BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc - [2001] WASCA 159

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: BHP PETROLEUM (AUSTRALIA) PTY LTD & ORS -v- SAGASCO SOUTH EAST INC & ORS [2001] WASCA 159

CORAM: OWEN J
STEYTLER J

HEARD: 8 MARCH 2001

DELIVERED : 24 MAY 2001

FILE NO/S: FUL 154 of 2000

BETWEEN: BHP PETROLEUM (AUSTRALIA) PTY LTD (ACN 006 923 879)
MOBIL EXPLORATION AND PRODUCING AUSTRALIA PTY LTD (ACN 004 588 827)
IMPEX ALPHA LTD (ARBN 003 730 756)
Applicants
AND
SAGASCO SOUTH EAST INC (ARBN 002 383 023)
BORAL ENERGY PETROLEUM PTY LTD (ACN 0710 728 962)
BORAL ENERGY AMADEUS NL (ACN 010 137 121)
PAN PACIFIC PETROLEUM NL (ACN 000 749 799)
CARNARVON OIL & GAS NL (ACN 009 256 544)
ROY ANTONY RADFORD
Respondents

Catchwords:

Appeal - Contract - Construction - Whether context requires words to be given a meaning other than the defined meaning

Energy and resources - Gas and oil - Agreement for sale of gas from oilfield and for its transportation by Project Pipelines - Daily Pipeline Demand Charge - Formula for calculation of Charge - Defined meaning includes gas "made available for delivery through Project Pipelines" - Event of force majeure - Total shutdown of production - Whether meaning other than defined meaning intended

Legislation:

Rules of the Supreme Court, O 63A

Result:

Leave to appeal granted
Appeal dismissed

Representation:

Counsel:

Applicants: Mr C L Zelestis QC & Mr N L Strawbridge
Respondents : Mr M J McCusker QC & Mr N K Stewart

Solicitors:

Applicants: Minter Ellison
Respondents : Pullinger Stewart

Case(s) referred to in judgment(s):

Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Case(s) also cited:

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389
Metcalf v Permanent Building Society (1993) 10 WAR 145
Re Elgar Heights Pty Ltd [1985] VR 657
Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40

