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BHP Petroleum Pty Ltd v. Oil Basins Ltd
[1985] VR 725

(Judgment by: Murray J)

Between: BHP Petroleum Pty Ltd
And: Oil Basins Ltd

Court:

Supreme Court of Victoria

Subject References:
PRIVATE INTERNATIONAL LAW
Service of writ out of jurisdiction
Contract affecting land 'situate within the jurisdiction'
Corporation 'ordinarily resident within the jurisdiction'
Action brought in respect of breach of contract made within jurisdiction or through agent residing within jurisdiction or which is governed by law of Victoria
Action in which injunction is sought as to anything to be done within jurisdiction
Whether case is proper for service out of the jurisdiction
PRACTICE AND PROCEDURE
Service of writ on corporation
Corporation's registered office outside jurisdiction
Service of writ on solicitors and accountants acting for corporation within jurisdiction
Whether service on 'head officer' or 'manager'
Whether service effective

Legislative References:
Rules of the Supreme Court - O. 11, r1(b), r1(c), r1(e)(i), r1(ii), r1(iii), r1(ea), r1(f), r2 and O. 9, r6

Case References:
Okura and Co Ltd v Forsbacka Jernnecks Aktiebolag - [1914] 1 KB 715
Vogel v R and A Kohnstamm Ltd - [1973] QB 133
R v Westbrook - (1847) 10 QB 178; 116 ER 69
Saskatchewan Minerals v Keyes - (1972) DLR (3d) 573
Commissioner of Taxation v Sherritt Gordon Mines Ltd - (1977) 137 CLR 612
La Bourgogne - [1899] AC 431
De Beers Consolidated Mines Ltd v Howe - [1905] 2 KB 612
North Australian Pastoral Co Ltd v Federal Commissioner of Taxation - (1946) 71 CLR 623
Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance Society - [1938] AC 224

Hearing date: 11-15, 18-22, 25-28 February; 1, 14, 22 March 1985
Judgment date: 3 April 1985

Judgment by:
Murray J

The late Dr. Lewis G Weeks practised as an international petroleum consultant geologist in Westport, Connecticut, USA. He had acquired a life-long experience and a very great knowledge of petroleum exploration and discovery throughout the world. In March 1960 Dr. Weeks visited Australia and had discussions with executives of Broken Hill Proprietary Co. Ltd. (BHP). The evidence before me indicates that the first discussions between him and BHP took place in Connecticut in 1959 when he was visited by an officer of BHP. It appears that by early in 1960 Dr. Weeks had advised BHP that he considered the area in Bass Strait now known as the Gippsland Basin was a very promising one for oil exploration. In October 1960 Dr. Weeks came to Australia once again. Prior to and in anticipation of this visit he forwarded to BHP a letter outlining the basis for an agreement which had apparently been discussed between them in general terms as to his employment by BHP as a consultant. The terms of this letter covered the services Dr. Weeks was to perform for BHP and his remuneration therefor including a provision for the payment by BHP of an overriding royalty of two-and-a-half per centum of the value of all hydrocarbons discovered and recovered by BHP in any area which had been recommended by Dr. Weeks for exploration.

After being in Australia for some weeks Dr. Weeks returned to Westport. Correspondence between him and BHP reveals that while he was in Australia he signed two copies of an agreement relating to his employment as a consultant and initialled a draft overriding royalty agreement which was attached to it. The consultancy agreement, with one slight amendment, was in due course executed by BHP and the overriding royalty agreement, with certain amendments, was in due course executed by BHP and a company Oil Basins Inc. and was annexed to the consultancy agreement. The parties referred to the consultancy agreement as the agreement or sometimes as the "Principal Agreement" while the royalty agreement was referred to as "the Royalty Agreement". As permitted by the terms of the consultancy agreement Dr. Weeks nominated Oil Basins Inc. (OBI) to be the contracting party with BHP in the royalty agreement. The rights of OBI in due course vested in Offshore Royalties Inc. (ORI) and then in Oil Basins Ltd. (OBL) the defendant in this action. The rights of BHP were in due course assigned to Hematite Explorations Pty. Ltd. (Hematite) which in due course became BHP Petroleum Pty. Ltd. (BHPP) the plaintiff in this action.

In due course the plaintiff, by this time in partnership with Esso Exploration and Production Inc. (Esso) discovered oil and gas in large quantities in Bass Strait and production commenced early in 1969. In February 1970 ORI, the then royalty holder, directed BHPP to pay the royalties due to Fiduciary Trust Co. of New York. In July 1970 the defendant OBL was incorporated in Bermuda (under a different name) and early in 1971 BHPP was instructed to pay the royalties to the ANZ Bank in Melbourne.

In 1972 Weeks Petroleum Ltd. (WPL) (then called Weeks Natural Resources Ltd.) a company incorporated in Bermuda acquired a 55.11 per centum share of the royalties payable by BHPP and in December 1972 was registered as a foreign company in Victoria. In 1976 the registered office of WPL in Victoria was moved to the office of Messrs. Arthur Robinson and Co., solicitors, and Arandco Pty. Ltd. was appointed its agent in Victoria. The directors of Arandco are the partners of Arthur Robinson and Co. who each hold one share of the issued capital of 17 shares. Dr Weeks died in March 1977 and three weeks later OBL requested BHPP to forward thereafter the quarterly royalty statements to Mr. Nedom, the president of OBL, care of WPL at an address in Westport, USA. Until December 1979 the collection and distribution of the royalties was supervised by WPL. In December 1979 OBL took over the supervision of the royalties and has continued to do so ever since. OBL, although nominally entitled to the royalties payable from the Bass Strait oilfield now receives such royalties as a bare trustee. As I previously mentioned, WPL acquired a 55.11 per centum share of the royalties. The remaining shares are owned by a number of persons including an Australian insurance company. Most of the other persons entitled are in the United States. Early in 1984 Bell Resources Ltd. acquired a controlling interest in WPL and Mr. Holmes a Court became its chairman. He directed the managing director and chief executive officer of WPL (Mr. HA Knight) to assemble all necessary information relating to an earlier dispute with BHPP over the calculation of royalties and to make a demand on BHPP. In July 1984 WPL changed its registered office to 21st Floor, Collins Tower, 35 Collins Street, Melbourne. (It had previously moved from the office of Arthur Robinson and Co.) On 4 July Mr. Holmes a Court wrote to Mr. DS Adam of BHP advising him that he (Holmes a Court) had been formerly appointed by OBL as its representative with "authority to handle this matter on its behalf". The matter referred to was the royalty dispute.

On 28 August 1984 OBL commenced proceedings against BHP and BHPP in New York and proceedings against Esso in Texas. By letter dated 11 September BHPP wrote to OBL referring to the arbitration clause in the royalty agreement and claiming that the commencement of proceedings in USA constituted a breach of that agreement. The letter required OBL to arbitrate and requested its nomination of an arbitrator. On 12 September the writ in this action was issued. By its statement of claim the plaintiff claims a declaration that the defendant is bound by the terms of the royalty agreement to submit to arbitration the matters the subject of the actions it commenced in New York and Texas, as declaration that the attempted institution of those actions and their further prosecution constitute a breach of the said royalty agreement, an order that the defendant proceed exclusively in arbitration with the plaintiff for the purpose of determining the claims made by the defendant and join with the plaintiff in accordance with the agreement to appoint an arbitrator or arbitrators and an injunction to restrain the defendant from instituting or prosecuting any action to determine the defendant's claims in breach of its obligations under the royalty agreement.

On the same day as the writ was issued Master Barker made an order granting leave to the plaintiff to serve notice of the writ on OBL in Bermuda. Service of this notice was effected on 21 September. OBL entered interlocutory default judgment against Esso in the action in Texas but this judgment was set aside on 26 September. The New York action, which was commenced in the Supreme Court of the State of New York, was removed by BHP and BHPP into the Federal Court and on 27 September BHP and BHPP moved in that Court for an order compelling OBL to agree to arbitrate. On 18 October OBL gave notice of a motion to set aside the order of Master Barker giving leave to serve notice of the writ out of the jurisdiction and on 5 November OBL moved in New York for an order compelling BHP and BHPP to arbitrate in the southern district of New York. On 8 November BHPP caused four concurrent writs to be issued and served on the defendant care of Arthur Robinson and Hedderwicks the firm now succeeding to the practice of Arthur Robinson and Co., Arthur Andersen and Co., WPL and "21st Floo 35 Collins Street" respectively. On 13 November OBL gave notice of motion to set aside the service of these writs. On 14 December Mr. Fynmore on behalf of BHPP and Esso wrote to OBL suggesting that the dispute be arbitrated in Australia and nominating Sir Maurice Byers QC as arbitrator.

It thus appears that both parties to the dispute have now agreed that the dispute should be arbitrated but are not agreed as to where that arbitration should be held. The proceedings before me are the motions by OBL to set aside the order for service out of the jurisdiction of notice of the writ in this action and to set aside the service of the four concurrent writs.

The foregoing is a very bare summary of an extremely complicated and complex set of facts but it may suffice as a broad outline of the proceedings.

Mr. Charles QC, who with Mr. Hayne QC and Mr. Finkelstein appeared for the plaintiff, indicated that in support of the order for service out of the jurisdiction he relied on the provisions of O. 11, r1(b), r1(c), r1(e)(i)(ii) and r1(iii), r1(ea) and r1(f). I propose to deal first with the motion to set aside service of the concurrent writs.

