Delhi Petroleum Pty Ltd v Santos Ltd and Ors No. Scgrg-98-1315 Judgment No. S37

[1999] SASC 37

DELHI PETROLEUM PTY LTD v SANTOS LTD and ORS

[1999] SASC 37

Civil

1      PERRY J.          The plaintiff has been associated with the defendants in the development and exploitation of various natural gas and allied petroleum resources situated in the Cooper Basin in South Australia.  It seeks a declaration challenging the basis upon which various financial adjustments have been made between the parties.

2      Upon their receipt of the statement of claim, and before taking any other step in the action apart from the filing of appearances, the defendants have made a joint application seeking an order that the statement of claim be struck out, or in the alternative, that the proceedings be stayed and referred to arbitration.

3      After hearing argument on the application, I reserved my decision.

Background

4      The parties or their predecessors have been involved in exploration in the Cooper Basin for many years.  On 1 January 1975 they entered into a joint venture agreement known as “the Unit Agreement” pursuant to which they agreed to pursue their activities on a co-operative basis.

5      Although there have been some changes of name, the parties to the action are the present parties to the Unit Agreement, which is still operative.

6      Under the Unit Agreement, the defendant Santos Limited (“Santos”) performs the role described as “Unit Operator”.  In that capacity, Santos is responsible for administering the receipts and outgoings of the joint venture.  The obligations and entitlements of each of the parties to the Unit Agreement with respect to outgoings and receipts is determined by a complicated formula which is, in turn, determined by reference to “Block participations” and “Unit participations”.

7      Block participations relate to the interests held by the Unit parties in particular geographic areas or “Blocks” within the Cooper Basin region.  Unit participations reflect the percentage interests of the Unit parties in the commercial activities carried on under the Unit Agreement and the products of that activity.  The Unit Agreement (clause 4.02) provides a mechanism for review and adjustment of the Block participations and the Unit participations.

8      Sometime after their entry into the Unit Agreement, the parties to that agreement agreed to pursue another endeavour known as the Liquids Project.  That project relates to the production of a range of petroleum products other than natural gas.  The Liquids Project involved the construction of facilities at Moomba and Port Bonython, and a pipeline from Moomba to Stony Point.

9      The participation of the parties in the construction of those facilities and of the pipeline is provided for in a further joint venture agreement, dated 31 December 1981, known as the Downstream Agreement.  The parties to the Downstream Agreement are the same parties as those who are party to the Unit Agreement.  Furthermore, Santos assumed the same role with respect to the Downstream Agreement as it has discharged with respect to the Unit Agreement, that is, administering the receipts and outgoings.

10     Receipts and outgoings associated with the operation of the Downstream Agreement are determined by reference to various factors known as Downstream participations.  They include:

*“Downstream Facilities Investment Participations” (defined in clause 1.16.01).

*“Downstream Facilities Operating Participations” (defined in clause 1.16.02).

*“Wharfage Participation” (defined in clause 1.16.03).

11     The Downstream Facilities Investment Participations relate to the contribution made by the parties towards certain capital costs (referred to in clause 8.02(a)).  Downstream Operating Facilities participations relate, broadly speaking, to the apportionment between the parties of the operating costs of certain of the activities carried on under the Downstream Agreement (referred to in clause 8.02(b)).

12     Wharfage Participation encompasses the contribution by the parties to wharfage fees which are, in turn, payable under the Stony Point Indenture.[1]  The facilities associated with the operation of the Downstream Agreement include:

*...... Common Facilities (see clause 1.13.03).

*General Facilities, which are part of the Common Facilities, and include offices, buildings and roads (see clause 1.13.06).

*A jetty constructed at Stony Point.  Pursuant to the Downstream Agreement, the parties agreed to construct the jetty which would, when completed, be transferred to the State.  The parties to the Downstream Agreement agreed to deposit with the State a sum equal to the amount to the paid by the State with respect to those costs, on the footing that the jetty security deposit, as it is known, would be repaid by the State in twenty equal annual instalments, including interest of 20% per annum (see Stony Point Indenture, clause 67).  Furthermore, the parties agreed that for twenty years from the date of the transfer of the jetty to the State, they would pay wharfage dues according to a formula set out in the Stony Point Indenture (see clause 72(1)).

*Roads and water.

[1] The indenture, dated 26 November 1981, appears as the First Schedule to the Stony Point (Liquids Project) Ratification Act 1981.

13     A similar scheme operated with respect to the capital costs incurred by the State to provide roads and water to the project, in that the parties to the Downstream Agreement agreed to deposit with the State a sum equal to that cost, on the footing that the State would repay the same in ten equal annual instalments, including interest at 18% per annum (Stony Point Indenture, Schedule 4).  The parties to the Downstream Agreement agreed also to pay to the State other amounts with respect to water supply and a tariff for the use of sealed roads.

14     In the second schedule to the Downstream Agreement, Delhi’s initial Common Facilities Investment Participation factor was set at 16.8863%, and its initial Jetty Participation factor at 15.8743% (see Article IV, clause 4.01).

15     Over the years before January 1997, Santos in its capacity as operator under the Downstream Agreement, apportioned receipts and outgoings between the parties to the agreement.  In doing so, it applied various factors.  Delhi’s share of the receipts and outgoings as summarised in Delhi’s written submissions put forward during the hearing of the application, as to which no issue was joined by the defendants, was as follows:

(a)receipts from the State of payments in respect of the Jetty security deposit and interest were treated as receipts of a capital nature, and Delhi’s Jetty Participation factor of 15.8743% was applied to those payments;

(b)as a corollary of the treatment of the Jetty security deposit, Santos also apportioned Delhi’s share of the capital component of the State wharfage dues by reference to the Jetty Participation factor of 15.8743%, while the operating, variable component of the State wharfage dues was calculated by reference to the Wharfage Participation factor, in accordance with a formula set out in clause 12 of the third schedule to the Downstream Agreement;

(c)receipts from the State of payments in respect of the roads and water security deposit and interest were treated as receipts of a capital nature, and Delhi’s initial Common Facilities Investment Participation factor of 16.8863% was invariably applied to those payments;

(d)as a corollary of the treatment of the roads and water security deposit, Santos apportioned Delhi’s share of the capital component of the roads and water tariffs by reference to Delhi’s initial Common Facilities Investment Participation factor of 16.8863%.

16     A similar treatment of the receipts and outgoings was made by Santos with respect to the adjustments applicable to the other parties to the Downstream Agreement.

17     For about thirteen years the adjustments as calculated by Santos were audited by KPMG, who were appointed by Santos for that purpose.  Pursuant to both the Unit Agreement (clause 4.02) and the Downstream Agreement (clause 4.02), periodic reviews were conducted.  The review might result in an alteration in the percentages apportioned to a party, which would be adjusted accordingly.

18     I accept Delhi’s contention that on a proper construction of the agreements, the process of review and adjustment was not intended to effect an alteration in the characterisation of a particular item of expenditure or of receipt as being applicable to a particular kind of participation.  For example, as Mr Karkar QC of counsel for Delhi contended, if an item of outgoing was of a capital nature, the periodic review contemplated by the agreements would not affect the application of the relevant Downstream Facilities Investment Participation to that outgoing, although the process of review might, in a particular instance, result in a change to the applicable percentage.