JUDGMENT OF THE COURT: This is an application for leave to appeal which, if acceded to, is to be treated as the appeal. It concerns a preliminary issue in litigation between the applicants and the respondents arising out of an agreement executed by them on 30 September 1993 ("the agreement") known as the "Griffin Natural Gas Sales Agreement". The issue, which is one involving the construction of a clause in the agreement, was decided by the trial Judge in favour of the respondents. The applicants contend that his Honour erred in arriving at that decision.
Before identifying the issue we should place it in its context.
The applicants have a permit which encompasses an off‑shore oilfield located off the north west corner of this State near Onslow. They have embarked upon a project (which they have described as "the Griffin Project") to develop the oilfield. Natural gas is a by‑product of the oilfield. The applicants chose to sell most of the gas to the respondents. The terms of sale were set out in the agreement.
In order to get the gas to the respondents the applicants had, of course, to capture it and then deliver it by means of pipelines. Two pipelines (described in the agreement as the "Project Pipelines") were built. The first ("the GJV Pipeline") was built by the applicants. It started, as might be expected, at the oilfield. It travelled along the sea bed and then through an onshore processing plant before connecting to the second pipeline ("the TJV Pipeline") at a place called the "Delivery Point". The TJV Pipeline was built by the respondents. It travelled from the Delivery Point, where the connection between the two pipelines was metered, to a place where it connected with a pipeline running from the town of Dampier to the town of Bunbury. It was, by means of this last pipeline, carried to gas markets in the south west of the State.
Deliveries of the gas by the applicants to the respondents (which were completed, by virtue of cl 6 of the agreement, once the gas had passed the Delivery Point) commenced on 19 May 1994. All went well for a while. Then, on 10 November 1997, disaster struck. The applicants made use of a purpose‑built vessel (using that last word somewhat loosely) known as the "Griffin Venture" for the purposes of their project. It was moored at the oilfield. Petroleum and gas extracted from the oilfield were taken on board the vessel. The gas was there separated from the petroleum and then pumped into the GJV Pipeline in order to undertake its journey to the Delivery Point. However on 10 November 1997 the Griffin Venture's engine room caught alight. The vessel had to go to Singapore for repairs. The result of this was that no gas was delivered by the applicants to the respondents between 10 November 1997 and 12 March 1998.
The respondents say that, because they received no gas during this period, they are, under the agreement, entitled to be paid recompense in the form of what is described in the agreement as a "Pipeline Demand Charge" amounting to $1,409,626.42 over the whole of the period. The applicants deny this. They say that no amount is payable by them. They say that the fire was an event of force majeure which, by the terms of the agreement, suspended their obligations under the agreement throughout the period in question. One consequence of the event of force majeure, they say, was that there was, on the proper construction of the clause of the agreement which provides for the Pipeline Demand Charge (cl 17.1), nothing payable by them under that clause over the relevant period.
It was this last contention which gave rise to the preliminary issue.
Clause 17.1 sets forth a formula pursuant to which the Pipeline Demand Charge, if any, is to be calculated. We will set out its terms:
" Pipeline Demand Charge
17.1 During the first ten years of the Contract Period Sellers shall pay to Buyers a Pipeline Demand Charge which shall be calculated on a Daily basis as follows:
PDC = CR_n x (25-DG) x 1000
Where:
PDCmeans the Pipeline Demand Charge payable in respect of any Day in Quarter n (in dollars per GJ);
CR_n = CR₁ x [1 + 0.2 (CPI_n - CPI₁)]
CPI₁
Where:
n as at 1 January 1992 equals zero and shall continue in numerical sequence each Quarter thereafter;
CR_n means Charge rate per GJ for Quarter n and being $0.45 per GJ as at 1 January 1992;
CR₁ means $0.45 per GJ;
CPI_n means the CPI for the Quarter ending three months prior to the beginning of the Quarter in which the Day in question falls.
CPI₁ means the CPI effective as at 1 January 1992.
DGmeans the aggregate up to 25 of the following quantities of natural gas (expressed in TJ):
(a)Tranche 1 Gas for the Day in question;
(b)Griffin Gas which has been made available by Sellers to Buyers during the Day in question but not taken by Buyers;
(c)Griffin Gas which is not delivered by Sellers to Buyers during the Day in question for reasons of Force Majeure;
(d)any relief claimed by Sellers under clause 17.2 and clause 17.3 for the Day in question; and
(e)the quantity of Griffin Gas which would have been delivered during the permitted interruptions under Part 24, assuming delivery at a uniform rate of 25TJ per Day."
It will be apparent that the component "DG" in the formula provided for by cl 17.1 represents the aggregate, up to 25, of various quantities of natural gas expressed in terajoules. The applicants say that at least 25 terajoules of gas would have been delivered to the respondents on each of the days in question were it not for the event of force majeure in the form of the fire. That being so, they say that, by virtue of Pt (c) of the definition of "DG", DG equalled 25 over the relevant period and the application of the formula produced a result of nought. However the respondents say that even if, which they dispute, the fire was an event of force majeure for the purposes of the agreement, DG was nought over the relevant period and the application of the formula produced a result of $1,409,626.42.
