There are two items of revenue (or two items of repayment) and two items of expenditure which are the subject matter of these proceedings and this appeal.

Santos, as Operator, has had the responsibility of apportioning both the items of repayment and expenditure between the Producers. Delhi complains that Santos has more recently wrongly apportioned those items.

The items of repayment are the Jetty Security Deposit (clause 67 of the Indenture) and the Water and Roads Security Deposit (Schedule 4 of the Indenture).

The items of expenditure are the fixed Wharfage Dues (clause 72 of the Indenture) and the Water Rates and Road Tariff (clauses 43 and 49 of the Indenture).

It is necessary therefore to consider the Operator's apportionment of both expenditure and income.

The Operator has the responsibility of apportioning the costs and expenses incurred between the Producers in accordance with Producer's share of such costs and expenses. That obligation arises under Article VIII of the Downstream Agreement.

Between 1 January 1987 and until the end of 1996 Santos apportioned the items of repayment and the items of expenditure amongst the Producers.

Santos apportioned the Wharfage Dues and the Water Rates and Road Tariff between the Producers such that their liability to pay those expenses (except for some part of the Wharfage Dues) was met by the Security Deposit Repayments.

By clause 5(d) of the Settlement Agreement the Operator was obliged to provide the Producers with a First Accounting Adjustment to enable the Producers to respond in accordance with their obligations under clause 5(e) of that agreement.

Santos claimed that during the course of preparing the First Accounting Adjustment it realised that it had mistakenly apportioned the Wharfage Dues and the Water Rates and Road Tariff and as a result Delhi had paid $1,923,307 less than it should towards those expenses. In the Operator's view that meant that the other Producers collectively had paid an equivalent amount in excess of their obligations. It called upon Delhi to pay the amount, which it did under protest. Delhi claimed that Santos had not made a mistake and the apportionment was in accordance with the Producers' obligations to each other. In the alternative Delhi claimed that Santos was precluded by clause 1.5 of exhibit B of the Downstream Agreement, the Downstream Accounting Procedure and/or an estoppel, either by convention or representation, from changing or departing from the historical practice. It also claimed that nothing in the Settlement Agreement authorised departure from the practice adopted by Santos between 1987 and 1996.

On 10 January 1997 Santos changed the method of apportionment for crediting the Producers with the State's repayment of the Security Deposit Repayments.

Delhi claimed that after 1996 Santos should apportion the items of revenue and items of repayment by reference to the Settlement Agreement.

In the alternative Delhi claimed that Santos should continue to apportion the Security Deposit payments as it had until 1996 by reference to the historical accounting practice.

Delhi asserts that the apportionment of the repayment by the State of those Security Deposits was, and in the case of the Jetty Security Deposit still is, governed by the Indenture. Consequently those repayments which have been made subsequent to 1991 should be distributed in accordance with the Fixed Factors operating under the Settlement Agreement. On the other hand Santos argues that the Security Deposits are not the subject matter of the Settlement Agreement but are governed by the Downstream Agreement and the repayments of the Security Deposits must be in accordance with the terms of that Agreement.

The following questions were raised for consideration by the trial judge:

a) Whether Santos had correctly apportioned the Security Deposits and the Wharfage Dues and Water Rates and Road Tariff between the Producers in the relevant period.

b) If the answer to a) is no what is the correct apportionment.

c) If the answer to a) is no whether Santos is precluded by:

1. Clause 1.5 of the Accounting Procedure in Exhibit B of the Downstream Agreement; and/or

2. By an estoppel either by convention or representation;

from changing or departing from the historical practice.

On 26 November 1981 the Producers entered into an Indenture with the State of South Australia in relation to the Liquids Project which was ratified by the Stony Point (Liquids Project) Ratification Act 1981 (SA), which was assented to on 17 December 1981. The Indenture provided that the State and the Producers would co-operate in building a pipeline from Moomba to Stony Point (now called Port Bonython) and a jetty at that Port for the purpose of shipping petroleum liquids.

On 24 November 1981 the Operator wrote a letter to the Minister in relation to the Indenture. Although the letter predated the execution of the Indenture there is no doubt that the letter addressed the document which was signed two days later. I shall refer to that letter after referring to the relevant terms of the Indenture.

It is clear from the Unit Agreement and the documents to which I am about to refer that the Producers' relationship with each other was as joint venturers. The Producers have at all times eschewed any notion that they are in partnership or that any of them are responsible for any liabilities of the others except in accordance with their various agreements. The Indenture makes it clear that each of the Producers only had a several liability to the State: clause 88.

Mr Karkar QC, senior counsel for Delhi, argued that the Indenture not only provided for contractual obligations between the State and the Producers but also provided for contractual obligations between the Producers.

"The parties hereto now desire to enter into this Indenture in order to define their respective rights, duties and obligations with regard to the above mentioned matters;"

69. Clause 88 makes the Producers' position clear. It determines the liability of the Producers to the State and to each other. It provides:

" 88. The liability of each Producer under this Indenture shall be several and not joint nor joint and several and the liability of each Producer shall be determined in accordance with the extent of its ownership of any interest from time to time in any asset or activity contemplated under this Indenture.

In the event that the State or PASA shall have a claim against a Producer or Producers the Producers will inform the State as soon as practicable of the extent of ownership of the Producer or Producers in any asset or activity contemplated under this Indenture relating to the subject matter of the claim."

70. I agree with the submission made by Mr Karkar, that the Indenture does create a several liability on the part of each of the Producers to the State and that there is no joint liability of those Producers to the State. I also agree that the Indenture creates contractual relationships between the Producers.

71. Clause 88 provides a procedure for the determination of each Producers' several liability to the State. That several liability "... shall be determined in accordance with the extent of its ownership of any interest from time to time in any asset or activity contemplated by this Indenture."

72. Whilst the Producers' obligations are several the State protected itself against any one Producers' default. Clause 99 applies to circumstances of default by a Producer and provides that if there be default, and the necessary arbitration has occurred, and the default continues, the Minister can consult with the non defaulting Producers, and if those Producers agree to assume the defaulting Producer's obligations, the State can cancel the Indenture insofar as it applies to the defaulting Producer only. However, if the non defaulting Producers do not agree to assume the defaulting Producers' obligations the Minister can cancel the Indenture.

73. In clause 88 the Producers have recognised as between themselves how their respective several liabilities shall be determined. They have agreed in clause 88 that their liability to the State will be several. They have also agreed that any several liability they have to the State will be determined by their ownership of any interest in any asset or activity contemplated in the Indenture.

74. Because Clause 88 determines each Producer's liability to the State it must define the Producers' liabilities inter se. Although their liability to the State is several the component parts of their liability must match the whole liability to the State.

75. The Indenture provides for the State to grant certain land ("the Proposed Development Site") to the Producers at Port Bonython at a cost not exceeding $480,000: clause 16. The State also reserved for the Producers, an area described as Contiguous Land: clause 10, and a Services Corridor between the Proposed Development Site and the Contiguous Land: clause 11.

76. The State undertook to supply water to the Proposed Development Site by laying a water pipeline from the Morgan to Whyalla pipeline to that site: Part X. The cost of laying the waterline was provided for in Schedule 4 of the Indenture: clause 39.

77. The State also agreed to build roads, including a road from the Lincoln Highway to the end of a Jetty which was to be built at Port Bonython: Part XI. The cost of construction was also provided for in Schedule 4 to the Indenture: clause 51.

1. The Producers shall deposit with the State as and when required by the State a sum equal to the capital cost including interest incurred or to be incurred by the State as notified in writing by the State to the Producers in the provision of water in accordance with Part X of this Indenture and the roads within the Road Reserve in accordance with Part XI of this Indenture. Such deposit shall secure the due observance by the Producers of the terms respectively of Parts X and XI of this Indenture on their part to be observed. To the extent of any shortfall in payment of amounts owing pursuant to Parts X and XI or to any agreements referred to therein in any year the Producers shall to that extent forfeit the moneys which would otherwise have been payable to the Producers pursuant to this Schedule.

2. The aforesaid deposit together with interest at a rate of 18 per cent per annum shall, subject to the foregoing provision of this Schedule, be repaid to the Producers annually on a credit foncier system in ten equal instalments in a manner to be agreed between the parties to this Indenture."

79. Schedule 4 (like the other schedules) is deemed to form part of the Indenture: clause 107.

80. The Indenture provided that the Producers would pay Water Rates: clause 43 of Part X ("Rates") and a Road Tariff: clause 49 of Part XI ("Tariff"). The Tariff was for the cost of maintenance of the Roads. The Rates and the Tariff were called by the Producers a Secondary Water Rate Charge and a Secondary Road Tariff.

81. The Producers were granted a Pipeline Licence to construct, install, own and operate a Pipeline for the conveyance of the liquids from Moomba to Port Bonython for a term of 21 years with a right of renewal for a further 21 years: Part XII. The Producers were obliged to pay an annual indexed fee of $500,000 for that licence.

82. The Producers undertook to construct "Marine Facilities", being all submarine loading lines and pipelines, harbour and port facilities, the Jetty, landing place and shipping berths and all related and ancillary facilities. The Jetty was to start at the Services Corridor and proceed for two thousand four hundred meters into the Spencer Gulf.

83. The Indenture required the Producers to transfer the Marine Facilities to the State at the date of practical completion: clause 63. The facilities to be transferred were the Jetty and other facilities for the berthing of vessels at Port Bonython. It is enough to describe the transferred Marine Facilities as the Jetty. Not all of the Marine Facilities were required to be transferred. Those not transferred "... shall be owned by the Producers or such of them as have an ownership interest therein from time to time": clause 64. Like clause 88 this clause refers to ownership interests.

84. The State was required to pay the Producers a sum equal to the cost incurred by the Producers in the design and construction of those and facilities: clause 63.

85. The effect of this Part of the Indenture was that the Jetty was built by the Producers for the State at the Producers' cost. However, on transfer to the State, the State had to pay the Producers for the costs associated with the building of the Jetty and interest on those moneys over a period of twenty years. The State thus retained ownership and control of that infrastructure.

86. The Producers undertook to deposit with the State a sum equal to the amount paid by the State pursuant to clause 63 as security for their observance of their obligations under Part XV of the Indenture and also to secure payment of the amount due to be paid to the State by the Producers under that part: clause 66.

87. The Security Deposit in this clause could only have been security for the Producers' obligations and payments after paying the Security Deposit. It did not operate to secure the Producers' obligations to construct the Marine Facilities or transfer those parts of the Marine Facilities contemplated in clause 63.

88. Obligations were imposed by Part XV upon the Producers in clause 70 (Stevedoring and Loading), clause 71 (Preparation of Terminal Rules) and clause 74 (Repair, Maintenance and Installation of the Jetty) but it cannot be thought that the Security Deposit contemplated in clause 66 was to secure those obligations.

89. In my opinion, the Security Deposit was to secure the Purchaser's obligations and payments under clause 72 of Part XV.

"To the extent of any shortfall in payment of amounts owing to the State pursuant to this Part in any year the Producers shall to that extent forfeit the moneys which would otherwise have been payable to the Producers pursuant to Clause 67 of this Indenture."

91. That further provision makes it clear that the Security Deposit only refers to the Producers obligations and payments under clause 72 in Part XV. Clause 66 has a similar effect to Schedule 4.

92. The Indenture obliged the State to repay that Security Deposit. Clause 67 provides:

"67. The security deposit referred to in clause 66 of this Indenture together with interest thereon at the rate of 20 per centum per annum shall, subject to clause 66 be repaid by the State to the Producers annually calculated on a credit foncier system by twenty equal instalments in the manner to be provided for by agreement between the Producers and the State."

93. The Producers were given a priority in the use of the facilities: clause 68. The State could permit use by other parties of those facilities: clause 69.

94. The Indenture provides that the Producers will pay Wharfage Dues: clause 72. The Wharfage Dues are payable annually in each of the first twenty years after the transfer of the facilities to the State and are to be calculated by reference to the weight of product shipped from the Jetty in accordance with a formula in clause 72 of the Indenture.

95. Clause 72 of the Indenture provides for payment by the Producers of Wharfage Dues:

"72. (1) In respect of each of the first twenty years from and including the year in which the transfer date occurs there shall be paid by the Producers to the State, wharfage dues (to the exclusion of all other wharfage dues that would otherwise be payable by the Producers for the port at Stony Point) being an amount per tonne of Product shipped determined by the following formula:-

[ IMAGE ]

a = the annual amount required to amortise in 20 annual payments under a credit foncier system the sum specified in the second paragraph of clause 63 of this Indenture at an interest rate of 20 per centum per annum.

b = the amount determined for any third party user of the transferred facilities under sub-clause 72 (2) or 72 (3) of this clause for that year.

e = amounts of $1.50 and 70 cents respectively as adjusted each year by the percentage change in the Consumer Price Index between the December quarter 1981 and the December quarter in the year preceding the year in which the amounts are to apply.

d = the amount of throughput in tonnes across or through the transferred facilities by the Producers up to and including the first one million tonnes for each year.

f = the amount of throughput in tonnes, if any, across or through the transferred facilities by the Producers after and in excess of the first one million tonnes for each year.

g = the total amount of throughput in tonnes across or through the transferred facilities by the Producers during each year.

(4) After the first twenty years from and including the transfer date the Producers shall pay the normal wharfage dues on commodities similar to those shipped by the Producers applicable in the State for use of the transferred facilities."

"a" relates to the State's liability to pay the Producers for the cost incurred by the Producers in the design and construction of the "Marine Facilities". "a" will in each year be the same figure as the State is obliged to pay to the Producers under clause 67. "a" could be calculated for the Wharfage Dues for each of the twenty years clause 72 operated. It is a constant or fixed figure which is the same as the State is notionally called upon to pay the Producers under clause 63. I have used the term notionally in speaking of the State's payment under clause 63. That is because clause 66 requires the Producers to deposit with the State the exact same sum they 'notionally' received under clause 63. In fact there was no exchange of monies after completion and transfer of the Jetty. Nothing turns on that.

Whilst "a" is a known and constant factor the other integers vary from year to year. We were told that "b" had no application because no third party used the Jetty. Therefore the formula (a-b) has always resulted in "a". The other integers vary from year to year. For reasons that are not apparent Santos kept two ledgers for the recording and calculation of Wharfage Dues. In one ledger it included the constant factor "a", which it described as the Fixed Wharfage Due. In the other ledger it included the variable factors d, f and g. That part of the Wharfage Dues represented by 'a' was called by the Producers a Secondary Wharfage Charge.

The Indenture therefore provided for four payments over different periods of time.

First, the State had to repay to the Producers the Security Deposit for the Water and Roads, (the Water and Roads Security Deposit) referred to in Schedule 4 over a period of ten years. The capital sum carried interest at 18 per cent.

Secondly, the State had to repay to the Producers the Security Deposit, which matched the cost of the construction of the Jetty and those parts of the Marine Facilities which were transferred to the State, (the Jetty Security Deposit). That sum was repayable over 20 years. It carried interest at the rate of 20 per cent.

Both of those payments were on a credit foncier system.

Thirdly, the Producers had to pay the State Wharfage Dues, fixed by the Indenture, over a 20 year period.

Fourthly, the Producers had to pay Water Rates and a Road Tariff.

The Security Deposits were assets of the Producers whilst the Wharfage Dues and the Rates and Tariff were liabilities of the Producers.

The question before the trial judge and on this appeal is how those assets and liabilities should be apportioned between the Producers.

The Indenture provided for the construction of infrastructure at the cost to the Producers but to be owned by the State. The Indenture contemplated that the State would either purchase the infrastructure from the Producers (the Jetty) or construct the infrastructure itself (Water and Roads). In both cases, however, the Producers had to provide the cost of construction. In the first case by actually incurring the expenses and in the second by "advance funding" a sum of money which could be used for the cost of that construction.

The Producers, however, would have to pay Dues, Rates and a Tariff for the use of the infrastructure at a rate which would relieve the State from the burden of payment for that infrastructure.

No doubt there were both political and commercial reasons for the way in which the transaction was documented. The State owned the infrastructure at no cost to itself. On the other hand the Producers were able to offset the cost of construction of the infrastructure against expenses by payment of Dues, Rates and a Tariff.

The Indenture creates other liabilities apart from the Wharfage Dues and the Water Rates and Road Tariff. As I have already noted clause 16 of the Indenture requires the Producers to pay the sum of $480,000 to the State for the proposed development site. Clause 17 requires the Producers to bear the costs of surveying, fencing and other costs associated with the transfer of Contiguous Land to the Producers. Clause 20 obliges the Producers, as soon as practicable after the transfer of title of the Proposed Development Site to the Producers, to remove any improvements remaining on the Proposed Development Site at the Producer's cost. Clause 22 requires the Producers to repay to the State an amount of money for compensation in respect of any former lessee of the Crown on the Proposed Development Site. Under clause 24 the Producers undertook a liability in relation to the removal of shacks. The Proposed Development Site was a former military site and the Producers undertook the costs of removal of unexploded military ordnances and the cost of rehabilitation of the Service Corridor to the Proposed Development Site after removal of unexploded military ordnances.

Clause 59 of the Indenture required the Producers to pay to the State an annual licence fee for the utilisation of the gas pipeline of $500,000.

The Producers undertook a number of liabilities (the other liabilities) apart from the liabilities the subject matter of these proceedings. Apart from the liability under clause 59 those other liabilities are not otherwise dealt with in any other agreements between the Producers. Specifically, apart from the clause 59 liability which is directly referred to in clause 8.02(b) of the Downstream Agreement, the other liabilities are not dealt with in the Downstream Agreement.

Mr Karkar argued that the Indenture contemplated that the assets and liabilities of the Producers would be dealt with in accordance with the terms of the Indenture. He pointed to the absence of other agreements in relation to the other liabilities as support for his premise. He relied on Santos' letter to the Minister of 24 November 1981 which I am about to address as further support for that proposition. In particular it was Mr Karkar's argument that the apportionment between the Producers of the assets and liabilities created by the Indenture had to be in accordance with clause 88 of the Indenture. He argued that clause 88 provided the regime by which the Producers' rights and obligations inter se were regulated.

He submitted that clause 88 specifically provided for each Producers' liability to be several not only to the State but to each other. I do not think there can be any doubt that that submission is right.

He further argued that clause 88 provided the manner in which each Producers' several liability was determined. Any liability was determined, on Mr Karkar's argument, "in accordance with the extent of its ownership of any interest from time to time and any asset or activity contemplated under this Indenture."

It was Delhi's argument that, in those circumstances, the Producers' liability under the Indenture was determined by identifying the asset to which the liability attached and then identifying the extent of each Producers' ownership or interest in that asset. If there were no asset to which the liability attached then it was necessary to identify the activity and then identify the Producers' interest in that activity.

It was Delhi's argument that the Producers' liability between themselves for integer "a" of the Wharfage Dues, which was the fixed component of those dues, has to be determined by reference to the ownership of the asset namely the Security Deposit lodged in accordance with clause 66. The Producers therefore have to contribute to the liability in integer "a" by reference to their respective shares in the ownership of the Jetty. It was argued, that the same applied to the fixed part of the Water Rates and Road Tariff. The Producers' liability for those expenses were to be determined by reference to their interest in the ownership of the Water and Rates Security Deposit.

Mr Karkar did not argue that the Indenture stood alone. It was fundamental to his argument that the Producers' contractual relationship with each other and with the State and any other third party, had to be ascertained by reference not only to the Indenture but also to Santos' letter to the Minister of 24 November 1981 and also by reference to the Downstream Agreement.

However, if there was any inconsistency between any of those documents, Delhi argued that the Indenture prevailed.

Santos' Letter To The Minister Of 24 November 1981

The letter of 24 November 1981 was in the following terms:

Capital Costs to be Financed by Security Deposits

and Associated State Charges - Agreed Principles

The Stony Point Indenture provides for the Producers to pay the State amounts by way of security deposits equivalent to the capital cost of certain facilities (road, water supply and marine facilities), for charges to be levied by the State in respect of those facilities and for the security deposits to be repaid to the Producers subject to, inter alia, payment of those charges.

This letter records below the broad principles on which agreement between the State and the Producers, on these matters, has been reached:-

1. That portion of the tariff referred to in clause 43 which relates to the additional costs incurred by the State shall cease after 10 years.

2. That portion of the tariff referred to in clause 43 which relates to the additional costs incurred by the State in supplying water to the Producers together with the Third Party contribution referred to in clause 44 shall be such so as to exactly match the appropriate portion of the security deposit referred to in Schedule 4.

3. Tariff payments and the repayments of the security deposit shall be at the same time unless otherwise agreed.

5. With respect to Third Party use the contribution referred to in clause 44 shall relate to the water used in each calendar year.

1. The tariff referred to in clause 49 shall cease after 10 years.

2. The tariff referred to in clause 49 shall exactly match the appropriate portion of the security deposit referred to in Schedule 4.

3. Tariff payments and the repayments of the security deposit shall be at the same time unless otherwise agreed.

5. The basis of tariff apportionment between the Producers and the Third Parties referred to in clause 50 shall be related to the proportionate use of the road by the Third Parties and the Producers. No apportionment shall occur until commencement of use by the Third Party.

1. That portion of the wharfage dues referred to in clause 72(1) as "a" shall be such as to exactly equal the security deposit repayment referred to in clause 67.

2. The above payments and repayments shall be at the same time unless otherwise agreed.

The letter of 24 November 1981 has to be read in conjunction with the Indenture, because it refers to the Indenture and contains further terms of agreement between the State and the Producers. The letter refers to clauses 43, 49 and 67 of the Indenture. Each of those clauses do provide for a separate agreement to be reached between the State and the Producers. There is no doubt that the letter of 24 November 1981 is that separate agreement.

Mr Karkar relied on the letter of 24 November 1981 in support of his argument. He said that that letter supported his contention that the relevant liabilities, on this appeal, were to be determined by reference to the Indenture and the further terms agreed in that letter.

He argued that that letter supported his argument that the Wharfage Dues and Water Rates and Road Tariff were determined by reference to the Producers' interest in the ownership of the corresponding asset. Of course it was only that part of the Wharfage Dues which was represented by integer 'a' that was relevant. The rest of the Wharfage Dues, at least for the first twenty years, were variable factors: clause 72(1) and 72(4). When therefore I speak of Wharfage dues I am referring to integer 'a'.

The purpose of the letter of 24 November 1981 was to ensure that the Producers' interest in the Security Deposits, which the State had to repay, being the Jetty Security Deposit, which had to be repaid over 20 years and the Water and Roads Security Deposit, which had to be repaid over 10 years, did not impose any financial burden upon the State. The Wharfage Dues and Water Rates and Road Tariff attaching to those assets were fixed so that whilst the State had to repay those Security Deposits the State was not called upon to disgorge any money. The State was able to offset the repayment of the Security Deposits by reference to the Wharfage Dues and the Water Rates and Road Tariff.

That is supported by the terms of clause 2 under "Water Supply", clause 2 under "Road" and clause 1 under "Marine Facilities" in the letter of 24 November 1981.

The Water Rates and the Road Tariff had to "exactly match" the State's repayment of the Water and Roads Security Deposit. They had to be paid at the "same time" as the State repaid that Security Deposit.

The Wharfage Dues in integer "a" has to be "exactly equal" to the State's repayment of the Jetty Security Deposit and again the payment and repayments had to be "at the same time".

The parties intended that whilst the Security Deposits would be repaid no money would change hands because the Wharfage Dues and the Water Rates and the Road Tariff would offset the repayment of the relevant Security Deposit. Not only would those imposts offset the repayment of the capital sum comprised in the Security Deposits but also the interest which was payable under the Indenture.

To put it shortly the intention of the parties was that the State's liability to repay and the Producers' liability to pay would be cancelled out and there would be no net cost to either the State or the Producers.

Mr Karkar argued that that intention, which he said was objectively established by reference to the Indenture and the letter of 24 November 1981, was also the intention of the Producers inter se. They also intended that none of the Producers would have any net liability to each other in respect of their several obligations to pay Wharfage Dues and Water Rates and Road Tariff.

There is considerable force in that argument. If the Dues, Rates and the Tariff were calculated to exactly match the State's liability to repay the Security Deposits it might be expected that the Producers would share in those obligations in the same proportions as they shared in the Security Deposits.

That is the intention of clause 88. If it were otherwise and the Producers were called upon to pay these expenses in different proportions to their interests in the assets, the protection which clause 88 affords to the State and the Producers would be lost. For example the State may be obliged to repay the Security Deposits to Producers A, B and C but at the same time seek the offsetting expenses from Producers D, E and F. If Producers D, E and F did not pay the offsetting expenses the State would be out of pocket. If between them one of the Producers did not pay the State would be unprotected to the extent of the underpayment.

The regime which clause 88 has put in place is to protect the State and the Producers inter se. The parties will only be protected if the offsetting expense is paid by the same Producers and in the same proportion as those Producers are entitled to share in the corresponding assets.

Thus far I have only dealt with Mr Karkar's argument. That is because Santos' case placed little or no reliance on either the Indenture or the letter of 24 November 1981. Those documents, on Santos' argument, were historically relevant but they did not create any regime whereby the Producers' assets or liabilities were apportioned. The Indenture was relevant only for the purpose of identifying the assets and liabilities the subject matter of the proceedings. Santos' senior counsel, Mr Oslington QC, argued that it was the Downstream Agreement which provided for the manner in which the Producers' assets and liabilities would be apportioned. The Indenture was simply not relevant to that exercise.

On 31 December 1981 the Producers entered into the Downstream Agreement. The Downstream Agreement is the third agreement made by the Producers following upon the Indenture and the letter of 24 November 1981.

The Indenture and the letter of 24 November 1981 have to be read with each other. However in my opinion, the Indenture and the letter of 24 November 1981 cannot be understood without reference to the Downstream Agreement. In my opinion, the proper construction of the Downstream Agreement requires reference to the Indenture and the letter of 24 November 1981.

The Indenture created contractual obligations between the State and the Producers. Those contractual obligations were, on the Producers' part, several. The Indenture also created contractual obligations between the Producers. The letter of 24 November 1981 was written, as was contemplated by the Indenture, for the purpose of creating further terms of agreement between the State and Producers. The Indenture also contemplated the Downstream Agreement, if for no other reason, than to establish the Producer's interests in the ownership of assets and activities inter se. Unless those interests were identified the Producers' proportion of liabilities to the State under the Indenture could not be identified.

In those circumstances the documents must, in my opinion, be read together for a proper understanding of those documents. Each of the agreements contemplated the other agreements.

The Indenture contemplated not only the agreement contained in the letter of 24 November 1981 but also the Downstream Agreement. The letter of 24 November 1981 was a consequence of the Indenture but also assumed, in my opinion, the Downstream Agreement.

The Downstream Agreement expressly recognised the other agreements. clause 2.02.02 of the Downstream Agreement provides:

"Each Party hereby severally covenants and agrees with each of the other Parties:-

(i) to observe and perform the obligations on its part contained in the Additional Downstream Agreements and the Liquids Sales Contracts;

'Additional Downstream Agreements' are defined in clause 1.02 of that Agreement:

"Additional Downstream Agreements - means any and all agreements or instruments common to the Parties relevant to Downstream Operations and whether or not there are other parties to the agreement or instrument and includes the Downstream Upstream Co-ordination Agreement, the Sellers' Representative Agreement, the PASA Pipeline Maintenance Agreement, the Default Certificate Agreements, Pipeline Licence No. 2, PASA and Producers (Right of Way) Agreement, the Stony Point Land Trust Deed and the Stony Point Indenture as any thereof may be amended from time to time."

By clause 2.02.02 the parties undertook to observe and perform the obligations owed by the Producers' to the State and to each other in accordance with the Indenture.

The Downstream Agreement established a joint venture for the construction of a pipeline from Moomba to Port Bonython together with fractionation storage and terminal facilities to transport, separate and ship petroleum liquids at Port Bonython. The Downstream Agreement also established the Downstream Parties' respective contributions to the capital and operating expenses of the pipeline and those facilities.

The purpose of the Downstream Agreement is to regulate the apportionment of capital and operating expenses incurred by the Producers in processing and transporting liquids and to apportion between them the liquids to which each is entitled.

The Producers agreed to construct, install and commission the Downstream Facilities: clause 3.01. Each Producer has the right to use the Downstream Facilities for the purpose just mentioned. Downstream Facilities include "... all the plant, equipment, machinery and facilities held, constructed or acquired..." by the Producers for the Downstream Account including any real or personal property required or used by the Producers for Downstream Operations "... and includes all additions, expansions and enlargements thereof": clause 1.13. The Downstream Facilities are extensive and include pipelines, special facilities to extract the various substances the subject of the agreement, facilities for storage of those substances, general facilities including offices, buildings, workshops, roads, utilities etc and the Jetty to be constructed at Port Bonython pursuant to clause 63 of the Indenture, which was to be transferred to the State. The Downstream Facilities include Common and General Facilities.

Like the Unit Agreement the Downstream Agreement provides for Participations to be applied in apportioning the capital and operating expenses and the various liquids and other receipts. In the Downstream Agreement they are referred to as Downstream Participations.

The Downstream Participations include Downstream Facilities Operating Costs (Capital Costs) Downstream Facilities Operating Participations (Operating Costs), a Wharfage Participation and Downstream Products Participations (the Producers' entitlements to the products).

Two participations need to be mentioned at this point. The Wharfage Participation is a Downstream Participation. It is defined in clause 1.16.03 of the Downstream Agreement:

"Wharfage Participation - means the percentage apportioned to a Party from time to time in respect of the wharfage fees payable under the Stony Point Indenture being the percentage as determined pursuant to the Third Schedule."

Clause 1.16.03 refers to Wharfage Fees whilst the Indenture, and in particular clause 72 of the Indenture, refers to Wharfage Dues. The distinction on Delhi's argument is important.

"Downstream Facilities Investment Participations" is defined in clause 1.16.01:

"Downstream Facilities Investment Participations - means the percentages apportioned to a Party from time to time in respect to the capital costs referred to in Clause 8.02(a) of this Agreement separately for each of the Downstream Facilities being the percentages as determined pursuant to the Second and Third Schedules. The initial Downstream Facilities Investment Participations (including Jetty Participation) are set out in the Second Schedule ..."

The definition singles out a Jetty Participation which is not otherwise defined. Jetty Participation, however, is included in the Second Schedule which is headed:

DOWNSTREAM FACILITIES INVESTMENT PARTICIPATIONS"

The only other reference in the Downstream Agreement to a Jetty Participation is in clause 8.02(a)(x).

However, it is important to note that the Downstream Agreement refers to both a Wharfage Participation and a Jetty Participation. Three matters are important to note. First, as I have already observed the Wharfage Participation refers to Wharfage Fees not Wharfage Dues. Secondly, again as I have already observed, the Jetty Participation is singled out in the definition of Downstream Facilities Investment Participation. One question which will arise is whether the special treatment of Jetty Participation means that a Jetty Participation is not a Downstream Facilities Investment Participation. Thirdly, the Jetty Participation is a fixed participation: clause 8.02(a)(x).