19     In the course of time, the process of review gave rise to disputes between the parties.  Those disputes eventually resulted in court proceedings.  In particular the 1987 review became the subject of proceedings instituted by one of the joint venture parties, Crusader Resources NL against Santos and other parties to the Unit Agreement.  In that action, an attempt by Santos to stay the proceedings and have them referred to arbitration was unsuccessful.[2]

[2]    See the Crusader Resources NL v Santos Ltd and Ors (1990) 155 LSJS 449 (Bollen J) and on appeal 156 LSJS 420 (White, Millhouse and Olsson JJ).

20     Notwithstanding the court proceedings, by 1994 the parties still had not resolved or agreed upon the 1987 review or any later review.  The matter went to arbitration, which commenced in September 1996.

21     The process of arbitration was suspended upon the execution of heads of agreement dated 15 November 1996 which were the precursor to a further agreement between the parties known as the Fixed Factor Settlement Agreement executed on 5 December 1996.

The Fixed Factor Settlement Agreement

22     The parties to the Fixed Factor Settlement Agreement (I will hereafter refer to it as “the Settlement Agreement”) were the same as the parties to the Unit Agreement and the Downstream Agreement.

23     In its recital, the Settlement Agreement refers to the fact that certain of the reviews and adjustments required pursuant to the Unit Participations and Downstream Participations have not been completed “as a result of litigation and arbitration amongst the parties to the ... Unit Agreement”.  The recital goes on to record that the parties have agreed to enter into the Settlement Agreement “for the purpose of fixing participation factors ... so as to remove the requirement for any further or other review and adjustment ... unless otherwise unanimously agreed by the parties”.

24     The fixed factor for Delhi was agreed at 20.21%.[3]

[3]    See clause 1(xiii) and 3 of the Settlement Agreement.

25     The Settlement Agreement further provides (clause 5(a)) that Santos as Unit Operator is to calculate in respect of each party the accounting adjustments to ensure that all costs (including operating, capital and exploration costs) and expenses are allocated between the parties in accordance with the provisions of the Settlement Agreement.  The agreement provides for two accounting adjustments, the first from 6.00 am on 1 January 1987 to 6.00 am on 1 January 1996, and the second from 6.00 am on 1 January 1996 to 6.00 am on 1 January 1997.[4]

[4]    See clause 5(b).

26     Delhi has asserted through Mr Karkar QC, which assertion has not been challenged by the defendants, that the first accounting adjustment for the nine year period, 1 January 1987 to 1 January 1996 was, in the relevant respects, prepared by Santos on a similar basis as that which had previously been applied by the parties, namely:

(a)by calculating Delhi’s share of the State’s repayment of the Jetty Security deposit and Delhi’s contribution to the capital component of the State wharfage dues by applying the Jetty Participation factor; and

(b)by calculating Delhi’s share of the State’s repayment of the roads and Water Security deposit and Delhi’s contribution to the capital component of the water and roads tariffs, by applying the initial Common Facilities Investment Participation factor.

27     In the result, on the first accounting adjustment, a sum of $33,617,785 was shown owing to Delhi.  This was duly paid to Delhi on 20 December 1996.

28     What is described as a “estimated” second accounting adjustment provided to Delhi by Santos in November 1996 was prepared on the same basis as that which was applied to the first accounting adjustment.  However, Santos then departed, to Delhi’s disadvantage, from what had been asserted by Delhi to be Santos’ invariable practice for over twelve years in that the formal second accounting adjustment delivered by Santos to the Unit parties in pursuance of its obligations to do so under the Settlement Agreement on 10 January 1997 was cast on a different basis.  With respect to Delhi’s contribution to the capital component of the State wharfage dues, Santos applied the Wharfage Participation Factor instead of the Jetty Participation Factor.  In relation to Delhi’s contribution to the capital component of the water and roads tariffs, Santos applied the Downstream Facilities Operating Participation Factor instead of the initial Common Facilities Investment Participation Factor.

29     I will refer in due course to the provisions in the Settlement Agreement which oblige Santos to appoint an auditor to provide an opinion as to the correctness of the accounting adjustments.  In fact, Santos appointed KPMG to fulfil that role.  Delhi complains that KPMG, whether on its own volition or on instructions from Santos, perpetuated what Delhi complains to be the application of incorrect factors to both the first and second accounting adjustments, being the factors to which I have just referred, with the result that Delhi suffered a net disadvantage of over $4.5 million.

30     Delhi further complains that KPMG, either of its own volition or on instructions from Santos, purported to audit both the first and second accounting adjustments on the assumption that the Jetty Participation Factor for Delhi remained at 15.8743% rather than the fixed factor as provided for in the Settlement Agreement of 20.21%.

31     So that the essential question raised by the present dispute is as to which kind of participation factor is applicable in the relevant years to the various obligations and entitlements of Delhi under the Downstream Agreement, more particularly the following:

(a)Delhi’s share of the State’s repayment of the jetty security deposit and interest;

(b)Delhi’s contribution to the capital component of the State wharfage dues;

(c)Delhi’s share of the State’s repayment of the roads and water security deposit and interest; and

(d)Delhi’s contribution to the capital component of the roads and water tariffs.

32     In its statement of claim Delhi alleges that in applying participation factors other than those provided for in the agreements, Santos not only breached the Downstream Agreement and the Settlement Agreement, but acted contrary to its “uniform practice since 1984”.  It further asserts that KPMG erred in condoning, as auditor, the erroneous approach adopted by Santos.  In the result, Delhi alleges that the audit opinion furnished by KPMG is null and void.

33     As part of its case, Delhi alleges that Santos is estopped from contending that the capital component of the State wharfage dues should be apportioned by reference to a factor other than the Jetty Participation, or that the capital component of the water rates and roads tariffs should be apportioned by reference to a factor other than the Initial Common Facilities Investment Participation.[5]

[5]    Statement of claim, paragraph 71.

34     In its statement of claim, Delhi seeks declarations which, if pronounced, would have the effect of upholding Delhi’s contention as to the appropriate participation factors.

35     It follows that the dispute between the parties as identified in the statement of claim raises questions of construction of the Downstream Agreement and Settlement Agreement, more particularly as to the appropriate participation factors to be applied having regard to those agreements, and questions of estoppel.

36     It was common ground between the parties that no serious question arises as to the calculation of the amounts due from or payable by Delhi, once the correct kind of participation factors are identified and applied.

37     Against that background, I refer to the affidavit filed in support of the application sworn by Mr John McArdle, a senior executive of Santos, which identifies the basis upon which the defendants apply for a stay.[6]  In paragraph 4 of his affidavit Mr McArdle states:

“Santos considers that the within proceedings are in respect of a matter or matters which the plaintiff and Santos and each of the other defendants have agreed to be referred to arbitration pursuant to an agreement in writing dated 1 January 1975 (the Unit Agreement) and an agreement in writing dated 5 December 1996 (the Fixed Factor Settlement Agreement).”

[6]    Affidavit filed 5 November 1998, court file document No 10.

