Rey Lennard Shelf Pty Ltd v Oil Basins Ltd
[2016] WASC 162
•26 MAY 2016
REY LENNARD SHELF PTY LTD -v- OIL BASINS LTD [2016] WASC 162
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 162 | |
| Case No: | CIV:1200/2016 | 25 MAY 2016 | |
| Coram: | TOTTLE J | 26/05/16 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Declarations made | ||
| B | |||
| PDF Version |
| Parties: | REY LENNARD SHELF PTY LTD REY RESOURCES LTD OIL BASINS LTD |
Catchwords: | Contract Construction Where joint operating agreement made one party operator of joint venture Where operator was required to resign at end of 'Farmout Period' if they failed to secure a 'Third Party Farminee' What period constituted the 'Farmout Period' Whether resignation was automatic Whether other party was automatically appointed as operator without further steps Turns on own facts |
Legislation: | Petroleum and Geothermal Resources Act 1967 (WA) |
Case References: | EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd; Wright Prospecting Pty Ltd v Mount Bruce Mining Pty Ltd [2015] HCA 37 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
REY RESOURCES LTD
Second Plaintiff
AND
OIL BASINS LTD
Defendant
Catchwords:
Contract - Construction - Where joint operating agreement made one party operator of joint venture - Where operator was required to resign at end of 'Farmout Period' if they failed to secure a 'Third Party Farminee' - What period constituted the 'Farmout Period' - Whether resignation was automatic - Whether other party was automatically appointed as operator without further steps - Turns on own facts
Legislation:
Petroleum and Geothermal Resources Act 1967 (WA)
Result:
Declarations made
Category: B
Representation:
Counsel:
First Plaintiff : Mr J C Vaughan SC & Mr A R Fleming
Second Plaintiff : Mr J C Vaughan SC & Mr A R Fleming
Defendant : Mr T J Kavenagh
Solicitors:
First Plaintiff : Clayton Utz
Second Plaintiff : Clayton Utz
Defendant : Hunt & Humphry
Case(s) referred to in judgment(s):
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd; Wright Prospecting Pty Ltd v Mount Bruce Mining Pty Ltd [2015] HCA 37
- TOTTLE J:
Introduction
1 The plaintiffs and the defendant are parties to a joint venture for the exploration of an area of the onshore Canning Basin in Western Australia covered by West Australian Petroleum Exploration Permit 487 (EP 487). A dispute has arisen as to who is the 'Operator' of the joint venture. The dispute falls to be determined by reference to the construction of a Joint Operating Agreement made between the parties on 29 May 2015 (the JOA) and a related agreement constituted by a deed entitled 'Deed of Settlement and Release' (the Settlement Deed) also made on 29 May 2015 between the parties and another company, Backreef Oil Pty Ltd (Backreef).
Factual background
2 The facts are not in dispute. The following account draws heavily upon the account of the factual background set out in the plaintiffs' written submissions with which the defendant agreed.
3 EP 487 was granted to the defendant and Backreef under the Petroleum and Geothermal Resources Act 1967 (WA) (the Act) on 14 March 2014.
4 On 29 May 2015 the parties and Backreef entered into the Settlement Deed. The catalysts for the Settlement Deed included the facts that the defendant had commenced proceedings against Backreef in the District Court of Western Australia and that Backreef had agreed to sell its interest in EP 487 on a conditional basis to the first plaintiffs. The Settlement Deed provided for completion of the first plaintiff's acquisition of Backreef's interest in EP 487, settlement of the District Court proceedings and entry into the JOA by the plaintiffs and the defendant. It was a condition precedent of the Settlement Deed that the sale of Backreef's interest in EP 487 to the first plaintiff be completed. It was a term of the Settlement Deed that at settlement, which would take place one business day after satisfaction of the condition precedent, the first plaintiff and the defendant would exchange, amongst other documents, executed counterparts of the JOA. The plaintiffs and the defendant entered into the JOA on the same day, 29 May 2015.
5 The acquisition by the first plaintiff of Backreef's interest in EP 487 was settled on the day the Settlement Deed was executed, that is, 29 May 2015 and Backreef and the defendant as transferors executed a form of instrument of transfer of title under s 72 of the Act in favour of the first plaintiff and the defendant as transferees.
6 The JOA and the Settlement Deed regulate the rights and obligations of the plaintiffs and the defendant, between themselves, in respect of EP 487. The agreements deal with the designation of one of the parties as 'Operator', that is, the party appointed in accordance with Article 4 of the JOA to act as the general manager of the joint venture established by the JOA.
7 The JOA designated the defendant as the operator of EP 487 until such time as the defendant resigned or was removed as operator in accordance with the terms of the JOA or the Settlement Deed.
8 Clause 7(a)(i) of the Settlement Deed provided that the defendant was required to resign as Operator of EP 487 with effect from the end of the Farmout Period if it had not secured a 'Third Party Farminee' during the Farmout Period.
9 The JOA provides that where the defendant resigns in accordance with cl 7(a)(i) of the Settlement Deed, the first plaintiff is designated as Operator and granted the powers and authorities to so act and agrees to act as such in accordance with the JOA (Article 4.1(b)).
10 The parties are unable to agree on what period constituted the 'Farmout Period'. The plaintiffs contend that the Farmout Period commenced on the execution of the Settlement Deed and ended on 31 December 2015. The defendant contends that the Farmout Period commenced on 31 December 2015 and ends on 13 December 2016.
11 The defendant did not secure a Third Party Farminee before 31 December 2015. The defendant has not resigned as the operator of EP 487 under the JOA, as the plaintiffs contend it must by reason of cl 7(a)(i) of the Settlement Deed.
12 In correspondence exchanged in January 2016 and in announcements to the Australian Stock Exchange the defendant adopted the position that it was entitled to call upon the plaintiffs to demonstrate that the first plaintiff had the skills and experience to discharge the obligations of Operator under the JOA and that the first plaintiff did not meet the minimum legal requirements to perform as Operator in accordance with EP 487. The defendant also maintained that the defendant was precluded from resigning by the terms of a Ministerial Direction issued pursuant to the Act.
The critical contractual provisions
13 Clauses 6 and 7 of the Settlement Deed are in the following terms:
6. EP 487 Farmout
(a) The provisions of this clause 6 will expire on, and be of no further force and effect, from 31 December 2015 (Farmout Period) if no farmout in compliance with the terms of this clause 6 is completed by that time.
(b) OBL is appointed for the duration of the Farmout Period to exclusively conduct on behalf of the Parties a public process to farmout an interest of up to 50% in EP 487 and may approach any third party of its choosing and must promptly advise RLS in writing the details of that third party that has (i) expressed formal interest to OBL and (ii) has attended the OBL data room in respect of EP 487.
(c) Upon receiving notice from OBL of a third party's details when that third party has completed (i) and (ii) in clause 6(b) above, RLS may not for the duration of the Farmout Period enter into or continue any discussions with that third party in respect of a farmout of EP 487 without the consent of OBL.
(d) OBL will seek to secure from a third party farminee (Third Party Farminee) the minimum terms as set out below (Minimum Farmout Terms):
(i) re-imbursement for back costs (from the date of grant of EP 487);
(ii) a two for one promote for WP Year 1 costs (which by way of example, if the Third Party Farminee acquired an aggregate 50% interest it would be responsible for 100% of expenditure for WP Year 1, thereby free carrying RLS and OBL);
(iii) obligation to drill and complete a minimum of two USG wells during WP Year 2 on a two for one promote;
(iv) the Third Party Farminee has the requisite financial and technical capacity to perform its obligations under the JOA;
(v) OBL may seek a progressive two stage farmout with the Third Party Farminee over WP Year 1 (Stage 1) and WP Year 2 (Stage 2). For each Stage, for an agreed funding, the Third Party Farminee will be assigned an agreed interest in EP 487, equally sourced from RLS and OSL up to an aggregate total 50% Interest for both Stages;
(vi) if the Third Party Farminee has not acquired the full farmin interest during the required period or otherwise withdraws, then the Third Party Farminee forfeits its interest in EP 487 entirely and each of OBL and RLS revert to each holding a 50% participating interest in EP 487. In the case of a two stage farmout conducted as referred to in clause 6(d)(v) above, lf the Third Party Farminee elects to proceed to Stage 2 but does not complete Stage 2 farm in or otherwise withdraws during Stage 2 then the Third Party Farminee reverts to holding its participating interest ln EP 487 as earned at the completion of Stage 1; and
(vii) provides RLS with a minimum period of 30 days in which to accept.
(e) Where OBL secures a farmin proposal that meets or exceeds the Minimum Farmout Terms then it will give RLS notice and subject to 6(f) below RLS must accept and participate at the same level as OBL and forthwith do and sign all such documents required to give effect to such farmout.
(f) RLS may reasonably refuse to participate in a farmout introduced by OBL where RLS has within 14 days an offer on the same or better terms from another third party that:
(i) provides that OBL may participate on the same terms as RLS other than operatorship; and
(ii) is capable of acceptance within the timeframe in which the farmout brought by OBL is to be accepted
in which case OBL must participate at the same level as RLS and forthwith do and sign all such documents required to give effect to such farmout.
(g) Nothing in clause 6 prevents either OBL or RLS from making a farmin proposal to the other party which if made during the Farmout Period on terms that are the same or better than the Minimum Farmout Terms then the obligations to participate under clause 6(e) and clause 6(f) will apply (as the case may be).
(h) OBL and RLS agree that a Third Party Farminee may become operator after having paid the amounts under clause 6(d)(i) and clause 6(d)(ii) above.
(i) Any farmout proposal that has terms that do not meet the Minimum Farmout Terms will be dealt with under the terms on the JOA.
7. Operator of EP 487
(a) Subject to clause 7(b), OBL must resign as operator of EP 487 if:
(i) it has not secured a Third Party Farminee during the Farmout Period, with effect from the end of the Farmout Period; or
(ii) it has secured a Third Party Farminee during the Farmout Period, when required to do so under the terms of a farmout under clause 6 and in line with the process set out in that farmout.
(b) OBL shall remain as operator of EP 487 until the end of WP Year 2 where OBL is successful in securing a Third Party Farminee and that Third Party Farminee requires OBL to remain operator until its farmin is complete.
(c) If the Third Party Farminee withdraws from a farmout under clause 6 at any time before earning a full farmin interest in EP 487 or otherwise fails to earn a full farmin interest according to the terms agreed with OBL and RLS (as applicable), then the party that did not secure the Third Party Farminee may elect to become operator of EP 487 providing that party has the requisite financial and technical capacity to perform its obligations under the JOA (and either the Third Party Farminee, or OBL if it remains as operator in accordance with clause 7(b), must resign immediately upon that other party giving notice of such election).
15 Article 4.1 of the JOA reads:
(a) As at the Effective Date, OBL is designated as Operator and granted the powers and authorities to so act and agrees to act as such in accordance with this Agreement pursuant to the terms of the Settlement Deed until such time as OBL resigns as operator in accordance with the terms of this Agreement or the terms of the Settlement Deed.
(b) Where OBL resigns in accordance with clause 7 (a)(i) or 7(c) of the Settlement Deed, RLS is designated as Operator and granted the powers and authorities to so act and agrees to act as such in accordance with this Agreement.
16 Article 4.4(a) of the JOA provides that the Operator must perform the Joint Operations (defined in Article 1.1 as those operations and activities carried out pursuant to the JOA) in accordance with the Legal Requirements. The Legal Requirements are defined as present or future obligations arising under legislation, regulations, by-laws, or the terms or requirements of any Government Authority, or the terms and conditions of the Permit and of other governmental approvals relating to Joint Property or Joint Operations.