The Downstream Agreement contemplates fixed Participations and Participations which are subject to review and adjustment.

The Downstream Agreement provides for an initial Operator to conduct the Downstream Operations and clause 7.01 appoints Santos to be that initial Operator.

The Downstream Agreement obliges the Operator to conduct the Downstream Operations in much the same fashion as the Unit Operator is obliged to conduct the Unit Operations under the Unit Agreement.

Again the Operator is obliged to set up an account (the Downstream Account) and pay all costs and expenses incurred with respect to Downstream Facilities and Operations and to seek reimbursement from each of the Producers for their respective share of such costs and expenses.

The operation of the Downstream Account by the Operator is important for any determination of this matter. For that reason I set out that part of Article VIII which is relevant to that matter.

The Operator shall set up a Downstream Account on behalf of the Parties for all costs, expenses and liabilities incurred by it and all moneys received by it for the credit of the Parties under this Agreement and except as otherwise expressly provided herein all costs, expenses and liabilities hereunder shall be borne by the Parties and all of the said moneys shall be credited to the Parties as provided in Clause 8.02 hereof.

Subject to the other provisions hereof, Operator initially shall promptly pay all costs and expenses incurred with respect to Downstream Facilities and Downstream Operations when such costs and expenses become properly due and payable. Each of the Parties shall reimburse Operator for such Party's share of such costs and expenses. The share of such costs and expenses including issues from inventories of each Party shall:

(a) in respect to all capital costs involved in the design, engineering, construction, purchase, installation, commissioning and, where applicable, the replacement and enlargement of:-

(i) the Common Facilities, be in accordance with that Party's Common Facilities Investment Participation;

(x) the Jetty, be in accordance with a fixed participation for each Party as set out in the Second Schedule. The Parties shall each be:-

(aa) entitled to share the sum to be paid by the State to the Producers under Clause 63 of the Stony Point Indenture;

(bb) obliged to contribute to the Security Deposit to be made by the Producers with the State under Clause 66 of the Stony Point Indenture; and

(cc) entitled to share the payments to be made by the State to the Producers under Clause 67 of the Stony Point Indenture,

all in the proportions corresponding to their respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty.

(b) in respect to all other costs and expenses (including but not limited to maintenance and operating inventories, maintenance, repair and operating costs and Pipeline Licence Fees payable under Clause 59 of the Stony Point Indenture but excluding Wharfage Fees) relating to the Downstream Facilities shall be in accordance with that Party's relevant Downstream Facilities Operating Participations (except in respect of any such costs and expenses as are incurred prior to the commissioning for use of any particular Downstream Facility, which costs and expenses shall be in accordance with that Party's relevant Downstream Facilities Investment Participation).

The costs and expenses to which this Clause 8.02(b) shall apply shall, so far as is reasonably practicable, be allocated by the Operator to the operation of one or more of the elements of the Downstream Facilities.

(c) In respect of all Wharfage Fees payable under Clause 72 of the Stony Point Indenture, be in accordance with that Party's Wharfage Participation.

All charges, credits, allocations, billing, payment and accounting with respect to such costs and expenses shall be in accordance with and be subject to the establishment of procedures for recording and reporting, as set forth in Clause 6.02(h) hereof and subject to the Accounting Procedure attached hereto as Exhibit "B", PROVIDED THAT to the extent that any provisions of the body of this Agreement are in conflict with such Accounting Procedure, the provisions of the body of this Agreement shall control. Operator shall maintain accounting and operating records in such manner as will facilitate preparation of budgets, Notice of Proposed Expenditure (N.O.P.E.) forms, costs statements, cash advance requests, inventories and other reports as may be required, in accordance with procedures established by the Parties as set forth in Clause 6.02(h) hereof. The payment of the costs and expenses set out in any statement rendered by Operator shall not prejudice the right of any Party to protest or question the correctness thereof, PROVIDED THAT Operator shall not be required to adjust any charge or credit unless notice of a claim with respect thereto has been received by Operator within twenty four (24) months of the date of the statement involved. Within sixty (60) days after the end of every calendar year Operator shall cause an itemised statement showing moneys received, costs incurred and expenditures made for the relevant calendar year summarised by appropriate classifications indicative of the nature thereof to be prepared and to be audited by the Operator's external auditor registered in Australia. The cost of such statement and audit shall be for the Downstream Account. A copy of each such statement and the auditor's report thereon shall be promptly supplied to each Party."

Clause 8.01 requires the Operator to set up the Downstream Account "... for all costs, expenses and liabilities incurred by it and all monies received by it for the credit of the Parties under this Agreement ..."

On the face of it, the Downstream Account is to be used only for liabilities incurred by the Operator under the Agreement and for monies received by the Operator for the Producers under the Agreement.

Mr Karkar argued that clause 8.01 had no application to liabilities arising under the Indenture because they were not liabilities incurred by the Operator under the Agreement. He further argued that the Downstream Account was not to be used for the purpose of crediting the Purchasers with the receipt of the Security Deposits because again those were not receipts under the Agreement.

Clause 8.01 is an enabling clause. It authorises the Operator to set up the Downstream Account for the purpose of carrying out the Downstream Operations. Because the clause refers to the costs, expenses and liabilities being incurred by the Operator and the monies are received by the Operator under that Agreement it cannot be said that the Downstream Agreement does not allow the Downstream Account to be used for the payment of the Wharfage Dues, Water Rates and Road Tariff or the receipt of the Security Deposits. Indeed clause 8.02(a)(x)(cc) specifically provides for the Producers to share in the repayment of the Jetty Security Deposit. That would have to be accounted for in the Downstream Account. The obligation on the Producers to pay Wharfage Dues and the Water Rates and Road Tariff was offset by the receipt by them from the State of the repayment of the relevant Security Deposit. In that regard the payment and repayment were notional. However, there was an obligation on the Producers to pay variable Wharfage Dues which are calculated, for reasons I will explain, by reference to the use of the Jetty by the Producers. The variable Wharfage Dues are apportioned between the Producers by reference to the Producers' Wharfage Participations. The liability to pay that part of the Wharfage Dues arises under the Indenture. If Mr Karkar's argument were right the Operator could not pay that part of the Wharfage Dues out of the Downstream Account. I reject that part of his argument.

Clause 8.02 refers to an Accounting Procedure. The Accounting Procedure is Exhibit B to the Downstream Agreement. It provides:

"The purpose of this Accounting Procedure is to establish equitable methods for determining charges and credits to the Downstream Account applicable to Downstream Operations under the Downstream Agreement. The Parties acknowledge that at any time, or from time to time, any of such methods may be revised, altered, clarified or cancelled by the parties hereto as provided in the Downstream Agreement."

Clause 1.2 of the Accounting Procedure provides:

In the event of a conflict between the provisions of this Accounting Procedure and the provisions of the Downstream Agreement, the provisions of the Downstream Agreement shall control."

The other clause which is relevant to a consideration of the issues in this case is clause 1.5 which reads:

Payment of requests for advances or other payments to the Operator shall not prejudice the right of any Non Operator to protest or question the correctness of any item associated with such payment; provided however, all statements of charges and all separate bills rendered to Non-Operators by Operator shall be presumed to be true and correct after twenty-four (24) months following the date of the statement of charges or other bill unless within the said twenty-four (24) month period a Non-Operator takes exception thereto and presents a written request for adjustment to the Operator. If Operator does not agree to the request for adjustment within sixty (60) days and a dispute thereby exists then the provisions of Article XX of the Downstream Agreement shall become applicable. If the matter is submitted to arbitration according to the provisions of Article XX of the Downstream Agreement then the Parties agree that such submission will make reference to any interest or liquidated damages claimed by Parties to the dispute. No adjustment favourable to Operator shall be made unless it is made within the same prescribed period. The provisions of this paragraph shall apply to adjustments resulting from a physical inventory of Downstream Facilities as provided for in section 7 hereof."

Clause 1.5 of the Accounting Procedure was relied upon by Delhi as preventing the Operator from making any adjustment to any item, which had previously been allocated, unless within the period of 24 months any Non-Operator Producer had protested. If the adjustment sought to be made is favourable to the Operator then the adjustment itself must be made within 24 months.

The purpose of the Downstream Agreement is to record the basis upon which the Producers are to contribute to the capital costs of establishing the Downstream Facilities and the basis upon which they are to contribute to the cost of the operation of those facilities under the Downstream Operations. One object of the Agreement is to share the costs of operating the Downstream Facilities amongst the Producers in proportion to each Producer's use of the Downstream Facilities. Each Producer's use of the Downstream Facilities depends upon its share of the various liquids apportioned to it under the Downstream Agreement. The Producers contemplated in the Downstream Agreement that the Block Products would be processed through Port Bonython and over the Jetty.

"Downstream Facilities" is defined in clause 1.13 of the Downstream Agreement:

"... means all the plant, equipment, machinery and facilities held, constructed or acquired on behalf of the Parties for the Downstream Account (including any real or personal property acquired or used by the Parties for Downstream Operations) and includes all additions, expansions and enlargements thereof)..."

The Downstream Facilities are the Joint Venturers' assets. The assets include, within the wider definition, ballast water treatment facilities, spill control equipment, butane specific facilities, common facilities, crude and condensate facilities, ethane specific facilities, general facilities, interim load out facilities, the Jetty, propane specific facilities, refrigeration facilities and shared product specific facilities.

"Downstream Operations" is defined in clause 1.14:

"... means any operations authorised or provided for in accordance with this Agreement."

"Downstream Participation" is defined in clause 1.16:

"... means in respect of a Party the share that it shall contribute to or own in the obligations or rights arising from the Downstream Operations..."

Clause 1.16 then defines a number of Downstream Participations being, Downstream Facilities Investment Participations, Downstream Facilities Operating Participations which includes Downstream General Operating Costs, Wharfage Participations and Downstream Products Participations.

Three of those participants are important for an understanding of the parties' arguments.

"1.16.01 Downstream Facilities Investment Participations - means the percentages apportioned to a Party from time to time in respect to the capital costs referred to in Clause 8.02(a) of this Agreement separately for each of the Downstream Facilities being the percentages as determined pursuant to the Second and Third Schedules. The initial Downstream Facilities Investment Participations (including Jetty Participation) are set out in the Second Schedule. There shall be Common Facilities Investment Participations, Ethane Investment Participations, Propane Investment Participations, Butane Investment Participations, Crude and Condensate Investment Participations, Refrigeration Facilities Investment Participations, Interim Load Out Facilities Investment Participations and Shared Product Specific Investment Participations all determined pursuant to the provisions of the Third Schedule.

1.16.02 Downstream Facilities Operating Participations - there shall be Downstream Facilities Operating participations of the costs and expenses referred to in Clause 8.02 (b) in respect of:

(a) the operation of Ethane Specific Facilities;

(b) the operation of Butane Specific Facilities;

(c) the operation of Propane Specific Facilities;

(d) the operation of Crude and Condensate Facilities;

(e) the operation of Interim Load-Out Facilities;

(f) the operation of Shared Product Specific Facilities;

(g) Downstream General Operating Costs being such costs and expenses as are not capable of being reasonably allocated to the operation of one or more of the facilities referred to in paragraphs (a) to (f) inclusive.

1.16.03 Wharfage Participation - means the percentage apportioned to a Party from time to time in respect of the wharfage fees payable under the Stony Point Indenture being the percentage as determined pursuant to the Third Schedule.

The Downstream Operations refers to the ongoing operations which are conducted in and on the Downstream Facilities.

Clause 8 requires the Operator to pay all costs and expenses of a capital nature (Downstream Facilities) and all costs and expenses of an operating nature (Downstream Operations) as and when those costs and expenses become due.

Clause 8.02(a) refers to the capital costs whilst clause 8.02(b) refers to operating expenses except 'Wharfage Fees'. Clause 8.02(c) specifically provides for 'Wharfage Fees' payable under clause 72 of the Stony Point Indenture.

The construction of the Jetty is a capital cost provided for in clause 8.02. So much is evident by reference to clause 8.02(a)(x).

The parties intended that the cost of the construction of the Jetty would be in accordance with the Producers' fixed Jetty Participations. I use the word 'fixed' because that is how the participation in clause 8.02(a)(x) is described. When the Producers entered into the Downstream Agreement they intended that the Jetty Participations would remain fixed in accordance with the participations in Schedule 2 of the Downstream Agreement.

The opening sentence of clause 8.02(a)(x) was contemplated by the Indenture. It provides the further agreement of the Producers between themselves as to how they will share in the cost of the construction of the Jetty, a liability imposed upon the Producers under clause 63 of the Indenture. It was contemplated because there was nothing in the Indenture as to how the Producers would share that cost between themselves. The apportionment of the cost had to be known so that clause 88 of the Indenture could operate to the several liabilities of the Producers.

There had to be a separate agreement between the Producers as to their shares. The Indenture provided for their several but unstated liabilities to the State. The Producers agreed that the cost of construction would be borne in proportion to each of the Producers' fixed Jetty Participations. The Producers did not agree that the Jetty Participation would have any other use.

In my opinion, the fixing of the Jetty Participations in Clause 8.02(a)(x) shows that the Producers agreed that their respective contributions to the cost of design, engineering, construction and installation of the Jetty would be fixed for all times. Those capital costs would never be readjusted between the Producers.

Clause 8.02(a) demonstrates the necessity, for the proper construction of the three agreements, to read the agreements together. As I have already observed each of the documents contemplated the creation or existence of the other documents.

Clause 8.02(a)(x) is also consistent with clause 88 of the Indenture. Clause 88 of the Indenture contemplates that the parties will apportion their several liabilities to the State in accordance with their interest in the ownership of the assets.

Clause 8.02(a)(x) is, however, unique. Not only does it provide, in the first sentence of placitum (x), for the apportionment of the cost of the construction of the Jetty, it also provides for the Producers' shares in the State's liability to pay the Producers for the cost of construction of the Jetty and the State's further liability to repay the Producers the Jetty Security Deposit.

There are no like terms otherwise in clause 8.02(a). Clause 8.02(a) on the face of it only applies to an apportionment of capital costs between the Producers. It does not otherwise provide for the apportionment of any revenue or any repayment by any third party.

Clause 8.02(a)(x)(aa) provides for the apportionment between the Producers of the monies owing by the State to the Producers for the cost of construction of the Jetty and it provides the Producers shall each be:

"entitled to share the sum to be paid by the State to the Producers under Clause 63 of the Stony Point Indenture;

in the proportions corresponding to their respective contributions to the costs associated with ... the design, engineering, construction and installation of the Jetty."

That sum must be the same as the Producers' Jetty Participation because the Producer's Jetty Participations were fixed in accordance with the respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty.

Mr Oslington submitted that subclauses 8.02(a)(x)(aa), (bb) and (cc) did not refer to the party sharing in accordance with the Jetty Participations but rather "in the proportions corresponding to their respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty". He argued that the parties contemplated therefore that the Jetty Participations were not to be used for the purpose of apportioning any of the payment, the liability or the repayment under subclauses 8.02(x)(aa), (bb) or (cc). He argued that the obligation therefore to contribute to the Security Deposit was not in accordance with any Participation but in accordance with the proportions corresponding to their respective contributions to the costs associated with the design etc of the Jetty.

Thus, he argued the various Participations under the Downstream Agreement had no part to play in the fixing of the Jetty Security Deposit. It was fixed by the reference to the amount of the contributions to the costs associated with the design, engineering, construction and installation of the Jetty.

He submitted that the Producers were also entitled to share in the repayments of the Security Deposit in the same manner i.e. by reference to the proportions corresponding to their respective contributions to the costs associated with the design and such of the Jetty.

Mr Oslington argued that the Operator was obliged to apportion in accordance with those contributions but without reference to any Participations. Whilst he accepted the Producers would share in the repayment of the Jetty Security Deposit in the same proportions as their Jetty Participations the repayment was to be apportioned, not by reference to those Jetty Participations, but by reference to their initial contribution to the cost of construction.

I accept, as Mr Oslington has submitted, that the author of the Downstream Agreement has not made reference to the Jetty Participations in placita (aa), (bb) or (cc). In my opinion that is because Jetty Participations are not an appropriate description for the apportionment of receipts or for the payment of a Security Deposit or indeed for the repayment of the Jetty Security Deposit. Jetty Participations were created solely for the purpose of recording the apportionment of the costs and expenses between the Producers in the cost of the construction of the Jetty. Jetty Participations have no relevance otherwise. The term 'Jetty Participation' was not used to describe the Producers shares in the further transactions. The State's liability under clause 63 of the Indenture is to pay the "... sum equal to the cost incurred by the Producers in the design and construction ...". The Producers' liability under clause 66 is to pay " ... a sum equal to the amount paid by the State ...".

The author of the Downstream Agreement used a similar description in clause 8.02(a)(x) to that used in the Indenture.

It was enough to describe their shares by reference to the equivalent of Jetty Participations. A Jetty Participation was, for reasons which I will give, a fixed Participation and the party's intended it to be used only for the purpose of the allocation of the costs and associated expenses in the construction of the Jetty.

Placitum (bb) of clause 8.02(a)(x) provides that the Producers shall each be obliged to contribute to the Security Deposit under clause 66 of the Indenture, and placitum (cc) of clause 8.02(a)(x) provides that the Producers shall be entitled to share in the repayment of that Security Deposit under clause 67 of the Indenture in the proportions corresponding to their respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty.

The Indenture contemplated that the Producers would pay the cost of the construction of the Jetty; the State would pay the Producers for that cost; the Producers would deposit the equivalent of the State's payment for the cost of construction with the State; and the State would repay that amount together with interest over 20 years by credit foncier payments. Those credit foncier payments would "exactly match" integer "a" which forms part of the formula under clause 72 for the payment of Wharfage Dues.

Subclauses 8.02(a)(x), (aa), (bb) and (cc) are intended to ensure that the Producers will share the two liabilities created by that transaction in the same proportions and will share in the payment and repayment by the State in the same proportion as those liabilities. In the end result it was intended that the Producers would pay for the cost of the construction of the Jetty in the proportions identified in the Jetty Participations and notionally receive payment from the State for the cost of that construction, notionally deposit that same sum with the State, and notionally receive the repayment of the Security Deposit in the same proportions.

For reasons to which I shall come, the Indenture and the letter of 24 November 1981 contemplated (and the Downstream Agreement is not inconsistent with that intention) that the non variable integer of the Wharfage Dues (integer "a") would be a liability of each of the Producers in the same proportions as each of them had contributed to the cost of construction of the Jetty. None of the Producers would incur any further liabilities in relation to the Jetty apart from the initial liability to the cost of construction of it. That is to say the parties intended the transaction involving the Jetty, including that part of the transaction which involved payment of the fixed factor of the Wharfage Dues, to be revenue neutral as between the State and Producers and as between the Producers.

Clause 8.02(b) provides that all other costs and expenses relating to Downstream Facilities shall be in accordance with the party's relevant Downstream Facilities Operating Participations. Clause 8.02(b) specifically excludes Wharfage Fees. That is consistent with clause 1.16. A Wharfage Participation is not described in clause 1.16.02 as being a Downstream Facility Operating Participation. As has already been shown it is separately defined in clause 1.16.03.

It is consistent with the definition in clause 1.16.03 that Wharfage Fees should be dealt with separately to those costs and expenses which are regulated by the relevant Downstream Facilities Operating Participations.

The Downstream Agreement refers, in the definition of "Wharfage Participation" and in subclauses 8.02(b) and 8.02(c), to Wharfage Fees. Clause 72 of the Indenture refers to Wharfage Dues.

In my opinion, the author of the Downstream Agreement has deliberately used the expression "Wharfage Fees" rather than "Wharfage Dues". I think, as Mr Karkar argued, the parties intended Wharfage Fees to be only those fees which are not part of integer "a" of the Wharfage Dues.

If the parties had made Wharfage Dues part of the ordinary costs and expenses of the Producers the Producers would no longer be contributing to integer "a" in the same proportions as the Producers had contributed to the cost of the construction of the Jetty under the Jetty Participation.

At the time of the execution of the Downstream Agreement, the clear intention of the parties was that the repayment by the State and that part of the Wharfage Dues contemplated within integer "a" would cancel each other out so that the State and the Producers had no further liability to each other in monetary terms in connection with the cost of construction of the Jetty. That is clear from clauses 1 and 2 of that part of the letter of 24 November 1981 which refers to "Marine Facilities".

I therefore agree with Mr Karkar's argument that the "Wharfage Fees" referred to in the definition of Wharfage Participation and subclause 8.02(b) and (c) only refers to that part of the Wharfage Dues not comprised in integer 'a' of the formula in clause 72.

Clause 8.02(c) deals only with the question of Wharfage Fees. It provides that the share of the costs and expenses of Wharfage Fees payable under clause 72 of the Indenture be in accordance with that party's Wharfage Participation.

I have already found that this clause is intended only to operate to that part of the formula which does not include integer "a". That is to say this clause operates in relation to the formula:

That construction is consistent with the intention of the Parties. That part of the formula relates to the use of the Jetty.

In my opinion, the Producers contemplated in the Indenture and also in the Downstream Agreement that each of the Producers would share their contributions in relation to the use of the Jetty in accordance with that part of the product, owned by each Producer, passing over the Jetty.

The Producers therefore intended that aspect of Wharfage Dues to be calculated by reference to the use of the Jetty.

The formula has been carefully expressed to ensure that the Producers' initial contribution to the cost of construction of the Jetty would never change. It would never change because the repayment of the Jetty Security Deposit was linked to integer "a" of the formula and therefore the Producers' asset comprised in the Jetty Security Deposit would be extinguished by reference to the Producers' initial contribution to the cost of the construction of the Jetty. At the same time the parties intended that part of the Wharfage Dues which comprise Wharfage Fees would be calculated by reference to the party's use of the Jetty and by application of the Wharfage Participations. The formula, in my opinion, clearly demonstrates the parties' intention.

That construction is also consistent with clause 72 of the Indenture. Clause 72(1) only operates to impose Wharfage Dues whilst the Jetty Security Deposit remains unpaid. As soon as it is repaid, i.e. after twenty years, Clause 72(4) operates and the parties pay 'normal wharfage dues'. These Wharfage Dues which became payable after twenty years would be calculated in accordance with use, i.e. in accordance with the Wharfage Participations.

Of course, when the Jetty Security Deposit has been repaid the Wharfage Dues under Clause 72(4) would approximate that part of the formula in Clause 72(1) which does not include integer 'a'.

Clause 4.02 of the Downstream Agreement provides that the Wharfage Participations should be reviewed and adjusted in accordance with the Review and Adjustment Procedure under the Downstream Agreement. In my opinion, that supports the construction at which I have arrived and that is that the parties intended that part of the Wharfage Dues payable to the State, which did not cancel out the State's obligation to repay the Jetty Security Deposit, should be shared between the Producers in accordance with their use of the Jetty from time to time.

The Jetty is a Downstream Facility: clause 1.13.08 of the Downstream Agreement. A Jetty Participation may or may not also be a Downstream Facility Investment Participation: clause 1.16.01.

I have already observed that clause 1.16.01 states that the initial Downstream Facilities Investment Participations are set out in the Second Schedule and specifically include the Jetty Participations.

It was argued that the specific reference within the definition to "Jetty Participation" in that schedule might suggest that the Producers did not intend Jetty Participations to be Downstream Facilities Investment Participations.

I think there is force in that proposition. There seems to be no need to specifically include a reference to Jetty Participations in the initial Downstream Investment Participations if Jetty Participations are indeed Downstream Facilities Investment Participations.

I think that construction is reinforced by clause 4.02 of the Downstream Agreement which requires the review and adjustment of the Downstream Facilities Investment Participations and Voting Interests not less than every two years and the review of the Downstream Facilities Operating Participations and Wharfage Participations each year.

In the case of the Downstream Facilities Operating Participations and Wharfage Participations the review and adjustment shall take place in accordance with the Third Schedule. Jetty Participations are not included in the Third Schedule.

The Third Schedule is not restricted to Downstream Facilities Operating Participations and Wharfage Participations. It also provides a formula for the review and adjustment of Downstream Facilities Investment Participation and then specifically refers to the individual Downstream Facilities Investment Participations, but does not include Jetty Participations. It follows that Jetty Participations were not to be reviewed either annually or every two years.

Because there is no reference to Jetty Participations in the Third Schedule, which provides the manner of review of Downstream Facilities Investment Participations, Downstream Facilities Operating Participations, Wharfage Participations and Voting Interests, it was never contemplated by the Producers that Jetty Participations would be reviewed. When they entered into the Downstream Agreement the Producers intended to treat Jetty Participations sui generis and did not intend that the Jetty Participations would be reviewed and adjusted. That is made clear by Clause 8.02(a)(x) which speaks of a fixed participation.

I find that at the time the Producers entered into the Downstream Agreement the Producers did not intend that the Jetty Participations would be reviewed or adjusted but intended that the Jetty Participations would remain fixed.

Whether, of course, the Producers ever agreed to vary that part of the Downstream Agreement still remains to be considered.

I can summarise the Downstream Agreement in the following manner. A Jetty Participation is different from a Wharfage Participation and intended by the Producers to have different applications. Both are sui generis. Neither are Downstream Facilities Investment Participations or Downstream Facilities Operating Participations. Jetty Participations are treated as if they were Downstream Facilities Investment Participations but only for the purpose of identifying the participations themselves in the Second Schedule. They are not part of the Third Schedule. Jetty Participations are fixed because it was intended by the parties that they would have a one off operation; to fix the initial contributions to be made by each of the Producers in the cost of the design, engineering, construction and installation of the Jetty. Jetty Participations are not to be reviewed and adjusted because they are fixed Participations (clause 8.02(a)(x)) and because they are not provided for in clause 4.02 of the Downstream Agreement or the Third Schedule. It was necessary to have a reference to Jetty Participations in the Second Schedule because of the wording of clause 8.02(a)(x).

The Producers are entitled to share in the repayment of the Jetty Security Deposit in the proportions corresponding to their respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty. Their entitlement to share is not in accordance with the Jetty Participations but in accordance with the terms in clause 8.02(a)(x)(cc). In that regard I agree with Mr Oslington's argument.

Consequently the Producers have an interest in the Jetty Security Deposit in those proportions.

Jetty Participations do not apply to integer "a" of the formula in clause 72 of the Indenture. Integer "a" is fixed. Integer "a" of course is the annual amount required to amortise in 20 annual payments under a credit foncier system the sum specified in the second paragraph, clause 63 of the Indenture and an interest rate of 20 per cent per annum. The Producers must share in their contribution to integer "a" in accordance with clause 88 of the Indenture. That means they are liable to the extent of the their interest in ownership of the Jetty. That interest is determined by reference to the initial contributions to the costs associated with the design, engineering, construction and installation of the Jetty. Those contributions are reflected in the Jetty Participations in Schedule 2 of the Downstream Agreement.

The Downstream Agreement makes no provision for the liability to pay Wharfage Dues. It makes provision for payment of Wharfage Fees: clause 8.02(c) of the Downstream Agreement. Wharfage Dues and Wharfage Fees are different things. Wharfage Dues comprise the whole of the formula in clause 72 including integer "a". A reference to 'Wharfage Fee' is a reference only to that part of the formula which does not comprise (a - b).

Wharfage Participations apply only to Wharfage Fees and not to Wharfage Dues. Specifically Wharfage Participations do not apply to integer "a" of the formula contained in clause 72. The Producers are liable to pay Wharfage Fees in accordance with their Wharfage Participations which were to be reviewed annually under the Downstream Agreement.

Upon those findings the payment by the Producers of the amount comprised in integer "a", which will be in accordance with their interests in the ownership of the Jetty Security Deposit, will offset the State's liability to repay the Jetty Security Deposit each year until 2003 when the State's liability to repay the Security Deposit will cease.

After the complete repayment of the Jetty Security Deposit, which is to occur twenty years after the first payment, the 'normal wharfage dues', which will then become payable by the Producers, will be apportioned between the Producers in accordance with their Wharfage Participations.

It follows from those findings that I must reject part of Santos' argument. I accept that part of Santos' argument which relates to the repayment of the Security Deposit and the proportions in which the Producers are entitled to share. I accept that the Producers are entitled to share that repayment in accordance with the provisions of clause 8.02(a)(x) of the Downstream Agreement and in particular by reference to the proportions corresponding to the respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty. I agree that the Jetty Participation Factors are not relevant to the apportionment of that Security Deposit amongst the Producers.

However, I reject Santos' argument that the payment of Wharfage Dues under clause 72 of the Indenture is to be determined by the application of Wharfage Participations across the whole of the formula. For the reasons I have already given, that argument is inconsistent with the Indenture, the letter of 24 November 1981 and indeed the Downstream Agreement itself.

It follows, from the rejection of Santos' argument, that Santos' historical accounting practice in relation to the repayment of the Jetty Security Deposit and the payment of Wharfage Dues was correct.

The Downstream Agreement makes no reference whatsoever to the Water and Roads Security Deposit, which was payable under the Fourth Schedule of the Indenture, or to the Water Rates and Road Tariff, which are payable by the Producers under that Indenture. There is simply no reference to the Producers' asset or the Producers' liability.

That reinforces my opinion of the construction of these documents. It was intended by the Parties, including the State, that the State's liability for repayment of the Water and Roads Security Deposit and the Producers' liability for payment of the offsetting Water Rates and Road Tariff would be according to the terms of the Indenture and in particular clause 88 of the Indenture.

However, there is no agreement in the Indenture as to how the Producers would share in the liability to pay the Security Deposit and therefore how their interest in their ownership of that Security Deposit once paid would be determined. Again there is nothing in the Downstream Agreement about that.

In my opinion, the Producers did not intend that the Downstream Agreement would bear upon that Security Deposit or the Water Rates and Road Tariff.

The State had a liability to repay the Security Deposit which it discharged between 1984 and 1993. The Producers had a corresponding liability to pay offsetting Water Rates and Road Tariff during the same period which would "exactly match" the State's annual repayment, including interest, of that security deposit.

The Operator treated the Producers' entitlement to share in the Security Deposit by reference to the Common Facilities Investment Participations, which are a Downstream Facilities Investment Participation in clause 1.16.01.

In my opinion, the treatment of that asset was not agreed in the Downstream Agreement. However it was agreed by the Producers at the time of the implementation of the historical accounting practice.

The Water and Roads Security Deposit had been paid prior to the Producers agreeing on the implementation of the historical accounting practice in relation to the four items which are the subject of these proceedings. Those payments were 'advance funded'. The payments are described in the letter of 24 November 1981 in that manner.

In my opinion, the Producers advance funded those payments without first agreeing how the monies would be shared.

The agreement to share in the proportions in which they did followed upon the implementation of the historical accounting practice.

Once the Producers agreed upon the interests in ownership of the Water and Roads Security Deposit it then followed, on the proper construction of clause 88 of the Indenture, that the Producers' liability to the State for Water Rates and Road Tariff corresponded with that interest in ownership. That was the manner in which the Operator provided for repayment of the Water and Roads Security Deposit and the payment of the Water Rates and Road Tariff.