38     In my opinion, the relevant agreement is the Settlement Agreement rather than the Unit Agreement.  However, even if I was to be wrong in that and if the question of the obligation, if any, to refer to arbitration is to be considered in the light of the terms of the Unit Agreement, the same conclusion should be reached.

39 Both parties argued the application on the basis that the jurisdiction to stay the proceedings is that conferred by s53 of the Commercial Arbitration Act 1986, the relevant parts of which I set out later in this judgment. It is very likely that the statutory jurisdiction has displaced any inherent jurisdiction, although the authorities do not make it entirely clear that this is so.[7]  In any event, neither party suggested that if the matter was to be dealt with under the inherent jurisdiction, on the assumption that it still applies, the relevant considerations would be any different.[8]

[7]    See Anderson v G.H. Michell & Sons Ltd (1941) 65 CLR 543 at 548-549; Murphy v Benson (1942) SR(NSW) 66 at 67 and Adelaide Steamship Industries Pty Ltd v Commonwealth of Australia (1974) 8 SASR 425 per Bright J at 439, but c/f Adelaide Steamship Industries Pty Ltd v Commonwealthof Australia (1974) 10 SASR 203 per Bray CJ at 213 and per Hogarth J at 218.

[8]    See Adelaide Steamship Industries Pty Ltd v Commonwealth of Australia (1974) 8 SASR at 440, 10 SASR at 213, and Hanessian v Lloyd Triestino Societa Anonima di Navigazione (1951) 68 WN(NSW) 98 per Owen J at 100.

40 Under s53, the jurisdiction to order a stay only arises where the applicant and the respondent are parties to an arbitration agreement as defined in the Act. Section 4 defines an arbitration agreement as “an agreement in writing to refer present or future disputes to arbitration”. The defendants asserted through Mr Gray QC that the Unit Agreement and the Settlement Agreement, or at least the relevant clauses in them, answered to that definition. Mr Karkar QC was prepared to argue the matter on the footing that the defendants’ contention in that respect was correct.

41     It is convenient first to deal with the applicability of the relevant provisions of the Settlement Agreement.

Arbitration under the Settlement Agreement

42     The provisions as to arbitration which appear in the Fixed Factor Settlement Agreement, are set out in clause 5.  To put the provisions in context, I will set out those parts of clause 5 an understanding of which is necessary in order to appreciate how the scheme for making accounting adjustments was agreed to operate, including the provision for arbitration:

“5..... Accounting Adjustment

(a)     The Unit Operator will calculate in respect of each party the accounting adjustments (“Accounting Adjustments”) to determine the amount necessary to be paid or received by each party to ensure that all costs and expenses (including operating, capital and exploration costs) paid in respect of the Unit Agreement, the Downstream Agreement and the JOAs and all receipts for the sale of Unitized Substances and production under the JOAs (“Block Production”) are allocated between the parties on the basis of the Unit Participations, Downstream Participations, Undivided Interests and Fixed Factors applying from time to time in accordance with the provisions of this Agreement.

(b)    There shall be two Accounting Adjustments: the First Accounting Adjustment being for the period 6.00 am 1 January 1987 through 6.00 am 1 January 1996, and the Second Accounting Adjustment being for the period subsequent thereto.

(c)    ..........

(d)    By 1 December 1996, the Unit Operator will in respect of the First accounting Adjustment provide the parties with a schedule showing the net amounts payable/receivable by each party which schedule shall be supported by sufficient information to disclose the calculation of the amount payable/receivable by a party pursuant to such Accounting Adjustment.  By 9 December 1996, the Unit Operator will in respect of the schedule provided pursuant to this clause provide the parties with a revised schedule which will be amended only insofar as necessary to reflect sole risk/non-participation premium adjustments, Brumby/Epsilon/Roseneath Royalty adjustments and Product Retracking for 1990 and 1991.

(e)    ..........

(f)     ...........

(g)    ..........

(h)    ..........

(i).... The Unit Operator will provide an Audit Opinion on the correctness of the Accounting Adjustments by 30 June 1997 but neither the auditor nor any party is entitled to put in issue:

(i)the correctness of the Unit Participations and Downstream Participations referred to in Clauses 3(a) and (b) with the exception of the Downstream Facilities Operating Participations and Wharfage Participations;

(ii).......

(iii).......

(j).... Any adjustment to the Accounting Adjustments as a result of the audit referred to in Clause 5(i) requiring payment by or to any party will be made thirty (30) days after the date of the Audit Opinion.

(k)    Each party has the right to perform four comprehensive audits of the Accounting Adjustments at any time prior to 31 December 1998.  Clause 1.6 of Exhibit B to the Unit Agreement (treating the audit referred to in Clause 1.6 as the audit referred to in this Clause 5(k)) will apply mutatis mutandis to those audits.

(l).... If any party receives an Audit Opinion consequent upon an audit pursuant to Clause 5(k) in which an opinion is expressed that a further adjustment to the Accounting Adjustments is required:

(i)if the parties unanimously agree that the further adjustment should be made, then payment of that adjustment will be made within thirty (30) days of agreement; or

(ii)if within sixty (60) days of 31 December 1998 the parties do not unanimously agree that any further adjustment identified in an Audit Opinion obtained pursuant to Clause 5(k) should be made, the disagreement about the adjustment will be referred to Arbitration in accordance with the provisions of Article 23 of the Unit Agreement and if the Arbitrator decides that the further adjustment is warranted, payment of the adjustment will be made within thirty (30) days of the arbitral award. The reference to Arbitration under this clause may be made at any time earlier than 60 days of 31 December 1998 provided all parties affected by the amount in dispute agree that no further audits will be carried out by those parties under Clause 5(k) and no further adjustments will be sought by those parties under Clause 5(l). No party which is not a party to any such Arbitration shall be liable for any costs directly related thereto.

(m).. Neither an auditor nor any party auditing the Accounting Adjustments pursuant to Clauses 5(k) or 5(k) will put in issue or dispute the correctness of the matters referred to in Clause 5(i).

(n)    Subject to the provisions in Clauses 5(i) to (m), the Accounting Adjustments are conclusive and will not be challenged by any party.

(o)... ...............”

43     In accordance with its obligations under clause 5, Santos duly made the calculations required by clause 5(a) with respect to the two accounting adjustments as contemplated by clause 5(b).  It went on to provide to the parties an Audit Opinion in accordance with its obligation under clause 5(i).

44     As I have explained, KPMG was engaged to provide the Audit Opinion.  In fact, it provided two such opinions, being opinions as to the First Accounting Adjustment and the Second Accounting Adjustment respectively.  Both opinions are dated 30 June 1997.  The substantive part of the opinion as to the First Accounting Adjustment is relevantly in the same terms as the opinion as to the Second Accounting Adjustment.  It reads in part:

“We have audited the allocation of those items of production, receipts and expenditures as set out in the Fixed Factor Settlement Agreement, in accordance with Australian Auditing Standards to provide reasonable assurance whether the First Accounting Adjustment is free of material misstatements.  Our procedures included examination, on a test basis, of evidence supporting the amounts set out in, and comprising, the First Accounting Adjustment.  Our procedures have included, where appropriate, consideration of the terms and conditions of the relevant contractual agreements between the parties.  These procedures have been undertaken to form an opinion whether, in all material respects, the First Accounting Adjustment has been correctly determined and calculated in accordance with the provisions of the Fixed Factor Settlement Agreement.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the First Accounting Adjustment as between the parties, has been correctly determined and calculated in accordance with the provisions of the Fixed Factor Settlement Agreement.”

