Fordham, R.C. v Evans, G.
[1987] FCA 637
•13 Nov 1987
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sea adjacent to the States and the Northern Terrltorp, in respect
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of which area an exploration permlt or a retention lease or a production licence has been granted to that person under Part I11
of the Submerqed Lands Act. Liability to pay the royalty is imposed on the permittee or lessee or licensee. It is a liabilik3
measured by reference to a percentage of the value at the
well-head of the petroleum recovered by that person In khe area In
a particular perlod. After che expiratlon of the month of the
year in whlch the permit or lease or licence is granted the period is each month thereafter and the royalty is payable not later than
the last day of the next month : ss. 4, 5 and 11 of the Royalty AA.
Provision is made in both Acts for the administration of
these taxing provisions, as of other subjects with which the Submerued Lands Act deals, by what are called "a Designated
Authority" and "a Joint Authority". The area of submerged land I
adjacent to each State or to the Northern Terrxtory that is beyond the outer llmlts of the terrltorial sea and that is the sub~ect of
the leglslatlon (being land withm the outer limlts of the continental shelf) is identifled by its boundaries in the
Submersed Lands Act, and that area is called In the Act the "ad~acent area" in respect of that State or Territory. In respect
| I | of each adjacent area the Designated Authorlty | 1s the Minister of |
the State or Territory for the time belng authorized under the law
of that State or of the Northern Territory to perform the functions of a Designated Authority under the Submersed Lands Act. the Commonwealth Mlnister for the time being administering that
Act and the Minister of the State or Territory for the time being
authorized under the law of that State or of the Northern
Terrltory to perform the functlons of a Designated Authority under that Act.
Several sections of the Rovaltv Act, including s s . 8, 9
and 10, confer on the Designated Authority functions directed to
the ascertalnment of the amount of royalty payable by persons
subject to the tax. Section lOA of that Act provides: "(1) The 3oint Authority shall give directlons
to che Deslgnated Authorlty wlth respect to the manner in whlch the Deslgnated Buthorlty 1s to exerclse his powers under sections 8, 9 and 10 and the Designated Authorlcy shall not
exercise any of those powers except in accordance with directions so given.
( 2 ) For the purposes of the application of
i this section in relation to section 10,
paragraph (h) of that section has effect as if the reference to the Designated Authorlty not
being satisfied included a reference to the Joint Authority not being satisfied."
It 1 s provided by sub-subsection 5D(2) of the Submersed Lands Act a5 follows:
"If the members of a Joint Authority disagree
l wlth respect to the decislon to be made on a
matter within the functions of the Joint
Authority or the State Minlster or the
Nortinern Terrltory Minlster (as the case may
be) has not stated to the Commonwealth
Minister his opinion as to the decision to be made on such a matter after having been given
by the Commonwealth Minister not less than 30 days notice in writing of the opinion of the Commonwealth Minister as to the decision that should be made on the matter, the Commonwealth
Minister may decide the matter and that
decision shall have effect as the decision of the Joint Authorlty."
By a letter dated l1 November 1956 to the State Minister in
respect of the adjacent area In respect of the State of Victoria,
who is the first-named applicant, the Commonwealth Minister
expressed his decision that a direction, which is specified in the
letter, should be given, in exercise of the power conferred by s.lQA of the Royaltv Act, by the Joint Authority in respect of that adJacenr: area to the Designated Authority in respect of that
adjacent area. The State Hinister being also thar: Designated Authorlty, the letter contained also the following:
"Accordingly, directions in the terms set out above are hereby given as directlons by the Joint Authorlty to the Designated Authority."
The decision that those directions be given is the decision in i respect of whlch the application for an order of revlew is made.
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Two companies which hold productlon licences granted 1. I , 1 .
under Part 111 of the SuLmercred Lands Act in respect of part of
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the Victorian adjacent area are the second and third-named
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respondents. The fourth-named respondent claims to have I .:
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contractual relations with those licensees. An order was made by L. I '
i consent of all parties that, subject to any order of the judge I .. i
before whom the application should be fixed for hearing, the I L ,
questions raised by the grounds of the application numbered 1, 2 ; P: I. -'
and 3 and statements in writing by the respondents of their c .'., 17,.
contentions in relation to the matters raised by those grounds be p
decided before the hearing of any other question. Those questions r.;; I
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have been argued and are now for decision. The fourth-named respondent did not desire to be heard upon those questions.
