Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd

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SUPREME COURT OF QUEENSLAND

CITATION:

Santos TOGA Pty Ltd v KGLNG E&P Pty Ltd [2024] QSC 169

PARTIES:

SANTOS TOGA PTY LTD
ACN 077 536 871

(first plaintiff)
AND

SANTOS TPY, LLC
ARBN 102 958 707

(second plaintiff)
AND

SANTOS TPY CSG, LLC
ARBN 84 108 566 052

(third plaintiff)
AND

SANTOS QUEENSLAND, LLC
ARBN 111 733 969

(fourth plaintiff)
AND

SANTOS TOG, LLC
ARBN 102 958 734

(fifth plaintiff)
AND

BRONCO ENERGY PTY LIMITED
ACN 121 979 664

(sixth plaintiff)
AND

VAMGAS PTY LTD

ACN 006 245 110

(seventh plaintiff)
AND

SANTOS QNT PTY LTD
ACN 083 077 196

(eighth plaintiff)

v

KGLNG E&P PTY LTD
ACN 146 143 339

(first defendant)
AND

TOTAL E&P AUSTRALIA
ARBN 112 603 880

(second defendant)
AND

TOTAL E&P AUSTRALIA II

ARBN 149 617 167

(third defendant)
AND

PAPL (UPSTREAM) PTY LTD
ACN 131 318 888

(fourth defendant)

FILE NO/S:

15114 of 2021

DIVISION:

Trial Division

PROCEEDING:

Claim

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

5 August 2024

DELIVERED AT:

Brisbane

HEARING DATES:

11 and 12 September 2023

JUDGE:

Bradley J

ORDER:

THE COURT DIRECTS THAT:

1.   Within 21 days, the parties confer and submit to the Associate to Bradley J, a draft order reflecting the findings and conclusions in these reasons, and including any orders sought to give effect to the parties’ agreed outcome as to the first to fifth plaintiffs’ costs of the arbitration between and them and Tri-Star Petroleum Company.

2.   If the parties are unable to agree on the draft order directed in paragraph 1 above, then, within 21 days, the plaintiffs and the defendants are to submit their own draft orders to the Associate to Bradley J together with any written submissions no longer than ten pages.  

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the plaintiffs and the defendants are parties to an unincorporated joint venture for the production of coal seam gas – where the plaintiffs had a pre-existing agreement (the “settlement agreement”) to pay a royalty to a third party (“Tri-Star”) on the coal seam gas produced on the joint venture’s land – where, as part of the joint venture, the defendants assumed an obligation to pay a share of the amount of the royalty payable to Tri-Star – where the settlement agreement provided for disputes to be resolved via arbitration in the State of Texas – where a dispute about the way in which the royalty payable to Tri-Star was to be calculated was referred to arbitration in this way – where the arbitrator gave an award whereby the royalty payable to Tri-Star would be significantly higher (the “Award”) – where the defendants submit that this Court would have interpreted the settlement agreement in a different way to the arbitrator – whether, on the proper construction of the relevant contracts, the defendants have an obligation to pay their share of the royalty payable to Tri-Star as calculated under the Award

CONTRACTS…

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Details
Case
[2024] QSC 169
Decision Date

CaseChat Overview and Summary

Santos TOGA Pty Ltd and others (Santos) v KGLNG E&P Pty Ltd and others (KGLNG) involved a dispute between the parties regarding the interpretation and effect of certain agreements, including a Settlement Agreement and various royalty agreements. The central issue was whether KGLNG was bound by an arbitration award concerning the calculation of royalties payable to a third party, Tri-Star, under the Settlement Agreement. Santos argued that KGLNG, by participating in the arbitration process and showing interest in its progress, was bound by the arbitration award. KGLNG contended that the arbitration award did not bind them as they were not parties to the arbitration and did not have a privy interest in the outcome.

The court examined the principles governing privity of interest, emphasizing that for a party to be bound by an earlier proceeding, they must have a legal interest identical to the one at stake in the later proceeding. The court noted that mere economic or other non-legal interests were insufficient. Additionally, the court analyzed whether KGLNG had any legal interest in the outcome of the arbitration that was represented by Santos. The court concluded that KGLNG's interests in the joint venture and the obligation to share the royalty burden did not constitute a privy interest in the specific legal obligation determined by the arbitration award. Therefore, KGLNG was not bound by the award.