45     It is common ground that following the delivery to the parties to the Settlement Agreement of those Audit Opinions, clause 5(j) was complied with in that any adjustment required by them was made within the thirty day period therein provided.

46 It will have been seen that under clause 5(k), each party has the right to perform four comprehensive audits of the accounting adjustments at any time prior to 31 December 1998. The obtaining of such an audit is an essential trigger to the invoking of the provisions as to arbitration to be found in clause 5(l). Under clause 5(l), if a comprehensive audit obtained under (k) contains an opinion that a further adjustment to the accounting adjustments is required, the parties must either unanimously agree within thirty days to the further adjustment being made, or if within sixty days they have failed to agree on a further adjustment, the disagreement must be referred to arbitration in accordance with the provisions of Article 23 of the Unit Agreement.

47 Article 23 of the Unit Agreement contains detailed provisions as to the means by which an arbitrator is to be appointed, his or her qualifications, and the applicability of the arbitration of the Arbitration Act 1891. As well, it sets out provisions relating to the place at which the arbitration is to be conducted, and its cost.

48 In my opinion, the reference in clause 5(1)(iii) of the Settlement Agreement to Article 23 of the Unit Agreement operates simply to identify the framework within which any arbitration under the Settlement Agreement must be conducted.

49     Mr Karkar QC submitted that the burden of proving the elements necessary to trigger the arbitration provision contained in clause 5(l) of the Settlement Agreement is on the defendants.  He referred to Mustill and Boyd, The Law and Practice of Commercial Arbitration in England:[9]

“The burden is on the applicant to show that the matters in respect of which a stay is sought fall within the scope of the arbitration agreement.”

[9]    Second edition, page 470.

50     Mr Karkar QC also referred to the dicta of Olsson J in the Crusader appeal:[10]

“In bringing the applications for a stay, the defendants necessarily accept the onus of unequivocally demonstrating their entitlement to pursue the relief sought.  That right is dependent upon them being able to establish that the dispute between the parties is of a nature which falls within an arbitration agreement entered into by the parties, as being a matter specifically agreed to be referred to arbitration.”

[10] (1990) 156 LSJS 420 at 443.

51     I accept those statements of principle.  But there is a difference between determining whether or not the nature of the dispute is such as to fall within an arbitration agreement, and the question whether a precondition to arbitration has been satisfied.

52     If a dispute is of such a nature that is clearly caught by an arbitration clause, the courts will, generally speaking, hold the parties to their agreement to arbitrate, even if a precondition to arbitration has not been met.  In such a case, the court may exercise its power to extend the time “... for doing any act or taking any proceeding in or in relation to an arbitration” (Commercial Arbitration Act 1986, s48(1)).

53     In PMT Partners Pty Ltd (In Liquidation) v Australian National Parks and Wildlife Service,[11] the High Court held that the words “in or in relation to an arbitration” in the Commercial Arbitration Act 1985 (NT), which is in the same terms as the corresponding words in the South Australian Act, apply to an act which is a condition precedent to arbitration.  In PMT, the High Court upheld the validity of an order made under the section by the judge at first instance, who extended the time for the giving of a notice of the dispute by one of the contracting parties, such a notice being a condition precedent to arbitration.

[11] (1995) 184 CLR 301.

54     An illustration of a similar approach being adopted appears in the decision of Cole J in Pine Creek Goldfields Ltd v GEC Diesels Australia Ltd.[12]  In that case, a superintendent appointed under a contract for the supply and installation of equipment went out of business, but there was power to appoint another superintendent.  The contract provided that disputes or differences arising out of the contract were first to be referred to the superintendent on the footing that if the parties were dissatisfied with his or her determination, the matter could be referred to arbitration.  Cole J rejected the argument that in the absence of a superintendent there was no ability to go to arbitration.  He adjourned an application for a stay to enable a new superintendent to be appointed.  In doing so he said in his reasons:

“A party cannot act or omit to act in circumstances such as these to deprive the other party to the contract of a contractual entitlement.”[13]

[12]   Supreme Court of New South Wales Common Law Division, 29 March 1990, unreported, judgment BC 9002581.

[13]    Ibid 5.

55 In this context, the availability of the jurisdiction to extend time for “doing any act or taking any proceeding in or in relation to an arbitration” is to be approached against the background of the overarching principle that, where possible, parties are to be held to an agreement to arbitrate. That principle has consistently been held to be of application within the context of applications for a stay under s53: see, for example, Blackman & Co v Oliver Davey Glass Co:[14]

“In form the section throws upon the party to a submission, who desires that the agreement for a submission should be enforced, the burden of satisfying the court that there is no sufficient reason why the matter should not be referred in accordance with the submission.  But in applying the section the courts have consistently acted on the view that the parties should be kept to their bargain unless strong reasons are shown why an action commenced in defiance of the agreement for a submission should be allowed to continue.”

[14] [1966] VR 570 per Winnecke CJ, Adam and Gillard JJ at 574-575.

56     In the same case, reference is made to the dictum of Dixon J in The Mill Hill:[15]

“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 and Co:[16] ... 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:[17]

‘A guiding principle on one side and a very natural and proper one is that the parties who have made a contract should keep it.’”

[15]    Huddart Parker Ltd v The Mill Hill (1950) 81 CLR 502 at 508-9.

[16] [1913] AC 241 at 259.

[17] [1926] Ch 371 at 389.

57     As a corollary to that principle, where the contract provides that all disputes and differences are to be decided “... in accordance with specified procedures, the starting point must be that the parties are to be taken to have provided exclusively and exhaustively as to the procedures to be followed, unless something makes it plain that that is not the case”.[18]

[18]    PMT Partners Pty Ltd v Australian National Parks and Wildlife Services supra per Brennan CJ, Gaudron and McHugh JJ at 311.

58     But before one reaches the point of holding the parties to their bargain and of construing procedures for the reference of the dispute to arbitration as “exclusively and exhaustively” defining the procedures to be followed, it must be clear that this is what the parties have agreed.  As it was put in the PMT case:[19]

“It may be accepted that contracts will only be construed as limiting the rights of the parties to pursue their remedies in the courts if it clearly appears that that is what was agreed.”

[19]    Ibid at 311.

59     To gather together those statements of principle in terms applicable to the circumstances of this case:

sif in the Settlement Agreement, or to the extent that the defendants may in this respect properly have regard to the Unit Agreement, the parties have clearly agreed to arbitrate a dispute of the kind which now exists between them, the agreement will ordinarily be construed as identifying arbitration as an exclusive procedure to be followed to resolve the dispute;

sthe obligation to arbitrate is not to be regarded as deflected by the non-performance of a condition precedent to the arbitration, if the shortcoming can be remedied by staying proceedings to enable the condition to be performed, if necessary, assisted by an appropriate exercise of the jurisdiction under s48(1) of the Commercial Arbitration Act;

sif the matter is approached in that way, the lack of evidence as to whether or not a comprehensive audit has been performed under clause 5(k) of the Settlement Agreement is no answer to the defendants’ application.

