" JOBGMENT No. 41/3 IN THE FEDERAL COURT OF AUSTRALIA } VICTORIAN DISTRICT REGISTRY ) No. VG428 of 1986 GENERAL DIVISION ) BETWEEN: ROBERT CLIVE FORDHAM and THE STATE OF VICTORIA Applicants AND: GARETH EVANS , B.H.P. PETROLEUM PTY. LTD., ESSO EXPLORATION AND PRODUCTION AUSTRALIA INC. and OIL BASINS LIMITED Respondents CORAM: Jenkinson J. PLACE: Melbourne DATE: 13 November, 1987 REASONS FOR JUDGMENT Hearing of questions raised in an application for an order of review in respect of a decision to which the Administrative Decisions (Judicial Review) Act 1977 applies. The Petroleum (Submerged Lands) (Royalty) Act 1967 ("the Royalty Act") and the Petroleum (Submerged Lands) Act 1967 ("the Submerged Lands Act"), the latter of which "15 incorporated and shall be read as one with" the former (s.3 of the Royalty Act), make provision for, inter alia, the imposition of a royalty tax on petroleum recovered by a person in an area of submerged land, Beneath waters that are beyond the outer limits of the territorial sea adjacent to the States and the Northern Territory, in respect of which area an exploration permit or a retention lease or a production licence has been granted to that person under Part III of the Submerged Lands Act. Liability to pay the royalty is imposed on the permittee or lessee or licensee. It is a liability measured by reference to a percentage of the value at the well-head of the petroleum recovered by that person in the area in a particular period. After che axpiration of the month of the year in which the permit or lease or licence is granted the period is each month thereafter and the royalty is payable not later than the last day of the next month : ss. 4, 5 and ll of the Royalty Act. Provision is made in both Acts for the administration of these taxing provisions, as of other subjects with which the Submerged Lands Act deals, by what are called "a Designated Authority" and "a Joint Authority". The area of submerged land adjacent to each State or to the Northern Territory that is beyond the outer limits of the territorial sea and that is the subject of the legislation (being land within the outer limits of the continental shelf) is identified by its boundaries in the Submerged Lands Act, and that area is called inthe Act the "adjacent area" in respect of that State or Territory. In respect of each adjacent area the Designated Authority 1s the Minister of the State or Territory for the time being authorized under the law of that State or of the Northern Territory to perform the functions of a Designated Authority under the Submerged Lands Act. In respect of each adjacent area the Joint Authority consists of the Commonwealth Minister for the time being administering that ne nn ee re a ee Act and the Minister of the State or Territory for the time being authorized under the law of that State or of the Northern Territory to perform the functions of a Designated Authority under that Act. Several sections of the Rovalty Act, including ss. 8, 9 and 10, confer on the Designated Authority functions directed to the ascertainment of the amount of royalty payable by persons subject to the tax. Section 10A of that Act provides: "(1) The Joint Authority shall give directions to the Designated Authority with respect to the manner in which the Designated Authority is to exercise his powers under sections 8, 9 and 10 and the Designated Authority shall not exercise any of those powers except in accordance with directions so given. (2) For the purposes of the application of this section in relation to section 10, paragraph (b) of that section has effect as if the reference to the Designated Authority not being satisfied included a reference to the Joint Authority not being satisfied." It 1s provided by sub~subsection 8D(2) of the Submerged Lands Act as follows: "If the members of a Joint Authority disagree with respect to the decision to be made on a matter within the functions of the Joint Authority or the State Minister or the Northern Territory Minister (as the case may be) has not stated to the Commonwealth Minister his opinion as to the decision to be made on such a matter after having been given by the Commonwealth Minister not less than 30 days notice in writing of the opinion of the Commonwealth Minister as to the decision that should be made on the matter, the Commonwealth Minister may decide the matter and that decision shall have effect as the decision of the Joint Authority." A Ie ne ar ap FR SEIN re can TO en 2. tp ee By a letter dated 11 November 1986 to the State Minister in respect of the adjacent area in respect of the State of Victoria, who is the first-named applicant, the Commonwealth Minister expressed his decision that a direction, which is specified in the letter, should be given, in exercise of the power conferred by s.10A of the Royalty Act, by the Joint Authority in respect of that adjacent area to the Designated Authority in respect of that adjacent area. The State Minister being also that Designated Authority, the letter contained also the following: "Accordingly, directions in the terms set out above are hereby given as directions by the Joint Authority to the Designated Authority." The decision that those directions be given is the decision in respect of which the application for an order of review is made. Two companies which hold production licences granted under Part III of the Submerged Lands Act in respect of part of the Victorian adjacent area are the second and third-named respondents. The fourth-named respondent claims to have contractual relations with those licensees. An order was made by consent of all parties that, subject to any order of the judge before whom the application should be fixed for hearing, the questions raised by the grounds of the application numbered 1, 2 and 3 and statements in writing by the respondents of their contentions in relation to the matters raised by those grounds be decided before the hearing of any other question. Those questions pee rer ST eT nae a aa TT at eee vert) . iene > -¢ '. 