In reaching its decision, the court highlighted that the legal interest protected in the arbitration was distinct from the interest KGLNG had under the royalty agreements. While both parties shared an economic interest in the joint venture's success and the burden of the royalty obligation, this shared interest did not equate to a privy interest in the specific legal obligations determined by the arbitration. The court further noted that KGLNG had not authorised or controlled the arbitration, nor were their interests represented by a party owing them fiduciary obligations. Consequently, KGLNG was not bound by the arbitration award.

The court directed the parties to confer and submit a draft order reflecting the findings and conclusions, including any agreed orders regarding the costs of the arbitration. If the parties could not agree, they were to submit their own draft orders and written submissions.

Orders

Orders of the court

THE COURT DIRECTS THAT:

1. Within 21 days, the parties confer and submit to the Associate to Bradley J, a draft order reflecting the findings and conclusions in these reasons, and including any orders sought to give effect to the parties’ agreed outcome as to the first to fifth plaintiffs’ costs of the arbitration between and them and Tri-Star Petroleum Company.

2. If the parties are unable to agree on the draft order directed in paragraph 1 above, then, within 21 days, the plaintiffs and the defendants are to submit their own draft orders to the Associate to Bradley J together with any written submissions no longer than ten pages.

Background

Background to the litigation

The Santos parties say there is a relevant privity of interest “without any extension of well-settled principle and by analogy with categories of legal relationship that have been recognised [as] giving rise to a privity of interest”. Alternatively, they say privity can be found here “by adoption and application of the principle in Gleeson v J Wippell & Co Ltd[73].” [73][1977] 1 WLR 510 at 514-515.Facts said to give rise to a privity of interest The Santos parties submit the following facts establish the relevant privity of interest:(a)The parties share an interest in the Upstream JV;(b)They are obliged “to share the burden of the Tri-Star Royalty”;(c)The JV parties knew of the nature of the obligation to pay the Tri-Star Royalty and knew of the provisions as to arbitration in the Settlement Agreement;(d)The Santos parties communicated with the JV parties in the course of the arbitration to provide updates; and(e)The JV parties “demonstrated an interest in the progress” of the arbitration and “did not then contend that the [arbitration] was irrelevant to their interests.”Well-settled principles The principles governing privity of interest were considered in Tomlinson v Ramsey Food Processing Pty Ltd.[74] French CJ, Bell, Gageler, and Keane JJ referred with evident approval to “the principle governing privity of interest … in Ramsay v Pigram”[75]: “That principle, in the language of Barwick CJ, is that the ‘basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy’.”[76] [74](2015) 256 CLR 507.[75](1968) 118 CLR 271, 279 (Barwick CJ).[76](2015) 256 CLR 507, 515 [17]. After surveying the three types of estoppel, the doctrine of abuse of process, and the equitable rule preventing a person from recovering more than once for a loss from breach of an obligation, the majority returned to this point: “[31]Barwick CJ’s explanation of the application of that statement of principle in Ramsay v Pigram is useful in illustrating its content. The result was to deny that the Government of New South Wales, then sued by the respondent for damages in negligence arising out of a collision with a police car, was privy in interest with the police officer driving that car, who had earlier sued the respondent for damages in negligence arising out of the same collision. His Honour explained: ‘In every respect the action between the respondent and the police officer was personal to each of them, neither being in any sense in relation to the action or any of the issues involved in it, representative of another. Nor can it be said that the Government in any sense claims under or in virtue of the police officer or of any right of his, or that it derives any relevant interest through him.’ [32]It is important to recognise that Barwick CJ’s explanation of the application of his statement of principle had two limbs. The conclusion that the Government was not privy in interest with the police officer was based on the absence of either representation of interest or derivation of interest.[33]Consistently with the rationale for the principle, the explanation demonstrates that a party to a later proceeding (A) can be privy in interest with a party to an earlier proceeding (B) on either of two bases. One basis is that A might have had some legal interest in the outcome of the earlier proceeding which was represented by B, or that B has some legal interest in the outcome of the later proceeding which is represented by A. … The other basis is that, after that earlier proceeding was concluded by judgment, A might have acquired from B some legal interest in respect of which B would be affected by an estoppel which A then relies on in the later proceeding.…[35]Subsequent applications of the principle in Ramsay v Pigram have for the most part correctly emphasised that the interest of the privy must in each case be a legal interest: an economic or other interest on the part of A in the outcome of the earlier proceeding is insufficient. Those applications have also correctly emphasised that, absent a legal interest, such influence as A might have had over the conduct of the earlier proceeding is irrelevant even if that influence amounted to control. …”[77][77][2015] 256 CLR 507, 520-522 (citations omitted).