The trial Judge was invited, for the purposes of the preliminary question, to assume that the total loss of production between 10 November 1997 and 12 March 1998 was due to force majeure within the meaning of the agreement and then to decide whether, on the proper construction of cl 17 (and the only evidence before him was the agreement itself), DG was equal to nought or to 25 or perhaps to some other amount. He found that it was equal to nought. The applicants say that he should have found that it was equal to 25. The appeal (if the application for leave is granted) consequently turns on the question whether or not the applicants are right in that single contention.
The answer to that question depends upon the answer to a subsidiary question. That is the question whether Pt (c) of the definition of "DG" (and it is common cause that every other Part of that definition produced a result of nought) includes gas which, were it not for the (assumed) force majeure event, would have been produced by the applicants and delivered by them to the respondent. The answer to this subsidiary question depends, in turn, very largely upon the question of what is meant by the words "Griffin Gas" in Pt (c).
Clause 1.1 of the agreement provides some definitions. One of these is of the term "Griffin Gas". Clause 1.1 says that, unless the context otherwise requires, that term "means natural gas produced from the Griffin Project and made available for delivery through the Project Pipelines". The "Griffin Project" is defined, unless the context otherwise requires, as meaning (relevantly for present purposes) any petroleum reservoir or series of reservoirs which is in, or adjacent to, the applicants' permit area. The "Project Pipelines" are the GJV Pipeline and the TJG Pipeline.
Consequently, if we were to assume that nothing in the context of the agreement requires otherwise, Pt (c) of the definition of "DG", if read literally, would read as follows:
"natural gas produced from any petroleum reservoir or series of reservoirs in or adjacent to the applicants' permit area and made available for delivery through the GJV Pipeline and the TJG Pipeline which is not delivered by ... [the applicants] to ... [the respondents] during the Day in question for reasons of Force Majeure."
The respondents contend, as they did before the trial Judge, that this is how Pt (c) should be read. They say that, because no gas was produced from the Griffin Project during the relevant period, no gas was (or could have been) made available for delivery through the Project Pipelines during that period. That being so, they say, there was no gas meeting that description which was not delivered because of force majeure. Rather, there was no gas at all during the relevant period.
The applicants, on the other hand, contended (as they still do) that the term "Griffin Gas" is intended only to describe and identify the subject matter of the agreement. They say that the term describes gas by reference to characteristics or distinguishing factors, not existence, and that, in its ordinary meaning, the definition refers to the nature, source and intended application of the gas. This, they contend, has the consequence that the term can sensibly be used in a context in which the gas has not actually been produced or been made available for delivery.
As we have said, the trial Judge preferred the construction advanced by the respondents.
In considering what was meant, in Pt (c), by the term "Griffin Gas", his Honour was influenced by a comparison between Pts (c) and (e) of the definition of DG. He said, in this respect, that:
"41... the contrast is to be noted between the enquiry as to the actual position apparently contemplated by Part (c) of the definition, and the more hypothetical enquiry contemplated by Part (e) which refers to the quantity of gas which would have been delivered during an interruption or suspension of delivery of Griffin Gas as permitted by cl 24. In such a situation Part (e) directs that, during the interruption or suspension, delivery at a uniform rate - which is stipulated to 25TJ per day - is to be assumed. Counsel for the buyers contends with some persuasiveness that similar words would have been found in Part (c) had the sellers' submission as to the intention of the parties been correct. In the absence of such a provision in Part (c) the buyers submit it becomes impossible for the sellers' interpretation to be applied, as it is not possible to determine the quantity of gas which would have been produced and made available on any particular day during the period in question from the Griffin Project had there not been a total cessation of production. This is apparent, it is submitted, from provisions such as cl 11.2, cl 11.4, cl 14.1, cl 14.2, cl 15.2, cl 16.2, cl 16.4 and cl 17 which are predicated on the assumption that the flow rate may vary as, by virtue of the nature of the process of production, gas does not flow at a uniform rate from the Griffin Project.
42In any event the marked difference between Part (c) and Part (e) of the definition of DG places a significant obstacle in the way of the seller's [sic] argument that Part (c) should be construed as providing - What Griffin Gas would have been delivered but for the Force Majeure event? Had that been the intended meaning it is not apparent why the style and words of Part (e) was not used in Part (c). The difference suggests that a different meaning was intended."
The trial Judge went on to say 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 in circumstances in which the general introduction to the various definitions leaves open the possibility of another meaning for a defined phrase where the context otherwise requires.
His Honour also examined the three elements which, he said, required consideration under the definition of "Griffin Gas" in cl 1.1:
