TODD PETROLEUM (MINING) COMPANY LIMITED V SHELL (PETROLEUM MINING) COMPANY LIMITED COA CA426/2010

TODD PETROLEUM (MINING) COMPANY LIMITED V SHELL (PETROLEUM MINING) COMPANY LIMITED COA CA426/2010 2 December 2010IN THE COURT OF APPEAL OF NEW ZEALANDCA426/2010[2010] NZCA 580BETWEEN TODD PETROLEUM (MINING)COMPANY LIMITEDAppellantAND SHELL (PETROLEUM MINING)COMPANY LIMITEDRespondentHearing: 19 October 2010Court: Ellen France, Randerson and Stevens JJCounsel: H N McIntosh and A A O'Rourke for AppellantT D Smith for RespondentJudgment: 2 December 2010 15:30:00JUDGMENT OF THE COURTA With reference to the questions identified in [9] of this judgment, special leave to appeal is refused in respect of Question 3 but is granted in respect of Question 7.B The grant of special leave is limited to the issue identified in [22] of this judgment.C No order for costs.___________________________________________________________________REASONS OF THE COURT(Given by Randerson J)Introduction[1] The appellant seeks special leave under Article 5(6) of the Second Schedule of the Arbitration Act 1996 (the Act) to appeal questions of law arising from an arbitral award.[2] The arbitral award was made by the Hon B J Paterson QC and dealt with disputes between the parties under their joint venture arrangements for the exploitation of oil and gas from the Kapuni Field in Taranaki. In broad terms, the dispute related to the interpretation of the contractual arrangements between the parties in relation to the ownership and use of assets employed in the joint venture. One of those assets was the Whareroa pipeline which is used to transport gas over some 22 kilometres from the Kapuni Field to a co-generation plant at Whareroa. The matters in dispute included whether a charge could be levied for the use by Todd of the pipeline and, if so, on what basis.[3] After the arbitral award was made, the arbitrator made certain corrections to it at the request of the parties. Both parties sought leave to appeal to the High Court on questions of law arising from the award. Dobson J granted leave to the parties under Article 5(3) of the Act to appeal two questions of law each. He declined applications to appeal other questions of law. 1[4] In a second decision,2 Dobson J recalled his first judgment to correct an error but did not alter the outcome. In the second judgment, Dobson J also refused applications by both parties under Article 5(5) of the Second Schedule for leave to appeal to this Court on the other questions of law each had raised.Background[5] We refer to the parties as Todd and Shell. The joint venture was established by an agreement between them in 1955 known as JV55. This provided for the1 Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd HC Wellington CIV 2009- 485-2422, 5 March 2010.2 Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd HC Wellington CIV 2009- 485-2422, 8 June 2010.incorporation of a services company intended to facilitate a more efficient and economic operation of the joint venture. The terms on which Todd and Shell, as the JV55 joint venturers, would employ the services company were set out in a contract of employment detailed in the third schedule to JV55. The services company is now known as Shell Todd Oil Services Limited (STOS).[6] In March 2002, the parties concluded a Heads of Agreement (HOA) which provided for the termination of JV55. The HOA contemplated that a new joint venture agreement would be entered into in respect of Kapuni. Pending completion of that new agreement, it was provided that specified terms of JV55 would continue to apply. The clauses in JV55 which were to continue included clause 5 (dealing with ownership of assets used for the joint venture) and clause 11 (relating to the delivery of petroleum).[7] In the meantime, the HOA provided by clause 2.3 for certain "Core Terms" toapply as set out in Schedule 3 to the HOA. One of these (clause 16.2) provided that material assets held by the joint venture for the Kapuni project were to be transferred to the respective beneficial owners of those assets within 60 days of the date of the agreement.[8] Todd maintained that clause 2.3 of the HOA did not preclude a transfer of assets under clause 16.2 of the third schedule to the HOA. Shell disputed this.[9] Todd now seeks special leave to appeal on two questions of law for which Dobson J declined leave. Using the numbering adopted by the parties, these questions are:(a) Question 3: Does clause 2.3 of the HOA between Shell and Todd dated 1 March 2002 preclude the transfer under clause 16.2 of the third schedule to the HOA of any Kapuni joint venture assets?(b) Question 7: Does clause 11(1) of the Kapuni Joint Venture Agreement dated 13 September 1955 entitle a Kapuni Mining Company to delivery of its product from the Kapuni Field by STOSoutside main field storage upon the payment of transport chargesonly; and if so, do "transport charges" mean STOS's operating costsplus any third party charges necessarily incurred by STOS?The principles to be applied[10] When special leave is sought from this Court under Article 5(6) of the Second Schedule of the Act, the principles to be applied are established by the decision of this Court in Downer Construction (NZ) Ltd v Silverfield Developments Ltd.3 In summary:4(a) The appeal must raise some question of law capable of bona fideand serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.(b) Upon a second appeal, the Court of Appeal is not engaged in the general correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below.(c) Not every alleged error of law is of such importance either generally or to the parties as to justify further pursuit of litigation that has been twice considered and ruled upon by a Court.[11] An application for special leave under Article 5(6) may arise either after a determination by the High Court on a question of law or where the High Court has refused leave to determine a question of law. In Downer, there had been a determination of a point of law in the High Court. In the present case no such determination has yet been made. It follows, in our view, that the considerations identified in Downer need to be considered in that light. It is to be borne in mind nevertheless that the High Court has twice considered the questions raised and whether there was an arguable case of error: first in declining leave to appeal to the High Court in the first place and, secondly, in refusing leave to appeal to this Court.