CS Energy Limited v GPS Power Pty Limited
[2021] QCA 194
•7 September 2021
SUPREME COURT OF QUEENSLAND
CITATION:
CS Energy Limited v GPS Power Pty Limited & Ors [2021] QCA 194
PARTIES:
CS ENERGY LIMITED
ACN 078 848 745
(appellant)
v
GPS POWER PTY LIMITED
ACN 009 103 422
(first respondent)
GPS ENERGY PTY LIMITED
ACN 063 207 456
(second respondent)
SUNSHINE STATE POWER B.V.
ARBN 062 295 425
(third respondent)
SUNSHINE STATE POWER (NO. 2) B.V.
ARBN 063 382 829
(fourth respondent)
SOUTHERN CROSS GPS PTY LTD
ACN 063 779 028
(fifth respondent)
RYOWA II GPS PTY LIMITED
ACN 063 780 058
(sixth respondent)
YKK GPS (QUEENSLAND) PTY LIMITED
ACN 062 905 275
(seventh respondent)FILE NO/S:
Appeal No 5746 of 2020
Appeal No 5749 of 2020
SC No 761 of 2018
SC No 13392 of 2017DIVISION:
Court of Appeal
PROCEEDING:
General Civil Appeal
ORIGINATING COURT:
Supreme Court at Brisbane – [2018] QSC 294 (Jackson J); [2020] QSC 93 (Jackson J)
DELIVERED ON:
7 September 2021
DELIVERED AT:
Brisbane
HEARING DATE:
11 September 2020
JUDGES:
Fraser, McMurdo and Mullins JJA
ORDER:
Appeals dismissed with costs.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the appellant and the respondents are parties to a long term contract concerning the supply and sale of electricity from a power station – where operative provisions of the contract contain a defined term “Station Annual Forecast” – where the contract permits a defined term to bear a meaning other than its defined meaning, if the context otherwise requires – where the defined meaning relies on another clause of the contract which prescribes a list of information to be included in the Station Annual Forecast – whether the use of the defined term incorporates only that part of the list information which is necessary for the purpose of the particular clause – where the primary judge approached the construction of the defined term in the operative provisions by considering the context and purpose of each provision and concluded that the reference to the Station Annual Forecast did not extend to part of the information included in the defined term – whether the primary judge erred in failing to apply the orthodox approach of inserting the full meaning given to the defined term into the operative clause of the contract
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the appellant and the respondents are parties to a long term contract concerning the supply and sale of electricity from a power station – where the appellant sought a declaration that Station Annual Forecast for the purpose of the relevant clause includes the upper and lower estimates – where the respondents conceded before the primary judge that the reference to Station Annual Forecast in a related clause includes the upper and lower estimates – where the primary judge did not refer to the concession in the part of the reasons that dealt with the relevant clause – where the primary judge construed the relevant clause and concluded that the lack of reference to an upper or lower estimate in the relevant schedule and the lack of any provision in the contract complementing the relevant clause explaining how a range of estimates is to be met meant that the reference to Station Annual Forecast in the relevant clause did not include the upper and lower estimates – where the failure of the primary judge to refer to the respondent’s concession in respect of the relevant clause would only be relevant if it made a difference to the construction of the relevant clause – whether the primary judge erred in failing to refer to the concession when construing the relevant clause
PROCEDURE – STATE AND TERRITORY COURTS: JURISDICTION, POWERS AND GENERALLY – DECLARATIONS – APPROPRIATE FORM OF RELIEF – DISCRETION OF COURT – OTHER CASES – where the appellant and the respondents are parties to a long term contract concerning the supply and sale of electricity from a power station – where the appellant sought a declaration that Station Annual Forecast for the relevant clause includes the upper and lower estimates – where the respondents conceded before the primary judge that the reference to Station Annual Forecast in the relevant clause includes the upper and lower estimates – whether the primary judge erred in not making the declaration
PROCEDURE – STATE AND TERRITORY COURTS: JURISDICTION, POWERS AND GENERALLY – DECLARATIONS – APPROPRIATE FORM OF RELIEF – DISCRETION OF COURT – OTHER CASES – where the appellant and the respondents are parties to a long term contract concerning the supply and sale of electricity from a power station – where clauses of the contract contain references to “coal stockpile forecast”, “stockpile level forecast” and “coal stockpile” – where the appellant sought a declaration that “coal stockpile” means the defined term “Actual Coal Stockpile” and “coal stockpile forecast” and “stockpile level forecast” mean a forecast of the defined term “Actual Coal Stockpile” – where the application was heard by the primary judge on the basis there were no facts in dispute – where the primary judge considered there was a lack of evidence on relevant matters which may affect the utility of a declaration construing clause – whether the primary judge erred in not making the declaration
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36, cited
AIG Australia Ltd v Kaboko Mining Ltd [2019] FCAFC 96, cited
BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159, considered
Bond v Chief Executive, Department of Environment and Heritage Protection [2018] 2 Qd R 112; [2017] QCA 180, cited
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, cited
Lahey Constructions Pty Ltd v State of New South Wales [2021] NSWCA 69, cited
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, cited
Newey v Westpac Banking Corporation [2014] NSWCA 319, cited
RMI Pty Limited v Spray Coupe Pty Ltd[2021] QCA 37, citedCOUNSEL:
A M Pomerenke QC, with J O’Regan, for the appellant
P R Franco QC, with H Clift, for the respondentsSOLICITORS:
Clayton Utz for the appellant
Minter Ellison for the respondents
FRASER JA: I agree with the reasons for judgment of Mullins JA and the orders proposed by her Honour.
