Supporting their government ... East Timorese protesters gather peacefully outside the Permanent Court of Arbitration in The Hague, Netherlands.

Supporting their government ... East Timorese gather peacefully outside the Permanent Court of Arbitration in The Hague, Netherlands. Photo: Nick Miller

East Timor’s government will not be deterred in pressing its case to scrap an oil treaty worth billions of dollars over claims of spying by Australia, an international negotiator says.

We have come to The Hague because we have done enough and have not been satisfied with the result 

The country’s new ambassador to London, Joaquim da Fonseca, was at the Permanent Court of Arbitration in The Hague, Netherlands on Thursday, in preliminary talks with Australia over a bitter spy row that has erupted over the past few days.

Poor move ... Xanana Gusmao says raiding the offices of a legal representative of Timor-Leste is "unacceptable conduct".

East Timor's Prime Minister Xanana Gusmao says raiding the offices of a legal representative of Timor-Leste is "unacceptable conduct". Photo: Pamela Martin

Representatives from East Timor and Australia spent seven hours locked in private talks at the Permanent Court of Arbitration in The Hague, Netherlands - inside the picturesque 'Peace Palace' - as gale-force winds swept through the city.

Mr da Fonseca said the talks, setting procedural guidelines for a dispute that could last almost a year, were held in a “very co-operative and amicable” environment.

“We had a very productive proceeding today, unfortunately we had to do this against the background of the events of the past 48 hours,” he said.

East Timor is seeking nullification of the 2006 treaty, known as CMATS ('certain maritime arrangements in the Timor Sea'). It was signed by then-foreign minister Alexander Downer and his East Timorese counterpart Jose Ramos-Horta, and came into force the next year.

CMATS divided revenue 50:50 between the two countries from the Greater Sunrise oil and gas field, where they both claim sovereign rights, about 150km south of East Timor and 450km north-west of Darwin. It contains an estimated $40-50 billion worth of oil and gas.

However, East Timor wants the deal to be wound back, after a whistleblower revealed that Australia's spy agency ASIS planted microphones in the Timorese Cabinet room in 2004 while the deal was being negotiated.

East Timor argues that Australia broke international law.

On Monday ASIO raided the Canberra office of former ACT attorney-general Bernard Collaery, a lawyer acting for East Timor in The Hague, and also raided the alleged whistleblower's home.

The whistleblower was detained for some hours, and his passport cancelled.

Attorney-general George Brandis said he authorised the raid in response to a request from ASIO director-general David Irvine, who said the whistleblower – reportedly a former senior spy who oversaw the bugging operation - had broken the law by revealing classified information.

On Wednesday East Timor's Prime Minister Xanana Gusmao said ''Raiding the premises of a legal representative [Mr Collaery] of Timor-Leste and taking such aggressive action against a key witness is unconscionable and unacceptable conduct. It is behaviour that is not worthy of a close friend and neighbour or of a great nation like Australia.''

Mr da Fonseca said his team advised Australia’s representatives at The Hague that the raid was a “very unfortunate event” but “we are not going to be deterred by that event.”

“In spite of the events of the past 48 hours we are not deterred in proceeding in this case,” Mr da Fonseca said. He said he was “very very confident” that East Timor had a strong case, and his country would not do anything to frustrate its relationship with Australia if it did not have something “we were very sure about.”

He said the spying claims were not discussed on Thursday, because they were part of the substance of the case that would be heard next year.

In 2014 the parties will exchange written pleadings, and there will be an oral hearing later in the year.

“The matter to be settled by this arbitration court should not be used to generalise on the relationship that has existed and will continue to exist between the two countries,” Mr da Silva said. “We hope that will be the over-arching principle for both of us in proceeding with this arbitration.”

He said East Timor had done all it could to settle the matter before taking it to The Hague.

“We have come to The Hague because we have done enough and have not been satisfied with the result,” he said.

On Thursday the ABC reported that the raid came after East Timor revealed the existence of three more whistleblowers, possibly connected to the bugging operation, who had also given statements about it.

If the raid was triggered by information that came out of the arbitration, it may provide legal grounds for demanding the return of all material seized in the raid, the ABC reported.

Australia was being represented at The Hague by the Solicitor-General Justin Gleeson and Professor James Crawford, a professor of Public International Law at the University of Cambridge.

East Timor's legal team was led by professors from Oxford and Cambridge - Sir Elihu Lauterpacht and Professor Vaughan Lowe - along with Mr da Fonseca.