It follows that the apportionment of the repayment of the Water and Roads Security Deposit is not governed by any Participation. That is consistent with the apportionment of the repayment of the Jetty Security Deposit. The repayment of the Jetty Security Deposit is not governed by any participation.

It was intended by the parties that the Producers would notionally receive back what they had paid.

The liability to pay the Water Rates and Road Tariff arises out of Clause 88 of the Indenture. That liability is also not governed by any Participation.

In those circumstances the Downstream Agreement has no application to this item of revenue and this item of expense. It follows that the Settlement Agreement (to which I will shortly refer) has also no application to the Water and Roads Security Deposit or to the Water Rates and Road Tariff.

Mr Oslington sought to argue that in fact clause 8.02(a) of the Downstream Agreement does refer to the payment of that Security Deposit which he argued was a capital cost and had to be paid in accordance with the Producers' Common Facilities Investment Participations. He argued that the Water Rates and Road Tariff were caught by clause 8.02(b) and the liability for the Water Rates and Road Tariff had to be apportioned between the Producers in accordance with their Downstream Facilities Operating Participations and in particular the Downstream General Operating Costs. There was, he said, no other participation which was appropriate.

His argument meant that there was no nexus between the liability to repay the Water and Roads Security Deposit and the Water Rates and Road Tariff which were contemplated by the parties in the letter of 24 November to exactly match.

I reject that argument. That argument does not protect the State as the Indenture contemplates the State should be protected. It would mean the repayment to each of the Producers would not "exactly match" the liability of each of the Producers in relation to the Water Rates and Road Tariff. It is inconsistent with clause 88 of the Indenture. It requires a straining of the words of the Downstream Agreement.

In my opinion, the Producers agreed, probably at about the time of the implementation of the historical accounting practice, that they would contribute to the Water and Roads Security Deposit in accordance with the same proportions as the Common Facilities Investment Participations and that they would share in the repayments by the State in those same proportions. However that agreement is not continued in the Downstream Agreement or governed by it. The Common Facilities Investment Participation was used outside the Downstream Agreement to regulate the Producer's contributions to the Water and Roads Security Deposit. They also agreed that pursuant to, and consistent with clause 88 of the Indenture, that they would share in the liability to pay the Water Rates and Road Tariff in the same proportions. That liability was determined by reference to their interest in ownership in the asset, namely the Water and Roads Security Deposit.

I shall mention for completeness clause 2.02.03 of the Downstream Agreement which provides:

"The written agreement of each Party shall be required for any amendment, variation, modification or cancellation of this Agreement."

It cannot be said that the construction at which I have arrived amounts to a variation of the Downstream Agreement. The Downstream Agreement simply did not address the question of the Water and Roads Security Deposit or the liability to pay the Water Rates and Road Tariff. Nor did it need to because neither the apportionment of the asset and liability between the Producers was governed by a Participation. That item of revenue and the item of exposure had been dealt with once and for all.

To that extent I accept Delhi's argument on the construction of the relevant documents and reject Santos' argument.

It follows, for reasons which I will discuss shortly, that Santos adopted the correct assumption as to the meaning of the relevant documents in the implementation of the historical accounting practice.

Clause 2.02.03 is important in a consideration of a further argument advanced by Delhi. Delhi argued that if its argument on the true construction of the documents was rejected, because of the way the parties had conducted themselves after the execution of the Downstream Agreement, and before the execution of the Settlement Agreement, the Downstream Agreement had been varied. Santos argued there could be no variation of the Downstream Agreement except in accordance with clause 2.02.03.

I think that Delhi's argument on the construction of the documents is correct and therefore the question of variation does not directly arise. However, it is my intention in these reasons to address all of the arguments put by each side in case the matter needs to be examined elsewhere.

As Operator, Santos had the obligation to set up a Downstream Account and to pay all costs, expenses and liabilities incurred by the Producers with respect to Downstream Facilities and Downstream Operations and to receive all monies for the credit of the Producers under the Agreement.

Thus it fell on Santos to set up the accounting procedure for the operation of that account.

On 20 July 1984, Mr R Taylor, who was then employed by Santos and who is now deceased, wrote a memorandum addressed to "Producer Accountants" relating to the accounting treatment for payment and receipts of State owned facilities.

I think it may be inferred from the addressees to the memorandum that each of the addressees, including Delhi, received that memorandum at or about that time. That inference arises, as I say, from the identification of the addressees but also from the front sheet to the memorandum itself which states:

"Unit/Downstream Accountants' Meeting 25/7/84".

The documents accompanying the proposal for the accounting treatment for payments of receipts of State owned facilities included seven attachments which identified the Security Deposits and the repayments to be made by the State.

The Security Deposits, to which I have referred, were identified. The Jetty Security Deposit, which had not at that time been paid by the Producers to the State, was the sum of $48,204,841, which required an annual repayment by the State of $9,899,179 on 9 November of each year from 1984 to 2003.

This memorandum treated the Water Security Deposit and the Roads Security Deposit separately. Nothing turns on that.

The Water Security Deposit was in the sum of $930,474 requiring an annual repayment by the State of $207,044 on the first day of December from 1984 to 1993.

The Roads Security Deposit was in the sum of $3,040,000 requiring an annual repayment by the State of $676,445 on the first day of December each year commencing again in 1984 and completing in 1993.

As already noted the Water and Roads Security Deposit had been paid at that time. There had been an "advance funding".

Because of the provisions of the Indenture the repayments were credit foncier payments over the periods of time which I have identified and thereby included the interest provided for in the Indenture in the case of the Jetty Security Deposit of 20 per cent and the Water and Roads Security Deposit of 18 per cent.

Mr Taylor discussed separately the Jetty and Water and Roads Security Deposits but treated each of them, at least in accounting terms, in the same way. His proposal, which I have described as the historical accounting practice was:

There are three areas within the Downstream facilities at Port Bonython for which the accounting transactions required need to be defined.

- Water supply facilities (Whyalla to Port Bonython)

History Under the Downstream Agreement and as part of the Liquids Project, a jetty was constructed to accommodate tanker loading at Port Bonython. The costs of the jetty construction were accumulated under General Ledger 671. The Stony Point (Liquids Project) Ratification Act 1981 sets out the scheme whereby ownership of the jetty is passed to the State and also the method of accounting of the consideration for same.

Payments and Receipt of Funds in Consideration of "Sale" of the Jetty at Port Bonython

a) The State shall pay to the Producers a sum of money equal to the cost incurred by the Producer's in the design and construction of the jetty facilities together with consultancy fees.

This sum shall be credited against the accumulated costs on General Ledger 671. This will, in effect, all but cancel the cost of the jetty in the Joint Venture records.

b) The Producers shall deposit with the State, at the same time as the above funds are received from the State, a sum equal to the aforesaid amount paid by the State. This sum shall be identified in the Joint Venture records as "Jetty Security Deposit" under General Ledger 680. Refer Attachment 1 and 2.

c) The Security Deposit referred to above, together with interest thereon at the rate of 20% per annum calculated on a credit foncier basis shall be repaid by the State by equal payments paid over the following twenty years. The repayment instalment shall take place each year on the anniversary of the transfer of ownership of the jetty. Refer Attachment 1 and 2.

The capital element included in each payment shall be credited to the Security Deposit Account in the Joint Venture General Ledger thereby reducing the amount of the Security Deposit debtor. Refer Attachment 1 and 2.

The interest element of each payment shall be credited against an Interest Received Account (General Ledger 645) and treated as Operating Income each financial year.

d) Upon receipt from the State of the sum in (c) above being the annual charge for capital and interest on the Security Deposit, the Producers shall render payment of a "Secondary Wharfage Charge" equal to the annual payment received from the State. This "charge" is in addition to the charge to be rendered by the State periodically in respect of wharfage usage in the case of commodities passing across or through the transferred facilities. The "Secondary" charge shall be charged to General Ledger 645. The Producer sharing arrangement on ledger 645 in respect of interest received and wharfage charge will be the same as exists for ledger 680.

Summary The net effect of the above transactions each year will be:-

- to reduce the Security Deposit Account each year (General Ledger 680) Refer Attachment 2.

- the Producers will receive income on Interest on Security Deposit (General Ledger 645) Refer Attachment 2.

- the Producers will have an allowable charge against projects in the form of a Secondary Wharfage charge (General Ledger 645). Refer Attachment 2. By the year 2003 the balance on Account 680 will be zero.

2. Lincoln Highway Turn off to Port Bonython - The Road Reserve

History The State has constructed a bituminous sealed road between the Lincoln Highway and the jetty to meet the existing Lowly Point Road.

Payments and Receipt of Funds in Consideration of the Reserve Road at Port Bonython

a) In order to assist the State in the Road construction, the Producers advance funded the project by means of a security deposit. These funds were debited to the Security Deposit Account - State Government (General Ledger 677). Refer Attachment 1 and 3.

b) The Security Deposit referred to above, together with interest thereon at the rate of 18% per annum calculated on a credit foncier basis shall be repaid by the State by equal payments paid over the following ten years. The repayment instalment shall take place each year commencing 1st December 1984. Refer Attachment 1 and 3.

The capital element included in each payment shall be credited to the Security Deposit Account - State Government in the Joint Venture General Ledger 677 thereby reducing the amount of the Security Deposit - Road debtor. Refer Attachment 1 and 3.

The interest element of each payment shall be credited against an Interest Received Account (General Ledger 649) and treated as Operating Income each financial year. This Account will have the percentage share amongst Producers as the original cost of the Road.

Upon receipt from the State of the sum in (b) above being the annual charge for capital and interest on the Security Deposit Account - State Government, the Producers shall render payment of a "Secondary Road Tariff" equal to the annual payment received from the State. This "tariff" is in addition to the tariff to be rendered by the State periodically in respect of road usage in this case of traffic using the transferred facilities. This Secondary Tariff will be charged to General Ledger 649. Ledger 649 will have the same percentage share amongst Producers as that for Ledger 677 (Security Deposit).

Summary The net effect of the above transactions each year will be:-

- to reduce the Security Deposit - Road Account each year (General Ledger 677) Refer Attachment 3.

- the Producers will receive income on Interest on Security Deposit - Road (General Ledger 649) Refer Attachment 3.

- the Producers will have an allowable charge against projects in the form on a Secondary Tariff charge (General Ledger 649) Refer Attachment 3.

History A water supply facility has been constructed by the State to take water from the Morgan to Whyalla water pipeline to the facilities at Port Bonython.

Payments and Receipt of Funds in Consideration of the Water Supply Facilities at Port Bonython

a) In order to assist the State in financing the establishment of the water facility to Port Bonython, a sum equal to the cost of the project was deposited with the State. This sum has been debited to General Ledger 677 (Security Deposits - State Government) in the Joint Venture records. Refer Attachment 1 and 4.

b) The Security Deposit referred to above together with interest thereon at a rate of 18% per annum calculated on a credit foncier basis shall be repaid by the State by equal payments paid over the following ten years. The repayment instalment shall take place each year commencing on the 1st December 1984. Refer Attachment 1 and 4.

The capital element included in each payment shall be credited to the Security Deposit Account - State Government (General Ledger 677) in the Joint Venture General Ledger, thereby reducing the amount of the Security Deposit debtor in respect of the water facility. Refer Attachment 1 and 4.

The interest element of each payment shall be credited against an Interest Received account (General Leger 649) and treated as Operating income each financial year. This account, also will have the same interest share as the Security Deposit.

d) Upon receipt from the State of the sum in (b) above being the annual charge for capital and interest on the Security Deposit - Water Supply Facility, the Producers shall render payment of a "Secondary Water Rate Charge" equal to the annual payment received from the State. This "charge" is in addition to the charge to be rendered by the State periodically in respect of water usage in this case of Port Bonython making use of the transferred facility. This Secondary charge will be debited to a General Ledger (649). Refer Attachment 4.

Summary The net effect of the above transactions each year will be:-

- to reduce the Security Deposit - Water Supply Facility Account each year (General Ledger 677) Refer Attachment 4.

- the Producers will receive income on Interest on Security Deposit - Water Supply Facility (General Ledger 649) Refer Attachment 4.

- the Producers will have an allowable charge against projects in the form on a Secondary Water Rate charge (General Ledger 649) Refer Attachment 4."

I think it can be inferred that the proposal must have been accepted by all of the Producers. There can be no doubt that the accounting procedure proposed by Mr Taylor was implemented and the Jetty Security Deposit and the Water and Roads Security Deposit were treated in accordance with that proposal.

It is Delhi's case that Mr Taylor's proposal and the system which was implemented in agreement with that proposal were in accordance with the Indenture, the Minister's letter and not inconsistent with the Downstream Agreement.

It is Delhi's case that that procedure should have been applied throughout the respective periods of repayment of the Jetty Security Deposit and the Water and Roads Security Deposit.

In my opinion, Mr Taylor's accounting proposal was in accordance with the true construction of the Indenture, the Minister's letter of 24 November 1981 and not inconsistent with the Downstream Agreement.

It was also consistent with the broad intention of the parties that the cost of the construction of the Jetty would fall upon the Producers once and be paid for by the State. The transaction contemplated the extinguishment of the State's debt to the Producers by a payment of a Wharfage Fee, which was part of the Wharfage Dues. It was also the intention of the parties at the time these Agreements were entered into, that the State's liability to repay the Water and Roads Security Deposit would also be extinguished by the Water Rates and Road Tariff.

There is no doubt that the procedure which was adopted in the terms proposed continued without objection by any party until 10 January 1997 when Mr McArdle, the Chief Executive Officer of Santos, directed that the accounting procedures be changed.

I agree with Delhi's submission that Mr Taylor's proposal was in accordance with the agreements of the parties. In my opinion, Santos was wrong to change that accounting procedure unless there was anything in the Settlement Agreement which obliged some change.

Differences arose between the Producers as to the timing and procedure for reviews and adjustments of Unit Participations and Downstream Participations. The Downstream Facilities Operating Participations and Wharfage Participations were adjusted each year in accordance with the Third Schedule to the Downstream Agreement but otherwise the reviews and adjustments did not take place.

In fact the reviews and adjustments which were to be conducted under both the Unit Agreement and Downstream Agreement on the first day of January in each of the years 1987, 1989, 1991, 1993 and 1995 did not take place because of litigation and arbitration between the Producers.

The Producers recognised that the constant review and adjustment of the Participations was an inappropriate procedure. The Producers recognised that it was in their interests to reach an agreement which, once and for all, fixed the percentages which they would have to contribute to costs and expenses and by which they could share in revenue.

Eventually the Producers agreed the results of the reviews and adjustments effective as at the first day of January in each of the years 1987, 1989 and 1991; and agreed to enter into an agreement for the purpose of fixing Participations under the Unit Agreement, the Downstream Agreement, the Joint Operating Agreements; and to amend the Unit Agreement and the Downstream Agreement so as to remove the requirement for any further or other reviews and adjustments unless otherwise unanimously agreed to by the parties. The parties therefore entered into an agreement described as the "Fixed Factor Settlement Agreement" on 5 December 1996 ("the Settlement Agreement").

The purpose of the Settlement Agreement was to record the agreements to which I have referred and in particular eliminate the need for further reviews and adjustments.

The recitals to the Settlement Agreement records the following:

"(A) The parties hereto are parties to the Unit Agreement and Downstream Agreement (as hereinafter respectively defined) which Agreements provide for periodical reviews and adjustments of Unit Participations and Downstream Participations (as therein defined).

(B) Pursuant to the provisions of the said Unit Agreement and the said Downstream Agreement reviews and adjustments of Unit Participations and Downstream Participations are required to be conducted inter alia effective as of the first day of January in each of the years 1987, 1989, 1991, 1993 and 1995, which reviews and adjustments have regard inter alia to the Undivided Interests of the parties under certain Joint Operating Agreements relating to various parts of Petroleum Exploration Licences 5 and 6.

(C) None of the reviews and adjustments referred to in Recital B hereto has prior to the date hereof been completed as a result of litigation and arbitration amongst the parties to the said Unit Agreement.

(D) The parties have now agreed the results of the reviews and adjustments effective as of the first day of January in each of the years 1987, 1989 and 1991 and consequent upon the assignment of Undivided Interests under the Joint Operating Agreements as hereinafter provided have agreed to enter into this Agreement for the purpose of fixing participation factors under the Unit Agreement, the Downstream Agreement and the Joint Operating Agreements in the manner and at the times hereinafter respectively provided and to amend the Unit Agreement and the Downstream Agreement so as to remove the requirement for any further or other review and adjustment thereunder unless otherwise unanimously agreed by the parties thereto."

The parties agreed to treat Unit Participations, Downstream Participations, Downstream Facility Operating Participations and Wharfage Participations as Fixed Factors. The Settlement Agreement defined 'Fixed Factors':

"(xiii) "Fixed Factors" means the Unit Participations, the Downstream Facilities Investment Participations, the Downstream Facilities Operating Participations, the Wharfage Participations, the Voting Interests and Undivided Interests that the parties will hold consequent upon this Agreement and the Deed of Assignment and Transfer which are respectively as follows:-

The parties agreed in paragraph 3 of the Settlement Agreement:

"3. Results of Unit and Downstream Review and Adjustment

(a) The Unit Participations and the Downstream Participations resulting from the Reviews and Adjustments under the Unit Agreement and the Downstream Agreement required by Clauses 3 (c) and 5 (c) of the Unit Amending Deed, and the Downstream Facilities Operating Participations and Wharfage Participations under the Downstream Agreement are set out in the First Schedule and have effect from 6.00 a.m. 1 January 1987 to the Unit Effective Date.

(b) Each Unit Participation under the Unit Agreement and each Downstream Facilities Investment Participation and Voting Interest under the Downstream Agreement effective on and from the Unit Effective Date to the date of this Agreement are in accordance with the Fixed Factors and each of those Participations will remain unaltered in the future in the absence of unanimous agreement of the parties. The Downstream Facilities Operating Participations and Wharfage Participations effective during 1991 are set out in the Second Schedule. Each of the Downstream Facilities Operating Participations and Wharfage Participations effective from the Block Effective Date will be in accordance with the Fixed Factors and will remain unaltered in the future in the absence of unanimous agreement of the parties. No capital equalisations are to be calculated or payable in respect of the adoption of the Fixed Factors as the Unit Participations and Downstream Facilities Investment Participations and Voting Interests as at Unit Effective Date."

The unit effective date referred to in clause 3 was 1 January 1991.

The Settlement Agreement was intended to amend the Unit Agreement and Downstream Agreement by putting in place, for all times, the respective shares of the Producers and it did so in Schedule B. The Producers also intended that the Settlement Agreement would avoid any future need for any review or adjustment of any of the Participations under either the Unit Agreement or the Downstream Agreement.

However, it not only provided for future events it also provided for accounting adjustments. Clause 5 of the Settlement Agreement provides for two accounting adjustments, the first for the period 1 January 1987 to 1 January 1996 and the second for "the period subsequent thereto": cl 5(a) and cl 5(b). Sub-clauses 5(d) to 5(n) of the Settlement Agreement provide:

(d) By 1 December 1996, the Unit Operator will in respect of the First Accounting Adjustment provide the parties with a schedule showing the net amounts payable/receivable by each party which schedule shall be supported by sufficient information to disclose the calculation of the amount payable/receivable by a party pursuant to such Accounting Adjustment. By 9 December 1996, the Unit Operator will in respect of the schedule provided pursuant to this clause provide the parties with a revised schedule which will be amended only insofar as necessary to reflect sole risk/non-participation premium adjustments, Brumby/Epsilon/Roseneath Royalty adjustments and Product Retracking for 1990 and 1991.

(e) Each party in respect of which there is a First Accounting Adjustment payable under this Clause 5 will pay that amount to the Unit Operator on 20 December 1996, and on that date the Unit Operator will pay therefrom each party in respect of which there is a First Accounting Adjustment receivable under this Clause 5.

(f) By 9 December 1996, the Unit Operator will in respect of the Second Accounting Adjustment provide the parties with a schedule showing the estimated net amounts payable/receivable by each party which schedule shall be supported by sufficient information to disclose the calculation of such Accounting Adjustments.

(g) By 10 January 1997 the Unit Operator will in respect of the Second Accounting Adjustment provide the parties with a schedule showing the net amounts payable/receivable by each party which schedule shall be supported by sufficient information to disclose the calculation of such Accounting Adjustments.

(h) Each party in respect of which there is a Second Accounting Adjustment payable under this Clause 5 will pay that amount to the Unit Operator on 15 January 1997 and on that date the Unit Operator will pay therefrom each party in respect of which there is a Second Accounting Adjustment receivable under this Clause 5(g).

(i) The Unit Operator will provide an Audit Opinion on the correctness of the Accounting Adjustments by 30 June 1997 but neither the auditor nor any party is entitled to put in issue:

(i) the correctness of the Unit Participations and Downstream Participations referred to in Clauses 3(a) and (b) with the exception of the Downstream Facilities Operating Participations and Wharfage Participations;

(ii) the correctness of the Undivided Interests resulting from the Deed of Assignment and Transfer;

(iii) the correctness of any aspect of the Reinstated 1 January 1987 Review and Adjustment (including without limitation the values ascribed to capital equipment used in the calculation of equalisation debits and credits pursuant to the Reinstated 1/1/1987 Review and Adjustment).

(j) Any adjustment to the Accounting Adjustments as a result of the audit referred to in Clause 5(i) requiring payment by or to any party will be made thirty (30) days after the date of the Audit Opinion.

(k) Each party has the right to perform four comprehensive audits of the Accounting Adjustments at any time prior to 31 December 1998. Clause 1.6 of Exhibit B to the Unit Agreement (treating the audit referred to in Clause 1.6 as the audit referred to in this Clause 5(k)) will apply mutatis mutandis to those audits.

(l) If any party receives an Audit Opinion consequent upon an audit pursuant to Clause 5(k) in which an opinion is expressed that a further adjustment to the Accounting Adjustments is required:

(i) if the parties unanimously agree that the further adjustment should be made, then payment of that adjustment will be made within thirty (30) days of agreement; or

(ii) if within sixty (60) days of 31 December 1998 the parties do not unanimously agree that any further adjustment identified in an Audit Opinion obtained pursuant to Clause 5(k) should be made, the disagreement about the adjustment will be referred to Arbitration in accordance with the provisions of Article 23 of the Unit Agreement and if the Arbitrator decides that the further adjustment is warranted, payment of the adjustment will be made within thirty (30) days of the arbitral award. The reference to Arbitration under this clause may be made at any time earlier than 60 days of 31 December 1998 provided all parties affected by the amount in dispute agree that no further audits will be carried out by those parties under Clause 5(k) and no further adjustments will be sought by those parties under Clause 5(l). No party which is not a party to any such Arbitration shall be liable for any costs directly related thereto.

(m) Neither an auditor nor any party auditing the Accounting Adjustments pursuant to Clauses 5(i) or 5(k) will put in issue or dispute the correctness of the matters referred to in Clause 5(i).

(n) Subject to the provisions in Clauses 5(i) to (m), the Accounting Adjustments are conclusive and will not be challenged by any party.

Clause 11 of the Settlement Agreement provides:

(i) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and contains all of the representations, warranties, covenants and agreements of such parties. This Agreement supersedes all prior negotiations, contracts and arrangements, understandings and agreements with respect to such subject matter. This clause 11(a)(i) is not intended to supersede any contract, arrangement or understanding between Boral and Delhi alone."

(ii) Each party acknowledges and agrees that in entering into this Agreement it has not relied on any representations or warranties about its subject matter and that in its interpretation the contra preferentum rule of construction shall not apply.

The last clause to which reference needs to be made in the Settlement Agreement is clause 15 which provides:

Except to the extent otherwise expressly provided in this Agreement, the rights and obligations of each of the parties under the Unit Agreement, the Downstream Agreement and the JOAs shall remain in full force and effect."

When the Settlement Agreement was executed the Water and Roads Security Deposit had been repaid but the Jetty Security Deposit remained partly unpaid.

The Settlement Agreement makes no reference to the Jetty, the Jetty Security Deposit, the repayment of that Security Deposit or to the Wharfage Dues provided for in clause 72 of the Indenture. Nor does it make any reference to any Jetty Participation or Wharfage Fees. Moreover the Settlement Agreement does not refer to the Water and Roads Security Deposit or the Water Rates and Road Tariff.

In my opinion, contrary to the argument put by Delhi, there is good reason for that. The Producers believed at the time that they entered into the Settlement Agreement that the combination of the Indenture, the letter of 24 November 1981, and to the limited extent already explained the Downstream Agreement, and the historical accounting practice had dealt once and for all with the Security Deposits, their repayment and the liabilities of the Producers in respect to the offsetting expenses. The Producers believed that the machinery which had been put in place which culminated in the historical accounting practice had rendered those transactions revenue neutral from all parties' point of view and no longer needed to be addressed. In my opinion, for that reason, the Settlement Agreement does not refer expressly to the subject matter of the historical accounting practice.

That is consistent with the terms of the Downstream Agreement which fixed the Jetty Participation and made no reference to payment of Wharfage Dues but only Wharfage Fees. Nor did it make any reference to the Water and Roads Security Deposit or the Water Rates and Road Tariff.

Delhi argued that the Settlement Agreement dealt with the Jetty Participation by unfixing it and refixing it by reference to the Fixed Factors. I do not agree with that argument.

In my opinion, as I have already said, the Producers intended that the Jetty Participations would be fixed once and for all. It was fixed by reference to the respective obligations of the Producers at the time of the construction of the Jetty. The rest of the transaction, which involved the payment by the State of the cost of construction, the payment by the Producers of the Security Deposit, the repayment of the Security Deposit and that part of the Wharfage Dues which was intended to offset that repayment, were all predicated on the basis there would never be any change in the Jetty Participations and that the transaction had been rendered for all time revenue neutral. In my opinion, that was also the intention of the parties in respect of the Water and Roads Security Deposit, its repayment and the offsetting expenses.

The parties saw no need to deal with those transactions in the Settlement Agreement. Neither of those transactions was a source of disagreement at the time that the Settlement Agreement was reached. They subsequently became so but, in my opinion, only because Santos dealt with those transactions thereafter other than in accordance with the parties' intentions expressed in the Indenture, and the letter of 24 November 1981, the Downstream Agreement and the agreed historical accounting practice.

Mr Karkar argued that there was evidence to suggest that the Producers had agreed that the Jetty Participations might be reviewed or adjusted because, in due course, two of the parties agreed between themselves to alter their Jetty Participations. On 20 December 1993 Santos entered into an agreement with a Producer, Crusader Resources No Liability ("Crusader"), to fix its interests in the Joint Operating Agreements and its Unit Participations.

In doing so Santos assigned to Crusader interests in the Joint Operating Agreement, Unit Participation Factors and Downstream Participation Factors and Crusader assigned interests in those Agreements and Units to Santos.

In that Agreement the parties agreed to an alteration of Crusader's Jetty Participation which increased from 2.7786 per cent to 4.75 per cent by Santos transferring 1.9714 per cent of its Jetty Participation to Crusader.

Mr Karkar argued that the parties must have previously contemplated that the Jetty Participation could be unfixed and refixed.

I do not agree with that submission. Santos and Crusader agreed between themselves an apportionment of capital costs, costs and expenses and revenue by entering into this deed. Why they might have agreed between themselves to Santos transferring part of its Jetty Participation to Crusader is not clear. It may have been to allow the accounting treatment which Mr Taylor had set in place to continue and so far as Crusader was concerned to continue to make the Jetty and Water and Roads transactions revenue neutral. However, because Santos and Crusader agreed between themselves to an alteration in their respective Jetty Participations does not assist in determining whether the Producers at any time agreed that the Jetty Participation generally should be unfixed and refixed by the Settlement Agreement.

The Producers made no reference whatsoever to Jetty Participations in the Settlement Agreement. I see no reason to infer any intention on the part of the Producers to agree to any terms unfixing the previously agreed Jetty Participations and refixing them by reference to the Producers' Fixed Factors.

In my opinion, the parties intended that the previous practice and apportionment, both as to the repayment of the Security Deposits and the offsetting expenses, continue as they had prior to entering into the Settlement Agreement. In other words the Producers intended the transactions to be revenue neutral to all of the parties.

The parties did intend that the Wharfage Participations become a Fixed Factor. That is consistent with my construction of the agreements. The Wharfage Participations which apply only to that part of the clause 72 formula of the Indenture, apart from integer "a", represent the Producers use of the Jetty. They are applied to Wharfage Fees as I have explained those expenses. It would be expected that they, unlike Jetty Participations, would be part of the Settlement Agreement. Wharfage Participations will in the future apply to 'normal wharfage dues' in accordance with Clause 72(4).

The Settlement Agreement is not relevant in a determination of the apportionment of the repayment of the Security Deposits or the payment of the Wharfage Dues (as distinct from Wharfage Fees) or the Water Rates and Road Tariff.

It follows that Delhi was and is entitled to share in the repayment of the Jetty Security Deposit in accordance with its contribution to the costs associated with the design, engineering, construction and installation of the Jetty. That will in fact be the same as its Jetty Participation. Delhi is obliged to contribute to integer "a" in the same proportion as it contributed to the cost of the construction of the Jetty, which is in fact 15.8743 per cent. It is obliged to contribute to that part of the Wharfage Dues, apart from integer 'a', being Wharfage Fees, in accordance with its Wharfage Participation Factors as fixed from year to year and as fixed under the Settlement Agreement and after 1991, by way of its Fixed Factor namely 20.21 per cent.

Delhi's contribution to the Water and Roads Security Deposit was coincidentally in accordance with its initial Common Facilities Investment Participation in the Second Schedule to the Downstream Agreement, namely 16.8863 per cent. Delhi was entitled to share in the repayment of the Water and Roads Security Deposit in the same proportion. Further, Delhi was obliged to contribute to the Water Rates and Road Tariff at the same rate.

In other words Delhi has always been entitled to receive the items of revenue and was always obliged to make the items of repayment by reference to the historical accounting practice.

The trial judge recited the submissions of Santos and Delhi. The trial judge found that the terms of the Downstream Agreement were "... of greater significance as between the Producers than the Indenture": Delhi Petroleum Pty Ltd v Santos Limited & Ors (2001) 215 LSJS 208 [para 31].

He found that the detailed arrangements between the Producers were primarily contained in the Downstream Agreement.

In relation to the Downstream Agreement and its relationship with the Indenture and the Minister's letter of 24 November 1981, he said that if any qualification is required between those documents it is of the Indenture and the letter. By that, I think he meant that the Indenture and the letter had to give way to the Downstream Agreement. I think that follows from his finding in paragraph 32:

"In my view, the Downstream Agreement is the Agreement that prevails in the event of any apparent inconsistency between the documentation executed at the end of 1981."

Next he found that the Indenture does not specify the proportion to be paid to the Producers with respect to the construction costs. I think he was there considering the construction costs of the Wharf Facilities and in particular the Jetty.

He found that clause 8.02 of the Downstream Agreement made provision for the proportion in which the Producers were to share in the payment from the State for the Jetty. By that finding His Honour implicitly rejected Delhi's submission that the repayment of the Jetty Security Deposit was in any way governed by Jetty Participations.