Evidence

Evidence Before The Court

For the reasons set out below, the JV parties are not so bound. The evidence The parties tendered a statement of agreed facts, a bundle of 63 documents, some aide memoires, and a consolidated pleadings matrix. No party objected to the admission of any of these documents. These reasons proceed on the basis that the tendered documents are relevant as evidence of the instruments to be construed, the context in which those instruments were executed, the factual matrix known to the parties by that time, or other factual matters that explain how the parties came to be in dispute and the course of their disputes. The Santos parties Santos TOGA is an Australian proprietary company. Each of the second to fifth plaintiffs (Santos TPY, Santos TPY CSG, Santos Qld, and Santos TOGC) is incorporated in the United States and registered in Australia as a foreign company. All five became subsidiaries of Santos Ltd[6] in about 2005. [6]Santos Ltd ACN 007 550 923 is not a party to this proceeding. The sixth, seventh and eighth plaintiffs (Bronco, Vamgas, and Santos QNT) are Australian proprietary companies. They are parties to the SPDs. They are not parties to the RADs, the DOAs, or the Award. The JV parties The first defendant (Kogas) is an Australian proprietary company.[7] [7]Kogas is a subsidiary of Korea Gas Corporation, a company organised under the laws of the Republic of Korea. The second and third defendants (Total EPAI and Total EPAII) are corporations incorporated under the laws of France.[8] [8]Total EPAI and Total EPAII are subsidiaries of TotalEnergies SE, a public company registered in accordance with the corporate law of the European Union. The fourth defendant (PUPL) is an Australian proprietary company.[9] [9]PUPL is a subsidiary of Petronas International Corporation Ltd of Kuala Lumpur (Petronas). Petronas is a party to the PUPL SPD by which it agreed to guarantee certain obligations of PUPL. Petroleum exploration and production in Queensland Petroleum, including CSG, on or below the surface of any land in Queensland is the property of the Crown in right of the State.[10] Parliament has authorised a relevant minister to grant rights in respect of petroleum, including by an ATP and a PL.[10]Petroleum Act 1915 (Qld), s 4; Petroleum Act 1923 (Qld) (the 1923 Act), s 9; 2004 Act, s 26. By an ATP, the minister permits the holder to carry out activities, including the exploration for and the testing and evaluation of petroleum production on specified land.[11] Before 31 December 2004:[12] (a)an ATP holder could apply to the minister to approve the vesting of all entitlements of the holder in another person (or persons), who would become the ATP holder (or holders), if approval was given;[13] and (b)only the ATP holder could apply for a PL.[14] [11]2004 Act, Ch 2, Part 1, Division 1.[12]The date of commencement of s 117 of the 2004 Act.[13]1923 Act, s 23.[14]1923 Act, s 40. Since then, others may also apply either jointly with the ATP holder or with their consent.