5. have been argued and are now for decision. The fourth-named respondent did not desire to be heard upon those questions. The first ground of the application is concerned with the requirement of sub-section 8D(2) that the decision of a matter by the Commonwealth Minister, having effect as the decision of the Joint Authority, should be preceded by "not less than 30 days notice in writing of the opinion of the Commonwealth Minister as to the decision that should be made on the matter". More than 30 days before the first-named respondent made the decision sought to be reviewed he had given the State Minister notice in writing of his opinion as to that decision, but neither in that writing nor otherwise had any statement been made to the State Minister by the Commonwealth Minister of the period of time at the expiration of which the Commonwealth Minister might decide the matter in the event that they should disagree or in the event that the State Minister should not state to the Commonwealth Minister his opinion. The ground numbered 1 of the application raises the contention that sub-section 8D(2) requires, on its proper construction, notification by the Commonwealth Minister to the State Minister of that period. Sub-section 8D(1) provides: "The business of a Joint Authority may he conducted at meetings of the Joint Authority or by written or other communication between the members of the Joint Authority." Sections 8, 9 and 10 of the Royalty Act provide: wee ar ad 8 eye me ap re Inserted in the Submerged Lands Act 80, "B. For the purposes of this Act, the well-head, in relation to any petroleum, is such valve station as is agreed between the permittee, lessee or licensee and the Designated Authority, or, in default of agreement within such period as the Designated Authority allows, 1s such valve station as is determined by the Designated Authority as being that well-head. 9. For the purposes of this Act, the value at the well-head of any petroleum is such amount as is agreed between the permittee, lessee or licensee and the Designated Authority, or, in default of agreement within such period as the Designated Authority allows, is such amount as is determined by the Designated Authority as being that value. 10. For the purposes of this Act, the quantity of petroleum recovered by a permittee, lessee or Jlicensee from a well during a period shall be taken to be - (a) the quantity measured during that period by a me@asuring device approved by the Designated Authority and installed at the well-head or at such other place as the Designated Authority approves; or (b) where no such measuring device 15 so installed, or the Designated Authority is not satisfied that the quantity or petroleum recovered by the permittee, lessee or licensee from that well has been properly or accurately measured by such a measuring device - the quantity determined by the Designated Authority as being the quantity recovered by the permittee, lessee or licensee from that well during that period." 1980) as inserted s.8D is s.8E, which provides: "(1) This section applies to such functions of the Designated Authority as are specified in Schedule 5. (2) If the Designated Authority proposes to take any action in the performance of a by the same amending Act (No. chaene sae 7. function to which this section applies otherwise than in accordance with a request of the Commonwealth Minister, he shall, by notice in writing served on the Commonwealth Minister, inform him of the proposed action and of all particulars of that action and shall not take the proposed action before the expiration of 30 days from the day on which the notice is so served unless the Commonwealth Minister has informed the Designated Authority that the Commonwealth Minister does not object to the proposed action. (3) Where notice of proposed action is served on the Commonwealth Minister in accordance with sub-section (2), he may, within 30 days Irom the date on which the notice is so served, inform the Designated Authority that he wishes the proposed action to be considered by the Joint Authority and in that event the proposed action shall be considered by the Joint Authority and the Designated Authority shall not take the action before the Joint Authority has completed that consideration. (4) Where, in accordance with sub-section (3), the Joint Authority has considered proposed action of the Designated Authority, the Joint Authority may, subject ta sub-section (5), give any direction that it thinks