17 Article 4.12 of the JOA provides that the Operator may resign on giving 30 days' notice.
18 Article 4.13 provides that an Operator shall be removed by notice from a Non-Operator if any of the circumstances specified in subpars (a) to (d) of Article 4.13 arise. Those circumstances include the Operator becoming insolvent. None of those circumstances is presently relevant.
19 Article 4.14 sets out a procedure for the removal of the Operator if it commits a 'Terminable Breach'. The procedure involves the service of a notice and the provision of an opportunity to the Operator to remedy the Terminable Breach.
20 Article 4.15 provides that when a change of Operator occurs pursuant to Article 4.12, 4.13 or 4.14 the Operating Committee shall meet to appoint a successor.
21 Article 8 of the JOA deals with the situation that arises if a party is in default. Article 8.2(c) provides for what is to occur if the Operator is the party in default and contemplates that an Operator's default may be remedied.
A procedural matter
22 The first directions hearing in this matter was held on 20 April 2016. At that hearing counsel from the firm of solicitors then representing the defendant contended that the matter should proceed on pleadings. In support of that contention I was informed that the dispute between the parties extended beyond questions of construction of the documents and involved factual issues. It was said that the issues involved questions of whether the first plaintiff was competent to discharge the obligations imposed on the Operator and whether the plaintiffs were in breach of the JOA. In order to evaluate the contention that the matter should proceed on pleadings I directed the defendant to file a statement of issues together with any affidavit evidence upon which it wished to rely. A draft statement of issues was filed by the defendant's present solicitors on 6 May 2016. That draft statement raised issues which may properly be characterised as construction issues and did not raise any factual issues. The contention that the matter should proceed on pleadings was not pressed. Mr Kavanagh, who appeared for the defendant, confirmed that no issue of fact arose for determination on this application.
23 The plaintiff responded to the defendant's draft statement of issues by refining the issues proposed by the defendant. At the hearing the parties agreed that the issues were as follows:
(1) Whether, on the proper construction of clause 6(a) of the Settlement Deed and the Settlement Deed as a whole, the 'Farmout period' ended on 31 December 2015 or on the end of the 'second work program year' in relation to EP 487 or another date (and, if another date, that date).
(2) Whether, on the proper constriction of clause 7(1)(i) of the Settlement Deed and the Settlement Deed as a whole, where by the end of the Farmout Period the Defendant has not secured a Third Party Farminee for the purpose of the Settlement Deed, the Defendant must immediately thereafter resign as the Operator of EP 487 without condition or reservation, or whether there may be circumstances where it may not be appropriate for the Defendant to resign.
The evidence
24 At the hearing the evidence was limited to an affidavit sworn on 5 February 2016 by Mr Kevin Wilson, a director of the first plaintiff, and an affidavit sworn on 5 May 2016 by Mr Kim McGrath, a director of the defendant, (objection was taken to pars 5, 6 and 7 of Mr McGrath's affidavit and those paragraphs were not read). Relevantly, the affidavits attached copies of the Settlement Deed, the JOA, the exploration permit itself, the transfer of Backreef's interest in EP 487 to the first plaintiff, correspondence between the parties and their solicitors after the dispute had arisen and an announcement to the Australian Stock Exchange by the defendant.
Relief sought by the plaintiffs
25 The plaintiffs seek the following relief:
(1) A declaration, that on the proper construction of clause 7.1(a)(i) of [the Settlement Deed], where by 31 December 2015 the Defendant has not secured a Third Party Farminee for the purpose of the Settlement Deed, the defendant must immediately thereafter, without condition or reservation, resign as the Operator of EP 487 under the [JOA];
(2) An order that, the defendant, not having secured a Third Party Farminee for the purposes of the Settlement Deed by 31 December 2015 or at all, in accordance with clause 7(a)(i) of the Settlement Deed as construed in paragraph 1 above, immediately tender to the first plaintiff its unconditional written resignation as the Operator under the JOA.
