Terrex Resources N.L. v Magnet Petroleum Pty Ltd

[1988] HCATrans 155

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No Pll of 1988

B e t w e e n -

TERREX RESOURCES N.L.

Applicant

and

MAGNET PETROLEUM PTY LTD

First Respondent

and

MAGNET METALS LTD, MONARCH

PETROLEUM N.L., LENNARD OIL

'N. L. arid STIRLING PETROLEUM

PTY LTD

Second Respondents

Application for special leave

to appeal

Terrex

MASON CJ
BRENNAN J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 5 AUGUST 1988, AT 11.00 AM

Copyright in the High Court of Australia

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MR R. MEADOWS:  May it please the Court, I appear with my

learned friend, MR R. PRINGLE, for the applicant.

(instructed by Freeh1ll Holl1ngdale & Page)

MR M. McCUSKER, QC:  May it please the Court, I appear with

my learned friend, MR G.M. RUTHERFORD, for the

respondents. (instructed by Downing & Downing)

MASON CJ:	Yes, Mr Meadows.
MR MEADOWS:	Your Honours the principal issue of general

importance in this case is whether on a proper

construction of sections 80 and 81 of the

PETROLEUM(SUBMERGED LANDS)ACT of the Commonwealth

as it was in 1980/81 and the corresponding

Western Australian Act applies so as to render

oral agreements affecting petroleum permits of

no force or effect.

In this case, the Full Court has held that

an oral agreement to which section 80 applied so

as to preclude that agreement creating a legal

or equitable interest in the permits could still

found a claim in damages for breach. That appears,

Your Honours, from the judgments of the former

Chief Justice at page 32 of the papers where

His Honour said on the fifth line on that page:

But I do not think that it necessarily follows that as an oral agreement it was of "no force or effect" as between the parties to it or

that repudiation of it by, in this case, the

purchaser while the contract was still

executory would not sound in damages at the

suit of the vendor.

MASON CJ: Mr Meadows, I do not think that is the correct

page reference.

MR MEADOWS:  I am sorry it is page 39. I beg your pardon.

And His Honour Mr Justice Kennedy at page 64 of

the papers had this to say in the final paragraph

on that page:

The purpose of s.80 is to prevent legal or

equitable interests in permits from being

created, assigned, affected or dealt with,

whether directly or indirectly, except by

an instrument in writing. It does not provide

that oral agreements shall be of no force -

cf. s.81(2).

(Continued on page 3)

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MR MEADOWS(continuing):

Accordingly, although an oral agreement

may not, for example, assign an interest

in a permit, this is not to say that it does

not create a personal right in contract.

Sections 80 and 81 are in these terms. If one goes to

page 63 of the papers one can see it set out

succinctly in relevant part by His Honour

Mr Justice Kennedy. Section 80 provides that:

A legal or equitable interest in or affecting

an existing ... permit ... is not capable of

being created, assigned, affected or dealt

with, whether directly or indirectly, except

by an instrument in writing.

Section 81 (1) says that:

This section applies to an instrument by

which a legal or equitable interest in or

affecting an existing or future permit,

licence, pipeline licence or access authority

is or may be created, assigned, affected or dealt with, whether directly or indirectly, not being an instrument of transfer to which

section 78 applies.

MASON CJ:  Why does section 80 prevent the creation of

contractual rights, as distinct from legal or

equitable interests in a permit?

MR MEADOWS:  What we say, Your Honour, is that the effect of the

section is to render the agreement of no force or

effect. To say otherwise would render an oral

agreement as having a higher status than a written
agreement because a written instrument has no force

or effect and it would therefore follow that, in our

submission, if one reads sections 80 and 81 together,

that an oral agreement, likewise, can have no force

or effect, and that extends beyond simply the

question of the creation of legal or equitable interests.

BRENNAN J:  But if that anomaly exists, it exists because of the provisions of the statute.

MR MEADOWS: It is an anomaly which we would submit, on a proper

reading of the statute need not arise, and that on a

proper reading of the statute oral agreements cannot

have a status which is higher than that of a written

agreement, otherwise - - -

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BRENNAN J:  By reason of what? Section 81?