His Honour's finding meant that the repayment of the Jetty Security Deposit had to be in accordance with the proportions paid by the Producers for the construction of it.

"I agree also that, on a proper construction of the Downstream Agreement, it was not open to apportion repayments of Security Deposits and interest using a Downstream Facilities Investment Participation. Revenue represented by those payments is not within the definition of Downstream Facilities Investment Participation in the Downstream Agreement. The entitlement to share in the refund was expressed by reference to the contribution a Producer made to costs associated with the construction of the Jetty."

321. It is not clear from His Honour's finding whether His Honour meant that both the repayments of the Jetty Security Deposit and the Water and Roads Security Deposit were governed by contributions or whether only the apportionment of the repayment of the Jetty Security Deposit was so governed.

322. However because of what he went on to say I think he must have meant the former.

"As for the repayment of the Roads and Water Security Deposit and its apportionment, I accept submissions made by Santos that an implied term or agreement to that effect arises and that such an implication is not prohibited by cl 2.02.03 of the Downstream Agreement because no "amendment, variation, modification or cancellation" of that Agreement is involved."

324. It is not clear from His Honour's reasons what implied term arose and how it was that it did arise. His Honour has not indicated whether the term arose by operation of law or because it was necessary to give efficacy to the contract: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. He has not considered the conditions necessary to ground the implication of an implied term: B.P. Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266.

325. Next His Honour found that the share that Delhi had to contribute to the fixed component of Wharfage Dues was and is a Downstream Participation within the meaning of clause 1.16 of the Downstream Agreement.

326. He further found that the agreement between the Producers specified that the share Delhi was required to contribute to the fixed component of Water Rates and Road Tariff was also a Downstream Participation within the meaning of the same clause.

327. Thus, it was that His Honour found that the apportionment of the fixed component of Water Rates and Road Tariff was not authorised to be fixed in accordance with the Common Facilities Investment Participation, but had to be apportioned in accordance with the Downstream General Operating Costs of the liability to pay Wharfage Dues and Water Rates and the Road Tariff.

328. For the reasons already given, I disagree with the trial judge's findings and conclusions in relation to the apportionment between the Producers of the liability to pay Wharfage Dues and the Water Rates and Road Tariff. I also disagree with his findings that the Downstream Agreement prevails over the Indenture. On my construction the various agreements harmonise. There is no need to find that one prevails over the other. The parties intended that the agreements would operate together.

329. It is necessary to address his further findings and conclusions.

330. He next dealt with the operation of clause 1.5 of the Accounting Procedure, being Exhibit B to the Downstream Agreement. He agreed with Santos' submission that the terms of the Downstream Agreement prevail over the Accounting Procedure. He found that clause 1.5 did not operate in respect of these apportionments but only applied to final apportionments.

331. Delhi relied upon a decision of the Full Court of this Court in: Santos Ltd & Ors v Delhi Petroleum Pty Ltd [1999] SASC 485, as giving rise to an issue estoppel. That decision concerned an interlocutory application by Santos to strike out Delhi's statement of claim or in the alternative to stay this action. The Full Court considered the documents the subject matter of these proceedings and particularly the effect of clause 1.5 of the Accounting Procedure to the Downstream Agreement. It will be necessary to refer to that judgment. However, the trial judge concluded that the decision of the Full Court in that case did not preclude a finding that clause 1.5 was irrelevant in a consideration of this matter.

332. His Honour accepted the submissions put by Santos that it had incorrectly apportioned the liability to pay Wharfage Dues and the Water Rates and Road Tariff over the period referred to. He rejected Delhi's submissions that the Operator's apportionment had been correct.

333. For the reasons I have already given I believe His Honour was wrong in that regard.

334. The trial judge found that in January 1997, when Santos completed the second Accounting Adjustment as required by the Settlement Agreement, it realised it had made innocent mistakes in relation to its apportionment of the producer's entitlements and obligations in relation to the Wharfage Dues and Jetty Security Deposit. It also realised that it had previously been in error in applying the Downstream Common Facilities Investment Participation and not the Common Facilities Operating Costs to the Producer's liabilities to the capital component of the Water Rates and Roads Tariff.

335. The trial judge accepted the evidence of Mr McArdle, who was the Executive General Manager of Santos at the time of the hearing. In particular he accepted his evidence that it was not until late December 1996 that Mr McArdle became aware of the manner in which Santos had apportioned the fixed component of Wharfage Dues. He also accepted Mr McArdle's evidence that Mr McArdle intervened early in 1997 to correct the further error in relation to the Water Rates and Road Tariff.

336. His Honour therefore found that prior to January 1997 Santos had innocently made errors in the apportionment of the various factors to which I have referred.

337. He then considered Delhi's assertion that an estoppel arose.

338. His Honour introduced the subject in the following way [para 47]:

"Santos says that the practice does not give rise to an estoppel. Delhi seeks a finding that there is an estoppel either by convention or representation, particularly because of the execution of the Fixed Factor Settlement Agreement and the circumstances surrounding it."

339. The particular estoppel is not identified. However, His Honour said [para 48]:

"Upon consideration on the whole of the evidence and the authorities cited to me, I am persuaded that I should find that there is an estoppel by convention resulting from the common assumption acted upon by the parties to the Downstream Agreement. I think this is a case where the parties to the Fixed Factor Settlement Agreement assumed the mistaken practice to be a basis of the transaction into which the ultimately entered. In my view, an estoppel by convention arose because the parties established, by their apprehension of the legal effect of the Downstream Agreement, a conventional basis upon which they regulated subsequent dealings so that it would be unjust or unconscionable for Santos to resile from that convention."

340. His Honour then discussed the authorities relating to an estoppel by convention and concluded that [para 51]:

"...the party relying upon the doctrine [there referring to estoppel by convention] had to establish that the parties had assumed a state of affairs, whether it be factual, legal or both, and that the assumed state of affairs was the basis for action or inaction in dealings between the parties with departure by one from the assumption resulting in a detriment being suffered by another."

341. Next he decided that no estoppel by representation, had been made out. He was not satisfied that Santos had made any representations or that the evidence established that Santos induced Delhi to adopt any assumptions as to a particular state of affairs.

342. He found that instead the parties had proceeded upon a common assumption in circumstances that gave rise to an estoppel by convention.

343. On the other hand he found that no estoppel by representation arose. He did not accept that Santos made any relevant representation that induced Delhi to adopt the assumption. I think he found that the parties had a common but independently formed assumption.

"The part Santos played in the adoption of and persistence in the assumptions made was such that it would be unjust and oppressive to depart from it now. However, Santos did not directly make representations upon which other parties founded the assumption as much as it exercised rights that existed only if assumptions it made were correct."

345. He did not identify "the part" to which he was there referring.

346. He then considered detriment in the context of an estoppel by convention.

347. He found that Delhi had acted to its detriment by entering into the Settlement Agreement and accepting a Fixed Factor of 20.21 per cent and agreeing to all other provisions of the Settlement Agreement. "...[O]n the faith of its assumption that Santos would continue to apportion expenditure and receipts as it had always done."

348. I think His Honour reasoned that, if Santos were allowed to depart from the historical accounting practice, Delhi would thereby suffer a loss in that it would be called upon to pay a greater sum than it had, historically, in relation to operating expenses and receive a lesser sum in relation to repayment of the Jetty Security Deposit, but at the same time be constrained by a Fixed Factor of 20.21 per cent. Of course, implicit in His Honour's earlier finding it would mean that Delhi's detriment was that it would no longer receive that to which it was never entitled under the Downstream Agreement.

349. He said he accepted the evidence of Mr Woodbury and Mr Taylor, two executives in Delhi's holding company. In particular he accepted Mr Woodbury's evidence that he would not have recommended to Delhi and committed Delhi to the Settlement Agreement had he been aware of the mistake made by Santos and Santos's intention to correct that mistake. He accepted Mr Woodbury's evidence that Delhi had made concessions in the negotiations leading to the Settlement Agreement which would have precluded any further concessions being made in regard to this matter.

350. His Honour found that clause 11 of the Settlement Agreement did not preclude the result at which he arrived, even though that clause provided that the Settlement Agreement was an entire agreement. He reasoned that because Santos had not made any representations clause 11 had no operation.

"With respect to any clause in any of the agreements said to oust the estoppel claim, I agree with the submission put by Delhi that the effect of the application of an estoppel is frequently to overcome provisions in a contract stipulating formalities for its variation. The very nature of the doctrine of estoppel is to bind parties to a course or arrangement different to that which has been agreed."

Lastly, His Honour dealt with the costs of the proceedings. Santos has debited the joint operating account for Unit and Downstream Operations for the costs of the proceedings before the trial judge. Delhi claimed that that was an absurdity. It claimed that Santos' decision meant that Delhi had to pay 20.21 per cent of Santos' and the other appellants' costs. That came about because of the Fixed Factors in the Settlement Agreement.

His Honour said that he would follow my decision in Basin Oil No Liability v Santos Ltd (30/08/96, s 5793, Unreported, Lander J). He found that in those circumstances Santos was entitled to debit the joint operating account with its own costs.

His Honour made the following declarations [para 71]:

"1 Santos is estopped from contending that the capital component of the State Wharfage Dues should be apportioned by reference to any factor other than the Jetty Participation Factor. Santos is bound to apportion that payment by reference to that factor alone.

2 Santos is estopped from contending that the capital component of the water rates and roads tariff should be apportioned by reference to any factor other than the initial Common Facilities Investment Participation Factor. Santos is bound to apportion such payments by reference to that factor alone.

3 Santos is estopped from contending that Delhi's share of the capital component of the State Wharfage Dues should be apportioned by reference to any factor other than that which applies to Delhi's share of the State's repayment of the Jetty Security Deposit plus interest.

4 Santos is estopped from contending that Delhi's share of the capital component of the water rates and roads tariff should be apportioned by reference to any factor other than that which applies to Delhi's share of the State's repayment of the Roads and Water Security Deposit plus interest.

5 Santos is entitled to debit the joint operating account for costs and expenses incurred by it in relation to these proceedings."

He ordered the appellants to pay Delhi $3,821,423 in respect of the first Accounting Adjustment and $364,802 in respect of the second Accounting Adjustment. He ordered the appellants to pay Delhi a further sum of $2,553,612 in respect of the period from 1996 to 2003 [para 72].

He allowed interest by way of lump sum in the sum of $1,260,163 [para 74].

Even on the trial judge's findings and conclusions there is an obvious error in the money sums ordered to be paid, having regard to the declarations made. The effect of declarations 1 and 3 is to estop Santos from apportioning other than in accordance with the historical accounting practice.

His Honour has allowed, as part of the sum $2,553,612, an amount which represents the overpayment by Delhi after trial and until 2003. That means that Delhi, on the Judge's own findings, will be overcompensated. Santos will have to abide by the historical accounting practice but the Producers, apart from Delhi, will also have to pay Delhi as if Santos had not adhered to the historical accounting practice.

The trial judge did not explain how he came to assess the monetary sums awarded and what the sums represented so it is not known why he made that order.

In the end result he ordered the appellants to pay Delhi the total sum of $8,000,000 [para 74].

For the reasons I have already given I disagree with His Honour's construction of the agreements. Delhi was, in my view, entitled to share with the Producers in the repayment of the Jetty Security Deposit in accordance with their respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty. The Wharfage Dues have to be calculated in the case of integer "a" by reference to the Producers' same proportions and in respect of the remaining part of the formula [ IMAGE ] by reference to the respective Producers' Wharfage Participations.

That will have the effect that the repayment by the State of the Jetty Security Deposit and the payment by the Producers of that part of the Wharfage Dues represented by integer "a" will cancel each other out. The other part of the Wharfage Dues are governed by the Wharfage Participations from time to time which will represent the use by the Producers of the Jetty.

In my opinion, the Producers were entitled to share in the repayment of the Water and Roads Security Deposit in accordance with the proportions which they contributed to that Deposit, which is represented by the same figure as the Producers initial Downstream Common Facilities Investment Participations. They were liable to pay Water Rates and the Road Tariff in the same proportions over the period of repayment of the Water and Roads Security Deposit (10 years) so that the total payment in each year "exactly matched" the repayment of the Security Deposit and interest. That liability arises and is governed by Clause 88 of the Indenture.

All of the remaining matters have to be considered upon the basis that my construction of the various agreements is wrong. It must be assumed, in a consideration of these remaining matters, that Santos' submissions are correct. That is to say it must be assumed that the repayment of the Jetty Security Deposit had to be shared amongst the Producers in the proportions corresponding to their respective contributions to the costs associated with the design, engineering, construction and installation of the Jetty. In fact, that is the same as the Jetty Participations in the Second Schedule of the Downstream Agreement. Next, it must be assumed that Wharfage Fees and the Wharfage Dues are the same and that the Producers' liability to contribute to the payment of Wharfage Dues including the Secondary Wharfage Charge had to be apportioned in accordance with the Producers' Wharfage Participations. There was no change to the Producers' apportionment of the repayment of the Jetty Security Deposit. However, it must be assumed that the Wharfage Participations were reviewed and adjusted by the Settlement Agreement and that Wharfage Participations became a Fixed Factor under that agreement and, in particular in the case of Delhi a Fixed Factor at 20.21 percent. The Settlement Agreement determined the reviews and adjustments for 1987, 1989 and 1991 and in that regard also varied the Wharfage Participations.

Further, it will need to be assumed that the Producers were entitled to share in the repayment of the Water and Roads Security Deposit in accordance with their Common Facilities Investment Participations. It must be assumed that the liability for payment of the Water Rates and Road Tariff was to be apportioned between the Producers in accordance with the Producers' Common Facilities Operating Costs.

Lastly, it must be assumed after the execution of the Settlement Agreement, and particularly after 1 January 1991 and until 1993 when the State made its final repayment of the Water and Roads Security Deposit, the Producers' liability to pay the Secondary Rates and Tariff was apportioned by reference to their Fixed Factors. Again the Common Facilities Operating Costs were also varied for the years 1987, 1989 and 1991.

I have already referred to clause 1.5 of the Accounting Procedure to the Downstream Agreement.

Santos, as Operator between 1984 and 10 January 1997, always calculated Delhi's share of the State's repayment of the Jetty Security Deposit and its contribution to Wharfage Dues in accordance with the historical accounting practice. Santos, during the same period, always treated Delhi's entitlement in relation to the repayment of the Water and Roads Security Deposits and its obligation in relation to the Water Rates and Road Tariff in accordance with that same practice.

During that period Santos provided each of the Producers with statements on a monthly basis which showed the calculations referrable to Delhi's share of the State's repayment of the Security Deposits, in relation to the Jetty in November, and in relation to the Water and Roads in December. The monthly statements also showed Delhi's contribution to the relevant part of the Wharfage Dues and the Water Rates and Road Tariff.

No-one, including the Operator or Delhi, had taken any exception to the Operator's calculations. In those circumstances Delhi claimed that the provisions of clause 1.5 applied and no adjustment could be made for at least the period until two years before 10 January 1997, which was the date of the Accounting Adjustments.

Santos argued that clause 1.5 was inconsistent with the Downstream Agreement itself and the provisions of the Downstream Agreement prevailed to the exclusion of the Accounting Procedure. The first part of that submission is incorrect but the second point is correct. The proviso to clause 8.02 of the Downstream Agreement makes it clear that "... to the extent that any provisions of the body of this Agreement are in conflict with such Accounting Procedure, the provisions of the body of this Agreement shall control."

That is also reinforced in clause 1.2 of the Accounting Procedure, to which I have previously referred. Of course, those provisions are only relevant if there is in fact a conflict between the provisions of the Downstream Agreement and clause 1.5 of the Accounting Procedure.

The Settlement Agreement only affects the Producers' rights where expressly provided in that agreement: clause 15 Settlement Agreement.

Delhi argued that on the true construction of clause 1.5 Santos, as Operator, was precluded from reopening the accounts.

It argued, however, that this Court could not itself consider the correctness of that submission because that matter had been decided by a Full Court of this Court in Santos Ltd & Ors v Delhi Petroleum Pty Ltd (supra). Thus, Delhi argued an issue estoppel arose in its favour which this Court was bound to recognise and act upon. Santos argued no issue estoppel arose and this Court should consider the submission on clause 1.5 for itself and reject the submission that clause 1.5 had the effect contended for by Delhi.

It is necessary to address the claim by Delhi of issue estoppel before turning to the question of the true construction of clause 1.5.

After service of these proceedings Santos applied to a Judge of this Court for an order striking out the statement of claim or, in the alternative, staying the proceedings and ordering the matter be referred to arbitration. That application was dismissed: Delhi Petroleum Pty Ltd v Santos Ltd and Others (1999) 201 LSJS 337. Santos appealed to the Full Court which dismissed the appeal: Santos Ltd & Ors v Delhi Petroleum Pty Ltd (supra).

The appellants argued that Santos was obliged under clause 5(a) of the Settlement Agreement to recalculate the Accounting Adjustments to determine the amount necessary to be paid or received by each party to assume a proper allocation between the Producers. Clause 5 required Santos to carry out two Accounting Adjustments, the First Accounting Adjustment being from 1 January 1997 to 1 January 1996 and the second for the period subsequent.

"5 (a) The Unit Operator will calculate in respect of each party the accounting adjustments ("Accounting Adjustments") to determine the amount necessary to be paid or received by each party to ensure that all costs and expenses (including operating, capital and exploration costs) paid in respect of the Unit Agreement, the Downstream Agreement and the JOAs and all receipts for the sale of Unitized Substances and production under the JOAs ("Block Production") are allocated between the parties on the basis of the Unit Participations, Downstream Participations, Undivided Interests and Fixed Factors applying from time to time in accordance with the provisions of this Agreement.

(b) There shall be two Accounting Adjustments: the First Accounting Adjustment being for the period 6.00 a.m. 1 January 1987 through 6.00 a.m. 1 January 1996, and the Second Accounting Adjustment being for the period subsequent thereto."

380. The appellants argued that, in carrying out the Accounting Adjustments under clause 5 of the Settlement Agreement, the Operator was obliged to ensure that the revenue and the costs and expenses were allocated amongst the Producers according to their entitlements by way of Unit Participations, Downstream Participations or Fixed Factors. They argued that Santos therefore had to allocate those receipts and costs and expenses according to the appropriate participations on a true construction of the various agreements.

"The appellants contend that the subject of the present dispute between the parties involves the question of whether there has been a correct allocation by the Operator of the Jetty Security Deposit, the State Wharfage Dues, the Roads and Water Security Deposit, rates for water supplied and a tariff for the use of bitumen roads. These items and the dispute affecting them have been referred to earlier in these reasons. In my opinion cl 5 of the Settlement Agreement was not intended to resolve such an issue. It had a more limited purpose of the kind which I have already described."

382. The appellants contended that clause 5 meant that Santos had to reopen all of the receipts and costs and expenses and determine anew the appropriate Participation for each of the items of revenue and cost and expense and then apply that Participation.

383. That submission was expressly rejected by the Full Court. The Full Court determined that clause 5 did not have such an effect. The Full Court concluded that clause 5 had a limited effect. Wicks J said [para 69]:

"It must be remembered that the dispute for many years, and some earlier litigation, had been about Participations and their adjustment. The Settlement Agreement was designed to resolve that dispute. There is nothing to indicate there had been any dispute about past attributions. There was nothing to suggest that, at the same time, it was intended to resolve any differences that might arise over attributions. Indeed, some attributions may have been the result of agreement or arbitration under Clause 1.5 of the Accounting Procedure. It can hardly have been intended that the Settlement Agreement could disturb such attributions. If not those, then it would be equally surprising if it was intended to disturb other attributions made by Santos and not objected to by a non-operator."

384. The Full Court concluded that clause 5 had a limited operation and only required Santos to calculate the Accounting Adjustments.

385. In reaching that conclusion Wicks J said that clause 1.5 had a conclusive effect on all past statements of charges and bills and the effect of clause 1.5 was to render conclusive any allocation made to a participation for the purpose of that statement or charges or bills. He held that clause 1.5 was preserved by clause 15 of the Settlement Agreement.

"However, reading cl 1.5 of the applicable Accounting Procedure in its correct context, that provision never contemplated the challenge, by that procedure, to the allocation of income and expenditure to various Participations. The procedure for resolving those disputes was found in Article IV of each of the Unit Agreement and the Downstream Agreement. Therefore, had the review and adjustment procedures under the two agreements been implemented, they would only have been implemented in respect of changes to the Participation Factors. Such review and adjustment would then have operated to amend the statements of account, but only in that respect, and not in respect of any challenges that might independently be made to other aspects of the relevant Accounting Procedure.

As cl 5 of the Settlement Agreement purports only to replace the previous Review and Adjustment procedures, the applicable Accounting Procedures, their operation and their conclusiveness otherwise, are preserved by cl 15 of the Settlement Agreement.

I reject the appellants' argument on the scope of cl 5(a) of the Settlement Agreement."

Delhi has argued that the following issues of fact and law have been determined by previous decisions of this Court. It argues that this Court is bound by them:

"(a) Reviews and Adjustments under Article IV of the UA and Article IV of the DA involved only the alteration of the percentages constituted by the various participation factors.

(b) The FFSA (Fixed Factor Settlement Agreement) was designed to resolve the Participants' dispute with respect to the adjustment of these percentages under the Review and Adjustment process. There was then no dispute with respect to past allocations of participations to particular items of receipt or expenditure, and the FFSA was not intended to disturb such allocations.

(c) Clause 5(a) of the FFSA only authorises adjustment "which arise in consequence of the adjustment of the Participations and the creation of Fixed Factors brought into effect by [the FFSA] itself". It "does not authorise an adjustment which arises where a particular item of revenue or expenditure, for example, is reallocated from one Participation to another; nor does it deal with a dispute between the parties or some of them as to the Participation in respect of which a particular item of expenditure should be allocated". No issue of characterisation is involved in the Accounting Adjustments under the FFSA.

(d) By (Unit Agreement) and DA (Downstream Agreement), all allocations of participations to items of receipt and expenditure reflected in a statement of charges or separate bill rendered by the Operator to non-Operators, and not questioned, were irrebuttably presumed to be correct after 24 months. The FFSA did not allow these allocations to be reopened.

(e) The provision in clause 5(i) of the FFSA for an independent audit opinion was only concerned with Accounting Adjustments as defined in clause 5(a); it is not concerned with accounting adjustments arising from a reallocation of items of receipt or expenditure to different participations. Thus, insofar as KPMG dealt in its audit opinion with accounting adjustments arising other than from the variation of participations and creation of fixed factors effected by the FFSA, its audit opinion was beyond the scope of clause 5(i), invalid and of no effect.

(f) A "comprehensive audit", as referred to in clause 5(k) of the FFSA (and clause 1.6 of the Accounting Procedure set out in Exhibit "B to the UA and the DA), is not the means by which a party challenges the allocation of an item of expenditure or receipt to a particular participation. The avenue for such a challenge is clause 1.5 of the Accounting Procedure in Exhibit "B".

(g) Only differences thrown up by an independent audit opinion under clause 5(i) and a comprehensive audit under clause 5(k) can be submitted to arbitration pursuant to clause 5(l) of the FFSA."

In Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 at 531-533 Dixon J said:

"A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.

Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J. in R v Inhabitants of the Township of Hartington Middle Quarter [1855] EngR 264; (1855) 4 E&B 780 at 794, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.

In the phraseology of Lord Shaw, "a fact fundamental to the decision arrived at" in the former proceedings and "the legal quality of the fact" must be taken as finally and conclusively established (Hoystead v Commissioner of Taxation (1926) A.C. 155). But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however, deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation."

An issue estoppel will arise where there has been a judicial determination of a fact or a matter of law provided the establishment of that fact or the conclusion on that matter of law was necessary, in the sense that it was legally indispensable, in the ultimate decision made by the tribunal or court.

An issue estoppel will include all ultimate findings of fact "which form the ingredients in the cause of action" but not those which are only evidentiary facts. All points of law which must be decided to arrive at the ultimate legal conclusion will be covered by the estoppel. However, those decisions which amount to no more than a process of reasoning which tend to support a party's proposition do not give rise to an issue estoppel in subsequent proceedings.

Two issues arise. First, can issue estoppel arise in respect of an issue determined in interlocutory as opposed to final proceedings? Secondly, what matters were fundamental or cardinal to the prior decision of this Court? The second question only needs to be answered if the first question is answered affirmatively.

The application before Perry J and before the Full Court was interlocutory. The appellants sought alternative relief. First, the striking out of Delhi's statement of claim; secondly, a stay in order that the matter be referred to arbitration. Both were undoubtedly interlocutory applications.

The appellants argued that because the application was an interlocutory application both in form and substance the application did not put in contest any substantive rights of the parties. The issues on the application were entirely collateral to the substantive rights which were later in contest at the trial.

The fact that the decision made was in an interlocutory application is certainly relevant but, in my opinion, not decisive of the question of whether a judicial determination gives rise to an issue estoppel and precisely the width of the estoppel. No issue estoppel can arise unless the issue decided by the previous determination is a final judgment. The premise upon which issue estoppel is based is that there has been a final determination of the issues.

In Development Assessment Commission v Macag Holdings Pty Ltd [2001] SASC 189; (2001) 80 SASR 104 at 114 Doyle CJ (with whom Martin J agreed and Williams J did not disagree) said:

"For the same reason the order refusing leave to serve cannot give rise to an issue estoppel. Issue estoppel equally depends upon there being a final judgment. The nature of an issue estoppel was identified by Dixon J in Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 at 531-532. That statement has often been approved in subsequent decisions of the High Court. It is implicit in the principle there stated that the decision said to give rise to an issue estoppel must be a final one, because the whole concept is that the decision finally closes or precludes disputation on the issue of fact or law that has been disposed of."

There are some interlocutory decisions which are not and could not be "final determinations". In D A Christie Pty Ltd v Baker [1996] VicRp 89; [1996] 2 VR 582 the Court of Appeal held that a second application for an extension of time within which to bring proceedings was not covered by an issue estoppel by reason of the failed first application.

Hayne J said at 599 that in order to determine whether an issue estoppel arose it was necessary to determine whether there had been a final determination of the issue and it was therefore necessary to determine the character of the first order. If it did no more than dismiss the application on the material before the court then no issue estoppel could arise. A majority of the Court concluded that the first order was not a final determination.

Orders are sometimes made on interlocutory applications which do not operate to prevent a further application being made, but the practical effect of the order is that no application can be made: Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423 per Owen J at 440-441 and Windeyer J at 444.

There is no reason, in principle, why an issue might not be finally determined on interlocutory proceedings. Some interlocutory applications do finally dispose of the parties' rights: Hall v Nominal Defendant (supra); Licul & Others v Corney [1976] HCA 6; (1976) 180 CLR 213.

The question is not answered by reference to whether the application is interlocutory or otherwise but by reference to the order itself and whether it amounts to a final determination such that it is not only impractical to bring the issue before the court but impermissible. There must be a final judgment on the issue before the Court. That does not mean that an issue which has been resolved on an interlocutory application cannot give rise to an issue estoppel. It may if the resolution of the issue finally determines that issue between the parties.

In this case I agree that no issue estoppel arises. The points at issue in the earlier proceedings were the adequacy of the pleadings and whether the parties were obliged to arbitrate. The first, on the argument presented before Perry J or the Full Court, could not give rise to an issue estoppel. The decision of the Full Court was that the statement of claim should stand because it raised a number of serious questions to be tried. The only issue there concluded is the adequacy of the pleading. The second did not give rise to any issue, at least so far as clause 1.5 is concerned. The decision may finally have resolved whether the Settlement Agreement required the parties to submit their dispute to arbitration but that is all. The application before the Court was for a stay. Whether a stay should be granted depended upon whether an arbitration clause in the Settlement Agreement precluded Delhi bringing these proceedings. That, itself depended upon the operation of s 53 of the Commercial Arbitration Act 1986 (SA). That section only operated in its terms if Santos and the other appellants could establish that there was an arbitration agreement in respect of the matter agreed to be referred to arbitration and the court was satisfied there was no sufficient reason why the matter should not be referred to arbitration. The Full Court held that the Settlement Agreement contained an arbitration agreement but that the agreement was not in respect of the matters raised in Delhi's statement of claim.

That required an examination of the arbitration agreement in clause 5 of the Settlement Agreement and in particular sub-clauses (a), (b), (i), (k), (l), (m) and (n). That involved a construction of that part of the Settlement Agreement. In arriving at its decision the Full Court had regard to historical matters including the Downstream Agreement and the Accounting Procedure to that agreement. The construction of clause 1.5 was not necessary in the reasoning process for a determination of the issues before the Court. There has not been a final determination on that issue.

Delhi argued that if this Court rejected its submission that an issue estoppel arose, this Court should nevertheless follow the decision because it was a previous decision of this Court on the Downstream Agreement.

I think the previous decision should be followed because it is right.

Because of the assumptions, which must be made in determining these further issues no argument can be mounted that the Downstream Account is not the relevant account for the purpose of crediting revenue and debiting costs and expenses in relation to the Security Deposits or the Wharfage Dues, Water Rates or Road Tariff. It must be assumed that the Downstream Agreement is the agreement by which the parties account for the repayment of the Security Deposits and the payment of the secondary tariffs.

Santos argued that the Operator is required to apportion in accordance with the terms of the Downstream Agreement. It is a continual obligation which does not come to an end after 24 months or at any other time. It argued that Santos had mistakenly apportioned the relevant Operating Expenses, i.e. Wharfage Dues and Water Rates and Road Tariff, until its mistake was corrected on 10 January 1997. When it became aware of its error its reapportionment of those operating expenses was in accordance with the terms of the Downstream Agreement. It was then complying with its obligation under the Downstream Agreement to apportion in accordance with the Downstream Agreement.

Santos argued that clause 1.5 of the Accounting Procedure was inconsistent with the Downstream Agreement in that it supposed that an Operator could apportion otherwise than in accordance with the Downstream Agreement.

If that argument were right then clause 1.5 would never have any work to do. There could never be a circumstance where the Operator's apportionment could not be upset. It could always be argued that if the apportionment was incorrect for any reason then the apportionment has not been made in accordance with the Downstream Agreement and therefore clause 1.5 of the Accounting Procedure has no work to do.

Clause 1.5 assumes that the Operator might, for whatever reason, wrongly apportion some item of revenue or a liability. There would be no need to include clause 1.5 otherwise. The purpose of clause 1.5 is not to correct an appropriate apportionment. If therefore the function of clause 1.5 is to correct inappropriate apportionments it must have been contemplated that inappropriate apportionments, which were not corrected within the time prescribed, would stand.

In my opinion, the parties did not intend, in the proviso to clause 8.02 of the Downstream Agreement, or clause 1.2 of the Accounting Procedure, to provide that any inappropriate apportionment could be corrected at any time because any inappropriate apportionment was, by definition, not in accordance with the Downstream Agreement.