"45First, the gas must have been 'produced from the Griffin Project' to be Griffin Gas. As the buyers' submit, where there is a total cessation of production of gas from the Griffin Project an obvious consequence is that there can be no Griffin Gas ... It is possible, though not the most obvious possibility, that these words are intended merely to distinguish gas from the Griffin Project from other gas. Even if that were so there remain the other two elements.
46Secondly, the gas produced from the Griffin Project must be 'made available for delivery'. 'Delivery' is not itself a defined word but 'Delivered Gas' and 'Delivery Point' are each defined by cl 6. It is from cl 6.1 and cl 6.2 that the sellers derived support for their submission that the application of the defined meaning of Griffin Gas in cl 17.1 leads to absurdity. This submission seeks to make good the proposition that by applying the defined meaning of Griffin Gas the Force Majeure provisions of the Agreement could only operate in respect of a Force Majeure event which actually prevented gas at the outlet flange (the Delivery Point) being passed through the outlet flange; it being difficult to imagine such a circumstance actually occurring. While this may be seen as a possible construction it does not appear to be the only one, or the most natural or likely. The relevant notion is that of produced gas being made available for delivery. While the actual point of delivery is the outlet flange, and while pursuant to cl 6.1 delivery is 'deemed' when Griffin Gas has been delivered to and taken through the Delivery Point, when the subject matter is the delivery of piped gas which is necessarily flowing under pressure it is not immediately apparent or necessarily the case that the intended operation of the definition is to restrict the notion of 'made available for delivery' to gas at the actual point of deemed delivery. Indeed, the sellers' submissions appear to blur the distinction between 'Delivered Gas' as defined by cl 6.1 and gas 'made available for delivery' in the definition of Griffin Gas.
47The third point serves to add emphasis to the second. The definition provides that the produced gas must be made available for delivery 'through the Project Pipelines'. The Project Pipelines are defined in cl 1.1 by reference to the Pipeline Agreement but the allegation in the statement of claim, which is admitted by the defence, is that the Project Pipelines are what I have described as the GJV Pipeline and the TJV Pipeline, ie the sellers' pipeline from the Griffin Project which brings the gas ashore to the Delivery Point, and the buyers' pipeline which carries the gas overland from the Delivery Point to the DBNG Pipeline [the Dampier to Bunbury pipeline] where it is on-sold by the buyers. In such a factual context, which is established by the Agreement under consideration, the notion of gas being made available for delivery through two pipelines, the Delivery Point being at their junction, would well accommodate the construction that gas is 'made available' by being passed from the source of supply, ie the Griffin Project, into the GJV Pipeline so that it could be delivered by passing through the GJV Pipeline and then the TJV Pipeline to the DBNG Pipeline.
48While, as an aid to analysis, I have considered separately the second and third points, they appear more properly to be viewed as the one composite notion, ie gas 'made available for delivery through the Project Pipelines'. In the context of this Agreement relating to the transport and sale of gas from the sellers' oil field I would see the use of the words 'through the Project Pipelines' in the definition as inter alia indicating that 'made available for delivery' should not be confined to gas at the precise point and moment when it actually passes through the Delivery Point, but as comprehending gas at least from the point where it is committed to, or made available for, delivery pursuant to the Agreement by being introduced into the GJV Pipeline from the Griffin Project by the sellers so that it might flow through the GJV and the TJV Pipelines to the DBNG Pipeline. I say 'at least' because, given the nature of the commodity and the agreed scheme for its transportation and sale after production, the notion of 'made available' for delivery in this context might also be found to comprehend gas which is produced by the sellers from the Griffin Project and is available to be transported through the Project Pipelines and is intended for this use by the sellers, but which is prevented from entering the Project Pipelines and being transported through them. Later in these reasons, other provisions of the Agreement are identified which could support such a view. I stop short of considering that view however, because I need not resolve it to deal with this preliminary question and it is preferable that I do not do so as it would appear to be a question directly raised by other issues in these proceedings."
The trial Judge next concluded that the view that gas made available for delivery through the Project Pipelines comprehended at least gas that had been committed to delivery pursuant to the Agreement by being introduced into the JGV Pipeline from the Griffin Project by the sellers appeared to him to be within the plain and ordinary meaning of the words of the definition of "Griffin Gas" in cl 1.1.
The applicants contend that his Honour's construction was unduly narrow. They say that to confine the meaning of the term "Griffin Gas" in Pt (c) to gas which was actually introduced "at a particular point in a particular piece of equipment" is both limited and impractical and that it cannot seriously be supposed that the parties intended the general words of the definition to have so limited a meaning. They reiterate that the last element of the definition refers to the intended application of gas, so that if gas is intended to be delivered and sold under the agreement, as opposed to being used by the applicants for their own purposes (and cl 19.2 of the agreement gives them the right to do so), it is Griffin Gas.