The first ground of the application is concerned with
the requirement of sub-section BD(Z) that the decision of a matter
by the Commonwealth Minister, havmg effect as the declsion of the Joint Authorlty, should be preceded by "not less than 30 days
notice in writing of the opinion of the Commonwealth Minister a5 to the decision that should be made on the matter". More than 30 days before che flrst-named respondent made the decision sought to
be reviewed he had given the State Minister notice in wrlting of
| I | his opinion as to that declsion, but neither | in that wrltinq nor |
otherwise had any statement been made to the State Minister by the Commonwealth Minister of the period of time at the expiratlon of which the Commonwealth Minister might decide the matter in the
event that they should disagree or in the event that the State
Minister should not state to the Commonwealth Minister his
opinion. The ground numbered 1 of the application raises the
contention that subsection BD(2) requires, on its proper
construction, notification by the Commonwealth Minister to the State Minlster of that period.
Sub-sectlon 8D(1) provides:
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"The business of a Joint Authority may be conducted at meetings of the Joint Authority
or by written or other communication between
the members of the Joint Authorlty." Sections 8, 9 and 10 of the Rovaltv Act provlde:
"8. For the purposes of this Act, the well-head, In relation to any petroleum, is
such valve station as is agreed between the
permittee, lessee or llcensee and the Designated Authority, or, In default of
agreement within such period as the Designated Authority allows, 1 s such valve station as is determlned by the Designated Authorlty as being that well-head.
9 . For the purposes of this Act, the value
at the well-head of any petroleum is such I
amount as is agreed between the permittee, lessee or licensee and the Deslgnated Authority, or, in default of agreement within
| I | such period | as | the | Designated | Authority |
allows, is such amount as is determined by the Deslgnated Authority as being that value.
10. For the purposes of this Act, the
quantity of petroleum recovered by a
permittee, lessee or llcensee from a well
during a period shall be taken to be - the quantlty measured during that period
by a measuring device approved by the Designated Authorlty and installed at the
well-head or at such other place as the Designated Authority approves; or
where no such measuring device 1s so installed, or the Designated Authority is
not satlsfied that the quantity of
petroleum recovered by the permittee, lessee or licensee from that well has
been properly or accurately measured by
determined by the Designated Authorlty as such a measuring device - the quantity
being the quantity recovered by the
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permittee, lessee or licensee from that I: well during that period."
Inserted in the Submerqed Lands Act by the same amending Act (No.
80, 1980) as inserted s.ED is s.EE, which provides: l = 1 .
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"(l) This section applies to such functions of the Designated Authority as are specified in
Schedule 5.
( 2 ) If the Designated Authority proposes to
take any action in the performance of a
function to which thls section applies
otherwlse than in accordance with a request of
the Commonwealth Minister, he shall, by notice in writing served on the Commonwealth
Minister, inform him of the proposed action
and of all particulars of that action and shall not take the proposed action before the
expiration of 30 days from the day on whlch
the notlce is so served unless the
Commonwealth Minister has informed the
Designated Authority that the Commonwealth
Mlniscer does not object to the proposed action. ( 3 ) Where notlce of proposed action is served
on the Commonwealth Minister in accordance
with sub-section ( 2 ) , he may, wlthin 30 days from the date on which the notice is so served, inform the Designated Authority that
he wishes the proposed action to be considered
by the Joint Authority and in that event the
proposed action shall be considered by theJoint Authority and the Designated Authorlty
shall not take the action before the Jolnt Authorxty has completed that consideration.
( 4 ) Where, in accordance with sub-section ( 3 1 , the Joint Authority has considered
proposed action of the Designated Authority,
the Joint Authority may, sublect to
| I | sub-section ( 5 ) , | give any direction that It |
thinks flt to the Deslgnated Authority with
respect to the proposed action, including a
direction not to take the action or a direction to vary the action.