fit to the Designated Authority with respect to the proposed action, including a direction not toa take the action or a direction to vary the action. (5) For the purpose of considering the giving or a direction under this section, the Joint Authority shall proceed as if -~ (a) the relevant function of the Designated Authority were a function of the Joint Authority and the Joint Authority were considering an exercise by itself of that function; and (b) references in the relevant provisions of this Act to the opinion or state of mind of the Designated Authority were references to the opinion or state of mind of the Joint Authority. (6) A reference in this section to the taking of action or to action shall be read as including a reference to refusal to take action." Ve v eee te ee sept ees eee eee eee te Counsel for the applicants pointed out that "a matter within the functions of the Joint Authority", concerning which a decision 15 required, may be of considerable complexity, so that more than 30 days might reasonably be needed for consideration by one member of the opinion of the other. There was good reason, therefore, for a provision, such as sub-section 8D(2) made, for notice proportioned in duration to the complexity or the gravity of the matter. The provision made in the sub-section was to be contrasted, it was said, with the provisions fixing times in s.8E, in relation to certain functions in the administration of the system, ordained in Part IIIf, of leasing and licensing and granting exploration permits. In the latter section the period of notice was prescribed, not left to determination, ad hoc, by the person the taking of whose contemplated action must wait upon the expiration of the period. These considerations, but particularly the contrast between the language of 5.8D(2) and the language of s.8E(2), supported the construction which it was submitted that common legal usage suggested, that s.8D(2) required a specification by the Commonwealth Minister to the State Minister of the period, being a period of not less than 30 days, before the expiration of which the Commonwealth Minister would not interrupt consideration of his opinion by making, alone, a decision of the matter. These arguments are, I think, not without weight. But this requirement of notice is for the regulation of the proceedings of agents of eminent status of executive governments who are assisted in the performance of their functions by a rem DFT , are pt e ot fy on eet —, " . 9. numerous and skilled staff. Those considerations are here lacking which might move a court to construe a statutory provision in similar idiom for the requiation of private contractual or proprietary rights as requiring specification of the period to be allowed. The words of the requirement as to notice are satisfied, literally, by the lapse of the specified period of 30 days between the giving of the notice and the taking of the decision : after the lapse of that period the State Minister has been given not less than 30 days notice in writing of the Commonwealth Minister's opinion. I do not uphold the ground of the application numbered 1. The ground of the application numbered 2 rests on the submission that the directions which the Commonwealth Minister decided to, and did, give to the Designated Authority were not within the description expressed ain s.10A(1) of the Royalty Act: "darections .... with respect to the manner in which the Designated Authority is to exercise his powers under sections 8, 93 and 10" of that Act. The Commonwealth Minister's statement in writing of the reasons for the decision, furnished to the applicants pursuant to s.13 of the Administrative Decisions (Judicial Review) Act 1977, attribute the power to make the decision to s.10A and no other source was suggested by counsel for the Commonwealth Minister. A letter dated 9 June 1980 from the Designated Authority to the second and third-named respondents ("the licensees") recorded that Authority's understanding of the making, and of the terms, of an agreement said to have been made in pursuance of s.9 aa ted Tat oe ee rie NY poe te 10. between the Designated Authority and the licensees "as to the calculation of the value of petroleum at the wellhead (sic) for all royalty periods from the commencement of production". A letter dated 20 dune 1980 from the licensees to the Designated Authority included this sentence: "We hereby confirm our general agreement that the terms of your letter adequately reflect the agreement reached between us on the matters outstanding and wish to record our pleasure that the issues which have heen outstanding between us for so long have now been resolved." Those are the two letters to which reference is made in the directions given by the Commonwealth Minister to the Designated Authority in the letter dated 11 November 1986. Those directions were in these terms: "(a) The Designated Authority shall allow 3 days from the date of these directions as the period for seeking to reach agreement with BHP Petroleum Pty. Ltd. and Esso Exploration and Production Australia Inc. {'the Licensees') on the value at the wellhead of petroleum ('the petroleum') recovered, or to be recovered, during royalty periods to Which the agreement set out ina letter