Empire Oil Company (WA) Limited v Wharf Resources Plc
[2014] WASC 179
•23 MAY 2014
EMPIRE OIL COMPANY (WA) LIMITED -v- WHARF RESOURCES PLC [2014] WASC 179
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 179 | |
| Case No: | CIV:2382/2013 | 19 MAY 2014 | |
| Coram: | CHANEY J | 23/05/14 | |
| 17 | Judgment Part: | 1 of 1 | |
| Result: | Declarations made affirming withdrawal Counterclaim dismissed | ||
| B | |||
| PDF Version |
| Parties: | EMPIRE OIL COMPANY (WA) LIMITED ERM GAS PTY LTD WHARF RESOURCES PLC MINISTER OF MINES AND PETROLEUM WESTERN AUSTRALIA |
Catchwords: | Joint venture Deemed withdrawal Failure to pay cash calls Turns on own facts |
Legislation: | Petroleum and Geothermal Energy Resources Act 1967 (WA) Rules of the Supreme Court 1971 (WA) |
Case References: | Bell v Cribb [2013] WASC 32 Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178; (2000) 22 WAR 372 Strzelecki Holdings Pty Ltd v Cable Sand Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- First Plaintiff
ERM GAS PTY LTD
Second Plaintiff
AND
WHARF RESOURCES PLC
First Defendant
MINISTER OF MINES AND PETROLEUM WESTERN AUSTRALIA
Second Defendant
Catchwords:
Joint venture - Deemed withdrawal - Failure to pay cash calls - Turns on own facts
Legislation:
Petroleum and Geothermal Energy Resources Act 1967 (WA)
Rules of the Supreme Court 1971 (WA)
Result:
Declarations made affirming withdrawal
Counterclaim dismissed
Category: B
Representation:
Counsel:
First Plaintiff : Mr J A Thomson SC & Mr L A Warnick
Second Plaintiff : Mr J A Thomson SC & Mr L A Warnick
First Defendant : No appearance
Second Defendant : No appearance
Solicitors:
First Plaintiff : Clayton Utz
Second Plaintiff : Clayton Utz
First Defendant : No appearance
Second Defendant : State Solicitor for Western Australia
Cases referred to in judgment:
Bell v Cribb [2013] WASC 32
Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178; (2000) 22 WAR 372
Strzelecki Holdings Pty Ltd v Cable Sand Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318
1 CHANEY J: The plaintiffs, Empire Oil Company (WA) Ltd (Empire) and ERM Gas Pty Ltd (ERM), and the first defendant, Wharf Resources PLC (Wharf) are presently the registered owners of a petroleum permit granted pursuant to the Petroleum and Geothermal Energy Resources Act 1967 (WA), known as Exploration Permit 389 (EP 389). Activities in relation to EP 389 are governed by a joint operating agreement dated 30 November 2007 (JOA) the parties to which are Empire, ERM and Wharf. By the JOA, the parties agreed to associate themselves as a joint venture for the purpose of carrying out exploration on the area of EP 389 with a view to discovering commercial reserves of petroleum and, if so decided, establishing production operations for the development and exploitation of the permit area.1 Empire is designated as the operator under the JOA.2 The JOA enables the operator to issue cash calls to the joint venture participants.3 Default in meeting those cash calls can lead to the defaulting party being deemed to have given a notice of withdrawal from the joint venture. In that event, the JOA provides for the appointment of the operator as the lawful attorney of the defaulting party for the purposes of executing any documents necessary to give effect to the withdrawal.4
2 The plaintiffs assert in this case that Wharf has defaulted in relation to payments of three cash calls and has thereby withdrawn from the joint venture. It seeks declarations to that effect. As against the second defendant, the Minister for Mines and Petroleum, the plaintiffs seek an order that he approve and register certain documents in order to give effect to the withdrawal of Wharf from the joint venture.
3 On 19 September 2013, the second defendant filed a notice that he would abide the decision of the Court.
4 In circumstances that I will set out below, Wharf did not appear at the trial of this action, and the trial proceeded in its absence. For the reasons which follow, the plaintiffs are entitled to the relief which they seek.