Service within the jurisdiction

The writ have been issued on 12 September 1984 and served on the defendant in Bermuda on 21 September 1984 on 8 November 1984 the plaintiff issued four concurrent writs. These writs were addressed to the defendant care of its place of business Arthur Andersen and Co., 35 Collins Street, Melbourne, care of its place of business Arthur Robinson and Hedderwicks, 447 Collins Street, Melbourne, care of its place of business Weeks Petroleum Ltd., 21st Floor, Collins Tower, 35 Collins Street, Melbourne and 21st Floor, 35 Collins Street, Melbourne respectively. The writs were presumably served shortly after they were issued. The plaintiff seeks to support the service of these writs by reference to the provisions of RSC, O. 9, r6. The defendant is not registered as a foreign company in Victoria and the plaintiff submits that the evidence shows that the defendant is present and carries on business in the jurisdiction and that service of the concurrent writs can be justified under the terms of the rule upon the basis that the writs have been served on the defendant's head officers by virtue of the business that it has been carrying on in Victoria. Service upon Arthur Andersen and Co. and Arthur Robinson and Hedderwicks is sought to be justified upon a slightly different basis from service upon Weeks Petroleum Ltd. and the 21st Floor of 35 Collins Street, and it is convenient to deal first with service upon Arthur Andersen and Co. and Arthur Robinson and Hedderwicks. During the course of the hearing Mr. Chesley White, the vice-president of the defendant, was cross-examined upon the two affidavits which had been sworn by him. A number of affidavits with a considerable number of exhibits were sworn by Mr. Ian Renard of the firm of Arthur Robinson and Hedderwicks and filed on behalf of the defendant. Mr. Renard was cross-examined upon these affidavits. As I have mentioned previously the defendant is the successor in title of the original holder of the overriding royalty, Oil Basins Inc., but the evidence demonstrates that the defendant receives the royalty in the capacity of a trustee only and has no beneficial interest in it. The beneficial interest is shared between some 31 persons or bodies including one Australian insurance company. The persons beneficially entitled have varying proportions of the royalty the largest proportion being held by Weeks Petroleum Ltd. which is entitled to 55.11 per centum of the royalty. Most of the royalty holders reside in the United States. In accordance with the royalty agreement the royalty is paid quarterly and in broad terms the following procedure is adopted. A few weeks before the royalty payment is due Arthur Andersen and Co. ascertains from the plaintiff what the total royalty payment will be. Arthur Andersen and Co. then computes the allocation of the royalty to the various persons entitled in proportion to their respective interests. The required tax retentions are also computed. Copies of the computation by Arthur Andersen are then forwarded to Arthur Robinson and Hedderwicks, the ANZ Bank in Melbourne and the Australian Taxation Office. Once the Taxation Office has checked and confirmed that the proposed tax retention figures are correct Arthur Robinson and Hedderwicks telexes Oil Basins for remittance instructions of the net royalty. On the due date of payment the total royalty is paid into a clearing account with the ANZ Bank. This account is not in the name of the defendant. The bank is given instructions as to the payment of the amounts due to Weeks Petroleum Ltd., the Australian insurance company and one other royalty holder and is instructed to transmit the balance to an account in the ANZ Bank in New York. These instructions are given to the bank by Arthur Robinson and Hedderwicks who in turn receive them from the defendant. The various sums retained for tax purposes are invested in the names of the various royalty holders. On 28 February each year Arthur Andersen and Co. lodges income tax returns for the non-resident royalty holders in due course receives income tax assessments. Those assessments are checked by Arthur Anderson and Co. and the tax due paid from the retention funds. Once the tax is paid the excess tax retentions are remitted to the various royalty holders.

Mr. Hayne, who presented the submission on this part of the case, referred to the decision Okura and Co Ltd v Forsbacka Jernverks Aktiebolag [1914] 1 KB 715. In that case Buckley LJ said, at p. 718: "The question in this case is whether the defendants, who are a foreign corporation, can be served with a writ in this country. The answer to that question depends on whether the defendants can be found 'here' for the purpose of being served. In one sense, of course, the corporation cannot be 'here'. The question really is whether this corporation can be said to be 'here' by a person who represents it in a sense relevant to the question which we have to decide. The point to be considered is, do the facts shew that this corporation is carrying on its business in this country? In determining that question, three matters have to be considered. First, the acts relied on as shewing that the corporation is carrying on business in this country must have continued for a sufficiently substantial period of time. That is the case here. Next, it is essential that these acts should have been done at some fixed place of business... The third essential, and one which it is always more difficult to satisfy, is that the corporation must be 'here' by a person who carries on business for the corporation in this country. It is not enough to shew that the corporation has an agent here; he must be an agent who does the corporation's business for the corporation in this country. This involves the still more difficult question, what is meant exactly by the expression 'doing business'?" (Emphasis mine.)

This decision together with some other authorities is referred to in Dicey and Morris, Conflict of Laws, 9th ed., p. 164, et seq. Mr. Hayne submitted that in the case of a corporation the difficult question whether it carries on its business in the jurisdiction must be answered by reference to the nature of the company and the nature of its business. The decisions demonstrate that where a company merely has an agent in the jurisdiction whose duty is to receive and transmit offers of business to his principal but who has no independent authority to enter into contracts on behalf of his principal the company's business is not being carried on in the jurisdiction. The problem has been extensively discussed by Ashworth J in Vogel v R and A Kohnstamm Ltd [1973] QB 133. At p. 143, his Lordship said: "At the end of the day there is a test which the courts have used as part of the material on which to reach a conclusion, namely, is the person in question doing his business or doing the absent corporation's business? Conversely, are they doing business through him or by him?

"I confess I find these aphorisms, if that is what they are, apt to lead one astray; one can find the choice phrase and then fit the facts to it and so on."

In his reply Mr. Merralls referred me to a number of authorities which illustrate the distinction to which Ashworth J was referring. His argument may be perhaps summed up accurately by using his own words: "an establishment comprises a person or persons who conduct the corporation's activities at an identifiable place in such a way that he or they can be said to be conducting the corporation's activities rather than performing services for it in the course of his...or their own business or professional activities".

He referred to Newby v Von Oppen and The Colt's Patent Firearms Manufacturing Co (1872) LR 7 QB 293; Walter Nutter and Co v Messageries Maritimes de France (1885) 54 LJQB 527; Haggin v Comptoire D'Escompte de Paris (1889) 23 QBD 519; La Bourgogne [1899] AC 431. Mr. Merralls submitted that the evidence showed that Arthur Anderson and Co who are chartered a accountant and Arthur Robinson a Hedderwicks who are solicitors were merely performing professional services for the defendant for normal fees and that in no way could they be said to be carrying on the defendant's business.

Although I have anxiously considered these and other authorities I have not been able to find a case which I consider to be, upon proper analysis, on all fours with the present case. It is necessary in my opinion to consider the nature of the business carried on by the defendant if indeed what it does can be properly described as a business. It is convenient, for this purpose, to refer to the minutes of a meeting of the board of directors of the defendant held in Bermuda on 27 July 1983. Par 3 of the minutes contained a number of recitals reciting the fact that the defendant company is the sole owner of the overriding royalty and that it has issued a separate certificate of ownership in the royalty to each individual beneficial owner of a fractional interest therein. The final recital reads as follows: -

"Whereas by way of further assurance to the holders of certificates of beneficial interest of the fiduciary relationship existing between the company and each beneficial owner and to the intent the full reliance may be placed on the resolutions hereinafter adopted by third parties having notice thereof. It is desired by the company to reaffirm that it holds of record the Bass Strait royalty pursuant to the royalty agreement and the other Australian royalties as trustee for the beneficial owners in the following terms."

The resolution records that it was resolved and then some five paragraphs follow. Par 2 sets out the obligations of the company as follows: -

"(A): To make all payments without delay,
"(B): to deduct therefrom the holder's proportionate share of (A) applicable taxes paid or withheld, (B) the fees and expenses reasonably incurred by the company in collecting, accounting for and distributing said payments, and (C) the expenses reasonably incurred by the company in representing and protecting the holder's interest in the royalty and attempting to enhance its value.
"(C): Not to realise a profit from the company's activities and
"(D): To record and be bound by any assignment of beneficial interest made in accordance with the terms of the Certificate of Beneficial Interest etc."

Par 3 recites that the company acknowledges that it has no power to sell, mortgage, pledge, encumber or otherwise dispose of the royalties it holds and par 5 is as follows: -

"That the holding and administration of the Bass Strait Royalty and the other Australian Royalties and additional royalties in other parts of the world as trustee and with respect to the Bass Strait Royalty in manner more specifically hereinbefore recited, represents and shall continue to represent the only business activity of the company."

This resolution demonstrates in the clearest terms that the company's raison d'etre is simply to hold as a trustee the Bass Strait royalty and any other royalties which it has. The evidence shows that in fact it does hold a small number of royalties in other parts of the world but none of these is in respect of producing wells and the company's only source of income is therefore that derived from the plaintiff's production. To defray expenses and, presumably, pay directors' fees, the company takes a small portion of the royalty payments annually. But as the minute shows it may not realize a profit from its activities. The company's registered office is at the offices of a firm of solicitors in Bermuda. It has no separate office of its own, its documents being contained in a cupboard in the solicitors' offices. Apart from the directors it has no staff save that a female employee of the solicitors acts as its secretary. She does not receive separate remuneration for performing this duty.

In these circumstances when one asks the question whether the defendant is carrying on its business in Victoria it is appropriate to ask what is its business and what functions does it perform both in Bermuda and in Victoria. I agree with Mr. Merralls' submission that this is not to be tested by a comparison of the work done in Bermuda with the work done in Victoria. Indeed the evidence shows that the directors meet in Bermuda from time to time and give instructions to Arthur Robinson and Hedderwicks as to the disposal of the quarterly payments of royalty received. There is other administrative work to be done and when the royalty payment is made from the ANZ Bank in Melbourne to the ANZ Bank in New York the directors arrange for the conversion of Australian dollars into American dollars and the onward payment of the amounts due to the various persons entitled. The critical test in my opinion is, in the light of the nature of the defendant's business, to examine what is done in Melbourne with a view to answering the question whether the defendant is merely employing solicitors and accountants to carry out certain work for reward or whether, in fact, the work carried out by the solicitors and accountants forms a part and a material part of the defendant's business as a trustee. The work carried out by Arthur Robinson and Hedderwicks is by no means all work which is necessarily performed by solicitors. It may, from time to time, involve the giving of legal advice, particularly in relation to Australian taxation laws, but much of the work done is of the very essence of the defendant's business, namely the receipt of the royalty payments, the ascertainment of the appropriate taxation retention, the apportionment of the payments, the transmission of payments to Weeks Petroleum and to other persons beneficially entitled. It is not to the point in my opinion in the present case to say that the solicitors have no independent discretion and no authority to do anything but to carry out the distribution in accordance with instructions received. For that matter, as Mr. Hayne pointed out and as Mr. White agreed in cross-examination, nor has the defendant itself any such discretion.

