Western Mining Corporation Ltd v The Commonwealth of Australia
[1994] FCA 183
•14 Apr 1994
Western Mining Corporation Limited v. The Commonwealth of Australia
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
JUDGE: RYAN J
FED No. 183/94 No VG 137 of 1991
GENERAL DIVISION
BETWEEN: WESTERN MINING CORPORATION LIMITED
(Applicant)
AND: THE COMMONWEALTH OF AUSTRALIA
(Respondent)
Place: MELBOURNE
Date: 14 April 1994
#DATE 14:04:1994
Counsel for the applicant: Mr S Charles QC with
Mr G Nettle
Solicitor for the applicant: Arthur Robinson and Hedderwicks
Counsel for the respondent: Mr R Castan QC with
Dr H Burmester and
Mr S Gageler
Solicitor for the respondent: Australian Government Solicitor
REASONS FOR JUDGMENT
RYAN J: By its application, Western Mining Corporation Limited ("WMC") seeks a declaration that the reduction in size of an exploration permit issued under the Petroleum (Submerged Lands) Act 1967 ("the PSLA") effected by statutory amendment, constituted an acquisition, by the Commonwealth, of WMC's property otherwise than on just terms. WMC also seeks compensation pursuant to s.24 of the Petroleum (Australia-Indonesia Zone of Cooperation) (Consequential Provisions) Act 1990 ("the Consequential Provisions Act") although the determination of that question has, by order of Sweeney J, been deferred pending resolution of the entitlement of WMC to declaratory relief.
The declaration which WMC seeks is in these terms:
"That ...
(a) the removal of blocks constituted by graticular sections within Area A of the Zone of Cooperation from Permit WA-74-P; and
(b) the changes to the boundaries of other blocks constituted by graticular sections within Area A of the Zone of Cooperation so as to partly remove such blocks from Permit WA-74-P;
effected by the Petroleum (Australia-Indonesia Zone of Cooperation) Act 1990 would be, but for s.24 of that Act, an acquisition of property from the Applicant otherwise than on just terms."
As this matter raises tangentially the interpretation of s.51(xxxi) of the Constitution, appropriate notices were given under s.78B of the Judiciary Act 1903 (Cth). There has been no intervention by any Attorney-General.
INTRODUCTION
On 18 May 1971 Australia and the Republic of Indonesia entered into an agreement known as "the Agreement between the Governments of the Commonwealth of Australia and the Government of the Republic of Indonesia Establishing Certain Boundaries". A supplementary agreement was entered into on 9 October 1972. The result of the agreements, which came into force on 8 November 1973, was to establish certain seabed boundaries in the area of the Timor and Arafura Seas. Because of the claim of Portugal to sovereignty over East Timor, agreement was not reached on the entire seabed boundary and a gap of approximately 130 nautical miles opposite the coast of East Timor was excluded. This disputed boundary is known as "the Timor Gap".
After the occupation of East Timor by Indonesian forces in December 1975 and its annexation by that country in July 1976
Australia commenced negotiations with Indonesia on the delimitation of the seabed boundary in the Timor Gap but was not able to reach agreement. Indonesia presently asserts, as did Portugal before it, that there is a continuous continental shelf between Australia and Timor and that, in accordance with the Convention on the Continental Shelf signed at Geneva on 29 May 1958 ("the Geneva Convention"), the seabed boundary should be drawn along the median line between the Australian and Timorese coasts.
Australia has taken the view that the continental shelf adjacent to Australia extends not to Timor but comes to an end at the Timor Trough, a deep trench in the seabed extending roughly parallel from the coast of Timor at a distance varying between 30 to 60 nautical miles from that coast and, accordingly, there is not a single continental shelf between Australia and Timor. Acceptance of this view entails the significant extension of Australian sovereignty past the median line.
The Geneva Convention defines "continental shelf" for the purpose of the Convention and provides that a coastal state may exercise sovereign rights for the purposes of exploration and exploitation of its natural resources. Article 6 of the Convention provides for the determination of the boundary of the continental shelf lying between adjacent States. Articles 1, 2 and 6 are in the following terms:
" Article 1
For the purpose of these articles, the term "continental shelf" is used as referring (a) to the seabed and subsoil of the submarine areas adjacent to the coast but outside the area of the territorial sea, to a depth of 200 metres or, beyond that limit, to where the depth of the superjacent waters admits of the exploitation of the natural resources of the said areas; (b) to the seabed and subsoil of similar submarine areas adjacent to the costs of islands.
Article 2
1. The coastal State exercises over the continental shelf sovereign rights for the purpose of exploring it and exploiting its natural resources.
2. The rights referred to in paragraph 1 of this article are exclusive in the sense that if the coastal State does not explore the continental shelf or exploit its natural resources, no one may undertake these activities, or make a claim to the continental shelf, without the express consent of the coastal State.
3. The rights of the coastal State over the continental shelf do not depend on occupation, effective or notional, or on any express proclamation.
4. The natural resources referred to in these articles consist of the mineral and other non-living resources of the seabed and subsoil together with living organisms belonging to sedentary species, that is to say, organisms which, at the harvestable stage, either are immobile on or under the seabed or are unable to move except in constant physical contact with the seabed or the subsoil.
...
Article 6
1. Where the same continental shelf is adjacent to the territories of two or more States whose coasts are opposite each other, the boundary of the continental self appertaining to such States shall be determined by agreement between them. In the absence of agreement, and unless another boundary line is justified by special circumstances, the boundary is the median line, every point of which is equidistant from the nearest points of the baselines from which the breadth of the territorial sea of each State is measured.
2. Where the same continental shelf is adjacent to the territories of two adjacent States, the boundary of the continental shelf shall be determined by agreement between them. In the absence of agreement, and unless another boundary line is justified by special circumstances, the boundary shall be determined by application of the principle of equidistance from the nearest points of the baselines from which the breadth of the territorial sea of each State is measured.
3. In delimiting the boundaries of the continental shelf, any lines which are drawn in accordance with the principles set out in paragraphs 1 and 2 of this article should be defined with reference to charts and geographical features as they exist at a particular date, and reference should be made to fixed permanent identifiable points on the land."
Australia is a party to the Convention. Indonesia is not.
Australia presently asserts its sovereignty within the area of the Timor Gap, extending to the commencement of the Timor Trough. Since 1963 Australia has granted petroleum exploration permits in the area and has maintained, both in domestic legislation and in international forums, that it enjoys sovereignty over the area.
Before the annexation of East Timor by Indonesia, Portugal also purported to exercise sovereign rights in the Timor Gap by the grant of exploration permits. In 1974 the Portuguese Government granted an oil exploration concession to an American corporation, Oceanic Exploration Corporation. The area covered by the concession extended to the median line between Australia and Timor. Australia officially protested to the Portuguese Government in relation to what it regarded as an exercise of power in an area in which Australia claimed sovereignty. Although the evidence does not permit a finding that Indonesia has since endorsed the Oceanic permit, it is common ground between the parties that Indonesia asserts sovereignty up to the median line.
EXPLORATION AND EXPLOITATION OF PETROLEUM
The assertion by Australia of its sovereignty over the continental shelf adjacent to Australia is manifested in the Sea and Submerged Lands Act (the SSLA) and the PSLA. It is a grant of an exploration permit under the latter Act that forms the focus of these proceedings.
The PSLA regulates the exploration for and exploitation of petroleum products from the continental shelf adjacent to Australia. The preamble to the PSLA records that Australia has sovereign rights over the continental shelf beyond the limits of Australian territorial waters for the purposes of exploring it and exploiting its natural resources. Reference is made in the preamble to the Geneva Convention relevant parts of which have been set out above.
The preamble also refers to and adopts the declaration in the SSLA which constitutes a statutory claim by Australia to sovereign rights in respect of its continental shelf. "Continental shelf" is defined by s.3 of the SSLA to have the same meaning as in the Geneva Convention. Section 11 of the SSLA embodies the declaration in these terms:
"Sovereign rights in respect of continental shelf
11. It is by this Act declared and enacted that the sovereign rights of Australia as a coastal State in respect of the continental shelf of Australia, for the purpose of exploring it and exploiting its natural resources, are vested in and exercisable by the Crown in right of the Commonwealth."
Section 12 of the SSLA provides for the limitation of the continental shelf by proclamation of the Governor-General. No proclamation has been made.
Having recorded in the preamble the claim of Australia to its continental shelf, the PSLA then affords a statutory mechanism by which Australia allows for the exploitation of resources in the continental shelf by providing for the exploration and exploitation of petroleum in "adjacent areas" which is defined to mean "adjacent areas in respect to a state or territory as ascertained by reference to s.5A". That section relevantly provided:
"Adjacent areas
5A(1) For the purposes of this Act, but subject to sub-section (2), the adjacent area in respect of a State or the Northern Territory is so much of the area described in Schedule 2 under the heading that refers to that State or Territory as comprises waters of the sea that -
(a) are not within the outer limits of the territorial sea of Australia (including the territorial sea adjacent to any island forming part of Australia); and
(b) are within the outer limits of the continental shelf.
(2) If at any time the breadth of the territorial sea of Australia is determined or declared to be greater than 3 nautical miles, sub-section (1) continues to have effect as if the breadth of the territorial sea of Australia had continued to be 3 nautical miles.
..."
Schedule 2 to the PSLA provides for the delimitation of the adjacent area of each State by reference to parallels of latitude and meridians of longitude. The continental shelf is defined by s.5(1) to mean:
"the continental shelf, within the meaning of the Convention [on the Continental Shelf], adjacent to the coast of Australia (including the coast of any island forming part of a State or Territory) or of a Territory".
In general terms, the PSLA prohibits the exploration of petroleum or its recovery from adjacent areas without a permit, lease or licence. The regulatory scheme is governed by two official bodies which are established under the Act. There is first a "Joint Authority" comprising the relevant Commonwealth Minister and the relevant State or Territory Minister: s.8A. Secondly, there is a "Designated Authority" consisting of the State or Territory Minister: s.14. The Commonwealth Minister is given control of the Joint Authority by operation of s.8D which provides that in the case of disagreement the decision of the Commonwealth prevails.
Section 19 of the PSLA prohibits exploration for petroleum in an adjacent area except in accordance with a permit granted under the Act. A penalty of $50,000 or imprisonment for 5 years or both attaches to a contravention of s.19. Once granted, a permit confers rights upon the permittee which are stipulated, as follows, in s.28:
"Rights conferred by permit
28. A permit, while it remains in force, authorizes the permittee, subject to this Act and the regulations and in accordance with the conditions to which the permit is subject, to explore for petroleum, and to carry on such operations and execute such works as are necessary for that purpose, in the permit area."
Sub-section 5(8) provides:
"In this Act, a reference to a permit, lease, licence, pipeline licence or access authority is a reference to the permit, lease, licence, pipeline licence or access authority as varied for the time being under this Act."
A permit remains in force for an initial period of six years from the date of grant but may be renewed, subject to the Act, for further periods of five years: s.29.
The PSLA contemplates that applications for permits may be made in three similar ways. First, what might be called general applications may be made in response to an invitation of the Joint Authority; secondly, permits may be granted after cash bidding; and, finally, applications may be made in respect of surrendered blocks.
A "block" is constituted by a graticular section wholly or partly within an adjacent area bound by opposing meridians of longitude and parallels of latitude that are a distance apart of 5 minutes of longitude and 5 minutes of latitude respectively.
Section 33 provides that a permit may be issued subject to such conditions as the Joint Authority thinks fit and as are specified in the permit. These may include work or expenditure targets or both and a requirement to comply with directions concerning those matters given in accordance with the permit: sub-s 33(2). Where work or expenditure targets are imposed, the work must be commenced within six months of the coming into force of the permit: sub-s 96(1). Obligations are also imposed in respect of annual fees, requirements to carry out operations according to good oil-field practice and to protect the health and safety of employees and others. Equipment must be maintained in good condition and repair, and the permittee is obliged upon termination of the permit to make good any damage to the seabed or subsoil, plug and close off all wells and remove all property brought into the area: ss. 98, 104, 107. There may also be an obligation to create safety zones within the permit area: s. 119. Insurance may also be required: s.97A.
Section 30 enables a permittee to apply from time to time for a renewal of a permit usually not less than 3 months before the date of expiration of the existing permit. Section 31 limits the application for renewal to half the number of blocks in respect of which the permit is in force. Section 32 governs the grant or refusal of renewals of permits and stipulates conditions to which a renewal is subject.
Upon discovery of petroleum in the permit area a permittee must notify the Designated Authority of the discovery and then furnish written particulars. The Designated Authority may also direct the permittee to furnish particulars of the chemical composition and physical properties of the petroleum, the nature of the subsoil on which the petroleum occurs and other related matters. The permittee may nominate blocks in which the discovery is made for the purposes of a declaration by the Joint Authority under s.37 that the blocks constitute a location. Should the permittee fail to make the necessary nomination, the Joint Authority may require the permittee to do so, and, in default, may itself nominate the block or blocks as a location.
The declaration of a location under s.37 brings into operation those provisions of the PSLA which allow for the exploitation of petroleum. Of itself, a permit gives no rights to exploit the petroleum discovered. In order to exploit a location it is necessary for the permittee to apply either for a retention lease or a production licence. A retention lease confers the same exploration rights as are granted in respect of a permit and is available where the recovery of petroleum is not immediately commercially viable within fifteen years. A retention lease remains in force for a period of five years but may be renewed upon application: ss.38D and following. Similar conditions to those stipulated in respect of permits apply to retention leases.
Section 39 of the PSLA prohibits the carrying on of operations for the recovery of petroleum in an adjacent area except under, and in accordance with, a licence. A permittee who holds a permit in respect of a block or blocks that constitute a location may apply to the Designated Authority for the grant of a licence: ss. 39A, 40, 40A and 40B. The PSLA provides, in certain circumstances, that a permittee in respect of a location is, subject to compliance with the Act, entitled to the grant of a production licence. Except where a licence permit or lease has been surrendered, cancelled or determined as to a block, or a permit has been forfeited, it is the permit holder who is entitled to apply for a production licence.
Sections 103A and 105 respectively provide as follows for the suspension of rights conferred by a permit or lease and for the cancellation of a permit, lease or licence:
"103A.(1) Where the Joint Authority is satisfied that it is necessary to do so in the national interest, it shall, by instrument in writing served on the permittee or lessee, suspend, either for a specified period or indefinitely, all or any of the rights conferred by the permit or lease.
(2) Where any rights are suspended in accordance with sub-section (1), any conditions required to be complied with in the exercise of those rights are also suspended.
(3) The Joint Authority may, by instrument in writing served on the permittee or lessee, terminate a suspension of rights under sub-section (1).
(4) Where rights conferred by a permit or lease are suspended in accordance with sub-section (1), the Joint Authority may, by the instrument of suspension or by a later instrument in writing served on the permittee or lessee, extend the term of the permit or lease by a period not exceeding the period of the suspension.
(5) If an instrument under this section results in the acquisition of property from a person, being an acquisition of property within the meaning of paragraph 51(xxxi) of the Constitution, the Commonwealth is liable to pay to the person such compensation as is determined by agreement between the Commonwealth and that person or, in the absence of agreement, by action brought by that person against the Commonwealth in the High Court or the Supreme Court of, or having jurisdiction in, the State or Territory in relation to which the Joint Authority concerned is established.
...
105.(1) Where a permittee, lessee, licensee or pipeline licensee -
(a) has not complied with a condition to which the permit, lease, licence or pipeline licence is subject;
(b) has not complied with a direction given to him under this Part by the Designated Authority or the Joint Authority;
(c) has not complied with a provision of this Part or of the regulations; or
(d) has not paid any amount payable by him under this Act, or under any Act with which this Act is incorporated, within a period of 3 months after the day on which the amount became payable,
the Joint Authority may, on that ground, by instrument in writing served on the permittee, lessee, licensee or pipeline licensee, as the case may be -
(e) in the case of a permit or licence - cancel the permit or licence as to all or some of the blocks in respect of which it is in force;
(ea) in the case of a lease - cancel the lease as to all of the blocks in respect of which it is in force; or
(f) in the case of a pipeline licence - cancel the pipeline licence as to the whole or a part of the pipeline in respect of which it is in force.
(2) The Joint Authority shall not, under sub-section (1), cancel a permit, licence or pipeline licence as to all or some of the blocks, or as to the whole or a part of the pipeline, in respect of which it is in force, or cancel a lease as to all of the blocks in respect of which it is in force, on a ground referred to in that sub-section unless -
(a) it has, by instrument in writing served on the permittee, lessee, licensee or pipeline licensee, as the case may be, given not less than one month's notice of its intention so to cancel the permit, lease, licence or pipeline licence on that ground;
(b) it has served a copy of the instrument on such other persons, if any, as it thinks fit;
(c) it has, in the instrument, specified a date on or before which the permittee, lessee, licensee or pipeline licensee or a person on whom a copy of the instrument is served may, by instrument in writing served on the Designated Authority, submit any matters that he wishes to be considered; and
(d) it has taken into account -
(i) any action taken by the permittee, lessee, licensee or pipeline licensee, as the case may be, to remove that ground or to prevent the recurrence of similar grounds; and
(ii) any matters so submitted on or before the specified date by the permittee, lessee, licensee or pipeline licensee or by a person on whom a copy of the first-mentioned instrument has been served."
Section 157 of the PLSA confers extensive powers to make regulations. As well, s.101 provides that the Designated Authority may, by instrument served on the permittee, give directions as to any matter with respect to which regulations may be made. Both the regulations and directions enable the exercise of a significant degree of control of activities undertaken under a permit, lease or licence.
Section 78 provides a facility for the approval and registration of transfers of title. By s.78(1) a transfer of title has no force until it is approved by the Joint Authority and s.78(3) sets out the requirements for an application for approval.
Against that statutory framework I turn to consider the permit which forms the subject of these proceedings.
THE WMC PERMIT
Pursuant to s.20 of the PSLA, Mr Mensaros, the Designated Authority for the State of Western Australia, published a "Notice of Intention for Application for Exploration Permit" in the West Australian Government Gazette of 4 June 1976. The invitation was extended in respect of nine areas including one area known as Area No W76/22 which comprised 253 blocks in the area of the Timor Gap with a northern boundary extending to the northern limit of the adjacent area in respect of Western Australia. In response to that invitation Pelsart Oil N.L. ("Pelsart") applied for a number of alternative areas.
By notice dated 24 March 1977 forwarded to Pelsart the Designated Authority gave notice of his intention to grant to Pelsart, Exploration Permit No WA-74-P in respect of the 253 blocks within the area previously designated W76/22. On 20 April 1977, the Designated Authority, issued a press release announcing his intention to grant the permit to Pelsart.
Following a request by notice dated 3 June 1977 the permit was granted to Pelsart on 25 June 1977 for a period of six years and subject to the conditions stipulated in the permit. Those conditions were as follows:
"1. The permittee shall, during a year of the term of the permit specified in the first column of the following table, expend on approved works or approved petroleum exploration operations in or in relation to the permit area not less than the amount specified in the third column of that table opposite to the description of that year in the first column.
Year of Term Work Programme Amount to be Expended
First Data Study $ 70 000
Second Seismic Survey 420 000
Third One Well 4 595 000
Fourth Data Study 95 000
Fifth Seismic Survey 340 000
Sixth One Well 6 120 000
2. The approved works or approved petroleum exploration operations referred to in Condition 1 shall include works or petroleum exploration operations in accordance with the work programme specified in the second column of the table in Condition 1.
3. The permittee shall not recover any petroleum from the permit area except as a result of production testing of a well.
4. The permittee shall -
(a) pay to the Designated Authority, in respect of petroleum recovered by the permittee in the permit area, royalty at the rate that is for the time being the prescribed rate in respect of that petroleum;
(b) in respect of each royalty period, furnish to the Designated Authority, in such form as the Designated Authority may from time to time require, full particulars of the quantity of petroleum recovered by the permittee and full particulars of matters relevant to ascertaining the value at the well-head of that petroleum; and
(c) permit a person authorised in writing for the purpose by the Designated Authority, or an inspector, to test or examine any measuring device installed outside the adjacent area that has been, is being or is to be used by the permittee to measure the quantity of any petroleum recovered in the permit area.
5. The permittee shall not construct any installation or install any equipment in the permit area except with and in accordance with the approval in writing of the Designated Authority or a person authorised in writing by the Designated Authority to give that approval.
6. The permittee shall not abandon, suspend or complete any well except with and in accordance with the approval of the Designated Authority or of a person authorised by the Designated Authority to give that approval.
7. The permittee shall at all times comply with the provisions of the Act, and, subject to the Act, the regulations thereunder for the time being in force and all Directions issued pursuant to that Act.
8. In carrying out its operations in the permit area the permittee shall take adequate measures for the protection of the environment and shall comply with all Directions of the Designated Authority in relation thereto.
9. The permittee shall not assign or transfer the permit area within a period of two years from the date of approval of the permit."
In November 1978 Pelsart and another company, Mesa Petroleum Co., ("Mesa") provisionally agreed to undertake a joint venture in respect of the permit area. The agreement was recorded in a memorandum of understanding, clause 16 of which provided:
"16. Mesa acknowledges that it is aware that the northern boundary of the permit area is not precisely defined and secure because of the incompleteness of international negotiations between Australia and Indonesia."
In October 1979 Pelsart and Mesa agreed to enter into a joint venture agreement in relation to the permit. Pursuant to heads of agreement, Mesa acquired an option to participate in exploration in the third year of the permit and thereupon became entitled to an undivided interest of 16.25% in the permit. Mesa repeated, in cl. 16 of the heads of agreement, its acknowledgement of the dispute over the Timor Gap. Clause 16 recited:
"16. Mesa acknowledges that it is aware that the northern boundary of the permit area is not precisely defined and secure because of the incompleteness of international negotiations between Australia and Indonesia. If any part of the Permit area is agreed to be within the boundary of the Republic of Indonesia then
(i) if Pelsart is offered by the Government of Indonesia such area or any part of such area, or
(ii) if Pelsart is offered by the Government of Australia some alternative area as compensation for loss of the Permit area
then in either event Mesa shall be entitled to take upon the same proportion of the area so offered as it is entitled to take up of the Permit area pursuant to this Agreement and the terms and conditions of this Agreement will continue to apply in respect of the area so taken up. Further Mesa will agree to bear its proportionate share of any additional fees or charges imposed by the Governments of Indonesia or Australia on the area so offered."
On 21 December 1979 Mesa exercised its option under the heads of agreement. On 4 October 1983 WMC and Mesa entered into an agreement whereby WMC agreed to purchase the interest of Mesa in the permit. By deed of assignment dated 17 April 1984 Mesa assigned to WMC its entitlement to a 16.25% interest in the permit with effect from 4 October 1983.
Following various transactions, details of which are not presently relevant, ultimate ownership of the permit vested in four joint venturers: WMC as to 16.25%; Petroz N.L. as to 55.6%; Pontoon N.L. as to 20% and Laist Pty Ltd (formerly Charterhall Oil Australia Pty Ltd) as to 8.15%.
COMPLIANCE WITH THE PERMIT
On 7 November 1977 Mr K J Parry, the chairman of Pelsart, wrote to the Director, Bureau of Mineral Resources for the Commonwealth, seeking advice as to the status of the boundary and of official intentions with regard to reaching agreement with Indonesia. That letter elicited the following reply from the First Assistant Secretary of the Offshore and International Division of the Department of Natural Resources:
"I refer to your letter of 7 November 1977 addressed to the Director, Bureau of Mineral Resources, regarding the status of the boundary opposite East Timor.
As you are aware, a seabed boundary between Australia and East Timor has not been agreed. No negotiations are scheduled at this time.
However, petroleum exploration permit WA-74-P, granted to your Company under the Petroleum (Submerged Lands) Act on 25 June 1977, lies entirely within an area in which Australia exercises sovereign rights over the continental shelf. These sovereign rights are based on international law and have been exercised by Australia over a lengthy period."
Concern that an unfavourable resolution of the border dispute might render futile any expenditure undertaken by Pelsart led that company to request various variations to the work commitments stipulated in the permit. On 20 December 1978 Pelsart wrote to Mr Mensaros in these terms:
"Following the awarding of the above tenement to Pelsart Oil in June 1977 the issue of defining the northern boundary of the permit has arisen.
Naturally this matter is of great concern to us and we have communicated with the Bureau of Mineral Resources in Canberra to have the matter clarified.
We have always been under the impression that the clarification of the northern boundary of the permit was simply a matter of time, however recent publicity given to statements by the Indonesian foreign minister, Professor Mochtar, clearly raises the possibility that Indonesia will not agree to the northern boundary which is specified on our exploration permit.
Professor Mochtar is reported as having made it clear that Indonesia wants control of the area.
We understand that talks on the subject will not commence for several months and it would seem therefore that Pelsart would be operating at risk until the matter is clarified.
Pelsart has committed to a seismic programme commencing in April 1979, and in light of the recent developments, the company has now resolved that it has no other course of action but to defer indefinitely the seismic programme, which was planned in the coming year.
The exploration permit requires certain expenditure to be made at different periods after the permit was granted.
The first year's commitment which involved the assessment of available information has been completed, however we request a deferment of the year two programme onwards until the boundary dispute between Australia and Indonesia has been resolved."
Having received no substantive response, Pelsart repeated its request by letter dated 8 February 1979. On 6 March 1979 the Under Secretary for Mines replied to both the letters of 20 December 1978 and 8 February 1979 in these terms:
"With reference to your letters of 20/12/78 and 8/2/79 and further to my Hon. Minister's interim acknowledgment of 4/1/79, I would now advise that your application requesting deferment of the 2nd year work/expenditure commitment on the above permit has been carefully examined and it is considered that although your concern over the Australian/Indonesian boundary dispute is appreciated, it must also be realised that the above permit granted and held pursuant to the Petroleum (Submerged Lands) Act, 1967 lies entirely within an area in which under International Law, Australia exercises sovereign rights over the Continental Shelf and has done so for a lengthy period.
It is also pointed out that there was publicity regarding the boundary dispute in the "Daily News" on 11/5/77 (which quotes yourself as declining to comment) before Pelsart accepted this permit.
In these circumstances it is considered that the seismic obligation should be carried out and in the event of the boundary dispute remaining unresolved following satisfactory completion of the 2nd year commitment by 24/6/79, consideration would be given to deferment of the drilling commitment for year 3."
In 1979 negotiations commenced between Pelsart and the Western Australian Department of Mines with a view to altering the work commitments for the third year of the permit's operation. On 5 November 1979 Pelsart wrote to the Department in the following terms:
"We refer to our letter of the 19th June, 1979; your reply thereto of the 14th July, 1979; and the Department's letter of the 13th September, 1979. We also refer to our recent meeting with your Departmental Officers at which the Work Programme for the Third Year of the Permit was discussed.
As has been stated previously, the location of the northern boundary of the Permit is disputed by the Indonesian Authorities. It is public knowledge that discussions and negotiations are in course between the Australian Department of Foreign Affairs and the relevant Indonesian Authorities regarding the delineation of the boundary between Australia and East Timor. We are aware that in similar negotiations in 1972 concerning the boundary between Australia and Indonesian Timor, the result of that negotiated settlement was that certain areas, then held pursuant to permits issued under the Western Australian and Commonwealth Petroleum (Submerged Lands) Acts, were by agreement ceded to the Republic of Indonesia. It also seems clear that customary rules of international law, including the provisions of the Geneva Convention 1958 in respect to median lines over a Continental Shelf shared by adjacent states, do not necessarily apply in the context of these circumstances. Accordingly, it is not possible for us to predict with any certainty as to the outcome of these ongoing discussions; particularly where ultimately the northern boundary of this Permit might, by agreement, be drawn or indeed the terms and conditions of any negotiated settlement and how these may affect us as permittees.
As you are aware, the Third Year of this Permit, expiring on the 24th June, 1980, carries a drilling obligation and we are most reluctant to place at risk the considerable investment required to drill such a well in circumstances where the tenure of the Permit area and title to any petroleum that may be encountered remains uncertain. To aggravate the problem, technically we consider the northern portion of the Permit to be the most prospective and consequently the whole of our Second Year seismic programme was concentrated in that area. It appears that the results of that seismic programme have confirmed the presence of at least two attractive structures in that area.
As the Tamar I well has been drilled subsequent to the planning of the Second Year seismic survey, now completed, and as the results of that well will be available to the consortium, it is possible that a new study might reveal significant interest in the Southern part of the block.
Accordingly we suggest that a study be carried out following two lines of investigation, namely:
(a) a review of all the well data available particularly from the Flamingo and Tamar wells, with the object of highlighting those parts of the Permit where potential reservoirs might be associated with good source potential; and
(b) at the same time a review of all the structures presently mapped in the area and the carrying out of a ranking, based on size and therefore economic potential. Any structures found to be economically attractive will be studied more closely and recommended for seismic detailing where necessary.
As the two aspects of the study will be carried out in parallel, this will enable (a) to direct the source of (b) and vice versa.
If these geological and geophysical studies so warrant, a seismic programme of at least 500 line kilometres detailing the most attractive structures would, subject to the availability of a suitable vessel and necessary equipment, be conducted. The study would be progressed concentrating on the southern portion of the Permit. We would aim to complete the study by 31st December 1979 and, if a seismic survey followed, to complete it by 24th June, 1980.
Accordingly we make formal application pursuant to Section 103 of the Petroleum (Submerged Lands) Acts for a variation of the Permit in the following terms:
(i) Deferment of the well obligation in the Third Year until such time as the outcome of the boundary negotiations with the Indonesian Authorities is known.
(ii) In place of the existing obligation in the Third Year a new programme consisting of a study described in (a) and (b) above followed by a seismic survey of not less than 500 kms if the study results in a recommendation for such seismic work.
(iii) The minimum expenditure for the Third Year if the seismic survey is carried out to be $300,000. If the seismic survey is not carried out, the minimum expenditure for the Third Year to be $75,000.
Your approval of the above variations to the approved programme would be appreciated."
The designated authority acceded to Pelsart's request on 11 December 1979. On 3 June 1981 Mesa, which was then operator of the permit under the joint venture arrangements, sought a further variation of the permit due to the boundary dispute. In summary, the variation then sought entailed the deferral of the year 4 drilling commitment, replacement of the commitments for the years 5 and 6 with further seismic reprocessing at a total cost of $100,000, and the drilling of one well to be commenced within twelve months of a favourable resolution to the boundary dispute. That request was agreed to on 19 January 1982.
By May 1983 the permittees had expended almost $1m in exploration of the permit area and were, on their evidence, optimistic that commercial quantities of petroleum could be recovered in the northern part of the permit area. However, because of the seabed border dispute, the permittees were concededly reluctant to expend risk capital in exploring areas the title to which was uncertain. The permittees also felt themselves constrained by the policy of the Designated Authority that there should be no drilling which might affect the negotiations between Australia and Indonesia.
Under the renewal procedures ordained by the PSLA, a renewing permittee is required to relinquish not less than 50% of the permit area. That necessitates the selection of that half of the area which has to be relinguished. Reluctant to make such a selection, the permittees requested that their permit be suspended pursuant to s.103A of the PSLA for a period of 5 years and that the term of the permit be extended for the same period. That request was acceded to and an interim suspension was made by the Joint Authority on 22 March 1983. The suspension notice suspended for a period of 5 years all of the rights conferred by the permit with the exception of the right to carry on and execute marine geophysical surveys in the area.
The Commonwealth endorsed the decision to suspend the permit because it formed the view that renewal over a reduced area might weaken Australia's claim to sovereignty in the disputed area.
As the border dispute remained unresolved, the permit was again suspended and extended for 5 years by instrument dated 22 June 1988 with effect from 25 June 1988.
THE BORDER DISPUTE
Reference has already been made to the disputed border as a backdrop to the statutory regime created by the PSLA and the grant of the permit the subject of these proceedings. The submissions of the respondent were, in part, founded upon the international context of the dispute and it is, accordingly, necessary to set out in some detail the course of negotiations between Australia and Indonesia.
Negotiations between Australia and Indonesia commenced in February 1979. Agreement in principle was announced in September 1988 and involved the creation of a joint development area for the immediate exploitation of the disputed area without prejudice to each country's claim to sovereignty. The agreement reached its formal conclusion with the signing on, 11 December 1989, of the "Treaty between Australia and the Republic of Indonesia on the Zone of Co-operation in an area between the Indonesian Province of East Timor and Northern Australia". The Treaty came into force on 9 February 1991. It did not embody a final agreement on the delimitation of the continental shelf.
Article 2 of the Treaty established a zone of co-operation between Australia and Indonesia in these terms:
" Article 2
The Zone
1. A Zone of Cooperation is hereby designated in an area between the Indonesian Province of East Timor and northern Australia, which comprises Areas A, B and C.
2. Within the Zone of Cooperation activities in relation to the exploration for and exploitation of petroleum resources shall be conducted on the following basis:
(a) In Area A, there shall be joint control by the Contracting States of the exploration for and exploitation of petroleum resources, aimed at achieving optimum commercial utilization thereof and equal sharing between the two Contracting States of the benefits of the exploitation of petroleum resources, as provided for in this Treaty;
(b) In Area B, Australia shall make certain notifications and share with the Republic of Indonesia Resource Rent Tax collections arising from petroleum production on the basis of Article 4 of this Treaty; and
(c) In Area C, the Republic of Indonesia shall make certain notifications and share with Australia Contractors' Income Tax collections arising from petroleum production on the basis of Article 4 of this Treaty.
3. Nothing contained in this Treaty and no acts or activities taking place while this Treaty is in force shall be interpreted as prejudicing the position of either Contracting State on a permanent continental shelf delimitation in the Zone of Cooperation nor shall anything contained in it be considered as affecting the respective sovereign rights claimed by each Contracting State in the Zone of Cooperation.
4. Notwithstanding the conclusion of this Treaty, the Contracting States shall continue their efforts to reach agreement on a permanent continental shelf delimitation in the Zone of Cooperation."
Articles 3 and 4 provided for control in the three areas of the zone as follows:
" Article 3
Area A
1. In relation to the exploration for and exploitation of petroleum resources in Area A, the rights and responsibilities of the two Contracting States shall be exercised by the Ministerial Council and the Joint Authority in accordance with this Treaty. Petroleum operations in Area A shall be carried out through production sharing contracts.
2. The Joint Authority shall enter into each production sharing contract with limited liability corporations specifically established for the sole purpose of the contract. This provision shall also apply to the successors or assignees of such corporations.
Article 4
Area B and Area C
1. In relation to the exploration for and exploitation of petroleum resources in Area B Australia shall:
(a) notify the Republic of Indonesia of the grant, renewal, surrender, expiry and cancellation of titles made by Australia being exploration permits, retention leases and production licences; and
(b) pay to the Republic of Indonesia ten (10) per cent of gross Resource Rent Tax collected by Australia from corporations producing petroleum from Area B equivalent to sixteen (16) per cent of net Resource Rent Tax collected, calculated on the basis that general company tax is payable at the maximum rate.
2. In relation to exploration for and exploitation of petroleum resources in Area C the Republic of Indonesia shall:
(a) notify Australia of the grant, renewal, surrender, expiry and cancellation of petroleum exploration and production agreements made by the Republic of Indonesia; and
(b) pay to Australia ten (10) per cent of Contractors' Income Tax collected by the Republic of Indonesia from corporations producing petroleum from Area C.
3. In the event that Australia changes the basis upon which the Resource Rent Tax or general company tax is calculated or that the Republic of Indonesia changes the basis upon which Contractors' Income Tax is calculated, the Contracting States shall review the percentages set out in paragraphs 1(b) and 2(b) of this Article and agree on new percentages, ensuring that the relative shares paid by each Contracting State to the other in respect of revenue collected from corporations producing petroleum in Area B and Area C remain the same.
4. In the event of any change occurring in the relevant taxation regimes of either Contracting State, the Contracting States shall review the formulation set out in paragraphs 1(b) and 2(b) of this Article and agree on a new formulation, ensuring that the relative shares paid by each Contracting State to the other in respect of revenue collected from corporations producing petroleum in Area B and Area C remain the same.
5. With regard to Area B and Area C, the Contracting States shall enter into necessary administrative arrangements to give effect to the sharing arrangements in the two Areas as provided in paragraph 1(b) and paragraph 2(b) of this Article at the time that production from either Area commences. In particular, the arrangements shall provide for the manner in which such a share shall be paid from one Contracting State to the other Contracting State. A Contracting State when making a payment to the other Contracting State shall provide information on the basis on which the relevant payment was calculated.
6. The Contracting States shall take necessary measures to ensure the timely and optimum utilization of the petroleum resources in Area B and Area C."
The treaty established two official bodies, the Ministerial Council and the Joint Authority, which are responsible for the regulation of Area A in the zone of co-operation.
The Joint Authority which is subject to directions from the Ministerial Council is responsible for the management of activities in relation to the exploration for, and exploitation of, petroleum in Area A; Article 8. The Joint Authority has managerial responsibility for the issue and regulation of production-sharing contracts in Area A. The interests of permittees holding extant Australian exploration permits have been the subject of detailed negotiations between Australia and Indonesia but are not referred to in the Treaty itself. However, an understanding was reached between the two countries whereby existing permittees would receive "favourable consideration" upon tendering for production- sharing contracts in Area A. This understanding was recorded by an exchange of letters between the two governments. The letter from the Australian Minister for Resources dated 11 December 1989 contained the following passage:
"I have the honour to refer to the Treaty between Australia and the Republic of Indonesia on the Zone of Cooperation in an Area between the Indonesian Province of East Timor and Northern Australia signed by Australia and the Republic of Indonesia today.
The Australian Government recalls that a number of petroleum exploration permits issued under Australian legislation in exercise of Australian sovereign rights exist in the continental shelf covered by Area A of the Zone of Cooperation (details of these permits are set out in the attachment of this letter). The Australian Government further notes the view of the Indonesian Government that it has never accepted the sovereign rights claimed by Australia over the continental shelf which includes Area A, nor has it recognised the validity of any Australian exploration permits over the area.
The Australian permits are, however, longstanding, the first being issued as long ago as 1964. They are held by companies which are highly reputable and experienced in offshore petroleum exploration. It is noted that the holders of Australian permits have expended monies in Area A as part of work programs under their Australian permits and have special knowledge, expertise and experience in relation to those areas of Area A covered by their permits. They have, at the request of the Australian Government, refrained from exploration activity since 1979 and acted responsibly during talks between Australia and the Republic of Indonesia on delimitation of the continental shelf of the area concerned.
Consistent with the goal set out in Article 6 paragraph 3 of the Treaty, the optimum commercial utilization of the petroleum resources of Area A would be promoted by the Joint Authority entering into production sharing contracts with the permit holders having previous experience and expertise in Area A.
It is, therefore, understood that the Ministerial Council when considering approving production sharing contracts between the Joint Authority and the holders of Australian permits referred to above, and the Joint Authority when making recommendations to the Ministerial Council, will take into full account the special knowledge, expertise and experience of the said permit holders. In particular, the Ministerial Council will, in the discharge of its functions specified in Article 6(1)(d) of the Treaty, give favourable consideration to the applications made by the holders of the Australian permits.
This understanding will be without prejudice to the respective sovereign rights claimed by each Contracting State in the Zone of Cooperation.
I should be grateful if you would confirm on behalf of your Government that the foregoing is also the understanding of the Government of the Republic of Indonesia, and that this letter and your reply to that effect will constitute an Arrangement between the Government of Australia and the Government of the Republic of Indonesia which will enter into effect on the date on which the Treaty enters into force."
The Australian letter had appended to it a list of the four Australian permits including WA-74-P. A letter from the Indonesian Government of the same date reflects the agreement there set out.
The understanding reached in relation to existing permit holders was also the subject of a Joint Paper prepared at a joint meeting of officials of Australia and Indonesia in Canberra on 26 October 1989 which relevantly provided:
"In the letters between the Indonesian and Australian Foreign Minister concerning the treatment of the existing Australian permit holders, exchanged at the time the Treaty was signed, an understanding was reached that "the Ministerial Council will, in the discharge of its functions specified in Article 6(1)(d) of the Treaty, give favourable consideration to the applications made by the holders of the Australian permits". This joint paper details the agreed nature of that understanding.
It is understood that the Joint Authority and the Ministerial Council will follow the following procedures when making the first invitations for contracts in Area A:
(1) in accordance with Part II of the Petroleum Mining Code, Area A will be divided into contract areas;
(2) in accordance with Part IV of the Petroleum Mining Code, an invitation for bids on all the contract areas will be made by the Joint Authority;
(3) for the purpose of implementing the understanding contained in the exchange of letters, four specified contract areas will be designated. A significant proportion of each of these contract areas will lie within one or other of the four former permit areas;
(4) for each of those four specified contract areas the relevant Australian permit holder will be nominated;
(5) the criteria to be used for the consideration of applications for each of these specified contract areas will include the provision that the nominated Australian permit holder, if it bids for the area but does not submit the best bid, will have the option of meeting the best bid for the contract area;
(6) if the permit holder takes up the option described in point (5) above, the Ministerial Council will direct that the Joint Authority enter into a contract with the permit holder.
Nothing contained in this joint paper prevents the corporations holding the Australian permits from bidding competitively for all or any of the contract areas to be offered. However, outside the contract areas specified, those corporations will not receive the option to match the best bid."
Article 11 of the Petroleum Mining Code for Area A which is Annexure B to the Treaty, provided by para 1:
"The Joint Authority shall set out in formal guidelines the basis on which applications will be considered and the relevant criteria which applicants wil be expected to meet. Contracts shall be offered in accordance with the published criteria for that bidding round. The principal criteria shall be the amount and quality of the exploration work bid."
As contemplated by that paragraph, criteria were published which included:
"PRIMARY ASSESSMENT CRITERIA
5. The Joint Authority's key objective will be to identify te exploration work program and expenditure commitment bid which will best and expeditiously evaluate the petroleum potential of the contract area. The successful applicant is likely to be the one who is willing to undertake the greatest exploration effort which results in the most comprehensive assessment of the exploration/geological play concepts relevant to the whole contract area. The primary criteria for assessment of applications are therefore:
(a) acceptance of the Model Production Sharing Contract;
(b) the number of wells to be drilled in each of the first three contract years: and
(c) the extent to which the first three years' work program and expenditure commitments, including the drilling program, data evaluation and geophysical surveying activities, reflects the available technical information on exploration prospects in the contract area, seeks to follow up existing leads, and seeks to identify and evaluate new exploration prospects in previously unexplored part of the contract area. The work program and expenditure commitments will be assessed by the Joint Authority on the basis of a detailed review of the objectives of the individual items of work proposed.
6. The capacity of the applicant to undertake the proposed work program and expenditure commitments will also be considered, in particular:
(a) the adequacy of financial capability and technical knowledge and ability available to each applicant
(i) the evaluation of financial capacity will be based on assessment of parent/related company annual reports and any other publicly available information on the finances of the company
(ii) technical knowledge and ability will be assessed on the basis of company's performance in offshore operations or as appropriate on the company's financial capacity to acquire the necessary technological resources to work offshore; and
(b) the future viability of any group of corporations lodging an application, including evidence that an agreement can be reached between those corporations for cooperation in petroleum operations in the contract area and the corporation appointed and authorised to be the Contract Operator responsible on behalf of the group of corporations for petroleum operations and all dealings with the Joint Authority under the contract.
7. In the event that the assessment of applications against the above criteria does not identify one applicant as superior to other applicants for a particular contract area, some of the following additional criteria can be used (but not in any priority order) to choose between the competing applications:
(a) consistent with the Joint Authority's wish to see a continuing and significant level of Australian and Indonesian involvement in petroleum exploration, preference may be given to consortia with high levels of Australian and Indonesian participation;
(b) consideration may be given to the intent of consortia members to source goods and services in Australia and the Republic of Indonesia and to transfer technology and skills to Australians and Indonesians; and
(c) consideration may be given to the intent of consortia members to undertake research into exploration techniques and technology in Australia and the Republic of Indonesia.
8. In the event that the best applicant cannot be chosen on the basis of these criteria, consideration will be given to the amount and quality of work or the amount of expenditure proposed for contract years four to six.""
Both the applicant and its joint venture partners expressed dissatisfaction with the "right to match" principle reflected in the understanding reached between Australia and Indonesia. There is considerable correspondence and evidence which reflects that dissatisfaction. It is not necessary to analyse it in detail.
In order to incorporate the provisions of the Treaty into Australian Domestic Law, the Commonwealth Parliament enacted the Petroleum (Australia-Indonesia Zone of Cooperation) Act 1990 ("the Zone of Cooperation Act") and the Consequential Provisions Act. Both acts came into operation on 18 February 1991.
The object of the Zone of Cooperation Act, as articulated in s.3, is to enable Australia to fulfil its obligations under the Treaty. Section 4 then provides that the Ministerial Council and the Joint Authority (both of which are established under the Treaty) exercise the rights and responsibilities of Australia in relation to the exploration and exploitation in Area A which is defined by reference to the Treaty. Sections 7 and 8 provide:
"7. A person must not prospect for petroleum in Area A of the Zone of Cooperation except with the approval of the Joint Authority.
Penalty: Imprisonment for 5 years.
8. A person must not undertake petroleum operations in Area A of the Zone of Cooperation except under and in accordance with a production sharing contract, or with the approval of the Joint Authority.
Penalty: Imprisonment for 5 years."
The Consequential Provisions Act amends the PSLA in order to incorporate various terms of the Treaty into Australian law. Section 22 of the Consequential Provisions Act relevantly amends the definition of "adjacent area" in s.5 of the PSLA so as to exclude from it Area A of the Zone of Cooperation. Section 23 of the Consequential Provisions Act inserts into the PSLA the following sections:
"30A. (1) This section applies to any permit that was, immediately before the commencement of this section, in force in respect of blocks all or a number of which were blocks constituted by graticular sections wholly or partly in Area A of the Zone of Cooperation.