(5) For the purpose of consldering the giving
of a direction under this section, the Joint
Authorlty shall proceed as if -
(a) the relevant function of the Deslgnated Authority were a function of the Joint Authority and the Joint Authority were
considering an exerclse by itself of that function; and
(b) references in the relevant provisions of
this Act to the opinlon or state of mind
of the Designated Authority were
references to the opinion or state of mlnd of the Joint Authority.
(6) A reference in this section to the taking
of action or to action shall be read as
including a reference to refusal to take
action. 'I
Counsel for the applicants pointed out that "a matter within the
functions of the Joint Authority", concerning which a decision 1s required, may be of considerable complexity, so that more than 30 days might reasonably be needed for conslderatlon by one member of
the opinion of the other. There was good reason, therefore, for a provislon, such as sub-section 8D(2) made, for notice proportioned in duration to the complexity or the gravity of the matter. The provision made in the sub-sectlon was to be contrasted, it was
said, with the provisions flxlng times in s.8E, in relation to
certain functions in the administratlon of the system, ordained in
Part 111. of leaslng and llcensing and granting exploration i
1 I perm t S - In the latter section the perlod of notice was t 1 prescribed, not left to determination, ad hoc, by the person the i taking of whose contemplated action must walt upon the explration
of the period. These considerations, but particularly the l$
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contrast between the language of s.813(2) and the language of 1:
s.8E(2), supported the construction which it was submitted that I /_I
common legal usage suggested, that s.8D(2) required a
speclfication by the Commonwealth Minister to the State Minister I , ' f of the period, being a period of not less than 30 days, before the If
expiratlon of which the Commonwealth Minister would not interrupt 1 ..
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consideration of his oplnion by making, alone, a decision of the
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matter. 1'. i !
These arguments are, I think, not without weight. But
this requirement of notice is for the regulation of the
proceedings of agents of eminent status of executive governments
who are asslsted in the performance of thelr functions by a numerous and skilled staff. Those considerations are here lacking
which might move a court to construe a statutory provision in
similar idiom f o r the regulation of prlvate contractual or
proprietary rights as requirlng specification of the period to be allowed. The words of the requirement as to notice are satisfied,
literally, by the lapse of the specified period of 30 days between
the giving of the notice and the taking of the decislon : after the lapse of that period the State Minister has been given not
less than 30 days notice in writing of the Commonwealth Minister's
opinion. I do not uphold the ground of the application numbered 1.
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The ground of the application numbered 2 rests on the submission that the directions which the Commonwealth Minister
decided to, and did, glve to the Designated Authority were not
I within the description expressed In s.lOA(1) of the Rovaltv Act:
"dlrectlons .... with respect to the manner in which the
Designated Authorlty is to exercise his powers under sectlons 8, 9
and 10" of that Act. The Commonwealth Minister's statement in
writing of the reasons for the decision, furnished to the
applicants pursuant to s.13 of the Administrative Decisions
(Judicial Review) Act 1977, attribute the power to make the
decislon to s.lOA and no other source was suggested by counsel for the Commonwealth Minister.
A letter dated 9 June 1980 from the Designated Authority
to the second and third-named respondents ("the licensees")
recorded that Authority's understanding of the making, and of the
terms, of an agreement said to have been made in pursuance of s.9
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between the Designated Authorlty and the licensees “as to the
calculation of the value of petroleum at the wellhead (sic) forall royalty periods from the commencement of production“. A
letter dated 20 June 1980 from the licensees to the Designated Authority included this sentence:
“We hereby confirm our general agreement that
the terms of your letter adequately reflect
the agreement reached between us on the
matters outstanding and wish to record our
pleasure that the issues ;rhich have been outstanding between us for so long have now
been resolved.
Those are the two letters to which reference is made in the dlrections given by the Commonwealth Minister to the Designated
Authority in the letter dated 11 November 1986. Those directions were in these terms:
“(a) The Designated Authority shall allow 3
days from the date of these directions as the period for seeking to reach agreement
with BHP Petroleum Pty. Ltd. and Esso Ekploration and Production Australia Inc.