Senior counsel for the applicants made a number of subsidiary points in support of this general contention.
The first of these is that there are many paragraphs of the agreement in which it is apparent from the context that the definition is not intended to be given a literal interpretation. So, for example, cls 2.1, 3.1, 5.1, 9.4, 9.5, 10.2, 16.5, 17.2 and 18.2 all refer to "Griffin Gas" in a context in which that gas has yet to be produced. Part (e) of the definition of DG speaks of "Griffin Gas which would have been delivered". Clause 19.1 provides that the applicants commit to the fulfilment of their obligations under the agreement "that quantity of Griffin Gas produced" (when the definition speaks of gas "produced ... and made available for delivery"). As we have said, cl 19.2 gives to the applicants the right to use Griffin Gas for their own purposes (which could not be sensible if the words "Griffin Gas" are to be taken to refer to gas "made available for delivery [to the respondents] through the Project Pipelines"). Clause 28.6 provides that when force majeure is in effect the applicants have the right to "dispose of Griffin Gas as it [sic] deems appropriate ... to avoid shutting in oil production facilities" (which might, it was said, be thought to be inconsistent with a definition which speaks of gas "made available for delivery").
However we are not persuaded that these provisions are of great assistance to the applicants. Clause 1.1 requires the term "Griffin Gas" to be given its defined meaning "unless the context otherwise requires". Consequently the question, in each case, is whether the context does otherwise require. It may be that in some cases (and cl 19.2 is undoubtedly one of these, although we are inclined to think that there is no great difficulty in the use of the defined term in those clauses which contemplate "Griffin Gas" which has yet to be produced) the context does otherwise require, but that can, in our opinion, be of little assistance in construing the term in some other context. We agree with the trial Judge's comment to the effect 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. Moreover, if it matters, there are clauses in the agreement in which the term is seemingly intended to bear one or other of the two meanings offered by the trial Judge in par 48 of his reasons (and we should say that we prefer the second of those meanings which, in our view, is the plain and ordinary meaning which appears from the definition). His Honour pointed, in this respect, inter alia to cls 7.1, 7.2, 7.3, 8.1, 19.2, 19.6 and 22.1.
It seems to us (and we, like the trial Judge, are restricted to the four corners of the agreement, neither party having chosen to place any extrinsic contextual material before the court) that it was open to the trial Judge to find that there is nothing in the context in which the defined term is used in Pt (c) of the definition of "DG" which requires that term to be given anything other than its ordinary (and, in our opinion, unambiguous) meaning. Read in that way the clause does no more, in effect, than exempt from the Pipeline Demand Charge natural gas which has actually been produced from the petroleum reservoir or reservoirs and made available for delivery through the GJV and TJV pipelines but not in fact delivered during the day in question for reasons of force majeure. There is nothing absurd, uncertain or ambiguous about that (as to which see Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337) and nor, so far as we can ascertain without knowing anything of the extrinsic context (which is presumably regarded by the parties as being unhelpful), does the fact that the parties have chosen (apparently deliberately - cf the definition in cl 1.1 of "Tubridgi Gas") to require that the gas be both produced and made available for delivery lead to any unworkable result.
Counsel for the applicants contended that there is some absurdity or unworkability arising out of the fact that the gas must be produced in order to obtain the benefit of the exemption even though it is not to be delivered. He pointed to the fact (which appears to be common cause) that there is no provision for the storage of gas by the applicants, something which, he suggested, might not have been understood by the trial Judge. We doubt that his Honour was under any such misapprehension. The agreement, as his Honour undoubtedly appreciated, contemplates that gas might be reinjected or flared by the applicants (see cls 18.1, 18.3 and, especially, 21.2(e) which speaks of gas "which would have been delivered but ... [was] reinjected or flared by Sellers as a result of Buyers' failure to accept the same"). Moreover, it was common cause that the project is driven by the production of oil rather than by that of gas and that the production of oil necessarily requires the extraction of the natural gas from the petroleum produced from the reservoir or reservoirs. It would, therefore, have been within the power of the applicants to continue with the production of petroleum and to dispose of the gas that had been extracted even though a force majeure prevented it being delivered to the respondents.