McMURDO JA: With one exception, I agree with Mullins JA. The exception is the question which she has discussed under the heading “Available Coal Stockpile”.
The primary judge was asked to declare that on the proper construction of the IPPA, where in cl 23.4A and cl 23.4B:
(a)there is a reference to a coal stockpile forecast or a stockpile level forecast, that forecast is to be a forecast of the “Actual Coal Stockpile” as defined in the IPPA;
(b)there is a reference to a coal stockpile, that is a reference to the “Actual Coal Stockpile” as defined in the IPPA.
The Actual Coal Stockpile is defined to mean:
“The amount of coal, in tonnes, that is held in a stockpile at GPS and which can be recovered from the stockpile, using normal site facilities at a continuous rate sufficient to operate GPS at its NMC.”
The contract does not stipulate how that quantity of coal is to be derived. The mass of a stockpile may be measured by a volumetric survey. The weight of the stockpile will vary according to its density, which may be measured.[1] By a combination of the volumetric and density survey results, the total tonnage of coal on the stockpile is able to be estimated.[2]
[1]Affidavit of CC Windsor, paragraph 49.
[2]Affidavit of CC Windsor, paragraph 50.
There was evidence that over time, some coal becomes mixed with the earth on which the stockpile is placed. The parties appear to agree that this coal could not be recovered using normal site facilities. I will call this irrecoverable coal.
It is true, as the respondent continues to argue, that the expression Actual Coal Stockpile is a defined term, whereas there is no definition of the terms “coal stockpile forecast”, “stockpile level forecast” and “coal stockpile”. It is also true that the term Actual Coal Stockpile is used only in a few places in the contract. Nevertheless, like the primary judge, I see no obvious reason whereby the parties would have intended to exclude irrecoverable coal in cl 23.5(c)(i), but to include that coal within the “coal stockpile” and “stockpile” when used elsewhere in cl 23.[3]
[3]The 2018 reasons [209].
The expressed purposes of cl 23 are to establish procedures for the procurement of coal for the power station to meet its needs, to minimise exposures to coal price fluctuations and to provide the respondents with the flexibility to acquire low cost coal under contract. The references to a stockpile, including the Actual Coal Stockpile, are part of a coherent scheme under which the procuration of coal is planned and effected. The parties must be taken to have used these different expressions to refer consistently to coal which could be recovered from a stockpile. The respondents’ arguments to the contrary are those which they advanced to the primary judge. For the reasons which he gave,[4] they should be rejected.
[4]The 2018 reasons [206]-[210].
The primary judge referred to evidence, led by CS Energy, from an expert witness that he would measure the irrecoverable coal at 10 per cent of the “survey measured volumes of the stockpile”. His Honour said that there was no expert opinion or factual basis given to support that factor.[5] His Honour ruled, correctly, that this evidence was inadmissible on the present question, which involves the proper construction of the contract.[6] It was that expert’s suggested factor of 10 per cent to which his Honour was referring in the second sentence of this passage of the 2018 reasons:
“[211] It does not follow, therefore, that the “coal stockpile”, or equivalent, referred to in clause 23, apart from the use of Actual Coal Stockpile in clause 23.5(c)(i), is necessarily to be assessed without regard to the recoverability of the coal in the stockpile, on a survey basis only. But it also does not follow that some notional reduction of the quantity of the stockpile, as surveyed, is required based on an allowance for the amount of unusable coal that may be compacted into the pad below the stockpile.”
[5]The 2018 reasons [203].
[6]The 2018 reasons [204].