Decision

Reasons for decision

The Santos parties say that this argument is misconceived in the broader context of the agreements. As Mr Doyle KC put it:“[T]he Santos group covenants are defined … as ‘covenants, agreements and obligations contained in exhibit C to be observed and performed by the Santos group’. … They plainly mean those informed by reading exhibit C as part of the Settlement Agreement. The defendants want to say that it means the promises contained within the silo of exhibit C, and they put emphasis on the words ‘contained in’ as giving rise to that. And that, in our submission, can’t be reconciled with the language. The words ‘contained in’ probably do no more than identify the particular nature of the obligations being referred to. …The covenants, agreements and obligations in exhibit C – contained in exhibit C, under exhibit C – … are defined by and must be construed in accordance with the [Settlement Agreement] as a whole, … [It is] a distortion to refer to exhibit C on its own as containing the covenants, agreement and obligations. The exhibit can recite certain things, but the consideration for that to make it an enforceable covenant, agreement or obligation is the making of a binding agreement in the Settlement Agreement, that is, to give it the quality of a covenant, agreement or obligation, requires it to be read together with the Settlement Agreement. In other words, to give it the descriptor which the parties have chosen involves reading it as part of an agreement. …” Conclusion on the proper construction of each DOA There is much overlap between the parties' submissions on this instrument and their submissions on the RADs. A reasonable businessperson in the position of the parties to each DOA would understand the references in the DOA to “covenants, agreements and obligations contained in Exhibit C” as references to those covenants, agreements and obligations with the meaning and effect each has as part of the Settlement Agreement. I reject the contrary submission for the JV parties that the parties to each DOA intended to refer to Exhibit C shorn of its context in, and the effect given to it by, the Settlement Agreement. The Settlement Agreement is comprised of two recitals and 25 numbered clauses, some operative, and some explanatory. These are followed by the witnessed execution of the document by each party. Then, there are nine “Exhibits”, including Exhibit C. Some exhibits are the forms of applications or notices the parties have agreed to sign by operative clauses of the agreement. Others are separate agreements the parties have similarly agreed to execute, complete with separate execution clauses. Some are short sets of clauses specific to a particular topic. Exhibit C deals with the Tri-Star Royalty. Although it includes eight definitions, it also uses terms defined in the Settlement Agreement. It does not include any separate execution clause. It takes effect only as part of the Settlement Agreement.

Ratio Decidendi

Legal Principle Established

As this analysis shows, generally, for there to be a privity of interest, the interest protected in the earlier litigation must be a legal interest, and it must be identical to the interest sought to be protected in the later litigation. The mere fact that a party’s legal interests were affected by the earlier litigation is insufficient.[79] The exceptions to this are where: the party in fact authorised or controlled the earlier litigation; or the interests of the party were represented by a party which owed them fiduciary obligations or whose representation of them was subject to court oversight.[79]As in Young (above). See also AWAP SGT 26 Investment Ltd v CN 2000 Holdings Ltd [2020] WASCA 74, [67] (Buss P, Mitchell JA and Hill J).Consideration of the well-established principles On the deed issue, I have concluded that the deeds evidenced an intention that the Santos Group’s 30% net residual liability for the Tri-Star Royalty would align their interests with the interests of each JV party.[80] It follows that, in any dispute with Tri-Star, the Santos Group could be expected to act in the common interest of all Upstream JV participants. As the Santos parties put their case on the privity issue only in the alternative, it is appropriate to consider it on the basis that each JV party is not bound to pay Santos TOGA its Buyer’s Percentage of the Tri-Star Royalty including the further amount determined by the Award. [80]PUPL 27.5%, Total EPAI 20%, Kogas 15% and Total EPAII 7.5%. The parties share the benefit of the success of the Upstream JV and share the detriment of the obligation to pay the Tri-Star Royalty. This bare interconnection of the parties’ “interests” in their joint business ventures is irrelevant to the establishment of a privity of interest. The parties arranged their respective obligations in the terms of their written agreements. They did so after the rights and obligations of Tri-Star and the Santos Group had been fixed by the Settlement Agreement. Was there an identical legal interest? In the arbitration, the Santos Group were protecting their legal interest in the obligation to pay the Tri-Star Royalty under the Settlement Agreement. This is different to the JV parties’ legal interests in the obligation to pay to Santos TOGA their share of the Tri-Star Royalty under the various RADs. If, by the deeds, the JV parties did not bind themselves to pay the additional amount determined by the Award, then the JV parties’ legal interests were not at stake in the arbitration. The Santos parties say that the JV parties had another relevant legal interest because of the JV parties’ contractual obligation under cl 4 of each RAD. By this covenant, each JV party bound itself to enter into a written agreement directly with Tri-Star, by which it would agree to assume and discharge its Buyer’s Percentages of the obligations of the Santos Group under the Settlement Agreement. This legal liability was contingent on Santos TOGA making a request. No request was made. No legal liability arose.