MR MEADOWS:  Because one has to read sections 80 and 81 together,

we would submit and, certainly, that is what the

Full Court held in the SWAN RESOURCES case, which we

would seek to rely on. In that particular case, in

SWAN RESOURCES, the Full Court held that an agreement

embodied in an instrument, to which section 75 of the WESTERN AUSTRALIAN PETROLEUM ACT applied, and that corresponds with section 81 of the PETROLEUM

~UBMERGED LANDS)ACT, held that that agreement was of

no force or effect until approved by the minister

and registered and that was so either inter partes

or as against the minister. The Chief Justice,

Sir Francis Burt, at page 42 of the judgment said:

In my opinion, until such time as the instrument is approved by the Minister and

registered in accordance with sub-s (2) of s 75,
that covenant is of "no force" and its breach

cannot be restrained. The covenant is simply

unenforceable.

The covenant in question there and the facts of that

case are very much in accord with the facts of this

case. It was a covenant whereby an interest in a

permit was to be transferred upon certain work being

done. His Honour did go on to say he was not going

so far as to say:

That the agreement could not contain other

covenants which would be "of force."

But, pertinently, we would submit, that in so far as

it is an agreement which seeks to create an· interest

in a tenement then, so far as that part of the

agreement is concerned, it can be of no force or

effect. And, correspondingly, of course, where the

interest is being acquired as a result of the payment

of money then the obligation to pay money can be of

no force or effect likewise.

Mr Justice Kennedy, at page 46 in the

SWAN RESOURCES case, said as well that he agreed

with His Honour the Chief Justice, and he said that:

The conclusion that, until an instrument is

approved by the Minister, it is "of no force,"

either inter partes or as against the Minister,
appears to me to follow from reading together

s74--

which corresponds to section 80 -

and sub-ss(l) and (2) of s 75 of the

PETROLEUM ACT 1967. No other provision in

the Act appears to me to affect this conclusion.

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Now, His Honour Mr Justice Wickham dissented and,

at the top of the same page you can see what he

said about that. He said:

The section does not strike down, or in some

way postpone, contractual obligations of
a personal nature evidenced by the instrument

any more than it speaks of oral obligations of

that kind.

In effect, what we say Their Honours the Chief Justice

Sir Francis Burt and Mr Justice Kennedy have done in this case is resiled from the position they took in

the SWAN RESOURCES case and have adopted the approach

which was taken by His Honour Mr Justice Wickham.

BRENNAN J:  Does that require the word, "instrument" in

section 81(1) to be read as though it is"agreement','

whether oy way of :instrument or otherwise?

MR MEADOWS:  Yes, it does, Your Honour.

BRENNAN J: Is there any warrant for that?

MR MEADOWS:  Well, there is, Your Honour, particularly when you

read it in conjunction with section 80 which provides

that no interest can be created unless it is

by writing. We would submit that it follows from

that, that an oral agreement cannot create an

interest and that therefore when one reads that

in conjunction with section 81 the effect is that

the oral agreement cannot have force or effect

either. As I have said, the SWAN case was concerned

with an agreement to transfer an interest and that is

the case here.

There were, in fact, two agreements the subject

of this case. They have been described in the papers

as the December agreement and the June agreement.

(Continued on page 6)

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MR MEADOWS (continuing):  The details of the agreements are

set out in the affidavit of Mr Standing, in

paragraph 7 of that affidavit, which is to be found

at pages 71 and 72. If I could just briefly read

that paragraph to put my submissions into context:

In or about December, 1980 it was orally agreed

between the parties that the appellant would

purchase from the respondents interests in

3 exploration permits for a price which in

each case represented a particular percentage of

future exploration costs. The permits

authorised drilling "off-shore". It was

envisaged that the applicant would raise the

money necessary to fund its share of exploration
costs from a rights issue it intended to make.

In April, 1981, the applicant caused to be paid to the respondents -

two sums of money -

in response to "calls" upon it. These are

the sums in question in this litigation.

By June, 1981, further calls for payment

had been made, and the applicant was unable

to meet them. At that time it had become

difficult to raise money by way of a rights

issue. It informed the respondents that it was

unable to pay.

Representatives of the parties met on or about

25th June, 1981. At the end of the meeting

Mr Briggs on behalf of the applicant went

away to consider whether or not the applicant
would agree to forfeit the money it had paid,

in consideration of being released from any

obligation to make further payments and on the

basis that the respondents would provide to

the applicant a lesser interest in one of the

permits, the interest to represent the

proportion the total amount paid by the
applicant bore to the estimated cost of sinking

the first well ..... the choice of the permit

and the percentage interest were to be estaolished

by future negotiation. A few days later,

Mr Briggs spoke to Mr Gascoine ..... and agreed

to the proposals.

The parties did not fix by negotiation the

lesser interest to be provided, and such an interest was not provided to the applicant.