dated 9 June 1980 from the Designated Authority to the Licensees and the Licensees' reply dated 20 June 1980 ('the 1980 Agreement') does not apply. (b) Within the period specified in (a), the Designated Authority shall seek to reach agreement with the Licensees that the value of the petroleum at the wellhead shall be calculated by using (inter alia) the same method as that referred to in the 1980 Agreement. (c) In default of agreement in accordance with (b) within the period specified in (a}, the Designated Authority shall a —- -- ae a ee eet Fe ee ll. forthwith determine the value of the petroleum at the wellhead by using (inter alia) the same method as that referred to in the 1980 Agreement, subject, in the case of any royalty period commencing after the date of these directions, to any further directions under section 10A of the Royalty Act." Those directions were given in consequence of the expression to the licensees of decisions and intentions of the Designated Authority by a letter dated 29 September 1986 from him to them, of which letter he furnished a copy to the Commonwealth Minister. That letter was in these terms: _ "I, Robert Fordham, the Designated Authority in respect of the area adjacent to Vactoria, hereby give notice to the licensees BHP Petroleum Pty Ltd and Esso Exploration and Production Australia Inc as follows: (ad At a meeting on the 22nd May 1980 attended by representatives of the State of Victoria and the licensees tentative agreement was reached as a part of the method for ascertaining the value at the wellhead of petroleum recovered in the licence areas for all royalty periods from the commencement of production up to the date of the agreement; (b) This was confirmed by a letter from the Designated Authority to the licensees dated the 9th June 1980 and a reply from the licensees dated the 20th June 1980; (c) The value at the wellhead of petroleum recovered in the licence areas in each royalty period since the time of the agreement has been calculated by the licensees using, inter alia, the same method as that referred to in the letter of the 9th June 1980 and payment of royalty based on the value so calculated has been accepted by the Designated Authority in each period to date as a discharge of licensees in respect of that period; (d) In respect of the royalty period Yo 12. commencing next after receipt of this letter (and subsequent periods) the Designated Authority is no longer willing to accept payment of royalty based on the value at the wellhead of petroleum calculated in that manner; (e) In and insofar as there is an existing agreement between the Designated Authority and the licensees in relation to the method of determining the value of petroleum at the wellhead for royalty purposes in respect of any period commencing after your receipt of this letter, such agreement Ls hereby determined; (f) The Designated Authority is willing to accept payment of royalties in respect of any royalty period commencing before your receipt of this letter calculated in accordance with the method referred to in paragraph (c) above. Until agreement is reached or a determination made pursuant to Section 9 of the Petroleum (Submerged Lands) (Royalty) Act 1967 the Designated Authority will, as an interim Measure, accept payments on account of royalties calculated by use of the method referred to in the letter of the 9th June 1980. When agreement is reached of a determination is made, royalties may then be adjusted by making forthwith the appropriate additional payments, without penalty. Please contact the Designated Authority at your earliest convenience with a view to putting in train negotiations towards agreement in due course the value at the wellhead of petroleum in the royalty period commencing next after your receipt of this letter. You should be aware that ain such negotiations the Designated Authority will take the view that the excise imposed on crude o1l should not be taken into account in calculating the value of petroleum at the wellhead for royalty purposes." re For the purposes of the determination of the question raised by this ground, numbered 2, of the application, the assertions contained in paragraph (c) of the letter may be assumed to he 13. true. It is unnecessary for those purposes to set out all that in the letters dated 9 June 1980 and 20 June 1980 were stated to he terms of what was therein designated an agreement. It will be sufficient for those purposes to have regard to the following passage in the first of those two letters: "It was agreed that the following formula would be used in calculating the value of petroleum at the wellhead for all royalty periods. 