[12] If special leave is granted then this Court considers whether the High Court was correct to refuse leave to appeal under Article 5(3) of the Second Schedule to the Act, applying the principles set out by this Court in Gold and Resource3 Downer Construction (NZ) Ltd v Silverfield Developments Ltd [2008] 2 NZLR 591.4 At [33].Developments (NZ) Ltd v Doug Hood Limited.5 If the appeal is successful, then the question of law approved is to be determined by the High Court. If not, that is the end of the matter.Question 3[13] The arbitrator found that clause 16.2 of the Third Schedule of the HOA was inconsistent with the continued operation of the joint venture under clause 2.3 of the HOA. He also found that the parties had agreed to maintain the status quo in terms of the status and governance of STOS including ownership of assets by STOS. A transfer of the assets within the 60 day period referred to in clause 16.2 had not eventuated and had not been pursued at any relevant time by Todd.[14] In his first decision, Dobson J accepted a submission by Shell that the resolution of this issue would be of no utility to Todd and would require a substantially wider argument than contemplated by the question of law posed. Heplaced weight on the existence of the "unreviewable" finding of fact that the partieshad not attended to the mechanics needed to effect the transfer of legal ownership and that any argument based on the equitable proposition that what is meant to have happened is treated by equity as having happened, would inevitably reopen factual matters.6 He refused leave on that basis.[15] In his second decision, Dobson J accepted that his reasoning had overlookedTodd's additional reason for wishing to challenge the contractual interpretation,namely the prospect of future proceedings seeking specific performance of theclaimed legal entitlement to have the joint venture's assets transferred into separateownership. The Judge concluded, nevertheless, that Todd's proposition on this issuewas not seriously arguable.7[16] The essence of the Judge's reasoning was:85 Gold and Resource Developments (NZ) Ltd v Doug Hood Limited [2000] NZLR 318.6 At [93] to [95].7 At [10], [11] and [35].8 At [35].Clause 2.3 is a relatively core provision of the HoA, in that it confirmed the terms of employment of STOS until a new employment agreement with STOS was concluded. Clause 16.2 of the core terms addresses the situation that is to pertain once the new employment agreement is concluded. It is not seriously arguable that clause 16.2 of the core terms can be accelerated so as to have contractual effect in relation to Kapuni, prior to the event contemplated in clause 2.3 as introducing that change.[17] Having considered the contractual provisions, we agree with the Judge's viewthat this issue is not seriously arguable for the reasons the Judge gave. Simply put, clause 2.3 of the HOA contemplated the continuation of specific provisions of JV55 until a new Kapuni joint venture agreement was entered into. Those provisions included clause 5 of JV55 which provided for STOS to hold the relevant assets on the terms provided therein. The HOA contemplated the parties negotiating and completing new agreements to apply to Kapuni including an agreement governing their relationship with STOS. This agreement was to "contain and expand upon the core terms set out in Schedule 3" which included clause 16.2. We agree with theJudge that, unless and until that agreement was concluded as contemplated, clause 5 of the JV55 continued to operate and precluded the operation of clause 16.2 with the consequence that Todd was not entitled to call for the transfer of assets envisaged by clause 16.2.Question 7[18] We have concluded that special leave should be granted to appeal against theHigh Court's refusal to grant leave on Question 7. Dobson J found there was a seriously arguable case in respect of this question. That finding was not challenged before us and we agree with it. But the Judge refused leave because he decidedTodd's application was out of time. He adopted the novel test that a request underArticle 33 of the First Schedule of the Act had to be "proper" before it could stoptime running for appeal purposes. The Judge explained this by describing the test tobe "whether Todd could reasonably treat [the request] as a proper application inthe sense of being within the arbitrator's jurisdiction to consider, and tenable on the evidence and outcomes to that point."99 At [16] of the second judgment.[19] We consider there are a number of arguable issues arising from the Judge'sconclusion on the time point which deserve appellate consideration including:(a) Whether the Judge was correct in determining that the request was for an interpretation of the award under Article 33(1)(b) of the First Schedule rather than, in substance, a request for a further award on a matter omitted from the award under Article 33(3) of the First Schedule.(b) Whether the Judge was correct in adopting the "proper request"approach or whether the time for seeking leave to appeal runs from the time the arbitrator disposes of the request under Article 34(3) ofthe First Schedule, irrespective of whether the request was "proper"and regardless of whether the request is accepted or rejected by the arbitrator.[20] The proper interpretation of clause 34(3) of the First Schedule is of importance not only to the parties but also more generally.Result[21] With reference to the questions identified at [9] of this decision, we decline to grant special leave to appeal on Question 3, but we grant special leave to appeal on Question 7.[22] The grant of special leave on Question 7 is limited to the issue of whether theHigh Court correctly determined that Todd's application for leave to appeal to theHigh Court was out of time. We anticipate that if Todd fails on this point that will be the end of any issue on Question 7. If Todd succeeds, Question 7 would be remitted to the High Court for determination on the merits along with the other questions of law for which leave has already been granted.[23] As the honours are equally shared, there will be no order for costs either way.Solicitors:Russell McVeagh, Wellington for AppellantChapman Tripp, Wellington for Respondent