiction. In my opinion, Peak Royalties is properly a party to the proceedings because the remedy sought by the plaintiffs pursuant to cl 16.1(a) of the FIA includes the right to acquire Peak Royalties' right, title and interest in the Acquired Concession Rights. That is, the relief
(Page 9)
- sought by the plaintiffs is with regard to property that is held by Peak Royalties, and includes property held beneficially by Peak Royalties.
23 But that does not necessarily mean that the dispute between the parties cannot be effectually resolved in arbitration between the plaintiffs and the first and second defendants. The parties to the FIA contracted to resolve any dispute coming within cl 23 by arbitration, notwithstanding that Peak Royalties held the rights and would not be a party to that arbitration. While I recognise the convenience to the plaintiffs in having Peak Royalties bound as a party to any judicial resolution of the dispute, that convenience must be weighed against the clearly expressed intention of the parties to resolve their disputes by arbitration.
24 Further, there is no relief sought against Peak Royalties. This is not a case where the dispute between the plaintiffs and the first two defendants would go to an arbitrator, but other issues would remain to be answered in the court. In that regard, this case is quite distinct from Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd [2001] QCA 471; [2002] 2 Qd R 514, on which the plaintiffs rely. I do not regard the danger of inconsistent findings as a weighty consideration in the circumstances of this case.
25 The plaintiffs also submitted that Peak Royalties holds property on trust for Blade. Blade has made a demand on Peak Royalties to comply with cl 3.1(f) of the FIA in relation to that property. If the demand is not complied with, the first plaintiff will have a claim for breach of trust which it may seek to agitate. The claim for breach of trust would not fall within cl 23. But that claim, should it arise, would arise after the issue of the existing writ and would not come within it.
26 Peak Royalties remains a party to the proceedings in this court. It has offered an undertaking to comply with and give effect to the award of the arbitrator. My tentative opinion is that an undertaking could be a condition of the stay under s 49 of the Commercial Arbitration Act. Counsel on behalf of the plaintiffs disputed whether the court could impose such a condition. The plaintiffs further submitted that drafting such an undertaking would require some care and sophistication, but I do not doubt that those qualities are possessed by both parties and their legal representatives.
27 On balance, I do not believe that an undertaking is a necessary condition for the grant of the stay and will not impose an unnecessary condition.
(Page 10)
Urgency
28 The other reason relied on by the plaintiffs is urgency. They submit that they need urgent confirmation from the court that the FIA has been effectively terminated, so that further investment and other decisions may be made to ensure they do not lose their rights in relation to the oil fields. The plaintiffs submit that delay is a relevant factor in the exercise of the court's discretion and I accept that submission. They further submit that the present level of urgency could not reasonably have been contemplated by the parties when they entered into the FIA with the arbitration agreement. The evidence before me does not support a finding, one way or the other, on that contention.
29 The defendants submit that the urgency, in part at least, results from the plaintiffs' own delay. Peak's obligation was to secure project funding by 30 June 2011. Blade issued its notice under cl 16 of the FIA only in February 2012. But neither side has put evidence before me about why there was a delay. In the circumstances, I do not see it as a factor which in any way disqualifies the present application by Blade.
30 The plaintiffs rely, in part, on the advantages of case management available in the CMC list of this court. They submit that the issues at trial will be limited to the sufficiency of the documents tendered with the Peak Notice to satisfy cl 16.2(b)(iii)B of the FIA, and that this issue and any related issues will be determined primarily by construing and drawing inferences from documents, and that the facts are otherwise non-contentious. The matter could be dealt with at short notice with an agreed statement of facts, agreed bundle of documents, and perhaps an agreed statement of issues. On that basis, the matter could be brought to trial quite quickly, and the trial would be short - perhaps one day. As the issues in dispute have been explained, the prospects of such a hearing have receded rapidly.
31 First, in making the submission that little or no evidence would be required or relevant at trial, the plaintiffs qualify it with the words 'at this stage', and the further rider that it is subject to the nature of any defence that is raised.
32 Second, from what was said in oral submissions, it is likely that the defence will include a plea that the plaintiff failed to comply with cl 16.1(c) of the FIA, by failing to provide reasonable assistance for the purpose of obtaining project funding. That allegation is unlikely to be resolved on agreed facts.
(Page 11)
33 Third, again from what was said in submissions, whether the documentary evidence which accompanied the Peak Notice should, objectively, have satisfied Blade that Peak had secured funding may require the court to consider a dispute between the parties about the quantum of the Project Funding Amount. The defendants say that issue is likely to require expert evidence. I am not in a position to decide whether it will. But again, it tells against the likelihood of this matter being decided on an agreed statement of facts.
34 Finally, in their prayer for relief the plaintiffs claim damages. When asked if that relief was being pressed, counsel said that it may be. It may be possible to split the issues for trial, but no application to do so has been made, and it is a course to be approached with caution.
35 None of these considerations is decisive, and I do not suggest that, properly managed, this matter could not proceed to a fair expedited hearing. The assessment of the time needed for necessary interlocutory processes and hearing must be realistic. I cannot make such an assessment on what I have been told to date.
36 The other issue regarding urgency requires a consideration of decisions and actions which the plaintiffs say need to be made in the immediate future to meet with the requirements of the Philippines government.
37 The primary evidence relied on by the plaintiffs is the affidavit of Robert William Marshall, sworn 8 June 2012. Mr Marshall is the managing director of the first and second plaintiffs.
38 Mr Marshall gave evidence of work programs which the plaintiffs, on behalf of the joint venture, were required to submit to the Republic of the Philippines Department of Energy, including a plan of development, annual work programme and budget. The Department of Energy approved a programme under which the joint venture was required to drill two wells in 2012. An extension of time was later granted by the Department of Energy. Currently, the joint venture is required to make a final investment decision (FID) by the end of June. It is required to drill two wells in 2013.
39 Mr Marshall referred also to practical matters requiring decisions to be made and the project commenced within the next two months: procurement of certain drilling equipment must commence in July; orders for production equipment must be placed in August.
(Page 12)
40 The plaintiffs, however, put forward no evidence that they have received alternative funding (that is, other than through Peak) and about their ability to comply with the timeframes they have specified should the court determine that the FIA with Peak has been validly terminated.
41 Mr Marshall said that until it is confirmed that the termination of the FIA is valid, Blade cannot proceed, and cannot comply with its works programme. There were competing submissions and evidence regarding whether the FID could, in any event, be made on 29 June. It is not necessary for the court to resolve that conflict. Despite the references to the need to make the FID by the end of June, the plaintiffs do not suggest that a decision is required by then. Nor could I discern, other than a preference for a decision by the end of July, what the critical time is.
42 The plaintiffs and the defendants have also put forward competing submissions about whether the joint venture could obtain a further extension from the Department of Energy. In my opinion, I must recognise that there is a risk that the Department of Energy could terminate the joint venture's interest in the service contract. Assessing the magnitude of that risk is probably speculative. And in making that assessment, I must also take into account the lack of evidence regarding the ability of the plaintiffs to comply with existing works programs even is the FIA is held to be at an end.
43 Finally, in the course of submissions the parties referred to the possible significance of 26 June 2012. That date is 90 days from the Peak Notice, and by that date Peak is required to have completed the project funding. On consideration, I doubt that I should try to anticipate that event.
Conclusion
44 Taking all of these matters into account, I am not satisfied that the plaintiffs have shown a sufficient reason for me to exercise the discretion against granting a stay of the action against the first and second defendants.
45 I will hear the parties as to the terms of the order and the directions, if any, which may be required with respect to the future conduct of the arbitration.
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