Apache Finance Pty Ltd v Quadrant Energy Pty Ltd - [2018] WASC 68

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: APACHE FINANCE PTY LTD -v- QUADRANT ENERGY PTY LTD [2018] WASC 68

CORAM: CHANEY J

HEARD: 14 FEBRUARY 2018

DELIVERED : 2 MARCH 2018

FILE NO/S: CIV 2602 of 2017

BETWEEN: APACHE FINANCE PTY LTD
First Plaintiff
APACHE INTERNATIONAL FINANCE II SARL
Second Plaintiff
APACHE RAVENSWORTH CORPORATION LDC
Third Plaintiff
APACHE UK LTD
Fourth Plaintiff
APACHE OVERSEAS LLC
Fifth Plaintiff
ONYX ACQUISITION CORPORATION LDC
Sixth Plaintiff
AND
QUADRANT ENERGY PTY LTD
First Defendant
QUADRANT ENERGY AUSTRALIA LTD
Second Defendant
(BY ORIGINAL ACTION)
QUADRANT ENERGY PTY LTD
First Plaintiff by Counterclaim
QUADRANT ENERGY AUSTRALIA LTD
Second Plaintiff by Counterclaim
AND
APACHE FINANCE PTY LTD
First Defendant by Counterclaim
APACHE INTERNATIONAL FINANCE II SARL
Second Defendant by Counterclaim
APACHE RAVENSWORTH CORPORATION LDC
Third Defendant by Counterclaim
APACHE UK LTD
Fourth Defendant by Counterclaim
APACHE OVERSEAS LLC
Fifth Defendant by Counterclaim
ONYX ACQUISITION CORPORATION LDC
Sixth Defendant by Counterclaim
(BY COUNTERCLAIM)

Catchwords:

Contract - Proper construction - Sale and purchase agreement - Tax indemnity - Requirement to take 'Disputing Action' - Turns on own facts

Words and phrases - 'In connection with' - Whether capable of applying to something not yet in existence

Legislation:

Nil

Result:

Separate questions answered 'yes'

Category: B

Representation:

Original Action

Counsel:

First Plaintiff                :     Mr S M Anderson QC & Mr P Holmes
Second Plaintiff            :     Mr S M Anderson QC & Mr P Holmes
Third Plaintiff              :     Mr S M Anderson QC & Mr P Holmes
Fourth Plaintiff            :     Mr S M Anderson QC & Mr P Holmes
Fifth Plaintiff                :     Mr S M Anderson QC & Mr P Holmes
Sixth Plaintiff               :     Mr S M Anderson QC & Mr P Holmes
First Defendant            :     Mr N C Hutley SC & Mr R W Clark
Second Defendant        :     Mr N C Hutley SC & Mr R W Clark

Solicitors:

First Plaintiff                :     Clyde & Co
Second Plaintiff            :     Clyde & Co
Third Plaintiff              :     Clyde & Co
Fourth Plaintiff            :     Clyde & Co
Fifth Plaintiff                :     Clyde & Co
Sixth Plaintiff               :     Clyde & Co
First Defendant            :     King & Wood Mallesons
Second Defendant        :     King & Wood Mallesons

Counterclaim

Counsel:

First Plaintiff by Counterclaim     :        Mr N C Hutley SC & Mr R W Clark
Second Plaintiff by Counterclaim :        Mr N C Hutley SC & Mr R W Clark
First Defendant by Counterclaim :        Mr S M Anderson QC & Mr P Holmes
Second Defendant by Counterclaim       :        Mr S M Anderson QC & Mr P Holmes
Third Defendant by Counterclaim :        Mr S M Anderson QC & Mr P Holmes
Fourth Defendant by Counterclaim       :        Mr S M Anderson QC & Mr P Holmes
Fifth Defendant by Counterclaim :        Mr S M Anderson QC & Mr P Holmes
Sixth Defendant by Counterclaim :        Mr S M Anderson QC & Mr P Holmes

Solicitors:

First Plaintiff by Counterclaim : King & Wood Mallesons
Second Plaintiff by Counterclaim : King & Wood Mallesons
First Defendant by…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] WASC 68
Decision Date: 2 MARCH 2018

CaseChat Overview and Summary

Apache Finance Pty Ltd (Apache) sued Quadrant Energy Pty Ltd (Quadrant) for breach of contract. The dispute centred on the interpretation of a tax indemnity in a sale and purchase agreement (SPA) between the parties. The court had to determine whether the indemnity required Quadrant to take action in relation to a tax assessment that had not yet been issued. The Federal Court of Australia heard the case.

The primary issue was whether the phrase "in connection with" in the tax indemnity could apply to a tax assessment that had not yet been issued. Quadrant argued that the indemnity only applied to taxes that had been assessed and were outstanding. Apache contended that the phrase was broad enough to include future assessments. The court also had to consider whether the defined terms in the SPA should be given their ordinary meaning or the meaning provided in the definitions section of the agreement.

The court held that the phrase "in connection with" was broad enough to encompass future tax assessments. The court applied the principle that the meaning of contractual terms is determined by what a reasonable businessperson would have understood. The court rejected Quadrant's argument that defined terms should be given priority over contextual interpretation. The court found that the context of the SPA and the commercial purpose of the agreement supported Apache's interpretation. The court also noted that the SPA did not contain any express provision limiting the application of defined terms.

The court ordered Quadrant to pay damages to Apache for breach of the tax indemnity. The amount of damages was to be determined at a later date.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The principles applicable to the construction and interpretation of contracts are well‑established and, as the parties both noted in their submissions, were conveniently summarised by the plurality in Electricity Generation Corporation v Woodside Energy Ltd[1] in the following passage:The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. (citations omitted)[1] Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 [35]. The Quadrant parties placed considerable emphasis on certain defined meanings of terms or expressions used in the SPA. In BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc,[2] the court agreed with the proposition that in an agreement drawn with legal advice as part of a complex and sophisticated commercial enterprise, the deliberate use of defined words is not to be lightly passed over, even where the definition leaves open the possibility of another meaning for a defined phrase. The force of that proposition was acknowledged by Leeming JA (with whom McColl and Gleeson JJA agreed) in Perpetual Custodians Ltd v IOOF Investment Management Ltd.[3] Perpetual Custodians Ltd involved consideration of a defined term in two agreements. One of the agreements qualified the defined terms with the words 'unless the context otherwise provides'. The second agreement did not. Leeming JA concluded that it is not necessary for express provision to that effect to be made, a rule which applies in the case of statutes. He continued:The same approach applies to contracts. For example, Lord Steyn has written extrajudicially that '[e]ven an agreed definition is of limited use: it takes no account of contextual requirements': (2001) 21 OJLS 59 at 60. The same point was made by Fullagar J in Halford v Price (1960) 105 CLR 23 at 33. Professor McMeel has written (The Construction of Contracts, 2nd ed (2011) Oxford University Press, p 159) that 'even defined terms must yield to wider context or contrary intention'. Professor Carter has said that 'the absence of [words to the effect "unless the context indicates otherwise"] does not mean that the definition necessarily applies to every usage of the term in the document' (The Construction of Commercial Contracts (2013) Hart, p 446). That must in my opinion be correct in principle. The ordinary approach to construction insists on reading the contract as a whole and doing so harmoniously, so as to resolve or minimise internal inconsistency. Foreign to that approach would be a slavish rule that defined terms inevitably bear every aspect of their defined meaning. The contestable nub of the matter is what is sufficient to constitute a displacing context or contrary intention. Owen and Steytler JJ have said that 'the deliberate use of defined words is not to be lightly passed over, even where the definition leaves open the possibility of another meaning for a defined phrase': BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159 at [24], a proposition whose force I acknowledge [86].[2] BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159 [24].[3] Perpetual Custodians Ltd v IOOF Investment Management Ltd [2013] NSWCA 231 [86].