The judge expressed his opinions in that passage in somewhat guarded language. I would go further. In my view, a consistent measure should be applied to a coal stockpile forecast, a stockpile level forecast or an Actual Coal Stockpile, and one which has regard to the fact of irrecoverable coal. There seems to be no means of measuring precisely the weight of the irrecoverable coal. But nor can the amount of coal in a stockpile as a whole be measured precisely, because the volumetric and density survey results are used in combination to provide an estimate of the total tonnage of coal on a stockpile.
In the second sentence of the passage which I have quoted, his Honour effectively said that the contract did not mandate a certain reduction in the quantity of the stockpile as estimated by the surveys, of the kind suggested by the expert who suggested a notional reduction of 10 per cent. I agree with that statement.
This was the final hearing of (this part of) CS Energy’s case.[7] It involved a question of construction which the judge was to determine with such admissible evidence (if any) as the parties had then tendered.
[7]Under r 483 of the Uniform Civil Procedure Rules 1999 (Qld).
Nevertheless, as his Honour appeared to accept, the process of estimating the number of tonnes of coal had to have regard to the presence of irrecoverable coal. That was the point of the controversy between the parties, which CS Energy wanted resolved by the declarations which it sought. Those declarations would not have precluded the possibility of a further controversy about the quantification of the number of tonnes. Still, they would have some utility. Consequently, there should have been declarations made as CS Energy had sought in paragraph 5A of its Originating Application.
MULLINS JA: The appellant and the respondents are parties to a long term contract known as the Interconnection and Power Pooling Agreement (the IPPA) that was amended in 2009 and 2011. Clause 1.1 of the IPPA sets out in the annex to the IPPA the definitions of the words and expressions used in the IPPA, unless the context otherwise requires. When I refer to a word or expression defined in the annex for the first time in these reasons, it will appear commencing with capital letters and in quotation marks, but thereafter will commence with capital letters.
The appellant is the successor to Stanwell Corporation Limited and “Stanwell” is defined in the IPPA to mean “Stanwell Corporation Limited or its lawful successors and assigns from time to time”. The respondents are referred to as the “Participants” in the IPPA. The appellant and the respondents are the current “Parties” under the IPPA. The “Initial Period” of the IPPA commenced on the “Date of Transfer” which is defined in the annex to mean 30 March 1994 and expires 35 years from the Date of Transfer, unless earlier terminated as set out in in clause 2.2.
The proceedings between the parties commenced with the originating application filed by the respondents in proceeding 13392 of 2017. It was ordered on 20 December 2017 that paragraphs 1 to 5, 7, 9, 11 and 13 of that originating application be set down for hearing before Jackson J and that otherwise the originating application be adjourned to a date to be fixed. At the same time, directions were made requiring the appellant to file an originating application seeking the relief sought in identified paragraphs of the respondent’s notice of referral of disputes dated 14 November 2017 and that originating application be heard at the same time by Jackson J. The respondents were permitted to amend those paragraphs of the originating application that were set down for hearing. On the first day of the hearing, leave was given by the learned primary judge to the respondents to amend further their originating application. The appellant filed proceeding 761 of 2018 in accordance with the directions. The appellant’s originating application was also amended on the first day of the hearing before the primary judge. One of the amendments was to add paragraph 5A. The appellant pursued at the hearing before the primary judge the relief sought in paragraph 5A in lieu of the relief sought in paragraph 5. None of the deponents of the affidavits relied on before the primary judge was required for cross-examination. The parties agreed that particular evidence would not be relied on for the purpose of the hearing (that was set out in the table marked for identification “A” before the primary judge). There were therefore no factual disputes to be decided by the primary judge.
Although some of the directions and orders referred to the hearing before the primary judge as a preliminary hearing, it was preliminary only in the sense of being in advance of the hearing of the balance of the issues that remained to be decided in the proceedings after the hearing before the primary judge. It was by way of final hearing that the primary judge determined in both proceedings the separate questions as to the construction of the IPPA: GPS Power Pty Ltd & Ors v CS Energy Ltd [2018] QSC 294 (the 2018 reasons). The 2018 reasons dealt with the appellant’s amended originating application filed in proceeding 761 of 2018 and the respondents’ further amended originating application filed in proceeding 13392 of 2017. The parties provided written submissions on the form of the relief that should be ordered, as a result of the 2018 reasons, but then asked the primary judge to defer dealing with those submissions. The parties were unable to agree between themselves and the primary judge later determined what relief should be granted: GPS Power Pty Ltd & Ors v CS Energy Ltd [2020] QSC 93 (the 2020 reasons). Orders were made on 1 May 2020 in both proceedings.
