114 Nowhere in these conclusions is any reference made to the submissions made on behalf of BHP in support of its contention that usage, context and surrounding circumstances did not indicate a different meaning to the technical meaning of "overriding royalty" but, rather, strongly confirmed the "title based" technical meaning for which BHP contended. These submissions were summarised by the arbitrators in the interim award, as set out in sub-paragraphs 98(4) to 98(7) above.
115 These submissions made on behalf of BHP were not at the periphery of its case; nor were they so obviously untenable that they could safely be ignored by the arbitrators. The submissions were at the heart of the matter, as demonstrated by the fact that the arbitrators had set them out in some detail in the reasons. This is also demonstrated by the content of paragraph 180 of the reasons, in which the arbitrators express a conclusion on the very issue to which these submissions were directed. The arbitrators were required to do more than merely refer to these submissions. They were required to give intelligible reasons for their rejection. They did not do so; and their reasons on this issue are manifestly inadequate as a result.
116 It was submitted on behalf of Oil Basins that "the facts of the BHP case" referred to by Judge Simons, in the passage of his evidence which is quoted in paragraph 180 of the reasons, must be understood as a reference to the facts recited in the reasons. Reliance was placed upon the findings of the arbitrators concerning the statutory regime in Victoria which, amongst other things, did not confer on BHP any proprietary rights of the kind which the definition of "overriding royalty" in Hatch contemplated.
117 In this regard, Oil Basins relied upon the factual findings by the arbitrators that, at the time of entry into the royalty agreement, PEP 38 was an exploration permit only; that under the applicable statutory regimes BHP could not have produced and recovered hydrocarbons in commercial quantities without first obtaining a petroleum mineral lease for that purpose; and that neither PEP 38 nor its successor exploration permit VIC/P1 conferred on BHP a right to obtain a petroleum mineral lease. It was submitted that these facts were to be contrasted with the facts in Hatch, where the royalty was "carved out" of a mineral lease held by the royalty holder. Accordingly, it was submitted on behalf of Oil Basins that "the facts" referred to by Judge Simons, and accepted by the arbitrators, must necessarily be a reference to these facts.
118 Although I accept that, by accepting the evidence of Judge Simons, the arbitrators probably intended to refer to the factual findings made by them which are set out in the reasons, I reject the submission that the factual findings referred to by counsel for Oil Basins are necessarily those which the arbitrators had in mind. I am of this view for the following reasons.
119 First, the arbitrators did not say so. They did no more than accept the otherwise unexplained reference by Judge Simons to "the facts of the BHP case".
120 Second, this is not a case where it can be said that the facts clearly indicate, by simply stating them and without any consideration of BHP's submissions as summarised by the arbitrators,[101] why the parties did not intend to adopt the technical meaning of "overriding royalty" accepted in Hatch. The reader is left to wonder what path of reasoning has caused the arbitrators to arrive at this result. Was it only because exploration permit PEP 38 did not constitute a proprietary interest, like the lease in the Hatch case? Or was it because an assignment of any interest in the exploration permit was prohibited by s. 39 of the 1958 Act, thus calling into play the principle of contract interpretation under New York law that, where the Court is faced with two reasonable interpretations of an agreement, one making the instrument legal and the other rendering it illegal, the Court will incline to adopt the former?[102] This is not known, because the arbitrators have not exposed their path of reasoning by identifying the facts upon which they reached their conclusion on this issue, except to note that Hatch was concerned with a "lease".[103]
121 It was submitted on behalf of Oil Basins that the express reference by the arbitrators to the fact that Hatch was concerned with a lease[104] demonstrates that the arbitrators had in mind the fact that exploration permit PEP 38 was not a proprietary interest like the lease in Hatch. However, if this is the case, it would have been simple for the arbitrators to say so. Further, if this is the case, the findings of the arbitrators concerning s. 39 of the 1958 Act and the principle of contract interpretation referred to above would appear to have no relevance to the arbitrators' reasons.
122 The conclusion reached in paragraph 180 of the reasons may be open to criticism on another ground. The acceptance by the arbitrators of the evidence of Judge Simons, that the Court of Appeals of the State of New York would conclude that "the facts of the BHP case are entirely different and the definition of overriding royalty found in the Hatch case will not work here", involves the arbitrators deciding the case before them on the basis of inadmissible evidence. In the field of interpretation of a contract governed by foreign law, expert evidence as to the meaning of the contract is not admissible. That is a question of law for the tribunal to decide on the basis of expert evidence as to the foreign principles of contract interpretation.[105] However, BHP did not seek to criticise the interim award on this basis. Indeed, as noted above, BHP submitted that evidence was admissible before the arbitrators as to the way in which the Court of Appeals of the State of New York would construe the royalty agreement.
123 Finally, on the issue of the arbitrators' acceptance of this aspect of Judge Simons' evidence, it is my view that this was a most unsatisfactory way for the arbitrators to decide a principal issue in the arbitration. Reasons of such extreme brevity are insufficiently transparent to give the losing party, in this case BHP, confidence that all of its important submissions have been considered. The reasons lack the degree of comprehensiveness which BHP, as the losing party, was entitled to expect from the arbitrators in all the circumstances of the case.
124 In paragraph 182 of the reasons, the arbitrators state another reason for concluding that a different meaning from the technical meaning of "overriding royalty" was clearly indicated. The reason involves the acceptance by the arbitrators of unspecified evidence of Judge Simons, which was said to be "to similar effect with respect to other decisions of courts of the USA, including the decision of the Supreme Court of Montana in Aronow."[106] This reason is plainly inadequate. Apart from the brief reference in paragraph 180 to the evidence of Judge Simons concerning the decision in Hatch, the reasons contain no description of any evidence of Judge Simons relevant to the essential questions for determination; whether with respect to Aronow, concerning any other decision of a United States court, or at all.