There is no reason not to allow clause 1.5 to perform the function for which it was designed. The clause was inserted into the Agreement to give the Producers certainty, so that they could assume that statements of charges or bills would not be re-opened after the time had expired. It allowed the Producers to dispute the Operators statement of charges or bills by protesting and if necessary requiring the Operator to submit the dispute to arbitration.

The clause specifically deals with the Operator seeking an adjustment to its own statement of charges or bills. Unless the Operator makes the adjustment the accounts will stand. They will be conclusively presumed to be accurate.

In my opinion, clause 1.5 does operate to bar any adjustment being made at the request of a non-operator after 24 months following the date of the statement of the charges, or at the instigation of the Operator within 24 months.

The adjustment which was made by Santos purports to be from the period between 1987 and 1 January 1996. It was favourable to the Operator. In my opinion, Santos is precluded by clause 1.5 from making such an adjustment because no such adjustment had been made during the relevant period. It may, however, be entitled to make adjustments for the period of 24 months immediately prior to 10 January 1997, because the Second Accounting Adjustment may amount to an adjustment under clause 1.5.

If therefore I am wrong about the construction of the documents, and Santos' submissions on that issue are sound then, in my opinion, Santos is precluding making any adjustment to the account at least prior to 11 January 1995 and Delhi would be entitled to a return of that part of the money paid under protest which relates to the period prior to 10 January 1995.

Delhi submitted that if it succeeds on this argument only then would it be entitled to an order for payment in its favour of $4,186,225 plus interest to the date of judgment. But I think that sum assumes that because of the provisions of clause 1.5 Santos could not amend its statement of charges before trial. That is not correct. Santos could amend its statement of charges provided it did so within 24 months. As I have said it may be that the Accounting Adjustment of 10 January 1997 amounts to an adjustment by the Operator in its favour for the period of 24 months immediately before the adjustment.

If Delhi had only succeeded on this basis, I would have needed to hear the parties further but as Delhi has succeeded on its principal argument that matter does not need to be further explored.

Delhi argued that the historical accounting practice adopted by Santos was acquiesced in by the Producers. In those circumstances it argued the conventional dealing or practice gave rise to a variation in the Downstream Agreement in the terms of the conventional dealing or practice.

Santos denied that the historical accounting practice could give rise to a variation but argued further that clause 2.02.03 precluded the parties from varying the Downstream Agreement except by written agreement of each Producer.

Delhi argued that the contract was amended no later than 1 January 1987. It submitted that the variation or amendment was evidenced by the expenditure statements issued by the Operator each month. It was said that those expenditure statements met the requirements of clause 2.02.03.

The subsequent conduct or actings of the parties may constitute evidence of an amendment or variation to an original contract: Australian Mutual Provident Society v Allan and Another [1978] UKPC 7; (1978) 52 ALJR 407. In my opinion, the evidence does not support a finding that the parties objectively intended to vary the terms of the contract in accordance with the historical accounting practice. The objective evidence all suggests that the parties did not intend any variation or amendment to the contract except in accordance with the provisions of clause 2.02.03.

The provision by Santos of the monthly expenditure statements is some evidence in writing of the historical accounting practice. There is also the evidence of the memorandum of Mr Taylor and that of Mr Gerschwitz.

However, those documents do not satisfy the agreed method of amendment or variation of the agreement. Clause 2.02.03 requires the written agreement of each Producer for any amendment or variation.

There is no evidence that Delhi itself ever agreed to vary or amend the contract. Nor is there any evidence of any other Producer agreeing in writing.

In my opinion, Delhi's claim that the parties agreed on a variation or amendment must be rejected. Such a claim is inconsistent with Delhi's own position that it believed that the historical accounting practice was in accordance with the terms of the contract.

Delhi argued, in the alternative, that the historical accounting practice gave rise to an estoppel, either by convention or representation, for the reason that Delhi had relied upon the historical accounting practice to its detriment in its later dealing with the Producers in entering into the Settlement Agreement.

Santos argued that there was no common understanding between the parties, no representation, no reliance and/or no detriment.

It further argued that clause 11 of the Settlement Agreement prevented any estoppel arising.

Whether or not an estoppel may be maintained against Santos only arises if Delhi's argument in relation to the construction of the Indenture and the Downstream Agreement is rejected. Of course the argument only needs to be considered if Delhi's argument on variation is also rejected. The argument will still be relevant if Delhi succeeds only on its clause 1.5 argument, because that argument may lead to less than complete recovery for Delhi.

Like the other arguments, except for the construction argument, the estoppel argument must proceed upon the basis that Santos' historical accounting practice was wrong and the changes Santos introduced in 1997 were correct. It follows that the estoppel argument must assume that if Delhi was aware of the historical accounting method, which I have found it was, Delhi incorrectly believed that method to be correct. There was no evidence of the other Producers' beliefs. It must be assumed that they also incorrectly believed that Santos' historical accounting was correct.

In my opinion, Delhi has established that it was aware of the historical accounting method. It established that it had received Mr Taylor's memorandum of 20 July 1984.

I think, from the contents of that memorandum, it can be inferred that there was a meeting of the respective Producers' accountants on 25 July 1984 at which the accounting treatment for the Security Deposits was discussed. In my opinion, it may also be inferred that all of the Producers agreed upon the accounting treatment which was in accordance with Mr Taylor's recommendations. That follows from the fact that Mr Taylor's recommendations were put in place. Moreover there is no suggestion that any of the Producers ever objected to that accounting procedure. In my opinion, the practice could not have been put into place without the agreement of the Producers.

Santos argued that there was no evidence that Mr Taylor's proposal came to the attention of senior officers of Delhi, Santos or any other Producer. Mr Taylor was the officer within Santos who had responsibility for the accounting of the matters within his proposal. He acted within his authority. It is rather surprising that Santos would claim that it did not have knowledge of a proposal made by a responsible officer within its organization. As Operator, Santos had the responsibility for ensuring that the revenue and costs and expenses were apportioned between the Producers according to their shares. Its accountant distributed a proposal to the Producers which was acted upon for 12 years. Specifically Santos apportioned revenue and costs and expenses according to the proposal. Santos now says it did not know of its own proposal. That submission must be rejected.

Delhi did not establish that any particular person had received Mr Taylor's memorandum but I am satisfied that the inference to which I have referred means that the appropriate officer within each of the Producers was aware and approved of the historical accounting practice.

I am satisfied that all of the parties proceeded upon the basis proposed by Mr Taylor which they believed to be in conformity with their obligations under the Indenture, the letter of 24 November 1981 and the Downstream Agreement.

A similar memorandum to that of Mr Taylor's was circulated by Mr Gerschwitz. In my opinion, it is also likely each of the Producers received that document.

The Downstream Account was audited each year by Santos' external auditors. The auditors did not qualify their audit opinion by reference to the historical procedure.

In my opinion, Delhi has established a common assumption on the part of all of the Producers that Santos' historical accounting practice reflected the State's obligations to the Producers in respect to the repayment of the Security Deposits and the Producers' obligations to the State and to each other under the three agreements to which I have referred.

It must be assumed for a consideration of this argument that Santos' amendment to the accounting procedure is correct. That is to say the Producers did not intend that their share of the expenses would equally match the repayments of the Security Deposits. The Producers intended to receive the Jetty Security Deposit in proportion to their contributions. However, the Producers intended that the Wharfage Dues would be fixed by reference to the Wharfage Participations across the whole of the formula. That would lead to the result that the Producers' receipt of revenue and their contribution to expenses would not cancel each other out.

In respect to the Water and Roads Security Deposit it must be assumed that the Producers intended to receive the Security Deposit in accordance with their Common Facilities Investment Participations and would pay the Water Rates and Road Tariff by reference to their Common Facilities Operating Costs. Again that would lead to a result that revenue and expense would be unequal.

In Thomson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547 Dixon J said:

"The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would only exist if the assumption were correct, as in Yorkshire Insurance Co v Craine (1922) 2 AC 541 at 546, 547; cp. Cave v Mills (1862) 7 H and N 913 at 927, 928; [1862] EngR 494; 158 ER 740 at 746, 747; Smith v Baker (1873) LR 8 CP 350 at 357; Verschures Creameries Ltd v Hull & Netherlands Steamship Co (1921) 2 KB 608 at 612; and Ambu Nair v Kelu Nair (1933) 60 IA 266 at 271; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted."

In Grundt and Others v The Great Boulder Proprietary Gold Mines Limited [1937] HCA 58; (1937) 59 CLR 641 at 674 Dixon J said:

"The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations."

In Con-Stan Industries of Australia Proprietory Limited v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 244 Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said:

"The final question is whether the parties are bound by an estoppel by convention because their business relationships were conducted on the footing that the broker alone was liable to the insurer. If so, Norwich cannot maintain the present action. Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized: Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507; Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641; Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406; Amalgamated Investment & Property Co Ltd (In liq) v Texas Commerce International Bank Ltd [1982] QB 84 at 121, 126, 130-131; Spencer Bower and Turner, Estoppel by Representation 3rd ed (1977), pp 157-177."

Estoppel by convention is a common law estoppel: Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 per Mason & Deane JJ at 430; Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 per Mason CJ and Wilson J at 397.

In Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank [1982] QB 84 Lord Denning MR pronounced what has been subsequently described as the modern statement of the law in England. In doing so he relied upon the decision of the High Court in Grundt v The Great Boulder Proprietary Gold Mines Limited (supra).

"If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it - on the faith of which each of them - to the knowledge of the other - acts and conducts their mutual affairs - they are bound by that interpretation just as much as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not - or whether they were mistaken or not - or whether they had in mind the original terms or not. Suffice it that they have, by the course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it."

447. His Lordship then referred to Grundt v The Great Boulder Proprietary Gold Mines Limited (supra) and continued:

"So I come to this conclusion: When the parties to a contract are both under a common mistake as to the meaning of effect of it - and thereafter embark on a course of dealing on the footing of that mistake - thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them." [121-122]

448. There can be no doubt Lord Denning's statement of the law would allow an estoppel to be erected upon a common mistake as to the terms of contractual relationships.

"Two main arguments against the existence of an estoppel were advanced on behalf of the plaintiffs both before Robert Goff J and before us. The first argument was that, since the Bank came to hold its mistaken belief in the first place as a result of its own error alone, and the plaintiffs had at most innocently acquiesced in that belief which it also held, there was no representation by the plaintiffs to the bank on which an estoppel could be founded. The second argument was that, in the present case, the bank was seeking to use estoppel not as a shield, but as a sword, and that was something which the law of estoppel did not permit.

I consider first the argument based on the origin of the bank's mistaken belief. In my opinion this argument is founded on an erroneous view of the kind of estoppel which is relevant in this case.

The kind of estoppel which is relevant in this case is not the usual kind of estoppel in pais based on a representation made by A to B and acted on by B to his detriment. It is rather that the kind of estoppel which is described in Spencer Bower & Turner, Estoppel by Representation 3rd ed (1977) at p 157-160, as estoppel by convention. The authors of that work say of this kind of estoppel, at p 157:

"This form of estoppel is founded, not on a representation of fact made by the representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed."

Everleigh LJ (at 126) also treated the case as one of estoppel by convention and relied upon the statement of the law in Spencer, Bower & Turner, Estoppel by Representation (supra).

They are the passages that the High Court referred to in Con-Stan Industries of Australia Proprietory Limited v Norwich Winterthur Insurance (Australia) Ltd at 244.

In this case Delhi relies upon an estoppel arising because of the parties' conventional dealing or alternatively an estoppel by reason of representations made by Santos, as to how the parties would apportion both revenue and expenditure.

An estoppel by convention arises where the parties have assumed a certain state of affairs to exist in relation to their legal relationships. It is based upon an agreement rather than a representation.

An estoppel by convention may arise in a number of ways. The parties may adopt a conventional dealing which leads to contractual relations. There may be existing contractual relations which the parties indicate in their conventional dealings they intend to ignore. The parties, as is the case here, may have agreed on contractual terms but by mistake adopt a practice which is inconsistent with those terms. In the last case the parties do not intend to amend or vary their contractual relationships. They believe in fact that they are dealing in conformity with those relationships. It is this last mentioned practice which Santos submits cannot give rise to an estoppel by convention.

In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (supra) the High Court distinguished estoppel by convention from an estoppel based upon a representation. An estoppel by convention is founded upon conduct between the parties which in turn rests upon an agreed or assumed state of facts. The agreement need not be overt. The conduct of the parties may indicate that they must have agreed the facts upon which the conduct is based or at least assumed those facts. The conduct of each of the parties must be such that one of the parties can be satisfied that the other party is acting upon an agreed or assumed state of facts. However no representation need be proved. There must be a mutuality such that all parties could understand that the other parties agreed that they would deal with each other in that manner: Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 308. The parties must either agree in terms or agree in conduct to deal with each other in a particular way.

That agreement can come about where a party remains silent, so long as the party's silence could be understood to be an acceptance of the state of affairs. In England the Courts have required conduct of whatever kind which "crosses the line" either by statement or conduct: The August Leonhardt [1985] 2 Lloyds Rep. 28. Later decisions have relied upon something done by one party which was clear conduct which would amount to "crossing the line": The 'Vistafjord' [1988] 2 Lloyds Rep. 343.

Each of the Producers agreed, expressly or by conduct, that the Operator should account in the terms of Mr Taylor's proposal.

The Producers believed they were receiving their share of revenue and were paying their share of expenses in accordance with their rights and obligations to the State and inter se. This was not a matter of self induced mistake. All parties proceeded upon the same basis.

It is not necessary that the parties have a correct common understanding of their contractual relationships: Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 538 at 549; provided of course that it is a common understanding. There would be no need, of course, for the erection of an estoppel if the parties made correct assumptions concerning their relationships. In Grundt v Great Boulder Proprietory Goldmines Ltd (supra) at 676 Dixon J said:

"It is important to notice that belief in the correctness of the facts or state of affairs assumed is not always necessary. Parties may adopt as a conventional basis of a transaction between them an assumption which they know to be contrary to the actual state of affairs."

Santos relied upon Coghlan v S H Lock (Australia) Ltd (1985) 4 NSWLR 158 and in particular the decision of McHugh JA. There is no doubt that McHugh JA rejected Lord Denning's statement of the law stated in Amalgamated Investment and Property Company v Texan Commerce (supra) as being the law in England or Australia. It is correct also that McHugh JA said that a party could not rely upon a self induced mistake for an estoppel by convention. However the majority (Hope and Samuels JJA) decided that a common mistaken assumption may found an estoppel by convention.

The common assumption in this case is only relevant because the assumption was wrong. If the common assumption were correct then Santos would not be entitled to amend the historical accounting practice and that would be an end to the matter.

In Kenneth Allison Ltd & Others A.E. Limehouse & Co (a firm) (1992) 2 AC 105 Lord Goff of Chieveley said:

"On that basis, I turn to the facts of the present case. Here there was no good and effective service in accordance with the rules of court. Next, as I have already indicated, there was no contract between the parties to the effect that service on Mrs Morgan as agent for the defendants (or of Mr Hall) should be treated as good and effective service on the defendants; nor was there any representation to that effect sufficient to give rise to a promissory estoppel.

But, as it seems to me, the matter does not stop there. For what in reality happened was that both Mr Hall and the plaintiffs (acting through their agent Mr Swann) proceeded on the common but mistaken assumption that service of the writ upon the duly authorised agent of Mr Hall would constitute good and effective service upon the defendants. Furthermore it is legitimate to infer that the course of action of Mr Swann was influenced by the adoption by both parties of that common mistaken assumption in that, if they had not proceeded on the basis of it, Mr Swann would in all probability not have been content with service upon Mrs Morgan but would have asked to serve the writ upon Mr Hall personally, and there is no reason to suppose that that request would have been refused. On these facts, in my opinion, the defendants will be estopped by convention from thereafter contending that there was not good and effective service of the writ upon them, on the principle established in Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] Q.B. 84. In that case, the Court of Appeal invoked the principle of estoppel by convention as expressed in Spencer Bower and Turner, Estoppel by Representation, 3rd ed. (1977), p. 157, which was founded upon "an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter," but proceeded to extend it to apply to the rather different situation where both parties proceed on the basis of a common, but mistaken, assumption as to the legal effect of a certain transaction between them, and in consequence one party is so influenced by the conduct of the other that it would be unconscionable for the latter to take advantage of the former's error (see, in particular, the judgment of Brandon LJ, at pp. 130-131). It is the principle of estoppel by convention in this sense that can, in my opinion, be invoked by the plaintiffs in the present case." [127]

In this case the trial judge found that the conventional estoppel arose based upon the practice proposed by Mr Taylor and implemented by the Producers between 1984 and 1996. He also found that the common assumption arose out of Mr Taylor's memorandum. He found that employees of Santos made innocent mistakes when apportionments were fixed and those mistakes were perpetuated until corrected in January 1997. He said [para 42]:

"The material before me establishes that a memorandum and attachments, dated July 1984, are a significant source of the perpetuated error. The memorandum bears the initials of a responsible officer within Santos. The memorandum spoke of accounting treatment for payments and receipts of State owned facilities. The attached documents were disclosed to the Producers. They acted upon them over the years."

There was evidence to support those findings. Indeed the evidence would support a finding that the source of the mistake was Mr Taylor's memorandum. The common assumption continued until 10 January 1997.

The trial judge did not identify the subject matter of the estoppel.

Delhi pleaded that Santos and the other Producers were estopped from contending:

"a) that the capital component of the State wharfage dues and the State's repayment of the jetty security deposit plus interest should be apportioned retrospectively amongst parties by reference to a factor other than the Jetty Participation factor, or the same factor; or

b) that the capital component of the water rates and roads tariff and the State's repayment of the roads and water security deposit plus interest should be apportioned by reference to a factor other than the initial Common Facilities Investment Participation factor or the same factor."

I think the common assumption was that the capital repayment of the Jetty Security Deposit and the interest thereon should be apportioned between the Producers in exactly the same proportions as the Producers were liable to pay the State that part of the Wharfage dues comprised in integer "a" of the formula in clause 72. I think it was commonly assumed that the capital repayment of the Water and Roads Security Deposit and the interest thereon, should be apportioned between the Producers in exactly the same proportions as the Producers were liable to pay the Water Rates and Road Tariff. The common assumption in each case was that the revenue and expense would cancel each other out.

A subsidiary argument was advanced by Santos on this aspect. The submission was:

"It is plain from the terms of the Downstream Agreement that the conventional basis upon which the Parties agreed to conduct their affairs, was the basis dictated by the terms of the Downstream Agreement. The Appellants submit that the conventional basis dictated by the express terms of the agreement cannot be overridden by a common mistake, and it is not reasonable for Delhi, or any other Party to assume that a common mistake, once discovered will not be corrected."

There are two issues raised in that submission. The first is that a common mistake can never override the express terms of a contract. That cannot be right, because if it were it would mean that parties in an existing contractual relationship could never adopt a conventional dealing inconsistent with the terms of the contract such that an estoppel could ever arise. That the conventional dealing is a mistake is unimportant. The important issue to be determined is whether the parties, for whatever reason, adopted a conventional dealing inconsistent with the terms of the contract. The second point is whether it would be reasonable or otherwise to correct the mistake or require the parties to adhere to the conventional dealing. That requires an examination of the conduct of other parties and, in particular, whether in the light of any detriment suffered by one party it would be unconscionable for the other party to be allowed to resile from the conventional dealing.

The historical accounting practice was based upon a construction of the Producers' obligations to each other under the Indenture, the letter of 24 November 1981 and the Downstream Agreement. It therefore amounted to an assumption as to the legal effect of those agreements. The next question which must be answered is whether the law recognises a common assumption as to the construction of documents as the basis upon which an estoppel might arise.

Santos argued that the assumed state of affairs must be one of fact. In doing so it relied on the decision of the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (supra) at 244-245 where Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ after identifying the basis of an estoppel by convention said in a passage already cited:

"But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 538. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v Kettle [1938] A.C. 156; Spencer Bower and Turner, Estoppel by Representation 3rd ed., pp 167-168. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact. The submission with respect to estoppel accordingly fails."

Santos argued that, as the alleged common assumption in this matter was to the legal effect of the Indenture, the letter of 24 November 1981 and the Downstream Agreement, the assumption did not relate to a representation of fact and therefore could not form the basis of an estoppel.

Ms Harris, who appeared as junior counsel to Mr Karkar, argued that this Court was not bound by the High Court's decision in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (supra) because the High Court's remarks were obiter. She argued that the High Court decided that case on the basis that there was no proof of any custom and no evidence that the parties adopted the assumption relied upon. She argued that the further remarks were not necessary for the decision itself.

There is support for her proposition. In Hilton Hotels (Australia) Pty Ltd v Sunrise Resources (Australia) Pty Ltd [2000] NSW SC 46 Hodgson CJ in Eq said:

"In my opinion, the conversations and other conduct by the lessor in 1989 and 1990 did not amount to a representation by the lessor that the signs were within cl 5(c) of the lease; but my findings concerning the effect of the conversations and conduct of both parties at this time indicate that they did disclose and were based on a common assumption that this was the case. Such a common assumption can ground an estoppel by convention: see Grunt v Great Boulder Pty Goldmines Ltd [1937] HCA 58; (1937) 59 CLR 641. There is a statement in Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd [1986] HCA 14; (1986) 160 CLR 226; that, "just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact." However, this statement was obiter, and in any event should not in my opinion be taken as applying to assumptions as to private rights of the legal effect of particular agreements, as distinct from assumptions as to the general law; see Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 185-9 per Samuels, JA, with whom Kirby, P agreed; see cf Waltons Stores (Interstate) v Maher [1988] HCA 7; (1988) 164 CLR 387 at 415-16, 435, 452, 457; Commonwealth v Verwayen (1990) 170 CLR 394 at 500; and Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404."

Hodgson CJ in Eq referred to Eslea Holdings Pty Ltd v Butts (1986) 6 NSWLR 175 a decision of the New South Wales Court of Appeal. In that case Samuels JA (with whom Kirby P agreed) treated the statement of the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (supra) as obiter. Samuels JA said at page 186 after referring to the passage from the High Court decision which I have quoted:

"It seems to me that since their Honours found that the necessary evidentiary footing was absent so that the adoption of the alleged assumption was not established, the statement concerning the nature of an estoppel by convention is not an alternative basis for the court's conclusion but an obiter dictum."

In my opinion, the High Court's remarks were obiter. That part of the High Court's decision was unnecessary for the decision at which the Court arrived. However, whether obiter or not they are remarks in the joint judgment of five members of the Court and deserve to be given the utmost respect.

It is not for this Court to speculate on future decisions of the High Court and whether the High Court would follow this decision; Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395.

However, in Australian Consolidated Investments Ltd & Anor v England (1995) 183 LSJS 408 after referring to the passage cited from Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (supra) Doyle CJ said:

"This statement may not represent the current law in Australia, given that some members of the High Court (including two members of the Court in Con-Stan Industries) have since held that the establishment of an estoppel, in various forms, does not require the relevant assumption to be a matter of fact: see Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 432 Brennan J, at 458 Gaudron J; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 435 Deane J; Commonwealth v Verwayen (1990) 170 CLR 394 at 413 Mason CJ, at 445 Deane J.

In preferring these later expressions, I do not intend to commit 'a startling piece of lese - majeste', as was said of the decision of the majority of the New South Wales Court of Appeal in Eslea Holdings Pty Ltd v Butts (1986) 6 NSWLR 175 not to follow the statements of the High Court in the Con-Stan case: see Bennett, 'Equitable Estoppel and Related Estoppels' (1987) 61 ALJ 540 at 549. I merely note that the reasoning underpinning the remarks of the High Court in the earlier case now appears to be out of step with the development of the law undertaken by members of that Court." [436]

Doyle CJ said it would be proper to follow the judgment of Mason CJ in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394:

"... that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs) which assumption that party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness." [413]

Doyle CJ was sitting as a single judge in that case and his decision is not binding upon this Court, but again his decision deserves the respect of this Court.

In Caboche v Ramsay [1993] FCA 611; (1994) 119 ALR 215 Gummow J (sitting as a Judge of the Full Federal Court) said at 238:

"The basis of the estoppel by convention was explained in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 244; [1986] HCA 14; 64 ALR 481 at 491, per Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ:

Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted upon by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying.

It was submitted that estoppel by convention requires the assumed state of affairs to be an assumed state of fact rather than law. Indeed, the High Court so stated the law in Con-Stan, supra, at CLR 244-5; ALR 491 in a passage reading:

Secondly, just as an estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v Kettle [1938] AC 156 at 170; Spencer, Bower and Turner Estoppel by Representation (3rd ed), pp 167-8. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact.

However, the statement by their Honours that estoppel by representation requires a representation of fact must now be read in the light of observations by various members of the court in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 415-16, 432, 452, 458; [1988] HCA 7; 76 ALR 513; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 435, 457; [1989] HCA 51; 88 ALR 413; and Verwayen, supra, at CLR 413, 445, 501. Those observations are to the effect that there remains no such distinction, at least in the field of estoppel by representation, between representations as to law and fact. In Foran v Wight, supra, at 435, Deane J pointed out that it cannot fairly be said that law has no actual existence at all. Furthermore, in Kenneth Allison Ltd v AE Limehouse & Co [1992] 2 AC 105 at 127, Lord Goff of Chieveley treated the doctrine of estoppel by convention as applying to a case of a common but mistaken assumption as to the legal efficacy of a purported service of a writ. His Lordship accepted that this involved an extension of the doctrine beyond the case of common but mistaken assumption of fact."

The same observations are made in Meagher, Gummow & Lehane, Equity Doctrines & Remedies, 3rd Ed. at 408.

There are a number of decisions in which courts have found an estoppel where parties have acted upon a common assumption relating to the terms of an agreement. Grundt v The Great Boulder Proprietary Goldmines Ltd (supra) was a case where it was asserted there was a common understanding in relation to the terms of agreement. It may be argued that in that case the estoppel arose out of the assumption as to the construction of the legal effect of the agreement: But see and compare the decision of Eslea Holdings Ltd v Butts (supra) per Samuels JA at 187.

Eslea Holdings Ltd v Butts (supra) itself was a case in which the assumption was as to the legal relationships between the parties arising out of a guarantee. In that case Samuels JA said at 188:

"It seems to me that the authorities to which the judgment in Con-Stan refers are not inconsistent with the proposition that a conventional estoppel might rest upon a foundation of assumed law as well as of assumed fact. The passage from Spencer Bower & Turner, 3rd ed (1977) at 167-168, cited in support of the proposition stated in the judgment (at 300) demands that the assumed state of affairs should be "an assumed state of facts presently in existence; and Lord Maugham in Greer (at 170) required that the recital in a case of estoppel by deed "must relate to specific facts". The emphasis is thus upon the distinction between an assertion of existing fact and a promise or expression of opinion. Since an assertion about "what the law will or will not permit to be done... is an opinion in regard to the law" - Fish v Cleland 33 Ill 243 quoted with approval in Upton v Tribilcock [1875] USSC 180; 91 US 45 (1875), and cited in Williston on Contracts, 3rd ed (1970) vol 12 at 366, footnote 2 - representations of law, of the kind described above, are commonly rejected as adequate to found an action of deceit: see, eg, Vitosh v Brisbane City Council [1961] Qd R 388 at 406; (1960) 5 LGRA 342 at 345, where the High Court was evidently dubious whether a statement about the council's powers under a planning ordinance was a misrepresentation of fact.

However, a statement of opinion, and thus a statement of law, may amount to a representation of fact. The distinction adopted is between a statement about the general law, which is not a representation, and statements about private rights, or the effect of documents, which are: see Cooper v Phibbs [1867] UKHL 1; (1867) LR 2 HL 149 at 170; De Tchihatchef v Salerni Coupling Ltd [1932] 1 Ch 330; MacKenzie v Royal Bank of Canada [1934] AC 468 and Lyle-Meller v A Lewis & Co [1956] 1 WLR 29; [1956] 1 All ER 247. This is the view of the matter adopted in The "August Leonhardt" where Kerr LJ (at 35), delivering the judgment of the Court of Appeal, describes Amalgamated as "now the leading authority on this doctrine in this country" and goes on to explain the nature of the estoppel in that case thus:

"... The parties negotiated and dealt at length on the basis of their common assumption of a binding contractual nexus between them which did not in fact exist."

In other words, they dealt upon the basis of an assumption as to the legal effect of their engagement. Granted the necessity of a conventional basis constituted by an existing state of affairs, and the requirement that there must be some statement or conduct by one party which induces some belief or expectation in the other, I can see no reason in principle or utility why that belief or expectation should not concern the legal rights of the parties.

I can see no reason to suppose that their Honours in Con-Stan intended to question the reasoning in Amalgamated, or its result. I take the view that the Court regarded the assumption advanced in Con-Stan, which it was unnecessary to analyse with precision, as lacking the character required; but I do not feel bound by that decision to reject the estoppel urged in the present case."

McHugh JA dissented. He said, relying upon Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (supra) that an assumption as to the legal effect of a document cannot found an estoppel by convention [197].

The common assumption in Hilton Hotels (Australia) Pty Ltd v Sunrise Resources (Australia) Pty Ltd (supra) was said to arise out of the legal effect of a term of a lease. The parties common assumption in Coghlan v S H Lock (Australia) Ltd (supra) was to the legal effect of the guarantee.

In Mortgage Acceptance Nominees Ltd v Australian Thoroughbred Finance Pty Ltd & Anor (1996) 69 SASR 302 it was assumed that an estoppel could arise on the parties' understanding of their contractual relationships. In Australian Consolidated Investments Ltd v England (supra) the common assumption related to the effect of a deed.

A written agreement was relied upon by the plaintiff as giving rise to a common assumption and an estoppel by convention in Government Employees Superannuation Board v Martin and Others (1997) 19 WAR 224. In that case, after reviewing the authorities to which I have referred including the further decisions of the High Court in Waltons Stores Interstate Ltd v Maher and Foran v White and Commonwealth v Verwayen, also referred to by Gummow J in Caboche v Ramsay (supra), Ipp J said:

"In the circumstances, it seems that it should now be accepted that an assumption as to the meaning and effect of a contract can found an estoppel by convention." [244]

It cannot be said that the law in Australia is settled. However, in my opinion, the weight of authority in this country is to the effect that an estoppel by convention can arise where two parties in an existing contractual relationship adopt a course of dealing inconsistent with the terms of their contract, upon the common or mutual mistake or assumption that they are each complying with those terms. In those circumstances they are making assumptions as to their private legal rights and those assumptions will be recognised by the law as being capable of founding an estoppel by convention.

Whether an estoppel will arise must depend upon whether it would be unconscionable to allow the party seeking to resile from the common assumption to do so.

Delhi also relied upon a number of English decisions. I should point out that the decision in Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce Investment Bank (supra) has not been free from criticism both in this country; Eslea Holdings Pty Ltd v Butts (supra); Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd (1989) 2 Qd R 40 at 45, 46 and in England: Keen v Holland [1984] 1 WLR 251 at 267. However the English authorities, like those Australian authorities to which I have referred, accept that a common assumption of a matter of law may be relied upon for the purposes of founding an estoppel by convention: The "Vistafjord" (supra); Hiscox v Outhwaite (1992) 1 AC 562; Kenneth Allision Ltd & Others v A E Limehouse & Co (a firm) (supra) at 127.