The appellant appeals against only some of the orders made in both proceedings. Grounds 1 to 3 are identical in both appeals. The notice of appeal in relation to the 2018 reasons also includes grounds 4 to 6. The respondents have filed a notice of contention in the appeal in respect of the decision to dismiss paragraph 5A of the amended originating application in proceeding 761 of 2018 and contend that the dismissal should be affirmed on a ground other than a ground relied on by the primary judge.
Background
The respondents are the owners of the Gladstone Power Station which is referred to in the IPPA as “GPS”. GPS is Queensland’s largest power station. In 1982, it became the source of electricity for the Boyne Aluminium Smelter (which is referred to in the IPPA as the “Smelter”). The Smelter is Queensland’s largest individual user of electricity. The Smelter is owned by “BSL” which means Boyne Smelters Limited. Since the end of 1998, electricity for the Smelter has been obtained from the National Electricity Market (NEM). The appellant is a Queensland Government owned electricity provider and the “Nominated Generator” for GPS under the “Rules” governing the NEM. Rules is defined in the annex to mean the National Electricity Rules under part 7 of the “National Electricity Law”, as amended from time to time in accordance with that part. National Electricity Law is also defined in the annex and means the National Electricity (Queensland) Law as defined in the Electricity – National Scheme (Queensland) Act 1997 (Qld).
The history and the manner of operation of GPS are described in general terms at [3]-[16] of the 2018 reasons. The operational limits of, and constraints on, the capacity of GPS are described in general terms at [17]-[19] of the 2018 reasons. They include the specification and configuration of the six “Units” of GPS, the constraints of the coal handling and storage facilities, the availability, suitability and reliability of supplies of coal and the scheduling of trains on the rail network. A Unit is defined in the annex to mean “any one of the six steam boiler/turbine/alternator units comprised within GPS”.
The acquisition of GPS by the Participants in March 1994, the entry by Queensland Electricity Commission (QEC) and the Participants into the original IPPA (which the primary judge sometimes referred to as the 1994 IPPA) and other contracts and the importance of the uninterrupted supply of electricity to the operation of the Smelter are referred to at [21]-[28] of the 2018 reasons. The primary judge summarised the operation of the NEM and the resulting amendments to produce the 2009 IPPA: see [47]-[57] of the 2018 reasons. The making of significant amendments to the IPPA in 2009 and further amendments in 2011 are outlined in [30]-[32] of the 2018 reasons. The primary judge noted (at [59] of the 2018 reasons) that the changes made in the 2009 IPPA included new clauses 5A, 6.3, 23.4A, 23.4B and 23.4C.
The relationship between the appellant and the respondents with respect to both GPS, dealing with electricity generated at GPS, and the supply of electricity to the Smelter is regulated by the IPPA together with other contracts. The primary judge referred (at [26] of the 2018 reasons) to the series of contracts in standard form made between QEC and each respondent that is referred to as a “Capacity Purchase Agreement” or “CPA”. The appellant dispatches the whole of GPS’ output into the NEM in accordance with the 2009 IPPA: see [58] of the 2018 reasons.
By clause 8.1 of the IPPA, the appellant is required to purchase electricity on the NEM in an amount equivalent to the actual load of the Smelter. That electricity is purchased by the appellant at the substation for the Smelter for delivery to the respondents and from that point it is transmitted continuously to the Smelter in accordance with clause 7. The appellant is also required to provide “Capacity Support” to the respondents pursuant to clause 9 in the event that “Smelter Demand” exceeds “Available BSL Allocated Capacity”. Capacity Support is defined in the annex to mean the capacity provided by the appellant “to make up any shortfall between the Available BSL Allocated Capacity and the Smelter Demand at any given time (including associated Transmission Losses)”. Available BSL Allocated Capacity is defined in the annex to mean “the amount of the BSL Allocated Capacity that is deemed to be available to the Participants in any half-hour period as determined in accordance with Schedule 16”. “Transmission Losses” is defined in the annex to mean “Active Energy” losses occurring in the “State System” transmission facilities. Active Energy is defined in the annex to mean the electrical energy produced, flowing or supplied by an electrical circuit during a time interval that is measured in a specified manner.
