Esso Australia Resources v Southern Pacific Petroleum

Esso Australia Resources v Southern Pacific Petroleum

ESSO AUSTRALIA RESOURCES V SOUTHERN PACIFIC PETROLEUM

Supreme Court of Victoria – 23 November 2004

FACTS

Esso Australia Resources (“Esso”) and Southern Pacific Petroleum Pty Ltd (“SPP”) formed a joint venture to exploit mineral tenements near Gladstone in Queensland to produce shale oil. World oil prices fell after the agreement was made and Esso, as it was entitled to do under the joint venture agreement, deferred the work necessary to exploit the tenements. SPP experienced financial difficulty and an administrator was appointed to the company, who assigned SPP’s interest in the joint  venture to another company as security for a loan, without the consent of Esso. Esso claimed that it must be consulted and it had a pre-emptive right to bid for the stake in the joint venture. That is, Esso claimed that SPP had evaded Esso’s consent and pre-
emptive purchase right by insisting on the strict or “black letter” interpretation of the joint venture, which was in breach of its duty of good faith.

ISSUE

The content of the duty of good faith.

FINDING

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End