Wharf's failure to attend trial
5 These proceedings were commenced by writ on 10 September 2013. On 17 September 2013, Wharf entered an appearance nominating Hotchkin Hanly Lawyers as its solicitors. Those solicitors filed a defence on 7 October 2013. On 11 October 2013, the matter was admitted to the commercial and managed cases lists to be case-managed by Allanson J. On 31 October 2013, Hotchkin Hanly Lawyers filed an amended defence and counterclaim which dealt in far more detail with the defendants' case, pleaded several specific defences and introduced a counterclaim for a declaration to the effect that Wharf had not withdrawn from the joint venture, for certain injunctions and for relief against forfeiture.
6 Shortly afterwards, Optima Legal filed a notice of change of solicitors for Wharf.
7 Thereafter followed the filing of fairly extensive documents relating to an application brought by the plaintiffs for security for costs in relation to the counterclaim. That question appears to have been ultimately resolved without a hearing.
8 On 27 February 2014, Allanson J made extensive pre-trial directions and provisionally listed the matter for a 7-day trial to commence on either 15 or 22 May 2014. That was done following the filing of an affidavit of Kent Quinlan, the Acting Chief Executive Officer of Empire, which deposed to circumstances based on which Mr Quinlan expressed the belief that the earliest possible resolution of the matter was necessary in order to avoid cessation of production from the nearly constructed processing facility. He deposed that delay in resolution of the matter could have serious commercial consequences for the title holders of EP 389. On 14 March 2014, Allanson J made directions confirming that the hearing would commence on 15 May 2014, and further case management was to be conducted by me as a trial Judge.
9 Among the directions given by Allanson J on 27 February 2014 was a direction that each party give discovery on affidavit regarding issues on that party's pleading by 14 March 2014. It was further directed that the parties deliver requests for discovery by categories to other parties by 14 March 2014, and that the parties provide discovery on affidavit regarding categories by 28 March 2014. Inspection of documents was to be completed by 4 April 2014.
10 In compliance with those directions, the plaintiffs provided discovery of documents relevant to issues on the plaintiffs' pleadings. Wharf failed to give discovery in accordance with the orders. That caused the plaintiffs to seek a further direction requiring discovery by Wharf on the issues in its pleadings by 31 March 2014. On 26 March 2014, a direction to that effect was made following the filing of an affidavit by Wharf's solicitor deposing to the fact that he had provided an unsworn list of documents for Wharf's discovery to the plaintiffs' solicitors on 26 March 2014. To that point, there was no suggestion that either party had requested discovery of further documents by categories as contemplated in the directions of 27 February 2014. The time for such requests had, of course, by then passed.
11 By an email dated 14 April 2014 to the Court, a Mr Fucilla, apparently an officer of Wharf, notified the Court that Wharf 'were compelled to dispensed [sic] of the services of' their solicitor and that they were at present looking for an urgent replacement. His email requested a stay of all pending matters until a new lawyer had been appointed. The email advised that 'we had requested [the solicitor] to apply to get the case dismissed as the Plaintiffs are not willing to disclose documents at the hart [sic] of the dispute'. In that email, Mr Fucilla identified certain documents of which he sought discovery. The particular relevance of those documents to the pleaded issues was not immediately apparent.
12 It is not open for a party to litigation which is a corporation to act in the litigation other than through a solicitor. This is a consequence of O 4 r 3(2) of the Rules of the Supreme Court 1971 (WA) which provides that a body corporate may not begin or carry on any proceedings other than by a solicitor, and O 12 r 1(2) which provides that a body corporate may not enter an appearance in an action or defend itself other than by a solicitor. Order 4 r 3(2) and O 12 r 1(2) should be read in close conjunction.5
13 It is well established that the Court has no power to dispense with the prohibitions in O 4 r 3(2) and O 12 r 1(2). The position was succinctly stated by Beech J in Bell v Cribb6where his Honour said:
[The plaintiff] cannot file an affidavit except through a solicitor. That is the effect of O 4 r 3(2) and O 12 r 1(2) of the Rules of the Supreme Court 1971 (WA). Authority establishes the following:
(1) the prohibitions in O 4 r 3(2) and O 12 r 1(2) include the taking of any step and filing of any document in a proceeding;
(2) the court has no power to dispense with the prohibitions in these Rules; and
(3) the court does have power to permit a person leave to appear to speak on behalf of a company, but this does not avoid the prohibition on taking any step, including filing any document.
See Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178 ; (2000) 22 WAR 372; Re Hoffman [2004] WASCA 238; Donyette Pty Ltd v Top Lodge Nominees Pty Ltd [No 2] [2011] WASC 141 [36]; Prow Pty Ltd v Cmr of Police [2012] WASC 363 [20] - [23].
14 On 17 April 2014, Optima Legal brought an application for an order that it had ceased to act as solicitors for Wharf. That application was supported by an affidavit by the solicitor deposing to the fact that he was having increasing difficulties communicating with the directors of Wharf as they were not willing to accept his advice, and that he had formed the view that mutual trust and confidence did not exist between them. By that time, of course, the Court had already been told by Mr Fucilla on behalf of Wharf that the company had dispensed with the solicitors' services. In those circumstances, an order that the solicitors had ceased to act was made.
15 I pause to observe that the expressed reason for Wharf dispensing with Optima Legal's services, namely that the solicitor declined instructions to 'apply to get the case dismissed' for failure to give discovery would not seem to be a rational basis for dispensing with the solicitors' services. Discovery had been given. If the documents referred to in the email to the Court were relevant to any issue, then it can only have been issues on Wharf's pleading. Wharf had not given notice of categories of documents in respect to which further discovery was required. It is inconceivable that the Court would have dismissed the plaintiffs' action on the ground suggested by Mr Fucilla and it was entirely appropriate for the solicitors to decline to make an ill-conceived application. Papers filed in the proceedings reveal that Optima Legal had written to the plaintiff's solicitors seeking further documents and seeking to justify their relevance before their services were terminated.
16 A number of communications were thereafter received from Mr Fucilla and Mr Eyre, a director of Wharf. Those communications were directed to seeking a vacation of the trial dates. Mr Eyre and Mr Fucilla were advised by the Court of the requirement of the Rules of the Supreme Court that a corporation be represented by a solicitor. On 5 May 2014, some 10 days prior to trial, I listed a directions hearing which Mr Fucilla and Mr Eyre were invited to attend, and did attend, by telephone. The requirements of the rules in relation to representation of corporations were explained to them, and, in particular, they were advised that any application to vacate the trial dates would need to be made through a solicitor on the record in the action and that, in the absence of any such application, they should understand that the trial would proceed as listed.
17 Other than the Court's receipt by email of what purports to be an affidavit of Mr Eyre which again sought a vacation of the hearing date and a stay of further proceedings for some months, nothing further was heard from Wharf or any solicitors acting on its behalf. At the trial, there was no appearance by anyone on behalf of Wharf.
18 It was in those circumstances that the trial proceeded in Wharf's absence.
The joint venture
19 EP 389 consists of 21 graticular blocks. Two of those graticular blocks are the subject of applications for production licences.
20 Around December 2005, Empire and Wharf executed a 'farm in' agreement in respect of EP 389 pursuant to which Wharf acquired a 25% interest in EP 389. In May 2006, a deed of assignment and assumption was executed assigning Wharf its 25% interest on the condition that a mutually acceptable joint venture operating agreement be entered into. That led to the JOA being executed on 30 November 2007. Around August 2009, Wharf's interest in EP 389 was reduced to 10% pursuant to a deed of sale and a deed of assignment and assumption.
21 ERM also 'farmed into' the permit and provided some funding for a well, known as the Gingin West-1 well, and became a joint venture party under the JOA.
22 At the time of the present dispute arising, the interests in EP 389 were Empire as to 68.75%, ERM as to 21.25%, and Wharf as to 10%.