Counsel for the applicants next contended that the agreement nowhere specifies any precise point at which the natural gas becomes "Griffin Gas" and suggested that this was indicative of the fact that the definition was not intended to be read literally. He also suggested that an event of force majeure could occur at any point ahead of a measuring device (and none is specified in the definition), making it impossible, if a literal interpretation is given to the defined term when used in Pt (c) of the definition of "DG", to determine what quantity of the gas had not been delivered.
We do not consider that these difficulties (insofar as they are difficulties) should require any different construction than that which flows from the ordinary or literal meaning of the defined term.
It is important, firstly, to bear in mind that the definition does not require the gas actually to be delivered or even, in our opinion, to enter the pipelines, or either of them. It requires only that it be produced and made available for delivery through the two pipelines. We have already said, in this respect, that we are inclined to prefer the second of the two notions considered by the trial Judge in this respect, being that which comprehends gas which is produced by the sellers from the Griffin Project and is available to be transported through the Project Pipelines and is intended for this use by the Sellers (this last element being comprehended by the words "made available for delivery" (our italics).
Once this is understood, there is no need to specify any precise point at which the gas becomes Griffin Gas. It need only be produced, available and earmarked for delivery to the applicants. As to measurement of the gas, the agreement appears to assume that this can be done. Part 18 of the agreement provides for a "Non‑Take Charge". Clause 18.1 requires the respondents to pay this charge to the applicants in respect of Griffin Gas which is not accepted by them for any reason other than force majeure or pursuant to cl 26.2 (which provides that the respondents are not obliged to accept delivery of Griffin Gas which does not meet agreed specifications). Clause 18.3 provides that "The quantity of natural gas which would have been delivered but was re‑injected or flared under this Part 18 shall be shown in Sellers' Representative's monthly statement pursuant to cl 21.2(e) [which requires that statement to specify daily quantities of gas "which would have been delivered but were re‑injected or flared by Sellers as a result of Buyers' failure to accept the same"] ... and if requested by Buyers' Representative, Sellers' Representative shall provide information necessary to substantiate the same." It is implicit in this clause that quantities of re‑injected or flared gas can, in some way, be measured.
Moreover, as was pointed out by the trial Judge, the respondents contend with some persuasiveness that, in the absence of an assumed rate of the kind specified in Pt (e) of the definition of "DG", it becomes difficult for the applicants' interpretation to be applied in Pt (c) as it is not possible to determine the quantity of gas which would have been produced and made available on any particular day during the period in question in the case of a total cessation of production. While it is true, as counsel for the applicants has pointed out, that cl 16.1 of the agreement requires the applicants to provide the respondents (and vice versa) "with all such information as may be necessary or otherwise reasonably required to enable each of them to make proper estimates, assessments and nominations and otherwise to discharge their respective obligations under this Agreement", the provision of an accurate estimate for the purposes of Pt (c), in such an event, may be no easy matter given that the flow rate of the gas may vary (as is apparent from such provisions as cl 11.2, 11.4, 14.1, 14.2, 15.2, 16.2, 16.4 and 17).
Counsel for the applicants also contended that a literal reading of the definition of "Griffin Gas" in Pt (c) of the definition of DG is inconsistent with the terms of Pt 28 of the agreement which deals with force majeure. Clause 28.1 defines "Force Majeure" for the purposes of the agreement. Clause 28.2 provides that, subject to the provisions of Pt 28, "the obligations under this Agreement of a Buyer or Seller affected by Force Majeure (other than the obligation to make any payment due hereunder) shall be suspended to the extent that performance thereof is prevented during the continuance of the Force Majeure ... ". Amongst the events included within the definition of force majeure are production shutdowns or interruptions for specified reasons (cl 28.1(i) and (j)). Counsel for the applicants submitted that, on the trial Judge's construction of the agreement, when production is shut down by an event of force majeure, the Pipeline Demand Charge remains payable. He contended that, because the Pipeline Demand Charge is the only possible liability of the respondents which is capable of suspension under cl 28.2 in that circumstance, the references to production shutdown in cl 28.1 serve no purpose on his Honour's construction.
