FEDERAL COURT OF AUSTRALIA

Sedco Forex International Inc v Nexus Energy WA Proprietary Limited [2012] FCA 351

THE COURT ORDERS THAT:

1.    The interlocutory application of the second respondent filed 14 October 2011 be dismissed with costs.

2.    The parties to bring forward a minute of proposed directions to be considered at a directions hearing listed on Friday 27 April 2012 at 12.15 pm.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

STRIKE OUT APPLICATION

1        By interlocutory application filed 14 October 2011, the second respondent (Osaka Gas) seeks an order dismissing that part of this proceeding which has been brought against it by the applicant on the basis that the statement of claim, as re-amended and filed 23 December 2011, fails to disclose a reasonable cause of action.

ISSUE FOR DETERMINATION

2        At the hearing of the interlocutory application, counsel for Osaka Gas stated that the sole issue for determination by the Court is whether the applicant’s claim against Osaka Gas is adequately pleaded in circumstances where there is reliance only upon the terms of a joint operating agreement and an assertion about the first respondent (Nexus) acting with actual authority on behalf of Osaka Gas, but with no attempt made to indicate:

(1)    whether Osaka Gas was a disclosed or undisclosed principal; and

(2)    what Nexus said or did, or what Osaka Gas said or did, to hold out that Nexus was acting as agent for Osaka Gas.

OUTLINE OF PLEADED CASE AGAINST OSAKA GAS

3        By the originating application in this proceeding and as articulated in the statement of claim, the applicant claims damages in the sum of US$67,173,680 against both Nexus and Osaka Gas for repudiatory breach of a drilling contract referred to in the statement of claim. The applicant also claims damages for loss suffered for repudiatory breach of a co-operation agreement referred to in the pleading. The applicant additionally seeks damages against Nexus and Osaka Gas for contravention of s 52 of the Trade Practices Act 1974 (Cth), on alternative bases both as to liability and the calculation of loss and damage.

4        The principal focus of the strike out application is the manner in which the claim of repudiatory breach of the drilling contract is pleaded. If that is found to be deficient then similar deficiencies will be found in the additional or alternative pleas. Similarly, if that plea is found not to be deficient then there will be no pleading issue with those other pleas.

5        In [19B] of the statement of claim, the applicant, relying on what is pleaded in [3A] to [3E] and [19A], pleads:

(1)    on its proper construction, references in the drilling contract to “the company” are references to Nexus and Osaka Gas in their capacity as “Participants in the Crux Joint Venture”; and

(2)    on its proper construction, references to “Nexus” in the co-operation agreement are references to Nexus and Osaka Gas in their capacity as “Participants in the Crux Joint Venture”.

6        In [3A] to [3E], the applicant pleads in substance as follows:

(1)    From 1 August 2007 to 23 February 2009, Nexus and Osaka Gas were registered as the joint holders of an exploration permit AC/P23 granted pursuant to the Petroleum (Submerged Lands) Act 1967 (Cth) (the permit) ([3A]).

(2)    The permit entitled Nexus and Osaka Gas to conduct exploration activities to ascertain the presence of hydrocarbons in the Crux field in the Browse Basin, located offshore Western Australia ([3B]).

(3)    On 28 March 2008, Nexus and Osaka Gas entered into a joint operating agreement in relation to the exploration and commercialisation of the permit area and any lease or licence arising from it (the Crux Joint Venture) ([3C]).

(4)    By the joint operating agreement, Nexus and Osaka Gas agreed not to engage in any activity in the permit area except as authorised by the operating committee established by it ([3D]).

(5)    Under the joint operating agreement Nexus was:

(a)    appointed as operator of the Crux Joint Venture;

(b)    entitled and obliged to obtain all services and materials and to implement the programs and budgets approved by the operating committee and implement all other decisions of the operating committee;

(c)    in its capacity as operator, entitled to conduct operations by itself or through independent contractors;

(d)    in its capacity as operator, authorised to enter into any contracts for the risk or benefit of the participants holding an interest in the Crux Joint Venture as agent on behalf of the participants in the Crux Joint Venture and enter into contracts in that capacity notwithstanding that the names of the participants (other than the operator) do not appear in the contract and their liability under the contract is not disclosed;

(e)    in its capacity as operator, authorised to represent the participants regarding any matters or dealings with any governmental authorities or other third parties; and

(f)    entitled to an indemnity from the participants ([3E]).

7        In [19] of the statement of claim, the applicant pleads that on or about 22 September 2008, and following further negotiations, the applicant entered into the following written agreements:

(1)    an international mobile offshore drilling unit contract executed by Nexus (the drilling contract); and

(2)    a co-operation agreement executed by Nexus and Oilex (the co-operation agreement).