60 But even accepting those statements of principle, Delhi’s answer to the defendants’ application is that the particular dispute which has arisen is not a dispute as to Accounting Adjustments of the kind which it was intended would be arbitrated pursuant to sub-clauses (k) - (n) of clause 5 of the Settlement Agreement, or if it was to be of application (which Delhi denies) pursuant to Article 23 of the Unit Agreement.

61     Delhi contends that the dispute which has emerged is not a dispute as to the Accounting Adjustments in the relevant sense, but a dispute as to the construction of the Settlement Agreement and related agreements and the legal significance of the conduct of the parties over a long period of time.  Delhi argues that the dispute is as to an issue of characterisation, namely, the question of how certain receipts and payment obligations should be characterised for the purposes of identifying the appropriate participation factors to be applied to the four items of receipt and expenditure identified earlier in these reasons.

62     As Delhi points out, that question arose between the parties well before the appointment of KPMG as auditor, and court proceedings could have been issued at that earlier time to determine that question.

63     Delhi further contends that KPMG applied the wrong participation factors, and that its two Audit Opinions are therefore a nullity.  On Delhi’s case, the function of the auditor, both with respect to the provision of an Audit Opinion under clause 5(i) and for the purposes of any comprehensive audit under 5(k), is limited to computational matters.

64     In support of that contention, Delhi points to the words in the opening sentence of clause 5(a) of the Settlement Agreement, namely, “The Unit Operator will calculate ...”, and the fact that the obligation to arbitrate is triggered by the obtaining of the further accounting opinion “..... that a further adjustment to the Accounting Adjustments is required” (clause 5(l)).  Delhi further contends that the essential nature of an audit is that it is a verificational exercise.[20]

[20]    See Frankston and Hasting Corporation v Cohen (1961) 102 CLR 607 at 617 per Fullagar J.

65     There is much force in those contentions.

66     There is a world of difference between arbitration clauses of an all-embracing kind which refer to all disputes of any kind arising out of or in connection with a contract or the performance of it, and provisions of the kind set out in the relevant parts of clause 5 of the Settlement Agreement.  Clause 5 relates only to Accounting Adjustments which are to be a matter of calculation by the Unit Operator (Santos).  Under sub-clause (i), Santos must provide an Audit Opinion on the correctness of the Accounting Adjustments which it has prepared by 30 June 1997.

67     As I have demonstrated, two Audit Opinions were in fact put forward on that date.  But the obligation to proceed to arbitration would only be triggered if another party to the agreement exercised its right to have performed a comprehensive audit as provided in sub-clause (k), and then only if the parties fail unanimously to agree to any further adjustments suggested by the comprehensive audit within the time provided in sub-clause (l)(i) and (ii).

68     Standing back for a moment from those provisions, it is clear that the only provision as to arbitration relates to a difference in opinion between auditors as to the correctness of the Accounting Adjustments to be provided by the Unit Operator.  If there is a disagreement as to any other matter, that disagreement lies outside the arbitration clause to which the parties have agreed.

69     Here, Delhi’s disagreement with the Accounting Adjustments offered by Santos and the Audit Opinions subsequently obtained by Santos supporting the Accounting Adjustments is of a more fundamental kind that that which is within the scope of the arbitration clause.  It relates to the appropriateness of the participation factors applied in the making of the Accounting Adjustments.  Whether the correct participation factors have been applied in the first place by Santos and in the second place by the auditor appointed to provide an opinion under sub-clause 5(i) depends upon a construction of the agreement and on the case which Delhi wishes to present, it may also turn upon the existence of an estoppel arising out of the conduct of the parties over a long period of time.

70     They are not questions which the expertise of an accountant providing an audit opinion would be adequate to qualify him or her to address.  Furthermore, on a proper construction of the Settlement Agreement, in my opinion, it was never intended by the parties that if a dispute arose between them as to such a question, the dispute would be an appropriate matter to be dealt with in an Audit Opinion to be provided under clause 5(i), or for that matter, in a comprehensive audit which might be sought by one of the parties under sub-clause (k).

71     It is true that any accountant charged with the responsibility of providing an Audit Opinion would have to conduct the audit within the framework provided by the relevant provisions of the Settlement Agreement touching upon the process to be followed in preparing the Accounting Adjustments.  In KPMG’s audit reports they state:

“Our procedures have included, where appropriate, consideration of the terms and conditions of the relevant contractual agreements between the parties.”

72     But in the particular aspect which is of importance for present purposes, it is not clear either from their audit reports or from any other evidence put before the Court at this stage just what process they followed in that regard.

73     No doubt, as Mr Gray QC pointed out, an auditor may sometimes refer a dispute as to an aspect relevant to the conduct of the audit which lies outside his or her expertise to an appropriate independent expert.  In support of that contention, he referred to Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd and Ors.[21]  That case concerned the function of an auditor charged with responsibility for determining the amount of royalties payable under a deed creating a sub-licence for the utilisation of a patent for the manufacture and use, inter alia, of pens and writing implements.  Lord Denning in his judgment referred to the function of the auditor.  He said:[22]

“The first point raises the question - What is the proper function of an auditor?  It is said that he is bound only to verify the sum, the arithmetical conclusion, by reference to the books and all necessary vouching material and oral explanations; and that it is no part of his function to inquire whether an article is covered by patents or not.  I think this is too narrow a view.  An auditor is not to be confined to the mechanics of checking vouchers and making arithmetical computations.  .....  Take, for instance, a point of law arising in the course of auditing a company’s accounts.  He may come on a payment which, it appears to him, may be unlawful, in that it may not be within the powers of the corporation, or improper in that it may have no warrant or justification.  He is, then, not only entitled but bound to inquire into it and, if need be, to disallow it; see Roberts v Hopwood,[23] Re Ridsdel, Ridsdel v Rawlinson.[24]  It may be, of course, that he has sufficient legal knowledge to deal with it himself, as many accountants have, but, if it is beyond him, he is entitled to take legal advice on the principle stated in Bevan v Webb,[25] that:

‘permission to a man to do an act, which he cannot do effectually without the help of an agent, carries with it the right to employ an agent.’”

[21] [1958] 1 All ER 11.

[22]    Ibis at 23.

[23] [1925] AC 578 at 605.

[24] [1947] 2 All ER 312 at 316.

[25] [1901] 2 Ch 59 at 75.

74     Fomento did not, of course, concern an arbitration clause.  Furthermore, whether or not an auditor is entitled to obtain an opinion, such as a legal opinion, from a third party must depend to some extent upon the nature of the task assigned to the auditor in the contract providing for his or her appointment, and the relevant terms of the contract.

75     In Fomento, the relevant clause obliged the licensees to give to the auditor “all such ... information as may be necessary or appropriate to enable the amount of the royalties payable hereunder to be ascertained”.