The funding the JOA
23 The JOA provides a mechanism to facilitate the funding of joint venture operations. Part 12 of JOA deals with authority for expenditure. It relevantly provides:
12.1 The Operator shall, before entering into any commitment or incurring any expenditure under the approved program and budget prepare a schedule of the estimated costs to be incurred and the times at which payment of account of such costs are anticipated, and shall submit a copy of the schedule to each Party. Each Party shall, within fourteen (14) days after receipt of the schedule, notify the Operator and the other Parties in writing whether it approves the schedule. A party shall be deemed to have approved a schedule unless a written notice of non-approval is communicated to the Operator within the fourteen (14) day period referred to. During the drilling of any well, the fourteen (14) period shall be reduced to twenty-four (24) hours on receipt of notification.
12.2 If Parties holding Percentage Interests sufficient to pass a Majority Vote approve or are deemed to approve a schedule submitted by the Operator, then such approval or deemed approval shall constitute and authority for expenditure ("AFE") to the Operator in terms of the schedule and shall oblige the Parties ti pay their respective Percentage Interest shares of all JV Costs arising or incurred in respect of the subject matter of the AFE.
12.3 The Operator may in the course of carrying out an approved programme and budget overspend and AFE by not more than ten percent (10%) of the amount budgeted in the AFE. If the amount over expended arrears likely to exceed ten percent (10%) of the amount budgeted, then the Operator shall submit to the Parties and additional AFE in respect of the excess over the amount originally budgeted in the AFE, together with a written explanation specifying the reasons for the excess, where the excess is over Ten Thousand Dollars (A$10,000).
24 'Majority vote' is defined in Part 1 of the JOA as follows:
[A] resolution of the Committee having the affirmative vote of two or more Parties, not being Related Bodies Corporate, having aggregate Percentage Interests exceeding sixty-five percent (65%) of the aggregate Percentage Interests held by all Parties who are entitled to votes and who actually vote on the resolution;
25 The JOA permits the operator to submit to each party to the JOA a statement of account and to issue a cash call to each party for its percentage interest share in any joint venture costs. Clause 13.4 provides that all cash calls be paid by the parties on or before 21 days after receipt of the cash call.
26 Clause 15.1 provides for default. It reads:
15.1 A party shall be a Defaulting Party for the purposes of this Agreement if any Cash Call which becomes due or payable by that Party under any of the terms of this Agreement ("the Default Amount") is not paid when and as the same becomes due and payable and such default continues unremedied for five (5) Business Days after written notice by the Operator to that party and copies to the other Parties specifying the default.
27 Clause 15.2(d) deals with the consequence of a defaulting party continuing in default. It provides:
15.2(d) where a Party remains a Defaulting Party for more than forty five (45) days, then the Defaulting Party shall be deemed on the forty fifth (45th) day following first occurrence of the default or, if the default is reasonably disputed within that period, upon having been adjudged in default by a court of competent jurisdiction, to have given a notice of withdrawal of the Joint Venture in terms of this Agreement, such withdrawal to be effective immediately. The Defaulting Party hereby irrevocably appoint the Operator its lawful attorney for, on behalf of and in the name of the Defaulting Party, to execute all such instruments, deeds and documents and to and carry out all such acts as may be necessary or expedient to give effect to the withdrawal of the Defaulting Party under this Part 15;
28 Withdrawal is dealt with by part 19 of the JOA. Clause 19.5 provides:
19.5 A Withdrawing Party shall on the effective date of withdrawal, be deemed, subject to the Petroleum Act, without further formality to have assigned to the other Parties in proportion to their respective Percentage Interests, all the right, title and interest of the Withdrawing Party in terms of this Agreement and in the Permit and to any Petroleum contained within the Permit Area and in all JV Property and shall at its cost do all acts, matters and things reasonably required by the other Parties in order to give full effect to the assignment, including executing forms of transfer and making appropriate applications to the Relevant Authority.