(2) Where, as a result of the amendments of section 5A made by the Petroleum (Australia-Indonesia Zone of Cooperation) (Consequential Provisions) Act 1990 (which removed Area A from the adjacent areas) and of the operation of subsection 17(2):
(a) a block specified in the permit has ceased to exist; or
(b) the boundaries of a block specified in the permit have changed;
the permit is taken not to specify any block referred to in paragraph (a), to specify each block referred to in paragraph (b) as that block exists immediately after the commencement of the amendments, and to specify each block unaffected by the amendments.
(3) Where:
(a) before the commencement of this section, an application had been made under section 30 for the renewal of a permit; and
(b) at that commencement, no decision has been taken to renew, or to refuse to renew, the permit;
the application is taken to specify the blocks which, as a result of the operation of subsection (2), constitute the permit area.
(4) Where, immediately before the commencement of this section, there was in force under section 103A an instrument of suspension in respect of a permit, then, on the commencement of this section:
(a) the instrument is by force of this section revoked; and
(b) the permittee is taken to have made an application under section 30 for the renewal by the Joint Authority of the permit in respect of the blocks which, as a result of the operation of subsection (2), constitute the permit area.
(5) Section 31 does not apply to or in relation to an application:
(a) that is referred to in subsection (3); or
(b) that a permittee is taken to have made under subsection (4)."
Section 31 of the PSLA imposes a requirement that, on application for the renewal of the permit, a permit holder must relinquish 50% of the existing permit area excluding that part of any permit which had been declared a location.
Section 24 of the Consequential Provisions Act provides:
"24.(1) In this section, "acquisition of property" and "just terms" have the same meaning as in paragraph 51(xxxi) of the Constitution.
(2) Where, but for this section, the operation of the amendments made by this Part would result in the acquisition of property from a person otherwise than on just terms, the Commonwealth is liable to pay compensation of a reasonable amount to the person in respect of the acquisition.
(3) Where the Commonwealth and the person do not agree on the amount of the compensation, the person may institute proceedings in the Federal Court for the recovery from the Commonwealth of such reasonable amount of compensation as the Federal Court determines."
That is a curious section. It appears to contemplate an operation of the amendments effected by the Consequential Provisions Act which may result in the acquisition of property otherwise than on just terms. Should that happen, the section then imposes a liability on the Commonwealth to pay compensation of a reasonable amount thus providing for just terms and avoiding constitutional invalidity. The question of whether the Consequential Provisions Act satisfies s.51(xxxi) of the Constitution was not agitated before me. Nor was it suggested that the Consequential Provisions Act effects an acquisition of property which falls outside the scope of s.5l(xxxi): See eg Mutual Pool and Staff Pty Ltd v The Commonwealth of Australia (unreported decision High Court of Australia 9 March 1994). Whether any acquisition of property effected by the Consequential Provisions Act may be supported by a head of power other than that prescribed in s.51(xxxi) of the Constitution was not argued and need not be addressed. On any view, s.24 of the Consequential Provisions Act provides that any acquisition of property must be on just terms. The use of the phrase "but for this section" implies that the liability to pay compensation of a reasonable amount cures (by the imposition of a liability equal to just terms) any potential contravention of s.51(xxxi). Accordingly, the adequacy of terms of acquisition can only be determined by reference to s.24 itself. As shall appear, this conclusion has consequences for the form of declaration which WMC presently seeks.
The issues which arise against that factual background require consideration of three general questions. First, was the portion of the permit which was extinguished by operation of the Consequential Provisions Act "property" within the meaning of s.51(xxxi) of the Constitution? Secondly, has there been an acquisition of that property and thirdly, if there has been an acquisition has it been on just terms? It is convenient to deal separately and in order with each of those questions.
WAS THE PERMIT PROPERTY?
It is clearly established by authority that S.51(xxxi) affords a constitutional guarantee against the unjust acquisition of property and that the Courts must construe a statutory provision in order to give full force and effect to that guarantee: see eg Minister for the Army v Dalziel (1944) 68 CLR 261 at 276 per Latham CJ and at 284-5 per Rich J. The liberal approach to the interpretation of the term "property" which has been ordained by high authority denies the Commonwealth the ability to utilize what Dixon J in Bank of New South Wales v The Commonwealth (1948) 76 CLR 1 called at 349:
"a circuitous device to acquire indirectly the substance of a property interest without at once providing the just terms guaranteed by s.51(xxxi) of the Constitution when that is done:
In that context the High Court has been astute to avoid a rigid definition of property which would allow the Commonwealth to assume the benefits associated with proprietary interests but avoid the need to pay compensation because the strict legal position of the owner is unchanged. In Dalziel the High Court held by majority that the taking of possession of freehold land, even though the interests of title holder and tenant remained, in strict legal terms, unaltered, amounted to an acquisition of property.
In a much-cited passage Dixon J indicated the approach which courts must take when examining whether what has actually or presumptively been acquired is property. In Bank of New South Wales v The Commonwealth (supra) his Honour observed at 349-50:
"I take Minister for the Army v Dalziel (1944) 68 CLR 261 to mean that s.51(xxxi) is not to be confined pedantically to the taking of title by the Commonwealth to some specific estate or interest in land recognized at law or in equity and to some specific form of property in a chattel or chose in action similarly recognized, but that it extends to innominate and anomalous interests and includes the assumption and indefinite continuance of exclusive possession and control for the purposes of the Commonwealth of any subject of property. Section 51(xxxi) serves a double purpose. It provides the Commonwealth Parliament with a legislative power of acquiring property: at the same time as a condition upon the exercise of the power it provides the individual or the State, affected with a protection against governmental inferences with his proprietary rights without just recompense. In both aspects consistency with the principles upon which constitutional provisions are interpreted and applied demands that the paragraph should be given as full and flexible an operation as will cover the objects it was designed to effect. Moreover, when a constitution undertakes to forbid or restrain some legislative course, there can be no prohibition to which it is more proper to apply the principle embodied in the maxim quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud. In requiring just terms s.51(xxxi) fetters the legislative power by forbidding laws with respect to acquisition on any terms that are not just.
In my opinion the provisions of s.13(1) and ss. 17, 18, 19 amount to an indirect means of doing what the paragraph does not allow."
The use of the phrase "innominate and anomalous interest" by Dixon J in the passage just quoted makes it clear that a strict process of classification based upon traditional concepts furnished by the law of property is not appropriate to the application of the constitutional guarantee embodied in s.51(xxxi). However, property is not entirely an indefinable notion to be applied intuitively case by case. Clearly there must be some demarcation between what is and what is not property. As Dawson J observed in Australian Capital Television v The Commonwealth (1992) 177 CLR 106 at 198, after referring to the judgment of Dixon J quoted above:
"But there must nevertheless be the acquisition of something of a proprietary nature before s.51(xxxi) can have any application."
It is, in my view, acceptable to postulate indicia of property, not with a view to establishing an exhaustive definition, but as an aid to making the identification which the Constitution requires. In a different context, Lord Wilberforce ventured this statement of some of the essential elements of property in National Provincial Bank Ltd v Ainsworth [1965] AC 1175:
"The conclusion emerges to my mind very clearly from this that the wife's rights, as regards the occupation of her husband's property, are essentially of a personal kind: personal in the sense that a decision can only be reached on the basis of considerations essentially dependent on the mutual claims of husband and wife as spouses and as the result of a broad weighing of circumstances and merit. Moreover, these rights are at no time definitive, they are provisional and subject to review at any time according as changes take place in the material circumstances and conduct of the parties.
On any division, then, which is to be made between property rights on the one hand, and personal rights on the other hand, however broad or penumbral the separating bank between these two kinds of rights may be, there can be little doubt where the wife's rights fall. Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability. The wife's right has none of these qualities, it is characterised by the reverse of them."
The approach of Lord Wilberforce was adopted by Mason J in The Queen v Toohey; ex parte Meneling Station Pty Ltd (1982) 158 CLR 327. In that case the High Court had to consider whether a grazing licence granted pursuant to s.107 of the Crown Lands Act 1931 (NT) was an "estate or interest in land". In concluding that it was not, Mason J observed at 342:
"There is no question that the phrase "estate or interest" in s.3(1) of the Act has, in its ordinary and natural usage, a proprietary connotation: see Stow v Mineral Holdings (Aust) Pty Ltd (1977) 51 ALJR 672, at p.679, Harada v Registrar of Titles [1981] VR 743, at p.748. No one who has a merely personal right in relation to land can be said to have an "estate or interest" in that land. Here the natural and ordinary meaning of the expression is reinforced by the circumstance that it is a constituent element in the definition of "unalienated Crown land". The definition gives emphasis to the notion that Crown land remains unalienated unless and until the Crown grants to another some proprietary interest in the land."
Mason J considered the elements of property suggested by Lord Wilberforce in Ainsworth (supra) and concluded that the grazing licence was not an interest or estate in property because it was precluded by two of its features from satisfying the essential concept of requirements for property or proprietary rights. Those features were the statutory power of the relevant Minister to forfeit the licence for non-compliance and the inability of the holder to assign the licence to a third party.
It may be conceded that the phrase "estate or interest in land" considered by the High Court in Meneling has a narrower connotation than "property" in s.51(xxxi). However, the approach taken by Mason J was referred to in the context of s.51(xxxi) by Brennan J in Australian Capital Television v The Commonwealth (supra) at 165 and assists, I consider, in determining whether an interest is property under that paragraph. I reach that conclusion in part because the context in which the term "property" appears in s.51(xxxi) makes relevant the characteristics of property identified by Lord Wilberforce. Section 51(xxxi) can only operate on proprietary interests which are capable of being acquired (cf the requirement that a proprietary right be capable in its nature of assumption by a third party). They must also be capable of being quantified or valued (not necessarily by ascription of a pecuniary value) for the purpose of assessing the adequacy of what are proposed as just terms.
Another element of property implicit in the criteria adopted by Lord Wilberforce is the ability to protect title. The assertion of title or interest which is a true concomitant of ownership is facilitated, as his Lordship suggested, if the subject matter in which property is claimed to inhere is readily identifiable and relatively unchanging in form. Also relevant to the classification of an interest as property, is the extent to which title to it is afforded protection at law or in equity. However, it is more than a little circular to say that what may be protected at law or in equity is property
for the purposes of s.51(xxxi) since the relevant subject matter ex hypothesi must be capable of attracting the protection afforded by s.51(xxxi). Nevertheless, the ability to assert title against others is an important element of property.
In Smith Kline & French Laboratories (Aust) Ltd v The Secretary Department Community Services and Health (1990) 22 FCR 73 Gummow J was called upon to determine whether confidential information could constitute property for the purposes of s.51(xxxi). In dealing with the enforcement of rights his Honour observed, at 120:
"... in various fields, if one takes the primary fact of equitable intervention and analyses the secondary consequences thereof, one may well describe them as indicative of equitable proprietary rights. The authorities dealing with the position in equity of the parties to an agreement for lease which is susceptible of specific performance provide one example: see Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 252-253. Those dealing with assignments for value of property not yet in existence provide another: see Booth v Commissioner of Taxation (Cth) (1987) 164 CLR 159 at 165-166."
After noting the availability of injunctive relief to protect the confidential information and that trade secrets may devolve by operation of law or by testamentary disposition, his Honour concluded at 121:
"The degree of protection afforded by equitable doctrines and remedies to what equity considers confidential information makes it appropriate to describe it as having a proprietary character. This is not because property is the basis upon which that protection is given, but because of the effect of that protection: cf Commissioner of Taxation (Cth) v United Aircraft Corp (1943) 68 CLR 525 at 548, per Williams J; Boardman v Phipps, [1967] 2 AC 46 at 127-129, per Lord Upjohn."
