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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA 1975—Parliamentary Paper No. 279

CIRCUMSTANCES OF THE TRANSFER OF ALLOCATED INDIGENOUS CRUDE OIL BY ALLIED PETROCHEMICALS

PTY LIMITED TO ACTU-SOLO ENTERPRISES PTY LIMITED

ROYAL COMMISSION

ON PETROLEUM

THIRD REPORT

Presented by Command 30 September 1975 Ordered to be printed 23 October 1975

THE GOVERNMENT PRINTER OF AUSTRALIA

CANBERRA 1976

Printed by Kerron BroslS.A.) Pty Ltd. Edwardstown. S.A.

19 September 1975

Your Excellency, In accordance with Letters Patent dated 12 September 1973, I have the honour to present to you the Third Report of the Commission of Inquiry into production, marketing and pricing of petroleum, diesel and other fuels.

Yours sincerely,

W. H. COLLINS Com m issioner

His Excellency the Honourable Sir John Kerr, a.c., k.c.m .g ., k .s u ., q .c. Governor-General of Australia Government House

Yarralumla CANBERRA, A.C.T. 2600

Summary of Chapter Headings

Chapter Heading page

1. In tro d u c tio n ................................................................................................... 1

2. B a c k g ro u n d ................................................................................................... 2

3. Solo takes an option ................................................................................... 3

4. Letter to Minister ....................................................................................... 4

5. Verbal Assurance to M in is te r ....................................................................... 5

6. Analysis of Annexure I ............................................................................... 5

7. Ministerial response ................................................................................... 6

8. The contract d o c u m e n ts ............................................................................... 6

9. Analysis of Annexure II ...............................................................................

10. Annexure III ............................................................................................... 8

11. Summary of the above m a t e r i a l ................................................................... 8

12. Contracting parties’ explanations—A.P.C...................................................... 9

13. Contracting parties’ explanations—A C T U -S o lo ........................................ 10

14. Findings on the d o c u m e n ts........................................................................... 11

15. Misrepresentation by director ................................................................... 11

16. Is there a government p o lic y ? ....................................................................... 12

17. Future allocation of crude ........................................................................... 13

18. Australian Government su b m issio n s........................................................... 13

19. Whether the Australian Government had been deceived or misinformed . 14 20. Whether the Australian Government had acted on the basis of any such deceit or m isinform ation............................................................................... 15

21. If deceit or misinformation was involved, who was responsible for the Government being so deceived or misinformed? ........................................ 15

22. Did such parties stand to gain financially and if so to what extent as a result of the deceit or m isin fo rm a tio n ? ....................................................... 15

23. What is the state of the transactions—are they still executory or have they been implemented in part or in f u l l ? ........................................................... 16

24. Imposition of e x c is e ....................................................................................... 17

25. Summary of c o n c lu sio n s............................................................................... 17

Annexure I Agreement dated 4 July 1975 between Allied Petrochemicals Pty Ltd and ACTU-Solo Enterprises Pty Ltd ............................... 20

Annexure II Supplementary Agreement dated 4 July 1975 between Allied Petrochemicals Pty Ltd and ACTU-Solo Enterprises Pty Ltd . 25 Annexure III Letter from Allied Petrochemicals Pty Ltd to ACTU-Solo Enterprises Pty Ltd ................................................................... 30

Annexure IV Estimates of costs associated with the purchase, refining and delivery of parcel of 420 215 barrels of indigenous crude oil by ACTU-Solo May-September 1975 31

Table 1 ACTU-Solo crude purchase analysis ........................................ 33

Table 2 ACTU-Solo crude ‘deal’ savings over wholesale posted price . 33 Table 3 ACTU-Solo service station Profit & Loss analysis ............................................................... 34

Table 4 Miscellaneous background data ................................................ 35

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ROYAL COMMISSION ON PETROLEUM

THIRD REPORT

THE CIRCUMSTANCES OF THE TRANSFER OF ALLOCATED INDIGENOUS CRUDE OIL BY ALLIED PETROCHEMICALS PTY LIMITED TO ACTU-SOLO ENTERPRISES PTY LIMITED

1. INTRODUCTION 1.1 The Australian Government has asked the Commission to report upon the circumstances surrounding the sale by Allied Petrochemicals Pty Limited (A.P.C.) to ACTU-Solo Enterprises Pty Limited (ACTU-Solo) and disposition of a parcel of

420 215 barrels of indigenous crude oil. The right to the allocation of this parcel belonged to A.P.C. A.P.C. sold the parcel to ACTU-Solo which had arranged for it to be refined by Ampol Refineries Limited (Ampol). When the product became available from Ampol, pursuant to the refinery processing arrangement, ACTU-Solo intended

to market the product in Victoria through its retail chain of approximately 20 service stations. 1.2 During April, May, August and September 1975 the Commission has been sitting in Melbourne investigating the market structure of the industry in Victoria

where, as is notorious, a ‘price war’ is taking place. 1.3 The Commission has been investigating the means by which some marketers can market super grade petrol at up to 16 cents ‘off’ (to use the current popular expression) the price formerly recommended by the Victorian Automobile Chamber

of Commerce, that is to say, at up to 16 cents per gallon below the priced arrived at by adding the oil company’s dealer tank waggon list price to the recommended 12.2 cents retail margin. 1.4 The ability to market at these levels plainly depends upon special sources of

supply not usually available to most service station dealers. It raises important questions about fair competitive practices and about the level of product prices. If an ordinary dealer cut his margin down to a ‘no profit’ level, he is unlikely to be able to market at less than 8 to 9 cents ‘off’.

1.5 The Commission has therefore been concerned to investigate these special sources of supply principally to determine why the supply of cheap petrol was not available to all dealers and also to examine whether useful economies were involved in the supply of this heavily discounted petrol. In the course of this investigation some

hundreds of different transactions have been reviewed. On four separate occasions during the course of the hearing the question of the transfer of this particular parcel of 420 215 barrels of crude has been mentioned in evidence. 1.6 On Friday, 30 August 1975, A.P.C. responded to a summons issued by the Com­

mission at the request of Mobil Oil Australia Limited and produced a file containing two contractual documents relating to the sale and purchase of this parcel of crude and the price. The two documents are peculiar in form and clearly called for further investigation.

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1.7 As a result summonses to produce relevant documentation were served on Ampol Refineries Ltd and on ACTU-Solo and summonses to attend for the purpose of giving evidence were served on three of the four directors of the latter company. In addition the Australian Government produced to the Commission the official file relating to the transaction. This file was tendered in evidence.

2. BACKGROUND 2.1 The circumstances surrounding the allocation and the claim to ownership of the parcel of 420 215 barrels have been well publicised within the industry over some years. During 1974 XL Petroleum Pty Ltd pursued an action against A.P.C. in the

Supreme Court of Victoria to establish ownership of the crude. These proceedings ended in favour of A.P.C. on 17 April 1975. 2.2 During 1974. correspondence took place with the Department of Minerals and Energy concerning the transfer of the crude to Australian Gas Light Company (A.G.L.) at a premium price higher than the government-approved price of $2.10. The

application was not approved by the Minister and lapsed. 2.3 During all this time and indeed until July 1975, when most of it was uplifted with the Minister’s consent, the parcel of crude oil allocated continued to lie undrawn in

the Bass Strait and other fields. As allocatee A.P.C. had the right to require the pro­ ducers to supply it with the crude at $2.10 per barrel or other relevant government- approved price. At no time did the crude physically come into the possession of A.P.C. A.P.C. never handled, stored or treated it in any way. 2.4 On about 7 May 1975, A.P.C. wrote to all major Australian oil companies except one offering to sell the parcel for a sum of $5 per barrel upon certain terms. Because of some similarity which has been commented upon between the terms offered to the oil companies and the terms subsequently accepted by ACTU-Solo, a sample letter such as was sent to the companies is reproduced in full.

Attention: Managing Director 7th May 1975

Dear Sir, We refer to our discussion on 24th April 1975 and confirm our offer to sell approximately 420,000 barrels of indigenous crude oil. Price: $5.00 per barrel FOB Long Island Point, Barrow Island and Brisbane. Payment: $2.09 within 28 days of lifting. Balance subject to negotiation within 180 days of lifting. Quantity: Bass Strait 373,824 barrels

Barrow Island 45,642 ”

Moonie 749 ”

We also invite your offer to refine the above crude oil. We would be interested to receive your offer on the basis of return of motor spirit with or without other products, and with an appropriate replacement value if motor spirit only is supplied. We would appreciate your reply within the time discussed.

Yours faithfully. Allied Petrochemicals Pty Ltd

W. R. White Managing Director

2.5 Most companies so addressed replied to the offer. All that replied refused it. 2.6 Amoco Australia Pty. Limited said: Amoco was not prepared to consider further the purchase of the crude on offer until we had. in writing, a statement from the Department of Minerals and Energy giving

clearance to such a transaction and also indicating that the Government would condone it at the price proposed in your offer . . . Should you receive clarification from the Government on their attitude to your

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proposed sale which we understand your company will pursue to obtain as mentioned in your conversation to (our) Mr Overton we will be glad to review our position. 2.7 B.P. Australia Limited said: In view of the known interest of the Australian Government in all aspects of indigenous

crude allocation and price, it is regretted that we would only be able to give your offer detailed consideration if you are able to obtain Government approval to both the transfer of entitlement and the proposed terms of sale. 2.8 Caltex Oil (Australia) Pty Limited said: We would be interested in purchasing this crude from you, provided you are able to

produce written evidence from the appropriate Government authority to the effect that the Government would not oppose a sale at the price indicated.

2.9 Esso Australia Limited telexed and said: . . . if we were in position to consider (your offer) we would require your assurance that Government approval for a sale above the price provided to producers FOB loading port. As an associate of a producing company we must express our concern that a price above the Government-determined price of $ A 1.80 per barrel plus appropriate quality

differential FOB Long Island Point is being proposed for Gippsland crude. 2.10 Golden Fleece Petroleum (a division of H. C. Sleigh Limited) said: After carefully considering your offer and the numerous implications we have come to the definite conclusion that we must reject it.

Both the price and allocation of indigenous crudes are subject to Government involve­ ment and it is their clearly stated policy that indigenous crude should not be sold above the agreed FOB price for the respective crudes. You would no doubt appreciate and accept that any sale of this crude above the fixed price would ultimately be passed

through to the consumer by means of its inclusion in the next notification by the companies involved to the P.J.T. There is a finite volume of indigenous crude production available and this is presently being allocated to all members of the industry and purchased at the Government approved fixed price. If any sale is to be made of the

crude offered by you it is our virew that it should be shared amongst all members of the industry and even then the nett result is an increase in average crude cost for the period. We trust that you accept our position. Should you be able to obtain Governmental approval for the sale we would certainly wish to reopen negotiations with you. 2.11 Mobil Oil Australia Limited said:

During our discussions of your offer to sell the crude I advised that Mobil would not be associated with any proposals which it deemed to be at variance with the intention of Government policy. I undertook in our discussion to set out the reasons for our position and these are as

follows: (1) The pertinent sections of the Oil Pricing Policy announcement made by the Prime Minister on October 10 1968 may be taken to intend that Australia’s production of indigenous crude be used to the maximum extent to meet the full requirements of

the Australian market for petroleum products at prices (from September 17 1970 to September 17 1975) based on those applying at October 10 1968. (2) Pricing determinations of relevant price control or prices justification authorities have reflected the above philosophy. (3) Whilst we would not criticise your motives on normal commercial grounds, it is

clear from your offer and from our discussions that you intend to achieve an arrangement which would apply higher than October 10 1968 values to Australian indigenous crude or to the products derived from refining of Australian indigenous crude. Mobil considers its obligations under the Government’s indigenous crude

policy to be incompatible with facilitating such an arrangement.

