Santos should have consulted traditional owners on its massive gas project off the Tiwi Islands because they were clearly people with valid interests, a barrister says.
Tiwi Islander Dennis Tipakalippa successfully challenged in September the offshore gas regulator's approval of Santos' plans to drill in the Barossa gas field, 265km northwest of Darwin.
Federal Court Justice Mordecai Bromberg ordered for the approval to be set aside and drilling to be stopped, but Santos is appealing the decision.
During a Federal Court hearing in Melbourne on Tuesday, Santos argued the traditional owners did not need to be consulted because they did not hold the type of legal "interest" defined in the legislation.
But Claire Harris KC, representing Mr Tipakalippa, argued that definition was too limited and would ignore a person's social, cultural and spiritual interest in an environment.
Ms Harris told the court on Wednesday the Tiwi Islanders had a profound connection to their sea country, which should be understood as an interest under the legislation.
Santos also noted in its environment plan that it had consulted with the Tiwi Land Council because it represented the Indigenous people of the Tiwi Islands, Ms Harris said.
But the council was not a legal representative body for the traditional owners and Santos should have instead consulted directly with the Tiwi Island clans, the barrister said.
There was also material in the environmental plan about the traditional owners' sea country, which Ms Harris said should have alerted the regulator to the lack of consultation.
Santos' argument that it was unworkable for a company to identify and consult a large group of individuals like the traditional owners was also flawed, Ms Harris argued.
The fact that it might take more effort did not make the task impossible, the barrister said.
Ms Harris also noted that Santos had contacted commercial fishers and tourism operators directly, as well as the sectors' representative bodies.
She argued the same process should have taken place for the Tiwi Islanders.
In response, Santos barrister Christopher Horan KC said if the term "interests" was defined in a general way then it would be difficult to create boundaries as to who holds an interest in a project.
He argued again that cultural heritage was not the sort of interest defined in the legislation.
Federal Court Justices Susan Kenny, Debra Mortimer and Michael Lee reserved their decision on the appeal, which will be handed down at a later date.