In Grundt v The Great Boulder Proprietary Goldmines Ltd (supra) Dixon J said:

"One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption." [674]

He said a little later when dealing with the purpose of the estoppel:

"That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment." [674]

Detriment will arise when the party against whom the estoppel is raised seeks to withdraw from the common assumption.

In this case Santos sought to withdraw from the historical practice when Mr McArdle instructed Santos' employees on 10 January 1997 to adopt accounting practices inconsistent with the historical accounting practice. It is at that time the Court must answer the question: if Santos were allowed to resile from the historical accounting practice, would Delhi thereby suffer detriment?

In considering that matter the Court must ask itself whether Delhi would suffer detriment having accepted the historical accounting practice such that it would now be unconscionable for Santos to be allowed to resile from that common assumption?

It was Delhi's case that if it had been aware that Santos intended to depart from the historical accounting practice it would not have entered into the Settlement Agreement, at all, or upon the terms that it did. In other words if it had known that Santos intended to account for the Water Rates and Road Tariff in accordance with the Common Facilities Operating Costs until repayment of the Wharf and Roads Security Deposit in 1994, and the Wharfage Dues solely by reference to the Wharfage Participations until the repayment of the Jetty Security Deposit in 2003, it would have identified an obligation to repay and a future loss which would have meant that it would not have entered into the Settlement Agreement, at least upon the terms that it did.

The change in the accounting practice led to a significant financial detriment to Delhi, both as to the payment already made and as to future payments. If in 1997 Santos adopted an accounting practice which was consistent with the terms of the Agreements between the parties Delhi would lose in the vicinity of $6 or $7 million dollars. That is a significant amount of money even in the terms of the revenue and expenses which the exploitation of the Cooper Basin raises.

I have found that the Settlement Agreement, on the true construction of the contracts, has no relevance to the Producers previous contractual relationships in relation to these Security Deposits and secondary Tariffs. The Settlement Agreement does not amend or vary those relationships. However, on the construction assumed for this argument the Settlement Agreement would impact directly on Wharfage Participations and the Common Facilities Operating Costs. It is therefore relevant that Delhi says it would not have entered into the Settlement Agreement or not entered into that agreement on those terms.

In this case Delhi assumed prior to entering into the Settlement Agreement that the historical accounting practice would continue.

Santos sought to argue that that assumption was based upon a mistaken understanding by Delhi and could therefore not be relied upon for an estoppel.

That, in my opinion, is not to the point. It does not matter whether both parties were mistaken. What matters is whether there was a common assumption. As I have already said in many cases an estoppel wrongly assumes a state of affairs. If it were otherwise there would be no need to erect the estoppel.

Mr Woodbury and Mr Taylor were called to establish, amongst other things, Delhi's reliance upon the common assumption and the detriment which might flow from that reliance. They were the two senior persons in Australia responsible for negotiating the Settlement Agreement. Their evidence was accepted by the trial judge and they were accepted as witnesses of truth. He said at para 58:

"I indicate that I find the substance of the evidence of Mr Woodbury and Mr Taylor credible. In particular, notwithstanding the need for caution when considering assertions of such a kind after the event, Woodbury would not have recommended and committed Delhi to the Fixed Factor Settlement Agreement actually executed had he, Taylor or any other officer of Delhi been aware of the situation as identified by McCardle and an intention to enforce the obligations resulting from the interpretation McCardle belatedly applied to the pre-existing agreements between the parties."

Delhi's witnesses said in evidence that they were aware of the historical accounting practice and believed it to be and still believe it to be the correct accounting practice which reflects the agreements which were entered into between the parties.

Santos relied upon the evidence of Mr Woodbury and Mr Taylor that they still believe the historical accounting practice to be the correct accounting practice for the agreements between the parties as indicating, first, they had a mistaken belief as to the true accounting method and secondly, that they would have done nothing other than that what they did had they been aware that Santos intended to depart from the historical accounting practice. It was submitted that Mr Woodbury and Mr Taylor must have believed that Santos' departure from the historical accounting practice was not permitted by the agreements between the parties and therefore would not have influenced those officers, nor Delhi, in relation to the negotiations prior to the execution of the Settlement Agreement.

In my opinion, that is not the correct test to be applied. The question in this case is whether Delhi has or would have suffered detriment if Santos were permitted to depart from the historical accounting practice. The assumption for the question of detriment is that Santos is permitted to depart from the historical accounting practice.

Once the question is properly posed then the decision by the trial judge on the question of estoppel can be seen to be correct.

Santos submitted that if Delhi understood that Santos was permitted to depart from the historical accounting practice Delhi would have still entered into the Fixed Factor Settlement Agreement in the same terms that it did.

However, that is to overlook or ignore the evidence of Mr Woodbury and Mr Taylor.

Mr Woodbury and Mr Taylor's evidence was that, if Santos did depart from and was permitted to depart from the historical accounting practice, they would not have recommended to Delhi that it enter into the Fixed Factor Settlement Agreement in the terms that it did.

There is no doubt that Delhi considered its position in entering into the Settlement Agreement upon a consideration of the financial consequences to it. It considered the financial consequences of different Fixed Factors. It considered Santos' assessment of the financial consequences to Delhi of a Fixed Factor of 20.21 per cent.

Whether or not Delhi would have entered into the Settlement Agreement in exactly the same terms or other terms is inconsequential. In the circumstances of this case when the party entered into an agreement, after years of negotiations, which finally fixed the proportions by which they would share in the revenue from the products and the costs and the expenses of exploitation of that product, a departure by Santos from the historical accounting practice necessarily meant that Delhi lost the opportunity of refusing to enter into the Settlement Agreement or of the opportunity of negotiating more advantageous terms.

It cannot be said, in the circumstances of the relationships between the parties, that Delhi has not suffered or will not suffer a commercial detriment by allowing Santos to depart from the historical accounting practice.

In Thompson v Palmer (supra) at 507 at 547 Dixon J talked of the law not permitting an unjust departure from an assumption of fact:

"Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co v Craine (1922) 2 A.C. 541 at 546-547; Cave v Mills [1862] EngR 494; (1862) 158 E.R. 740 at 746-747; Smith v Baker (1873) L.R. 8 C.P. 350 at 357; Verschures Creameries Ltd v Hull and Netherlands Steamship Co (1921) 2 KB 608 at p 612; and Ambur Nair v Kelu Nair (1933) 60 1.A. 266; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted."

The unjust departure to which Dixon J referred does not give rise to some "idiosyncratic concepts of justice and fairness": Legione v Hateley (supra) per Mason & Deane JJ at 431 and Grundt v The Great Boulder Proprietory Gold Mines Limited (supra) at 675-678.

Unjust departure is what equity has called unconscionable conduct. It is not a separate element to be proved but includes a consideration of the conduct of the parties in the creation of a conventional dealing. It is based upon agreed or assumed facts and the detriment which would follow to a party if the other party was allowed to withdraw from that conventional dealing: Commonwealth v Clark [1994] VicRp 66; (1994) 2 VR 333 per Ormiston J at 368.

The change of position which has resulted in the detriment must be the result of a belief in the agreed or assumed facts. Thus, in this case Delhi had to establish that acting on the correctness of the assumption it entered into the Settlement Agreement. It is not necessary for Delhi to prove that it specifically applied its mind to the assumption. It is enough that it assumed that these repayments and expenses were relevant to the transaction into which it entered, in the sense that they would not be changed by entering into that agreement.

The detriment must be material in the sense that the party seeking to rely on the estoppel would have placed himself in a position of material disadvantage if departure from the assumption was permitted; per Dixon J in Thompson v Palmer (supra) at 547.

The Operator had the responsibility of proposing the Accounting Procedure which it did by way of Mr Taylor's memorandum. It therefore asserted the correctness of that procedure and all Producers agreed, if not expressly certainly impliedly. All proceeded on the basis that the Accounting Procedure reflected their agreement with the State and each other. Each must have assumed that they were to receive nothing by way of repayment for the Security Deposits and pay nothing in Dues, Rates and Tariffs in respect of those Security Deposits. They proceeded on that basis until and after the Water and Roads Security Deposit was repaid. That Security Deposit had become irrelevant by the time Santos changed the Accounting Procedure in January 1997.

The Producers assumed the correctness of a system which was revenue neutral for 13 years.

It was Santos' proposal that was wrong but acted upon.

Delhi did nothing more than any other Producer to foster the agreed assumption. It accepted the correctness of the accounting procedure.

If Santos were allowed to resile from the common assumption the question would remain whether it is entitled to correct the accounts for the period before 10 January 1997. For the reasons I have already given and because of clause 1.5 of the accounting procedure it would not be entitled to reopen the accounts before 10 January 1995. That means that it cannot, even if it were allowed to depart from the common assumption, correct the accounts in respect of the Water and Roads Security Deposit or the Water Rates and Road Tariff. It therefore would not suffer any loss in that respect by being compelled to adhere to the common assumption.

When the parties entered into the Settlement Agreement all of the parties must have assumed, because it had been the case since 1984, that Santos would continue to account in respect of the Jetty Security Deposit as it had prior to the execution of that Agreement. All of the Producers must have assumed that their obligations in respect of the Wharfage Dues/Wharfage Fees would be such that the repayments and payments would be revenue neutral.

In my opinion, the Producers did not contemplate that the Settlement Agreement would impact upon those repayments or those expenses.

In those circumstances it would be unconscionable to allow Santos to depart from the common assumption and account to the parties upon the basis proposed by Mr McArdle on 10 January 1997.

I agree with the trial judge's conclusions that Delhi has established detriment and therefore is entitled to claim that Santos is estopped from departing from the historical accounting practice.

It follows that Delhi is entitled to the return of the monies paid under protest and the repayment of any further monies paid as a consequence of Santos departing from the historical accounting practice until the date of trial. Delhi is thereafter entitled to declarations that Santos is not entitled to depart from the historical accounting practice from the date of trial. Santos must observe the historical accounting practice from the date of trial.

If those declarations are made then it would be inappropriate, as I have already mentioned, to require Santos or any Producer to pay any further sum upon the basis that Santos might depart from the historical accounting practice between now and 2003 in relation to the Wharfage Dues.

Again for completeness I will address this argument. Delhi contended that in the alternative to its claim of an estoppel by convention an equitable estoppel arose. It relied upon the dictum of Brennan J in Waltons Stores (Interstate) Ltd v Maher (supra) where His Honour identified the elements of an equitable estoppel. He said at 428-429:

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

The trial judge rejected Delhi's submission that the estoppel arose by way of conduct. Santos was the Operator. It was Santos' obligation to ensure that all revenue and all costs and expenses were apportioned between the Producers in accordance with their entitlements and obligations.

If, as it must be assumed for this argument, those apportionments had to be in accordance with the Downstream Agreement, then Santos' obligation was to apportion all revenue and costs and expenses in accordance with that agreement.

I agree that Mr Taylor's memorandum did not amount to a representation that Santos was apportioning those items of revenue and those items of expense in accordance with the Downstream Agreement.

The memorandum contained a proposal from Santos in which it suggested how it would account for those terms of revenue and expenses. It amounted to a communication by the Operator to the Producers that it was accounting in respect of these items in accordance with its understanding of the Downstream Agreement. It thereby became the foundation upon which the common assumption was maintained.

I agree with the trial judge that no estoppel by conduct arose.

Santos argued that if the Court were satisfied that the parties, by adopting the historical accounting practice, had reached a common assumption, and that common assumption would otherwise give rise to an estoppel by convention, as contended for by Delhi, clause 11(a) of the Settlement Agreement would prevent either the estoppel arising or the Court giving effect to the estoppel. I have already set out the terms of Clause 11(a) of the Settlement Agreement.

Clause 11(a)(ii) is not relevant, in my opinion, because as I have said, I agree with the trial judge that an estoppel by representation does not arise.

Santos contended however that clause 11(a)(i) prevented an estoppel by convention arising.

The Settlement Agreement had a quite limited purpose. It was entered into to avoid the necessity for the reviews and adjustments of the Unit Participations and Downstream Participations and the Unit Agreement and Downstream Agreement were amended accordingly by the Settlement Agreement. The reviews and adjustments for the years 1987, 1989 and 1991 were agreed. The Participation Factors under the Unit Agreement, the Downstream Agreement and the Joint Operating Agreements were fixed. The subject matter of the Settlement Agreement was limited to those matters. The Settlement Agreement does not touch upon these items of revenue and expense.

As I have already said Delhi was entitled out of the repayment of the Jetty Security Deposit to a payment corresponding to its contribution to the costs associated with the design, engineering, construction and installation of the Jetty. It had to contribute a like amount to integer 'a'.

The Settlement Agreement does not refer to that asset or liability. Nor does the Settlement Agreement touch upon the repayment of the Water and Roads Security Deposit or the payment of the Water Rates and Road Tariff.

The estoppel argument assumes the corrections of Santos' contentions on the construction argument.

Any estoppel would affect the Downstream Agreement. But clause 11 of the Settlement Agreement does not prevent that occurring. Its application is limited to the Settlement Agreement itself. Clause 11(a)(i) does not, in my opinion, stand in Delhi's way in the event that an estoppel by convention arose.

In any event, even if the estoppel affected the Settlement Agreement, clause 11 would not prevent the estoppel arising if all the elements of the estoppel were made out. The very purpose of the erection of an estoppel is to preclude the party against whom the estoppel is claimed relying upon the express terms of the contract: Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387.

In my opinion, Clause 11 does not preclude any estoppel by convention arising.

Santos debited the joint operating account for the costs of these proceedings. Delhi has claimed on its cross appeal that the trial judge was wrong to allow Santos to debit the joint operating account. Delhi has objected to Santos claiming its costs against the joint operating account. It claims that if Santos were allowed to debit the joint operating account for its costs Delhi would effectively bear 20.21 per cent of Santos' costs even if Delhi were successful in these proceedings and on this appeal. Delhi claims that Santos had no authority to debit the joint operating account.

It was Santos' assertion that because the dispute concerns apportionment of downstream operating expenses and revenue the Downstream Agreement is the appropriate source of any entitlement to charge the costs of these proceedings to the joint operating account.

In the alternative Santos claimed that the Unit Agreement applied and that was therefore justified in charging its costs against the Unit Operations. In the further alternative Santos relied upon the Settlement Agreement.

Santos relied upon my decision in Basin Oil No Liability v Santos Ltd (supra) which it said supported its right to charge its legal costs to the joint operating account.

"I agree with the submission put by Delhi that the indemnity clauses in both the Downstream Agreement and the Unit Agreement do not assist Santos. Properly construed the indemnity relates to losses arising from claims made by third parties, not between the parties to the relevant agreement. However, the Accounting Procedure cannot prevail over the clear language contained in cl 8.02 of the Unit and Downstream Agreements. Whichever provision properly applies, the answer is the same. The approach taken by Justice Lander should be followed. Santos is entitled to debit the joint operating account for the costs of defending these proceedings. That situation results even if the present dispute is identified as arising out of the Accounting Adjustments under the Settlement Agreement because a Unit Operation is involved, thus attracting cl 8.02 of the Unit Agreement."

551. If Santos has any entitlement to debit its costs of these proceedings from the joint operating account it must arise out of one or other of the agreements between the parties.

552. Santos submitted that His Honour's decision in relation to this aspect of the matter was correct because Santos was entitled, in its capacity as either Operator under the Downstream Agreement or as Unit Operator, to look to the joint operating account for its costs and expenses in this action.

553. There are no separate Downstream and Unit accounts. There is simply a joint venture operating account for Unit and Downstream Operations.

554. The three alternative grounds which Santos claims entitled it to its costs and expenses of the action were:

"36.1 as the challenged apportionment concerns Downstream operating expenses and revenue, it is the Downstream Agreement that is the appropriate source of the Operator's entitlement to charge its costs of these proceedings to the Joint Venture Operating Account;

36.2 the Settlement Agreement and the Unit Agreement authorised the carrying out of the Accounting Adjustment and the obtaining of the Audit Opinion, which are challenged, as Unit Operations;

36.3 the challenge relates to the conduct of Unit Operations as defined in the Unit Agreement."

555. Clause 8.01 of the Unit Agreement authorises the Unit Operator to set up an Unit Account "on behalf of the Parties for all costs, expenses and liabilities incurred by it ..."

556. Clause 8.01 of the Downstream Agreement is in like terms. It provides that the Operator shall set up a Downstream Account "on behalf of the Parties for all costs, expenses and liabilities incurred by it ...".

557. There is but one account which is the joint operating account.

558. Clause 8.02 of both the Unit Agreement and Downstream Agreement are also in like terms. Both clauses provide that the Operator initially shall promptly pay all costs and expenses incurred with respect to Unit Facilities and Unit Operations in the case of the Unit Agreement and Downstream Facilities and Downstream Operations in the case of the Downstream Agreement when such costs and expenses become promptly due and payable.

559. In my opinion, Santos would only be entitled to debit the joint operating account for its costs and expenses in this litigation if its costs are costs and expenses incurred with respect to Unit Facilities and Unit Operations or Downstream Facilities and Downstream Operations.

560. In my opinion, it cannot be said that the cost of this litigation are costs and expenses incurred with respect to Unit Facilities and Unit Operations. Unit Facilities are defined in cl 1.50:

"Unit Facilities means the wells, plant, equipment, machinery and facilities specified or referred to in Clauses 14.01(a) - (g) (inclusive) hereof or referred to in Clause 14.03 hereof or as are drilled, held, constructed or acquired on behalf of the parties for the Unit Account (whether pursuant to the provisions of Clause 8.02 or 8.11 hereof) together with any real or personal property (other than the Petroleum Rights) acquired or used by the parties for Unit Operations."

561. The costs of this litigation do not come within the definition of Unit Facilities.

"Unit Operations means any operations authorised or provided for in accordance with this Agreement (including but not limited to any operations pursuant to any agreement referred to in clause 3.04(b) hereof) and conducted for or in respect of: -

(a) the development and operation of Unitised Zones;

563. Again, in my opinion, the costs and expenses of this litigation do not come within the terms of that definition.

564. The Unit Agreement could not govern Santos' right to claim the costs of this litigation in any event. This litigation arises out of a dispute relating to Downstream Operations. If Santos had any right to debit the joint operating account it must arise under the Downstream Agreement or perhaps under the Settlement Agreement. It cannot arise, in my opinion, under the Unit Agreement. For that reason the third proposition must also fail.

565. As I have already noticed Santos' right to debit its costs of these proceedings against the joint venture account under the Downstream Agreement can only arise if those costs are incurred with respect to "Downstream Facilities and Downstream Operations when such costs and expenses become promptly due and payable". These are not costs and expenses incurred in respect to Downstream Facilities. Nor are they, in my opinion, costs incurred in relation to Downstream Operations.

566. The second argument advanced by Santos was that if the Downstream Agreement did not authorise the debiting of its costs and expenses against the joint operating account then the Settlement Agreement did. In that respect it relied upon clause 5 of the Settlement Agreement which required the Unit Operator to carry out the accounting adjustments and to obtain an audit opinion. There is no doubt that clause 5 of the Settlement Agreement obliged the Unit Operator to carry out the accounting adjustments and obtain the necessary audit opinion. However, this dispute is not about the appropriateness of the Accounting Adjustments carried out by Santos pursuant to the Settlement Agreement. This dispute is about a determination made by Mr McArdle on 10 January 1997 that Santos had, prior to that time, failed to account to the Producers in accordance with the Downstream Agreement. It was when Santos was carrying out the accounting adjustments that it claimed that it noticed that it had not properly accounted for the years to 1996. This dispute is not about the procedure carried out under clause 5 of the Settlement Agreement, and clause 5 has no application.

567. Santos relied upon clause 7.05 in both the Unit Agreement and the Downstream Agreement to support its entitlement to debit the joint operating account with its costs and expenses of this litigation. In my opinion, clause 7.05 of those agreements does not support Santos's submission. Clause 7.05 of those agreements relates to indemnities to be given by the Producers to Santos in respect of third party liabilities.

568. My decision in Basin Oil No Liability v Santos Ltd (supra) is not authority for Santos being entitled to debit its costs and expenses of this litigation to the joint operating account. That case concerned a review and adjustment arbitration which was conducted pursuant to Article 23 of the Unit Agreement. Clause 23.07 provides:

Subject to the other provisions of this Agreement and as hereinafter provided upon every and any submission to Arbitration, the costs of and incidental to the submission and award shall be at the direction of the Arbitrator, who may determine the amount thereof or may direct that the costs be taxed by a proper officer of the Court and the Arbitrator shall direct by whom, in what proportion and in what manner costs shall be paid PROVIDED HOWEVER THAT in respect to any submission to arbitration arising by reason of any Party disputing the correctness of any determination made by Unit Operator pursuant to the provisions of this Agreement then the entire costs of and incidental to the submission and award shall be borne solely by such Party unless the Arbitrator makes an award in favour of such Party in which event the entire costs of and incidental to the submission and award shall be for the Unit Account."

569. It was that particular clause which led me to say in Basin Oil NL v Santos Ltd (supra) at 17:

"The importance of that clause arises out of the proviso, because the proviso expressly recognises that a Party may dispute the correctness of a determination made by Unit Operator.

It seems to me that proviso recognises there may be a dispute between a Party and the Unit Operator and in those circumstances the Unit Operator will be entitled to be indemnified against any award for costs by requiring the arbitrator if the other party is successful, to visit the order for costs upon the Unit Account.

Article 23.07 makes it clear that the Unit Operator ought not to bear the costs itself. The costs of the arbitration must be borne by the Party disputing (presumably if it is unsuccessful) or all the Parties collectively (presumably if the disputing party is successful) by visiting the costs upon the Unit Account. The Unit Operator ought never to bear any greater costs than the total of its obligation to the Unit Account."

570. My construction of cl 23.07 is not relevant in a determination of these issues. This dispute does not involve an arbitration and cl 23.07 has no application.

571. In my opinion, the trial judge was wrong to allow Santos' to debit the joint operating account for its costs of these proceedings.

572. The relief to be granted on this appeal will be governed by my construction of the agreements. In that regard Delhi has been successful. Because it has been successful on that argument no relief needs to be addressed in respect of its arguments on cl 1.5 of the Accounting Procedure to the Downstream Agreement and estoppel by convention, even though it has been successful on those arguments.

573. The repayment of the Jetty Security Deposit must be apportioned between the Producers corresponding to the Producers' contributions to the costs associated with the design, engineering, construction and installation of the Jetty.

574. The Producers contributions to integer 'a' in Clause 72 should be apportioned in the same way.

575. The repayment of the Water and Roads Security Deposit must be apportioned between the Producers in accordance with their contributions to that Deposit.

576. The Producers contributions to the Water Rates and Road Tariff should be apportioned in the same way.

577. In due course, for the reasons given, orders must be made dismissing the appeal and allowing the cross appeal. Delhi will no doubt seek declarations and orders for payment by Santos of a money sum.

578. In my opinion it would be appropriate to publish these reasons to allow the parties to consider whatever declarations and orders should be made in conformity with these reasons and the reasons of other members of the Court.

579. The parties should also be entitled to be heard on any other orders including interest and costs.

The question at issue concerns the proper accounting to give effect to the arrangements between the Cooper Basin Producers for financing public works at Port Bonython as required by the Stony Point Indenture (which appears as a schedule to the Stony Point (Liquids Project) Ratification Act 1981. The terms of that Indenture (between the State and the individual Producers) required the Producers collectively to provide security deposits to the State; the agreement (which does not entirely appear on the face of the indenture) requires the repayment by the State of these security deposits to be offset against tariffs to be imposed upon the Producers by the Government; these tariffs have been called the "secondary tariffs" and must be distinguished from the primary tariffs by way of wharfage and water rates and charges arising from the usage of the facilities and supply of water. The dispute concerns the proportions in which the Producers as between themselves should share these repayments and bear the secondary tariffs. Santos (which has the responsibility for maintaining the joint venture accounts of the Producers) claims to have made an accounting error as to the abovementioned proportions so that (allegedly) Delhi has obtained an unauthorised financial advantage. The resolution of the dispute requires the terms of the Producers' agreement inter se to be identified.

In my opinion no accounting error has occurred as alleged by Santos. Two days before the date of the Stony Point Indenture a memorandum dated 24 November 1981 was executed by Mr Carmichael (on behalf of the Cooper Basin Producers) and by Mr Goldsworthy as Minister of Mines and Energy. The memorandum (referred to as the "Minister's letter") purports to record "the broad principles on which agreement has been reached between the Producers and the State." The significance of this document is discounted in the reasons of the trial judge (pars 31 and 32) and in the argument of the present appellants. The document is headed "Agreed principles" but it is more than a general statement of policy; together with the Indenture it is intended to give rise to a contract providing a unique method of financing public works; the memorandum contains the essential commercial details to tidy up the loose ends in the indenture itself and provides the justification for the form of accounting for which Delhi now contends.

A special feature of the arrangement is that capital payments from time to time payable by the State to the Producers are to be offset by tariffs payable by the Producers to the Government. In the result the State is never at financial risk.

Having contributed a proportion of the security deposits as required under the Stony Point indenture, Delhi is entitled (upon my judgment) to recover in instalments (with interest) its share of repayments from time to time made by the South Australian Government such that the monies so received on any occasion will be exactly matched (and offset) by a contribution required to be made by Delhi by way of secondary jetty tariff or secondary road or water tariff or rate. The entitlements and obligations of Delhi (and also of the other Producers) in this behalf are governed by the indenture and the Minister's letter; the later "downstream agreement" dated 31 December 1981 between the Producers does not operate to the contrary.

Delhi's proportionate interest in the security deposits is (a) Jetty 15.8743 per cent and (b) Roads and Pipeline 16.8863 per cent. The offsetting secondary tariffs are to be borne in the same proportions so that Delhi's share of the secondary Jetty Tariff is necessarily 15.874 per cent and Delhi's share of the secondary roads or water tariff is necessarily 16.8863 per cent. The proper proportions are determined by the reference to the source of the funds which gave rise to the joint venturers' respective contributions to the security deposits. (In fact, the parties contributed in the proportions which are identifiable in the tables contained in the second schedule to the Downstream agreement).

For convenience I have treated the roads and pipeline as requiring one security deposit; however the Minister's letter deals separately with Roads and Pipeline; the indenture and Minister's letter require separate deposits in respect of each subject matter (namely road and pipeline) and with matching secondary tariffs or rates required by the Minister's letter to offset the State's liabilities to repay the deposits. Sometimes the pipeline deposit is referred to as the water security deposit.

The joint venturers are bound to these proportions (being those in which they contributed to the deposits) by virtue of the requirements of the Minister's letter. The indenture (although sometimes in less detail) covers much of the same ground.

If in 1996 the Producers (as appears to be the case) renegotiated the terms of the Downstream Agreement under a misconception as to how the indenture and Minister's letter operated then this would suggest that the parties may have been mistaken as to their private legal rights. However, no-one has sought to argue that the 1996 arrangements were void for mistake.

In my opinion as the historical accounts correctly reflect the requirements of the Minister's letter, it is unnecessary to address the question of an estoppel arising from the parties' acceptance of the accounting reports. The only estoppel which might arise is with respect to the significance of the fact of the contributions made by the joint venturers to the security deposits. Whatever any of them may seek to argue as to the appropriateness of their respective contributions to those deposits, the fact remains that they made their contributions to the deposits as shown in the accounts; the proportions in which those payments were made now govern the subsequent accounting.

The parties to this appeal are at issue as to whether Santos has made a mistake with respect to four ledgers within the accounts which it maintains on behalf of the Cooper Basin joint venturers ("the Producers") with respect to works and activities at Port Bonython (Stony Point).

Two of these ledgers deal with the refunds of security deposits and interest received from the South Australian Government in connection with public works provided at Port Bonython - firstly a jetty (and other marine facilities) and secondly an access road and a water main. The other two ledgers deal with tariffs and rates which have been imposed as an offset against these receipts. The question at issue is whether the proportions in which the joint venturers have agreed to share these items of revenue and expenditure are correctly reflected in the accounts.

The problem is compounded by the fact that on 5 December 1996 the joint venturers entered into a supplementary agreement (the Fixed Factor Settlement Agreement) to settle some other accounting differences. Delhi claims to have relied upon the original historical accounting by Santos in the assessment of Delhi's position for the purpose of negotiating this agreement; Delhi claims that it would not have agreed to the terms of the 1996 agreement if it were aware of the accounting mistake which Santos now claims to have identified as to the rights and obligations of the joint venturers inter se. This latter issue (which raises a question of estoppel by convention) only arises if a mistake has occurred in the accounts.

In my opinion the resolution of the issue as to alleged mistake depends upon recognition of two facts namely:

(1) the significance of the letter (sometimes called the Minister's letter) dated 24 November 1981 from Santos to the Government as giving rise to an agreement binding upon the parties. (see pt 2 of this judgment).

(2) the nature of the exceptional arrangements which were put in place in 1981 for private enterprise to fund public works at Port Bonython without putting the State at any financial risk and without placing the State in jeopardy of incurring public debt in breach of loan raising constraints. (see pt 3 of this judgment).

In my opinion an appreciation of these matters is the key to an understanding of the underlying legal justification for the manner of ledger keeping. I am thereby led to the conclusion that the terms of the Minister's letter effectively bind the producers to account in the manner for which Delhi now contends.

The parties to this dispute are joint venturers with respect to the exploitation of their respective interests in the Cooper Basin oil and gas field. Using common pipeline facilities their respective products are brought "downstream" for 659 km from Moomba to Stony Point (near Whyalla) where the joint venturers have established Port Bonython (a deep water port on Spencer Gulf) with marine and onshore infrastructure. The parties participate in unequal proportions in the joint venture and this fact requires extensive internal accounting. Their commercial arrangements are the subject of a web of agreements and accounting protocols; one such agreement is the Stony Point Indenture to which the South Australian Government is a party. As now relevant the book-keeping is controlled through an account entitled the "Downstream Account" which is under the supervision of Santos as "operator" pursuant to the parties' agreement of 31 December 1981.

The nature of the joint venture arrangements is such that the characterisation of an activity is crucial to the manner of its treatment in the accounts and apportionment between the producers.

In early 1997 officers of Santos identified the possibility of a longstanding error having been perpetuated in the Downstream account; at issue were the proportions in which certain items of revenue and expenditure should be shared between the joint venturers. An internal Santos memorandum dated 21 March 1997 headed "Accounting adjustments: Secondary Tariffs - Jetty and Roads/Water" identifies the matters of concern and records the unsuccessful endeavours which were then made by reference to the various joint venture agreements to trace the basis upon which the original ledger entries were made and accounting protocols established by Santos.

The 1997 Santos memorandum reviews the operation of the various agreements (and in particular the Stony Point indenture) without the author (on behalf of a working party) being able to find a justification for the historical treatment accorded to the four items in question. The memorandum notes that the accounting treatment by Santos as operator was in accordance with the Operator's own Accounting Procedure (attachment 1 to the memorandum) but this document itself does not spell out the underlying reason for the accounting practice. Officers of Santos canvassed the possibility that a mistake had occurred and also considered the possible existence of some further agreement.