The unmet cash calls
29 The plaintiffs base their claim for relief on the failure by Wharf to meet three cash calls, and to remedy its default in relation to those three cash calls following the appropriate notices being given.
30 The first is referred to as Cash Call 10. On 13 June 2012, authority for expenditure (AFE) was approved by the joint operating committee for costs of constructing the Red Gully processing facility. The AFEs relating to those costs were identified as RGD-3 through to RGD-12. According to Mr John Lloyd Craig Marshall, who was Managing Director of Empire between 1998 and November 2013, those AFEs were distributed to the parties to the joint venture for approval. The AFEs were approved by Empire and ERM, as demonstrated by the signature of officers of those two parties on each AFE, thus satisfying the requirement of clause 12.2 of the JOA.
31 The total of the expenditure authorised by AFE's RGD-3 through to RGD-12 was $18,990,219.
32 On 14 January 2013, Empire, acting as operator, made an amended Cash Call 10 for payment of $2,416,266 relating to the expenditure authorised by RGD-3 through to RGD-12. Wharf's share of that call was $241,626.60, and payment was due on 5 February 2013.
33 Wharf did not pay its contribution due under Cash Call 10 by the due date, or at all.
34 The second failure by Wharf to meet a cash call relates to expenditure for the costs of a heliseismic survey, a geo-chemical survey and a rock physics study. It is relevant to note, for the purposes of considering the defences pleaded by Wharf, that the surveys and technical studies were not confined to the area of the two graticular box subject to the production licence applications and did not relate to the costs of establishment of the Red Gully processing facility.
35 The AFEs for this set of expenditure were 389-1013S, 389-1015S, 389-1016, 389-1017, 389-1018, and 389-1020. These AFEs were all signed by Empire, ERM and Wharf between 4 and 18 December 2012. They permitted a total expenditure of $633,000.
36 On 11 January 2013, Empire, acting as operator, made a cash call for $644,964. Wharf did not pay any of its 10% share of $64,496.40 by the due date of 1 February 2013, and has not paid that sum subsequently. It can be noted that the slight excess of the amount of the cash call over the total permitted expenditure under the relevant AFEs, was within the 10% overspend allowance contemplated by clause 12.3 of the JOA.
37 The third set of expenditure relates to a cash call made on 12 March 2013. That cash call related to a survey known as the Wannamal 3D onshore seismic survey, which was a survey which was not confined to the two graticular blocks within EP 389 which are the subject of applications for production licences. The cash call related to an AFE numbered 389-1019 which was signed off by Empire and ERM on 7 March 2013 for an amount of $4,593,978.
38 A cash call was made for that amount on 12 March 2013. Wharf's 10% share was $459,398. The cash call was due to be paid by 2 April 2013, but Wharf did not pay its contribution within the time required, and has not paid since.
39 On 15 February 2013, Empire, in its capacity as operator, issued two notices of default to Wharf being the defaults in relation to the cash call of 11 January 2013 and cash call number 10. In accordance with clause 15.1 of the JOA, the notices gave Wharf five business days to remedy the default.
40 On 26 February 2013, Empire sent a further letter to Wharf which referred to the earlier notice of default of 15 February 2013 and advised that Wharf was excluded from voting or exercising any rights under the JOA in accordance to clause 15.2 of the JOA.
41 On 4 April 2013, Empire sent a notice of default to Wharf in relation to the cash call of 12 March 2013. That specified that Wharf had five business days to remedy the default. That notice was specified to be without prejudice to the operation of Part 15.2(d) of the JOA in respect to Wharf's failure to pay the other two cash calls.
42 On the same day, 4 April 2013, Empire wrote to Wharf giving it notice that it had been a defaulting party, in relation to Cash Call 10 and the cash call of 11 January 2013, for a period of 41 days, and that if it were to remain in default for a further four days, then by virtue of clause 15.2(d) of the JOA, Wharf would be deemed to have given notice of withdrawal from the joint venture effective immediately. The letter warned that if Wharf did not wish to be deemed to have given a notice of withdrawal it should pay the outstanding cash calls immediately.