I therefore have come to the conclusion that the work carried out by Arthur Andersen and Co. and by Arthur Robinson and Hedderwicks does constitute the business of the defendant and that the defendant may be said to be "here" within the meaning of the authorities on that point.

The next question arises as to whether it may be said that service of the writ on the two firms complies with the requirements in O. 9, r6 that the writ of summons may be served on an "other head officer" or perhaps "manager". Dicey and Morris, Conflict of Laws, 9th ed., p. 165 suggests that "the service [of the writ] must be on a person who is in the position of a head officer and who is, therefore, familiar with the business affairs of the corporation". The learned authors refer to the fact that a motor-car salesman at an exhibition in London is such an officer but that a railway booking clerk is not and the authorities referred to to support the latter propositions are Dunlop Pneumatic Tyre Co Ltd v A/G fur Motor und Motorfahrzeugbau Cudell and Co [1902] 1 KB 342 and Mackereth v Glasgow and South Western Ry Co (1873) LR 8 Ex 149. In Rudd v John Griffiths Cycle Co Ltd (1897) 23 VLR 350, Holroyd J in delivering a judgment with which the other members of the Court agreed, emphasized the principle that service either by way of substituted service or on an agent in the jurisdiction must be of a kind from which it may be safely inferred that the writ would come to the notice of the defendant. It follows that in my opinion service of the two concurrent writs on Arthur Anderson and Co. and Arthur Robinson and Hedderwicks complied with the requirements of O. 9, r6 and was valid service of the writ upon the defendant.

After first sight this may seem a strange result. But if the defendant in 1979, when it took over responsibility for the receipt and distribution of the royalty from Weeks Petroleum Ltd., had decided to establish a small office in Melbourne with a manager to administer it and the manager had performed the work which has been performed by Arthur Andersen and Co. and Arthur Robinson and Hedderwicks (which would have been within the capability of an experienced businessman) in my opinion such a manager would plainly have fallen within the scope of O. 9, r6 and service upon him of a writ would have been valid. He would have been carrying on in the jurisdiction an important and substantial part of the defendant's business. I therefore do not think that simply because the defendant has chosen to have this business carried on by solicitors and accountants on its behalf, that fact should have the effect of removing the defendant from the jurisdiction for the purpose of service of process. Such a conclusion would, in my opinion, be quite unreal.

It is not therefore necessary for me to deal with the other two concurrent writs which were serve at 35 Collins Street. A great deal of evidence and cross-examination was devoted to the parts played by Weeks Petroleum Ltd. and by Mr. Holmes a Court and much was said about the resolution of the Board of the defendant to give Mr. Holmes a Court "limited authority" to conduct the dispute on behalf of the defendant. While it would appear from the evidence that Mr. Holmes a Court is the moving spirit behind the proceedings in the United States I am inclined to the view that the authority given to him by the defendant was given to him and not to Weeks Petroleum Ltd. At all events no concurrent writ was served on the defendant care of Mr. Holmes a Court. Whatever may be said of the part played by Weeks Petroleum Ltd. in New York, in my opinion the evidence does not indicate that service on Weeks Petroleum Ltd. in Melbourne would comply with the requirements of the rule and service on the defendant merely addressed to the 21st Floor, 35 Collins Street would not do so either. In any event there was no evidence as to how and upon whom this fourth concurrent writ was served. It follows from the foregoing that I order that service of the two concurrent writs on the defendant care of Weeks Petroleum Ltd. and on the defendant addressed to the 21st Floor, 35 Collins Street, Melbourne be set aside but that the motion be otherwise dismissed.

I turn now to the other motion whereby the defendant seeks to set aside the order for service out of the jurisdiction. In deference to the careful and learned arguments addressed to me by counsel in relation to the order for service out of the jurisdiction I propose to deal with the various paragraphs of O. 11, r1 under which it was supported on behalf of the plaintiff. These paragraphs are as follows: par (b), (c), (e)(i)(ii)(iii), (ea) and (f). O. 11, r1(b). Any act deed will contract obligation or liability affecting land or hereditaments situate within the jurisdiction is sought to be construed rectified set aside or enforced in the action.

In support of the order for service out of jurisdiction under this paragraph Mr. Hayne submitted a most attractive and learned argument. He referred to the definition of land contained in s38 of the Interpretation of Legislation Act 1984 which includes land covered with water and any estate interest easement servitude privilege or right in or over land. Mr. Hayne submitted that the royalty agreement is an agreement affecting land within the meaning of the paragraph because it affects the production licence held by the plaintiff. He further submitted that the royalty agreement upon a proper analysis created a rent charge which was an interest in land and constituted and incorporeal hereditament. He submitted that the term hereditament clearly included a profit a prendre and that the production licence held by the plaintiff constituted a profit a prendre because it enabled and authorized the plaintiff to go upon the areas in question for the purpose of extracting hydrocarbons. He referred to the definition of a profit a prendre in Alfred F Beckett Ltd v Lyons [1967] Ch 449, at p. 482, where Winn LJ said that a profit a prendre confers a right to take from the servient tenement some part of the soils of that tenement or minerals under it or some of its natural produce. This definition was referred to with approval in Re Toohey; Ex parte Meneling Station Pty Ltd (1982) 57 ALJR 59, at p. 65; 44 ALR 63, at p. 76. Mr. Hayne also referred to Duke of Sutherland v Heathcote [1892] 1 Ch 475, at p. 483 and Moffat v Sheppard (1909) 9 CLR 265, at p. 271. In Re Toohey the Court held that the grazing licence there under consideration was not a profit a prendre but this decision turned on the fact that the licence was capable of being terminated on three months' notice by the Crown and was not assignable. The Court was of the opinion that the rights conferred by the licence were in the nature of personal rights rather than an interest in land. Mr. Hayne referred to the provisions of s127 of the Petroleum (Submerged Lands) Act 1967 (Cth.) which provides that petroleum recovered by a licensee in the licensed area becomes the property of the licensee. Turning to the question of whether the royalty agreement is an agreement which "affects" the profit a prendre, while conceding that the word "affects" means some direct physical affect or some affect on property and not a mere indirect affect (see Carey v Arnott (1876) 2 CP 24, at p. 25), Mr. Hayne submitted that the royalty agreement did have such a direct affect on the plaintiff's production licence because it required the plaintiff to pay the overriding royalty and furthermore because it gave the defendant the option of electing to take the overriding royalty in kind. The meaning of the word "affecting" in par (b) is not always clear and may give rise to difficulties in particular cases: see Official Solicitor v Stype Investments (Jersey) Ltd [1983] 1 WLR 214, at p. 222; [1983] 1 All ER 629 , at p. 635, where Whitford J discusses some of the decisions one of which, namely Agnew v Usher (1884) 14 QBD 78 is not easy to reconcile with some of the later decisions. In this Court in State of Victoria v Hansen [1960] VR 582 Adam J, at p. 586, adopted the statement by Grove J in Carey v Arnott that the word "affecting" relates to some direct physical affect on the thing itself or the property in it. Mr. Hayne also relied on the provisions of CL9 of the royalty agreement and referred to Swan Resources Ltd v Southern Pacific Hotel Corporation Energy Pty Ltd [1983] WAR 39. It is not necessary for present purposes to go in to the decision in this case because in my opinion, as was submitted by Mr. Merralls, the terms of CL9 are different from the agreement under consideration in that case as also are the provisions of the legislation. Mr. Hayne summarized this branch of his argument by submitting that it was the very exercise of the rights of profit a prendre conferred by the production licences which constituted the hereditament or interest in land which crystallized the obligation under the royalty agreement and thus demonstrated the relationship between the royalty agreement and the land in question and demonstrates that the royalty agreement is a contract affecting the land in question.

In the second part of his submissions Mr. Hayne submitted that on its true construction the royalty agreement created a rent charge which is an interest in land. He referred to the various definitions of a rent charge and to the fact that by virtue of s127 of the Property Law Act 1958 some forms of rent charges are still preserved. He referred to a number of decisions which indicate that a rent charge may be granted out of interests less than a fee simple and may be granted by a grantor who disposes of the whole of his interest in the land but reserves a rent charge. The essential difference between a rent charge and rent service is that rent service is the reward paid by a tenant to his landlord for the use of the land while a rent charge is not of that description and may be similar to a royalty. Mr. Hayne examined at some length various decisions of the courts including R v Westbrook (1847) 10 QB 178; 116 ER 69; Saskatchewan Minerals v Keyes (1972) 23 DLR (3d) 573 in respect of which case he submitted that the dissenting judgment of Laskin J is to be preferred and National Executors and Trustees Co of Tasmania Ltd v Edwards [1957] Tas SR 182 in relation to which he submitted that the dissenting judgment of Gibson J is to be preferred.

After examining various authorities Mr. Hayne submitted that there could be a rent charge which was constituted by an overriding royalty and he submitted that the fact that the overriding royalty now in question was charged upon the plaintiff's production rights was demonstrated by the use of the words "the company doth hereby bargain sell grant and assign to the royalty holder" in CL1 of the agreement.