This argument necessarily assumes that the production shutdowns and interruptions referred to in cl 28.1(i) and (j) are shutdowns and interruptions only in the course of offshore production. However it seems to us that these provisions are capable of applying also to production shutdowns or interruptions in the onshore plant. The production shutdowns or interruptions referred to in sub‑par (i) encompass any which are validly required or directed by a State or Commonwealth Government or authorised government agency and those referred to in (j) encompass any which are a consequence of a requirement to conform to design or regulatory limits on both production and pipeline facilities.
Whatever may be the appropriate construction of cl 28.2, however, it seems to us that Pt (c) of the definition of "DG" limits any exemption from the Pipeline Demand Charge arising from an event of force majeure (and force majeure can affect both buyers and sellers) to one which prevents delivery of produced gas which has been made available for delivery. We should add that it seems to us (notwithstanding submissions to the contrary made by counsel for the applicants) that the Pipeline Demand Charge is an "obligation to make any payment due" under the agreement which is excluded from the operation of cl 28.2 by the words appearing in parenthesis in that section. If the position was otherwise, Pt (c) of the definition of "DG" would be unnecessary.
Next, counsel for the applicants suggested that a literal interpretation of the definition of the term "Griffin Gas" produces an absurdity in the operation of Pt (b) of the definition of "DG". This, he submitted, is because the applicants could then get no relief from the Pipeline Demand Charge under that Part unless the gas was produced and taken to a particular point with intention to supply it to the respondents even though the respondents would not or could not take it. However it seems to us that there is no absurdity once three things are understood. The first (and we have already said that this was common cause) is that the project is driven by the production of oil rather than by that of gas. The second (which was also common cause) is that the production of oil necessarily requires the extraction of the natural gas from the petroleum produced. The third is that the gas need merely by produced and made available for delivery through the pipelines rather than actually delivered. It is important, in this last respect, to bear in mind that the agreement contemplates that gas can be re‑injected or flared.
We should mention, for the sake of completeness, that a similar submission was mounted in respect of the operation of cl 18.1. However that submission can be answered in a similar way.
Finally, counsel for the applicants urged upon us the submission that the trial Judge erred in allowing himself to be influenced by the difference in wording between Pt (c) and Pt (e) of the definition of "DG". He suggested that the difference in language between (e), on the one hand, and both (b) and (c), on the other, is a consequence of the fact that there is in the latter paragraphs, unlike the former, no assumed delivery rate, perhaps because there could, in the case of (b), be some gas taken (albeit less than that made available and which should have been taken) and, in the case of (c), some gas delivered notwithstanding that force majeure prevented the required quantity from being delivered. We do not consider that the trial Judge made any error in this respect. We doubt that the difference in wording is ascribable merely to the fact that Pt (e) assumes, for its purpose, a uniform rate of delivery. Rather, it seems to us that the difference in wording is because, in the case of (b) and (c), the gas is actually produced and made available for delivery but not taken whereas, in the case of (e), the gas may or may not be produced depending upon the nature of the permitted interruptions. (By cl 24.1 these interruptions may affect the "Griffin Project" or the "Project Pipelines".)
It follows from all that we have said that we consider that the trial Judge was right in his conclusion that the preliminary issue is to be resolved by holding that, in the circumstances identified in the pleadings, "DG" in cl 17.1 of the agreement equals zero.
While we would grant the application for leave to appeal we would, consequently, dismiss the appeal.
Before leaving the matter we should add, as a postscript, the comment that it is unfortunate that this appeal was heard by only two Judges. While it might be so that this is, strictly speaking, an interlocutory appeal for the purposes of O 63A of the Rules of the Supreme Court, it is most certainly not the kind of interlocutory appeal which was intended to be heard by only two Judges. Where there is, as here, a decision on a preliminary question (which might be determinative of the outcome of the trial) it is appropriate that the Appeal Court should comprise three Judges. This is a matter which an applicant should take up with the Judge or Master from whom directions are sought under O 63A r 4.