8        In [19A] of the statement of claim, the applicant pleads the drilling contract and the co-operation agreement were contracts for the risk or benefit of the participants and executed by Nexus as operator of the Crux Joint Venture within the scope of the actual authority vested in it by the joint operating agreement on its own behalf as participant and as agent of Osaka Gas as participant.

9        I should also note that in [16] of the statement of claim the applicant pleads that the third respondent (Nexus Energy) and Oilex delivered to the applicant and the applicant accepted a notice of award signed on behalf of Nexus as operator of the Crux Joint Venture for a contract for the undertaking of drilling works, which:

(1)    specified the form of agreement which was to form the basis of the drilling contract;

(2)    made the execution of that and a tripartite co-operation agreement a condition precedent for the notice of award; and

(3)    made Osaka Gas’ approval of the contractual arrangements a condition precedent to the notice of award.

THE STRIKE OUT POINT

10        Osaka Gas says that the statement of claim is deficient because the applicant fails to plead whether Osaka Gas was a disclosed or undisclosed principal on whose behalf Nexus is said to have acted in executing the drilling contract and co-operation agreement, and whether it says Nexus acted with the actual or ostensible authority of Osaka Gas.

11        The applicant says it has pleaded material facts, as it is required to do under the Federal Court Rules 2011 (Cth) (Rules) and that, it has not only in [19A], but also in [17A] (where it pleads in respect of negotiations by various entities, the execution of a notice of award (NOA) and other representations) pleaded that Nexus acted with the actual authority of Osaka Gas when it entered into the drilling contract and co-operation agreement. In the course of written and oral submissions senior counsel for the applicant made it plain that the applicant does not put its case on the basis of apparent or ostensible authority.

12        The applicant contends that it is unnecessary for it to do more than what it has done in the pleading. It is not, for example, required to plead whether Osaka Gas was a “disclosed” or an “undisclosed” principal on whose behalf Nexus acted.

13        The applicant says that Osaka Gas can plead to the allegations and raise whatever points in defence it considers appropriate by way of joining issues or narrowing the issues.

14        The applicant therefore contends that the case advanced by the applicant against Osaka Gas is sufficiently well defined for Osaka Gas to plead its defence to it and that the Court should not, in these circumstances, delay the progress of the proceeding by entertaining this interlocutory application. In this regard, it appeals to the case management principles enunciated in Christou v Stantons International Pty Ltd (No 3) [2011] FCA 655 at [6]-[9].

15        Such principles accepted, if there is a very clear point going to the availability of a cause of action or its maintenance that should be determined early on in what promises to be a complex proceeding, rather than left to later in the proceeding or at trial, then there may exist a good case for determining the issue early on in order to clarify the real issues and save subsequent delay and expense.

16        Osaka Gas complain that the agency of Nexus, on behalf of Osaka Gas, is not and cannot be proved simply by referring to the joint operating agreement and the contractual arrangement whereby Nexus is the operator of the Crux Project. Osaka Gas contends that a mere reference to a joint venture agreement is not sufficient to establish that an agency existed at relevant times or that certain acts or omissions of Nexus were within the scope of that alleged agency. Rather, the applicant would need to plead the facts that are necessary to establish that Nexus was acting in its capacity as agent at the time of the relevant conduct, and that such conduct was within actual or ostensible authority or outside authority but subsequently ratified by Osaka Gas, but has not done so: Dominus Pty Ltd v Daydream Island Resort Investments Pty Ltd & Ors [2003] QSC 044 (Dominus) at [53]-[54]. In other words, it is not open to a party simply to allege that one party acted as agent for another, without including supporting material facts: National Mutual Property Services (Australia) Pty Ltd & Ors v Citibank Savings Ltd & Ors (1995) 132 ALR 514 at 534.

17        Senior counsel for Osaka Gas says that the applicant at all material times dealt with Nexus and must necessarily be in a position to say whether Nexus was the disclosed or the undisclosed agent of Osaka Gas, and should make its position plain in the pleading.

18        Osaka Gas says if the applicant relies not on apparent or ostensible authority of Nexus to bind Osaka Gas to the contract and agreement, but upon its actual authority to do so, it faces three insuperable difficulties in pleading in the way it has.

19        First, a disclosed principal is not bound by an act of the agent which is outside the scope of the agent’s actual authority. In this case the terms of the joint operating agreement are critical, because the operator’s ability to enter contracts as agent of the participants only arises in relation to joint operations. For example, cl 4.5(a) requires the operator to work under the overall supervision and control of the operating committee and cl 4.8(d) proscribes limitations on the ability of Nexus to enter into contracts for drilling rigs and construction operations for any amount over $5 million. The prescribed process must be followed for the operator to be able to advance the conclusion of the contract and the specified subject matter. Thus, there can be no sensible dispute that the drilling contract falls within cl 4.8(d).

