A recent judgment in the Supreme Court of Western Australia involving Empire Oil [1] (Empire) confirmed that there had been a valid and effective “deemed withdrawal” from a joint operating agreement (JOA) following the failure of a party to the joint operating agreement to pay cash calls.

In this case, the plaintiffs, Empire and ERM Gas Pty Ltd (ERM), and the defendant, Wharf Resources PLC (Wharf) were the registered owners of a petroleum permit granted pursuant to the Petroleum and Geothermal Energy Resources Act 1967 (WA), known as Exploration Permit 389 (EP 389).  Activities in relation to EP 389 are governed by a JOA dated 30 November 2007.  Empire, ERM and Wharf were parties to the JOA.  Empire was the operator.

The JOA provided that:

  1. the operator was authorised to issue cash calls to the joint venture participants
  2. default in meeting those cash calls could lead to the defaulting party being deemed to have given a notice of withdrawal from the joint venture.  In that event, the JOA provided for the appointment of the operator as the lawful attorney of the defaulting party for the purposes of executing any documents necessary to give effect to the withdrawal.

It was found that the process of approval of the authority for expenditures, the process of service of cash calls and the mechanism which lead to a deemed withdrawal from the joint venture were all undertaken in accordance with the JOA. Given that Wharfs’ assertions that Empire lacked authority to issue cash calls and alleged breaches by Empire of the JOA were not made out, Wharf was deemed to have withdrawn from the joint venture on 8 April 2013.

The Court also declared that Empire had validly executed transfers of EP 389 and PL 96 as attorney for Wharf pursuant to the JOA.

Joint venture participants are sometimes concerned that a forced withdrawal of a party for failure to pay cash calls (or another default under the JOA) will not be effective.  Each case will turn on its own facts, but provided that procedures in the JOA are followed, a forced withdrawal of a defaulting party can be valid and effective.