3. SOLO TAKES AN OPTION 3.1 One company did, however, accept the A.P.C. proposal. This company was Solo Discount Petroleum Pty Limited, a member of a group of ‘Solo’ companies. In the negotiations with A.P.C. which followed it appears at all times to have acted as agent

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for the company now known as ACTU-Solo Enterprises Pty Limited, which was then being renamed and reconstructed so as to give the Australian Council of Trade Unions an interest in it and representation on its Board. 3.2 The Register of Directors of ACTU-Solo is not in evidence but the minute book, which was tendered, indicates that at least Messrs R. J. L. Hawke, Η. J. Souter. D. C. Wieland and E. C. Whiteford have been directors of the company since 24 May 1975. 3.3 By a document headed Option Agreement’ and dated 16 May 1975, A.P.C. granted Solo Discount Petroleum Pty Limited an option for a fee of $100 to purchase the parcel of crude from A.P.C. for $5 per barrel f.o.b. at three named delivery ports.

The terms of the option were as follows:

ALLIED PETROCHEMICALS PTY LTD 34 QUEENS ROAD MELBOURNE, 3005

16th May 1975

OPTION AGREEMENT

ALLIED PETROCHEMICALS PTY LTD/SOLO DISCOUNT PETROLEUM PTY LTD

Allied Petrochemicals Pty Ltd of 34 Queens Road, Melbourne, having been allocated 420,215 barrels of Indigenous Crude Oil as set out below do hereby grant an option for a fee of one hundred dollars, now received, to Solo Discount Petroleum Pty Ltd, to purchase the above quantity of crude oil for SA5.00 per barrel FOB (a) Long Island Point, (b) Barrow Island and (c) Lytton Refinery, Brisbane. This option is valid until 4.00 p.m. Tuesday, 20th May 1975.

Crude Oil Allocation

(a) Bass Strait 373,824 barrels

(b) Barrow Island 45,642 ”

(c) Moonie 749 ”

SIGNED

Witness the signature of.......................................................................................................

W. R. WHITE Managing Director

(SIGNED) Allied Petrochemicals Pty Ltd

SIGNED

Witness the signature of.......................................................................................................

E. C. Whiteford

(SIGNED) Director

Solo Discount Petroleum Pty Ltd

3.4 A.P.C. twice extended the option first by letter dated 20 May 1975 to 4 p.m. on 21 May 1975 and then by letter dated 21 May 1975 to 4 p.m. on 22 May 1975 on about which date, according to the evidence of Mr Souter, the option was exercised on behalf of ACTU-Solo. On 23 May 1975 A.P.C. confirmed in writing that ‘we have now agreed to sell our allocation of approximately 420,000 barrels of Indigenous Crude Oil the subject of the Option Agreement dated 16 May 1975 . . . our draft contracts are being prepared and we anticipate them being available for your consideration on Tuesday, 27 May 1975’. 3.5 The terms of the option are plain. When it exercised the option the grantee agreed to purchase the crude at $5 per barrel. This price is well above the govern­ ment-approved price of $2.10.

4. LETTER TO MINISTER 4.1 On 17 June 1975, Mr H. J. Souter, on ACTU headnote but acting as a director of ACTU-Solo, wrote to Mr R. F. X. Connor, the Minister for Minerals and Energy,

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enclosing an unsigned copy of a contract for sale for the Minister’s consideration. The letter is reproduced hereunder: Australian Council of Trade Unions 254 La Trobe Street

Melbourne, 3000

HJS/EK 17th June 1975

PERSONAL AND CONFIDENTIAL The Hon. R. F. X. Connor Minister for Minerals and Energy Parliament House

CANBERRA, A.C.T. 2600

My Dear Minister, Re: Purchase oflndigenuous Crude from Allied Petrochemicals Pty Ltd Attached hereto is a copy of the Agreement between Allied Petrochemicals Pty Ltd and

ACTU-Solo Enterprises Pty Ltd for the purchase of 420,215 barrels of indigenous crude now forwarded for your information. Yours sincerely,

(SIGNED) H. J. SOUTER Secretary

4.2 The document mentioned as being annexed to the letter of 17 June 1975 is in the same terms as the document Annexure I to this report, except that it was at that time unsigned. But importantly this letter refers to ‘the agreement' and 'the purchase'. The document is put forward as representing the whole of the transaction of purchase.

5. VERBAL ASSURANCE TO MINISTER 5.1 Mr Souter said in evidence that at about the same time as he sent the letter of 17 June 1975 and the annexed document in the same terms as Annexure I he had spoken on the telephone to the Minister and had assured him that the sale was at the govern­ ment-approved price. His evidence (Transcript, p. 4329) was as follows:

Mr Liddell: I suggest that in the course of that discussion you stated that the price payable for the crude was the government approved price, or words to that effect?—What I stated was that there was discussion in relation to the prospect of purchase of A.P.C. crude, and the Minister’s response was, and I agreed that it would

be at the government approved price for the crude. The Minister specifically raised the question and you say you agreed that would be the price?—Yes. From what you told us on Tuesday you were well aware, were you not, at that stage that the Minister would not have approved any sale of this crude other than at the govern­ ment approved price; was that your belief?—The sale of the crude, yes.

That was your belief at the time of the discussion and you in the course of this dis­ cussion stated this was to be a sale at that price?—That is right.

6. ANALYSIS OF ANNEXURE I 6.1 The document annexed to the letter of 17 June 1975 (see Annexure I) which was sent to the Minister has unusual features. Ordinarily agreements for sale are intended to operate simply between the parties. They are not usually drafted in a form designed

to convey ‘messages’ to third parties. This document does so and has been drafted to operate persuasively; to impress upon the reader that the price is not merely an agreed sum of money, but is the price approved by the Government and no more. The very opening words of the document establish the identity and size of the crude parcel as

an allocation made within the Government’s indigenous crude oil policy.

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(A) Pursuant to Government Indigenous Crude Oil Policy, Seller has been allocated by the Producers set forth in Schedule 1 hereto . . . quantities of indigenous oil totalling 420,215 barrels . . . (B) Seller has agreed to sell and Purchaser agreed to purchase crude oil to be sold by the Producers to the Seller pursuant to the said allocation.

6.2 Clause 2 defines ‘Government Approved Price’ as the price actually charged by the producers to the seller for the crude oil at the time of delivery, i.e. $2.10 per barrel. The operative part of the contract clause 4 reads: PRICE AND PAYMENT

(a) The purchase price for the crude oil per barrel shall be the Government Approved Price. (Emphasis supplied.) 6.3 In drafting the document particular pains have been taken to demonstrate by it that the whole of the transaction of sale and purchase that it records is within government policy and at government-approved price. The document by deliberate design speaks not only between party and party but also to Government. 6.4 The document as an agreement to purchase at ‘government-approved price' of $2.10 per barrel is of course inconsistent with the agreement to purchase at $5 a barrel which came into existence upon the exercise of the option of 16 May 1975. The

Minister was not informed of the existence of this option nor of its exercise.

7. MINISTERIAL RESPONSE The Department of Minerals and Energy’s file discloses that the letter of 17 June 1975 and the document annexed were submitted to departmental officers who, after noting that the sale did not provide for a premium upon the sale price or a windfall

profit to A.P.C. (unlike the previous attempt to sell the same crude to A.G.L.) advised the Minister that it was appropriate to find that in terms of policy the transaction was unexceptionable. The Minister also had the verbal assurances from Mr H. J. Souter referred to above. The Minister therefore accepted the departmental advice and signed a letter in the form recommended to him by the departmental officers which was forwarded to Mr Souter. The letter is reproduced hereunder:

Parliament House CANBERRA, A.C.T. 2600

PRIVATE AND CONFIDENTIAL 26 June 1975

Dear Harold, I refer again to your letter of 17 June 1975, with which you enclosed a copy of the Agreement between Allied Petrochemicals Pty Ltd and ACTU-Solo Enterprises Pty Ltd for the purchase of 420,215 barrels of indigenous crude. I am advised that that document, which presumably has been executed by the parties, covers the sale by

A.P.C. of its indigenous crude allocation at the same price that A.P.C. is paying for it. This is an unexceptionable transaction so far as the indigenous crude absorption scheme is concerned. My personal regards,

Yours sincerely, R. F. X. CONNOR

Mr H. J. Souter Secretary Australian Council of Trade Unions

254 La Trobe Street MELBOURNE, VICTORIA 3000

8. THE CONTRACT DOCUMENTS 8.1 The document Annexure I was eventually executed by the parties A.P.C. and ACTU-Solo on 4 July 1975.

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8.2 At the same time and place, a second document was executed relating to the sale. This document is Annexure II hereto. Both documents, Annexures I and II, were so executed by ACTU-Solo under its common seal which was affixed by authority of the directors and in the presence of Mr H. J. Souter and Mr D. C. Wieland whose

signatures appear thereon. The second document was never shown or mentioned to the Minister or his departmental officers. Indeed the letter from Mr Souter of 17 June 1975 forwarding the first document excludes the existence of a second document bearing on the subject-matter, as indeed did Mr Souter’s explicit verbal assurance to the Minister earlier quoted.

8.3 Nevertheless, the second document was executed by the parties and related to the disposition and price of this exact parcel of crude. It is in a remarkable form and bears examination.

9. ANALYSIS OF ANNEXURE II 9.1 The opening words of the second document (Annexure II), which is also dated 4 July 1975, are in these terms: (emphasis supplied) (A) This Agreement is supplementary to an agreement bearing even' date herewith

between the Seller and Purchaser pursuant to which Seller agrees to sell and Purchaser agrees to purchase certain crude oil allocated to Seller by producers named therein (which agreement is called herein ‘the First Agreement') (B ) Purchaser has anticipated a yield of refined petroleum from the crude oil and has

requested that the consideration/or the said purchase be apportioned between the First Agreement and this Agreement. . . 9.2 These recitals show that in fact the true contract for sale is only to be found by reading both documents as evidencing one whole single agreement. The very language

of the second document expressing it to be supplementary ‘to the first agreement’ conveys this impression and in addition the stated apportionment of the consideration/or the said purchase between the two agreements wholly confirms this impression.