A key benefit for the appellant under the IPPA lies in its rights in respect of “Contract Energy” generated at GPS from the “Total Contract Capacity”. Contract Energy is defined in the annex to mean energy generated at GPS from the Total Contract Capacity and delivered to the appellant pursuant to the IPPA. Total Contract Capacity is the amount of capacity of GPS calculated in accordance with clause 8.3. That is, in effect, the excess capacity of GPS after providing for the Smelter which the appellant is entitled to trade for profit on its own account. The appellant pays the respondents in respect of this capacity. The extent to which the appellant is able to trade on its own account is a function of the “Availability” of GPS. Availability is defined in the annex to mean “the actual operational capability of generating plant to generate and export power into the Power System regardless of whether such plant is electrically connected to the Power System, and Available and Unavailable shall be construed accordingly”. “Power System” is defined in the annex to have the meaning given to the term power system in the Glossary of the Rules. As the Availability of GPS decreases, the Contract Energy available to the appellant also decreases.
The generation of electricity at GPS requires the burning of coal and coal availability is relevant to the Availability of GPS. The cost of coal used in the operation of GPS is borne principally by the respondents, subject to the operation of clause 23 of the IPPA.
There is no challenge to the primary judge’s description of the dispute between the parties that resulted in the issues agitated before the primary judge and which is set out at [62] of the 2018 reasons:
“The parties are in dispute about the operation of clauses 5A and 23. In particular, CS Energy contends that the Participants have failed to procure coal and maintain the stockpile in accordance with clause 23.4A(c) and 23.4B and that has compromised the “flexibility” of dispatch of GPS, apparently meaning that CS Energy has not been able to dispatch the Contract Capacity as Contract Energy at times when it would have been advantageous to CS Energy to do so. However, the scope of the dispute was not better defined for the purpose of this hearing, except for an assertion that because CS Energy was unable to avail itself of trading opportunities in the electricity market it has suffered revenue losses in the order of tens of millions of dollars.”
The appeal concerns the construction of aspects of clause 23 which addresses the procurement and management of coal and, more particularly, whether references to the “Station Annual Forecast” in clauses 23.4A and 23.5 are references to a discrete value, or to a range of values bounded by the upper and lower estimates referred to in clause 5A.3(b)(ii) of the IPPA. The appeal also concerns the construction of “coal stockpile forecast” or “stockpile level forecast” in clauses 23.4A and 23.4B.
The relief sought by the appellant
Relevantly, the primary judge dismissed paragraphs 1, 2 and 5A of the amended originating application in proceeding 761 of 2018. To the extent necessary, the appellant seeks to have those orders set aside and, in lieu, the declarations made that are set out in paragraphs 3, 4 and 5 of the notice of appeal:
“3.A declaration that on the proper construction of the IPPA, each of the following includes a reference to the Upper Estimates and the Lower Estimates:
(a)the reference in cl. 23.4A(b) to ‘the final Station Annual Forecast pursuant to Clause 5A.6’;
(b)the reference in cl. 23.4A(c) to ‘so that the Station Annual Forecast can be met’;
(c)the reference in each of cl. 23.5(a)(i) and cl. 23.5(b)(i) of the lPPA to the phrase ‘to meet the Station Annual Forecast’; and
(d)the reference in cl. 23.5(c)(i) to ‘if GPS was dispatched in accordance with the Station Annual Forecast’.
4.A declaration that on the proper construction of the IPPA, cl. 23.4A(b) requires the Respondents to prepare the Annual Coal Procurement Plan taking into account that part of the Station Annual Forecast constituted by the Upper and Lower Estimates.
5.A declaration that on the proper construction of the IPPA, where in cll. 23.4A or 23.4B:
(a)there is reference to a coal stockpile forecast or a stockpile level forecast, that forecast is to be a forecast of the ‘Actual Coal Stockpile’ as defined in the IPPA;
(b)there is a reference to a coal stockpile, that is a reference to the ‘Actual Coal Stockpile’ as defined in the IPPA.”
In proceeding 13392 of 2017, the primary judge made a declaration in the following terms:
“It is declared that upon the proper construction of the 2009 IPPA, none of the following includes a reference to the Upper Estimates or the Lower Estimates:
a)the reference in each of clauses 23.4B(a)(i), 23.4B(a)(ii) and 23.4B(b)(i) to ‘anticipated levels of dispatch as disclosed in the Station Annual Forecast’;
b)the reference in each of cl. 23.4B(a)(ii) and cl. 23.4B(b)(ii) to ‘the level of dispatch identified in the Station Annual Forecast’;
c)the reference in cl. 23.4A(c) to ‘so that the Station Annual Forecast can be met’;
d)the reference in each of cl. 23.5(a)(i) and cl. 23.5(b)(i) to the phrase ‘to meet the Station Annual Forecast’; and
e)the reference in cl. 23.5(c)(i) to ‘if GPS was dispatched in accordance with the Station Annual Forecast’.”