43 It is not in dispute that Wharf did not pay the three outstanding cash calls. Accordingly, pursuant to clause 15.2(d) of the JOA, Wharf was deemed to have withdrawn from the joint venture on 8 April 2013.
44 It is clear that the process of approval of the AFEs, the process of service of cash calls and the mechanism which leads to a deemed withdrawal from the joint venture have all been undertaken in accordance with the provisions of the JOA. In those circumstances, the consequences specified in clause 15.2(d) of the JOA follow. Subject to consideration of the defences pleaded by Wharf, the plaintiffs are entitled to the relief which they seek.
45 On 21 June 2013, Empire in its own capacity, ERM and Empire as irrevocable attorney under clause 15.2(d) of the JOA, executed a transfer of EP 389, a transfer of Pipeline Licence PL 96 from Empire, ERM and Wharf to Empire and ERM, and a Deed of Assignment and Assumption to give effect to Wharf's withdrawal from the joint venture.
46 The applications for approval of the transfers were lodged with the second defendant on 3 July 2013. Registration of those transfers awaits resolution of these proceedings.
Wharf's pleaded defences
47 In its pleading filed in October 2013, Wharf pleaded a number of matters by way of defence. The first defence identified was that, at the time they were issued, Empire had no authority to issue the cash calls relied upon because, by then, the parties were associated in a production venture which, in effect, superseded the JOA and involved different arrangements in relation to the costs of the production venture.
48 That contention rests on Part 25 of the JOA. Clause 25.1 reads:
If the committee decides to proceed to develop the Petroleum Pool, then the Parties shall be associated in a Production Venture on the following basis:
(a) the purpose of the Production Venture shall be to carry out Production Operations for the recovery of Petroleum from the Petroleum Pool. Production Venture activities shall include all activities necessary, expedient or ancillary to the conduct of Production Operations, including the construction of terminals, tanks, pipelines, facilities and infrastructure;
(b) each party shall have a Production Interest in the Production Venture. The Production Interest of each party shall be its Percentage Interest at the date on which the Production Venture is established;
(c) each Party shall, as tenant in common, own an undivided interest in all of the Production Venture property and assets, proportionate to its respective Production Interest;
(d) each party shall take in kind and separately sell or dispose of its share of all Petroleum Production derived by the Production Venture, in proportion to its respective Production Interest at a point to be determined by the Committee;
(e) the Parties shall as soon as practicable enter into negotiations to establish a formula under which any one or more of the Parties may take their share of Petroleum produced at times otherwise than in accordance with the order of production;
(f) all available Petroleum shall be delivered to the Parties by the Production Operator at such place or places as the committee of the Production Venture shall determine;
(g) Petroleum will be divided among the Parties in such manner that each Party will receive concurrently Petroleum of like gravity and quality to that received by each other Party, and, to the extent that such division of Petroleum among the Parties will be determined by the Committee of the Production Venture;
(e) the Parties shall as soon as practicable enter into negotiations to establish a formula under which any one or more of the Parties may take their share of Petroleum produced at times otherwise than in accordance with the order of production;
(f) all available Petroleum shall be delivered to the Parties by the Production Operator at such place or places as the committee of the Production Venture shall determine;
(g) Petroleum will be divided amount the Parties in such manner that each party will receive concurrently Petroleum will be divided among the Parties in such manner that each Party will receive concurrently Petroleum of like gravity and quality to that received by each other Party, and, to the extent that such division is impracticable, a method of making periodic adjustment to equalise the division of Petroleum among the Parties will be determined by the Committee of the Production Venture;
(h) All Production Venture costs shall be paid by the Parties in proportion to their respective Production Interests. Production Venture costs shall be all costs incurred in connection with Production Venture activities;
(i) Each Party shall be responsible for financing its share of Production Venture costs;
(j) Each Party shall be responsible for paying all royalties, imposts and levies payable in respect of its share of Petroleum derived by the Production Venture, and the same shall not be Production Venture costs;