(3) A declaration that, on proper construction of Article 4.1(b) of the JOA, on the resignation by the defendant as Operator under the JOA pursuant to clause 7(a)(i) of the Settlement Deed as contemplated by paragraph 2 above, the First Plaintiff is, without further event, designated as the Operator under the JOA.
(4) An order that the defendant, upon the defendant tendering its unconditional written resignation as the Operator under the JOA in accordance with paragraph 2 above, deliver to the first plaintiff:
(a) all Joint Property;
(b) books of account;
(c) records; and
(d) other documents,
maintained by the Defendant (in its former capacity as Operator) pertaining to the Permit Area and to Joint Operations (as required under Article 4.15(f) of the JOA).
26 The relevant principles are not in dispute. It suffices to say that a contract is to be construed objectively by reference to its text, context and purpose. Ordinarily this will be done by reference to the contract alone. If an expression in a contract is ambiguous or susceptible of more than one meaning, resort may be had to evidence of surrounding circumstances but those surrounding circumstances do not include evidence of the parties' statements or actions reflecting their actual, subjective, intentions or expectations: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd; Wright Prospecting Pty Ltd v Mount Bruce Mining Pty Ltd [2015] HCA 37 [46] - [52] (French CJ. Nettle and Gordon JJ).
27 The terms of a commercial contact are to be determined by what a reasonable business person would have understood those terms to mean. A court is entitled give a commercial contract a business like interpretation on the assumption that the parties intended to produce a commercial result. A contract should be construed to avoid making a commercial nonsense or working commercial inconvenience: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35] (French CJ, Hayne, Crennan and Kiefel JJ).
28 When a commercial transaction is implemented by several contracts or documents, all of the contracts or documents may be read together for the purpose of ascertaining their proper construction and legal effect, at least where the documents are executed contemporaneously or within a short period: EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 [104] (Buss JA, with whose reasons Owen and Newnes JJA agreed).
The parties' submissions
29 The plaintiffs' argument commences with the proposition that the meaning of cl 7 of the Settlement Deed and Article 4.1 is clear and unambiguous. In rebuttal of a contention made by the defendant that the placement of the second comma in cl 6(a) after the word 'effect' justifies the interpretation that the Farmout Period commenced on 31 December 2015, it was submitted that the placement of the comma in that position as opposed to after the word 'from' was an obvious typographical error.
30 The plaintiffs draw attention to the fact that the defendant was designated the Operator of the joint venture on execution of the JOA but that a change in the Operator could be effected either in accordance with cl 7 of the Settlement Deed or Article 4.12, 4.13 or 4.14 of the JOA. In the event the defendant resigns as Operator pursuant to cl 7(a) or (c) of the Settlement Deed, the first plaintiff is designated as the Operator. If the resignation or removal of the defendant as Operator occurs in accordance with Article 4.12, 4.13 or 4.14, then the appointment of a successor to the position of Operator is effected in accordance with Article 4.15. The plaintiffs point out that the defendant is only entitled to remain as Operator until the end of WP Year 2, pursuant to cl 7(b) of the Settlement Deed, if the defendant has been successful in securing a Third Party Farminee and that Third Party Farminee requires the defendant to remain as Operator.
31 The defendant agrees with the propositions in the plaintiffs' argument that I have outlined thus far. The difference between the parties is what period constitutes the 'Farmout Period'.
32 The plaintiffs submit that the term 'Farmout Period' in cl 6(a) of the Settlement Deed is unambiguous and susceptible of only one meaning and it means the period from the date of execution of the Settlement Deed or the date of satisfaction of the condition precedent to 31 December 2015. The plaintiffs submit that this must be so because cl 6(a) states that the provisions of cl 6 'will expire on, and be of no further force and effect, from 31 December 2015 (Farmout Period) if no farmout in compliance with the terms of the clause is completed by that time'. They contend that it is not reasonably arguable that the 'Farmout Period' as defined by cl 6(a) extends beyond the period of time during which the provisions governing the cl 6 farmout have force or effect.