So we have two agreements in this case, both of which are oral, both of which affect an interest in

a petroleum permit. We would say that in that

respect the agreements in question are on all fours

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with that which was in consideration in the SWAN

RESOURCES case. We submit that the two decisions

are inconsistent and that the decision in SWAN RESOURCES

is plainly correct and to encapsulate our submissionit

is this, that on a true construction of sections 80

and 81 it is not until an agreement has been reduced

to writing and the last step of obtaining registration of

an instrument approved by the minister has been

taken that an agreement has force or effect. This

construction avoids the anomalous result which has

been referred to, that an agreement while merely

oral has some limited effect but when reduced to

writing loses all effect until it has been approved

and registered. The policy of the legislation needs

to be borne in mind. It is to retain ministerial control over dealings in interests in permits and

the Full Court's decision in this case undermines

that control. In effect, by saying that an oral

agreement can have this limited effect the legislation

is being undermined or circumvented.

TOOHEY J:  Mr Meadows, in terms of section 80 do you contend

that the agreement did anything more than affect

an existing permit - I am not suggesting that that

may not be enough in itself but do you rely upon

any of the other words in the section?

MR MEADOWS:  Yes. We would submit that the agreement did

in fact create an equitable interest in the permit
in that there was an agreement that for the payment

of money a certain percentage interest in the permit

would be transferred and that agreement created an

equitable interest.

MASON CJ:  Now, I follow how you put the application of

section 80 in relation to the first agreement,

that is, the December agreement.	How does it apply
to the June agreement?

(Continued on page 8)

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MR MEADOWS:	The June agreement, again, was - the relevant part of it - an agreement to transfer an interest
in a permit.  Once again, assuming that the
particular provision is sufficiently certain - that is once again an agreement to transfer an interest
in a permit for the payment of money.
MASON CJ:	But if you take the view that that part of the

June agreement was not sufficiently certain, that

is, the part that related to the future interest,

how does section 80 then apply to the June agreement?

MR MEADOWS: Section 80 still applies to the June agreement

even though it might be uncertain in that that

provision in the June agreement is part and parcel

of a total agreement and given that to be the case,

even though that particular provision may be

uncertai~ it is still an agreement which seeks

to create an equitable interest in a permit.

MASON CJ:  But if you take the view of the June agreement

that was taken by the Full Court that part of the

agreement is so uncertain that no effect can be

given to it and it can be severed. How then does

section 80 apply to it or apply to the balance

of the agreement?

MR MEADOWS:  If you sever it, of course, it could not, but

we would submit that it cannot be severed and

that the finding of the Full Court flies in the

face of a firm finding by the trial judge that

the agreement to grant a lesser interest was part

of the total agreement and His Honour so found

in the light of a hotly contested issue about that

at the trial. And if one goes to His Honour

Mr Justice Brinsden's judgment which can be found

in the papers at page 26, His Honour said:

I prefer the defendants' case so far

as the June agreement is concerned.	But I
conclude that the arrangement concerning the
of the total agreement.

negotiation of the lesser interest was part

Now, we would contend that the way in which His Honour the Chief Justice sought to overcome

that problem was not a justifiable way of approaching
the matter and that His Honour Mr Justice Kennedy's

approach where he sought to sever that clause was

likewise not open in the light of that finding.

His Honour Mr Justice Brinsden having found that

it was part and parcel of the total agreement that

this interest be transferred, in our submission,

on the authorities it was not open to sever that

agreement from the total agreement.

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MASON CJ:	So that in order to succeed, you need to prevail

in relation to your proposed interpretation of

section 80 and you need to prevail on your

severance argument.

MR MEADOWS:  We would, Your Honour. Yes. And once we were

able to persuade the Court on the severance
argument then certainly section 80 comes into play
and, in our submission, that would be determinative

of the appeal in favour of the applicant.

BRENNAN J:	Mr Meadows, in order that your section 80 argument might apply to the June agreement it is necessary
for you to show, is it not, that the part of the
agreement which might be severable is one which
creates a legal or equitable interest in, or
affecting, an existing permit. Is that correct?

MR MEADOWS: That is what the section provides, Your Honour.

BRENNAN J:  And it would be necessary for you to make good

the proposition that that uncertain provision

in the June agreement has that effect of creating

such an interest.

(Continued on page 10)

~

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MR MEADOWS:  We w o u 1 d p u t i t this way , Your Hon o u r , that i f

we get to the point where we can say that that uncertain

agreement does have that effect, then section 80 comes

into play. If it is so uncertain so that it is not

possible to reach that conclusion, then the whole of

the June agreement is struck down for uncertainty because

we say, on the basis of His Honour Mr Justice Brinsden's

finding:, that it cannot be severed.