9.3 A.P.C.’s interests as vendor would be sufficiently served if the documentation was drawn as a straightforward conveyance of the crude. But ACTU-Solo needed the Minister’s consent to the arrangement and the ACTU had the carriage of the approach to the Minister. As the document recites: ‘Purchaser (ACTU-Solo). . . has

requested that the consideration of the said purchase be apportioned between the First Agreement and this Agreement’. 9.4 This passage in the document raises a number of questions. Why were two documents prepared when the transaction could quite simply have been set forth in

one document? Why does the second document freely refer to the first document, while the first document, the one produced to the Minister, never refers to the second? Why was the purchase price apportioned in this extraordinary way? For what conceivable purpose were the documents procured in this form, if it was not to

procure a document which appeared to stand alone as a completed contract to purchase for $2.10 per barrel? 9.5 In the stamped copy of the Supplementary Agreement (Annexure II at p. 4) pro­ duced by ACTU-Solo in answer to a summons, the consideration expressed in the

document as originally engrossed was $1 224 019.51. This figure was subsequently typed through and replaced by the figure of $1 019 519.51 which appears in the document as executed. The difference between the two figures, i.e. $205 000 is explained by a letter (Annexure III) dated 3 July 1975 from Mr W. R. White to

ACTU-Solo Enterprises Pty Ltd which refers to an agreed reduction of up to $205 000 from the total amount payable of $1 224 519.51 dependent upon an assess­ ment made on an unspecified basis of market results. 9.6 The figure ‘as originally proposed’, $1 224 519.51, when added to the govern -

ment-approved price as calculated in the first document, $876 555.49, and divided by the number of barrels the subject of the transaction, 420 215 barrels, comes to exactly $5 per barrel, the price agreed on when the option was exercised. Whereas the first document, the one which was sent to the Minister for approval, standing alone is inconsistent, both documents read together are entirely consistent with the terms of the option whereunder ACTU-Solo agreed to purchase the parcel of crude for $5 per barrel. 9.7 The evidence of the true nature of the document is even more compelling than this. In Clause 3 PRICE AND PAYMENT of the second document the following language is used:

3. PRICE AND PAYMENT (a) In addition to the purchase price provided by Clause 4 of the first agreement purchaser shall pay to the seller in the manner hereafter provided $1,019,519.51 with interest as provided therein. 9.8 Thus the document in specific terms directs the addition of the sums found in each document to arrive at the purchase price of the crude. It is further to be noted, in the light of the claim referred to hereunder that the second document was a profit­ sharing agreement, that the sum of $1 019 519.51 mentioned in the second document is absolutely payable on certain dates whether or not delivery of any or all of the crude has been made.

Furthermore the period for payment parallels the 180-day terms offered in A.P.C.’s letter of 7 May 1975 to the major oil companies.

10. ANNEXURE III To complete the contractual position it is necessary to refer to Annexure III. By the terms of this letter the ‘additional’ consideration in the supplementary Agree­ ment (Annexure II) was reduced from the intended $1 224 519.51 to $1 019 519.51. The explanation tendered in evidence suggests that shortly before signing the two documents (Annexure I and II) on 4 July 1975, ACTU-Solo re-examined the situation and decided that the transaction was not likely to be very profitable. They pressed this view successfully on the vendor which agreed to reduce the price by $205 000 provided that if the marketing operation upon audit was shown to be profitable the total

‘additional’ price of $1 019 519.51 might be varied upwards by part or all of the sum of $205 000. The document itself is almost incomprehensible but the Commission considers that this explanation is probably correct.

11. SUMMARY OF THE ABOVE MATERIAL 11.1 An unexecuted agreement in the terms of Annexure I, which nowhere referred to the existence of the option or the existence of the second document (Annexure II) and showing the purchase price of the crude to be $2.10 a barrel, was submitted to the Minister for Minerals and Energy by Mr H. J. Souter on behalf of ACTU-Solo. 11.2 Mr Souter gave verbal assurances to the Minister that the purchase price of the crude did not exceed $2.10 a barrel. 11.3 The Minister found the sale and purchase at this price of $2.10 a barrel ‘unexceptionable’. 11.4 At the time the unexecuted agreement in the terms of Annexure I was sub­ mitted to the Minister and the verbal assurances given ACTU-Solo had already exercised an option to purchase the crude at $5 a barrel. 11.5 The parties at the time of executing the agreement for sale at $2.10 a barrel (Annexure I) also executed a second agreement for an ‘additional’ consideration of $1 019 519.51 (Annexure II).

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12. CONTRACTING PARTIES’ EXPLANATIONS—A.P.C. 12.1 In the light of the way that Mr Souter and Mr Wieland sought to explain away this situation, it is of some interest to see what a director of the vendor A.P.C., the other party to the documents, thought that A.P.C. was doing by signing the documents. A.P.C. did not send any documentation relating to its agreement with

ACTU-Solo to the Minister. It did, however, have a strong interest in having the Minister approve an arrangement giving it a windfall profit of over $1 million. 12.2 Mr W. R. White, the director of A.P.C. who executed the option and the agree­

ment of 4 July 1975 on its behalf, gave evidence:

(Transcript, pp. 4202-3) Mr Fisher: If you look at the two documents—that is, the two agreements dated 4 July 1975—and read the first of them, the one that states that the consideration was in effect to be $2.10 per barrel, that document in no way refers to the existence of the second

document, does it?—I do not believe so, no. But if you pick up the second document, also dated 4 July 1975, the first thing it says literally is ‘This agreement is supplementary to an agreement bearing even date’, between the same parties?—Yes.

If it is of course supplementary it means that although you are looking at two documents you are looking at one agreement?—If you say so. Not if I say so, if you say so, a man with your business acumen looking at the two docu­ ments in quite a simple way?—Yes.

If you look at the second one, that says ‘This is supplementary to an agreement bearing even date’, surely reading it you become aware that you might be looking at two docu­ ments but you are looking at one total agreement, is that not so?·—Yes. Surely the sole purpose of engrossing this agreement in two separate documents is to

enable whoever bears them in hand to present the first document as if the second document did not exist?—If you say so, yes. And there is no other reason I suggest that you can think of that would account for this particular form?—If you narrow it down to that, to present the first document.yes.

And this would have been obvious to you, of course, before your company ever entered into the arrangement?—Yes. (Transcript, pp. 4204-5) Mr Fisher: The second document I am looking at, the one that says it is supplementary,

has a clause (b) which says this: Purchaser has anticipated a yield of refined petroleum from the crude oil and has requested that the consideration for the said purchase be apportioned between the first agreement and this agreement, that additional matters be dealt with in this

agreement and that seller offer to provide purchaser rights in relation to its available storage facilities for the refined product. Do you appreciate it says that?—Yes. That simply means that the price that appears in the first document is not the real price?—Yes. It is just a part of the price?—Yes. And the other part of the price is in this second document, said to be supplementary?—Yes. That means that anybody who reads the first document alone and reads the statement there that the price is $2.10 a barrel, or to that effect, is obviously reading something which, read alone, is quite untrue?—Yes. And that the truth as to the price can only emerge when you put the two documents together?—Yes. (Transcript, pp. 4208-9) Mr Fisher: If I may return, this letter (the Minister’s letter of 26 June 1975) that we were reading continues:

I am advised that that document which presumably has been executed by the parties, covers the sale by Allied Petrochemicals of its indigenous crude allocation at the same price that Allied Petrochemicals is paying for it. This is an unexceptional trans­ action so far as the indigenous crude absorption scheme is concerned.

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It then says ‘My personal regards, Yours sincerely’, and the Minister’s signature is appended in a printed form. Do you appreciate that the letter I have read to you refers to the document in the singular, twice in fact?—Yes. Do you appreciate that it describes the document as one in which the price appears at the same price that A.P.C. is paying for it?—Yes.

And that is specifically given as $2.10?—Yes. And that as a consequence of that fact the Minister writes: ‘This is an unexceptional transaction so far as the indigenous crude absorption scheme is concerned’?—That is what he writes, yes.

In fact, as you have already agreed, the price was never going to be $2.10, was not in fact $2.10?—That is right. And anybody that just looked at one document and not the two documents together would find a price that appeared there which in fact was a misrepresentation of the real price?—They would not see the real price on the one document.

12.3 Mr White’s evidence, which the Commission accepts, wholly confirms the conclusions to be deduced from the documents.

13. CONTRACTING PARTIES’ EXPLAN ATIONS^ACTU-SOLO 13.1 Despite this evidence and the specific language of the documents, the two directors who executed the documents on behalf of ACTU-Solo, Mr Wieland and Mr Souter, both denied the effect of the documents and the effect of the evidence given by Mr White. 13.2 Mr Wieland’s explanation of the second document (Annexure II) was that it represented some type of profit-sharing arrangement. Mr Wieland still maintained that it was a profit-sharing agreement even when it was pointed out to him that neither the words ‘profit’ nor ‘share’ nor any synonym for them appeared in the docu­ ments and indeed that no part of the arrangement provided for the sharing of profit. The Commission finds that as a matter of construction the document includes no provision whatever for profit sharing. The Commission further finds that no person could reasonably believe that the document did represent a profit-sharing arrange­ ment and accordingly rejects Mr Wieland’s evidence. 13.3 Even if the claim were accepted that in addition to the agreement to pay $2.10 there was some profit-sharing arrangement, this would not assist ACTU-Solo. The Commission is of the view that to exactly the same extent as a further money consider­ ation for the crude would be in breach of government policy so too would be a further payment for it as part of a profit-sharing arrangement. 13.4 Mr Souter claimed that the consideration of $1 019 519.51 that appears in the second document related to facilities that were to be made available by Allied Petro­ chemicals Pty Limited to ACTU-Solo Enterprises Pty Limited, and as such it was a commercial document that was not the concern of the Minister. It is to be noted, as

quoted in this report, that A.P.C., which was to provide these facilities, did not share this view. The two areas where Mr Souter claimed that there was room for an additional consideration lay in the storage of refined products and in marketing assistance. The latter can be dealt with briefly. Nowhere in the documents is this marketing assistance referred to. No attempt was made to claim that in fact it had been given. No attempt was made to define quantitatively the value of such assistance. The most that was said was that there was some assistance in the contemplated intro­ duction of purchasers for unspecified volumes of petrol at unspecified prices.

13.5 As to the claim that the additional consideration of $1 019 519.51 represented the value of some storage capacity for products, it must be first noted that although there is a reference in a recital to the second document to an offer by the seller to provide the purchaser with rights in relation to its available storage facilities for

10

refined product, the provision of storage appears nowhere in the agreement as an enforceable covenant. It was said that at the time of negotiating the agreement it seemed that such storage might be convenient or necessary. In fact this is entirely unlikely. The agreement was signed on 4 July 1975. On approximately 28 May 1975 ACTU-Solo had agreed in principle to a processing arrangement with Ampol in terms similar to those of a refining agreement afterwards entered into by ACTU-Solo

and Ampol on 4 July 1975. Clause 7 of this agreement is in the following terms:

7. Subject to the product yield limits specified in Clause 4 hereof, commencing from 25th June 1975 Ampol (Vic) undertakes to supply by way of delivery such quantities of refined motor spirit as may be requested by ACTU-Solo, such supply by way of delivery to be made by by Ampol (Vic) either

(i) To service stations nominated by ACTU-Solo, or (ii) If requested by ACTU-Solo, to the latter at the Newport Terminal.

13.6 Clearly there was only the very remotest likelihood that any further storage facilities would be needed from A.P.C. and in fact no storage capacity provided by A.P.C. has been used by ACTU-Solo.

13.7 The Commission is aware from its own knowledge that the cost of any such storage would amount to no more than forty cents per barrel whereas on Mr Souter’s evidence the consideration given by ACTU-Solo for storage facilities and marketing assistance represents about $2.40 to $2.90 per barrel. The amount, location and type

of storage which was available is in fact nowhere specified. The Commission rejects Mr Souter’s evidence as utterly implausible, as contrary to the evidence given by Mr White of A.P.C., whose company was also a signatory to the same document, and as contrary to the plain terms of the documents themselves.