In my opinion no mistake as alleged has occurred although the concerns of Santos is understandable. The problem identified in the memorandum has arisen by reason of the fact that the officers of Santos were not provided with (or did not appreciate the significance of) a crucial document namely the letter dated 24 November 1981 from Santos (on behalf of the joint venturers) to the Minister of Mines and Energy (with his approval endorsed thereon). More recently the significance of the letter appears still not to have been understood and (except in reply) forms no part of the argument now advanced for the appellants. The letter was treated by the trial judge as only containing some "broad principles". The reality is that the letter in its particularity is binding on the parties and requires no further elaboration. The letter provides clear directions as to how the accounts must be maintained.

The relevant arrangements are generally exhaustively covered by the terms of the Stony Point Indenture. However, it is apparent upon the face of that indenture (which has been ratified by the South Australian Parliament) that certain matters of detail in terms of monies passing between the State and the Producers (as the Joint Venturers are called) should be "as provided for by agreement between the producers and the State". This quotation is from cl 43 of the indenture but there are other important examples in the indenture as to circumstances in which such an agreement is required (cl 66 and 67 and Indenture Schedule 4 item 2 are the other crucial provisions where the details are left to a separate agreement). It may be seen that not only was agreement required between the Government and the producers as to details of various payments and receipts to offset each other but that agreement was needed as to the timing relative to each other of the various items which affect each side of the ledger if commercial embarrassment to either the Government or the producers was to be avoided.

For reasons which do not appear the Government and the Joint Venturers have preferred to record these last-mentioned commercial details in private correspondence (namely in the letter dated 24 November 1981) rather than including the details in the indenture dated 26 November 1981 which was formally ratified by the Parliament of South Australia on 17 December 1981 when the Act No 89 of 1981 received the Governor's Assent. The references in the indenture to details "as agreed between the Producers and the State" is a form of words which is apt to embrace agreements already in existence as well as those to be made after the date of the indenture.

The Santos memorandum of 1997 comes very close to unravelling the accounting mystery when it suggests that:

"The fact that the "Secondary Tariff - Roads/Water" is not specified in the Stony Point Indenture nor the [downstream] Agreement indicates that this issue must have been covered in some other correspondence or agreement."

To my mind the resolution of the dispute is obvious when one reads the indenture together with the letter. As I will explain, there was no mistake. The only error made by the parties is in overlooking the significance of the 1981 Minister's letter which locks together in terms of detail crucial matters which had only been loosely dealt with in the indenture.

The terms of the Minister's letter are set out in Pt 4 of this judgment. The letter is obviously intended to be read with the Stony Point Indenture to which the letter makes reference. The letter is an agreement made between the Minister on the one hand and the producers on the other hand. It is bi-lateral in its effect in that it is made between the Minister on the one hand and a group of joint venturers on the other hand. The producers (via their representative Mr Carmichael of Santos) have jointly made an agreement with the Minister (or have together by their common agent Carmichael so agreed). The Downstream agreement (dated 31 December 1981) is expressed to take effect retrospectively as from 1 January 1981 but this document which emphasises the "several" covenants of the parties cannot operate to supersede the effect of the agreement made between the Minister of one part and the Producers together of the other part on 24 November 1981 before any other relevant document was signed. The indenture itself contains elements of the bi-lateral structure to be found in the Minister's letter and confirms the status to be accorded the letter.

Port infrastructure has been built at Port Bonython in accordance with the Stony Point (Liquids Project) Ratification Act (No 89 of 1981) which ratifies and approves the Stony Point Indenture dated 26 November 1981 (appearing as the first schedule to the Act). As now relevant, the capital works comprise Marine Facilities (including a jetty and mooring dolphins) an approach road (running generally east from the Lincoln Highway to meet the Lowly Point Road) and a water main (to feed from the existing Morgan-Whyalla pipeline).

The parties to the indenture are the State of South Australia and eleven other parties (including Santos and Delhi respectively) who are collectively referred to as the producers; the Minister is an additional party. By a joint venture agreement (called the Downstream Agreement and creating several rights and obligations) the producers have regulated their affairs inter se. An important matter of detail in the overall arrangements is contained in the letter (called the Minister's letter) dated 24 November 1981 from Santos (on behalf of the producers) to the Minister of Mines and Energy; this letter ensures that various payments to be made by the state and the producers to each other from time to time will exactly match (or coincide) in terms of time of payment and monetary amount. The present dispute concerns the topics covered by this letter and whether in their dealings between themselves the producers' agreement required them to continue to account in the same way and in the same proportions as they have originally provided funding by way of security deposits to the Government and to offset repayments against fixed and equal liabilities upon revenue account.

The indenture contemplates that the abovementioned capital works be constructed ultimately at the expense of the producers but owned by the state. The jetty as required by the Indenture has been built by the Producers and transferred to the State. The dedicated public road and water supply has been developed by the State.

A system of tax efficient financing (as it has been referred to in argument) has been adopted as between the State and the Producers; the financing arrangements (at least in outline) appear on the face of the indenture which Parliament has approved. However, it is necessary to refer to the Minister's letter in order to see the full impact of the arrangements.

It is the preparedness of the producers to provide the finance for the capital works which enables the project to proceed. The project is unusual to the extent that major Government capital works are being financed by the private sector in a way which secures the financial interests of South Australia with respect to the project which is designed to service production from the Cooper Basin; the arrangements are such that even if the oil wells should be capped or production disrupted the cash security provided by the producers to the State serves to protect the State against loss but leaves the State with valuable assets. The recitals to the indenture identify the economic benefits to the State (and the community more generally) which drive the indenture.

The manner of financing of these capital works (except in one respect) is comprehensively covered by the indenture when read with the Minister's letter. The following features of this extraordinary arrangement are as follows:

(a) The public works are provided at the cost of private enterprise although owned by the State.

(b) The State is never at risk in terms of cost of the works although the State is required to construct the road and pipeline.

(c) The State incurs no public debt and makes no borrowings to finance the project.

(d) "Security deposits" are required to be lodged by the Producers with the State as a bond for the discharge of the Producers' obligations. Although these monies may be called upon by the State to satisfy the obligations of the producers under the Indenture, the monies are not characterised as "borrowings" by the State.

(e) The jetty and other marine facilities are supplied and constructed by the producers and then transferred "at cost" to the Government.

(f) The cost to the Government of the jetty and the roads and pipeline is exactly offset by the amounts of the deposits made by the producers with the State; these deposits (with interest) are then repaid on a credit foncier basis over a period of years.

(g) The producers fund the repayment of the deposits to themselves by paying to the Government certain fixed tariffs and rates; these "secondary" tariffs and rates are to be distinguished from the normal primary wharfage fees and rates normally payable by private enterprise for the use of public facilities.

(h) The timing of the instalments of repayment of deposits by the Government under (f) must match the payment of amounts under (g) represented by secondary tariffs and rates.

(i) The effect of the transaction is that "the producers will have an allowable charge against projects in the form of a secondary tariff charge" - I quote from Santos Accounting Procedure - Appendix 1 to the memorandum of 21 March 1997. (No doubt the "allowable charge" provides a measure of tax effectiveness to the tax efficient financing abovementioned). The phraseology describing the effect of the transaction appears to have been adopted by Mr R Taylor (since deceased) who laid down the accounting procedure by memorandum dated 28 July 1984 following an "accountants' meeting" on 25 July 1984. The distribution of this memorandum suggests that it records consensus reached between the internal accountants representing the various producers. The consequential circulation of accounting reports by Santos appears to reflect and confirm that consensus.

(c) The arithmetic of the financial arrangements

Translating these arrangements into money amounts the financing arrangements are as follows:

(a) The marine facilities were supplied to the Government at a cost of $48.2m.

(b) The Government provided roads and water mains at a cost of $3.9m.

(c) The producers provided a "jetty security deposit" of $48.2m repayable with interest by 20 annual instalments of $9.9m. The instalments are to be paid on the anniversary of the transfer of the ownership of the jetty to the Government; under this arrangement the first repayment instalment has been brought to account as at 9 November 1984.

(d) The producers provided a "roads and water secondary deposit" of $3.9m repayable by 10 annual instalments of $0.9m. (These are the broad figures. In fact there was a road deposit at $304,000 and a water deposit of $930,474 repayable by instalments of $676,445 and $207,044). The repayment instalments commence on 1 December 1984.

(e) The jetty security deposit carries interest at 20 per cent per annum and the roads and water security deposit carries interest at 18 per cent per annum. These interest rates have been included in the credit foncier calculations necessary to produce the abovementioned repayment instalments.

(f) Secondary tariffs are payable (and have been paid) by the producers exactly to offset the credit foncier repayments as they fall due. (It is the accounting for these last-mentioned receipts and expenditure which is now at issue).

I have mentioned that these arrangements are comprehensively dealt with in the indenture and Minister's letter except in one respect. The shares (or proportions) in which the producers are to provide the deposits are not mentioned in these documents. This is the only gap in the indenture and Minister's letter as affecting the financing of the capital works.

In fact as between the Producers, Delhi in money terms contributed 15.8743 per cent towards the cost of the jetty and subsequently (by book entry) towards the jetty security deposit. Likewise Delhi contributed 16.8863 per cent of the roads and water security deposit.

Having reached my conclusions by reference to the terms of the Stony Point Indenture, the Minister's letter and the Downstairs agreement, it is useful when considering the purpose of the arrangements to compare my analysis with the explanation given by the South Australian Minister of Mines and Energy upon the second reading of the Stony Point (Liquids Project) Ratification Bill. The Minister (Mr Goldsworthy) expressed himself as follows: (1 December 1981 - House of Assembly - p 2152)

The arrangements which have been agreed between the State and the producers in relation to the financing of capital facilities can be summarised very simply.

Road, water supply and port facilities at Stony Point will be owned by the State, but will be financed through security deposits to be lodged by the producers. These security deposits will be returned to the producers over specified periods as they or third parties pay offsetting charges for the use of the facilities in question. The capital costs in these three areas are estimated at about $45 000 000 in today's prices, the bulk of which is represented by the jetty and other port facilities.

The fact that the capital financing will fall almost entirely on the producers is in line with the political and economic philosophies of this Government. We believe that Governments should become involved in such activity only when the private sector is unable to carry the full financing load or where there are other clear grounds for Government involvement. There are, however, other practical benefits which flow from private sector financing. The project will proceed without the Government exposing itself to any financial risk and without reducing the Government's capacity to finance other priority works. These arrangements also mean that the State is not giving any subsidy to the project, whether direct or indirect. They also mean that the State's ability to raise finance for other major development purposes in the future has not been unnecessarily diminished...."

That explanation confirms my own independent observations as to the features of the arrangement without reference to Hansard.

4 Analysis of the Indenture and the Minister's letter

In my opinion the question at issue involves the accounting between the producers to give effect to the requirements of the Indenture and the Minister's letter and the extent to which there is scope for the Downstream agreement to operate. Santos (which as between all the producers is responsible for accounting) claims to have identified a series of accounting mistakes on its part in its periodic reporting to the joint venturers. It has sought to adjust the accounts by reference to the terms of the Downstream agreement.

In order to correct the alleged errors in the cash accounting Santos has required Delhi to repay to the joint venture account an amount by way of adjustment. Delhi, having made the repayment under protest (as required by the Downstream Agreement) has now brought the present proceedings to resolve the dispute. I note that on 30 July 1997 Santos acknowledged the proposed payment by Delhi of $4,699,593 under protest and without prejudice:

"...to Delhi's rights to dispute the basis for and correctness of such part of the payment as relates to secondary tariffs and jetty, roads and water security deposits and interest repayments and which is made as a result of the audit opinion dated the 30th June 1997."

However, not all of this amount is referable to the issue now before the Court.

I have already noted how the financing of the works has been achieved by interest bearing deposits provided by the producers to the State (and with offsetting secondary tariffs). The indenture (and supporting Minister's letter) provides for these deposits to be made and the terms thereof. The indenture is silent as to the proportions in which the producers will contribute to the deposits. However cl 88 of the indenture provides:

"The liability of each Producer under this Indenture shall be several and not joint nor joint and several and the liability of each Producer shall be determined in accordance with the extent of its ownership of any interest from time to time in any asset or activity contemplated under this Indenture."

By reference to this clause and to the historical contributions made by the respective producers to the security deposits, the extent of each producer's interest in that deposit is fixed. The amount of that interest and the percentage of each producer's contribution to the loan is thereupon fixed for all time. The extent of each producer's share of the secondary tariffs and rates to offset the repayment of the deposits is likewise fixed by virtue of the Minister's letter. The percentages on each side of the ledger must always remain the same. Arguably (on Santos' submissions) the percentages can fluctuate in accordance with cl 88 but this approach will simply lead to a circular argument. This was recognised by counsel.

The jetty and other marine installations were transferred by the producers to the Government at cost which amount is to be paid "forthwith" to the producers. However, the producers are required to deposit with the State: (cl 66)

"...at a time and in a manner to be agreed a sum equal to the amount paid by the State to the Producers pursuant to clause 63 of this Indenture to secure the due observance by the Producers of the terms of this Part XV of this Indenture on their part to be observed and also to secure payment of the amounts due to be paid to the State by the Producers under this Part."

The repayment of this deposit is dealt with by the indenture cl 67:

"The security deposit referred to in clause 66 of this Indenture together with interest thereon at the rate of 20 per centum per annum shall, subject to clause 66 be repaid by the state to the Producers annually calculated on a credit foncier system by twenty equal instalments in the manner to be provided for by agreement between the Producers and the State."

The road and pipeline to be provided by the State (under pts 10 and 11 of the Indenture) are subject to Schedule 4 of the Indenture whereby the producers are required to deposit with the State a sum equal to the capital cost of the road and cost of laying of the water pipeline. This deposit is repayable by the Government to the producers with interest at 18 per cent per annum on a credit foncier basis by 10 equal annual instalments.

These arrangements up to this point are not unorthodox in that they resemble a commercial loan (although described as deposits to secure the producers' obligations). However in both Schedule 4 and in cl 66 of the Indenture itself the liability of the State to repay the annual credit foncier instalments regarding the "security deposits" abovementioned is subject to an over-rider expressed (mutatis mutandis) in the same way in each instance.

"To the extent of any shortfall in payment of amounts owing to the State pursuant to this Part in any year the Producers shall to that extent forfeit the moneys which would otherwise have been payable to the Producers pursuant to clause 67 of this Indenture."

"...To the extent of any shortfall in payment of amounts owing pursuant to Parts X and XI or to any agreements referred to therein in any year the Producers shall to that extent forfeit the moneys which would otherwise have been payable to the Producers pursuant to this Schedule."

These over-riders provide a clue to an understanding of the operation of the financing arrangements.

625. The repayment of the jetty security deposit can be seen to be exactly offset by an arbitrary periodic payment required to be made by the producers as one component of the wharfage dues fixed under cl 72 of the indenture as payable by the Producers to the Government. Upon analysis the formula contains two components (after giving credit for actual third party use of the facilities) - firstly an arbitrary charge defined as "a" and secondly fees fixed in accordance with a formula) for use of the jetty. Item "a" is defined in the following terms:

"a = the annual amount required to amortise in 20 annual payments under a credit foncier system the sum specified in the second paragraph of clause 63 of this Indenture at an interest rate of 20 per centum per annum."

626. The payment by the producers for item "a" in cl 72 exactly equals the amount to be received by the producers under cl 67. These amounts will therefore be offset by book entries as in fact has occurred. (This offset provides a further clue as to the nature of the intended arrangements).

627. The indenture requires the producers to pay a "tariff" in connection with the road (cl 49) and also water rates (cl 43). In each case there is provision for these charges to be imposed "by agreement between the Producers and the State". (I have already commented upon this phrase as covering any existing agreements as well as future agreements).

628. The Minister's letter includes provision (as now relevant) for the road tariff and the water rates to equate exactly (as regards amount and timing) with the amounts of the State's liability to repay the deposits provided for in Schedule 4.

The Stony Point Indenture provides for the Producers to pay the State amounts by way of security deposits equivalent to the capital cost of certain facilities (road, water supply and marine facilities), for charges to be levied by the State in respect of those facilities and for the security deposits to be repaid to the Producers subject to, inter alia, payment of those charges.

This letter records below the broad principles on which agreement between the State and the Producers, on these matters, has been reached:-

1. That portion of the tariff referred to in clause 43 which relates to the additional costs incurred by the State shall cease after 10 years.

2. That portion of the tariff referred to in clause 43 which relates to the additional costs incurred by the State in supplying water to the Producers together with the Third Party contribution referred to in clause 44 shall be such so as to exactly match the appropriate portion of the security deposit referred to in Schedule 4.

3. Tariff payments and the repayments of the security deposit shall be at the same time unless otherwise agreed.

5. With respect to Third Party use the contribution referred to in clause 44 shall relate to the water used in each calendar year.

1. The tariff referred to in clause 49 shall cease after 10 years.

2. The tariff referred to in clause 49 shall exactly match the appropriate portion of the security deposit referred to in Schedule 4.

3. Tariff payments and the repayments of the security deposit shall be at the same time unless otherwise agreed.

5. The basis of tariff apportionment between the Producers and the Third Parties referred to in clause 50 shall be related to the proportionate use of the road by the Third Parties and the Producers. No apportionment shall occur until commencement of use by the Third Party.

1. That portion of the wharfage dues referred to in clause 72(1) as "a" shall be such as to exactly equal the security deposit repayment referred to in clause 67.

2. The above payments and repayments shall be at the same time unless otherwise agreed.

630. It can therefore be seen that the financing arrangement is such that the producers who have provided to the State refundable capital deposits are to bring to account as expenditure the various payments which they are obliged to make as offsets against the Government liability for capital repayments of the security deposits and interest. As I have previously observed the letter records "agreement between the State and the Producers."

631. It is necessary to read the Indenture and the Minister's letter together in order to see how the financing arrangements operate in practice.

632. Although the Downstream agreement provides the mechanism to fill in the gap in the Indenture so as to regulate the proportions in which the joint venturers are required to contribute cash towards the security deposits, the Indenture (reinforced by the Minister's letter) thereafter comprehensively provides the basis (as now relevant) for the preparation of the accounts as between the joint venturers. The producers contributed towards the jetty security deposit in amounts and proportions which are now historically established based on actual cost of the facility. The Downstream agreement provided the basis of this accounting as between the producers. The "Jetty Participation Factor" of each purchaser (expressed as a percentage) enabled a determination to be made as to the extent of the liability of each producer and its interest as relevant to cl 88 of the indenture. Likewise the respective contributions of the individual producers to the roads and water security deposit was established by reference to the "Common Facilities Investment Participation factor" of each producer. The Producers contributed to the security deposits in proportions which appeared to Santos (discharging the function of an accounting manager) to be correct based on the Downstream agreement; the State had no interest in what these proportions might be so long as the total amount of security deposit was provided on each of the two occasions. However, the State thereafter had an interest in ensuring that the proportions in all respects remained unaltered so as to ensure that the conditions necessary for a set off would always exist.

633. In my opinion the overall thrust of the indenture is that the producers are each entitled to share in the repayment of the security deposits (and interest) in the same proportions as they contributed thereto. They are each to be debited against this amount in the same proportion as the original contribution in each case a share of the "a" component of wharfage dues and a share of the fixed rates and road tariff necessary to satisfy the requirements of the Minister's letter (which was written by Santos on behalf of all producers.)

634. Clause 66 of the Indenture together with the Downstream agreement operates so as to require each producer to contribute to the (jetty) security deposit an amount such that the contribution of each always equals the amount to which that producer will be required to pay in satisfaction of its contribution to the "a" wharfage component. Likewise the same principle (as to accounting set off) applies mutatis mutandis with respect to the deposits which are to be offset in terms of repayment of the fixed road tariff and water rate; however, the authority for the set off in the last-mentioned instance is only to be found directly in the Minister's letter. These rights and obligations are separate from the liability of the respective producers for variable wharfage service fees and variable water rates and road tariffs which their operations may attract by virtue of the Stony Point Indenture.

635. Although authority for the offsetting of the secondary road tariff and water rate against deposits is only directly identified in the Minister's letter; a clue as to the intention of the parties can be discerned from the over-rider to Schedule 4 cl 1 of the indenture to which I have already referred. The over-rider provides for forfeiture of monies owing to the producers in the event of a "shortfall in payment" of certain amounts owing to the State. In this context "shortfall" must refer to any accounting difference to the disadvantage of the State which might otherwise exist if the exact matching as contemplated by the Minister's letter with respect to roads and water had not been made the subject of that agreement. (I have already observed how cl 66 of the Indenture contains an over-rider to similar effect to that in Schedule 4 cl 1).

636. If it became important to decide the point I would conclude that the Jetty Participation Factor and the Common Facilities Investment Participation Factor were correctly selected as the proportions in which the Producers ought to have been debited as contributors towards the security deposits. However, from this point onward the arrangements were governed by the terms of the Minister's letter (which to some extent repeats the effect of the Indenture).

637. The Jetty Participation Factor is identified in cl 8.02(a)(x) of the Downstream Agreement. That clause sets out how the repayments by the State and offsetting tariffs will be brought to account. It appears to be not inconsistent with the requirements of the Minister's letter although one could not spell out from the Downstream Agreement or from the Stony Point Indenture the critical matters of accounting policy in the Minister's letter. It is only in the Minister's letter that there is provision for the matching of the Roads and Pipeline Security Deposit repayments against corresponding tariffs. It is only in the Minister's letter that the exact timing of the offsetting payments is particularised although it may be implicit in the Indenture.

638. The Common Facilities Investment Participation Factor is identified in cl 8.02(a)(i) of the Downstream Agreement. However neither it nor the indenture contains the essential offsetting provisions as regards the roads and water pipeline. The scheme would have been incomplete without the Minister's letter providing for and requiring congruence in the receipts and payments as regards the roads and pipeline.

639. The appellants (in par 44 of their written submissions dated 19 June 2002) argue that cl 72 of the Indenture imposes an inseverable obligation on the Producers as a whole. They further contend that there is no liability to pay component "a" in the formula as a separate item. In par 29 of these submissions the appellants say:

"The construction and payment for the Jetty and the payment and repayment of the Security Deposit constitute an arithmetically perfect transaction. They are four steps which result in each of the Producers receiving back what they had contributed to the Jetty."

640. Based upon these observations the appellants develop a number of contentions as to how the documents should be construed and take effect. These contentions would have force if the Minister's letter is ignored.

641. It is true that a series of steps can be identified so as to constitute the "arithmetically perfect transaction" in terms of the appellants' argument. Nevertheless there are further steps required namely the imposition and payment of the matching secondary tariffs as required by the Minister's letter. Standing alone there is some force in the appellants' contention that the formula in the indenture imposes an inseverable obligation with respect to the tariffs - to cover both the primary service tariffs and the secondary tariffs. However, in the events which have happened the same arithmetical result is reached whether the formula in cl 72 is written as in the indenture or whether it be written:

642. In my opinion the manner in which I have re-written the formula better represents what is required by the Minister's letter. This re-arrangement of the formula does not address some theoretical possibilities (involving zero or negative figures) but deals with the practical situation with which the parties were actually concerned. The fact that these arguments are now available to the appellants may help to explain why the Minister's letter (traversing in part ground already covered by the indenture) was considered necessary.

643. Although I reach my decision by reference to the effect of the Stony Point Indenture and the Minister's letter I express my view on the further points which have been argued as follows:

This document and its accompanying procedures complement but do not purport to over-ride the effect of the Indenture and the Minister's letter. Although the last-mentioned two documents contain the agreement to which the State is party, that agreement requires machinery as between the producers in order to make the agreement work. Most importantly the downstream agreement provides a mechanism for getting the project "off the ground". The indenture requires the producers to build a jetty and to transfer it at cost to the Government; the downstream agreement provides how this will be achieved and how the producers will contribute to this undertaking; the downstream agreement provides a formula which was adopted as the basis whereby the contributions towards the roads and pipeline security deposit will be provided; although arguably the contributions of the road and pipeline security deposit might have been made differently, the fact remains that it is now a historical fact as to the source of these funds. In this sense the downstream agreement gives efficacy to the Indenture.

The argument of Santos upon this appeal concentrated as its starting point upon the operation of the downstream agreement and its construction. The way in which the downstream agreement operates (and its definitions take effect) cannot be properly understood without first obtaining an appreciation of the Indenture and the Minister's letter. The Santos argument does not take this essential first step.

The producers entered into this agreement on 5 December 1996 in variation of the proportions of the participation by the producers in elements of the joint venture mentioned in the downstream agreement. In my opinion the document was not intended to affect the financing arrangements to which I have referred in pt 3 of these reasons; it does not refer to those arrangements which were already locked in place with the State Government.

I have identified the accounting misapprehension of Santos' officers as mentioned in the memorandum dated 21 March 1997. As a result of that misapprehension it was logical that Santos should carry forward its misunderstanding when applying the accounting adjustments contemplated by the Settlement Agreement. It is sufficient now to observe that nothing in the Settlement Agreement is relevant to the resolution of the present dispute. The accounting arrangements put in place by Santos in 1984 consequential upon Mr Taylor's memorandum of 28 July 1984 remain correct and are not disturbed by the Settlement Agreement.

In Santos v Delhi [1999] SASC 485 the Full Court was required to consider an application to strike out the statement of claim or alternatively for a reference of the proceedings to arbitration. In the course of giving the Court's reasons, Wicks J examined the operation of the Settlement Agreement in relation to the agreed Accounting protocol which had been established under the Downstream Agreement. The decision of the Full Court was that the statement of claim raised a case which deserved to be tried and that the issue was not required to be submitted to arbitration. Contrary to Delhi's submission upon this appeal I do not consider that the Full Court's decision raises any issue estoppel with respect to the matters arising on this appeal.

(4) Estoppel as to the contributions made to the Road and Pipeline Security deposits

I have already decided that the Producers are bound by the terms of the Minister's letter to the proportions in which they in fact contributed to the Road and Pipeline Security deposits. The accountant's meeting of 25 July 1984 and the memorandum circulated on 28 July 1984 appears to record consensus as to what was required to give effect to the Producers' obligation to provide money for the Road and Pipeline Security deposits. The Producers apparently were of the view that the Downstream Agreement's "Common Facilities Investment Participation Factor" provided the proportions in which the Producers should contribute to the Road and Pipeline Security deposits. (Likewise they apparently considered that the Jetty Participation Factor provided the starting point for contributions to the building of the jetty; these shares then flowed through into the ownership of the jetty and provided the proportions for contributions to the Jetty Security Deposit).

If upon the proper construction of the Downstream agreement the parties selected the wrong factors I consider that the fact of their contributions in the proportions which were in fact selected by the accountants in July 1984 (and then adopted) bound the parties to the method of accounting based upon the memorandum of 28 July 1984. Each producer has acquired rights and incurred obligations with the State Government based upon the terms of the Minister's letter. It seems to me that it is now too late for any of the Producers to dispute the proportions which gave rise to the Security Deposits. The way in which they have all approved the amounts of the security deposits and their contributions thereto locks all into dealing with a third party - namely the State Government - upon the agreed basis.

If (contrary to my view) there is an accounting mistake as Santos claims to have discovered, it is then Delhi's case that it would not have entered into the Fixed Factor Settlement Agreement in 1996 and departed from the former arrangements if it had been aware that the rights of the parties required the accounts to be maintained on the different basis required to correct the alleged mistake. In these circumstances the trial judge held that an estoppel by convention arose which required the parties to give effect to the historical accounting practices. His Honour considered that in entering into the Fixed Factor Settlement agreement the parties were working upon an assumption based on the effect of the accounts. I agree with the trial judge. His Honour found that:

"...Woodbury would not have recommended and committed Delhi to the Fixed Factor Settlement Agreement actually executed had he, Taylor or any other officer of Delhi been aware of the situation as identified by McArdle [of Santos] and an intention to enforce the obligations resulting from the interpretation McArdle belatedly applied to the pre-existing agreements between the parties.

Delhi was aware that it was owed a substantial amount of money by the other Producers in respect of the outstanding reviews and adjustments. I accept the evidence from Woodbury [on behalf of Delhi] that in agreeing to a Fixed Factor Delhi was giving away any upside to be gained through the 1987 review and adjustment arbitration and the review adjustment process generally.

I agree with the submission that those responsible for the management of Delhi's interests determined an acceptable Fixed Factor for it by reference to a range of review and adjustment outcomes. The Fixed Factor agreed to of 20.21 per cent was itself the product of a discounting process, which took into account the risks and disadvantages associated with the arbitration process and the review and adjustment procedures.

Having agreed to an equity level of 20.21 per cent, Woodbury made further financial concessions for Delhi during the course of the negotiations for the Heads of Agreement and the Settlement Agreement. I accept Woodbury's evidence that those concessions "represented the limit (or nearly so) of the financial compromises (he) was prepared to make to close an agreement". I accept that any further concession of substance of the kind involved by the corrections and adjustments initiated by Mr McArdle could well have resulted in Delhi not departing from the existing arrangements, notwithstanding the ongoing confusion. Detriment is established."

644. In my opinion the estoppel arises out of the historical accounting practice which Santos adopted as supposedly reflecting the entitlements of the producers inter se. In reaching my conclusion I adopt the reasoning of Doyle CJ in Australian Consolidated Investments v England (1995) 183 LSJS 408 at 436. In my view an assumption as to private legal rights may provide the foundation for a claim in estoppel.

645. The appellants argue that the interests of the parties in the financing arrangements for the public works are subject to the operation of the Downstream Agreement. I do not agree. The essential terms of the financing of the Government's obligations with respect to the provision of the public works are comprehensively dealt with by the indenture and the Minister's letter. The Downstream Agreement is auxiliary to and complements these arrangements insofar as the Downstream Agreement enables the proportions of the Producers' respective contributions to the roads and water pipeline security deposit to be established as a starting point for the required financing of the Government project. If any of the joint venturers were to become insolvent its share of the capital repayments upon the security deposits must always match its secondary tariff liability. There must be no room for any liquidator to disclaim so as to obtain an advantage.

646. Delhi is entitled to a declaration that the historic accounting practice reflects the agreement between the parties and should be maintained. Delhi is entitled to recover monies which it paid under protest when Santos wrongly claimed to correct an error in the accounts.

647. I agree with Lander J that Santos is not entitled to debit the joint operating account with the costs and expenses incurred by it in relation to these proceedings; this court retains its general power to deal with the question of costs.

648. In my opinion the appeal by Santos should be dismissed; Delhi's cross-appeal should be allowed.

648. BESANKO J. I have read the reasons for judgment of Lander J. I gratefully adopt his Honour's statement of the facts.

649. I agree with his Honour's conclusions and his reasons for those conclusions in relation to the following issues:

2. The issue of whether an issue estoppel arose by reason of the decision of this Court in Delhi Petroleum Pty Ltd v Santos Limited and Ors [1999] SASC 485.