In respect of the question whether the land or hereditaments presently under consideration should be regarded as "situate within the jurisdiction" as provided in par (b), Mr. Hayne submitted that the jurisdiction in this case was not dependent upon sovereignty in its true sense (see The Fagernes [1927] P 311) because the jurisdiction in this case was a statutory one conferred by the provisions of the Petroleum (Submerged Lands) Act 1967 as amended by the Petroleum (Submerged Lands) Act 1980. I propose later to refer to some of the relevant provisions of this legislation in more detail.

Mr. Merralls submitted that the arguments advanced by Mr. Hayne were fallacious because they depended in the ultimate upon the law of real property and the Commonwealth does not have title to the areas in question. He referred to the fact that the Commonwealth has by international agreement merely sovereign rights to explore and exploit the submerged lands beyond territorial waters and on the continental shelf. He submitted that petroleum production licences under the Act were sui generis and that the royalty agreement merely conferred a personal right upon the defendant. He pointed out that CL9 of the agreement did not prevent the plaintiff from assigning its rights and obligations under the agreement but that such an assignment would not be effective to release the plaintiff from its obligations unless the terms of CL9 were complied with. Mr. Merralls referred to the Commissioner of Taxation v Sherritt Gordon Mines Ltd (1977) 137 CLR 612 in which the majority of the Court held that the payments there under consideration were not royalties in the ordinary sense of the word. Mr. Merralls relied on this decision to demonstrate that the payments made by the plaintiff to the defendant pursuant to the royalty agreement were not truly to be categorized as royalties but as rewards for services rendered. He emphasized that the right of the defendant to elect to receive payment in kind did not confer on the defendant the right to take part of the production of the well at the well-head and that the plaintiff could satisfy its obligations by delivering to the defendant a quantity of hydrocarbons equivalent in value to the amount of the payment which would have to be made if the payment were to be made in cash. Mr. Merralls referred to what was said by Lord Denning in CH Bailey Ltd v Memorial Enterprises Ltd [1974] 1 WLR 728, at p. 732; [1974] 1 All ER 1003 , at p. 1007, in which his Lordship said: "It is time to get away from the medieval concept of rent ... The time and manner of the payment is to be ascertained according to the true construction of the contract, and not by reference to out-dated relics of medieval law." His Lordship was of course in that case considering rent service and not rent charges. This passage was "gratefully adopted" by Lord Salmon in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, at p. 956 and by Brennan J in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, at p. 610; 43 ALR 68, at p. 75. I would respectfully seek to join that chorus. Mr. Merralls concluded his submissions by submitting that the expression land or hereditaments "situate within the jurisdiction" in par (b) has a territorial connotation and not merely a connotation with reference to jurisdiction in the sense of power.

I have given this aspect of the case a great deal of consideration and I confess I have found it to be a difficult problem and that my mind has wavered from time to time. Ultimately I have come to the conclusion that the words "situate within the jurisdiction" do have a territorial connotation and that for this reason the royalty agreement does not affect land or hereditaments situate within the jurisdiction. I also entertain very grave doubts as to whether it could properly be said that the royalty agreement affects land or hereditaments in the relevant way and I am inclined to the view that the rights conferred on the plaintiff by the production licences are rights sui generis and are not to be construed by reference to what Lord Denning referred to as "outdated relics of medieval law". This of course is not to say that rent charges do not exist under modern law because they clearly do still exist: see Property Law Act 1958, s125, s126, s127, s128, s129.

It is perhaps interesting to notice that from the time the royalty agreement came into existence in 1960 until the passing of the Petroleum (Submerged Lands) Act 1967 the areas from which the plaintiff now produces hydrocarbons were plainly not situate within the jurisdiction in any sense of that term. None of the areas are within territorial limits and until 1967 there was no Commonwealth law applying to operations in those areas. Nor was any Victorian law valid unless it might be argued that, in the absence of Commonwealth legislation, such laws might be supported upon the basis that they were laws for the peace and order and good government of Victoria. Having regard to the fact that the only laws in existence in Victoria in 1960 were mining and petroleum laws referable to mining on land I think that such an argument would probably have failed. At all events by its decision in New South Wales v The Commonwealth (1975) 135 CLR 337; 8 ALR 1 the High Court, while upholding the validity of the Commonwealth Act struck down the parallel State legislation and held that the boundaries of the former Australian colonies ended at low water mark and they had no sovereign or proprietary rights in respect of the territorial sea or the subjacent soil or superjacent air space. Following upon this decision the Commonwealth passed some amending legislation and it is necessary to look at the terms of this legislation in order to see the nature of the rights claimed and exercised by the Commonwealth in the areas in question. In the Act of 1967 the preamble was recited that in accordance with international law Australia as a coastal State "has sovereign rights over the continental shelf beyond the limits of Australian territorial waters for the purpose of exploring it and exploiting its natural resources". The First Schedule to the Act sets out the international convention on the continental shelf in which CL1 of article 2 reads as follows: -

"1.: The coastal State exercises over the continental shelf sovereign rights for the purpose of exploring it and exploiting its natural resources."

Article 3 provides that the rights of the coastal State over the continental shelf do not affect the legal status of the superjacent waters as high seas, or that of the air space above those waters. Other articles of the convention relate to the manner in which coastal States may exercise their rights of exploration and exploitation and preserve the areas as areas of the high seas and the rights of other nations to use those areas for purposes other than the exploitation of natural resources. S11 of the 1980 amending Act (No. 80) provides that s9(1) of the 1967 Act reads as follows: -

"9.(1): Subject to this Act and the regulations, the provisions of the laws, whether written or unwritten, in force in a State for the time being (other than the laws of the Commonwealth) and the provisions of any instrument having effect under any of those laws, apply, as provided by this section, in the adjacent area and so apply as if that area were part of that State and of the Commonwealth."

It will be seen that s9(1) applies in the adjacent areas the provisions of State laws and in doing so gives them the force of Commonwealth laws. S10 proceeds to confer upon the several courts of a State federal jurisdiction in all matters arising under the applied provisions which have effect in accordance with s9 in the adjacent area. Nothing in the Commonwealth Acts can be construed as endeavouring to claim any rights in respect of the continental shelf and the waters above it other than the right to explore and exploit its natural resources. The jurisdiction of this Court extends to such activities by virtue of the jurisdiction conferred by s10. The royalty agreement is purely a domestic agreement inter partes entered into at a time when the areas which were the subject of the petroleum exploration permits were outside the jurisdiction. In my opinion the fact that pursuant to subsequent legislation jurisdiction for limited purposes has been conferred on this Court does not result in the land and interests contemplated by the agreement becoming "land or hereditaments situate within the jurisdiction". I note that in the Annual Practice it appears that a British man-of-war is always supposed to be British territory and by a legal fiction that territory is supposed to be in the parish of Stepney. A British man-of-war is therefore always within the jurisdiction of English courts wherever it may be. This perhaps lends support to my view that the expression "situate within the jurisdiction" in par (b) has a territorial connotation because it would not be otherwise necessary to create a fiction bringing the territory represented by a British man-of-war into the parish of Stepney. The Court could exercise jurisdiction in the sense of power in any event.

For the above reasons I do not think the order for service out of the jurisdiction can be supported by reference to par (b) of r1. O. 11, r1(c). Any relief is sought against any person domiciled or ordinarily resident within the jurisdiction.

Mr. Charles submitted that, on the evidence, I should be satisfied that the defendant is ordinarily resident within the jurisdiction. Mr. Charles commenced his submission on this ground by referring to the fact that a corporation may be resident in more than one place. If followed that notwithstanding the fact that the defendant was incorporated in Bermuda and its activities are directed from Bermuda it may also be a resident in Victoria: see La Bourgogne [1899] AC 431; De Beers Consolidated Mines Ltd v Howe [1905] 2 KB 612; Swedish Central Railway Co Ltd v Thompson [1925] AC 495; AD "Hercules" v Grand Trunk Pacific Railway Co [1912] 1 KB 222; North Australian Pastoral Co Ltd v Federal Commissioner of Taxation (1946) 71 CLR 623. Mr. Charles then proceeded to deal in some detail with the activities of Messrs. Arthur Robinson and Hedderwicks, Messrs. Arthur Andersen and Co., the AN Banking Group Ltd., Mr. Holmes a Court and Weeks Petroleum Ltd. in Victoria in relation to the receipt, division and disposal of the payments of overriding royalties by the plaintiff to the defendant. Mr. Charles submitted that in view of the fact that it would seem that the defendant's principal business is and has been for some time to receive the overriding payments as a trustee for those persons and corporations beneficially entitled to share in them and to apportion and pay those shares to those entitled, the evidence disclosed that a large proportion of the defendant's business and indeed its only active business was carried on in Melbourne. There was a great deal of evidence submitted by the plaintiff and by the defendant as to the nature and extent of these activities to some of which I have already referred.

Mr. Merralls did not contend that the word "person" in par (c) did not comprehend corporations as well as natural persons. Nor did he deny the proposition that a corporation may be resident in more than one place at the same time. He drew my attention to the phrase "ordinarily resident" and to the view expressed in Dicey and Morris, Conflict of Laws, 10th ed., vol. 1, p. 143, that that phrase was not synonymous with "resident". If the words "domiciled or ordinarily resident within the jurisdiction" have some connotation of continuity or longevity, this would not necessarily dispose of the matter because apart from the activities of Mr. Holmes a Court, the other activities relied on by the plaintiff appeared to have continued for some considerable period of time.