BRENNAN J:  It may or may not be struck down, but in order to

get the section 80 argument on to its feet in relation to the June agreement you must contend, must you not, that

the uncertain part of it creates a legal or equitable

interest in or affecting an existing permit.

MR MEADOWS:	If we are to rely on the section 80 point, yes.
BRENNAN J:	Can you possibly do that?
MR MEADOWS:	Yes, we can Your Honour, because, subject to the

identification of the permi~ the parties had agreed that

in consideration of the payments that had been made an

interest which was to be calculated in accordance with a

formula which the parties understood was to be transferred

to the applicant; so you have an agreement for the

transfer of an interest in the tenement in consideration

for the payment of money.

BRENNAN J:	In which tenement?
MR MEADOWS:	That was a matter for negotiation - I accept

that - and that was what the arrangement was between

the parties and the matter was left on that basis,

but at the end of the day there was an agreement to

transfer an interest in a permit, and that, in our
submission, is sufficient to create at least an equitable

interest affecting a permit.

The question involving sections 80 and 81 is

one of profound importance to the oil and gas and mining

industries throughout Australia and we have provided

a schedule to the Court which shows a list of legislation

which is either identical to the provisions in question	or which contains analgous provisions which are in line
with the amendments to the Commonwealth Act in 1985.
The Commonwealth Act was amended in 1985 - - -

MASON CJ:  Mr Meadows, can you identify that document for us?

Is it in the application book?

MR MEADOWS:  No, it is a list of legislation which was

forwarded to the Court earlier this week along with the

list of authorities.

MASON CJ:	Yes, we do have it now.
MR MEADOWS:	Your Honour, the schedule there sets out

legislation which either corresponds with the

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legislation in question, or is legislation which is to a like effect. The 1985 amendments to the

Commonwealth Act did amend sectins 80 and 81 firstly

by repealing section 80, but providing in section 81

that certain dealings which are there listed would

likewise be of no force or effect if they were not

approved and registered.

So we would submit that the outcome of this

point in favour of the applicant would be of considerable

significance to the resouces industry in Australia.

The applicant would, as I have already adverted,

raise other issues on the appeal which we would

concede do not necesarily involve questions of
principle of general importance. It would involve the

application of what we would see as well established

principles to the facts as found. The first of
those is that the applicant would say that on a

proper application of the principles expounded

by this Court in DTR NOMINEES V MONA HOMES there

was a mutual abandonment of the June agreement

and that in the result the moneys would be recoverable

in accordance with the principles in McDONALD V DENNYS

LASCELLES.

There is another issue which would arise in the

which involved a question of importance, and that would be a point which the respondents would no doubt pursue.	appeal which would, in our submission, be a matter applicant's argument that the moneys paid under the
December agreement were recoverable under the principle
in McDONALD V DENNYS LASCELLES was upheld. At the
trial the respondent had argued that that principle was
not applicable and that the decision in HYUNDAI HEAVY
INDUSTRIES LTD V PAPADOPOULOS was applicable, and
reference was made to an argument by Mr Beatson in
(1987) 97 Law Quarterly Review 389.

(Continued on page 12)

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MR MEADOWS (continuing):	The trial judge adopted

Mr Beatson's suggested qualification to the
McDONALD V DENNYS LASCELLES principle and that

qualification can be found at page 34 of the papers

in the judgment of the Chief Justice where he cites

that - in the middle of the page:

The author of that article, as it seems to me, relied very heavily upon the decision

of the House of Lords in HYUNDAI HEAVY

INDUSTRIES CO LTD V PAPADOPOULOUS,

(1980) 2 All ER 29 in support of his thesis

that when it appears from the contract "that

one party is bound to incur reliance

expenditure before completing performance

the contract will be construed to give him

an unconditional right to the payment".

Now, the HYUNDAI case involved a ship-building

contract and it was held there that because of

the nature of that contract the moneys which had

been paid under it were not recoverable in the

event of repudiation and acceptance of that

repudiation.

The Full Court, by a majority, rejected that

approach in this particular case holding, as

His Honour the Chief Justice did at page 35 in

the third sentence on that page:

In a contract where the promise is to pass the property in exchange for the price and the prepayment is part of that price then

that prepayment can be recovered if the contract

goes off before the property passes.