(k) The Production Venture shall have an operating committee. The committee shall have management and control of Production Venture activities. The provisions of this Agreement relating to the constitution, procedure and responsibility of the Committee of the Joint Venture shall apply equally to the committee of the Production Venture, mutatis mutandis;
(l) The Production Venture shall have a Production Operator. The Production Operator shall have sole and exclusive conduct of Production Venture activities, subject to the control and direction of the committee of the Production Venture. The Production Operator shall have rights and obligations commensurate with the rights and obligations of the Operator under this Agreement. The Production Operator shall within six (6) months after establishment of the Production Venture submit to the Operating Committee a programme and budget for development of the Petroleum Pool the subject of the Production Venture;
(m) The Operator shall be the Production Operator. The Production Operator may be appointed and removed from time to time in accordance with the provisions of this Agreement concerning appointment and removal of the Operator, mutatis mutandis;
(n) The Production Operator shall have a first lien and charge on each Party's share of Petroleum Production to secure payment by each Party of the share of Production Venture costs payable by the Party. If a Party fails to pay its share of Production Venture costs within fourteen (14) days from the due date therefore, the Production Operator shall be entitled to retain and sell that Party's share of production and to retain such share of the proceeds as are necessary to fully or partly satisfy the outstanding amount;
(o) Overheads to be on an actual basis; and
(p) Prior to the commencement of a development programme the Parties shall negotiate in good faith with a view to reaching appropriate terms of a further agreement ('Production JOA') to provide for the timely development of the Petroleum Pool and the conduct of Production Operations. This Agreement shall remain in force until the Production HOA is executed by the Parties. This Agreement shall not apply after execution of the Production JOA to the extent of any inconsistency with the terms of the Production JOA.
49 In paragraph 44 of its defence, Wharf pleads that on a date unknown to it, but prior to the first of the cash calls relied upon in these proceedings, the Committee decided to proceed to develop the Petroleum Pool. The particulars to that paragraph suggest that the decision was partly express, and partly implied. Details of the express resolution were to be provided following discovery, but no further particulars have been provided. A number of matters said to give rise to an implied decision to proceed to develop the Petroleum Pool are also pleaded. The defendant played no part in the trial of the action and there is no evidence to establish those particulars. Thus, it is not possible to find that there was a decision to proceed to develop a Petroleum Pool (which is defined in each JOA as a 'petroleum reservoir related to the same individual geological features or stratographic condition or both'). The particulars to paragraph 44 of the defence refer to 'the Petroleum Pools at Gingin West-1 and Red Gully-1', being the reservoirs the subject of the application for a production licence presently before the second defendant. As noted above, the cash calls of 11 January 2013 and 12 March 2013 related to exploration not confined to those reservoirs.
50 Mr Marshall gave evidence that there was an initial draft of a production joint venture operating agreement that Empire circulated to the joint venture participants in December 2011, in accordance with clause 25.1(p). On 6 December 2011, he received from Mr Fucilla on behalf of Wharf an amended draft, and on 22 December 2011, he received a further copy of the amended draft executed by Wharf directors. Mr Marshall's evidence was that no production joint venture agreement was executed by the joint venture parties. That is consistent with Wharf's pleading which is to the effect that, after it executed a draft in December 2011, Empire circulated further amended versions of the proposed JOA to the parties between December 2011 and July 2012, but that no proposed production JOA was executed by the first and second plaintiffs. Those matters are admitted by the plaintiffs in their reply and defence to counterclaim.
51 It can be seen that the obligation under clause 25.1(p) of the JOA is to negotiate in good faith, and that the JOA is to remain in force until a production joint venture is executed by the parties. It follows that the provisions of the JOA continued to apply whether or not it can be said that the Committee decided to proceed to develop the Petroleum Pool. In those circumstances, the funding provisions of the JOA continued to apply, and the operator was at liberty to issue cash calls pursuant to the JOA in respect to AFEs approved in accordance with the terms of the JOA. This aspect of Wharf's defence fails for that reason.