It might be suggested that, ex hypothesi, par (c) of O. 11, r1 must relate to cases in which the defendant was in and has departed from the jurisdiction. The very purpose of the rule is to provide for service of writ or notice of a writ out of the jurisdiction. If the defendant can be found within the jurisdiction there is no need to have recourse to O. 11 at all. Apart from Mr. Holmes a Court, whose precise movements have not been the subject of detailed evidence, save that it appears that he has, in one capacity or another, offices in many parts of the world including Melbourne, there is no evidence to indicate that the activities relied on to show that the defendant has been ordinarily resident within the jurisdiction have ceased, so that the persons and bodies responsible for those activities are no longer within the jurisdiction to be served. I have already held that those activities do constitute, in the special circumstances of this case, the presence of the defendant in the jurisdiction. But nevertheless I think that on the same basis the plaintiff was also entitled to an order for service out of the jurisdiction lest it be said that there was not identified any single person in the jurisdiction who would fit the descriptions of persons to be served in O. 9, r6 nor any single place of business at which service could be affected. In my view, as I have already indicated, neither a single person nor a single place of business need be identified in every case because a defendant may have a number of responsible officers - i.e. a number of salesmen of equal rank might have been in the jurisdiction in the Dunlop Pneumatic Tyre Case [1902] 1 KB 342, and a defendant may have a number of establishments of equal importance. However the plaintiff should not be denied leave to serve the writ out of the jurisdiction upon the defendant at its place of incorporation simply upon the basis that service can be effected within the jurisdiction. The result, so far as the defendant is concerned, is the same.

I am therefore of the opinion that the order for service out of the jurisdiction can be supported, on the particular facts of the case, by the provisions of O. 11, r1(c).

O, 11, r1(e)

The action is one brought to enforce rescind dissolve annul or otherwise affect a contract or to recover damages or other relief for or in respect of the breach of a contract -

(i): made within the jurisdiction;
(ii): made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing outside the jurisdiction; or
(iii): which is governed by the law of Victoria.

Sub-par (i)

A consideration of this paragraph requires an extensive examination of the facts. The evidence discloses that in 1959 an officer of the Broken Hill Proprietary Co. Ltd. (BHP) visited Dr. Weeks in the United States and had preliminary discussions with him presumably to see whether Dr. Weeks would be prepared to examine material which was being accumulated by BHP and to advise, in the light of that material, whether further investigation was warranted with a view to the possible discovery of oil in Bass Strait and other areas. It may be assumed that Dr. Weeks evinced some interest because early in 1960 he visited Australia and had further discussions with BHP. It also may be assumed that after he returned to the United States he continued to examine geological material sent over to him by BHP and it was envisaged that in October or November 1960 he would make a further visit to Melbourne to give further advice and to make a further inspection of material. It is obvious that some discussions must have taken place, and indeed in some detail, as to the terms of Dr. Weeks' remuneration and it would seem likely that he desired to be paid an annual retainer, a per diem fee for time when he was actually engaged on work for BHP and in the event of oil being discovered in areas which, pursuant to his advice, BHP had obtained an exploration permit, an overriding royalty on the value of any hydrocarbons recovered.

By letter dated 5 October 1960 Dr. Weeks informed BHP of his proposed movements and of the fact that he proposed to arrive in Sydney on 25 October. The third paragraph of that letter is as follows: -

"Referring now to the last paragraph of your letter of 30th August I have prepared the enclosed Draft of Letter Agreement and accompanying Form of Overriding Royalty Agreement. I believe that you will find both of these drafts quite clear as well as complete. They were prepared with the aid of an experienced oil industry counsel who has, I believe, the very best of experience in matters of this nature. The drafts were prepared as a basis of agreement which I hope you may find acceptable. I should be glad to discuss with you any questions or observations which you may have."

The sixth paragraph of the letter reads as follows: -

"In the first paragraph of the Form of Overriding Royalty Agreement you will find the party of the first part (myself) referred to as a corporation. By way of explanation I find that, for various reasons, simple incorporation is more satisfactory for me."

Appended to this letter was a long document headed "Draft of Letter Agreement" which sets out in considerable detail the work already performed by Dr. Weeks and an outline of the work which he agreed to perform in the future. The draft then sets out provisions for a per diem payment, a retainer payment upon an annual basis and a two and a half per centum overriding royalty applicable to all hydrocarbons produced in an area which had been recommended or might be thereafter recommended by Dr. Weeks for exploration. A second document was included with the letter which was headed "Form of Overriding Royalty Agreement". The first paragraph of this agreement reads: -

"Agreement made this ... day of ... 196 ... by and between the Broken Hill Pty. Company Limited 500 Bourke Street Melbourne, C 1. Australia organized and existing under the laws of Victoria (hereinafter referred to as the 'company') party of the first part and Oil Basins Corporation, a corporation organized and existing under the laws of the State of Delaware, USA (hereinafter referred to as the 'Royalty Holder') party of the second part."

The draft proceeds to set out a considerable number of clauses providing for the payment of an overriding royalty. It is not necessary for present purposes for me to set out those clauses but I may observe that, when the overriding royalty agreement was finally drawn and agreed upon, the general basis of most of the clauses was adhered to. One of those clauses however was very different, in that it provided as follows: -

"10.: In the event of any default or any dispute between the parties hereto and/or their successors and assigns, with respect to the interpretation or performance of this agreement, said parties shall be fully entitled to pursue whatever remedies are provided by law and equity in reference thereto."

CL11 provided: -

"Except as otherwise required by the law of the place where said hydrocarbons are produced this agreement shall be interpreted and applied in accordance with the law of the State of New York. USA."

I have said that it is not necessary for me to set out the terms of the draft overriding royalty agreement forwarded by Dr. Weeks with his letter because it is quite apparent from the terms of that letter that no agreement had been concluded between Dr. Weeks and BHP, although it is obvious that there may well have been a considerable amount of discussion between them by the time that letter was written and that they were in general accord.

It appears likely that Dr. Weeks arrived in Australia on 25 October 1960 and departed for the United States on or about 21 November 1960. There is no direct evidence of what transpired during his visit, but it may be inferred that he undertook further examination of the geological material that had been amassed by BHP and there must have been a considerable amount of further discussion in relation to the drafting of the proposed consultancy agreement and the overriding royalty agreement. The consultancy agreement which was entered into between Dr. Weeks and BHP was tendered in evidence and so of course was the overriding royalty agreement which was eventually entered into between BHP and Oil Basins Inc., the predecessor in title of the defendant in this action.

It may be deduced from the correspondence that passed between BHP and Dr. Weeks during December 1960 after Dr. Weeks had arrived back in the United States that he signed the consultancy agreement before leaving Melbourne and initialled a draft overriding royalty agreement which was appended to the consultancy agreement. It is apparent that the only alteration subsequently made to the consultancy agreement was made pursuant to a letter written to Dr. Weeks by BHP dated 12 December 1960 in which it was suggested that the words "in writing" be inserted in CL1(c) of the agreement. Dr. Weeks agreed to this amendment and in due course initialled the alteration which it involved. It therefore appears to me to be quite apparent that the parties reached and concluded the consultancy agreement whilst Dr. Weeks was in Melbourne and that it may be said it was this agreement was made within the jurisdiction. The fact that it was thereafter slightly amended by the inclusion of the two words "in writing" does not alter that fact.

In relation to the draft overriding royalty agreement, the correspondence makes it clear that when Dr. Weeks departed from Melbourne the party with whom BHP was to enter into the agreement was not named and it may be assumed that Dr. Weeks undertook to inform BHP of the name of the corporation which was to be the other contracting party as soon as he returned to the United States. I think it may also be safely assumed that while the negotiations and discussions were being carried on in Melbourne, Dr. Weeks made it clear that he personally did not intend to be a contracting party to the overriding royalty agreement and that, as he had stated in his letter of 5 October, he intended that the other contracting party would be a corporation that he would form. In other words, in view of the fact that Oil Basins Inc. was not formed until 8 December 1960, I think it may be safely inferred that the parties knew that the corporation was not in existence when Dr. Weeks was in Melbourne.

By letter dated 3 December 1960 Dr. Weeks requested that the name "Oil Basins Incorporated, a company duly incorporated under the laws of the State of Delaware" be inserted as the other party to the agreement and he also requested that a blank which had been left in item [sic clause] 5 be filled in with the words: "5. All payments shall be made to the account of the royalty holder at the Westport Bank and Trust Company, 87 East State Street, Westport, Connecticut, United States of America or as otherwise directed by ..." By its letter dated 12 December 1960 BHP suggested certain relatively small amendments to the draft overriding royalty agreement and advised that the request contained in Dr. Weeks' letter had been incorporated into the documents. By a further letter dated 21 December Dr. Weeks requested certain other amendments to the draft overriding royalty agreement which were acceptable to BHP. On 28 December 1960 BHP wrote the following letter to Dr. Weeks (omitting formal parts): -

"Thank you for your letter of December 21st prior to which we received your cable signifying agreement to the amendments we had proposed subject to some further modifications. "We are quite in agreement with the further alterations suggested by you and have accordingly executed both copies of the Agreement as amended and have initialled, where appropriate, the form of royalty agreement which is attached as an appendix. The various alterations have been initialled on behalf of the company by the secretary. "We now enclose the original and counterpart, and should be glad if you would complete one of these by having your own signature witnessed on page 4 and also initial the amendment on page 2 of the Agreement. It would also be as well if you would initial the alterations in the royalty document. We should be glad if you would then return a completed copy to us."

It is apparent that the amendments proposed in Dr. Weeks' cable were amendments to the draft overriding royalty agreement.

It therefore appears from the foregoing correspondence that the consultancy agreement between BHP and Dr. Weeks was signed by Dr. Weeks when he was in Melbourne and the only amendment thereafter made to it was the inclusion of the words "in writing" after the word "recommended" in line 7 of CL1(c). Various small drafting and administrative amendments were made to the draft overriding royalty agreement which had been initialled by Dr. Weeks before he departed from Melbourne.