20        Secondly, the rules as to undisclosed principals reveal the applicant’s plea to be insufficient. An undisclosed principal may be sued on a contract made on its behalf by the agent acting within the scope of its actual authority. However, and significantly, the agent must have intended to act on the principal’s behalf. If the applicant asserts that Osaka Gas was:

(a)    a disclosed principal, it must point to something Osaka Gas did or omitted to do, as stated in Dominus; and

(b)    an undisclosed principal, then it must plead materially that, in entering into the contract, Nexus intended to act on behalf of Osaka Gas, as stated in Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 1 All ER 213 (Eastern Insurance).

In substance, Osaka Gas contends that by failing to expressly elect, in the statement of claim, whether the applicant advances its case against Osaka Gas on the basis that Osaka Gas was the disclosed principal or the undisclosed principal, the pleading fails to plead important material facts.

21        Thirdly, Osaka Gas will be taken by surprise if the applicant is not forced to elect whether it advances its claim on the basis that Osaka Gas was the disclosed or the undisclosed agent with the necessary pleading points or particulars being provided in advance of the hearing.

CONSIDERATION

22        As noted above, in the statement of claim the applicant has refrained from categorising the alleged agency of Nexus on behalf of Osaka Gas as one relating to a disclosed principal or an undisclosed principal (or disclosed agent or undisclosed agent). Rather, it seeks, in effect, to keep its powder dry as to what legal conclusions in that regard should be drawn. It says, that its only obligation is to plead material facts from which relevant legal conclusions may be drawn, and it has done that.

23        Ordinarily, what the applicant contends is correct. The primary obligation on a pleader is to lay out those material facts (not evidence) on which it relies and which it will prove by evidence at trial in order to satisfy the elements of a recognised cause of action which entitles it to a particular remedy.

24        In this case, the applicant seeks to advance its case against Osaka Gas on the basis that Nexus, at material times, acted on behalf of Osaka Gas, that is to say, was its agent and that it did so with the actual authority of Osaka Gas.

25        When it comes to agency there really are only two options. If an applicant seeks to hold a respondent party liable for an act done by a third party on the basis that the other party was its agent, then the third party will either be the disclosed agent of that respondent party or its undisclosed agent, if it is found to have acted as an agent.

26        The importance of the distinction between a disclosed agent and an undisclosed agent primarily is that, where an agent contracts on behalf of a disclosed principal, it is the principal alone who can sue and be sued on the contract. Ordinarily the agent cannot be liable under the contract. Where, however, the agent acts for an undisclosed principal, then either the agent or the principal can be sued on the contract. In this, the doctrine of the undisclosed principal defies the basic requirement of privity in contract. It, however, has long been justified on the basis of commercial convenience. See generally Goodhart AL and Hamson CJ, “Undisclosed principals in contract” (1932) 4 CLJ 320-356; Dal Pont GE, Law of Agency (2nd ed, LexisNexis Butterworths Australia, 2008) [19.28]-[19.33].

27        That aside, the question of how a pleading should be cast in a proceeding where agency is alleged, does not on the face of it require an applicant to elect to plead that the relevant respondent was a disclosed principal or an undisclosed principal. That terminology, which is conclusory, is not required to be adopted.

28        In Dominus, BW Ambrose J suggested, at [52]-[54], that:

    In any proceeding where it is a material fact whether one person was the actual or ostensible agent of another, that material fact is to be determined upon the evidence. The pleading must not plead the evidence but it must plead the fact or facts to be proved by the evidence to be led.

    The authorities establish that where agency is in issue based upon acts or omissions on the part of the alleged agent, the applicant may not establish agency by relying upon what the alleged agent has asserted contemporaneously with those acts or omissions.

    Thus the applicant must establish agency by what the alleged principal has said or done or omitted to say or do with respect to the acts or omissions of the alleged agent for which it is sought to hold the principal responsible.

29        In Dominus, the Court, at [59], concluded that a bare allegation of the fact of agency pleaded a legal conclusion and it does not plead the facts upon which a conclusion might properly or arguably be reached. The Court confirmed its view that the material fact of agency properly particularised must specify every material act or omission of the principal with respect to its time, place and persons involved and in respect of which the applicant would seek to lead evidence upon trial and indeed in respect of which all parties must disclose documents to support or refute the inference that one party acted as agent for the other.

30        In Eastern Insurance at 207, Lord Lloyd of Berwick, who delivered the judgment of the Privy Council summarised the law in relation to undisclosed principals in five points:

(1)    An undisclosed principal may sue and be sued on a contract made by an agent on its behalf, acting within the scope of its actual authority.

(2)    In entering into the contract, the agent must intend to act on the principal’s behalf.