52 In addition, the defence could not succeed in relation to the cash calls made on 11 January 2013 and 12 March 2013. That is because those cash calls related to costs in relation to exploratory work done in areas outside of the area in respect of which a production licence was sought (which related to the reservoirs at Gingin West-1 and Red Gully-1, which together comprise only a small area of EP 389). Even if a production venture was in place in relation to those reservoirs, the JOA continued to apply in relation to the balance of the area of EP 389.
53 The second defence raised by Wharf is that the plaintiffs breached an obligation found under clause 25.1(p) of the JOA to enter into a production JOA, and thereby 'were not entitled to benefit from their breaches by enforcing the provisions of the JOA regarding cash calls'.
54 Again, this argument can have no application to the cash calls of 11 January 2013 and 12 March 2013 which did not relate to production costs for the Gingin West-1 and Red Gully-1 reservoirs.
55 In any event, clause 25.1(p) did not, as Wharf pleads, require the parties to 'enter into the negotiated production JOA'.7 The obligation under clause 25.1(p) was to negotiate in good faith. The nature and extent of that obligation was discussed in Strzelecki Holdings Pty Ltd v Cable Sand Pty Ltd.8 There is no plea as to a failure to negotiate in good faith, and none is established on the evidence. Wharf's defence on that point is not made out.
56 The plaintiffs argue, and I accept, that the alleged breach is misconceived because it assumes that a further production JOA had to be entered into prior to the commencement of a production venture. As the plaintiffs point out, clause 25.1(p) contemplates quite clearly a situation that the parties may be associated in a production venture, but no new production JOA may have been negotiated, which is why there is provision in the subclause for the existing JOA to remain in force.
57 The third defence raised by Wharf is based on an assertion that the operator cannot make cash calls when it is in material breach of the provisions of Part 10 of the JOA. Certain breaches were pleaded in support of this aspect of the defence.9
58 The first thing which can be said about this aspect of the defence is that, Wharf having elected not to participate in the trial, no evidence of any breach was led, and thus the defence is not made out.
59 In any event, I do not accept that the operator's entitlement to make cash calls was conditioned upon there being no breach of the provisions of Part 10 of the JOA as is pleaded. The provisions in relation to the approval of the expenditure, and the making of cash calls, are not expressly qualified by a requirement for compliance with Part 10 of the JOA. Nor is there any apparent basis upon which such a qualification can be implied.
60 Wharf's fourth defence is that Wharf's default was reasonably disputed in the sense used in clause 15.2(d) of the JOA. Paragraph 68 of the defence and counterclaim pleads a number of letters and emails from Wharf to Empire and ERM said to identify Wharf's reasonable dispute of the defaults on the cash calls. Again, Wharf having not participated in the trial, that correspondence was not placed in evidence. The defence cannot be established on that basis. I note in passing that all of the correspondence particularised predated the third of the cash calls which was made on 12 March 2013. How the correspondence predating that cash call might be said to constitute a reasonable dispute on the question of default is not readily apparent.
Conclusion
61 It follows that none of the matters pleaded by Wharf by way of defence, which also form the foundation of its counterclaim, are made out. In those circumstances, the plaintiffs are entitled to the relief which they seek, namely:
• a declaration that the deemed withdrawal by Wharf was valid and effective;
• a declaration that Empire has validly executed transfers of EP 389 and PL 96 as attorney for Wharf pursuant to clause 15.2(d) of the JOA; and
• an order that the second defendant requests the transfers to give effect to Wharf's withdrawal.
62 Wharf's counterclaim should be dismissed.
1 JOA clause 2.1.
2 JOA clause 9.1.
3 JOA clause 13.3.
4 JOA clause 15.2(d).
5Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [2000] WASC 178; (2000) 22 WAR 372 [44], [47] (Hasluck J).
6Bell v Cribb [2013] WASC 32 [73] - [74].
7 Amended defence and counterclaim [47].
8Strzelecki Holdings Pty Ltd v Cable Sand Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318 [60] - [64], [90] - [95] (Murphy JA).
9 Amended defence and counterclaim [56] - [67].
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