3. The proper interpretation and application of clause 1.5 of the Accounting Procedure which is Exhibit B to the Downstream Agreement.

4. The issue of whether there was variation of the agreements between the Producers and in particular, the Downstream Agreement.

That leaves two issues. First, the issue of whether Santos Limited ("Santos") was estopped from departing from the historical accounting practice. As Lander J observes, once the construction issues are determined in favour of Delhi Petroleum Pty Ltd ("Delhi") it is not strictly necessary to consider the estoppel issue. However, it is important that this Court consider all relevant issues in case there should be a further appeal. Secondly, there is the issue of whether Santos is entitled to debit the joint operating account for the costs and expenses incurred by it in relation to these proceedings.

I begin with a description of some of the terms which I will use. I will refer to the capital component of the Wharfage dues or integer "a" in the formula set out in clause 72 of the Stony Point (Liquids Project) Indenture ("the Indenture") as the Secondary Jetty Tariff. I will refer to the security deposit and interest referred to in clauses 66 and 67 of the Indenture as the Jetty Security Deposit. I will refer to the additional costs included in the water rates referred to in clause 43 of the Indenture and the tariff in relation to the roads referred to in clause 49 of the Indenture as the Roads and Water Tariff. I will refer to the security deposit and interest referred to in Schedule 4 to the Indenture as the Roads and Water Security Deposit.

I will refer to the practice adopted by Santos as operator until January 1997 whereby as amongst the Producers, the Secondary Jetty Tariff and the Jetty Security Deposit were apportioned by reference to the same figures and the Roads and Water Tariff and Roads and Water Security Deposit were apportioned by reference to the same figures as the historical accounting practice.

My references to the Downstream Agreement should be read as including a reference not only to that agreement but also to the Indenture and the letter signed by the Minister and the Producers dated 24 November 1981.

The trial Judge found that there was an estoppel by convention which operated against Santos. The Judge rejected Delhi's additional or alternative argument that there was an estoppel by representation.

Santos challenges the Judge's finding that there was an estoppel by convention. By Notice of Alternative Contention, Delhi challenges the Judge's finding that there was no estoppel by representation.

As Lander J notes, the estoppel arguments must be considered on the assumption that Santos' arguments about the proper construction of the Downstream Agreement are correct. More particularly, it must be assumed that:

1. The apportionment between the Producers of the Secondary Jetty Tariff is governed by the Wharfage Participation as defined in the Downstream Agreement.

2 The apportionment between the Producers of the repayments of the Jetty Security Deposit is governed by clause 8.02(x)(cc) of the Downstream Agreement.

3. The apportionment between the Producers of the Roads and Water Tariff is governed by the Downstream Common Facilities Operating Participation as defined in the Downstream Agreement.

4. The apportionment between the Producers of the repayments of the Roads and Water Security Deposit is governed by the same apportionment as the contributions the Producers made to the payment of the Deposit.

The Judge found that the historical accounting practice arose because of mistakes made by employees of Santos when apportionments were first made of the two relevant expenses and that the memorandum and attachments dated July 1984 were a significant source of the errors. The mistakes were innocent in the sense that the employees or officers of Santos did not pursue a course of conduct conscious of the errors identified. They overlooked the particular provisions and requirements of the Downstream Agreement. The Judge rejected any suggestion of bad faith on the part of anyone.

The other Producers acted on the memorandum and attachments over the years and they also overlooked the particular provisions and requirements of the Downstream Agreement.

The Judge found that there was a common assumption acted upon by the parties to the Downstream Agreement. He did not identify that assumption in precise terms, however it involved an apprehension or belief as to the legal effect of the Downstream Agreement. The Judge found that there was a conventional basis upon which the parties regulated their subsequent dealings and that it would be unjust or unconscionable for Santos to resile from that convention.

The Judge found that the doctrine of estoppel by convention was not limited to a common assumption as to a matter of fact. It could arise in relation to a common assumption as to a matter of law at least where the assumption related to private rights or the legal effect of an agreement. He referred to a number of authorities to support this conclusion (Australian Consolidated Investments Ltd & Anor v England (1995) 183 LSJS 408; Hilton Hotels (Australia) Pty Ltd v Sunrise Resources (Australia) Pty Ltd [2000] NSWSC 46; Commonwealth v Verwayen (1990) 170 CLR 394; Powercor Australia Limited v Pacific Power (1999) VSC 110). He held that he was not bound by certain comments made by the High Court in Con-Stan Industries v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 ("Con-Stan").

The Judge found that Santos had played such a part in the adoption and persistence in the assumptions made that it would be unjust and oppressive to depart from them.

The Judge found that Delhi had established detriment. Delhi was induced to act to its detriment by entering into the Fixed Factor Settlement Agreement ("the Settlement Agreement"). It had accepted a fixed factor of 20.21 per cent and agreed to the other provisions of the Settlement Agreement. If Santos was permitted to depart from the historical accounting practice, the financial benefit to Delhi from the Settlement Agreement would be substantially less than anticipated on the basis of the historical accounting practice.

The Judge found that the evidence of reliance and detriment called by Delhi (through witnesses, Mr Woodbury and Mr Taylor) was credible. The Judge accepted that Mr Woodbury would not have committed Delhi to the Settlement Agreement actually executed had he known the historical accounting treatment would be changed.

The Judge rejected submissions by Santos that various clauses in the Downstream Agreement (clause 2.02.03: written agreement of each party required for a variation; clause 23.06: no waiver of any breach unless in writing) or clause 11 of the Settlement Agreement (entire agreement clause) prevented an estoppel by convention from arising.

The Judge rejected Delhi's claim that there was an estoppel by representation. He was not satisfied that a clear representation had been established. He distinguished a mistaken assumption from a representation. The Judge said:

"However, Santos did not directly make representations upon which other parties founded the assumptions as much as it exercised rights that existed only if assumptions it made were correct."

The Judge found that the consistent application of the historical accounting practice over a period in excess of a decade did not constitute a representation by Santos which was acquiesced in by the other Producers that it would continue to apply the historical accounting practice.

In the result, the Judge made various declarations reflecting his findings on estoppel by convention. These are set out in the reasons for judgment of Lander J. For the reasons given by Lander J, I agree that the effect of the Judge's orders as a whole (ie declarations and orders for the payment of sums of money) is to award Delhi a greater sum than that to which it is entitled.

Before turning to consider estoppel by convention I should deal with Delhi's submission by way of a Notice of Alternative Convention that the Judge erred in failing to hold that there was an estoppel by representation.

Delhi referred to the reasons for judgment of Brennan J (as he then was) in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 and in particular his statement of the elements of equitable estoppel. Brennan J said (at 428):

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid the detriment whether by fulfilling the assumption or expectation or otherwise."

The Judge said that he was not satisfied that a clear representation had been made. He said there was a need to distinguish between a mistaken assumption and a representation. Santos carried on the mistaken assumption with the documentation it circulated and the system it adopted that others accepted or did not question.

Santos submitted that in relation to equitable estoppel it must be shown that the Producers intended or knew that Delhi would act on the assumption in entering into the Settlement Agreement. I think that that is an element of equitable estoppel (Mortgage Acceptance Nominees Ltd v Australian Thoroughbred Finance Pty Ltd (1996) 69 SASR 302 per Doyle CJ at 306 - 309) and I would not be prepared to find that it is satisfied in the circumstances of this case. Whatever might be said about what Santos intended or knew, I do not think it can be said that the Producers (other than Santos and Delhi) intended or knew that Delhi would act on the assumption in entering into the Settlement Agreement and act upon it to their detriment.

I agree with the Judge and with Lander J that neither Santos nor the Producers other than Delhi made a representation that the historical accounting treatment would continue to be adopted until the expiration of the relevant periods of 20 years and 10 years respectively. Neither the 1984 memorandum and attachments, nor the expenditure statements and other documents identified by Delhi constituted a representation to this effect by Santos and the Producers other than Delhi.

In order to establish an estoppel by convention it is necessary for a plaintiff (assuming the plaintiff is the person asserting the estoppel against a defendant) to establish four matters. First, the plaintiff must establish that there was a common assumption by the plaintiff and the defendant as to a state of affairs. This case raises the question of whether a common assumption as to a matter of law, or at least as to a matter involving private rights or the legal effect of an agreement, is sufficient to satisfy this requirement.

Secondly, the plaintiff must establish that the common assumption led to some action or omission on his part. In other words, the plaintiff must establish that he relied on the common assumption for the purpose of action or inaction on his part.

Thirdly, the plaintiff must establish that he will suffer detriment if the defendant is permitted to depart from the common assumption.

Fourthly, the defendants must have played such a part in the adoption of the assumption by the plaintiff that it would be unjust to permit the defendants to depart from the common assumption. This case raises a question as to the precise nature of the part the defendants must play in the adoption of the assumption by the plaintiff before an estoppel by convention arises.

I do not think that there is a fifth element of estoppel by convention namely, that the defendants' conduct must be unconscionable. An estoppel arises because once the four elements are made out, the defendants' conduct is properly seen as being unconscionable.

In Thomson v Palmer [1933] HCA 61; (1933) 49 CLR 507 ("Thomson"), Dixon J (as he then was) identified the four elements in the following passage:

"The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party."

Dixon J went on to give various examples of situations in which a departure would be considered unjust including cases in which the assumption formed the conventional basis upon which the parties entered into contractual or other mutual relations.

In Grundt v The Great Boulder Proprietary Gold Mines Limited [1937] HCA 58; (1937) 59 CLR 641("Grundt"), Dixon J said:

"The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations."

Santos challenges the Judge's conclusions as to each of the four elements. Before turning to address the application of these elements to the facts of this case it is necessary to address two issues of law, namely, whether estoppel by convention can only arise if the common assumption is one of fact and what part the defendant must play in the adoption of the assumption by the plaintiff in order for it to be unjust to permit him to depart from the assumption.

Some of the judgments in the more recent authorities of the High Court suggest that there might now be one overarching doctrine of estoppel rather than a number of forms of common law and equitable estoppel (Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 per Deane J at 451 - 452; Commonwealth v Verwayen (1990) 170 CLR 394 per Mason CJ at 410 - 411; per Deane J at 440, 444 - 445; per Dawson J at 453) and that under this one doctrine the assumption may be of fact or law, present or future. However, as the Judge noted in this case, that issue is still not settled (Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at 112 - 113) and until it is, I think it is proper to approach this matter by determining if the well-established elements of an estoppel by convention are made out.

In Con-Stan, the High Court (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) said in relation to the doctrine of estoppel by convention:

"But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 538. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v Kettle [1938] A.C. 156; Spencer Bower and Turner, Estoppel by Representation 3rd ed., pp 167-168. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact. The submission with respect to estoppel accordingly fails."

The parties to these proceedings accept that what the Court said to the effect that an estoppel by convention must involve an assumption of fact was obiter. I am prepared to proceed on that assumption although it is equally clear that it would have formed the basis of the decision in Con-Stan had it been established as a matter of fact that the parties adopted the alleged assumption. Furthermore, the statement is a relatively recent, clear and direct statement by the High Court of the relevant requirement. Accordingly, I think I should follow it.

Since the decision in Con-Stan, a number of intermediate appellate and other Courts around Australia have treated what the High Court said as obiter and as not precluding an estoppel by convention in the case of an assumption as to private rights or the legal effect of an agreement.

I respectfully recognise the force of what the Judge said in this case and what was said by Doyle CJ said in Australian Consolidated Investments Ltd v England (1995) 183 LSJS 408 and Samuels JA said in Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 185 - 189 and is said by Lander J in his reasons for judgment in this case. Clearly the law of estoppel is developing and it may be that estoppel by convention will be subsumed under one doctrine of estoppel or at least held to include an assumption as to private rights or the legal effect of an agreement. However, I do not think that point has yet been reached.

I also note that there is English authority to the effect that an assumption as to the legal effect of certain conduct is sufficient for the purpose of the doctrine of estoppel by convention (Amalgamated Investment and Property Company Limited (In Liquidation) v Texas Commerce International Bank Limited [1982] QB 84; Kenneth Allison Ltd (In Liquidation) v A E Limehouse & Co (a firm) [1992] 2 AC 105 per Lord Goff of Chieveley at 126).

Nevertheless, the statement by the High Court in Con-Stan is clear and I think I should follow it.

I turn now to the question of the part defendants must play in the adoption of the assumption by the plaintiff in order for it to be unjust to permit the defendants to depart from the assumption.

It may be assumed that it is not necessary to have an express representation by the defendant to the plaintiff (Thomson at 547). On the other hand, a self- induced mistake, even if it is shared by all parties, is not of itself sufficient.

This issue is discussed in two decisions of the New South Wales Court of Appeal.

In Coghlan v S H Lock (Australia) Ltd (1985) 4 NSWLR 158, the plaintiff, S H Lock (Australia) Ltd, sued Coghlan and others on a guarantee the defendants had given to the plaintiff in relation to advances the plaintiff made to a corporate partnership (Colan Products). The difficulty was that the guarantee related to the liability of another company in the Colan group, Colan Industries Pty Ltd.

At first instance, Rogers J found that the parties had dealt together in such a way as to establish between them that the guarantors would guarantee advances made to Colan Products and that the guarantee should be construed as if it covered the liability of the corporate partnership.

Samuels JA (with whom Hope JA agreed) upheld the decision of the trial Judge. McHugh JA (as he then was) dissented.

Samuels JA held that in order for an estoppel by convention to arise there must have been "participation" by the defendant in the adoption of the assumption or to use the words of Kerr J in K Lokumal & Sons (London) Ltd v Lotte Shipping Co Pty Ltd (The "August Leonhardt") [1985] 2 Lloyd's Rep 28 "some mutually manifest conduct by the parties which is based on a common but mistaken assumption". Samuels JA found that this requirement was met in the circumstances of the case because the guarantors tendered the guarantees in relation to the transaction they were to support and that transaction proceeded. He said (at 170):

"Putting the matter in other words the conventional basis of the grant of accommodation was that the appellants' guarantees covered advances to be made, or in fact made, to the Colan Group (if not expressly to Colan Products) and the provision of the guarantees and the grant of accommodation constituted the mutually manifest conduct which the judgment in the 'August Leonhardt' requires, and the first of these steps was the participation in the acceptance of the assumption by the respondent, to which Dixon J referred in Grundt (at 676)."

McHugh JA said that estoppel is not concerned with a self-induced mistake even if both parties have made the same mistake. He said that the critical finding in Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 was that the party against whom the estoppel was asserted had not merely acquiesced in the mistaken belief of the other party but it had actively encouraged the belief. McHugh JA said (at 176 - 177).

"The parties by their conduct had mutually agreed, or would be seen as mutually agreeing, that the guarantee in that case covered the liabilities of the appellant's subsidiary.

The facts which are the basis of the assumption in a case of estoppel by convention must be agreed: Spencer Bowen and Turner, Estoppel by Representation 3rd ed (1977) at 157. The view of Lord Denning in the Amalgamated Investment case (at 121) that it is enough that 'the parties to a contract are both under a common mistake as to the meaning or effect of it - and thereafter embark on a course of dealing on the footing of that mistake' represents neither the law of Australia nor of England: Keen v Holland [1984] 1 WLR 251; K. Lokumal & Sons (London) Ltd v Lotte Shipping Co Pty Ltd, the 'August Leonhardt', [1985] 2 Lloyd's Rep 28. As the Court of Appeal said in the latter case (at 35):

' ... There cannot be any estoppel unless the alleged representor has said or done something, or failed to do something, with the result that - across the line between the parties - his action or inaction has produced some belief or expectation in the mind of the alleged representee ...'"

McHugh JA dissented on the facts of the case finding that there was no evidence that conduct of the guarantors had induced any belief or expectation in the creditor that the guarantee covered the liability of Colan Products.

I doubt whether, as Delhi submitted, there is a significant difference between the Judges in Coghlan as to the legal requirement that the party sought to be estopped must play some part in the adoption of the mistaken assumption. However the difference in applying the requirement to the facts illustrates to my mind that the precise legal requirement can be difficult to formulate and apply.

A similar problem arose in Eslea Holdings Ltd v Butts [1986] 6 NSWLR 175 ("Eslea"). It is unnecessary to recite the facts of that case. Samuels JA (with whom Kirby J agreed) found that the requirements he had stated in Coghlan had been satisfied (at 185). Again McHugh JA dissented on the facts. He also held that an assumption as to the legal effect of a document cannot found an estoppel by convention. He cited Con-Stan as authority for this proposition.

I do not think anything said by the Judges in Eslea detracts or qualifies from what was said in Coghlan.

I turn now to consider the application of the four requirements to the facts of this case.

Delhi submitted that the common assumptions of the Producers were to the effect that Santos:

"(a) would apportion the State's repayment of the jetty security deposit plus interest and the secondary jetty tariff amongst the Producers by applying the Jetty Participation factor, or (Delhi would submit) the same factor, such that, for each year, a Producer's share in the former would equal that Producer's share of the latter;

(b) would apportion the State's repayment of the roads and water security deposit plus interest and the secondary roads and water tariff amongst the Producers by applying the initial common Facilities Investment Participation factor, as (Delhi would submit) the same factor, such that, for each year, a Producer's share in the former would equal that Producer's share of the latter."

No party to these proceedings has suggested that before January 1997 any of the Producers considered that they were acting otherwise than in accordance with the Downstream Agreement. Delhi does not argue that it at any time believed that the above assumptions were contrary to or inconsistent with the agreements. It follows that the common assumption (assuming there was one) involved a mistake as to private rights or the legal effect of the agreements. I did not understand Delhi to argue that the common assumption was as to a matter of fact in the relevant sense. It follows in view of the approach I take as to what the High Court said in Con-Stan that the claim based on estoppel by convention must fail.

In case I am wrong on this point, I will go on to consider whether the other elements of estoppel by convention are made out.

I have no doubt that the Producers each assumed over many years that the historical accounting practice was in accordance with the Downstream Agreement. In other words, in adopting the historical accounting practice, the Producers believed that they were implementing, not departing from, the Agreements.

This belief was held by Delhi just prior to the time it entered into the Fixed Factor Settlement Agreement.

Santos seemed to submit that there was no evidence that the Producers were aware that the Secondary Jetty Tariff and the Jetty Security Deposit were being apportioned by reference to the same figures or that the Roads and Water Tariff and Roads and Water Security Deposit were being apportioned by reference to the same figures. I reject that submission. In my opinion the evidence as a whole gives rise to a compelling inference that the Producers were aware of the historical accounting practice. I refer to the memorandum and attachments dated July 1984, the expenditure statements and the fact that there was regular accounting as between the Producers. Officers with sufficient authority were aware of the historical accounting practice because it was implemented and adopted for many years without complaint. It is almost inconceivable that in the case of such commercially sophisticated organizations no one with sufficient authority was aware of an historical accounting practice which was carried out over many years. I think it must also be inferred that the Producers thought the practice was in accordance with the Downstream Agreement.

Santos submitted that an estoppel by convention could not arise because the only mistake Delhi made at the time it entered into the Settlement Agreement was as to the future apportionment of the two Security Deposits and that this was a self-induced mistake.

Santos submitted that Delhi assumed at the time it entered into the Settlement Agreement that from 1991 its fixed factor of 20.21% would apply to the apportionment of the Secondary Jetty Tariff and the Roads and Water Tariff.

The evidence established that Delhi believed that the apportionment of the Jetty Security Deposit and of the Secondary Jetty Tariff was governed by the Jetty Participation factor and that this factor would become a fixed factor in 1991. Delhi also believed that the apportionment of the Roads and Water Security Deposit and of the Roads and Water Tariff was governed by the initial Common Facilities Investment Participation factor and that this factor would become a fixed factor in 1991. In fact its case on the construction issues and its claim for damages on the assumption that it was right on the construction issues was based on the premise that those beliefs represented the correct position at law. For the reasons given by Lander J, I agree that neither belief nor understanding represents the correct legal position.

It is important to understand what the Settlement Agreement does. It fixes the figures for various participation factors referred to in the Unit Agreement and the Downstream Agreement such as Unit Participations, Downstream Participations including Downstream Facilities Operating Participations, Wharfage Participations and Downstream Facilities Investment Participations. After certain dates all Participations become fixed factors which in the case of Delhi is 20.21%. The Settlement Agreement does not deal with what Participation is to be applied to particular items of revenue and expenses. That is the function of the Downstream Agreement.

If an estoppel operates in relation to the Secondary Jetty Tariff, the effect will be to prevent Santos from applying the provisions of the Downstream Agreement and in particular clause 8.02(c) to this item of expense. The Settlement Agreement does not say anything about what factor should be applied to this liability or expense. The same point may be made about the Roads and Water Tariff.

The belief by Delhi that both outgoings would be governed by its Fixed Factor does not undermine or constitute an inconsistency with Delhi's assumption that the same factors would be applied to the apportionment of the respective receipts and outgoings. It must be remembered that Delhi's belief prior to entering into the Settlement Agreement was not based on an understanding or realisation that Santos' construction of the Downstream Agreement (namely, that the Wharfage Participation factor applied to the Secondary Jetty Tariff and that the Downstream Common Facilities Operating Participation applied to the Roads and Water Tariff) was correct.

It was suggested by Santos that an estoppel by convention can only arise if the assumption of the parties is correct. I reject that contention. It is enough to say that there would be no cause to apply the doctrine if the assumed facts were true.

Santos submitted that there was no basis for the Judge's finding that the Producers acquiesced in the mistaken apportionment of the two outgoings. It was argued that Delhi denied that there was a mistake and that Santos corrected the mistake as soon as it was discovered. It was further argued that there was no evidence that the other Producers were aware that the apportionments were mistaken.

I do not think the Judge found that the Producers were aware that the apportionments were mistaken in the sense of contrary to the agreements between the parties. He found that the Producers were aware of how the apportionments were being made and raised no objection to the practice. His statements to the effect that they acquiesced in the mistakes was intended to convey no more than this finding.

Santos submitted that it was fatal to the estoppel claim that the Producers were not aware that the practice was a mistake. I reject that contention. It is true that for an estoppel by convention to arise it is not necessary that the parties believe the assumption is correct; they may know it is incorrect. (Grundt per Dixon J at 676; Commonwealth v Verwayen (1990) 170 CLR 394 per Deane J at 444 - 445). However, it is not a requirement that they know that their assumption is incorrect.

I disagree with Santos' submission that conventional estoppel can only arise if the common assumption arises before the agreement and relates to some aspect of the agreement. In this case, the estoppel by convention relates to the operation and effect of the Downstream Agreement. The entry into the Settlement Agreement is the detriment. I do not agree that the common assumption must relate to some aspect of the Settlement Agreement.

It is convenient to deal with these two requirements together.

Santos challenged the findings of the Judge to the effect that Delhi had established reliance and detriment. Before examining these grounds of challenge it is necessary to say something about the way Delhi put its case on these matters.

Delhi relied on evidence from a Mr Woodbury and Mr Taylor. The Judge found their evidence to be credible.

Mr Woodbury signed the Settlement Agreement on behalf of Delhi under a Delegation of Power of Attorney on or about 5 December 1996. He said:

"During the course of the negotiations for the FFSA, between the time I agreed with McArdle a combined Delhi/Boral equity of 33.40% and 5 December 1996 when I executed the FFSA, I was prepared to make several limited financial concessions (for example, with respect to tolling: see clause 4 of the FFSA) - worth around one to two million dollars in NPV - in order to close the deal. However, these concessions represented the limit (or nearly so) of the financial compromises I was prepared to make to close an agreement. As indicated above, if I had known prior to executing the FFSA on behalf of Delhi that:

(a) Santos was proposing to depart from its historical treatment of the repayment of the Jetty Security Deposit plus interest and the Secondary Jetty Tariff such that the respective amounts of Delhi's share of the former receipt and the latter expenditure would no longer cancel each other out; and

(b) Santos was proposing not to treat the Jetty Participation as a fixed factor, contrary (in my view) to the terms of the FFSA,

with the result that Delhi would give up far more than the $8 million to $10 million in NPV I had been prepared to concede (from a starting point of $48 million) in order to reach agreement on fixed factors and would realise substantially less than the increase in NPV which I anticipated, I would:

(i) not have executed the FFSA until I was satisfied that it stipulated in the clearest possible terms that Santos was not, in preparing the accounting adjustments under the FFSA, to depart from its conventional practice and was bound to treat the Jetty Participation as a fixed factor from 1 January 1991; or

(ii) have reassessed the fixed factor to which Delhi was prepared to agree, with a view to increasing that fixed factor or, at the very least, agreeing with the other Participants financial concessions such that the net benefit to Delhi was essentially the same as that which I had anticipated in agreeing to a fixed factor of 20.21%."

"If I had become aware that Santos proposed to depart from its conventional practice in preparing the first and second accounting adjustments under the FFSA, or any subsequent accounting allocations, I would have sought to ensure:

(a) that the terms of the FFSA made absolutely clear that, for the purposes of the first accounting adjustment, the second accounting adjustment and (where relevant) all subsequent accounting allocations performed by the Downstream Operator:

(i) the same Participation Factor (which by virtue of the FFSA would become fixed as at 1 January 1991) would apply to the allocation of Delhi's share of each of the State's repayment of the Jetty Security Deposit (plus interest) and the Secondary Jetty Tariff;

(ii) the same Participation Factor (which by virtue of the FFSA would become fixed as at 1 January 1991) would apply to the allocation of Delhi's share of each of the State's repayment of the Roads and Water Security Deposit (plus interest) and the Secondary Roads and Water Tariff; or

(b) other terms of the FFSA were altered or inserted (whether by way of changing the level of Delhi's fixed factor or otherwise) to ensure that the net financial impact of the FFSA on Delhi was the same as it would have been had Santos adhered to its conventional practice with respect to the treatment of these receipts and outgoings.

If terms to the effect of (a) or (b) above were not agreed by Santos and the other Participants, I would have recommended to Woodbury and sought to ensure that Delhi did not enter into the FFSA."

725. The Judge found that Mr Woodbury would not have recommended and committed Delhi to the Settlement Agreement had he, Taylor or any other officer been aware Santos proposed to change the historical accounting practice.

"If Santos were permitted to depart from its conventional accounting treatment the financial benefit to Delhi in entering into the Fixed Factor Settlement Agreement on the terms it did would be substantially less than anticipated on the basis of the historical practice, with Delhi's share of the venture significantly less than its Fixed Factor of 20.21 per cent."

Santos submitted that the Judge erred in placing weight or significant weight on the evidence of Messrs Woodbury and Taylor as to what Delhi would have done had it been advised prior to entering into the Settlement Agreement that Santos proposed to change the historical accounting practice (Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd [1992] FCA 550; (1992) 38 FCR 471 at 483; Allstate Life Insurance Co v Australia & New Zealand Banking Group Limited (No 5) (Court's "Allstate" Judgment No 32) (1996) 64 FCR 73 at 77; Hughes Aircraft Systems International v Airservices Australia (1997) 80 FCR 276). It was particularly dangerous to rely on such evidence (argued Santos) in circumstances where these witnesses maintained throughout that the historical accounting practice was not mistaken but in fact was correct.

The Judge was alive to the undoubted dangers of relying on evidence given by a witness after the event of what he would have done had he been aware of circumstances contrary to his belief at the time. Furthermore, it is true that Mr Woodbury and Mr Taylor maintain the view that Delhi's arguments about the proper construction of the agreement are correct and that they had difficulty assuming that Santos' arguments about the proper construction of the Downstream Agreements were correct. However, this does not mean they did not give any evidence about what they would have done had Delhi's construction been incorrect. They did give such evidence and I refer to the passages of their evidence which I have set out above.

Santos submitted that Delhi's case on reliance was undermined by evidence of concessions Delhi made at or around the time it entered into the Settlement Agreement.

Santos pointed to the undisputed facts that after receiving approval from entities in America (Exxon Company International and Exxon Exploration Company) to a proposal involving a cash adjustment of some US$29 million Mr Woodbury and Delhi accepted a reduction of some $3-4 million, and that after the Settlement Agreement had been entered into Delhi identified a mistake in its favour involving $2.1 million and volunteered an adjustment to correct the mistake. However the Judge was entitled to find as he did on the basis of Mr Woodbury's evidence that the concessions "represented the limit (or nearly so) of the financial compromises (he) was prepared to make to close an agreement".

Santos made two particular submissions relevant to reliance. First, it submitted that Delhi could not have relied on the estimates prepared by Santos and sent to Delhi on 6 November 1996 for the purpose of obtaining the approval of the executive committee of Esso Australia Ltd on 7 November 1996. Secondly, it submitted that Delhi had not established that the model it prepared to show the net present value of Delhi's interest and its cash adjustment entitlement under the proposed fixed factor arrangement had been prepared on a basis consistent with the historical accounting practice.

Mr Woodbury and Mr Taylor were aware of the historical accounting practice at the time Delhi entered into the Settlement Agreement. The first accounting adjustment and the estimated second accounting adjustment delivered by Santos on 29 November 1996 (and the preliminary estimate delivered on 6 November 1996) were prepared on the basis of the historical accounting practice. I do not think the issue of whether Santos' estimate of 6 November 1996 was considered by Mr Woodbury before the meeting of the executive committee of Esso Australia Ltd on 7 November 1996 is critical. What is important is that, had there been a material difference between the figures in the documents sent by Santos to Delhi and Delhi's own figures, it is likely that this would have led to a reconsideration by Delhi.

On the appeal, both parties made submissions about the model prepared by Delhi prior to entering into the Settlement Agreement and for the purpose of estimating the benefits to Delhi of entering into the Settlement Agreement. The Judge found the evidence of "no real significance". He said:

"It does nothing to reject the continuing common assumption that the so-called historical practice was a component in the negotiations, calculations and decisions arrived at by all parties."

Santos submitted that Delhi's own witnesses did not themselves sufficiently understand the assumptions used in the model to be able to say that the historical accounting practice had been incorporated in the model.

Before this Court, Delhi put forward a detailed analysis of the model and sought to establish that the model did in fact incorporate an assumption that the historical accounting practice had been and would continue to be used.

I do not think that it is necessary for this Court to decide whether the model incorporated that particular assumption. I think the Judge's finding that the historical accounting practice formed a component of negotiations, calculations and decisions by the parties was correct having regard to the longstanding nature of the practice, the evidence of Mr Woodbury and Mr Taylor and the fact that the first accounting adjustment and the estimated second accounting adjustment were prepared by Santos on the basis of the historical accounting practice. It was not until early 1997 that Santos realised that a mistake had been made.

Santos submitted that the Judge overlooked the fact that Mr Woodbury and Mr Taylor were not the decision makers for Delhi. Those decision makers were not called. I reject that submission. Mr Woodbury had wide powers to conduct negotiations on behalf of Delhi. He signed the Settlement Agreement on behalf of Delhi. He agreed to substantial adjustments worth millions of dollars without seeking further approval from the executive committee or (it seems) the board of Delhi. Whilst he was not the ultimate decision maker, the transaction was unlikely to have proceeded without his approval.