76     In the same case, the following passage in the dissenting judgment of Viscount Simons is apposite:

“In their consideration of this clause the Court of Appeal have, in my opinion, rightly laid great stress on the fact that it is an auditor whose rights they are considering.  No one will deny that, in the course of their professional practice, accountants, chartered or incorporated, may acquire a wide range of commercial knowledge, but the accountant will not claim that it is part of his professional skill and expertise to determine whether or not an article, or any part of it, is protected by a patent.  The accountant here concerned frankly said that, given the article, he would take the advice of a  patent agent - who, in his turn, might well say it was a question about which he would like to consult counsel.  This appears to me to throw a flood of light on the scope of the clause.  The obligation of the licensees is to give to the auditor books and other information which will enable him as an accountant to ascertain or (to use another word in the same context) to verify the amount of royalty payable under the licence.  If he must rely not on what his own professional skill and knowledge have taught him but on the advice of others - on a question of patent likely enough to be but tentative - for the ascertainment and verification of the amount of royalty payable, he cannot fairly say that he has himself ascertained or verified anything at all.  He can, at most, say that, though the licensees claim that a certain article is not, such and such a patent agent or counsel has advised that it is, or may be, protected by a patent.  I decline to believe that the clause has such a scope as this.”

77     I have already drawn attention to what, in my opinion, is the relatively limited function of the auditor charged with the responsibility for furnishing an Audit Opinion under clause 5(i).

78     In the ordinary working out of clause 5(i), in my opinion, the Audit Opinion to be given is as to the correctness of the Accounting Adjustments, not as to the correctness of the assumptions upon which those adjustments have been made, at least where those assumptions depend upon a legal construction of the Settlement Agreement, or for that matter, other agreements such as the Downstream Agreement.

79     After all, the assumptions upon which the Accounting Adjustments were to be made were, in one sense, an expression of many years of experience between the parties.  There is force in the submission by Mr Karkar QC that Delhi was entitled to expect that the Accounting Adjustments would be done upon the assumptions as to the appropriate participation factors which had been applied over many years before the furnishing of a draft of the Accounting Adjustments.

80     Just prior to the Settlement Agreement being executed, Santos produced schedules relating to the First Accounting Adjustment, which were prepared in accordance with Santos’ long-standing practice, and Delhi’s understanding.[26]  Immediately after the Settlement Agreement was entered into, Santos produced revised schedules relating to the First Accounting Adjustment which also accorded with that practice.[27]

[26]   See exhibit “PGR1” to the affidavit of Peter Gerald Ryan sworn 5 November 1998.

[27]   See exhibit “PGR3” to Mr Ryan’s affidavit.

81     If one was to countenance KPMG obtaining a legal opinion as to the contentious issue which has arisen as to the appropriate participation factors, having regard to the Settlement Agreement, the Downstream Agreement and the Unit Agreement, presumably the auditor performing a comprehensive audit under clause 5(k) could likewise obtain a competing and different legal opinion as to the same question of construction.  There might be no difference in the calculations between the two auditors, but only as to the assumptions upon which they were based having regard to the legal opinions.  The difference thrown up by such a process would then be a reflection of different legal opinions, not a reflection of different audit opinions.

82     However the matter is approached, I am unable to construe clause 5 so as to bring within the rubric of its provisions for referral to arbitration a dispute the resolution of which will depend upon the legal construction to be applied to the agreement or agreements between the parties, and the question whether an estoppel has arisen by reference to the conduct of the parties over a period of time.  It seems to me that such a dispute is as to a more fundamental and basic question than the question of the accuracy of an Accounting Adjustment performed pursuant to clause 5 of the Settlement Agreement.

83     In my opinion, the dispute now in question does not lie within the scope of the arbitration clause, and in particular clause 5(l) of the Settlement Agreement.

The arbitration clause in the Unit Agreement

84     As I have indicated, in my opinion, the arbitration clause in the Unit Agreement is not even of potential application, and if any arbitration clause is to apply, it is that to be found in the Settlement Agreement.  That is subject to the qualification that the procedural provisions of the arbitration clause in the Unit Agreement are incorporated into the Settlement Agreement by virtue of the reference to the provisions of Article 23 of the Unit Agreement, in clause 5(l)(ii) of the Settlement Agreement.

85     However, if I was to be wrong about that, in my opinion, the defendants are no better off.

86 That part of Article 23 which deals with references to arbitration is 23.02 which reads:

23.02... Matters to be subject to Arbitration

If any question, difference, dispute or disagreement whatsoever (other than in relation to a matter to be decided by vote of the Parties pursuant to Clause 6.05 hereof) arises between the Parties hereto upon or in relation to or in connection with:

(a). any matter or course of action in respect of which it is provided in this Agreement that such disagreement shall be referred to arbitration;

(b). any matter which the parties to the dispute agree to submit to arbitration;

(c). any matter substantially of a technical nature;

(d). any estimate made by the Unit Operator under Clause 3.04(b)(i) hereof; or

(e). any matter not agreed upon in this Agreement or depending upon further agreement of the parties;

............. then such question, difference, dispute or disagreement shall be referred to arbitration as hereunder provided and for such purpose each party to such question, difference, dispute or disagreement shall as soon as reasonably practicable by notice in writing to each other party involved in such question, difference, dispute or disagreement clearly specify the nature of such question, difference, dispute or disagreement and call for the point or points of issue to be submitted for settlement by arbitration which notice is hereinafter called a ‘Notice of Arbitration’.”

87     Sub-clause (a) does not apply as the dispute which presently exists between the parties is not one which it is provided in the Unit Agreement “shall be referred to arbitration”.  Sub-paragraph (b) self-evidently does not apply.

88     As to sub-paragraph (c), the matter now at issue between the parties is not a matter “substantially of a technical nature” in the relevant sense.  Although the dispute between the parties is complex, as I have attempted to make clear, the question at issue concerns primarily a matter of construction of the relevant agreements, as well as an issue as to estoppel arising from the conduct of the parties.  In the Crusader case, Bollen J held that the word “technical” as employed in the Unit Agreement means “technical in the context of the discipline of learning and skill involved in supplying natural gas, not technical legal matters”.[28]

[28] Ibid, 155 LSJS at 459, and see on appeal 156 LSJS per White J, with whom Millhouse J agreed at 432.

89     True it is that in determining the question of construction, one may have to have regard to some of the technical terms and concepts to be found in the relevant agreements.  But that would be purely incidental to the central question, which is one of legal construction, and of the legal principles relating to estoppel.

90     Sub-clauses (d) and (e) clearly do not apply.

91     At one stage of his argument, Mr Gray QC attempted also to suggest that the corresponding arbitration clause in the Downstream Agreement (clause 20.02) was also of application.  That clause in the relevant respects is indistinguishable from clause 23.02 of the Unit Agreement, and for the reasons which I have just given, is equally of no avail to the defendants.

Settlement Agreement clause 5(n)

92     This clause provides:

“Subject to the provisions in Clauses 5(i) to (m), the Accounting Adjustments are conclusive and will not be challenged by any party.”

93     Taken literally, that clause would suggest that an audit opinion obtained pursuant to clause 5(i) is conclusive, subject only to the rights to obtain a comprehensive audit which might, if there is no agreement as to any further adjustment recommended, lead to arbitration.

94     But in my opinion, Delhi’s contention is correct insofar as it submits that clause 5(n) of the Settlement Agreement refers only to valid accounting adjustments, that is, accounting adjustments prepared in accordance with the agreement between the parties.