1 Duties of customs and excise will not be included in the assessment of wellhead value; 2 20% of the depreciated cost of platform structures will be an allowable deduction in assessing wellhead value; 3 No allowance will be made for the cost of working capital; and 4 Allowance will be made for interest, at the fixed rate of 38 1/2 percent per annum, on the written down value (at the royalty depreciation rate) of all allowable post wellhead fixed assets." It was common ground that, because there was no sale of petroleum at the well-head in the adjacent area, the value at the well-head was taken to be the balance remaining after deduction from the aggregate of the market prices of the products of the recovered petroleum which were sold at Westernport of certain costs of bringing the petroleum from the well-head to dry land and of converting it into those products. The statements in the letters from which I have quoted must be understood as relating to that process of calculation. It will be appreciated that stipulations of the kind -s-t eer say aa 14. which I have quoted from the letter dated 9 June 1980 are stipulations compliance with which directly affects the quantum of "the value at the well-head" of petroleum recovered in a particular period. The Commonwealth Minister's direction to the Designated Authority that the latter should "determine the value of the petroleum at the wellhead by using (inter alia) the same method as that referred to in the 1980 Agreement" was therefore, according to the submission of the applicants, a direction that the value at the well-head should be that value which performance of a specified calculation should yield. It was the applicants' submission, however, that sub-section 10A(1) conferred no power on the Joint Authority to give direction as to the substance of such a calculation, or in any other way to control in substance the exercise by the Designated Authority of his power under s.9 to determine the amount which should be that value. Sub~section 10A(1) imposed on the Joint Authority, it was submitted, an obligation to control the manner in which that power, and the powers conferred by ss. 8 and 10, were to be exercised, by prescribing the procedure in accordance with which they should he exercised. The primary meaning of the word "manner", as the way in which something is done, is the meaning which the word bears in sub-section 10A(1), it was submitted. The imperative mood of the verb of the first clause of the sub-section accords with that construction, which leaves the substance of the powers conferred by ss. 8, 9 and 10 with the Designated Authority on whom they are by those sections conferred and arrogates to the Joint Authority only the obligation to prescribe procedural directions in accordance with which the powers may be exercised, it was submitted. To give direction, as in this case the Joint aaa atiad — ote peeee. . 4 pent er, 15. Authority, by the Commonwealth Minister, had given direction, that certain descriptions of expense and not other descriptions of expense should be taken into account in the determination of value was plainly to go beyond matter of procedure regulating the exercise of a power to determine value, it was submitted, and was, therefore, to give directions for which sub-section LOA(1) afforded no authority. Counsel for the respondents who were heard on the question did not deny that the directions given went beyond matter of procedure. Their submission was that sub-section 10A(1) authorised directions compliance with which substantially influenced the result of the Designated Authority's exercise of his powers. In BHP Petroleum Pty. Ltd. v. Balfour (1987) 61 A.L.J.R. 345 the High Court was examining an exercise of the power conferred on the Designated by s.8 of the Royalty Act. In the course of that examination the Court observed (61 A.L.3.R. at 347) "Section 5(2) of the Royalty Act determines the royalty rate payable and it does so by yrererence to petroleum recovered, being a percentage or the value of that petroleum at the well-head. That approach is consistent with the general understanding of royalty: see Stanton v. Federal Commissioner of Taxation (1955) 92 C.L.R. 630 at 641-642. Expressed in this way, the royalty is something capable of being and is to be determined objectively. Section 5 does not refer to an opinion of the Designated Authority and ss. 8, 9 and10 do not convert the objective ascertainment of the value of petroleum at the well-head into an exercise of discretion by the Designated Authority. The purpose of these sections is ——.- —-. ren eee = eee ee = ca we L Ui dew oe eee 16. clear enough. It is to permit agreement if such can he reached and, in the absence of agreement, to provide the means whereby the components of 5.5(2) can be determined without the need for litigation or arbitration. The task of the Designated Authority is to determine the relevant fact, that is, to fix upon a valve station which fairly accords with the description of well-head. That task 1s mot performed if the Designated Authority fixes upon a valve station which, though it does not fairly accord with the description of well-head, yields what is thought to be an appropriate component for calculation or royalty. To approach the task in that way is to misunderstand the question which s.8 requires the Designated Authority to answer. The approach to be adopted can be expressed by using the words of Lord Diplock in In re Racal Communications Ltd £19811 A.C. 374 at 382-383 where after referring to Anisminic Ltd v. Foreign Compensation Commission [19691 2 A.C. 147, his Lordship said: 'It proceeds on the presumption that where Parliament confers on an administrative tribunal or authority, as distinct from a court of law, power to decide particular questions defined by the Act conferring the power, Parliament