In the present case WMC asserts that the permit is property. It was submitted that the rights afforded by the PSLA create a clearly defined and stable proprietary interest which can, subject to approval, be assigned to third parties for valuable consideration. The term for which it, and any subsequent renewal, was to enure was said to give the permit stability. It was also argued that there are statutory and legal limitations on the ability of the regulatory bodies to suspend, terminate or vary the interests under the permit and that, accordingly, a permittee is protected from any arbitrary exercise of the power by the regulatory bodies. In conclusion, WMC submitted that each of the criteria articulated by Lord Wilberforce was clearly satisfied in respect of the present permit.
The arguments advanced on behalf of the respondent on the question of property require a consideration of both conceptual and contextual aspects. It was submitted by Counsel for the Commonwealth that the permit granted under the PSLA had no independent existence outside the statutory regime under which it was created and which made it subject to continuing control. As I followed the argument, s.51(xxxi) was said not to operate on rights of this kind which are created under a discrete legislative regime and which are subject to the further exercise of legislative power. Reliance was placed upon s.28 and sub-s.5(8) of the PSLA as inherently qualifying the existence of rights granted under that Act.
The argument just described had, as its foundation, the qualification placed by Dixon J on the operation of s.51(xxxi) in Re Dohnert Muller Schmidt and Co (1961) 105 CLR 361 where, at 371, his Honour observed:
"It is hardly necessary to say that when you have, as you do in par. (xxxi), an express power, subject to a safeguard, restriction or qualification, to legislate on a particular subject or to a particular effect, it is in accordance with the soundest principles of interpretation to treat that as inconsistent with any construction of other powers conferred in the context which would mean that they included the same subject or produced the same effect and so authorized the same kind of legislation but without the safeguard, restriction or qualification. But two observations must be made. First, it is necessary to take care against an application of this doctrine to the various powers contained in s.51 in a too sweeping and undiscriminating way. For it cannot have much to do with some of the subject matters of power upon the very terms in which they are conferred. The other observation is that the principle does not apply except with respect to the ground actually covered by par. (xxxi) of s.52."
I was also referred to the observations of Deane J in The Commonwealth v Tasmania (1983) 158 CLR 1 (The Tasmanian Dam Case) where, at 282, his Honour referred as follows to two related limitations on the operation of s.51(xxxi):
"The first is that some laws which are plainly authorized under other heads of power necessarily involve the acquisition of property for the purposes of the Commonwealth: the compulsory payment of tax, the forfeiture of prohibited imports and the sequestration of the property of a bankrupt are obvious examples. The second is that the proposition "does not apply except with respect to the ground actually covered by par. (xxxi)" (1961) 105 CLR 361, at p. 372. Unless what the law effects can properly be described as an "acquisition of property", one will not enter the area which has, subject to the first limitation, been made the exclusive domain of s.51(xxxi)."
In my view, the restrictions referred to by Dixon J in Schmidt and by Deane J in the Tasmanian Dam Case cannot readily be erected into a principle which assists in the classification of rights as property. In the limited class of cases where the High Court has held that there is no acquisition of property because laws are enacted pursuant to heads of Commonwealth power other than s.51(xxxi), the limitations do not attach because the subject matter of the law has been characterized as something other than property. Thus, for example, a law which provides for the sequestration of property or one enabling the seizure of a prohibited import each has a relation to the acquisition by the Commonwealth of property. However, such laws have not been considered to be subject to the Constitutional guarantee embodied in s.51(xxxi). See for example Commissioner of Taxation v Clyne (1958) 100 CLR 246 as to the imposition of tax or provisional tax; Burton v Honan (1952) 86 CLR 169 as to the forfeiture of prohibited imports under Customs legislation; Re Dohnert Muller Schmidt (supra) as to the vesting of enemy assets in the Controller of Enemy Property and The Queen v Smithers (1982) 152 CLR 477 in respect of the imposition of a pecuniary penalty for dealing in narcotics.
The High Court has, in three separate matters, recently considered limitations on the operation of s.51(xxxi): Mutual Pool and Staff Pty Ltd v The Commonwealth; Georgiadis v Australian and Overseas Telecommunications Corporation; and Health Insurance Commission v Peverill (all unreported High Court of Australia delivered 9 March 1994). In accordance with those decisions, it may be now said that in a view of a majority of the members of the High Court it is possible for the Commonwealth to acquire property otherwise than by exercise of the power conferred by s.51(xxxi). The question which must now be addressed in determining validity is whether, if it be accepted that an acquisition of property has occurred, that acquisition was for the purposes of s.51(xxxi) or alternatively was for a purpose authorized by another paragraph of s.51. The question is thus one of the characterization of a law and the mere fact that acquisition of property has occurred would appear no longer to suffice, of itself, to attract the operation of s.51(xxxi). That question is, of course, complicated by the possibility that a single law may properly be characterized as being authorized by more than one head of power under the Constitution.
However, those questions, difficult as they are, are not relevant to the present proceeding. Whether the Consequestial Provisions Act is truly a law for the acquisition of property for the purposes of s.51(xxxi) has not been argued before me. It is irrelevant because s.24 of the Consequential Provisions Act picks up the concepts of "acquisition of property" and "just terms" but does not carry with it the limitation which, in the view of the majority of the High Court, now attaches to s.51(xxxi). There is no need in the present case to ask whether the Consequential Provisions Act can be characterized as a law with respect to the acquisition of property because, regardless of the answer to that question, s.24 imposes an obligation on the Commonwealth to pay compensation in circumstances where there has been an acquisition of property otherwise than on just terms.
In the light of recent High Court authority the limitations which affect the operation of s.51(xxxi) flow from characterization of the relevant law. Those limitations do not affect the meaning of "acquisition of property" or "just terms" as used in s.51(xxxi) of the Constitution nor, therefore, their meaning in s.24 of the Consequential Provisions Act. Support for that conclusion may by found in the analyses contained in the respective judgments of Mason CJ, of Deane and Gaudron JJ and of Brennan J in Mutual Pools and Staff Pty Ltd v The Commonwealth (supra). In each of those judgments it was accepted, or assumed, that the chose of action there considered was "property" which had been "acquired". However, their Honours concluded that the acquisition was not for the purposes of s.51(xxxi) and, accordingly, there was no requirement for just terms. Any limitation on the operation of s.51(xxxi) does not assist the respondent in its argument that the term "property" cannot attach to a right which is subject to variation or qualification by the statutory regime under which it is established.
The respondent further submitted that the international context is relevant to the question of whether the permit is property. A distinction was suggested between the right of the Crown to land and the rights which a State possesses in relation to its continental shelf. The latter were said to be confined to the exploration of the shelf and exploitation of its natural resources. In the present case, where sovereignty over the permit area was subject to the competing claims of Indonesia and Australia (and perhaps East Timor itself) any interest which Australia could grant must, according to the argument, be subject to potential defeat at international law. Reliance was placed upon the following observation of Barwick CJ in NSW v The Commonwealth (1975) 135 CLR 337 (The Seas and Submerged Lands Act case) at 363:
"Thus the very existence of a territorial sea depends on international agreement, established in earlier times by custom or practice amongst nations or a significant number and range of them, but now most definitively by international convention. The first such Convention is set out in the First Schedule to the Act. The Convention concedes to the nation state with a littoral, a "coastal State", to use the terms of the Convention, what is described as sovereignty over the territorial sea, its bed and sub-soil and superjacent airspace. This international concession extending to the seabed and airspace perhaps surpasses any dominion theretofor accorded by custom or practice between nations. But however that may be, the conceded sovereignty undoubtedly now depends upon the terms of the Convention. The Act, in my opinion, uses the word "sovereignty" in the same sense as it is used in the Convention. The Act, in my opinion, does not purport to take any greater power over the subject matter of the Conventions than they confer on the coastal state. Sovereignty is a word, the meaning of which may vary according to context. The same may be said of "sovereign rights". I find no need in order to dispose of this issue to expound upon the meaning either in the context of these conventions and as used in the Act. At the least, sovereignty includes the dominion which was earlier conceded by international custom: it may possible enlarge it. Sovereign rights at least imply exclusive and paramount rights to exploit together with all the power necessary to secure the principal rights. But the important thing is that whatever the extent of the power or jurisdiction sovereignty or sovereign rights embraces, that power, jurisdiction or authority is conceded internationally to the nation state and depends on international mutuality".
The possibility that Australia may fail, at international law, in its claim for sovereignty in respect of the disputed area was said to make the permit inherently unstable and lacking in permanence. Whether or not Australia has a good claim in international law is not a matter upon which this Court should comment or speculate. In my view, the prospect of some diminution at international law of the area of a permit does not affect, for present purposes, the assertion of sovereignty by Australia which carries with it sufficient power to create and dispose of interests as property under domestic law; see per Gibbs J in the Seas and Submerged Lands case (supra) at 388 and per Mason J at 469.
I regard the assertion by Australia of sovereignty in the area as sufficient to enable the Commonwealth to create and dispose of proprietary interests. The possibility that the area over which Australia can assert sovereignty might be cut down at international law, does not detract from this conclusion.
In the alternative, the respondent submits that even accepting that the Crown may validly create proprietary rights in the continental shelf, the Commonwealth has not done so in the present case. In support of this submission, the respondent relies on various provisions of the PSLA which are said to make the rights under the permit unstable. Reference was made to the power to vary the conditions of the permit and the ability to suspend and cancel the permit. As well, it was argued that the permit conferred no right to take property but was simply a personal licence which enabled the permittee to perform exploration work which would otherwise be prohibited. The distinction between a licence and property has some resonance in the authorities. In Minister of State for the Army v Dalziel (supra) Starke J drew the distinction, at 290, as did Williams J at 300. In The Queen v Toohey; ex parte Meneling Station Pty Ltd (supra) Mason J also made the distinction in the passage which I have already quoted. However, merely because an interest can be categorized as a licence does not entail that it is not also "property" in the relevant sense. Support for this conclusion may be found in Banks v The Transport Regulation Board (1968) 199 CLR 222. In that case a taxi-cab licence was held to be property for the purposes of s.35 of the Judiciary Act; see per Barwick CJ at 230 - 232. Similarly, in Australian Capital Television v The Commonwealth (supra) both Brennan and Dawson JJ appeared to assume that a right to transmit material during identifiable times pursuant to a licence under the Broadcasting Act 1942 (Cth) could constitute property.
Interests in a permit under the PSLA may be recorded in a register of titles kept by the Designated Authority which also records the approval of transfers: ss.76 and 78. The fact that permits can be transferred and dealt with for valuable consideration and that such dealings are recorded in a register of titles is, in my view, a clear legislative indication that the permittee enjoys a stable interest which is capable of constituting a valuable asset. It is incorporeal but it is nonetheless property; see The Tasmanian Dams case (supra) at 287 per Deane J. I have reached the conclusion that the rights granted under a permit are stable and permanent enough for them properly to be regarded as property. Regulatory machinery is not antithetical to the concept of property and I do not regard the limitations on assignment of permits as inconsistent with a proprietary right. I regard the statutory limitations on permittees as no more than an acceptable level of regulation of the exploitation of an important natural resource which, at the same time, confers on the permit holder a sufficiently stable title.