In its notice of appeal in respect of proceeding 13392 of 2017, the appellant seeks to have paragraphs (c), (d) and (e) of that declaration set aside. The appellant does not challenge the primary judge’s conclusion (at [189] of the 2018 reasons) that the parties did not intend that either the upper estimate or the lower estimate should be taken into account in the reference to “the anticipated levels of dispatch as disclosed in the Station Annual Forecast” or “the level of dispatch identified in the Station Annual Forecast” in clause 23.4B(a) and (b).
It should be noted that both notices of appeal capitalise Upper Estimates and Lower Estimates, as those terms are defined for the purpose of each notice of appeal as commencing with capital letters. Those terms are neither defined nor capitalised in the IPPA.
Grounds of appeal
The appellant has grouped the grounds according to topic and helpfully given many of the topics a shorthand description which I will also use in addressing the submissions on the topics:
(a)failure to apply the definition of Station Annual Forecast;
(b)failure to interpret clause 23.4A(c) consistently with clause 23.4A(b) and failure to distinguish clauses 23.4A(e) and (f) and clause 23.4B;
(c)failure to address or attribute any significance to the use in clause 23.4A(c) of “Good Operating Practice”;
(d)the significance of the phrase “can be met” in the expression in clause 23.4A(c) of “so that the Station Annual Forecast can be met”;
(e)background facts concerning coal supply contracts;
(f)reasoning as to risk;
(g)other provisions supporting the appellant’s interpretation;
(h)the relevance of the purpose of clause 23 set out in clauses 23.1(b) and (c);
(i)error in the exercise of the primary judge’s discretion in acting on the concession made by the respondents;
(j)clauses 23.5(a)(i), 23.5(b)(i) and 23.5(c)(i);
(k)error in respect of Available Coal Stockpile.
All but the third last and last of the above topics are concerned with the construction of Station Annual Forecast in relevant clauses of the IPPA.
Key provisions of the IPPA
Pursuant to clause 1.6 of the IPPA, headings and recitals are ignored in the construction of the IPPA.
Under clause 5.1(b), the appellant must perform its obligations under the IPPA, where relevant, in accordance with Good Operating Practice. There is an extensive definition of Good Operating Practice in the annex.
Clause 5.2 sets out the Participants’ duties. Clause 5.2(a) provides:
“The Participants shall operate and maintain GPS in accordance with Good Operating Practice and Schedule 1 and in a manner suitable for operation in the Power System, including the securing of adequate fuel supplies (subject to Clause 23) and other materials, and (subject to their obligations under the relevant Transaction Documents) the disposal of by-products and waste.”
Clause 5.3 provides for the “Operator” which is authorised on behalf of the respondents to coordinate the execution of the “Performance Obligations” of the respondents and to issue invoices and receive payments on behalf of each of the respondents under the IPPA.
An “Operations Committee” was established by the Parties pursuant to clause 5A.1 and given the functions set out in clause 5A.1(b). The function specified in clause 5A.1(b)(ii) is for the Operations Committee to make a determination pursuant to clause 23.4B(c). Under clause 5A.3(a), the appellant must prepare and provide to the respondents no later than 6 July in each “Contract Year” a draft of the Station Annual Forecast together with such supporting material as the appellant, in its discretion, considers appropriate. Contract Year is defined in the annex to mean relevantly a calendar year. Clause 5A.3(b) then sets out in subparagraphs (i) to (v) the information that the appellant must ensure the Station Annual Forecast includes. Subparagraphs (i) and (ii) provide for:
“(i)the anticipated level of dispatch of GPS on a sent-out basis for the next year on a Monthly basis and such levels on an indicative yearly basis for the remaining four (4) Contract Years;
(ii)(in order to assist in coal procurement and planning) the upper and lower estimates of dispatch of GPS on an annual basis for the next five (5) Contract Years (or such further period as the Parties may agree)”.
The other information required by subparagraphs (iii), (iv) and (v) of clause 5A.3(b) covers the anticipated level of “Non-market Ancillary Services” for the next year on a Monthly basis and on an indicative yearly basis for the remaining four Contract Years, the indicative number of “Units” to be committed on a Monthly basis for the next Contract Year, and an indicative profile showing the level of dispatch on a sent-out basis in each “Trading Interval” of a “Trading Day” which is representative of the average daily dispatch for each Month of the next Contract Year. Non-market Ancillary Services is defined in the annex to have the meaning given to the term non-market ancillary service in the Glossary of the Rules. The annex gives the respective meanings to Trading Day and Trading Interval that are given to those like terms in the Glossary of the Rules.