intends to confine that power to answering the question as it has been so defined ... So if the administrative tribunal or authority have asked themselves the wrong question and answered that, they have done something that the Act does not empower them to do ....' None of this is to say that there may not be more than one valve station, as that term is defined, according with the description of well-head. The appellants accept that, within the Christmas tree, there may be more than one valve station that can be so described. But they say that, on no view of the matter, can a valve station at the Mackerel platform some 4 kilometres from the well answer the relevant description. We agree. The Designated Authority did not ask himself the right question which was: 'Which valve station (or valve stations) may fairly be said to be the well-head at which the petroleum from Cobia No. 2 well is recovered?' A valve station at the Mackerel platform could not provide the answer to that question." one wee pe er — 17. The functions assigned to the Designated Authority in sections 8, 9 and 10 being of the description identified in that Passage, the obligation imposed by sub-section 10A(1) must he understood as an obligation to give directions with respect to the manner in which those functions are performed. I see no reason to confine the meaning of the word "manner" to the sense for which the applicants contend. Normal usage of the word in the context which that sub-section and those three sections supply would comprehend matter of substance as well as matter of procedure. A direction may in my opinion be correctly described, according to that usage, aS one with respect to the manner of determining a relevant fact with which one of the three sections is concerned notwithstanding that the direction requires the Designated Authority to attribute, in the process of making the determination, a particular significance to some circumstance, whereby the result of the process is affected. It was submitted on behalf of the applicants that, unless "manner" be understood as designating only procedure in exercise of the powers, no substantial function is left for exercise by the Designated Authority in pursuance of any of sections 8, 9 and 10. To bring about that consequence by construction of sub-section 10A(1) would be to abrogate, pro tanto, the sharing between State and Commonwealth of the administration of the legislation of the Parliament of the Commonwealth in respect of the exploration for and the exploitation of the petroleum resources of the adjacent area. One of the recitals of the Submerged Lands Act declares the agreement of Commonwealth and States and the Northern Territory that there should be such a sharing. But it was not shown that preen ee weer gr ean wee-a--- e —-- — - e- 18. any such an agreement assured to the State or Territory any particular administrative function. Further, all that is involved in the determination of the ground numbered 2 adversely to the applicants is that direction as to more than mere procedure is authorised by sub-section 10A(1). The written particulars furnished by the applicants under that ground as well as the written statements of contention by several of the respondents may be thought ~- as indeed the written expression of the ground itself may be thought - to comprehend more than would require a mere affirmative or negative answer to the question whether sub-section 10A(1) authorises directions not restricted to matters of procedure. But the submissions of counsel under that ground were directed to that question, to which I think the affirmative to he the correct answer. The written particulars of the ground numbered 3 raise a number of contentions. The oral submissions of counsel for the applicants were said by counsel for the respondents to raise questions upon which evidence ought to be received. I have reached the conclusion that it would be unwise to attempt a resolution, before evidence has been tendered by the parties, of any of the questions raised by the submissions under the ground numbered 3. The consent order for separate decision of the questions which have been argued before me is expressed to he subject to any order I should make. Iwill pronounce a declaratory order giving effect to the conclusion reached in respect of the ground numbered 1. It is not appropriate, in my opinion, to give effect by order to the conclusion that sub-section 1OA(1) of the Royalty Act authorises directions beyond st -. =o een ee ee er oe maaan -~— 9, mae eo — wep es 19. matter of procedure. The costs of the hearing on 17 August will be reserved. Counsel for the Applicants Solicitor for the Applicants Counsel for the First-named Respondent Solicitor for the First-named Respondent Counsel for the Second and Third-named Respondents Solicitors for the Second and Third-named Respondents Date of Hearing I certify that this and the 18 preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Jenkinson. ge { Associate Dated: 13 November, 1987 : Mr. H.C. Berkeley Q.C., S.G. and Mr. M.A. Adams ry Mr. R.R.S. Tracey Mr. K.M. Hayne Q.C. and Mr. d.G. Judd Middletons Oswald Burt 17 August, 13987 Victorian Government Solicitor Mr. M.E.d. Black Q.C. and Mr. Australian Government Solicitor —