125 It is possible that the arbitrators intended paragraph 184 of the reasons to form part of their reasons for concluding that a different meaning from the technical meaning of "overriding royalty" was clearly indicated. If that is so, this paragraph is also inadequate. The arbitrators have not said why the approach taken by the arbitrators in the arbitration to which they refer has assisted them to reach a conclusion on this issue.
126 It was submitted on behalf of Oil Basins that the arbitrators clearly decided that the Court of Appeals of the State of New York would not adopt the technical meaning of the expression "overriding royalty" put forward by BHP. Accordingly, the arbitrators were entitled to construe cl. 1 of the royalty agreement in accordance with its unambiguous ordinary meaning. I accept that the arbitrators were entitled to proceed in this way. However, this approach required the arbitrators to give adequate reasons for rejecting the technical meaning put forward by BHP. For the reasons I have stated, they did not do so.
127 For the reasons which I have stated, I conclude that there is an evident and obvious error of law on the face of the interim award, constituted by a failure to give adequate reasons. Further, in all the circumstances of the case, including the amount of money in issue, I am satisfied that the failure to give adequate reasons could substantially affect BHP's rights.[107] Accordingly, leave to appeal should be given and the appeal allowed. Although this would normally result in the interim award being set aside, and the matter being remitted to the arbitrators to provide adequate reasons[108], the death of one of the arbitrators makes this course inappropriate. As a result, the appropriate order is to set aside the interim award and to remit the arbitration for reconsideration afresh before a differently constituted arbitral panel.
TECHNICAL MISCONDUCT
128 As stated above, in considering whether there has been technical misconduct by the arbitrators, the Court is entitled to look beyond the face of the interim award. This was not in dispute. In support of its misconduct case, BHP placed in evidence all of the pleadings and submissions, and much of the evidence, which was before the arbitrators. However, although there was substantial reference to this material in BHP's written submissions, the oral submissions proceeded on the basis that it was only necessary to look at a small amount of this material in order to demonstrate technical misconduct by the arbitrators.
129 In my view, reference to this material demonstrates that the arbitrators failed to deal with substantial and serious submissions and evidence relied upon by BHP on the essential questions for decision in the arbitration.
130 Before turning to these essential questions, it is appropriate to refer to the extent of the expert evidence which was placed before the arbitrators concerning those questions. In this regard, BHP relied upon substantial expert evidence given by Judge Levine and two practising American lawyers - Professor Patrick Martin, a Louisiana attorney and a Professor of Mineral Law, and John McCollam. Their witness statements were lengthy and expressed opinions based upon American decisions, treatises and other legal writings to which they referred. In response, Oil Basins relied upon substantial expert evidence to contrary effect, given by Judge Simons and a number of professors of law.
131 There were substantial differences of opinion between the rival experts. However, the arbitrators did not enter into the issues between the experts and explain why they preferred the opinions of those experts who gave evidence on behalf of Oil Basins over the opinions expressed by BHP's experts. Indeed, on the essential questions for determination, the only reference to the expert evidence is contained in paragraphs 180 and 181 of the reasons. In paragraph 180, the arbitrators accepted some evidence given by Judge Simons under cross-examination. They did not say why this evidence was accepted in preference to contrary evidence given by BHP's experts. In paragraph 181, the arbitrators accepted unspecified evidence of Judge Simons. The reasons do not contain any analysis of the contrary expert evidence relied upon by BHP or reasons for rejecting that evidence.[109]
(1) Question 1: Is there a technical meaning?
132 BHP's submissions to the arbitrator on the first question were based upon substantial expert evidence given by Judge Levine, Professor Martin and Mr McCollam. In BHP's submissions to the arbitrators, there was substantial reference to this expert evidence and to the American decisions, treatises and other legal writings referred to in that evidence.[110]
133 This evidence supported BHP's submissions on the first question. However, the arbitrators made no reference to it in their reasons rejecting BHP's submissions. The arbitrators ought not to have rejected BHP's submissions without referring to that evidence, and giving intelligible reasons for rejecting it. Their failure to do so constituted technical misconduct.
(2) Question 2: Is a different meaning indicated?
134 As stated above, I am of the view that the reasons are inadequate on their face because, amongst other things, they do not set out why the arbitrators rejected BHP's submissions concerning the second question. I have quoted the arbitrators' summary of these submissions in sub-paragraphs 98(4) to 98(7)above. In my view, the failure by the arbitrators to deal with these submissions in their reasons also constitutes technical misconduct.
135 BHP's submissions on the second question were also based upon substantial expert evidence given by Judge Levine, Professor Martin and Mr McCollam, and upon the American decisions, treatises and other legal writings referred to in that evidence.[111] This evidence supported BHP's submissions on the second question. However, the arbitrators made no reference to it in their reasons for concluding that the second question should be answered adversely to BHP. Their failure to deal with that evidence, and give reasons for its rejection, also constitutes technical misconduct.
136 I have referred to the submission made on behalf of Oil Basins that the arbitrators' reasons on this question were adequate because the reference in paragraph 180 of the reasons to "the facts of the BHP case" was an unambiguous reference to the facts that BHP's exploration permits did not give it any proprietary interest or a right to obtain a petroleum mineral lease. For the reasons already stated, I reject this submission. However, even if it is assumed that the majority reasons are, on their face, adequate for this reason, BHP placed evidence and submissions before the arbitrators to meet an argument that these facts displaced the technical meaning of the expression "overriding royalty". The arbitrators did not refer to this evidence or submissions in their reasons.
137 In BHP's written submissions to the arbitrators, BHP submitted: