Alinta DQP Pty Ltd & Anor v Queensland Alumina Ltd

[2008] HCATrans 125

[2008] HCATrans 125

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B63 of 2007

B e t w e e n -

ALINTA DQP PTY LTD (FORMERLY DUKE QUEENSLAND PIPELINE PTY LTD) AND ALINTA DEQP PTY LTD (FORMERLY DEI QUEENSLAND PIPELINE PTY LTD)

Applicant

and

QUEENSLAND ALUMINA LTD

Respondent

Application for special leave to appeal

KIRBY J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 7 MARCH 2008, AT 11.55 AM

Copyright in the High Court of Australia

MR A.C. ARCHIBALD, QC:   May it please the Court, I appear with MR A.M. POMERENKE for the applicant.  (instructed by Freehills)

MR. W. SOFRONOFF, QC, Solicitor‑General of the State of Queensland:   May it please the Court, I appear with MR D.A. KELLY, SC and MR P.R. FRANCO for the respondent.  (instructed by Corrs Chambers Westgarth)

KIRBY J:   What do you say about this matter, Mr Archibald?

MR ARCHIBALD:   The first thing we say is that it is very important to appreciate the structure of this agreement and the work done by its respective terms.

KIRBY J:   You did not get a dissent in the Court of Appeal, but you did get some difference between the judges in the Court of Appeal over one particular matter.  You have the trial judge, who is now Judge of Appeal of Queensland, Justice Muir.

MR ARCHIBALD:   Yes.  Where there was a difference in the Court of Appeal it was on a point which is not raised in this Court.

KIRBY J:   No.

MR ARCHIBALD:   But we did have what we say was a very strong, well‑reasoned, careful judgment in our favour at first instance by the primary judge, who is now a member of the intermediate court from which we seek to appeal.

KIRBY J:   Yes.  At some early stage it would be helpful to the Court if you would address the point that is raised against you in paragraph 1(c) of the respondent’s argument, namely that the statutory instrument, which was based on a statute which has been repealed – you do, in your reply say that does not really matter because the analogous provisions remain, but it will be important for you to establish that is so, otherwise we would not become involved in something that is limited to the one case.

MR ARCHIBALD:   Yes.  I will come to that point shortly.  We say the point that is raised in the decision from which we seek leave to appeal deals with an issue which is exactly replicated in the current access code that governs this pipeline.  That code is not scheduled to be reviewed overall until 2016, so it has long enduring significance for this pipeline.

The code which now governs this pipeline is a national code which comes in through the South Australian legislation and affects all gas pipelines throughout Australia.  So the same point is raised for all gas pipelines.  When we come to say something about importance generally we wish to make the submission that really this point arises for all industries which are regulated by access regimes for all, or nearly all, have their own maximum tariff provision embedded in them.  The substantial point here is when and in what circumstances will a maximum tariff in an access regime be exceeded impermissibly.  This case raises that point sharply because it is a pure matter of construction without any factual controversy.

HAYNE J:   The maximum tariff in this case, is that denominated in a currency in the agreement?

MR ARCHIBALD:   The actual formulation of the monetary amount is not explicitly ascribed to the Australian currency, but it was accepted below and we accept here that what it is referring to is the Australian currency.  But the substantial point is that the access principles themselves contemplated and condoned the parties negotiating an allocation of currency risk and therefore the allocation of such a risk was entirely consonant with provisions of the principles.  That is what the parties did here and the workings of the currency risk allocation provision did not work in a way that was interfering with the maximum tariff concept embedded in the principles.  That is why it is very important to look at what the agreement was doing, what the structure of it is and how the principles operated.

HAYNE J:   But is the framework of your argument:  one, there is a maximum tariff; two, you accept that that is a tariff identifiable only in Australian currency; three, there are provisions in the agreement that permit denomination of integers in US dollars at a fixed exchange rate if in consequence the exchange rate moves in a way such that calculation in accordance with the USD‑denominated integers leads to an amount greater than maximum tariff, so be it?

MR ARCHIBALD:   Yes.  There is no inconsistency ‑ ‑ ‑

HAYNE J:   Then what is the purpose of the maximum tariff provision, and where do I find that maximum tariff provision?

MR ARCHIBALD:   Can I work through ‑ ‑ ‑

HAYNE J:   Of course.

MR ARCHIBALD:   ‑ ‑ ‑ the agreement and the principles to answer your Honour Justice Hayne’s question.  The agreement consisted of four documents, one of which was the rates schedule, another of which was the access principles.  The rates schedule is found – or the overall terms of the agreement are most satisfactory collected between pages 7 and 11 of the application book.  The rates schedule is at page 9.  Clause 3 of the rates schedule contains the substantive provision whereby the parties agreed that QAL, the shipper, would pay the maximum tariffs in the indicative tariff of the pipeline owner – this is the contractual tariff.  That tariff is found at page 10, line 18.  The Court sees the three rate items which are addressed in the tariff in terms of an unascribed currency which we accept to be Australian currency.

Those rates correspond with complete exactitude in relation to the access principle rates.  The access principle clauses are set out between pages 4 and 7 of the application book and the rate items appear at the foot of page 4, onto the foot of page 5.  Your Honour Justice Hayne sees in those provisions the way in which the principles designate the respective tariff items.  So there is complete conformity, no possibility of inconsistency in that respect.  By reason of clause 3, that is exactly what the parties agreed to pay.

CRENNAN J:   The tariffs and charges are set out in 4.4 on application book 6, as I understand it.

MR ARCHIBALD:   Yes, that is so.  What the trial judge found as a matter of evidence, uncontroversially, was that both sides had a natural hedge benefit available to them for it was in their respective interests to have dealings in the United States currency.  His Honour made those findings at paragraph [14] and explained some of the detail as to why that was so.  That is paragraph [14] of his Honour’s reasons at page 12 of the application book.

CRENNAN J:   Was that by reference to extrinsic – looking at materials extrinsic to the contract?

MR ARCHIBALD:   Certainly extrinsic to the contract, yes, but evidence ‑ there was affidavit evidence before his Honour.  This matter was established and has not been contested since.  In light of the mutual natural hedge sounding in the United States currency the parties agreed that they would apply, for the purposes of payment of the tariffs, United States currency at a fixed exchange rate upon which they also agreed - 77 cents to the Australian dollar – some time ago.  The parties went further.  Rather than just agreeing the rate they performed the calculations.  So taking the numbers that appeared in the indicative tariff identical with the numbers in the access principles, they calculated out the 77 cent figure and incorporated the converted rates in another part of the contract, which is clause 1(a), to which reference is made in the judgments.

CRENNAN J:   Where is 1(a)?

MR ARCHIBALD:   Clause 1(a) appears in the application book at the foot of page 7.  This is the currency allocation provision:

Shipper shall pay . . . for services rendered pursuant to this Agreement in accordance with PGTQ’S Rate Schedule ‑

So they accept and pick up in totality all the elements of the rates schedule including the substantive provision about payment in clause 3, to which I have referred the Court.  Then they added in the figures of the converted amounts which they had calculated by reference to the 77 cents.  The clause went on to say “provided that” the three rates be the amounts set out:  the capacity rate be “US$0.39”, the reservation rate be “US$0.000726” and the rate cap be “US$0.612”.

HAYNE J:   Relevantly, they go on in 3 to say it is all subject to the principles.

MR ARCHIBALD:   Yes.  To avoid any prospect that anything they were doing in the agreement – clause 3 is not uniquely referable to clause 1(a) – generally to provide that nothing in their agreement would in any way involve any friction with or contradiction of any element of the principles.

CRENNAN J:   As I understand it, the nub of Justice Holme’s reasoning is to be found in paragraph [49], application book 59.  The second sentence there:

So far as the Maximum Tariff is concerned, one can arrive at that result by reading cl 1(a) ‑

to which you have just taken us ‑

as qualified by cl 4.4 of the Access Principles; so that the US currency rates could apply, subject to their not exceeding the Maximum Tariff.

MR ARCHIBALD:   Yes.  Our fundamental submission on this point is that the approach adopted by her Honour wrongly ran together two distinct concepts – well recognised, long recognised – in this area of the law.  On the one hand, one has the currency of obligation, the measure of liability, and on the other hand one has the currency of payment, that currency selected by parties in which they will effectuate payment of the measure of liability.  The mere circumstance that one has a currency arrangement as to payment in no way intrudes upon or involves any friction with the arrangement as to the measure of liability.

What the Court of Appeal did, in contrast to what the learned trial judge did, was to run the two concepts together and find the supposed inconsistency by reason of the currency provision, the currency of payment, as though it intruded upon and contradicted in part the currency of obligation.

HAYNE J:   Although we see lots of references to inconsistency – leave that aside –do you accept that the obligation ultimately was capped at an amount of Australian dollars?

MR ARCHIBALD:   The measure of obligation, yes.  That was done by the contract and that was entirely consonant, as we have submitted.

HAYNE J:   If that is right, if the measure of obligation is X cents per gigajoule, if you choose to pay in USD, dinar or whatever, the maximum obligation must be the amount of AUD involved, must it not?

MR ARCHIBALD:   Yes.

HAYNE J:   Are you not arguing to the contrary of that?

MR ARCHIBALD:   No, because the obligation remains intact.  These two parties could, by a separate transaction, a separate contract if they had wished, have entered into their own hedge arrangements.  They might have done it as counterparties in a separate agreement; they might have done it with some other counterparty and achieved exactly the same effect.  Because there was a mutual natural hedge, they chose to do it as part of this agreement.  Indeed, it was to the advantage of the shipper because by having the hedge done the pipeline owner achieved higher efficiency than the cost of a separate hedge arrangement and was able therefore to allow some discount.

The Court will have seen that the actual ruling exchange rate at the time was 79 cents but 77 cents was the figure agreed upon.  That is why in paragraph [45] of Justice Holme’s reasons when she works through the detailed example, using the access principles tariff amounts, one gets – her Honour got, and got entirely correctly, a figure that was less than the amount that was involved in the maximum tariff figures.  Paragraph [45] at the end:

a slightly better result for the payer than applying the Access Principles Rate Cap.

HAYNE J:   But did QAL pay amounts in US currency which, at the date of payment, were equivalent to more than the AUD‑denominated maximum payment?

MR ARCHIBALD:   If one were to convert back to Australian dollars – and our fundamental submission is that there is no occasion to – for part of the time they paid even under the figure that the paragraph [45] example produced because the rates went favourably to the shipper.

HAYNE J:   Sometimes they had a win.  I understand that, but my question remains, did they ever pay more?

MR ARCHIBALD:   They only paid in Australian dollars.  There was no evidence that they went out and bought Australian dollars to pay the US dollar amount.  I cannot answer your Honour’s question in the sense of did they actually use Australian dollars to pay ‑

HAYNE J:   No.  That is not what I am asking.  I am asking whether they paid amounts ‑

MR ARCHIBALD:   Which, if converted at the time of payment, exceeded ‑

HAYNE J:   Maximum.

MR ARCHIBALD:   Yes, they did.

HAYNE J:   That is their case, is it not?

MR ARCHIBALD:   Yes, and that is not enough, for two reasons:  one, the confusion of currency of obligation and currency of payment; two, in order to establish inconsistency one needs to have the inevitability of inconsistency and have it known at the time of entry into the agreement.  The case mounted by the shipper and the case accepted by the Court of Appeal addressed only the possibility of an excess over the maximum tariff emerging and a possibility that it would only occur at a future time.

At the time of entry into the agreement one could not say that there would ever be an excess.  In our submission it is entirely wrong to approach the contractual concept of inconsistency on the footing that one looks speculatively at the date of contract and tries to anticipate whether there will or will not be an inconsistency.  There is no wait and see principle in connection with the concept of contractual inconsistency.  Yet that, in substance, was the argument advanced as recorded by her Honour in her reasons in respect of the shipper’s argument.

CRENNAN J:   She deals with that at paragraph [47], again in application book page 59.

MR ARCHIBALD:   Yes.  One sees it from the examples at [45] and [46].  Not only is it in the future but it occurs only – and the Courts see this in paragraph [46], lines 38 and 42, you do not see it unless and until you convert out of US dollars back into Australian dollars.  If it be right that the parties have engaged in a foreign currency allocation exercise, as they plainly have, there is no reason or occasion to convert back to Australian dollars.

KIRBY J:   MrArchibald, one thing that concerns me.  I realise that you won at trial and lost on appeal and that you have a stake of $20 million here and it is important to your clients, but looking at it from the viewpoint of this Court, it seems to be a matter that is concerned with highly particular terms and not anything that is relevant or important to legal doctrine or issues of law.

MR ARCHIBALD:   Apart from relying upon the nature of the error of the Court of Appeal and the pecuniary consequences for us, we do say that there are matters of importance raised by this matter.  I have already briefly indicated why it is of importance to this pipeline, at least through to 2016 because, under the current principles – the 2001 access principles – the same point is replicated.  Indeed, it is even more clearly crystallised in the new principles because there is a provision there which replicates the foreign currency allocation provision, yet the Court’s conclusion is that there are interferences with the maximum tariff regime.  So there are the purposes for this pipeline, purposes for the other pipelines and purposes for the regulated industries generally because they all have access regimes with maximum tariffs.

The question is when will a maximum tariff provision be infringed by other elements of the agreement?  You can place financial burdens on the other party in the arrangement in a variety of ways.  You get them to bear the insurance expense, you reduce the periodicity of payment, you impose high interest rates on default.  A number of things might involve excess.

KIRBY J:   But if the Queensland Court of Appeal decision stands, then parties in the future would adjust their obligations in the light of the principle stated by the Court.

MR ARCHIBALD:   A feature, your Honour, of access regimes is that you usually have quite long‑term transportation agreements.  These are gas haulage agreements; you have similar arrangements with generators carrying electricity and so on.  These are long‑term arrangements embedded –

CRENNAN J:   It is just not difficult to see, though, that a maximum tariff imposed by statute and mutual hedging arrangements may be irreconcilable.

MR ARCHIBALD:   That is the question and it is a very important question for industry generally, particularly regulated industry.

KIRBY J:   I notice the time.  Is there anything else that is important that you have not had time to say that you want to say?

MR ARCHIBALD:   We have referred in the written submissions to the second point of importance relating to the extrinsic evidence.  These access principles are really like the access undertakings under Part IIIA of the Trade Practices Act.  They end up being a statutory instrument, but they are effectively negotiated with a regulator to get to a form that is consonant with the regulatory principle.  Therefore, what we sought to introduce here was Codelfa‑type evidence – evidence of matrix of fact or genesis of the provision to show that it was not directed to the vice the Court of Appeal found.  That is a novel question.  The Court of Appeal narrated the argument but did not address it.  We say it is important to address that matter too.

KIRBY J:   Thank you for your help.  We are going to take a short adjournment before we decide whether we are going to trouble the Solicitor.

AT 12.18 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.26 PM:

KIRBY J:   Solicitor, we do not need your assistance in this application.

The reasons of the Court will be given by Justice Hayne who will also pronounce the order of the Court.

HAYNE J:   Whether and when there can be recovery of amounts paid under a mistake are questions that would not arise if special leave to appeal were to be granted in this matter.  The only question that would arise is whether the amounts paid by Queensland Alumina Ltd to the applicants exceeded the amounts owing under the relevant contract, a contract which incorporated terms adopting generally applicable access principles.

Although discussed in the Court of Appeal of Queensland in terms of inconsistency, the determinative point is that the amount actually charged to Queensland Alumina exceeded the maximum tariff fixed by the access principles incorporated in the agreement.  The second of the matters advanced by the applicants would, in these circumstances, not alter the position described.

There are, in our opinion, insufficient prospects of the applicants disturbing the orders made by the Court of Appeal to warrant a grant of special leave to appeal in this matter.  It follows that special leave to appeal is refused.  It must be refused with costs.

KIRBY J:   The Court will now adjourn in order to be reconstituted and for the establishment of the video link to Darwin.

AT 12.28 PM THE MATTER WAS CONCLUDED