Clause 5A.3(b) also provides that, unless the parties otherwise agree, the appellant must ensure that information provided pursuant to clause 5A.3 is in the form provided in Schedule 8 Part 1. The form in Part 1 of Schedule 8 has two sections. The first section is a table for Contract Year 1. The first column of the table is for Generated Energy (Sent Out Basis) – GPS Units in gigawatt hours, followed by a column for Details of Non-Market Ancillary Services, the next column is for Generated Energy (Sent Out Basis) – Combustion Turbine in megawatt hours and the last column is for Number of Committed Units (1 to 6). “Combustion Turbine” is defined in the annex to mean the combustion turbine of 14 megawatts nominal capacity installed at, and associated with, GPS. (At the hearing of the appeal, the respondents made the point that the Combustion Turbine was not a coal turbine. There was some uncertainty as to the type of combustion turbine it actually is, but Mr Pomerenke of Queen’s Counsel who appears with Mr O’Regan of Counsel for the appellant obtained instructions that it is a diesel turbine.)
The first column has three sub-headings. The first sub-heading requires the amount of Generated Energy on the Sent Out Basis to be completed on a monthly basis and with an annual total. There are also sub-headings for Upper Estimate Sent Out Basis and Lower Estimate Sent Out Basis, but only annual totals are required at the end of each of the columns for those sub-headings. In other words, there is no requirement for monthly estimates under these sub-headings.
The second section of the form deals with Contract Years 2 to 5 and only requires the Annual Generated Energy (Sent Out Basis) – GPS Units in gigawatt hours on the Sent Out Basis, the Upper Estimate Sent Out Basis and Lower Estimate Sent Out Basis for each Contract Year (and not for any shorter period than the Contract Year such as a month). Some guidance on completing this form is given by clause 5A.3(b)(i) which requires the Station Annual Forecast to include the anticipated level of dispatch of GPS on a sent out basis on an “indicative” yearly basis for Contract Years 2 to 5. The second column of this section of the form is headed Details of Non-Market Ancillary Services and only requires those details for each Contract Year. The last column of this section of the form is for Generated Energy (Sent Out Basis) – Combustion in megawatt hours and again only requires those details for each Contract Year.
The reference to upper estimate and lower estimate appears in the IPPA only in the form in Schedule 8 Part 1 and clause 5A.3(b)(ii).
Pursuant to clause 5A.3(c), the appellant must prepare the Station Annual Forecast in good faith, taking into account the “GPS Forecast Data” provided to the appellant under clause 23.3, in particular the “Planned Outage Schedule” and “Major Refurbishment Outage Schedule”, and the impact of generation levels and dispatch profile on long-term Unit performance. GPS Forecast Data is defined in the annex to mean the information prescribed in accordance with Schedule 13 for each of the succeeding five Contract Years. Planned Outage Schedule (POS) is defined in the annex to mean “a schedule for the planned Unavailability of GPS determined in accordance Clause 17.2 for the carrying out of maintenance”. Major Refurbishment Outage Schedule is similarly defined in the annex to mean a schedule for “Major Refurbishment” to be carried out to GPS as drawn up in accordance with clause 17. There are related definitions in the annex for Major Refurbishment and “Major Refurbishment Outage”. In addition to the Planned Outage Schedule and Major Refurbishment Outage Schedule, the GPS Forecast Data includes forecasts of maximum demand of, and total energy sales to, the Smelter, the “NMC” for each Unit, minimum operational load on each Unit, “Heat Rate” for each Unit on a sent out basis and data that is pertinent to existing coal and coal transport contracts including expected coal delivery schedule. NMC is short for “Net Maximum Capacity” which is defined in the annex to mean “the maximum continuous capacity of any Generating Unit, expressed in MW sent out which in the case of GPS, shall be determined in accordance with Clause 18.1”. Heat Rate is defined in the annex to mean in relation to any generating plant, the rate at which the heat content of a given fuel is converted into a given amount of Active Energy.
The appellant is obliged under clause 5A.4 to prepare and provide to the respondents by Wednesday of each week in a Contract Year the “Commitment and Dispatch Estimate” which must provide information, on a daily basis for the first week of the following eight weeks, and on a weekly basis for the remaining seven weeks. The information that must be included is then set out in clause 5A.4(b). That information corresponds to the information that must be included in the Station Annual Forecast under subparagraphs (i), (iii), (iv) and (v) of clause 5A.3(b). Clause 5A.4(b) also provides that, unless the Parties otherwise agree, the information provided pursuant to clause 5A.4 must be in the form provided in Schedule 8 Part 2. The form in Part 2 of Schedule 8 has two sections. The first section is a table for the Commitment and Dispatch Estimate for week 1. For each day of that week, each of the columns must be completed. The first column is Generated Energy (Sent Out Basis) – GPS Units in gigawatt hours, followed by a column for Detail of Non-Market Ancillary Services, the next column is for Generated Energy (Sent Out Basis) – Combustion Turbine in megawatt hours, the next column is for Number of Committed Units (1 to 6), and the last column is for Dispatch Profile for the Station.