Now, His Honour Mr Justice Wallace agreed with

the trial judge. So on that particular issue you

have an even split in the Western Australian

Supreme Court.	And the issue which is involved
is, perhaps, well illustrated by this analogy:

the analogy of the purchaser of a home unit dealing
with the property developer, agreeing to purchase

the unit before it is built. Now, the question

would be: if that contract went off before the

unit was built and the property transferred could

the purchaser recover the money from the developer?

In our submission, under the McDONALD V DENNYS LASCELLES

principle, clearly the purchaser could. But if

one looked at the HYUNDAI case and assumed that

the developer was also the builder the argument

would be that because the builder was actually

carrying out work in connection with the contract

that that money would not be refundable.

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And if that is the result of the HYUNDAI case

and the thesis put forward by Mr Beatson then

we would submit that it is wrong in principle;

that the purchaser, whether he deals with the

developer who is employing a builder as a third

party or a developer/builder, would be entitled

to recover the moneys. Now, I mention that point

because that is a matter which is of general

importance, we would submit, which would clearly

be raised on the hearing of the appeal. At this

stage it has been held in favour of the applicant

but that is a matter which would be raised in the

appeal.

The other issue which would be of significance,

we would submit, is the question of severability

an~ as I have said, in the light of His Honour

Mr Justice Brinsden's finding that it was part

of the total agreement, and this followed a hotly

contested issue as to that question, that it was

not open to find that that particular provision

was not part and parcel of the overall agreement

and for that reason could not be severed. And

if one applies the principles in WHITLOCK V BREW,

which were referred to by His Honour Mr Justice Kennedy,

it would not be open to sever that provision.

His Honour the Chief Justice finessed it,

we would say, at page 38, when he said - at the

top of that page:

(Continued on page 14)

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MR MEADOWS (continuing):

The compromise was not conditioned upon the appellant taking up the 11 lesser 11 interest.

With respect to His Honour, that, as we have

said, flies in the face of the finding of fact

made by His Honour Mr Justice Brinsden that,

in fact, it was part and parcel of the overall

agreement and, therefore, we would submit necessarily

a condition of the agreement.

So for those reasons, Your Honours, in our submission, this is a case which warrants the

grant of special leave.

TOOHEY J: Mr Meadows, if it were thought that only

sections 80 and 81 raise an appropriate question

for special leave, would that let in any of the

other matters that you have spoken of, other

than the question of severance?

MR MEADOWS: 

The only other matter we have spoken of which

would still be open to argument, on our submissions,
would be the mutual abandonment point.

TOOHEY J: 

But open to argue within a grant of leave that

was restricted to argument on the operation of

sections 80 and 81?

MR MEADOWS: If it was restricted to sections 80 and 81

it would not be open to argue the mutual

abandonment point.

TOOHEY J:  But you would still want to argue the question

of severance, no doubt?

MR MEADOWS:	We would, Your Honour, yes.
TOOHEY J:	Thank you.
MASON CJ: Yes, thank you, Mr Meadows.
MR MEADOWS:	May it please the Court.
MASON CJ:	Yes, Mr Mccusker.

MR McCUSKER:  May it please Your Honours. The respondents'

submission is that the grounds sought to be relied

upon by the applicant in the application for

special leave are based essentially on a

misconception of what was decided by the trial

judge and the Full Court.

MASON CJ:  Yes. I think you might turn your attention

to the section 80/81 ground that has been advanced

as a ground for special leave.

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MR McCUSKER: Certainly, Your Honour.

MASON CJ:  You can approach it on the footing that that

is the ground that we have in mind.

MR McCUSKER:  Yes, That is the ground that I wish to refer

to primarily, of course. In that regard,

Your Honours, the section 80 - perhaps I should

start with section 81. Section 81 is clearly

of no application to either the December or the

June agreements because in neither case was there

an instrument and that was part of the basis

upon which Mr Justice Kennedy made his finding

that there was no application of the PETROLEUM

ACT - no relevant application.

So far as section 80 is concerned, for it

to apply and for the special leave point to come

into focus, it would first and foremost have

to be held that the agreement or each of the
agreements involved the creation or ~ffecting

of a legal or equitable interest or the assignment

or dealing with legal or equitable interest in

a permit. The December 1980 agreement, it is

submitted, clearly did not do that. The December

1980 agreement was an agreement whereby in return

for payment of calls, with respect to exploration

costs relating to each of these three permit

areas, the respondent was to earn a specified

interest in each of the three permit areas.