33 In response to the plaintiffs' case in the written submissions filed on the defendant's behalf, the defendant submitted the following.
(a) The plaintiffs' argument that cl 6 is of no further force or effect from 31 December 2015 causes difficulties in interpreting cl 7 of the Settlement Deed because if cl 6 is of no force and effect from 31 December 2015, there is no definition of 'Farmout Period' from that date and, if so, it would be impossible to interpret cl 7 to determine when, or if, the defendant must resign.
(b) There is no textual support for the plaintiffs' contention that 'Farmout Period' commenced on the execution of the Settlement Deed.
(c) The use of the phrase 'from 31 December 2015' means that the 'Farmout Period' commenced from that date and not 'from the date of the execution of [the Settlement Deed]'.
(d) The 'Farmout Period' will end at the end of the second work program year (WP Year) in relation to EP 487. The defendant's argument that the period ends on this date proceeds as follows: cl 6 mentions two other periods of time, WP Year 1, which ended on 13 December 2015, and WP Year 2, which is due to expire on 13 December 2016, and as WP Year 1 expired before the commencement of the Farmout Period, the only date that could be the end date of the Farmout Period is the end of WP Year 2, 13 December 2016.
(e) It is 'going too far' to include in the first declaration sought by the plaintiffs the words 'without reservation or condition' in relation to the resignation of the defendant as Operator because, it was submitted, the defendant would not be required to resign as operate if:
(i) the plaintiffs or either of them were in liquidation;
(ii) the plaintiffs or either of them were insolvent;
(iii) the regulatory authority would not permit the plaintiffs to manage the joint venture;
(iv) it was illegal for the plaintiffs, or either of them, to manage the joint venture;
(v) the plaintiffs were in default of their obligations under the JOA; or
(vi) the plaintiffs did not have the requisite skill or experience to be the manager of the joint venture.
(f) The defendant is obliged by the Ministerial Direction to comply with certain requirements and the Ministerial Direction precludes the defendant from resigning. It was contended that the Ministerial Direction is directed to the defendant and not to the two registered holders of EP 487. The defendant argued that the Ministerial Direction is a Legal Requirement for the purposes of the JOA; that the rights and liabilities of the Operator under the JOA are set out in the JOA and the Legal Requirements; and, that where there is an inconsistency the Legal Requirements prevail.
34 In his oral submissions counsel for the defendant did not press, sensibly in my view, the arguments summarised in pars (e) and (f).
Disposition
Issue 1 - on what date did the Farmout Period end?
35 I have reached the conclusion the 'Farmout Period' in cl 6 of the Settlement Deed began on the satisfaction of the condition precedent in the Settlement Deed and ended on 31 December 2015. My reasons are as follows.
36 First, that conclusion accords with a natural reading of the words in cl 6(a) and gives weight to each of the phrases that constitute the clause. On the other hand, the construction for which the defendant contends is somewhat contrived. The defendant relies upon the preposition 'from' denoting the start of the Farmout Period as opposed to the start of the period in which the provisions of cl 6 will have no further force or effect, or put less awkwardly, as opposed to 'from' denoting the end of the period in the which the provisions of cl 6 shall have force and effect. Whilst I accept that the placement of the comma after the word 'effect' rather than after the word 'from' provides limited support for the defendant's argument I consider its approach to the construction of cl 6 is unlikely to be correct because:
(a) It does not give any weight to the preposition 'on' used in conjunction with the date '31 December 2015'. The words '[t]he provisions of this clause 6 will expire on … 31 December 2015' are plain and unambiguous and leave no scope to argue that the farmout process set out in cl 6(b) to (i) was to continue after 31 December 2015. If the farmout process was to end on 31 December 2015, this necessarily compels the conclusion that the Farmout Period ended on 31 December 2015.
(b) The most natural interpretation of the words 'by that time' as they appear at the end of cl 6(a) is that they refer to the calendar date '31 December 2015'. There is no other date in cl 6(a) to which they could refer.