(‘the Licensees’) on the value at the
wellhead of petroleum (‘the petroleum‘)
| l | recovered, or to be recovered, during royalty periods to whlch the agreement set out in a letter dated 9 June 1980 from the Designated Authority to the |
| ! | Licensees and the Licensees‘ reply dated 20 June 1980 (‘the 1980 Agreement’) does not apply. |
(b) Wlthin the period specified in Designated Authority shall seek to reach
(a), the
| I | agreement with the Licensees that the | ||
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| the 1980 Agreement. |
(c) In default of agreement in accordance with (b) within the period specified in
(a) the , Designated Authority shall
forthwith determine the value of the petroleum at the wellhead by using (inter
alia) the same method as that referred to in the 1980 Agreement, subject, in the
case of any royalty period commencing
after the date of these directlons, to
any further directions under section 10B of the Royalty Act. 'I
Those directions were given in consequence of the expression to
the licensees of decisions and intentions of the Designated
Authority by a letter dated 29 September 1986 from him to them, of which letter he furnished a copy to the Commonwealth Minister.
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That letter was in these terms: . "I. Robert Fordham, the Designated Authority
in respect of the area adjacent to Vlctoria,
hereby give notice to the licensees EHP
Petroleum Pty Ltd and Esso Exploration and Productlon Australia Inc as follows:
At a meeting on the 22nd May 1980
attended by represencatlves of the State of Vlctoria and the licensees tentative
agreement was reached as a part of the
method for ascertaining the value at the
wellhead of petroleum recovered in thelicence areas for all royalty periods
from the commencement of productlon up to
the date of the agreement;
This was confirmed by a letter from the
Designated Authority to the licensees
dated the 9th June 1980 and a reply from the licensees dated the 20th June 1980;
The value at the wellhead of petroleum recovered in the licence areas in each royalty period since the time of the
agreement has been calculated by the licensees using, inter alia, the same
method as that referred to in the letter
of the 9th June 1980 and payment of
royalty based on the value so calculated
has been accepted by the Designated
Authority in each period to date as a discharge of licensees in respect of that
period;
In respect of the royalty period
commencing next after receipt of this
letter (and subsequent periods) the
Designated Authority is no longer willing
to accept payment of royalty based on the
value at the wellhead of petroleum calculated in that manner;
(e) In and insofar as there is an existing
agreement between the Designated Authority and the licensees In relation
to the method of determining the value of
petroleum at the wellhead for royalty
purposes in respect of any period
commenclng after your recelpt of thxs
letter, such agreement 1s hereby determined;
( 2 ) The Designated Authority is willing to
accept payment of royaltles in respect of
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| accordance with the method referred to in paragraph (c) above. |
Until agreement is reached or a determination
made pursuant to Section 9 of the Petroleum
(Submerged Lands) (Royalty) Act 1967 the
Designated Authority will, as an interim measure, accept payments on account of royalties calculated by use of the method
referred to in the letter of the 9th June 1980. When agreement is reached or a determinatlon is made, royalties may then be adjusted by making forthwith the approprlate additional payments, without penalty.
Please contact the Designated Authority at
your earliest convenlence with a view to
putting in train negotiations towards
agreement in due course the value at the
wellhead of petroleum in the royalty period
commencing next after your receipt of this
letter. You should be aware that In such
negotiations the Designated Authority will take the view that the exclse imposed on crude
011 should not be taken into account in calculating the value of petroleum at the
wellhead for royalty purposes."
For the purposes of the determination of the question raised by
this ground, numbered 2 , of the application, the assertions
contained in paragraph (c) of the letter may be assumed to be
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true. It is unnecessary for those purposes to set out all that in
the letters dated 9 June 1980 and 2 0 June 1980 were stated to be
terms of what was therein designated an agreement. It will be sufficient for those purposes to have regard to the following
passage in the first of those two letters:
"It was agreed that the following formula would be used in calculating the value of
petroleum at the wellhead for all royalty periods. 1 Duties of customs and exclse will not be included in the assessment of wellhead value ;
2 20% of the depreclated cost of platform
structures will be an allowable deduction
in assessing wellhead value;3
No allowance will be made for the cost of working capital; and
4 Allowance will be made for interest, at
the fixed race of a 112 percent per
annum, on the written down value (at the
royalty depreciation rate) all of allowable post wellhead fixed assets."