In these circumstances, Mr. Charles submitted that I should find that both the consultancy agreement and the overriding royalty agreement were made in Victoria. Mr. Charles contended that the two agreements were essentially parts of the one transaction and that the consultancy agreement had been treated by the parties as the principal agreement. He referred to Re United Railways of Havana and Regla Warehouses Ltd [1960] Ch 52 and submitted that at the time Dr. Weeks left Melbourne if BHP had subsequently decided not to enter into the overriding royalty agreement Dr. Weeks would have been able to enforce the agreement that had been made and obtain specific performance to force BHP to execute the overriding royalty agreement on the terms which had been agreed upon. Mr. Charles referred to Gibson v Manchester City Council [1978] 1 WLR 520; [1978] 2 All ER 583 . The basic principle upon which he relied was defined in the High Court in the decision of Masters v Cameron (1954) 91 CLR 353, at p. 360, et seq. In a joint judgment Dixon CJ, McTiernan and Kitto JJ said:

"Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiations shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller and more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v Miller (1878) 3 App Cas 1124 when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation."

Mr. Charles submitted that the evidence of the present case clearly demonstrated that by the time Dr. Weeks returned to the United States in late November 1960, both he and BHP regarded their agreement as concluded and binding upon them, although they contemplated that a further document would be executed the essential terms of which they had already agreed upon. That this is so is demonstrated by the fact that Dr. Weeks had actually signed the consultancy agreement which was only marginally altered thereafter and had initialled the appended overriding royalty agreement which although amended in a number of ways was not in my opinion amended so that the final agreement was an essentially different one from the agreement reached in Melbourne.

Up to this point in the argument I agree with the submissions made by Mr. Charles. If BHP had subsequently decided not to enter into the overriding royalty agreement, it would have been open, in my opinion, to Dr. Weeks to obtain a decree for specific performance of the agreement by BHP and in this way to force BHP to execute an agreement in the terms agreed upon. Consequently if the overriding royalty agreement had in the first place been executed between Dr. Weeks and BHP and the benefit of it subsequently assigned by Dr. Weeks to Oil Basins Inc., I think the correct analysis would be that the agreement had been made in Victoria.

The facts however are essentially and critically different. Dr. Weeks did not enter into the original agreement. The original contracting parties were BHP and Oil Basins Inc. I am unable to see how it can be said that the agreement between Oil Basins Inc. and BHP which was dated 28 December 1960 can be said to have been made in Victoria in November 1960 in view of the fact that Oil Basins Inc. was not incorporated until 8 December 1960. In no way can it have been a party to an agreement made in Victoria in November 1960.

This is not a case of a pre-incorporation contract. Dr. Weeks did not in my view enter or purport to enter into any contract as a trustee for or on behalf of the company. He appears to have made it clear that a company yet to be formed would enter into the contract and BHP understood and accepted this situation. If the company had, after its incorporation, for some reason refused to enter into the agreement BHP could not have forced it to do so. When the company was incorporated and did enter into the agreement it was an entirely new agreement and it is this agreement, not the earlier agreement between BHP and Dr. Weeks which is the subject matter of this action. As the defendant executed the contract in the United States and it had already been executed by BHP upon well-established principles the contract was not made in Victoria but in the United States.

For this reason I am not prepared to find that the order for service out of the jurisdiction in an action based upon the overriding royalty agreement can be justified on the basis that the agreement was made in Victoria.

Sub-par (ii)

Mr. Charles submitted that if the original overriding royalty agreement was not made in Victoria, then it was made through the efforts of Dr. Weeks who was acting as an agent for Oil Basins Inc. It is clear that at all times material Dr. Weeks intended that the overriding royalty agreement should be executed between a corporation nominated by him and BHP. The corporation he suggested in the draft which accompanied his letter of 5 October 1960 was Oil Basins Corporation. Interesting questions might arise in these circumstances as to whether it could be said that Dr. Weeks when in Melbourne was "an agent" and was trading or resident in Victoria. Whether in all the circumstances Dr. Weeks can be said to have been "trading" may be debatable and whether his stay in Victoria, which seems to have been a matter of a few weeks, could be classed as residing within the jurisdiction is also debatable. But these questions seem to be disposed of by the fact that it cannot, in my opinion, be said that when he was in Victoria Dr. Weeks was an agent for Oil Basins Inc. because Oil Basins Inc. did not exist at that time. As I have already said there is no evidence to suggest that Dr. Weeks purported to be acting as an agent for a company which had been incorporated. The probability is that he informed BHP that the name of the other party of the overriding royalty agreement should be left blank and when he returned to the United States he would attend to the incorporation of a company the name of which he wished to be inserted into the contract and inform BHP. accordingly. This he did. Consequently there is no evidence to suggest that he purported to be contracting with BHP as an agent.

In any event if the facts were that Oil Basins Inc. had been in existence at the time when Dr. Weeks was in Melbourne I would not not have been disposed to have regarded him as an agent for the company. I think in all the circumstances he should have been regarded as the company itself. The doctrine of the identification of a controller of a company with the company is well established. In HL Bolton (Engineering) Co Ltd v TJ Graham and Sons Ltd [1957] 1 QB 159, Lord Denning said, at p. 172: "A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to present the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of those managers is the state of mind of the company and is treated by the law as such."

This passage has been referred to with approval in a number of cases particularly in the criminal law when questions of the intention or knowledge of a company are relevant: cf. Tesco Supermarkets Ltd v Nattrass [1972] AC 153, at p. 171, per Lord Reid; Nordik Industries Ltd. v Regional Controller of Inland Revenue [1976] 1 NZLR 194. It was submitted on behalf of BHP that the fact that Oil Basins Inc. had not been incorporated at the time when Dr. Weeks was negotiating the contract in Melbourne did not prevent the operation of sub-par (ii). It was submitted that when Oil Basins Inc. was incorporated and entered into the overriding royalty agreement that agreement was an agreement which was made "through" an agent trading or residing within the jurisdiction on behalf of a principal trading or residing outside the jurisdiction. It is clear that the words "made by or through an agent" contemplate cases in which, although the agent did not make the contract, nevertheless the contract when made could be said to have been made through the efforts and intervention of the agent. The submission put forward involves reading the sub-paragraph as extending to contracts made through the efforts of a person who, although at the relevant time was not an agent, subsequently became an agent for a company which was incorporated after the negotiations in question. It was urged that the rule is directed to business being done within the jurisdiction and it does not contain any requirement that the contract in question should be made at a time when the agent is trading or residing within the jurisdiction. This is a persuasive argument but on balance I do not think it is correct. It must be remembered that O. 11 is dealing with cases in which the jurisdiction of the court becomes "exorbitant", i.e. it is permitted to extend beyond the territorial limits of the jurisdiction and to intrude into jurisdictions which are foreign to it. Looking at the matter from the point of view of a foreign contracting party it does not appear to me to be within the spirit of O. 11 and the extension of jurisdiction to hold that a party who enters into a contract out of the jurisdiction should be made amenable to the jurisdiction because it might later be said that the contract had been arranged or negotiated and therefore had been made through the efforts of a person who was not the agent of the contracting party at the relevant time. For the contracting party out of the jurisdiction to be made amenable to the jurisdiction it seems to me to be essential that the agent through whose efforts the contract comes into existence was nevertheless acting as an agent for the party out of the jurisdiction at the time when he entered into the negotiations in question. For the above reasons in my opinion the order for service out of the jurisdiction cannot be supported under the terms of r1(e)(ii).

Sub-par (iii)

CL12 of the overriding royalty agreement provides as follows: -

"Except as otherwise required by the law of the place where the said hydrocarbons are produced or as otherwise herein provided this agreement shall be interpreted and applied in accordance with the law of the State of New York United States of America."

It has not been suggested that any law of the Commonwealth of Australia or the State of Victoria contains any provision which requires that the agreement shall not be interpreted and applied in accordance with the law of the State of New York. Nor has it been suggested that there is anything in the agreement itself which prevents the law of the State of New York governing the contract. It is abundantly clear that on the facts of the case the contract has no connection with the State of New York at all, and has a great deal of connection both in fact and in law with the Commonwealth of Australia and the State of Victoria. It was submitted that for this reason I should be prepared to override the choice of law of the parties and hold that the contract is one governed by the law of Victoria. There are of course instances in which the courts have refused to allow a choice of law by the parties to operate, but these instances are all cases in which the parties have sought by their choice of law to avoid the operation of a fiscal or policy provision of the law which would otherwise apply to the contract: see Golden Acres Ltd v Queensland Estates Pty Ltd [1969] Qd R 378; Queensland Estates Pty Ltd v Collas [1971] Qd R 75. There is no element of this kind in the present case. The normal rule as I understand it is that in the absence of such a circumstance the parties are free to choose the law which shall govern their agreement. In Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance Society [1938] AC 224, Lord Wright in delivering the advice of the Privy Council said, at p. 240: "English law...has refused to treat as conclusive, rigid or arbitrary, criteria such as lex loci contractus or lex loci solutionis, and has treated the matter as depending upon the intention of the parties to be ascertained in each case on a consideration of the terms in the contract, the situation of the parties, and generally on all the surrounding facts. It may be that the parties have in terms in their agreement expressed what law they intend to govern, and in that case prima facie their intention will be effectuated by the Court."

It was submitted that the terms of the clause which relate to the interpretation and application of the agreement are not wide enough to amount to a provision that the contract shall be "governed" by the law of New York. This argument was but faintly pressed and it may be doubted whether there is any real distinction between a contract which is governed by the law of a particular place and a contract which "shall be interpreted and applied" in accordance with the law of a particular place: See Vita Food Products Inc v Unus Shipping Co [1939] AC 277, at p. 298, per Lord Wright. In my opinion, in the present circumstances, it cannot be said that the overriding royalty agreement is governed by the law of Victoria. Nor do I think that it would be appropriate for me to hold that the contract is governed by the law of Victoria if I was of the opinion that an American court might decline jurisdiction upon the basis that the appropriate jurisdiction was Victoria. I cannot distinguish this from the doctrine of the renvoi. In any event the decision of District Judge Cannella which I have had now the advantage of reading demonstrates that his Honour was not prepared to decline to deal with the case before him simply upon the basis of forum non conveniens, although his Honour plainly recognized the close contact which the agreement had with the State of Victoria. For the above reasons, the order for service out of the jurisdiction cannot be supported upon the basis of r1(e)(iii). O. 11, r1(ea). The action is brought in respect of a breach committed within the jurisdiction of a contract wherever made even though that was preceded or accompanied by a breach outside the jurisdiction which rendered impossible the performance of the part of the contract which ought to have been performed within the jurisdiction.