95     Delhi’s claim in the present case is that Santos did not prepare the second accounting adjustment in accordance with the parties’ agreement as to the participations which were to apply to certain kinds of receipts and outgoings.  Likewise, it contends that KPMG’s audit opinion, which purported to effect alterations to the first accounting adjustment and to confirm the allegedly flawed second accounting adjustment, was necessarily invalid because it did not conform to the parties’ agreement with respect to the correct characterisation of the relevant receipts and outgoings under the Downstream Agreement, or with respect to the application under the Settlement Agreement of Delhi’s fixed factor to the jetty participation.

96     During the course of argument, I was referred by Mr Karkar QC to dicta of McHugh JA in Legal and General Life of Australia v A. Hudson Pty Ltd[29] when he said:

“In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied.  ....... While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract.  A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties.  But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement.  In each case the critical question must always be: was the valuation made in accordance with the terms of a contract?  If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value.  Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account.  The question is not whether there is an error in the discretionary judgment of the valuer.  It is whether the valuation complies with the terms of the contract.”

[29] (1985) 1 NSWLR 314 at 335-336.

97     That passage was applied by the Full Court in Crusader Resources NL v Santos Ltd.[30]  In that case, what was described as the Go-It Alone Production Schedules prepared by Santos using input data which differed from that considered and accepted by the parties were held to be invalid because they were not prepared in accordance with the agreement between the parties.  See also Totalisator Agency Board of NSW v Casey.[31]

[30] (1991) 58 SASR 74 at 95-96.

[31] (1994) 54 IR 354 per Kirby P at 359-360.

98     I do not pause to consider the long line of authority cited by Mr Karkar QC which supports the general proposition that while parties may, if their contract is so worded, effectively prevent litigation of factual issues, they may not oust the jurisdiction of the court to determine matters of law.  Cases within that line of authority referred to by Mr Karkar QC are R v Plowright and Ors,[32] In Re Davstone Estates Ltd’s Leases,[33] Lee v Showmen’s Guild of Great Britain,[34] Baker v Jones,[35] R v Medical Appeal Tribunal ex parte Gilmore,[36] Pearlman v Harrow School,[37] and Tehrani v Rostron.[38]  I do no more than note that argument, as it seems to me that if Delhi’s case that the Audit Opinion was not prepared in accordance with the agreement between the parties was to be made out, cadit quaestio.

[32] (1686) 3 Mod 94.

[33] [1969] 2 Ch 378.

[34] (1952) 2 QB 329 per Lord Denning at 342, 345 and 385-7.

[35] [1964] 1 WLR 1005.

[36] [1957] 1 QB 574 per Lord Denning at 583.

[37] [1979] 1 QB 56 at 70-71.

[38] [1972] 1 QB 182.

99     Insofar as the arguments as to clause 5(n) are relevant to the application to strike out the statement of claim, they could only succeed if the statement of claim was clearly untenable.

100   But for the reasons given, in my opinion, the defendants’ arguments based on clause 5(n) are unsound, and the clause is no impediment to the claims advanced in the statement of claim.  I reach that view not on the limited ground that the question of the applicability of clause 5(n) is arguable, but on the ground that, assuming that Delhi makes out its case as pleaded, I have reached a concluded view that clause 5(n) represents no impediment to the grant of the relief sought.

The exercise of the discretion

101   The conclusions which I have so far reached are sufficient to dispose of the application.

102   However, if my view that the dispute between the parties does not fall within the relevant arbitration clause or clauses does not ultimately prevail, a question arises whether in any event the application for a stay should succeed.

103   I have not so far referred to the relevant provisions of the Commercial Arbitration Act 1986. Section 53 of the Act provides:

“53(1).. If-

(a).... a party to an arbitration agreement commences proceedings in a court against another party to the agreement in respect of a matter agreed to be referred to arbitration;

(b)... an application for a stay of the proceedings is made by another party to the arbitration agreement;

(c)... the application is made:

(i)before the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance;

or

(ii). by leave of the court - at some later stage in the proceedings;

(d)... the court is satisfied-

(i)that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement;

and

(ii)... that the applicant was at the commencement of the proceedings and still remains ready and willing to do all things necessary for the proper conduct of the arbitration;

the court may make an order staying the proceedings and may give such directions with respect to the future conduct of the arbitration as it thinks fit.

(2)...........”

104 I repeat the assumption which I made earlier, which Mr Karkar QC did not join issue with, namely, that the relevant parts of the Settlement Agreement constitute an “arbitration agreement” within the meaning of s53. Such an agreement is defined in s4(1) of the Act as “an agreement in writing to refer present or future disputes to arbitration”.

105   As to paragraph 53(1)(c) of the Act, the application by the defendants has been made before the defendants have “delivered pleadings or taken any other step in the proceedings other than the entry of an appearance”.

106 As to s53(1)(d), a precondition to the making of a stay is that the court must be satisfied “that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the agreement”. Furthermore, even in those circumstances, the words “the court may make an order staying the proceedings” identifies a discretion.

107   Delhi advances a number of arguments against the exercise of the discretion.

108   The first argument is that the “essential and dominant questions” raised by the pleadings are questions of law, more particularly matters of construction of the Downstream Agreement and the Settlement Agreement.  Another aspect is the legal significance, in the context of its plea of estoppel, of the conduct of the parties during the many years of their relationship.

109   There is a subsidiary question to which I have not so far referred, namely, the question raised by the statement of claim as to whether all statements of charges and bills rendered by Santos to Delhi after 1 January 1987 in relation to Delhi’s share of the capital component of the State wharfage dues and the roads and water tariffs are to be presumed to be true and correct after 24 months following the date of the statement of bill. This is a legal question which may only be resolved on a construction of the relevant agreements.

110   In my opinion, Delhi is right when it submits that these issues of construction and estoppel are significant questions of law.  As such, there is a body of authority which suggests that the appropriate forum for the determination of such questions is a court of law rather than an arbitration.  See, for example, O’Neill and Clayton Pty Ltd v Ellis and Clark Pty Ltd[39] where Legoe J observed:

“The appropriate forum for the construction of the extent of an arbitration clause and the application of an agreement (between A and B) to another agreement (between B and C) is a court of law whose training and experience is equipped to determine this type of question of construction of written agreements.”

[39] (1978) 20 SASR 132 at 143.

111   As to this aspect of the matter I was referred also to Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd,[40] the Crusader appeal,[41] The Lady Carrington Steamship Co v The Commonwealth,[42] and Plummer v Delaforce.[43]

[40] [1971] All ER 665 per Lord Denning MR at 671.

[41] Per White J, Millhouse J agreeing, 156 LSJS at 429.

[42] (1921) 29 CLR 596 per Starke J at 601 and per Knox CJ at 600.

[43] [1964] NSWR 1550 at 1556.

112   It is true that an arbitrator could possibly deal with the questions of law, including the question of estoppel, but this is clearly a case where the court is best fitted to resolve such questions.