It was common ground that, because there was no sale of petroleum
at the well-head in the adlacent area, the value at the well-head was taken to be the balance remaming after deduction from the aggregate of the market prices of the products of the recovered
petroleum which were sold at Westernport of certain costs of bringing the petroleum from the well-head to dry land and of converting it into those products. The statements in the letters
from which I have quoted must be understood as relating to that process of calculatlon.
It will be appreciated that stipulations of the kind
which I have quoted from the letter dated 9 June 1980 are
stipulations compliance with which directly affects the quantum of
“the value at the well-head’’ of petroleum recovered in a
particular period. The Commonwealth Minister’s direction to the DesLgnated Authority that the latter should “determine the value
of the petroleum at the wellhead by using (inter alia) the same
| i | method as that referred to in the 1980 Agreement“ was therefore, according to the submission of the applicants, a direction that the value at the well-head should be that value whlch performance | |||||||||
| of a specified calculation should yield. It was the applicants’ | ||||||||||
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| a calculation, or in any other way to control in substance the | ||||||||||
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| obligation to control the manner in which that power, and the | ||||||||||
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| prescribing the procedure in accordance with which they should be | ||||||||||
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| in which something is done, is the meaning which the word bears in sub-section 10A(1), it was submitted. The imperative mood of the | ||||||||||
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| by ss. 8, 9 and 10 with the Designated Authority on whom they are by those sections conferred and arrogates to the Joint Authority | ||||||||||
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Authority, by the Commonwealth Minister, had given direction, that
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| i | certain descriptions of expense and not other descriptions of | ||||||
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| i | expense should be taken into account in the determination of value | ||||||
| ! | was plainly to go beyond matter of procedure regulating the | ||||||
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| afforded no authority. |
Counsel for the respondents who were heard on the
questlon did not deny that the directions given went beyond matter
of procedure. Their submission was that sub-section lOA(1)
authorised directions compliance with which substantially influenced the result of the Designated Authority’s exercise of
his powers.
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In BHP Petroleum Ptv. Ltd. v. Balfour (1987) 61 A.L.J.R.
345 the High Court was examining an exercise of the power
conferred on the Designated by s.8 of the Rovalty Act. In the
| i | course of that examination the Court observed | (61 A.L.J.R. | at |
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347) :
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| I | “Section 5 ( 2 ) of the Royalty | Act | determines |
| I | the royalty rate payable and it does | so | by |
reference to petroleum recovered, being a percentage of the value of that petroleum at
the well-head. That approach is consistent
| I | wlth the general understanding of royalty: see | |||||||
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| (1955) 92 C.L.R. 630 at 641-642. Expressed in | ||||||||
| I | this way, the royalty is sornethlng capable of being and is to be determined objectlvely. | |||||||
| i | I | Section 5 does not refer to an opinion of the Designated Authority and ss. 8, 9 and 10 do not convert the objective ascertainment of the | ||||||
| I | value of petroleum at the well-head into an exercise of discretion by the Designated | |||||||
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| clear enough. It is to permit agreement If such can be reached and, in the absence of agreement, to provide the means whereby the components of s.5(2) can be determined without | ||||||||
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| upon a valve station whlch fairly accords wlth | ||||||||
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| does not fairly accord with the description of | ||||||||
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| Communications Ltd C19817 A.C. 374 at 382-383 | ||||||||
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| 147, his Lordship said: |
'It proceeds on the presumption that where Parliament confers on an
administrative or tribunal
authority, as distinct from a court of law, power to declde partlcular
questions defined the by Act
conferring the power, Parliament
intends to confine that power to
answering the question as It has
been so defined ... So if the administrative tribunal or authority
have asked themselves the wrong question and answered that, they have done something that the Act
does not empower them to do . . . . I
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None of this is to say that there may not be more than one valve station, as that term is defined, according with the description of well-head. The appellants accept that, within the Christmas tree, there may be more than one
valve station that can be so described. But they say that, on no view of the matter, can a valve station at the Mackerel platform some 4 kilometres from the well answer the relevant description. We agree. The Designated
Authority did not ask himself the right
question which was: 'Which valve station (or
valve stations) may fairly be said to be the
well-head at which the petroleum from Cobia No. 2 well is recovered?' A valve station at the Mackerel platform could not provide the
answer to that question."