Mr. Finkelstein commenced his submissions on this ground by conceding that it would be necessary for him to show three things, namely that the action is brought in respect of the contract; secondly, that there has been a breach of that contract within the jurisdiction; and thirdly, that the action is brought in respect of that breach. Mr. Finkelstein referred to the amendment of the Supreme Court Rules which occurred in 1959. Prior to that amendment par (e) of O. 11, r1 read as follows: -

"The action is founded on any breach or alleged breach within the jurisdiction or any contract wherever made which according to the terms thereof ought to be performed within the jurisdiction or is..."

By the amendment par (e) was brought into its present form to which I have already referred and a new paragraph was inserted, namely (ea) which reads: -

"The action is brought in respect of a breach committed within the jurisdiction of a contract wherever made..."

It was submitted that before 1959 the action had to be founded on a breach whereas since that date it was sufficient if the action is in respect of a breach. Reference was made to Hughes v Oxenham [1913] 1 Ch 254. In short, in the first part of his argument, Mr. Finkelstein submitted that the action taken by the defendant in New York and in Texas was an action founded upon a breach of a contract in Victoria. This is because in those actions the defendant (the plaintiff in the United States) complained that the plaintiff in this action had failed to pay the proper amount due by way of overriding royalty. It was common ground that payments by the plaintiff of overriding royalty are made, at the direction of the defendant, to the ANZ. Bank in Melbourne and consequently if the plaintiff failed to pay the amount due this failure constituted a breach of contract in Victoria. It was then submitted that this action is in respect of that breach in so far as it seeks to restrain the defendant from pursuing the actions in the United States.

It may be desirable to refer to the claim for relief which is made in this action. In the prayer for relief in par 1 the plaintiff seeks a declaration that the defendant is bound by the terms of the royalty agreement to submit to arbitration the matters the subject of the two actions in New York and Texas respectively. In par 2 it claims a declaration that the attempted institution of the proceedings in the United States and their further prosecution constitute a breach of the royalty agreement. In par 3 the plaintiff seeks an order that the defendant proceed exclusively in arbitration with the plaintiff for the purpose of determining the claims made by the defendant and join with the plaintiff in appointing an arbitrator or alternatively that it should appoint an arbitrator to act with an arbitrator appointed by the plaintiff and a third arbitrator nominated by the two arbitrators or, in the event of their failure to agree on a third arbitrator, as appointed by this Court. By par 4 the plaintiff claims an injunction restraining the defendant from instituting or prosecuting any action to determine or seeking to determine the defendant's claims in breach of its obligations under the royalty agreement.

I note that the order claimed in par 3 does not specifically claim the right to arbitration in Victoria although perhaps by reason of the claim that in the event that the two arbitrators cannot agree upon the appointment of a third arbitrator this Court should appoint the third arbitrator and that claim perhaps may carry the inference that the arbitration proceedings, according to the plaintiff, must be taken in Victoria.

It was submitted that although it could not be said that this action is founded on a breach of contract committed in Victoria it was nevertheless in respect of a breach of contract committed in Victoria by reason of the fact that the actions referred to taken by the defendant in the United States were founded upon an alleged failure of the plaintiff to pay the proper amount of overriding royalties to the defendant in Melbourne and that this action accordingly is an action in respect of an alleged breach of contract committed within the jurisdiction.

Mr. Finkelstein referred to De Havilland Aircraft of Canada Limited v Metroflight Incorporated 29 CPC 225 (Carswell Practice Cases). In that case Henry J upheld service out of the jurisdiction of a writ issued by the plaintiff against the defendant in an action in which the plaintiff claimed a declaration that an alleged contract on which the defendant had taken proceedings in Texas did not exist.

It was conceded that I was not bound by this decision but it is not, in my opinion, necessary for me to decide whether I would be prepared to follow it or not. The short answer, in my opinion, to this first way in which Mr. Finkelstein sought to bring the present case within the terms of par (ea) is that this action is not in reality an action in respect of a breach of contract committed within the jurisdiction. It is an action in respect of legal proceedings taken by the defendant in the United States. The determination of this action will in no way affect the determination of the issue of whether or not the plaintiff has been in breach of its obligations to pay the proper amount of overriding royalty. In the De Havilland Case a successful outcome of the proceedings in Ontario would put an end to the defendant's claim that the plaintiff was in breach of its contract. This action, if the plaintiff is successful, would not put an end to the defendant's claim against the plaintiff although it would put an end to litigation of it.

It was then submitted that the plaintiff's letter of 11 September 1984 in which it requested the defendant to join with it in selecting an arbitrator constituted the commencement of arbitration proceedings in Victoria. Reference was made to the decision of the House of Lords in Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909. See also The Agios Lazaros [1976] 2 Lloyd's Rep 47. It was put that the arbitration clause required the parties to co-operate with each other to bring about an appropriate arbitration proceeding and that the failure of the defendant to take any steps in Victoria to do this constituted a breach of its obligations under the royalty agreement. It was put that the plaintiff, for various reasons, was in the position of being the promisor and that it was the obligation of the promisee to seek out the promisor to discharge its obligations under the contract. Mr. Finkelstein argued that the various aspects of the contract and the general circumstances of the case demonstrated that the arbitration should take place in Victoria and further that it should be governed by the law of Victoria. He submitted that CL11, in so far as it spoke merely of interpretation and application, did not extend as far as a clause which stipulated that a contract should be governed by the law of a particular place. I have already expressed my view on this last point when considering par (e)(iii) of r1.

Although Mr. Finkelstein's arguments certainly lacked nothing in ingenuity and were advanced with great skill they have not been able to displace in my mind certain aspects which I regard as determinative of this question. The first is that there is nothing in the contract which calls for the selection of a Victorian or Australian arbitrator by the parties. Nor is there anything which requires any arbitration proceedings to take place exclusively in Victoria. The commencement of litigation in the United States may well be a breach of contract on the part of the defendant but in the absence of some obligation to take part in arbitration proceedings founded in Victoria it appears to me that the breach of contract constituted by the commencement of litigation in the United States was a breach occurring in the United States. Mr. Finkelstein submitted that the commencement of litigation in the United States was merely evidence of the breach of contract in Victoria whereby the defendant evinced its intention not to take part in arbitration proceedings in Victoria or to join in the selection of an arbitrator. The writ in this action was issued merely one day after the letter of 11 September, and the absence of any period of time subsequent to 11 September in which to see whether the defendant would be prepared to agree to arbitration and to discontinue the litigation in the United States makes it somewhat difficult, in my opinion, for the plaintiff to show that the commencement of proceedings constituted a final and irrevocable declaration by the defendant that it would not arbitrate. Indeed, more recent events have demonstrated a willingness on the part of the defendant to join in arbitration proceedings provided that the arbitrator is selected in the State of New York. This lends colour, in my opinion, to the view that unless it can be demonstrated that on its true construction the royalty agreement requires the selection of an arbitrator in Victoria or in Australia the defendant is in breach of its contract and that that breach occurred in Victoria. This is an essential element to be proved in order to bring the case within par (ea): see Cuban Atlantic Sugar Sales Corporation v Compania de Vapores San Elecfterio Limitada [1960] 1 QB 187; Comber v Leyland and Bullins [1898] AC 524. I am therefore of the view that service of the writ out of the jurisdiction cannot be justified under par (ea). O. 11, r1(f). Any injunction is sought as to anything to be done within the jurisdiction or any nuisance within the jurisdiction is sought to be prevented or removed whether damages are or are not also sought in respect thereof.

As I have already mentioned the prayer for relief in the statement of claim asks for declarations in the first two paragraphs and, in summary form, par 3 seeks an order that the defendant proceed exclusively in arbitration with the plaintiff and par 4 seeks an injunction restraining the defendant from instituting or prosecuting any action in relation to the dispute. Mr. Finkelstein did not attempt to support the order for service out of the jurisdiction by reference to the claim for relief in par 4 and indeed it is obvious that he could not have done so. As Mr. Merralls pointed out there is no evidence or any suggestion that the defendant intended to institute or prosecute any action to determine the dispute within the jurisdiction and consequently although par 4 in terms seeks an injunction it is not sought as to anything to be done within the jurisdiction in accordance with the terms of par (f). In relation to par 3 of the prayer for relief, however, Mr. Finkelstein submitted that the claim, on its proper analysis, was a claim for a mandatory injunction and was not a claim for specific performance of the agreement. He supported this argument by reference to the case of Wolverhampton and Walsall Railway Co v London and North Western Railway Co (1873 LR 16 Eq 433. In that case Lord Selborne LC said, at p. 438: "Then, with regard to the argument, that upon the principles applicable to specific performance no part of the relief asked by this bill can be granted, I cannot help observing, that there is some fallacy and ambiguity in the way in which in cases of this kind those words 'specific performance' are very frequently used. There is a class of suits in this Court, known as suits for specific performance of executory agreements, which agreements are not intended between the parties to be the final instruments regulating their mutual relations under their contracts. We call those executory contracts as distinct from executed contracts: and we call those contracts 'executed' in which that has been already done which will finally determine and settle the relative positions of the parties, so that nothing else remains to be done for that particular purpose. The common expression 'specific performance' as applied to suits known by that name, presupposes an executory as distinct from an executed agreement, something remaining to be done such as the execution of a deed or conveyance, in order to put the parties in the position relative to each other in which by the preliminary agreement they were intended to be placed."

