GXL Royalties Limited v Swift Energy New Zealand Limited

In the case of GXL Royalties Limited v Swift Energy New Zealand Limited, the Court of Appeal of New Zealand was asked to determine the relevance of collateral purposes in a dispute over the withholding of consent for the transfer of a petroleum exploration permit. GXL, the owner of a royalty interest in the permit, had retained the right to withhold consent for the transfer of interests in the permit. Swift, which owned a significant portion of the permit, sold its interest to Greymouth without GXL’s consent. GXL refused to consent, arguing that it had a contractual right to withhold consent unless the financial capability of the purchaser was established on an objective basis. Greymouth alleged that GXL refused consent for a collateral purpose unrelated to financial capability, and sought an order for GXL to plead to this allegation. The High Court had previously ordered GXL to plead to the allegation of collateral purpose, prompting GXL to appeal.

The central legal issue before the Court was whether collateral purpose could be relevant to the resolution of the dispute between GXL and Greymouth, specifically whether GXL’s motives in withholding consent were irrelevant to the objective assessment of financial capability. GXL argued that its motive was irrelevant and that the consent provision in the Royalty Deed allowed withholding of consent only on the grounds of financial capability. Greymouth, on the other hand, contended that the subjective motives of the party exercising the right to withhold consent were relevant, and that if GXL’s motive was collateral, the refusal to grant consent would be invalid.

The Court of Appeal held that collateral purpose was irrelevant in determining whether GXL’s refusal to grant consent was valid. The Court reasoned that the consent provision in the Royalty Deed provided a clear test based solely on financial capability, and that GXL’s motives for withholding consent were immaterial to the objective assessment of financial capability. The Court noted that the authorities cited by Greymouth did not support the proposition that collateral purposes could render consent invalid if financial capability was established. Therefore, the Court concluded that GXL’s refusal to grant consent would be assessed solely on whether it received sufficient financial information to assess Greymouth’s financial viability, and that any collateral motive GXL may have had would not inform this objective analysis. The appeal was allowed, and the Court ordered that GXL was not required to plead to the allegation of collateral purpose. The second respondents were ordered to pay the appellant costs for a standard appeal on a band A basis and usual disbursements.