37 Secondly, I do not accept the defendants' submission that if the provisions of cl 6 expire on and have no effect from 31 December 2015, this causes difficulties for the construction of cl 7 because the term 'Farmout Period' would cease to have a defined meaning. It is the operation of the provisions in cl 6 that came to an end on 31 December 2015. This does not mean that cl 7 is to be construed as if cl 6, including the defined term 'Farmout Period' was never included in the Settlement Deed. In any event the constructional difficulty posited by the defendant in its submissions is illusory. Clause 7(a)(i) provides that the defendant must resign if a Third Party Farminee is not secured 'during the Farmout Period' and the resignation takes effect from the end of the Farmout Period, that is 31 December 2015. If the defendant failed to secure a Third Party Farminee during the Farmout Period and complied with the obligation on it to resign with effect from the end of the Farmout Period, no constructional issue would arise.
38 Thirdly, cl 6(d) sets out the minimum terms that defendant had to secure from a Third Party Farminee. These 'Minimum Farmout Terms', as they were defined, set out the commitments the parties wished to secure from a Third Party Farminee. The specified commitments contemplate the possibility of a progressive two-stage farmout over WP Year 1 and WP Year 2. If the defendant's construction is correct then WP Year 1 expired before the Farmout Period commenced. This is irreconcilable with the inclusion in the Minimum Farmout Terms of a term providing for what the farminee is to contribute in WP Year 1. Moreover, the Minimum Farmout Terms were limited to obligations to be fulfilled before the end of WP Year 2, that is, before 13 December 2016, the date on which the defendant says the Farmout Period expires. If the Farmout Period expires on 13 December 2016, as the defendant contends, this would potentially deprive the Minimum Farmout Terms of any substantive commercial significance as they do not include any obligations extending beyond the end of the Farmout Period itself.
39 Fourthly, there is no textual or contextual support for the conclusion that the Farmout Period ends on the expiry of WP Year 2. The first reference to WP Year 2 in cl 6 appears in cl 6(d)(ii) in the context of drilling wells. There is nothing in the text of cl 6 which operates to relate the end of the Farmout Period to the expiry of WP Year 2. There is nothing about the context of the Farmout Period or WP Year 2 which points to the existence of the necessary link between the two.
40 Fifthly, although it is a matter of no practical import given that settlement of the transactions and entry into the JOA was scheduled to take place one business day after completion of the acquisition by the first plaintiff of Backreef's interest in EP 487 (and in fact took place on the same day), it follows from the fact that the Settlement Deed provided that the JOA would not be concluded until after the condition precedent had been satisfied that the earliest date on which the Farmout Period could commence was the date on which settlement took place - 29 May 2015. Clause 6 is silent as to when the Farmout Period began but in my view the reasons I have outlined above point powerfully to it having begun on 29 May 2015 and not, as the defendant contended on 31 December 2015. This is how a reasonable business person would construe cl 6(a).
Issue 2 - must the defendant resign immediately if it has not secured a Third Party Farminee by the end of the Farmout Period?
41 The use of the word 'must' in cl 7(a) leaves no doubt that if the defendant had not secured a Third Party Farminee during the Farmout Period it was required to resign as Operator.
42 The defendant's written submissions that there may exist circumstances in which the defendant would not be required to resign are, with respect, beside the point. The submissions are directed to issues that have not arisen. The opportunity to obtain a Third Party Farminee in accordance with cl 6 of the Settlement Deed has ceased to exist. The plaintiffs' entitlement to the declaratory relief sought by it is to be determined by reference to the proper construction of the Settlement Deed and the JOA and the events which have happened. None of the circumstances identified in the defendant's submissions have been established to have existed at 31 December 2015. As I have stated, counsel for the defendant was sensible not to press the written submissions on this issue.
Conclusion
43 For the reasons I have set out above, I have concluded that the plaintiffs have established that they are entitled to the relief sought by them. I will hear the parties as to the precise terms of the orders and as to costs.
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