I entertain some doubt as to the extent to which a permittee could bring an action against a person infringing rights accruing under the permit. However, I do not consider any qualifications which there may be in respect of such a cause of action to be inconsistent with the concept of property for the purposes of s.51(xxxi). Accordingly, in respect of the first question, I conclude that the rights conferred by the exploration permit WA-74-P constitute "property" as that term is used in s.51(xxxi).
HAS THERE BEEN AN ACQUISITION?
I have already set out the statutory provisions which effected a reduction in the "adjacent area" and a consequent contraction in the area of the permit. Upon the coming into force of the Consequential Provisions Act on 18 February 1991, the applicant and its joint venturers ceased to have any right or interest in that part of the permit area which was excised. In light of my conclusion that the rights under the permit constitute property, albeit incorporeal, it follows that the applicant lost or had extinguished property which it had previously held. The question which then arises is whether that loss or extinguishment of property by the termination of rights by amendment to the PSLA amounted to an acquisition of property by the Commonwealth.
The concept of "acquisition" in s.51(xxxi) brings to mind Newton's dictum that for every action there must be an equal and opposite reaction. Before there can be an acquisition, the acquiring party, in this case allegedly the Commonwealth, must obtain for itself a corresponding benefit. In the Tasmanian Dam case (supra) the High Court considered the question of acquisition by means of regulation of property. By the World Heritage Properties Conservation Act and the Western Tasmanian Wilderness Regulations the Commonwealth sought to regulate, amongst other things, the use of certain lands in South West Tasmania. It is sufficient to note that the World Heritage Properties Conservation Act prohibited the carrying on of a range of activities including excavation, drilling, building, construction or other development in heritage areas (as defined) without the consent of the Commonwealth Minister. It was there submitted on behalf of Tasmania that an acquisition can occur through the operation of legislation which so restricts the use of land that it assumes the owner's rights for an indefinite period. From those judgments in which the submission was considered, (Gibbs CJ, Wilson and Dawson JJ regarding it as unnecessary to do so), certain propositions emerge which cast light on the concept of acquisition.
In his reasons for judgment, Mason J said at 145:
"The emphasis in s.51(xxxi) is not on a "taking" of private property but on the acquisition of property for purposes of the Commonwealth. To bring the constitutional provision into play it is not enough that legislation adversely affects or terminates a pre-existing right that an owner enjoys in relation to his property; there must be an acquisition whereby the Commonwealth or another acquires an interest in property, however slight or insubstantial it may be."
Mason J concluded that the Act there under consideration did not effect an acquisition of property observing, at 146:
"... what is important in the present context is that neither the Commonwealth nor anyone else acquires by virtue of the legislation a proprietary interest of any kind in the property. The power of the Minister to refuse consent under the section is merely a power of veto.
...
The fact that the Minister has a power of veto of any development of or activity on the property does not amount to a vesting of possession in the Commonwealth. Significantly, the Act contains no provision dealing with possession."
Murphy J reached a similar conclusion observing, at 181, that the extinction or limitation of property rights does not amount to an acquisition.
Brennan J also concluded that the regulation imposed by the World Heritage Properties Conservation Act did not amount to an acquisition and opined that in order for an acquisition to occur it is necessary that "proprietary rights" be acquired.
Dissenting in the result, Deane J adopted a similar, but perhaps more liberal, approach. It is instructive to set out the following passage from his Honour's judgment at 283:
"On the other hand, laws which merely prohibit or control a particular use of, or particular acts upon, property plainly do not constitute an "acquisition" of property for purposes of the Commonwealth. Commonly, such laws are of general application and apply to property by reason of its being property of a particular description or by reference to the nature of the use or act prohibited or controlled. While a law which restricts or controls the use or enjoyment of property by means of specific identification of the property affected comes closer to the area of acquisition of property, it is, as a matter of ordinary language, impossible to say that there has been any acquisition of property if all that is involved is restriction of what can be done upon it: see, e.g., Belfast Corporation v OD Cars Ltd [1960] AC 490. The mere extinguishment or deprivation of rights in relation to property does not involve acquisition.
In his reasons for judgment in Peverill v Health Insurance Commission (1991) 104 ALR 449 Burchett J considered the judgments of the High Court in the Tasmanian Dam case in the context of Commonwealth legislation effecting an extinguishment of rights. In that case the applicant had obtained, either by the direct provision of a service or by assignment from the service provider, the right to payment of certain Medicare rebates for pathology services. At the time of the provision of each pathology service the entitlement to payment to a provider of a service and the quantification of payment was governed by the Health Insurance Act (1973). As a result of retrospective amendments to that Act by the Health Insurance (Pathology Services) Amendment Act (1991) the amount of payment in respect of each service was reduced. The applicant claimed that the extinguishment of his right to payment in full constituted an acquisition of property.
Burchett J referred at length to the judgments of Mason, Murphy, Brennan and Deane JJ in the Tasmanian Dam case and sought to distinguish that case by observing that there nothing tangible was obtained by the Commonwealth. His Honour continued, at 458:
"In the present cases, the Commonwealth gained the whole benefit of what it took from the applicant. For its purposes, it had procured the rendering of the pathology services for which it owed the statutory debt, of which it obtained retrospective reduction. Nor could the legislation be regarded, in any sense, as a regulation or restriction of the applicant's use of his property. The position was exactly the same as it would have been if the Commonwealth had taken a formal transfer of the applicant's right so as to cause it to merge with the Commonwealth's obligation. To say that the obtaining of the benefit of the applicant's right by the method adopted was not an acquisition would be to characterise the law ´by reference exclusively to its strict legal operation, without regard to its practical or substantial operation', as Mason CJ and Deane J put it in Philip Morris Ltd v Commissioner of Business Franchises (Vic) (1989) 167 CLR 300 at 433; 87 ALR 193. Their Honours went on to say that such an approach ´is bound to yield, at least in some instances, highly artificial results'."
By way of example, Burchett J postulated the situation where the Commonwealth possessed a parcel of land over which a citizen enjoyed a right of way or profit a prendre. In his Honour's opinion it would be a misapplication of the statements in the Tasmanian Dam case to hold that the Commonwealth could cancel the right of way or profit and say that it had acquired no property. The Commonwealth would have obtained the benefit of the right although the pre-existing situation had enabled it to do so by the mechanism of cancellation. In Peverill (supra) Burchett J concluded that by cancelling the debt the Commonwealth acquired precisely the same value as that which had been extinguished thus augmenting the assets of the Commonwealth.
The decision of Burchett J was the subject of an appeal to the High Court which delivered judgment, unanimously allowing the appeal, on 9 March 1994. Mason CJ, Deane and Gaudron JJ delivered a joint judgment. In allowing the appeal their Honours concluded at p.5 that the Health Insurance (Pathology Services) Amendment Act (1991) ("the Amendment Act") was not to be characterized as a law with respect to acquisition of property for the purposes of s.51(xxxi) of the Constitution. In the light of that conclusion, it was not strictly necessary to consider the concept of acquisition by extinguishment of rights. However, at p.3 of their reasons, their Honours observed:
"There is no doubt that the derivation by the Commonwealth of a financial advantage in association with the extinguishment of a right to receive a payment from the Commonwealth may constitute an acquisition of property for the purposes of s.51(xxxi) of the Constitution. That could even be so in some cases in which extinguishment of the right takes place in the context of some genuine adjustment made in the common interests of competing claims, rights and obligations between another party and the Commonwealth. However, here, the extinguishment of the earlier right to receive payment of a larger amount has been effected not only by way of genuine adjustment of competing claims, rights and obligations in the common interests between parties who stand in a particular relationship but also as an element in a regulatory scheme for the provision of welfare benefits from public funds."
Brennan J allowed the appeal on the basis that the right to claim the medicare rebate in a practitioner who had obtained that right by assignment was not property. It was therefore not necessary for his Honour to consider the question of acquisition and he did not proceed to do so. In his judgment Dawson J concluded that the Commonwealth had not acquired the chose in action assigned by a patient to Dr Peverill and substituted for it another of lesser value. In support of that conclusion, his Honour observed at p.19:
"For the reasons Toohey J and I gave in Mutual Pools Pty Ltd v The Commonwealth, the reduction or extinction of a liability, even though it may confer a financial or monetary advantage upon the person whose liability is reduced or extinguished, does not result in the acquisition of property by that person. That is not because no money passes hands. It is because nothing which answers the description of property is acquired. True it is that in that situation no coins or notes are involved, but the character of money is not dependent upon its physical qualities. They may not be present at all in a transaction involving the transfer of money and are of no intrinsic worth. Money is merely a medium of exchange; it is not an object of exchange. It represents value or purchasing power, but does not constitute property within the meaning of s.51(xxxi) of the Constitution. The enactment of the Amending Act did not result in the acquisition by the Commonwealth of the chose in action assigned to Dr Peverill by his patient. The value of the right which he acquired in the form of the chose in action was reduced, but the Commonwealth did not acquire any property."
I shall turn shortly to the reasons of the High Court in Mutual Pools v Commonwealth (supra) as they relate to acquisition. It is first convenient to refer to the remaining judgments in Peverill.
Toohey J concluded that the Amendment Act effected no acquisition of property because it was impossible to identify any property or interest in property acquired by the Health Insurance Commission. His Honour also concluded that the Amendment Act was outside the scope of s.51(xxxi). McHugh J allowed the appeal for reasons which were primarily concerned with the characterization of the right to payment conferred by the relevant legislation. As the right to payment which was conferred by the Act was subject to any future alteration or repeal by the Parliament, in his Honour's view a law which altered or repealed that entitlement was not a law with respect to the acquisition of property within the meaning of s.51(xxxi).
To the observations of the High Court in Peverill may be added several references in Mutual Pools & Staff Pty Ltd v Commonwealth (supra). Noting the dictum that what the Constitution forbids directly cannot be achieved indirectly or by means of some circuitous device, Mason CJ observed that "if an extinguishment had the same effect as an assignment of a chose in action then it may well be the case that the extinguishment amounts to an acquisition". Deane and Gaudron JJ in their joint judgment said at p.23:
"Similarly, the word "acquisition" is not to be pedantically or legalistically restricted to a physical taking of title or possession. Once it is appreciated that "property" in s.51(xxxi) extends to all types of "innominate and anomalous interests", it is apparent that the meaning of the phrase "acquisition of property" is not to be confined by reference to traditional conveyancing principles and procedures. Nonetheless, the fact remains that s.51(xxxi) is directed to "acquisition" as distinct from deprivation. The extinguishment, modification or deprivation of rights in relation to property does not of itself constitute an acquisition of property. For there to be an "acquisition of property", there must be an obtaining of at least some identifiable benefit or advantage relating to the ownership or use of property. On the other hand, it is possible to envisage circumstances in which an extinguishment, modification or deprivation of the proprietary rights of one person would involve an acquisition of property of another by reason of some identifiable and measurable countervailing benefit or advantage accruing to that other person as a result. Indeed, the extinguishment of a chose in action could, depending upon the circumstances, assume the substance of an acquisition of the chose in action by the obligee."
However, their Honours regarded themselves as relieved from the need to determine whether in fact there had been an acquisition of property.
Brennan J at p.14 considered the question of extinguishment of property in these terms:
"By exercising its legislative power, the Commonwealth can extinguish debts owing by it or interests outstanding against it and thereby obtain a discharge from its liability which a subject could obtain only by purchase or payment of the debt or by transfer or surrender of the interest. If rights against the Commonwealth are extinguished by statute and the rights are proprietary in nature, there is an acquisition of property by the Commonwealth. By force of s.4(1) of the Refund Act, the Commonwealth's debt to the plaintiff was extinguished. The debt was not discharged by payment, but the debtor - the Commonwealth - was discharged from its liability to pay. The Commonwealth thus received a benefit precisely corresponding with the plaintiff's loss of its property. The legislative extinction of such a debt constitutes an acquisition of property."