14. FINDINGS ON THE DOCUMENTS The Commission finds that the two documents relate to the same purchase and mean precisely what they say, namely that the consideration for the purchase was to be divided between the two documents at the request of ACTU-Solo Pty Limited. The only consistent and logical explanation for the request and for the form in which the

documents are to be found lies in an intention to use the documents in the way the documents were in fact used. The first document, which contains a consideration of $2.10 and a strong and indeed overwhelming indication of government policy, was intended to be produced to the Minister in order to induce him to approve the arrangement. The two documents together represented the true transaction between the parties.

15. MISREPRESENTATION BY DIRECTOR 15.1 One feature of the misrepresentations to the Minister is the part played in the deception by the directors of ACTU-Solo and particularly by Mr H. J. Souter. ACTU-Solo requested that the purchase price be apportioned between the two

documents, Annexures I and II, so that, as the Commission finds, one document, showing a government-approved price, could be shown to the Minister as if it were without qualification the contract of purchase. Mr Souter was the person who, in fact, so misrepresented the matter to the Minister firstly by sending Annexure I alone and

secondly by verbally assuring him that the price for the crude was not more than $2.10 a barrel. 15.2 Two of the directors of ACTU-Solo, Mr D. C. Wieland and Mr H. J. Souter, attended before the Commission in answer to a summons and gave evidence. During the course of Mr Souter’s evidence, Mr W. K. Fisher, Q.C., Senior Counsel Assisting,

indicated (Transcript, p. 4322) in the presence of Counsel appearing for ACTU-Solo that he did not propose to call any further witnesses concerning the transaction as he was satisfied that the evidence called disclosed the full nature of the transaction but

that he proposed to submit that ACTU-Solo through its directors initiated and carried out successfully to its conclusion a course of conduct designed to deceive the Australian Government. Senior Counsel Assisting then made it plain that since these submissions carried serious implications for the persons concerned, the Commission expressly invited anybody who might be encompassed by such findings to appear

before the Commission and either disassociate himself from the activities under review or offer any explanation he might have as to those activities. If such persons chose to remain silent they could only expect the ordinary and natural consequences. Neither of the other directors of ACTU-Solo, Mr R. J. L. Hawke or Mr E. C. White- ford, gave evidence before the Commission. 15.3 Mr Souter gave evidence that Mr Hawke did not personally have any part in the negotiations with A.P.C. or any part in the decision to document the transaction in the way it was documented. He said that Mr Hawke left for overseas early in June

1975 and returned on a date prior to 23 July 1975. The minutes of ACTU-Solo show that Mr Hawke was absent from the meetings of the company during this period. 15.4 The Commission finds that the directors of ACTU-Solo, other than Mr Hawke, initiated and carried through a course of conduct designed to mislead and deceive the Minister for Minerals and Energy. As to Mr Hawke, the Commission makes no finding. The role played by Mr Souter has achieved particular prominence partly because he gave evidence. The Commission finds that although he was not the

architect of the scheme he shares equal responsibility with other directors.

16. IS THERE A GOVERNMENT POLICY? 16.1 In their final submissions some parties sought to avoid the effects of the considerations discussed by alleging that there was no government policy which affected the disposition of this parcel of crude. 16.2 The submission as put on behalf of A.P.C. and echoed by ACTU-Solo was ‘that it is not open to the Commission to make a finding that there has been a breach of Government policy or . . . that the Government has been deceived because such policy as has been enunciated does not prohibit the transaction . . .’ 16.3 The argument was put in two ways:

(a) That an analysis of the Department of Minerals and Energy’s file recording the application made during 1974 by A.P.C. to sell this same parcel of crude to A.G.L. supports the assertion that there is no such policy. (b) That the original and subsequent policy statements, principally that of the then

Prime Minister, the Rt. Hon. J. G. Gorton, of 10 October 1968 and those of the then Minister for Customs and Excise, the Hon. D. L. Chipp, of 7 September 1971 and 12 July 1972, did not establish a ‘ruling government policy’ which applied to the disposition of parcels like the present. 16.4 The Commission has closely examined the Department's file. There is to be found upon examination at least a certain tardiness in answering representations made to the Department by A.P.C. But the file shows that one of the producers, The

Broken Hill Pty Co. Ltd, told A.P.C. that lifting of the crude ‘would be subject to an assurance from the Australian Government that the proposed lifting for the purpose described by you is in accord with Government policy’. The various exchanges end with a telex from the Australian Government to A.P.C. ‘I point out to you that the proposed price is in excess of that operating in respect of indigenous crude’.

16.5 The Commission finds that there is no support from the file for the proposition that the disposition of parcels of crude were not subject to government policy. In fact, close analysis results in precisely the opposite conclusion. 16.6 A.P.C. also sought in this part of the argument to rely upon the terms of a letter of 20 May 1974 from the Minister for Minerals and Energy to A.G.L. dealing with a transaction whereby A.G.L. proposed to purchase 650 000 barrels of indigenous

12

crude from I.O.C. Australia Pty Limited. The Commission finds nothing in this letter or the accompanying correspondence tendered to support A.P.C.’s contention. 16.7 As to the second way of putting the argument it may be said at once that the statements of Mr Gorton and Mr Chipp in their express terms referred to crude in the

hands of Esso-B.H.P., the producing companies, which crude is to be priced at $2.10. A.P.C. received an entitlement to the crude because of an allocation to it made under the policy. 16.8 The purpose of the policy is to substitute for the true market price a price determined in the light of social and political factors. In today’s market circum­

stances, this policy operates to deny to the producing companies the prices that they would undoubtedly receive on the open market. Yet the producers have made their investments and taken the risks involved in setting up the enterprise. If the social and political factors operate to limit their price and profit, how much more essential is it

that the profit denied the producers should not be made by mere resellers. 16.9 Indeed, the true transaction can in reality better be described as one of trafficking for an unearned profit in rights to an allocation rather than trafficking in the crude itself.

16.10 The policy as it applies to this parcel arises by plain inference from the indigenous crude oil policy. This policy was invoked in express terms by both A.P.C. and ACTU-Solo when it was to their advantage in the document Annexure I by which it was sought to convince the Minister that the true price was only $2.10. The same

document defines the purchase price as ‘the Government Approved Price’. 16.11 This both acknowledges that there is a government policy with respect to price and invokes it for the purpose of persuading the Minister that the transaction is ‘unexceptionable’ in terms of that very policy the existence of which the argument seeks to deny.

17. FUTURE ALLOCATION OF CRUDE 17.1 Mr P. O’Callaghan, Q.C., appearing for H. C. Sleigh Limited, submitted that the documents constituting the contract for sale were drawn in such a form as to create a likely entitlement to further allocations of indigenous crude oil arising from

Category ‘A’ sales which would be made by ACTU-Solo. 17.2 Mr O’Callaghan submitted that if this parcel of crude had been acquired by ACTU-Solo as a result of a deception practised upon the Government it would be inequitable that it should have the benefit of a policy which it had deliberately sought

to circumvent and a benefit which would not have accrued to it but for its deception. Mr O’Callaghan referred to the unchallenged fact that a number of other companies had expressed interest in the parcel of crude but had refrained from accepting the invitation to purchase it at approximately the same price on the specific ground that to do so would breach government policy. Should therefore the benefits of government

policy flow to those who purchased in breach of the policy? Mr O’Callaghan asked that the Commission recommend to the Australian Government that ACTU-Solo as a result of this transaction should not in the future receive an allocation of indigenous crude based upon the sale of product resulting from this acquisition from A.P.C.

18. AUSTRALIAN GOVERNMENT SUBMISSIONS 18.1 In his final address to the Commission, Mr Liddell, Q.c, appearing for the Australian Government, observed that some very serious issues had arisen. He raised the issues in the following terms:

(a) Whether the Australian Government had been deceived or misinformed. (b) Whether the Australian Government had acted on the basis of any such deceit or misinformation.

13

(c) If deceit or misinformation was involved, who was responsible for the Government being so deceived or misinformed? (d) Did such parties stand to gain financially and if so to what extent as a result of the deceit or misinformation? (e) What is the state of the transactions—are they still executory or have they

been implemented in part or in full?

18.2 Mr Liddell requested an ‘interim report . . . for the purposes of enabling the Government to consider the position and to consider what action it should take’.

19. WHETHER THE AUSTRALIAN GOVERNMENT HAD BEEN DECEIVED OR MISINFORMED 19.1 There can be no room to doubt that the Government was misinformed. The essence of the transaction and its review by the Minister concerned price— put at its bluntest—did the price exceed $2.10? If it did, a windfall profit accrued to A.P.C. If it did not the transaction accorded with policy.

19.2 The Commission finds that the letter of 17 June 1975 sent by ACTU-Solo over the signature of Mr H. J. Souter to the Minister and the accompanying document in terms of Annexure I misrepresented the price for which the crude was sold and that the Government was critically misinformed. 19.3 The Commission has not received a statement from the Minister as to whether he was deceived by the letter and the accompanying document. 19.4 However the natural inference to be drawn:

(a) from the Minister’s telephone inquiry concerning price and Mr Souter’s admitted assurance in reply that the sale "would be at the Government approved price’; (b) from inspection of the Department’s file; (c) from terms of the letter of 26 June 1975 in which the Minister stated that the

transaction ‘is an unexceptionable transaction so far as the indigenous crude absorption scheme is concerned'; is that the Minister was in fact deceived and the Commission so finds. 19.5 Ampol has submitted that the Commission should find that its involvement in this transaction, namely as a refiner, is not in any sense blameworthy and that it was not a party to any deception of the Minister or aware that deception was taking place. 19.6 Ampol, through its officers, concedes that it had some suspicion, but only suspicion, that the price was more than $2.10. On the other hand, Ampol had been informed of the Minister’s finding that the transaction was unexceptionable in terms of the indigenous crude oil policy. 19.7 Mr K. F. J. Drinan, General Manager, Refining and Supply (Ampol), said in evidence (Transcript, p. 4377) in describing his negotiations with Mr W. Kelty (ACTU) and Mr D. C. Wieland (Solo): Mr Shannon: Let us go back to the subsequent proposition I put to you, that at this meeting you must have known, I suggest, that there was some other consideration flowing from ACTU-Solo Enterprises to A.P.C., otherwise they would have never achieved a deal?—As I just said a minute ago, I did ask that question of him. What were you told?—It was really greeted with wry grins and shrugs of the shoulder. What did you conclude from that?—I then added a further question, ‘I presume we will find out by the time the whole business has ended what price you have paid?’ And the answer was ‘yes' or ‘maybe’ or something else equally non-committal. I suggest, therefore, your comment carried with it the suggestion that you well knew there was another consideration flowing from ACTU-Solo to A.P.C.—I did not well know that, I suspected it. 19.8 The Commission accepts the evidence given and finds that Ampol was not in

14

any sense a party to any arrangement to deceive the Minister nor did it know of any breach of the indigenous crude oil policy.

20. WHETHER THE AUSTRALIAN GOVERNMENT HAD ACTED ON THE BASIS OF ANY SUCH DECEIT OR MISINFORMATION 20.1 The Commission finds that the essential element to which approval went was price. The price had to be $2.10 per barrel or. put more accurately, the same price as

that at which A.P.C. received the crude from the producers Esso-Hematite. So the Minister by his letter of 26 June 1975 said: \ . . the document covers the sale by A.P.C. of its indigenous crude allocation at the same price that A.P.C. is paying for it. This is an unexceptionable transaction . . .’

20.2 The true position is that the price was not $2.10 as represented but a price between $4.50 and $5.00 depending upon contingencies. The Minister has never approved of such a transaction and indeed has never been asked to approve of such a transaction.

20.3 The Commission’s finding is that in these circumstances there has been no approval of the transaction that actually took place, or of the sale, the uplifting or the transfer of the crude. 20.4 Unfortunately, of the three separate parts of the parcel of crude— Bass Strait,

Moonie and Barrow Island, the first two parts, on information available to the Com­ mission, have been uplifted, delivered to the refiner, intermingled with other crude and part processed. The Commission's information suggests that by 10 p.m. on Monday, 22 September approximately 3 287 168 gallons of the total gallons

deliverable will have been delivered and that deliveries are likely to continue at a rate of approximately 375 000 gallons per week. 20.5 However, the third part, that from Barrow Island comprising 45 642 barrels, has not yet been lifted.

20.6 The Commission finds that the sale, uplifting and transfer of this Barrow Island crude has not been approved by the Minister.

21. IF DECEIT OR MISINFORMATION WAS INVOLVED, WHO WAS RESPONSIBLE FOR THE GOVERNMENT BEING SO DECEIVED OR MISINFORMED? 21.1 The Commission finds with respect to deceit and misinformation that the responsibility lies with:

(a) the directors of ACTU-Solo, other than Mr R. J. L. Hawke about whom the Commission has made no finding; (b) the company ACTU-Solo; (c) the company A.P.C.

21.2 With respect to A.P.C. the Commission finds that the company by its Director, Mr W. R. White, well knew the use to which the contract documents in their particular form were to be put, and although the documents record that they were prepared in the unusual form in which they appear at the request of ACTU-Solo they

were in fact prepared by A.P.C.

22. DID SUCH PARTIES STAND TO GAIN FINANCIALLY AND IF SO TO WHAT EXTENT AS A RESULT OF THE DECEIT OR MISINFORMATION? 22.1 A.P.C. stood to gain a sum of between $1 019 519.51 and $1 224 519.51 depending upon contingencies, substantially as a windfall resulting from trafficking

in the disposition of an allocation of indigenous crude oil after obtaining an approval for the transaction by deceiving the Australian Government as to the true price at which the transaction took place.

15

22.2 ACTU-Solo stood to gain by securing a supply of motor spirit resulting from the refining of the crude at a price approximately 5.4 cents a gallon cheaper than the average wholesale posted price in Melbourne. 22.3 ACTU-Solo was therefore in a position to market the product against some competitors more cheaply to the indicated extent. 22.4 More importantly the total transaction would ordinarily entitle ACTU-Solo by reason of its refining and sale of Category ‘A’ products to further allocation of indigenous crude oil at the government-controlled price. 22.5 The Commission has no doubt that this latter consideration motivated ACTU-Solo throughout this enterprise. 22.6 The Commission finds that it would be inconsistent with ordinary standards of equitable dealing if ACTU-Solo by deceit and misrepresentation contrary to the indigenous crude absorption policy gained an apparent entitlement to further allocation. 22.7 The Commission particularly notes the replies to essentially the same proposal to sell given by the major oil companies who all rejected the offer, against interest, on the grounds that to accept would be contrary to government policy. 22.8 The evidence before the Commission discloses that ACTU-Solo is a recently reconstructed company derived from a merger of interests—the Australian Council of Trade Unions and the 'Solo’ commercial interests. The Commission was told that no firm arrangements had yet been made concerning the disposition of profits and there is some corroboration from the Minutes of the company that this is so. The Com­ mission has been further told that broadly speaking each interest was to take half the profits. 22.9 It follows that the profits from the present transaction would be enjoyed equally between these two groups of interest—the Australian Council of Trade Unions and the ‘Solo’ commercial interests. 22.10 The Commission finds that Mr R. J. L. Hawke and Mr H. J. Souter will not personally benefit from the transaction. 22.11 The Commission presents as Annexure IV a calculation, based principally

upon estimates, of the cost involved of the transaction. 22.12 A rigorous analysis would require extensive investigation and take some con­ siderable time. The Commission is satisfied that Annexure IV fairly represents the nature and quality of the transaction in general terms.

23. WHAT IS THE STATE OF THE TRANSACTIONS— ARE THEY STILL EXECUTORY OR HAVE THEY BEEN IMPLEMENTED IN PART OR IN FULL? 23.1 All the Bass Strait (373 824 barrels) and Moonie (749 barrels) crude has been uplifted and delivered into storage at Ampol’s Lytton Refinery. The Barrow Island crude (45 642 barrels) has not yet been uplifted. 23.2 As at 10 p.m. on Monday, 15 September 1975, 2 912 168 gallons of motor spirit had been delivered by Ampol to ACTU-Solo. The weekly delivery rate is ap­ proximately 375 000 gallons. Accordingly it is estimated that by 10 p.m. on Monday, 22 September 1975, approximately 3 287 168 gallons of motor spirit will have been delivered to ACTU-Solo. The total amount which Ampol has agreed to deliver to designated ACTU-Solo service stations in Melbourne pursuant to the processing agreement of 4 July 1975 is 13 671 000 gallons of motor spirit. There will thus remain as at 10 p.m. on 22 September 1975 approximately 10 383 832 gallons to

be delivered. 23.3 By the terms of the document Annexure I, ACTU-Solo agreed to establish a conformed irrevocable Letter of Credit in favour of A.P.C. in an amount of

$876 555.49. According to the document the purchase price is payable by purchaser

16

to seller on the 29th day following each delivery of the crude oil to the Purchaser or, subject to certain specified events, on 16 September 1975, whichever is the earlier. The mode of payment is by drawing against the Letter of Credit. On 2 September 1975, Mr Wieland gave evidence that payment had been made for the Bass Strait and

Moonie crude but that no payment had then been made for the Barrow Island crude. 23.4 By the terms of the document Annexure II ACTU-Solo agreed to establish three confirmed irrevocable Letters of Credit, each in an amount of $272 115.44. A.P.C. is entitled to draw against the first of these Letters of Credit as to one half on

or after 15 August 1975 and as to the other half on or after 15 September 1975. Mr Wieland’s evidence on 2 September was that the first payment due on 15 August 1975 had been made and the second had not. A.P.C. is entitled to draw against the second Letter of Credit as to one half on or after 15 October 1975 and as to the other half on or after 15 November 1975 and against the third Letter of Credit as to one half on or

after 15 December 1975 and as to the other half on or after 15 January 1976. Mr Wieland’s evidence was that these two Letters of Credit had been established but had not yet been drawn on. The balance due in pursuance of the document Annexure II, $203 173.16, is payable on or before 15 February 1976. No part of this payment has

yet been made.

24. IMPOSITION OF EXCISE 24.1 Since the contracts Annexures I and II were executed an excise of $2.00 per barrel has been levied on indigenous crude. Much of ACTU-Solo crude as it comes to be marketed as product will be competing against product bearing this excise charge.

24.2 The 5.4 cents cost advantage noted in Annexure IV can effectively be increased to over 10 cents per gallon because of this factor. 24.3 It is possible that recently announced increases in the prices of indigenous crude could have some small advantageous effect on ACTU-Solo marketing of pro­

duct derived from its crude.

25. SUMMARY OF CONCLUSIONS 25.1 On 16 May 1975 Allied Petrochemicals Pty Ltd granted an option to Solo Discount Petroleum Pty Limited to purchase a parcel of 420 215 barrels of crude at a price of $5.00 a barrel (3.1; 3.2; 3.3).

25.2 The same crude had previously been offered to nearly all major Australian oil companies which had refused the offer on the ground that its purchase at the price of $5.00 per barrel would be contrary to the Australian Government’s crude oil absorption policy (2.4 to 2.11 inclusive).

25.3 By 23 May 1975 the option to purchase at $5.00 had been exercised on behalf of and for the benefit of ACTU-Solo Enterprises Pty Ltd (3.4; 3.5). 25.4 On 17 June 1975 Mr H. J. Souter wrote to the Minister for Minerals and Energy

enclosing an unsigned agreement in the terms of Annexure I by which ACTU-Solo purchased the crude from A.P.C. for $2.10 being the ‘Government approved price' as if the document represented the whole of the transaction of purchase. The option was not mentioned (4.1; 4.2).

25.5 At approximately the same time Mr Souter said that he told the Minister by telephone that the price did not exceed $2.10 per barrel (5.1). 25.6 These representations, both oral and in writing, were misrepresentations and

deceived the Minister as to the price being paid. The true price was $5.00 per barrel, afterwards reduced in negotiations to between $4.50 and $5.00, depending upon contingencies (14). Mr Souter was aware at the time he represented the price to be $2.10 that if the price had been higher the Minister would not have approved (5.1).

25.7 As a result of the misrepresentations on price the Minister found that the trans­ action was unexceptionable in terms of the government indigenous crude oil policy

17

and communicated this view to ACTU-Solo and to the producers so that the crude could be uplifted (7; 11.1 to 11.5 inclusive). 25.8 On 4 July 1975 the document Annexure I and the document Annexure II were both executed. Annexure II states that it is supplementary to Annexure I and that at the request of ACTU-Solo the consideration for the sale is apportioned between the two documents (9.1). 25.9 An examination reveals that a sum of $876 555.49 representing a purchase of 420 215 barrels at $2.10 is found in the document Annexure I (the only document the Minister saw) and that a further $1 224 519.51 (afterwards amended to $1 019 519.51) in the document Annexure II. By adding the two sums (as the document Annexure II suggests) the price of $5.00 per barrel emerges as the true purchase price of which the Minister was never informed (9.5).

25.10 ACTU-Solo contended that the documents Annexures I and II were not, as plainly appears, documents for sale and purchase but contained profit-sharing arrangements or payments for storage and marketing assistance. The Commission finds that these contentions were totally without foundation (13.2; 13.3; 13.4; 13.5;

13.6; 13.7). No reasons were ever given by ACTU-Solo to account for the division of the contractual arrangements into two separate parts or why the consideration was apportioned (14). 25.11 This arrangement resulted in a windfall profit accruing to A.P.C. from trafficking in the right to allocation of between $1 019 519.51 and $1 224 019.51 (Annexure II). 25.12 One of the reasons for ACTU-Solo entering into the purchase was to secure a consequential allocation of further indigenous crude oil (17.1). 25.13 ACTU-Solo showed a cost advantage over the comparable price of motor spirit purchased at wholesale posted price of 5.4 cents per gallon (Annexure IV; 22.2; 22.3). The imposition of an excise of $2.00 a barrel on indigenous crude will increase this advantage to over 10 cents per gallon (24). 25.14 The profit made from the transaction is to be equally divided between the Australian Council of Trade Unions and the Solo interests (22.8; 22.9). 25.15 Mr R. J. L. Hawke and Mr H. J. Souter do not derive any personal profit from the arrangement (22.10). 25.16 A.P.C. was aware at all relevant times of the purpose for which the documents Annexures I and II were designed in the form in which they appear, that is, for the purpose of deceiving the Minister (12.2; 21.2). 25.17 All directors of ACTU-Solo bear responsibility for the deliberate deception of a Minister of the Australian Government. The Commission notes that Messrs H. J. Souter and D. C. Wieland were the two directors most concerned in the arrangement and that Mr R. J. L. Hawke was absent during most of the period of the transaction. No finding is made with respect to Mr Hawke (21.1; 22.10).

25.18 As a result of misrepresentation and deceit practised on the Minister. ACTU-Solo was able to draw upon an allocation of crude made to A.P.C. and paid contrary to the policy of the Government between $1 019 519.51 and $1 224 019.51 (Annexures II and IV) in excess of the ‘Government approved price’ (20.2). 25.19 The major oil companies who refused the offer by A.P.C. to sell at a price $5.00 per barrel acted correctly and in accordance with government policy (2.5 to 2.11 inclusive; 22.7). 25.20 It would be inequitable and unjust to companies that have abided by the government policy that ACTU-Solo should, as a result of misrepresentation and deceit, acquire any right to further allocation.

25.21 The Commission considers that the Minister has never considered the true nature of the transaction as revealed by the totality of the documentation and that in fact that the Minister has never approved the actual transaction as between A.P.C.

18

and ACTU-Solo in its terms, and has never had an application in terms of the true price made to him for his approval (20.1 to 20.6 inclusive). 25.22 The Commission notes that the Bass Strait and Moonie crudes have been up­ lifted and partly processed at the Ampol refinery. Estimates furnished to the

Commission suggest that 3 287 168 gallons will have been delivered to ACTU-Solo by 10 p.m. on Monday, 22 September 1975, and that a continuing delivery rate of approximately 375 000 gallons per week is to be anticipated. 25.23 The Commission finds that the Barrow Island crude has not been uplifted

and that the Minister has not validly approved any uplifting and delivery to ACTU-Solo (23.1).

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ANNEXURE I

AGREEMENT made the 4th day of July 1975

BETWEEN:

ALLIED PETROCHEMICALS PTY LTD the registered office of which is at 34 Queens Road, Melbourne, Victoria (‘Seller’)

-an d -

SOLO OIL CO. PTY LTD (which company by special resolution has changed its name to ACTU- SOLO ENTERPRISES PTY LTD) the registered office of which is at 1st Floor, 61 Koornang Road, Carnegie, Victoria (‘Purchaser’)

WHEREAS:

(A) Pursuant to Government Indigenous Crude Oil Policy, Seller has been allocated by the Producers set forth in Schedule 1 hereto in respect of the fields therein set forth quantities of indigenous oil totalling 420,215 barrels as therein set forth.

(B) Seller has agreed to sell and Purchaser agreed to purchase crude oil to be sold by the Producers to Seller pursuant to the said allocations.

NOW THIS AGREEMENT WITNESSETH THAT:

1. CONDITION PRECEDENT This Agreement is conditional upon Purchaser establishing before the 7th day of July 1975 with the Commonwealth Trading Bank of Australia in favour of Allied Petrochemicals Pty Ltd. (‘the Bank’) a confirmed irrevocable letter of credit in favour of Seller in an amount not less than EIGHT HUNDRED AND SEVENTY-SIX THOUSAND FIVE HUNDRED AND FIFTY-FIVE DOLLARS FORTY NINE CENTS ($876,555.49) in a form approved by Seller.

2. DEFINITIONS (A) In this Agreement, unless inconsistent with the subject or context: (i) The following words shall have the meanings assigned to them in this Clause: ‘barrel’ means 34.9722 Imperial gallons.

‘Barrow Island crude' means crude oil produced from fields offshore Barrow Island, Western Australia by California Asiatic Oil Company and allocated to Seller.

‘the crude oil’ means Barrow Island crude, Gippsland crude and Moonie crude.

20

‘Delivery Point’ means: (a) in the case of Gippsland crude, the point at which the flange on the loading arm used for the delivery of Gippsland crude by the Producers connects with the permanent flange of the loading

manifold on Purchaser’s vessel; (b) in the case of Barrow Island crude, the point of the permanent flange of the loading manifold on Purchaser’s vessel; (c) in the case of Moonie crude, the point at which the crude oil reaches

the flange connecting the Producers’ pipeline or delivery hose with the intake pipe of Purchaser’s vessel. ‘Gippsland crude’ means crude oil produced from fields offshore Gippsland, Victoria in Bass Strait by Esso Exploration and Production

Australia Inc. and Hematite Petroleum Pty Ltd (or one of them) and allocated to Seller. ‘Government Approved Price’ means: (a) the price actually charged by the Producers to Seller for the crude oil

at the time of delivery, or (b) (i) in the case of Gippsland crude, (aa) abase price of $1.80 per barrel, plus (bb) a quality differential determined in accordance with

draft agreements between Seller and the Producers dated 20th and 21st August 1970 (totalling $2.10 per barrel as at the date of this Agreement, but subject to alteration); (ii) in the case of Barrow Island crude,

(aa) a base price of $1.80 per barrel, plus (bb) an exploration incentive determined in accordance with an agreement between Seller and the Producers dated 27th October 1967, plus

(cc) a quality differential determined in accordance with the said agreement, less (dd) an allowance for transportation or freight determined in accordance with the said agreement, (totalling $1.97 per barrel as at the date of this Agreement, but

subject to alteration); (iii) in the case of Moonie crude, (aa) a base price of $1.80 per barrel, plus (bb) an exploration incentive determined in accordance with

an agreement and amended agreement between Seller Union Oil Development Corporation and Kern County Land Company (predecessors of the Producers) dated 1st July 1967, plus (cc) a quality differential determined in accordance with the

said agreements (totalling $2.15 per barrel as at the date of this Agreement, but subject to alteration), whichever of (a) or (b) is the greater.

‘Moonie crude’ means crude oil produced from fields at Moonie, Alton, Conlie, Bennett and other fields within Australia produced by Inter­ national Oils Exploration N.L. and made available by it at Lytton

Terminal Brisbane, Queensland and allocated to Seller. ‘the Producers’ means each of the persons named in Schedule 1 in relation to a particular field and includes each of their successors and assigns.

21

‘Purchaser’s vessel’ means any vessel owned chartered operated nominated used or provided by Purchaser or its nominee. ‘Seller’ and ‘Purchaser’ include each of their respective successors and permitted assigns. (ii) Words importing the singular include the plural and vice versa words

importing any one gender shall include also the other two genders and words importing persons shall include corporations. (B) The clause headings are inserted only to facilitate reference and shall not affect the construction or interpretation of this Agreement.

3. SALE AND PURCHASE Seller agrees to sell and Purchaser agrees to purchase the crude oil upon the terms and conditions herein set out.

4. PRICE AND PAYMENT (a) The purchase price for the crude oil per barrel shall be the Government Approved Price. (b) The purchase price shall be payable by Purchaser to Seller on the 29th day

following each delivery of the crude oil to Purchaser or (subject to sub-clause (c)) on the 16th day of September 1975, whichever is the earlier. (c) The purchase price in respect of any of the crude oil not delivered to Purchaser on or before the 16th day of September 1975 by reason of:

(i) default of Seller under this Agreement; or (ii) the occurrence of an event or combination of events as provided in Clause shall be payable on the 29th day following actual delivery of such crude oil to Purchaser. (d) The mode of payment shall be by Seller drawing against the letter of credit

established in accordance with Clause 1 by delivering to the Bank its com­ mercial invoice detailing the amount to be drawn and: (i) in each case where crude oil has been delivered to Purchaser—the quantity of the crude oil delivered and the date of delivery, or (ii) in the case where payment is due on 16 September 1975—

(x) the quantity of the crude oil delivered and the date of delivery, or (y) the quantity of the crude oil not then delivered (as the case may be) together with a copy of any invoice from the Producers to Seller in respect of the quantity of crude oil delivered. (e) To the extent that the total of any moneys payable by Purchaser pursuant to this Agreement exceeds the amount of the letter of credit established pursuant to Clause 1 of this Agreement or otherwise exceeds the amount which Seller is actually able to draw against the said letter of credit, such excess moneys shall be paid promptly by Purchaser to Seller.

5. DELIVERIES (a) Subject to sub-clause (b), it shall be the responsibility of Purchaser to arrange for the deliveries of the crude oil by the Producers to Purchaser and to provide all vessels and other equipment required to take delivery thereof

from the Producers. (b) At the request of Purchaser, Seller shall request the Producers in writing to release the crude oil or any part of it to Purchaser or its nominee. (c) Each of Seller and Purchaser shall use its best endeavours to do all such acts

and things and procure all persons to carry out all such acts and things as are

22

necessary to ensure that deliveries of the crude oil are made to Purchaser by the Producers and in the months of July and August 1975. It is the present intention of the parties that the crude oil be delivered to a nominee of Purchaser between the 1st and the 5th days of July 1975 (both inclusive). (d) Purchaser shall comply with all requirements and directions of the Producers

in relation to the delivery of the crude oil and particularly (without limiting the foregoing) in relation to time of lifting, quantities lifted, notices, vessels, loading, demurrage and discharge.

6. TITLE AND RISK Crude oil delivered under this Agreement shall be deemed to be accepted and delivery shall be complete at the Delivery Point, at which point title to and risk with respect to crude oil shall pass to Purchaser.

7. WARRANTIES, ETC. Seller warrants that at the Delivery Point: (a) it shall have title to such of the crude oil as is delivered to Purchaser pursuant to this Agreement; and (b) crude oil shall be of the quality delivered by the Producers to Seller.

Save as aforesaid, no warranty condition description or representation (contractual or otherwise) on the part of Seller is given or implied by this Agreement nor is any warranty condition description or representation (contractual or otherwise) to be taken to have been given or implied from

anything said or written in negotiations between Seller and Purchaser or their representatives prior to this Agreement and all statutory or other warranties conditions descriptions or representations (contractual or otherwise) express or implied as to the state description existence quantity quality merchantability or

fitness of or title to the crude oil are expressly excluded.

8. DUTIES, IMPOSTS, TAXES AND LEVIES Purchaser shall be responsible for payment of and shall indemnify Seller against: (a) the amounts of all duties imposts taxes or levies made or imposed after the date of this Agreement on the crude oil or upon any sale thereof, and

(b) all amounts by which the price actually charged by the Producers to Seller for the crude oil exceeds the purchase price paid by Purchaser to Seller.

9. TIME OF ESSENCE Time shall be of the essence of all obligations of Seller and Purchaser under this Agreement.

10. FORCE MAJEURE (a) If any event set forth in sub-clause (b) or combination of such events prevents or delays either party from performing or observing any obligation here­ under, the time for performing or observing that obligation shall be extended

for such time as the cause of the prevention or delay continues. (b) The events to which this Clause applies are any events not within the reason­ able control of either party, act of God, act of enemies, sabotage, war, blockade, insurrection, riot, epidemic, landslide, storm, flood, fire,

earthquake, washout, arrest or restraint of lawful authority, expropriation confiscation or requisitioning of the crude oil, explosion, well blowout or cratering, order or direction of the Court government or governmental department or authority, civil commotion combination of workmen strike or

23

lockout affecting any of the trades employed in the oil industry or engaged in the transportation of the crude oil.

11. ASSIGNMENT This Agreement and all rights and obligations hereunder shall not be assigned by Purchaser without the prior written consent of Seller (which consent shall not be unreasonably withheld) provided always that any such assignment shall not relieve Purchaser of any of its obligations hereunder.

12. GOVERNING LAW This Agreement shall be governed by and be construed and take effect in accordance with the laws of the State of Victoria.

IN WITNESS WHEREOF the parties have executed this Agreement on the above date THE COMMON SEAL of ALLIED PETROLCHEMICALS PTY LTD was hereunto affixed by

authority of the Directors and in the presence of: WILLIAM R. WHITE Director IAN WALL Secretary THE COMMON SEAL of SOLO OIL CO. PTY LTD was hereunto affixed by authority of the Directors and in the presence of:

H. J. SOUTER Director

D. C. WIELAND (Director) Secretary

SCHEDULE 1

Producers Esso Exploration and Production Australia

Fields Bass Strait

Quantity 373,824 barrels

Inc. and Hematite Petroleum Pty Ltd California Asiatic Oil Company

Barrow Island 45,642 barrels

International Oils Exploration N.L.

Moonie 749 barrels

24

ANNEXURE II

AGREEMENT made the 4th day of July 1975

BETWEEN:

ALLIED PETROCHEMICALS PTY LTD the registered office of which is at 34 Queens Road, Melbourne Victoria (‘Seller’)

-an d -

SOLO OIL CO. PTY LTD (which company by special resolution changed its name to ACTU-SOLO ENTERPRISES PTY LTD) the

registered office of which is at 1st Floor, 61 Koornang Road, Carnegie, Victoria (‘Purchaser’)

WHEREAS: (A) This Agreement is supplementary to an agreement bearing even date herewith between Seller and Purchaser pursuant to which Seller agrees to sell and Purchaser agrees to purchase certain crude oil allocated to Seller by producers

named therein (which agreement is called herein ‘the First Agreement’). (B) Purchaser has anticipated a yield of refined petroleum from the crude oil and has requested that the consideration for the said purchase be apportioned between the First Agreement and this Agreement, that additional matters be dealt with in

this Agreement, and that Seller offer to provide Purchaser rights in relation to its available storage facilities for refined product. (C) The said anticipated yield is approximately 13,671,000 gallons of refined petroleum from the crude oil and it has been agreed that Purchaser shall pay

Seller a sum calculated at approximately 7.5 cents per gallon of the anticipated quantity of refined petroleum in addition to the sum payable pursuant to the First Agreement.

NOW THIS AGREEMENT WITNESSETH

1. CONDITION PRECEDENT This Agreement is conditional upon the Purchaser establishing the letter of credit required by Clause 1 of the First Agreement.

2. DEFINITIONS (A) In this Agreement, unless inconsistent with the subject or context: (i) The following words shall have the meanings assigned to them in this Clause:

‘Barrow Island crude’ means crude oil produced from fields offshore Barrow Island, Western Australia by California Asiatic Oil Company and allocated to Seller.

25

‘the crude oil’ means Barrow Island crude, Grippsland crude and Moonie crude. ‘Gippsland crude’ means crude oil produced from fields offshore Gippsland Victoria in Bass Strait by Esso Exploration and Production Australia Inc. and Hematite Petroleum Pty Ltd (or one of them) and allocated to Seller.

‘Moonie crude’ means crude oil produced from fields at Moonie, Alton, Conlie, Bennett and other fields within Australia produced by Inter­ national Oils Exploration N.L. and made available by it at Lytton Terminal Brisbane, Queensland and allocated to Seller.

‘the Producers’ means each of the persons named in Schedule 1 to the First Agreement in relation to a particular field and includes each of their successors and assigns. ‘Seller’ and ‘Purchaser’ include each of their respective successors and permitted assigns. (ii) Words importing the singular include the plural and vice versa words

importing any one gender shall include also the other two genders and words importing persons shall include corporations. (B) The clause headings are inserted only to facilitate reference and shall not affect the construction or interpretation of this Agreement.

3. PRICE AND PAYMENT (a) In addition to the purchase price provided by Clause 4 of the First Agreement, Purchaser shall pay to Seller in the manner hereinafter provided the sum of ONE MILLION AND NINETEEN THOUSAND FIVE

HUNDRED AND NINETEEN DOLLARS, FIFTY ONE CENTS ($1,019,519.51) together with interest as provided herein. (b) The said sum shall be payable by Purchaser and Seller may draw against any letter of credit established pursuant to this Agreement notwithstanding that

some or all of the crude oil has not been made available by the Producers or has not been delivered to Purchaser for any reason whatsoever other than either Seller’s breach of the First Agreement or this Agreement or the operation of sub-clause (c) of this Clause. (c) If any event set forth in sub-clause (d) or combination of such events prevents

or delays either party from performing or observing any obligation hereunder, the time for performing or observing that obligation shall be extended for such time as the cause of the prevention or delay continues. (d) The events to which this Clause applies are any events not within the reasonable control of either party, act of God, act of enemies, sabotage, war, blockade, insurrection, riot, epidemic, landslide, storm, flood, fire, earthquake, washout, arrest or restraint of lawful authority, expropriation confiscation or requisitioning of the crude oil, explosion, well blowout or cratering, order or direction of the Court government or governmental department or authority, civil commotion combination of workmen strike or lockout affecting any of the trades employed in the oil industry or engaged in the transportation of the crude oil. (e) Before the 7th day of July 1975, Purchaser shall establish with the Common­ wealth Trading Bank of Australia in favour of Allied Petrochemicals Pty Ltd (‘the Bank’) a confirmed irrevocable letter of credit in favour of Seller in an amount of TWO HUNDRED AND SEVENTY-TWO THOUSAND ONE HUNDRED AND FIFTEEN DOLLARS FORTY-FOUR CENTS ($272,115.44). Seller shall be entitled to draw against this letter of credit as follows:

26

(aa) as to one half of the said amount, on or after 15th August 1975. (bb)as to the other half of the said amount, on or after 15th September 1975. (ii) Before the 7th day of July 1975, Purchaser shall establish with the Bank

a confirmed irrevocable letter of credit in favour of Seller in an amount of Two Hundred and Seventy-Two Thousand One Hundred and Fifteen Dollars Forty-Four Cents ($272,115.44). Seller shall be entitled to draw against this letter of credit as follows:

(aa) as to one half of the said amount, on or after 15th October 1975, (bb)as to the other half of the said amount, on or after 15th November 1975. (iii) Before the 1st day of August 1975 Purchaser shall establish with the

Bank a confirmed irrevocable letter of credit in favour of Seller in an amount of Two Hundred and Seventy-Two Thousand One Hundred and Fifteen Dollars, Forty-Four Cents ($272,115.44). Seller shall be entitled to

draw against this letter of credit as follows: (aa) as to one half of the said amount, on or after 15th December 1975. (bb) as to the other half of the said amount, on or after 15th January 1976. (f) Seller may draw against the said letters of credit by delivering to the Bank its

commercial invoice for the amount to be drawn. (g) (i) Purchaser shall also pay to Seller the following sums: (aa) On or before 15th February 1976, the sum of TWO HUNDRED AND THREE THOUSAND ONE HUNDRED AND SEVENTY

THREE DOLLARS, SIXTEEN CENTS ($203,173.16) plus 5% thereof as and by way of interest. (bb) XXXXXXXXXXXXXXXXXXXX xxxxxxxxxxxxxxxxxxxx

(cc) xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx (ii) The payments provided by Clause 3 (d) (i) shall be made by banker’s draft payable to Seller on demand. If Purchaser makes any such

payment on or before 15th January 1976 the amount payable as and by way of interest shall be reduced by 5%. (h) To the extent that any moneys payable by Purchaser pursuant to this Agree­ ment exceed the amount which Seller is actually able to draw against any said

letter of credit, such excess moneys shall be paid promptly by Purchaser to Seller.

4. TERMINATION (a) The First Agreement and this Agreement may be terminated by Seller upon the happening of any of the following events: (i) Purchaser fails to establish any letter of credit as and when required by

this Agreement; (ii) Purchaser fails to pay any sums on the date upon which any of those moneys are payable; (iii) Purchaser fails to perform or observe any of the other provisions of the

First Agreement or this Agreement; (iv) distress or execution is levied or enforced upon or against any part of the property of Purchaser and such distress or execution is not withdrawn or satisfied within seven days of its levy or enforcement;

(v) a Receiver or a Receiver and Manager of the undertaking of Purchaser or any part thereof is appointed;

27

(vi) an encumbrancer takes possession of the undertaking property or assets of Purchaser or any part thereof (other than the crude oil); (vii) Purchaser is placed under official management or an Inspector is appointed pursuant to Division 3 of Part VI of the Companies Act 1961

of the State of Victoria; (viii) an order is made for the winding up or dissolution without winding up of Purchaser; (ix) a resolution is passed for the winding up of Purchaser; (x) Purchaser generally suspends payment of its debts or is deemed to be

unable to pay its debts within the meaning of section 222(2) of the Companies A ct 1961 of the State of Victoria; (xi) Purchaser enters into any arrangement or composition with creditors generally or any class thereof;

(b) Both termination by Seller pursuant to sub-clause (a) and the exercise of any rights pursuant to sub-clause (c) shall be without prejudice to any claim right or remedy Seller may otherwise make or exercise.

(c) Upon termination pursuant to sub-clause (a), Seller shall be entitled: (i) to retain all moneys paid pursuant to the First Agreement and this Agreement; (ii) subject always to Clauses 3 (b), (c) and (d), to retain the right to draw

against any letter of credit established prior to termination pursuant to the First Agreement and this Agreement; and (iii) to retain all or any crude oil not delivered to Purchaser.

9. ASSIGNMENT This Agreement and all rights and obligations hereunder shall not be assigned by Purchaser without the prior written consent of Seller (which consent shall not be unreasonably withheld) provided always that any such assignment shall not relieve Purchaser of any of its obligations hereunder.

10. GOVERNING LAW This Agreement shall be governed by and be construed and take effect in accordance with the laws of the State of Victoria.

IN WITNESS WHEREOF the parties have executed this Agreement on the above date

THE COMMON SEAL of ALLIED PETROCHEMICALS PTY LTD was hereunto affixed by authority of the Directors and in the presence of:

WILLIAM R. WHITE Director

IAN WALL Secretary

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THE COMMON SEAL of SOLO OIL CO. PTY LTD was hereunto affixed by authority of the Directors and in the presence of:

H. J. SOUTER Director

D. C. WIELAND (Director) Secretary

ANNEXURE ΠΙ

ALLIED PETROCHEMICALS PTY LTD FAWKNER CENTRE 499 ST KILDA ROAD, MELBOURNE VICTORIA, 3004

TERMINAL: GOODE ISLAND 689 2720

CABLE ADDRESS: “ALLIED CHEM” , MELB. TELEX, AA30413 2671288

3rd July 1975

ACTU-Solo Enterprises Pty. Ltd., 254 LaTrobe Street, MELBOURNE, VIC. 3000

Attention: Mr. D. C. Wieland

Dear Sir, A) Agreement for Sale of Crude Oil and B) Agreement supplementary to this Agreement.

In so far as Allied Petrochemicals have agreed reduce the total payable amount of $1,224,519.51 in B) above as originally proposed by an amount of $205,000.00 in response to your request to A) Enable agreements to be formalized and effect Crude Oil lifting as scheduled.

B) Accommodate your market requirements as currently foreseeable. It is understood that should such market requirements be met and subsequently prove to be in excess of your current needs then ACTU-Solo agree to increase total amount to $1,224,519.51 or part thereof which is demonstrable by your companies profit audit.

Yours faithfully,

W. R. WHITE Managing Director

30

ANNEXURE IV

ESTIMATES OF COSTS ASSOCIATED WITH THE PUR­ CHASE, REFINING AND DELIVERY OF PARCEL OF 420 215 BARRELS OF INDIGENOUS CRUDE OIL BY ACTU-SOLO M AY-SEPTEM BER 1975

(Note: the following discussion does not bring into account the competitive position introduced by the imposition of an excise of $2 a barrel on indigenous crude oil; see 24.) As shown in the attached format of Table 1, ACTU-Solo paid A.P.C. the equivalent of $0.1540 per Imperial Gallon of motor spirit which represents over 60% of their total costs for motor spirit delivered to their service stations. ACTU-Solo directly

incurred $0.1005/1.G. for operating expenses in addition to their crude purchase from A.P.C. Thus, the cost of motor spirit delivered to ACTU-Solo service stations was approximately $0.2545/1.G. (before tax). ACTU-Solo’s operating expenses consisted of the following elements:

• tanker transportation from the crude fields to refinery in Brisbane; • the interest payment to Ampol for financing the first crude agreement (Annexure I); • the interest to Commonwealth Bank of Australia for financing the supple­

mentary agreement; • refinery processing fee; • transportation from the refinery to a primary marketing terminal in Melbourne (this would include the net result of product swaps or exchange arrangements);

• marketing terminal through-put cost; • miscellaneous escalation costs for both the refinery processing fee and terminal through-put cost; • tank truck transportation tariff from the primary marketing terminals to the

ACTU-Solo service stations; • miscellaneous ACTU-Solo overhead and operating expenses.

The alternative for ACTU-Solo in supplying their service stations in Melbourne was to purchase motor spirit directly from existing refiners. At the time, the Ampol posted wholesale price delivered to a service station was $0.3085/1.G. before tax (per Mr Drinan). This posted price appears to be the P.J.T. approved wholesale price for

motor spirit which in turn is justified based upon Ampol refinery configurations, a stated blend of imported and indigenous crude oil, and current marketing distribution costs. The crude purchase ‘deal’ which is under consideration enabled ACTU-Solo to deliver motor spirit to their service stations for almost $0.0540/1.G.

cheaper than the option of a direct purchase at the wholesale posted price.1 However, this saving of over $700 000 could possibly have also been obtained by negotiations with an existing supplier. Other large retailers in the area are known to have discounts approaching this level.

1 See Table 2

ACTU-Solo has approximately 20 service stations in the Melbourne area. Table 3 illustrates a pro forma profit and loss analysis for their entire operation assuming an average discount in one case of $0.12/I.G. and $0.15/I.G. in the other case. In this analysis the following assumptions were made:

• 20 service station outlets (i.e. each with an average volume of 57 000 I.G./month); • operating 12 hours per day, 7 days per week; • a labour ratio of one employee per 14 0001.G. per month;2 • minimum non-labour operating expenses; • relatively low service station investment (e.g. $50 000 per site); • all cash sales (i.e. no significant accounts receivable); • sufficient storage capacity for full tank truck deliveries; • premium ratio similar to the Victorian average for 1974.

Given the above assumptions, ACTU-Solo could then potentially make a net margin after tax of over $131 000 which represents an after-tax return of over 13%. However, an average discount of $0.1500/1.G. would result in a loss of $180 000 with these conditions. The break-even point discount for the entire operation is approximately $0.1370/1.G. This level of average discount could be sustained by ACTU-Solo in the short run while attempting to ‘buy their way’ into the market and presumably place themselves in a position for a future allocation of indigenous crude oil. Some service stations could obviously post a higher discount than the average (e.g. $0.16/1.G.) as long as enough other sites had a proportionately lower discount so that the entire operation might show the average break-even discount of $0.1370/1.G. An

average discount of $0.15/1.G. could be profitably maintained if the following conditions existed: • 15 service station outlets instead of 20 (i.e. each with an average sale of 76 000 I.G./month instead of 57 000 I.G./month;

• 3 employees per outlet in lieu of 3.5 (i.e. an employee ratio of one employee per 25 000 I.G./month vice 16 000 I.G./month).

A pro forma analysis of ACTU-Solo with these two changes shows an annual net margin of over $9000 (after tax) or a 1.3% after tax return on investment. Because of ACTU-Solo’s highly selective siting of outlets, the net result of the ACTU-Solo crude purchase was to distort a geographically equitable crude allocation at a government-controlled price. In effect, an extra $1 338 000 was paid to the oil industry as summarised below:

Extra Cost Element

Supplementary crude contract Contingency fee—crude purchase Total interest for crude financing Total

Total Extra Costs Cost/I.G.

$1 025 000 $0.0750

205 000 0.0149

108 000 0.0079

$1 338 000 $0.0978

All other costs associated with this transaction would have normally been incurred in the routine refining and distribution of motor spirit. This ‘extra’ cost represents almost $0.10/1.G. when spread over the 13 671 000 I.G. of motor spirits derived from this ‘deal’. ACTU-Solo bore these extra costs and in addition offered an estimated average discount of $0.14/I.G. from the posted price of motor spirit in Melbourne. The purpose of this price level was obviously to penetrate the motor spirit market in

Melbourne and gain a substantive market share. However, the benefit of this price reduction is restricted to the public in the Melbourne area. Thus, it could be reasoned that the entire country, excluding greater Melbourne, was in fact subsidising the

2 Detailed assumptions in Table 4

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ACTU-Solo penetration of the Melbourne motor spirit market. If this ACTU-Solo crude ‘deal’ had not been consummated, this lot of indigenous crude oil would have been theoretically spread throughout the country by multi-state marketers at the government-controlled ceiling price. However, the benefit of the ACTU-Solo cost

reduction was restricted to Melbourne and, in effect, cost the rest of the country an addition $0.0015/1.G. as indicated in Table 4.

TABLE 1

ACTU-SOLO CRUDE PURCHASE ANALYSIS

Column No. I II III IV

Factor

Total Cost $’000 $/BL $/BL S/I.G.

Volume divisor (Ό00) — 420 391 13 671

1st Agreement 876 2.087 2.242 0.0641

Supplementary 1025 2.440 2.623 0.0750

Contingent fee 205 0.488 0.524 0.0149

SUB-TOTAL I 2106 5.01 5.39 0.1540

(A.P.C. Fee) SUB-TOTAL II 1375 3.27 3.52 0.1005

(Added ACTU-Solo wholesale operating costs) TOTAL COSTS

(Delivered to ACTU-Solo service stations) 3481 8.28 8.91 .2545

TABLE 2

ACTU-SOLO CRUDE ‘DEAL’ SAVINGS OVER WHOLESALE POSTED PRICE

Column No. I II III

Factor

Total Cost $’000 $/BL S/I.G.

Divisor (’000) — 391 13 671

Melbourne-delivered motor spirit wholesale posted price (ex. tax) 4218 10.79 0.30856V

Estimated crude ‘deal’ costs (Table 1 sum) 3481 8.91 0.2545

Savings by crude ‘deal’ over wholesale posted price 737 1.88 0.0540

f a ) Per Ampol letter of 19 May 1975 (Drinan)

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T A B L E 3

ACTU-SOLO SERVICE STATION PROFIT & LOSS ANALYSIS

Column No. I II III IV

Total Cost

Factor ($’000) $/BL $/IMP. GAL. $/IMP. GAL

Volume divisor (Ό00) Total pump posting — 391 13 671 13 671

(composite)iW 8957 22.91 0.6552 0.6552

Excise tax (3048) (7.80) (0.2230) (0.2230)

Est. discount (1641) (b) (4.20) (b) (0.1200) (b) (0.1500)

Sub-total I (ACTU-Solo sales realisation) Cost of goods

4268 10.91 0.3122 0.2822

sold (Table I sum) (3481) (8.91) (0.2545) (0.2545)

Service station gross margin Operating costs—

787 2.00 0.0577 0.0277

20 sites Labour expense (489) (1.25) (0.0358) (0.0358)

(3.5 employees) Misc. expenses (70) (.18) (0.0051) (0.0051)

Net margin (BEIT) 228 0.58 0.0168 (0.0132)

Net margin (AFIT) 131 0.33 0.0096 (0.0132)

(42V2% tax)

Return at 12c/ Returned on investment Discount 15c/Discount

Estimated investment/station $50 000 $50 000

Estimated investment 20 stations Estimated return on

$1 000 000 $1 000 000

investment (after federal income tax) 13.1% Negative

Net income (AFIT) % pump posting Net income (AFIT)

1.4 Negative

% sales realisation Net income (AFIT)

3.1 Negative

% gross margin 16.6 Negative

( a ) See Table 4

( b ) Based upon $12/Gal. discount

34

T A B L E 4

MISCELLANEOUS BACKGROUND DATA

I. COMPOSITE CRUDE PRICE—1ST CONTRACT Producer Field Qty (BL) % $/BL Composite Price

Esso Bass 373 824 89 2.10 $1,868

Caltex Barrow 45 642 11 1.97 0.24

Int. Oil Moonie 749 — 2.15 0.001

420 215 100 2.086

x 420 215 BI

$876 000

Π. MELBOURNE COMPOSITE MOTOR SPIRITS PRICE

Grade %

Pump Posting S/LG. Composite Price S/I.G.

P.J.T. Price S/I.G. Composite P.J.T.S/I.G.

Super 83 0.662 0.5496 0.538 0.4465

Standard 17 0.622 0.1056 0.506 0.0860

0.6552 0.5225

ΠΙ. SERVICE STATION ASSUMPTIONS No. of locations 20

Average monthly volume (Gal.) 57 000 Average no. of employees per location 3.5

A. Operating Expenses Expense Item Estimated S/Month

Interest 20

Depreciation 40

Telephone 30

Light 50

Supplies 25

Maintenance and repairs 20

Insurance 50

Other misc. services 55

Total 290

Operating expenses per gallon $0.0051

B. Labour Cost

Average weekly employee wage

a 95

Annual wage 5 000

Overtime 1 000

Total salary & wages (S. & W.) 6 000

Estimated benefits at 15% of S. & W. 900

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Total cost employee co. 6 900

Total labour expense per station (3.5 employees) p.a. 24 200

Total employee expenses/station 300

Total annual employee costs/station 24 500

Average employee cost/gal. 0.0358

IV ‘EXTRA’ PUBLIC COSTS FROM ACTU- SOLO DEAL Total Cost Cost/gallon ( a )

Element $’000 $

A.P.C. added fees ACTU-Solo ‘break-even’

1338 0.0978

discount in Melbourne 1873 0.1370

Total extra costs to non-Melbourne public 3211 0.2348

Estimated national annual consumption of motor spirit (ex. greater Melbourne demand area) 2083m I.G.

Estimated ‘extra’ public cost (ex. greater Melbourne demand area) $.0015/gallon

( a ) Divisor of 13 671 000 gallons of motor spirit obtained from the deal.

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