(3)    The agent of an undisclosed principal may also sue and be sued on the contract.

(4)    Any defence which the third party may have against the agent is available against its principal.

(5)    The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and its liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.

31        The Eastern Insurance case concerned point (5). Ultimately the Privy Council held that there was nothing in the terms of a proposal form or the policy, which related to an insurance policy, which expressly or by implication excluded the right of a person to sue as undisclosed principal.

32        The applicant contends it is unnecessary for it to categorise the agency it alleges as disclosed or undisclosed. The applicant simply says that Nexus had actual authority to enter into the drilling contract on behalf of itself and Osaka Gas as the participants in the joint venture, or perhaps more importantly, as the holders of the permit. So it had actual authority to do so, and when it did, it did so as agent for both. Accordingly, not only was it authorised to do what it did, it in fact did it. If there is actual authority to bind a principal then the case is made out. It is not necessary for the applicant to say whether or not the agency was disclosed at the time. Rather, it is enough to show actual authority and that the contract was entered into as agent.

33        Addressing, in any event, the five points made in Eastern Insurance in relation to an undisclosed agency, the applicant contends that point (1) is satisfied on the pleading because the applicant sues Osaka Gas on a contract made by its agent, Nexus, on its behalf and it alleges that the agent acted within the scope of its actual authority.

34        As to point (2), senior counsel, as I understand his submission, contends the applicant pleads that the relevant agreements were executed by the first respondent as operator of the Crux Joint Venture within its actual authority invested in it by the joint operating agreement on its own behalf as participant and as agent of the second respondent as participant and thereby has sufficiently pleaded intention.

35        Senior counsel submits that in this case points (3) and (4) are not relevant.

36        As to point (5), senior counsel says there is nothing, apart from the submission made on behalf of Osaka Gas that Osaka Gas is not named as a party in the drilling contract, to suggest that the contract has excluded the principal’s liability to be sued. In any event that is a matter for the defence if relevant.

37        In the result, I consider the strike out point is not to be determined by ascertaining whether the applicant has expressly elected in the statement of claim to sue Osaka Gas as a disclosed principal or an undisclosed principal. Rather, the important thing is to examine the pleading to see whether material facts have been pleaded from which agency alleged can arguably be proved by evidence. I accept the submission of the applicant that, having regard to the [3A] to [3E], [19A] and [16], sufficient is pleaded to establish an arguable case to be advanced that, at material times when the drilling contract and the co-operation agreement were executed by Nexus, Nexus acted as the agent of Osaka Gas and with actual authority to do so. This is not a case in which apparent or ostensible authority is relied on by the applicant.

38        Osaka Gas plainly contends insufficient has been pleaded to enable the Court to conclude, even arguably, that Nexus was its authorised agent with actual authority to execute the drilling contract and the co-operation agreement on its behalf. In my view, sufficient is pleaded in this regard. The pleading in [19A] of the statement of claim makes it plain, especially when one takes into account the other paragraphs of the pleading referred to, that the applicant says Nexus intended to execute the drilling contract and the co-operation agreement in its capacity as agent for Osaka Gas, as well as on its own behalf. The circumstances pleaded in [3A] to [3E] and [16] raise such an arguable case. Whether the plea is ultimately accepted is a matter for trial.

39        Other issues were raised in the written submissions and in the course of oral argument about the extent to which the provisions of the joint operating agreement bear upon the alleged agency. Some of those have been outlined above in relation to the first of the “insuperable” difficulties identified on behalf of Osaka Gas. In my view they are all matters for defence. For example, it is open to Osaka Gas to take issue with matters pleaded in the statement of claim, such as the allegations:

(1)    In [3D], that the participants agreed not to engage in any activity in the permit area except as authorised by the joint operating agreement.

(2)    In [3E], that Nexus was appointed “operator” with authority to enter into contracts on behalf of both participants.

(3)    In [16(c)], that Osaka Gas’ approval was a condition precedent for entry into the drilling contract.

(4)    That Nexus entered into the drilling contract ([19A]) in relation to the operations in the permit area ([21]).

40        Similarly, I accept the submission made on behalf of the applicant that if Osaka Gas wishes to assert by way of defence that Nexus was not its agent or that Nexus acted beyond the scope of its authority, it may do so.

CONCLUSION AND ORDERS

41        For these reasons the strike out application should be dismissed with costs.

42        I will now hear from all parties as to what further programming orders should now be made in the proceeding:

(1)    The interlocutory application of the second respondent filed 14 October 2011 be dismissed with costs.

(2)    The parties to bring forward a minute of proposed directions to be considered at a directions hearing listed on Friday 27 April 2012 at 12.15 pm.

Associate:

Dated:    4 April 2012