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The functions assigned to the Designated Authority in
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sections S, 9 and 10 being of the descrlption identified in that
passage, the obligation imposed by sub-section lOA(1) must be understood as an obligation to glve dlrections with respect to the
manner in which those functions are performed. I Bee no reason to confine the meaning of the word "manner" to the sense for which
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the appllcants contend. Normal usage of the word in the context which that sub-section and those three sections supply would
comprehend matter of substance as well as matter of procedure. A
direction may in my opinion be correctly described, according to that usage, as one with respect to the manner of determining a relevant fact with which one of the three sections is concerned
notwithstanding that the directlon requires the Designated
Authority to attribute, in the process of making the determination, a particular significance to some circumstance,
whereby the result of the process is affected. It was submitted
on behalf of the applicants that, unless "manner" be understood as
designating only procedure in exercise of the powers, no
substantial function is left for exercise by the Designated
Authority in pursuance of any of sections 8, 9 and 10. To bring
about that consequence by construction of sub-section lOA(1) would
be to abrogate, pro tanto, the sharing between State and Commonwealth of the administration of the legislatlon of the Parliament of the Commonwealth in respect of the exploration for
and the exploitation of the petroleum resources of the adjacent area. One of the recitals of the Submersed Lands Act declares the
agreement of Commonwealth and States and the Northern Territory
that there should be such a sharing. But it was not shown that
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any such an agreement assured to the State or Territory any particular administrative function. Further, all that is involved
in the determination of the ground numbered 2 adversely to the
applicants is that direction as to more than mere procedure is
authorised by sub-section lOA(1). The written particulars
furnished by the applicants under that ground as well as the
written statements of contentlon by several of the respondents may be thought - as indeed the written expression of the ground itself
may be thought - to comprehend more than would require a mere affirmative or negative answer to the question whether sub-section
lOA(1) authorises directions not restricted to matters of
procedurr. Rut the submissions of counsel under that ground were
directed to that question, to which I chink the affirmative to be the correct answer.
The written particulars of the ground numbered 3 raise a
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number of contentions. The oral submissions of counsel for the
applicants were said by counsel for the respondents to ralse
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questions upon which evidence ought to be received. I have
reached the concluslon that it would be unwise to attempt a resolution, before evidence has been tendered by the parties, of
| I | any of the questions raised by the submissions under the ground | |||||||
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| declaratory order giving effect to the conclusion reached in | ||||||||
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| sub-section lOA(1) of the Royalty Act authorises directions beyond |
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matter of procedure. The costs of the hearing on 17 August 1987 i will be reserved.
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I certify that this and the l8 precedlny pages are a crue copy oi the Reasons for Judgment herein of
Honourable the Mr. Justlce Jenkinson.
1. <- -- Associate
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Counsel for the Applicants Mr. H.C. Berkeley Q.C., S.G. I: and Mr. M.A. Adams
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Solicitor for the Applicants : Victorian Government Solicitor I
Counsel for the First-named : Mr. M.E.J. Black 0.C. and Mr. Respondent
Mr. R.R.S. Tracey 1 Solicitor for the First-named : Australian Government Solicitor
Respondent i , l
Counsel for the Second and Mr. K.M. Hayne Q.C. and Mr. l Third-named Respondents J.G. Sudd i Solicitors for the Second Middletons Oswald Burt
and Thlrd-named Respondents Date of Hearing 17 August, 1987 I
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