It could do that by one or two ways. The

applicant's case, as pleaded, was essentially

that it was to do it by one way only. That was

to acquire shares in a company called Took Pty

Ltd which, in turn, the respondent was to ensure

were transferred to the applicant and also ensure

that Took Pty Ltd had the requisite interests

that were the subject of the agreement. And

the view that His Honour Mr Justice Kennedy took

of that agreement, which is not inconsistent

at all with the findings of the learned trial

judge, was that the parties had agreed that the

relevant interests would be acquired - or it

would be earned, in effect, after the payment

of the calls by either way, either by the transfer
of shares in Took which clearly could not bring
into operation section 80 because the transfer of the shares in a company would not, at least

on its face, Your Honours, attract the operation

of section 80 or by a direct transfer of the
interests to the applicant or whichever company

the applicant might decided upon.

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MR McCUSKER (continuing):  The question, therefore, is

whether such an agreement could be said, even

arguably, to be one whereby a legal or equitable

interest in terms of the statute is created - it clearly was not

creating a legal equitable interest; assigned -

it clearly was not doing that; affected or dealt

with. In our submission it did none of those

things, all that it did was to provide that an interest could be acquired by one or either of these alternative methods that were the subject

of the agreement. That being so - and it was the

view expressed by Mr Justice Wallace in the Full Court,

as well as that of Mr Justice Kennedy - this clearly

was not an agreement which would attract the

operation of section 80.

So far as the June agreement is concerned,

which was the compromise agreement, it is not the

case that His Honour Mr Justice Burt, the former
Chief Justice, found that an oral agreement was

capable of maintaining or supporting an action

for damages, an oral agreement which attracted the

operation of section 80. He simply said - and this

appears at page 39 in relation to the June 1981
agreement - that: whether a suit in damages for breach
of the agreement could have been maintained was

capable of sustaining respectable debate, that is,

to support the settlement or compromise which he

held to have arisen or occurred on that date.

Mr Justice Wallace, at page 50 held that the

Act did not apply to the agreement as the question
of conferring an interest would only arise when the

applicant had paid its share of first well exploration

expenses. The agreement whereby exploration

expenses were to be paid did not, he said, purport

to create, assign~ affect, or deal with any

interest in the permit. Mr Justice Kennedy, at

page 64, rightly pointed out that the oral agreement

was not an instrument and therefore section 81 was

not applicable and that section 80, he said, did

not make the oral agreement of itself of no force

and effect.

The point that Your Honour Mr Justice Brennan

raised during the course of my learned friend's

discussion on this point, we say, is the pertinent

point. Can it be said that section 80 operates

to make an agreement as such of no force and effect

because that is the crux of the applicant's argument.

The terms of section 80 do not support it. Those

terms do not say that such an agreement, or any

agreement is of no force and effect, it simply says

that an interest in a permit cannot be created,

et cetera, otherwise than by instrument. It was

never contended, either before the trial judge or

on appeal on behalf of the respondent that the

agreement was one which created, affected, or

assigned an interest in the permit. That is not

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the contention; to the contrary the contention is

that it does not do so, neither the June nor December

agreement has that effect. His Honour

Mr Justice Kennedy said - and we would respectfully adopt his approach, which is consistent with that

of the other members - that it simply operates to

prevent legal or equitable interests in or affecting

permits from being created or assigned or dealt

with otherwise than by an instrument. The agreement

itself did not purport to do that, and in any

event His Honour Mr Justice_Kennedy at page 65 made the point

I have referred to earlier, that is, that a sale

of shares in Took was one of the means which was

agreed between the parties and, indeed, if one

turns to the statement of claim, page 79 paragraph 3,

which appears in the appeal book, the applicant's

contention - its case was that the agreement was

essentially the acquisition of shares in Took Pty Limited

which was to have these interests.

(Continued on page 18)

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MR McCUSKER (continuing):	As His Honour Mr Justice Kennedy

said in relation to that, a sale of shares in

Took being one means which was agreed whereby in the

future an interest would be acquired after calls for
exploration costs had been met, it could not be said

that section 80 applied there to such an agreement.

Even if it could be said that it applied, which he

did not hold, to the contrary, to an oral agreement

whereby an assignment directly to the other party

was to be made. Your Honours, my learned friend has

referred to the affidavit in support of the

application. It is, with respect, something of a

gloss to approach this matter on the basis as set

out at page 71:

It was orally agreed between the parties

that the appellant would purchase from the

respondents interests in 3 exploration permits

for a price which in each case represented

a particular percentage of future exploration

costs.