113   In any event, if the present dispute was left to be resolved by an arbitrator, it would almost certainly come back to this Court by way of an appeal under s38(2) or a reference under s39 of the Act.  While that is a consideration which, having regard to the decision of the High Court in the PMT case (supra) may not carry the weight which has sometimes been accorded to it, it is a matter which tends against the grant of a stay: see the Crusader appeal,[44] and The Lady Carrington Steamship Company Ltd v The Commonwealth.[45]

[44]    156 LSJS per Olsson J at 440 and per White J, Millhouse J agreeing, at 431.

[45] (1921) 29 CLR 596 per Knox CJ at 600.

114   There is another factor which might be taken into account on the question of the exercise of the discretion.

115   Following receipt of Delhi’s summons and statement of claim, Santos wrote to representatives of the other Unit parties, including Delhi, indicating that Santos would be defending the claim.  Then, after Santos’ solicitors Kelly & Co were instructed by the defendant Boral Energy Resources Ltd, they wrote by letter of 16 October 1998 to Delhi’s solicitors on behalf of Boral.  In the letter they state:

“At this stage, Boral Energy Resources Limited wish to adopt the submissions and contentions of Santos Limited in its capacity as Unit Operator with respect to the abovenamed action and accordingly wish to adopt any defence filed on behalf of Santos Limited in that capacity.

I have been instructed to write to you seeking your instructions as to an agreement between Boral and Delhi that Boral Energy Resources Limited take no further steps in these proceedings other than the provision of any proper discovery required.  Boral will indicate to the Court through Counsel that such an agreement has been reached and that it adopts the submissions, contentions and defence of Santos in this action.  Otherwise, Boral Energy Resources Limited wishes to reserve its rights with respect to the adoption of a position different to that of Santos in its capacity as Unit Operator at some later time together with all or any other rights of Boral Energy with respect to this action.  (Emphasis added.)”

116   Finally, on 2 November 1998 Santos wrote to Delhi in a letter which included the following:

“By clause 5 of the Fixed Factor Settlement Agreement, the parties to that agreement agree that the Unit Operator will undertake the Accounting Adjustments.  Delhi complains in its statement of claim about the conduct of the Unit Operator in effecting those adjustments.  The Unit Operator does not agree with those complaints and will defend its conduct and interpretation of the relevant agreements in the proceedings Delhi has issued.  (Emphasis added.)”

117   I think that Delhi’s submission that, having regard to that correspondence, Santos and Boral have “blown hot and cold”, is pitching the matter too high.  But, nonetheless, the terms of the correspondence is a factor, although not a major factor, to be taken into account in the exercise of the discretion.  But I would reach the same view as I am about to come to as to the exercise of the discretion, irrespective of that correspondence.

118   In my opinion, even if I was to be wrong in concluding that the present dispute is not within the arbitration clause, a stay should be refused in the exercise of the Court’s discretion.

Conclusions

119   I summarise the conclusions which I have reached.

(a)The present dispute between the parties is not within the scope of the arbitration clause (clause 5) of the Settlement Agreement.

(b)Neither Article 23 of the Unit Agreement nor clause 20.02 of the Downstream Agreement are of application. But even if they were, on a proper construction of those clauses, the present dispute is not caught by these clauses.

(c)Clause 5(n) does not operate as a bar to the action.

(d)Even if, contrary to the view which I have just expressed, the present dispute was to be caught by one or other of the arbitration clauses, the defendants’ application for a stay should be dismissed in the exercise of the discretion conferred by s53 of the Commercial Arbitration Act 1986.

(e)The defendants have not made out a case for the striking out of the statement of claim.

120   In light of those conclusions, the application is dismissed.

121   I will hear the parties as to costs.

JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT

1. The indenture, dated 26 November 1981, appears as the First Schedule to the Stony Point (Liquids Project) Ratification Act 1981.

2.   See the Crusader Resources NL v Santos Ltd and Ors (1990) 155 LSJS 449 (Bollen J) and on appeal 156 LSJS 420 (White, Millhouse and Olsson JJ).

3.   See clause 1(xiii) and 3 of the Settlement Agreement.

4.   See clause 5(b).

5.   Statement of claim, paragraph 71.

6.   Affidavit filed 5 November 1998, court file document No 10.

7.   See Anderson v G.H. Michell & Sons Ltd (1941) 65 CLR 543 at 548-549; Murphy v Benson (1942) SR(NSW) 66 at 67 and Adelaide Steamship Industries Pty Ltd v Commonwealth of Australia (1974) 8 SASR 425 per Bright J at 439, but c/f Adelaide Steamship Industries Pty Ltd v Commonwealthof Australia (1974) 10 SASR 203 per Bray CJ at 213 and per Hogarth J at 218.

8.   See Adelaide Steamship Industries Pty Ltd v Commonwealth of Australia (1974) 8 SASR at 440, 10 SASR at 213, and Hanessian v Lloyd Triestino Societa Anonima di Navigazione (1951) 68 WN(NSW) 98 per Owen J at 100.

9.   Second edition, page 470.
10. (1990) 156 LSJS 420 at 443.
11. (1995) 184 CLR 301.

12.  Supreme Court of New South Wales Common Law Division, 29 March 1990, unreported, judgment BC 9002581.
13.  Ibid 5.

14. [1966] VR 570 per Winnecke CJ, Adam and Gillard JJ at 574-575.
15.  Huddart Parker Ltd v The Mill Hill (1950) 81 CLR 502 at 508-9.
16. [1913] AC 241 at 259.
17. [1926] Ch 371 at 389.
18.  PMT Partners Pty Ltd v Australian National Parks and Wildlife Services supra per Brennan CJ, Gaudron and McHugh JJ at 311.
19.  Ibid at 311.
20.  See Frankston and Hasting Corporation v Cohen (1961) 102 CLR 607 at 617 per Fullagar J.
21. [1958] 1 All ER 11.
22.  Ibis at 23.
23. [1925] AC 578 at 605.
24. [1947] 2 All ER 312 at 316.
25. [1901] 2 Ch 59 at 75.

26.  See exhibit “PGR1” to the affidavit of Peter Gerald Ryan sworn 5 November 1998.

27.  See exhibit “PGR3” to Mr Ryan’s affidavit.

28. Ibid, 155 LSJS at 459, and see on appeal 156 LSJS per White J, with whom Millhouse J agreed at 432.
29. (1985) 1 NSWLR 314 at 335-336.
30. (1991) 58 SASR 74 at 95-96.
31. (1994) 54 IR 354 per Kirby P at 359-360.
32. (1686) 3 Mod 94.
33. [1969] 2 Ch 378.
34. (1952) 2 QB 329 per Lord Denning at 342, 345 and 385-7.
35. [1964] 1 WLR 1005.
36. [1957] 1 QB 574 per Lord Denning at 583.
37. [1979] 1 QB 56 at 70-71.
38. [1972] 1 QB 182.
39. (1978) 20 SASR 132 at 143.
40. [1971] All ER 665 per Lord Denning MR at 671.

41. Per White J, Millhouse J agreeing, 156 LSJS at 429.

42. (1921) 29 CLR 596 per Starke J at 601 and per Knox CJ at 600.
43. [1964] NSWR 1550 at 1556.

44.  156 LSJS per Olsson J at 440 and per White J, Millhouse J agreeing, at 431.
45. (1921) 29 CLR 596 per Knox CJ at 600.