Upon this basis Mr. Finkelstein argued that the agreement in this case fell within the category of an executed agreement and that the term specific performance did not therefore apply to the relief sought in par 3 of the statement of claim. I confess that I cannot help thinking that much water has flowed under the bridge since the Lord Chancellor made the statement above referred to although as the historical foundation of suits for specific performance it is still obviously correct. But I am by no means satisfied that in present day practice all attempts to enforce the performance of contracts, as opposed to seeking a remedy in damages, can be categorised as attempts to enforce an executory contract. Mr. Finkelstein proceeded to submit that in view of the fact that the claim for relief was not a claim for specific performance it was correctly categorized as a claim for a mandatory injunction. In the days when all injunctions were framed in the form of a restraint I suppose what would be claimed here would be an injunction restraining the defendant from failing to proceed in arbitration with the plaintiff. But since the turn of the century the courts now make many orders which cannot be framed in the form of a restraint. Dr. Spry in his book, Equitable Remedies, 3rd ed., p. 52 discusses the matter when he says: -

"The term 'specific performance' is commonly used in two senses. In the first place, it sometimes refers to what may be called specific performance in the narrow sense. Here a Court of Equity compels the execution in specie of a contract that requires some definite thing to be done in order that the legal rights of the parties be settled and defined in the manner intended."

The author goes on to say: -

"In the second sense specific performance refers to the enforcement in specie of any contractual obligation to perform an act, whether by way of settling or defining the rights of the parties, or by enforcing the rights so settled or defined."

With respect I agree with the view put forward by Dr. Spry who in his discussions on mandatory injunctions categorizes them as restorative injunctions, namely injunctions which require actions to be done to restore a state of affairs in respect of which the plaintiff could have obtained a prohibitory injunction at an earlier time.

Mr. Merralls submitted that the terms of par (f) on a proper analysis only extended to prohibitory injunctions and did not extend to mandatory injunctions. He referred to Re De Penny [1891] 2 Ch 63 in which Chitty J. held that an injunction might be granted to restrain the defendant from committing an act within the jurisdiction but it would be limited to those terms. Mr. Merralls submitted that unless the contract in question called for the doing of an act within the jurisdiction it followed that a mandatory injunction could not be granted. This would be because it would be open for the defendant, in the absence of a requirement in the contract as to the place in which the action should be carried out, to carry it out outside the jurisdiction. The royalty agreement does not specify any place in which the arbitration is to take place and nor for that matter, as I have already pointed out, does par 3 of the claim for relief in the statement of claim.

Dicey and Morris, The Conflict of Laws, 10th ed., vol. 1, p. 215 in dealing with the circumstances in which an order for service out of the jurisdiction will be made when a writ claims an injunction say that leave will be refused if a foreign court can more conveniently deal with the question and cite authority for that proposition. I do not propose to deal with the general question of discretion at this stage but I should say that I would be disposed to set aside the order for service out of the jurisdiction if the only basis upon which it could be supported was par (f) in any event because as at the time the order was made the facts were that the defendant had commenced actions in the United States on the royalty agreement and if the terms of the agreement bound the defendant to go to arbitration there would be no reason to suppose that the courts in the United States could not have dealt with that situation quite adequately. I therefore am not prepared to find that the order for service out of the jurisdiction can be supported by reference to para (f) of O. 11, r1.

I now turn to the question of whether I should exercise my discretion under O. 11, r2 and set aside the service of the writ out of the jurisdiction upon the basis that it has not been sufficiently made to appear to me that the case is a proper one for service out of the jurisdiction. Mr. Merralls submitted that if I should find that service of any one of the concurrent writs constituted good service upon the defendant I should, as a matter of discretion, order that the action be stayed. Whereas the question of whether there was jurisdiction to make an order for service out of the jurisdiction must be determined upon facts existing at the time the order was made although such fact may be supplemented by evidence which was not before the Master (see Hartwell Trent (Australia) Pty Ltd v Tefal Societe Anonyme [1968] VR 3) it appears to me that the exercise of my discretion either under O. 11 or under the general jurisdiction of the Court to stay actions must be made on the facts as they appear at the date of judgment. One most important fact that is now available and which was not available at the time when this matter was argued before me is the fact that District Judge John Cannella of the United States District Court in the Southern District of New York has given his judgment. Having discussed the facts his Honour commented that the defendants (the plaintiff before me together with BHP) had not moved to dismiss the action before him on the grounds of forum non conveniens. His Honour said that he was unwilling to order such a drastic remedy sua sponte. Having gone on to examine the authorities and the evidence before him his Honour came to the conclusion that he had discretion only to compel arbitration in the district of the Court or in a place specified in the contract and as no place had been specified explicitly or implicitly in the contract he could only order the parties to proceed to arbitration in the district of the Court. He was not prepared at that stage to grant a stay of the action particularly in light of the fact that the parties were in agreement that the dispute must be sent to arbitration. His Honour granted the plaintiff's motion to compel arbitration in New York and granted a stay of the action pending the outcome of that arbitration. He concluded by saying that in light of the fact that Australia appeared to be the most logical situs for arbitration he would entertain a motion to reconsider the decision to compel arbitration in New York if the arbitrator or arbitrators, once selected, determine that the proceedings would be best conducted in Australia. He dismissed the complaint in the meantime without prejudice with leave to reopen if necessary for reconsideration of the order compelling arbitration in New York or to enforce arbitration.

Earlier in his judgment his Honour said:

"Defendants' arguments that Australia is the most convenient and appropriate forum are not without force. That country seems to be the locus of most witnesses; the principal representative of all parties to have taken part in preliminary discussions concerning arbitration appeared to be located, at least partially, in Australia; and the site of production of hydrocarbons is there. The only apparent contact that the litigation has with New York arises out of the conflicts of law clause in the royalty agreement..."

I respectfully agree with his Honour's comments and would add to them the further considerations that any arbitration will involve an examination of Victorian and Commonwealth legislation in relation to the imposition of royalties and excise duties, the correspondence which has taken place between the designated authority (an Australian government Minister) and the plaintiff which has led to the formulation of the principles upon which the value of production for the purposes of the assessment of royalties should be determined and finally, although this was disputed between the parties, the question of an element of government interest. If the matter were to proceed in a New York court by way of litigation in my opinion the element of government interest might well assume very large proportions. I am not able however to say to what extent it would affect an arbitrator or arbitrators in New York. In the proceedings before me I had the great privilege of hearing evidence from two recently retired Judges of the New York Court of Appeals. I refer to former Chief Judge Lawrence Henry Cooke and former Judge Hugh Richard Jones. I also had the privilege of hearing evidence from Prof. WLM Reese of New York. The main point of contention between these gentlemen was to what extent a New York court would treat the choice of law in the royalty agreement as conclusive and whether or not in the particular circumstances of this case a New York court would either refuse to proceed with the litigation or alternatively hold that the law to be applied to the contract was Victorian law. In the face of conflicting opinions from such eminent witnesses I would be somewhat reluctant to come to a conclusion as to which view was correct in any event but it appears to me that the fact that District Judge Cannella has now proceeded with the matter and given the judgment to which I have referred makes it unnecessary for me to do so. The questions of course will still remain open if arbitration proceedings proceed in New York before American arbitrators.

It was submitted to me on behalf of the plaintiff in this action that the royalty agreement required the parties to submit any disputes to arbitration and that therefore in seeking to litigate the matter both in New York and in Texas the defendant was in breach of its contract and that it would be unjust to allow the fact that the proceedings in New York predated by a relatively short time the plaintiff's letter of 11 September 1984 (which the plaintiff submits commences arbitration proceedings in Victoria) to have any effect advantageous to the defendant. I think that there is some weight in this submission. The defendant would be on sounder ground if, prior to 11 September 1984, some action had been taken by the defendant to commence arbitration proceedings in New York for it is self-evident that the royalty agreement does not itself specify where arbitration proceedings are to be held.

I accept the fact that if the parties to a contract in good faith agree to the law which shall apply to their contract that choice will ordinarily be conclusive: see Vita Food Products Inc v Unus Shipping Co [1939] AC 277 and the discussion in Dicey and Morris, Conflict of Laws, 10th ed., p. 753, et seq. There is no question in the present case of any bad faith involved in the choice of law of the parties nor of any desire to evade the operation of some local law. But the choice of law is not the same thing as the choice of forum and in the same way as witnesses from Australia can be taken to New York to give evidence so can witnesses from New York give evidence in Australia if evidence of New York law is deemed to be necessary. In my opinion the balance of convenience lies heavily in favour of arbitration proceedings taking place in Victoria whether or not New York law is to govern the arbitration. In the Atlantic Star [1974] AC 436 the majority of the House of Lords decided that a plaintiff should not be lightly denied the right to sue in an English court. While rejecting the invitation to adopt the forum non conveniens principle their Lordships laid down that a stay would be granted to an action brought in England if the continuance of the proceedings would cause injustice to the defendant and a stay would not cause injustice to the plaintiff. There is no evidence before me that the continuance of this action will cause injustice to the defendant and in my opinion the plaintiff was entitled to bring this action when it was faced, as it was, with an attempt by the defendant, in breach of the arbitration clause in the royalty agreement, to litigate the dispute in the New York court. For these reasons I am not persuaded that I should grant a stay of proceedings to the defendant at this stage nor am I persuaded that this was not a proper case in which an order for service out of the jurisdiction should have been made. In the result the motion to set aside the order for service out of the jurisdiction and the service of the writ on the defendant in Bermuda will be dismissed.

Motions dismissed.

Solicitors for the plaintiff: Middleton, Oswald Burt and Co.

Solicitors for the defendant: Arthur Robinson and Hedderwicks.

R.R.S. TRACEY

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