And so on. The reality, the substance of the agreement

was that in return for undertaking to pay and paying

a share of future exploration costs in relation to

these permits as and when the calls were made to meet
those costs, the applicant would acquire an interest

at a future date in the respective areas. It was

observed by the learned trial judge and the point was

taken up by the Court of Appeal that this was not

merely a case - it cannot likened to the situation,

for example, in McDONALD V DENNYS LASCELLES - of a

simple sale of property. It was much more than that.

At page 18 of the appeal book, in his reasons, the learned trial judge, referring to an argument based

on failure of consideration, said:

The fact is the plaintiff obtained technical

data -

this is just above line B, Your Honours -

The fact is the plaintiff obtained technical

data by reason of the agreement as is

evidenced by exhibit 16.

That exhibit 16, Your Honours, was an exhibit showing

the attendance by the applicant at the operators'
meeting, or the meeting of participants in the

operation:

It participated -

he said -

in operators meetings, not only attending them but in actual participation in the discussions

and decisions -

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and referred to a further exhibit -

It also participated in the decision to

permit the Shell Oil Company to farmin in

respect of part of WA103P and gave its

approval to the terms of the farmin agreement. In short, it had the benfit of the exploration

which was conducted in respect of which it made

its payments.

The second ground sought to be relied upon, which is

really a ground allied with the first, is that it

should have been held that the agreement made orally

in or about December 1980 was of no force or effect

and that there was no consideration moving from the

respondents for the payments made by the appellant

in April 1981. As to that, Mr Justice Kennedy said -

it appears at page 64 - that firstly, reliance on

section 81 was misconceived, there being no instrument

and, second, that section 80:

Does not provide that -

an oral agreement is of -

no force -

just that a legal or equitable interest is incapable

of being created or dealt with, et cetera, otherwise

than by written instrument, which this agreement did

not purport to do. Furthermore, consideration in this

case clearly did move as the applicant participated

in the manner that I have already referred to and outlined by the learned trial judge, in operators'

meetings.

Ground 3, which is also linked with this - that

deals with the June agreement - misconceives, with

respect, the learned trial judge's findings of fact

by referring only to what was said at page 26, and

taking the matter, in our respectful submission,
somewhat out of context.	It should be borne in mind

that the learned trial judge fully - - -

MASON CJ:	Mr Mccusker, we are only concerned with that part of
the applicant's case that is based on special leave to consider section 80 and 81.
MR McCUSKER:	I accept that, Your Honour.
MASON CJ:	And the consequences that would flow from allowing

an appeal or permitting an appeal to go forward so as

to enable the applicant to raise that question.

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MR McCUSKER:  Yes. The point I am seeking to make,

however, Your Honours, is that so far as the

application of the sections to the June agreement

is concerned, the applicant relies heavily, as it

must, upon what it says was a finding as to the

nature of the June agreement, that is that

an unseverable part of that agreement was an

agreement that there should be an assignment or

an acquisition of some minor interest in one of

the permits. Unless it can sustain that it cannot,

as it were, get off the ground. Now, in that

to
regard the applicant has pointed what to say that was the agreement, that is so fo,md.

As a corollary to that my learned friend has said, ".And

the members of the Full Court effectively cut

across or disregarded that finding".

At page 26, His Honour, in conclusion said:

I prefer the defendants' case so far

as the June agreement is concerned. But I

conclude that the arrangement concerning

the negotiation of lesser interest was

part of the total agreement. The fact that

no lesser interest has been successfully
negotiated does not mean that there has been

a total failure of consideration for the

plaintiff has received the benefit in part,

by being relieved from future obligations

under the December agreement.

Now, the wording of the second sentence of

that page, "But I conclude that the arrangement"

et cetera, is perhaps ambiguous. It might have

been more happily worded. But, may I take

Your Honours back to the previous page, just

above line D, where His Honour says:

It can be seen that the defendants -

dealing with the June agreement -

by agreeing to let the plaintiff out of

the December agreement were giving up

quite a lot since they forewent the

acquisition of one half of Border's interests
in the three permits carried at no expense

to themselves. That consideration among others

makes it appear m:>st unlikely the defendants would have entered into some arrangement in June which not only released the plaintiff

from performance of future obligations but

accepted that the plaintiff was entitled to

have its money back unless some agreement

in respect of a lesser interest was achieved.

And the evidence of a Mr Gascoine, who gave

evidence for the respondent, was totally accepted

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by His Honour. That evidence was that the

mutual release, as it were, the release of

the applicant from an obligation to pay future

and outstanding calls, and in return, the

acceptance by the applicant that it had no

claim for repayment of moneys already made,

that was not conditional, as Mr Gascoine said,

on the negotiation of a lesser interest,

or, indeed, on that as being a term of the
arrangement.