In their joint judgment Dawson and Toohey JJ stressed the importance of identifying the proprietary interest gained by the Commonwealth. Their Honours concluded that the receipt of a mere financial or monetary advantage does not constitute an acquisition of "property" and observed at p.34:
"It may perhaps be argued that for the purposes of s.51(xxxi) the property acquired must be the same as the property divested from the person seeking compensation. The result in this case would be that, as the Commonwealth has not in any event acquired the plaintiff's property, the Refund Act would not fall within s.51(xxxi). That would be a sufficient basis to dispose of this case, and may be the basis of decisions on other occasions refusing to recognize the extinguishment of a chose in action as an acquisition of property."
Dawson and Toohey JJ then proceeded to examine other arguments which, apart from that which they had just rejected, they considered could not succeed. However, it seems to me, with respect, that the passage just quoted requires a correspondence between that which is lost and that which is acquired on which the reasoning of the other members of the High Court does not depend. In my view, the creditor or other holder of the proprietary interest need not lose something which corresponds exactly with what is gained by the Commonwealth. To make invalidity depend on exact correspondence of that sort would be to allow the Commonwealth to do indirectly what it cannot do directly. Nevertheless, the conclusion of Dawson and Toohey JJ that it is necessary to identify a proprietary interest gained by the Commonwealth is clearly consistent with the view of the other members.
McHugh J in Mutual Pools concluded at p.61:
"Thus, when the Parliament legislates so as to extinguish a property right of a person or State which is not dependent for its continued existence on federal law and the effect of the extinguishment is to vest a corresponding benefit of commensurate value in the Commonwealth, the law should be characterised as one providing for the acquisition of the property of that person or State by the Commonwealth. Thus, if the Commonwealth legislates to abolish a right of way over its land, it acquires that right of way even though the legislation does no more than free the land of an encumbrance. Similarly, when the Parliament legislates to abolish a debt of the Commonwealth, the legislation should be seen as an acquisition of property by the Commonwealth. The common law has never treated "indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money". Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567. In a case such as the present, the substantial effect of the legislation is that the Commonwealth acquires that sum of money for itself."
In these proceedings WMC sought to rely on the judgment of Burchett J in Peverill to make good its submission that the extinguishment of the rights which was brought about by the excision of some areas from Permit WA-74-P effected an acquisition. The test suggested by Counsel for WMC is whether the effect of the legislation is to enlarge the powers of the Commonwealth or some other person to deal with the subject matter to which were previously attached a property right of a person or State. It was submitted that, before the commencement of the Consequential Provisions Act, the Commonwealth had been subject to the rights held by WMC pursuant to the permit. It was then said that, following the termination of those rights by statutory amendment, the rights under the permit have been revested in the Commonwealth giving it unrestricted sovereignty over the area. Accordingly, it was said that the enhancement of the Commonwealth's rights constituted an acquisition by the Commonwealth of the rights previously held by WMC pursuant to the permit. The Commonwealth thus freed itself to create new rights in the area.
That submission calls for an analysis of exactly how the Commonwealth's position has been altered as a result of the Consequential Provisions Act. The judgments of High Court to which I have referred emphasise that the Commonwealth must acquire property or a proprietary interest.
I can discern nothing in s.51(xxxi) which requires an exact correspondence between the proprietary interests lost or extinguished and the gain accruing to the Commonwealth. Such a requirement would lend itself to abuse by enabling resort to artificial refinements of property law including perhaps, the use, in the oft-quoted words of Dixon J in the Bank Nationalization Case (supra), of a "circuitous device to acquire indirectly the substance of a proprietary interest without at once providing the just terms guaranteed by s.51(xxxi)". In this context, the following passage from the judgment of Burchett J in Peverill at 459 is relevant:
"It is possible to have an acquisition where what the acquirer receives is not to be identified with something disposed of by the person from whom the acquisition is made: Allina Pty Ltd v FCT (1991) 28 FCR 203; 99 ALR 295. Leases and options provide ready examples. The law sees no difficulty in regarding an option as involving an acquisition of a right which never belonged to the grantor of the option: Commissioner of Taxes (Qld) v Camphin (1937) 57 CLR 127 at 133-4. But placitum (xxxi), as a constitutional guarantee of what Lord Ackner, in R v Secretary of State of the Home Department; Ex parte Brind [1991] 1 AC 696 at 757, called a "fundamental human right - the peaceful enjoyment of one's possessions", must, by its nature, be concerned with the other side of the transaction with its effect upon the "person" from whom the acquisition is made. If property is acquired from him, its transmutation into some other form in the hands of the Commonwealth is not really to the point. That does not, of course, overlook that there must be an acquisition of property in some form, and not a mere extinguishment of rights: the R v Ludeke; Ex parte Australian Building Construction Employees' and Builders Labourers' Federation (1985) 159 CLR 636; 62 ALR 407."
See also Mutual Pools (supra) per Brennan J at 14 per Deane and Gaudron JJ at 24. Notwithstanding that strict legal categories of property may be inappropriate in applying s.51(xxxi), I am firmly of the view that, for the paragraph to be attracted, the Commonwealth must still acquire "property". That conclusion, I consider is, supported by the judgments of the High Court in Mutual Pools and Peverill.
In the present case, the rights conferred by the permit are defined in s.28 of the PSLA. It is an important aspect of the applicant's case that those rights are clearly identifiable and stable. By corollary, WMC's loss is clearly definable. However, it is not as easy to identify the benefit gained by the Commonwealth. I do not regard the excision of part of the area to which the permit related as giving to the Commonwealth the same rights as were held by WMC and its joint venturers. The Commonwealth did not, by force of the Consequential Provisions Act, become the permit holder nor did it, by that means, acquire the right to explore in the permit area. Rather, the Consequential Provisions Act removed any fetter or inhabition arising from the grant of the exploration permit on the exercise and enjoyment, in the relevant area, of the bundle of rights derived from the Commonwealth's sovereignty over the continental shelf. The right in a sovereign State to explore and exploit its continental shelf is not, in my view, proprietary in nature. However, I have accepted that Australia has, as a sovereign power, the capacity to create in others rights in relation to the continental shelf, which can amount to property within the meaning of s.51(xxxi). An analogy can be drawn between the source of that power and the "radical title in the Crown" in territorial land discussed in Mabo v Queensland (1992) 66 ALJR 408 by Deane and Gaudron JJ at 442 and by Dawson J at 457.
Once rights in other persons have been created, the full amplitude of the Commonwealth's sovereign powers in the relevant area can only be restored by extinguishment of those rights. In this sense, what occurs is more than what Deane J in passage quoted above from the Tasmanian Dam Case (supra) at 283 called "the mere extinguishment or deprivation of rights in relation to property". Immediately after that passage his Honour went on to say:
"Difficult questions can arise when one passes from the area of mere prohibition or regulation into the area where one can identify some benefit flowing to the Commonwealth or elsewhere as a result of the prohibition or regulation. Where the benefit involved represents no more than the adjustment of competing claims between citizens in a field which needs to be regulated in the common interest, such as zoning under a local government statute, it will be apparent that no question of acquisition of property for a purpose of the Commonwealth is involved. Where, however, the effect of prohibition or regulation is to confer upon the Commonwealth or another an identifiable and measurable advantage or is akin to applying the property, either totally or partially, for a purpose of the Commonwealth, it is possible that an acquisition for the purposes of s.51(xxxi) is involved. The benefit of land can, in certain circumstances, be enjoyed without any active right in relation to the land being acquired or exercised: see, e.g. Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493; (1959) 100 CLR 1. Thus, if the Parliament were to make a law prohibiting any presence upon land within a radius of 1 kilometre of any point on the boundary of a particular defence establishment and thereby obtain the benefit of a buffer zone, there would, in my view, be an effective confiscation or acquisition of the benefit of use of the land in its unoccupied state notwithstanding that neither the owner nor the Commonwealth possessed any right to go upon or actively to use the land affected".
A "mere extinguishment of rights" might occur, for example, if a law of the Commonwealth took away from a tenant a leasehold interest in land but stipulated that no rights of the reversioner should be exercisable until the date on which the lease would have expired. By contrast, the effect of the Consequential Provisions Act has been to enlarge or restore the powers of the Commonwealth immediately to deal with the subject matter to which WMC's rights, which I have held to be property, attached. In that way the extinguishment of WMC's proprietary rights involved in the words of Deane and Gaudron JJ in Peverill at p.23 "an acquisition of property ... by reason of some identifiable and measurable advantage accruing to [the Commonwealth] as a result". Support for this conclusion is also provided by the passage from the judgment of Brennan J in Peverill which is quoted at p.54 above.
WAS THE ACQUISITION ON JUST TERMS?
I have set out the provisions of s.24 of the Consequential Provisions Act at p.31 of these reasons. It follows from the conclusion just reached, that the excision of Area A from the "adjacent area" effected by s.22 of the Consequential Provisions Act constituted an acquisition of property, that it is necessary to consider whether the acquisition was otherwise than on just terms.
In my view, s.24 itself provides for just terms by imposing a liability on the Commonwealth to pay compensation of a reasonable amount. See e.g. Andrews v Howell (1941) 65 CLR 255 and Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77. However, the form of the declaration sought by WMC requires the Court to consider whether "but for" s.24, the acquisition was otherwise than on just terms.
There is much force in the submission advanced on behalf of WMC that the terms said to be just must be provided by the statute which effects the acquisition. That is a consequence not only of the requirement for validity imposed by s.51(xxxi) of the Constitution, as to which see e.g. Grace Brothers Pty Ltd v The Commonwealth (1946) 72 CLR 269 per Dixon J at 291 and the Tasmanian Dam Case (supra) per Deane J at 289, but of the language of s.24(2) of the Consequential Provisions Act itself. That sub-section predicates the liability of the Commonwealth to pay compensation on an "operation of the amendments made by this Part", which "would result in the acquisition of property ... otherwise than on just terms" (emphasis added).
The provision of benefits to affected permit-holders by what Counsel for the Commonwealth have called "the scheme of which the statute forms part" is, I consider, not to be taken into account in determining whether the statute itself results in an acquisition otherwise than on just terms. That is not to say that the right to match the highest competitive bid for an area within Zone A, or the subsequent acquisition by WMC of an interest in ZOCA 91-12 may not be highly relevant to a determination of the pre-acquisition value of Permit WA-74-P and the assessment of reasonable compensation pursuant to s.24 of the Consequential Provisions Act. In that context also, the references by the Commonwealth to a greater "sovereign risk" and other doubts and uncertainties which existed before the making of the Zone of Co-operation Treaty and the enactment of the legislation which gave effect to it, may assume much cogency. So, too, may the Commonwealth's invocation of the principle enunciated in Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands (1947) AC 565 at 572. However, the only provision of the Consequential Provisions Act which even arguably affords just terms for the acquisition effected by that Act is s.23 which inserted s.30A(5) into the PSLA. The text and effect of that amendment are set out at pp.30 and 31 of these reasons. What it did was to relieve a permit holder affected by what I have characterized as an acquisition of rights in respect of part of a permit area, of the obligation imposed by s.31 of the PSLA, to relinquish, on renewal, half of the area covered by the permit. It cannot be said, nor was it submitted by the Commonwealth, that the insertion of s.30A(5) considered alone, necessarily afforded just terms for each acquisition effected by the Consequential Provisions Act.
For these reasons I am persuaded to grant the declaration sought by WMC. I shall hear Counsel on any directions for the further hearing of the application and any order as to costs which should be made in consequence of that declaration.
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