The learned trial judge's reasons, in fortification of a point that I am making,

appear at pagesl3 to 14 also, where he dealt

with what was agreed in June 1981. He said,

just above line D:

The bargain that was struck in June I think

amounted to this. The defendants agreed to

cancel the agreement discharging the

plaintiff from further liability -

that is, of course, for past and future calls

but upon the basis that what the plaintiff

had already paid was lost to it.

He goes on to say:

Briggs during discussion -

that is discussion concerning this release

had raised the problems that he might

encounter with the auditors of the

plaintiff since the books would show

a large expenditure without any

corresponding interest gained.

And there was evidence in that regard, Your Honours,

that Briggs was saying, "Look, we have expended

this money which we have shown, as is one alternative

means of dealing with it for accounting purposes,

as an asset, but once we enter into this agreement

to lose it, we cannot any longer show it as an

asset. His Honour went on, sununarizing that

evidence:

Gasgoine offered to allow the palintiff an

interest in a permit, worked out on a basis

of the relativity between the amount paid and
the cost of a first well (hereinafter referred
to as the lesser interest). There is really

no dispute between the parties as to the

formula by which this interest was to be

calculated~- but the result largely depended

on the cost that was ascribed to a first well.

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MR McCUSKER (continuing):  And at page 14, a little later,

just above line D again, His Honour said:

I have reached the conclusion that the June agreement amounted to a sorting out of the rights and obligations incurred by the

parties in respect of the December agreement

coupled with the defendants' agreement that

it would negotiate to provide the plaintiff

with a lesser interest in one or more of the

permits in which the defendants had an interest.

It was referred to by Mr Gascoine as having been

described to him as a sop to the the auditors and

Mr Gascoine's evidence was clearly and unequivocally,

and His Honour has referred to it there and clearly

accepted it, that this negotiation of a sop to

the auditors of a very small interest in a permit

was in na way a condition of the mutual release

that occurred between the parties in June 1981.

I mention those matters, Your Honours, because

although it is taking Your Honours to the evidence,

in a sense, it is important to appreciate that

at the heart of the applicant's application here

in order to bring this question of section 80 in

focus at all it must be established that the June 1981

agreement had as a condition of it, an unseverable

condition, the creation or the transfer of some

interest.

Now, His Honour the learned trial judge has

made it clear when one reads the whole of his judgment

that that was not the case: that the June 1981

agreement was an agreement whereby there was an

immediate mutual release between the parties but

that was coupled with, but not an integral part

of, an agreement under which there was to be some

negotiation of a lesser interest as a sop to the

auditors. And that being so, Your Honours, it

is submitted that, even if the interpretation

of section 80 could otherwise be said to be an

important point - a special leave point, this case

is not, on its facts, a suitable vehicle for the

determination of that issue. The existence of

the alternative arrangement whereby the acquisition
of the interest might be obtained through

Took Pty Ltd is one reason for my saying that.

The fact that there was in June 1981 a mutual release

as between the parties coupled with, as His Honour

put it in the course of discussing the evidence,

an agreement that there would be a negotiation

of a lesser interest, the question of whether

that, in any event, if it be said to be uncertain

could amount to a condition which attracts the

operation of section 80 makes this case, in my

submissio~ wholly unsuitable for determination

of the point said to be a special leave point.

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MASON CJ:	Yes.	Thank you, Mr Mccusker. Yes, Mr Meadows.

MR MEADOWS:  May it please the Court, we have nothing to say in reply.

MASON CJ: Although the interpretation of sections 80 and 81

of the PETROLEUM (SUBMERGED LANDS) ACT is a question

of importance and some difficulty, we do not consider

that this case is a suitable vehicle for embarking

on that exercise.

It seems to us that the applicant would have

great difficulty in persuading the Court that

sections 80 and 81 apply to the agreements between

the parties. The June 1981 agreement, in particular,

gives rise to special problems and its effect turns
very much on its own provisions as they were found

by the trial judge.

Accordingly, the application for-special leave

to appeal is refused.

MR McCUSKER:  May it please Your Honours, I ask for an order

for costs.

MASON CJ:  Yes. I take it, Mr Meadows, that you cannot resist

an order for costs?

MR MEADOWS:  No, Your Honours. I cannot.

MASON CJ:  The application is refused with costs.

AT 11.56 AM THE MATTER WAS ADJOURNED SINE DIE

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