The second section of the form deals with the Commitment and Dispatch Estimate for each of weeks 2 to 8. The same headings for week 1 apply to this part of the form, but the form only requires the details on a weekly basis for each week.
Clause 5A.4(c) provides for the appellant to prepare the Commitment and Dispatch Estimate in good faith taking into account the matters mentioned in subparagraphs (i) to (vii). Subparagraph (iv) requires the appellant to take into account the “Monthly Coal Procurement Plan” and the “Revised Monthly Coal Stockpile Forecast” and subparagraph (v) requires the appellant to take into account the Station Annual Forecast.
There is a process for review of the draft Station Annual Forecast provided for in clause 5A.5 that involves the Operations Committee. Under clause 5A.5(a), no later than 10 “Working Days” after the Participants have received the draft Station Annual Forecast (or such later date as the Parties may agree), the Participants (acting reasonably) may request that the appellant provide information relevant to the physical basis of the Station Annual Forecast to assist the Participants’ review of the Station Annual Forecast. There is an explanation of “physical basis” within the clause itself as those physical factors which the appellant “considers material to the development of the Station Annual Forecast, for example seasonal factors, new generation, load growth and transmission constraints”. Working Day is defined in the annex to mean “a day, other than a Saturday, Sunday or public holiday, upon which banks (as that term is defined in the Banking Act 1959) are open for business in Brisbane”.
There is provision for the Participants to provide comments on the draft Station Annual Forecast under clause 5A.5(b) and, if there are comments, the Operations Committee meets to review the draft Station Annual Forecast pursuant to clause 5A.5(c). As a result of such a meeting or otherwise at any time prior to 1 September in the relevant year, the appellant is permitted (but not obliged) pursuant to clause 5A.5(d) to amend the draft Station Annual Forecast which it must then provide to the Participants.
Confirmation of the Station Annual Forecast is then provided for in clause 5A.6:
“(a)Prior to 15 September in the relevant year (and thereafter no later than ten (10) Working Days after the approval of an Allowed Adjustment) Stanwell shall prepare and provide to the Participants and the Operations Committee the consolidated Station Annual Forecast relevant to the Contract Year, or, (in relation to the draft Station Annual Forecast) shall confirm that the draft Station Annual Forecast is to be the Station Annual Forecast for the next Contract Year.
(b)The Station Annual Forecast provided or confirmed by Stanwell pursuant to Clause 5A.6(a) shall be the Station Annual Forecast until such time as it is amended pursuant to Clause 5A.9.”
The meaning of “Allowed Adjustment” is found in clause 5A.7 which provides that at any time after the Station Annual Forecast for a Contract Year is established under clause 5A.6, a party by written notice to the other party may request adjustments to the Station Annual Forecast for the relevant Contract Year to reflect any material changes that affect the Station Annual Forecast for that Contract Year. The Allowed Adjustment must therefore be concerned with Contract Year 1, as that gives a sensible interpretation to “the Station Annual Forecast for a Contract Year established under clause 5A.6” where the latter clause expressly refers to the Station Annual Forecast for the next Contract Year” which is Contract Year 1. Clause 5A.7 further provides that the party who makes the request for an adjustment must include in the request supporting documentation sufficient to permit the other party to review and comment upon the proposed Allowed Adjustment. The timing for a request for an Allowed Adjustment is covered by clause 5A.8. Clause 5A.9 deals with the process of approval by the Operations Committee or the “Co-ordination Committee” of the requested Allowed Adjustment. The Co-ordination Committee is established pursuant to clause 16.1. Under clause 5A.9(b), either the Operations Committee or the Co-ordination Committee may decide that a requested Allowed Adjustment is not necessary or not appropriate, in which case it is not made. Clause 5A.10 provides for the impact of an Allowed Adjustment that is made under clause 5A.9.
Clause 6.1 provides that declarations of Availability of GPS by the respondents shall be in accordance with Schedule 3. Clause 3.1 of Schedule 3 Part 1 requires the respondents to provide the “Weekly Availability Forecast” to the appellant by 10.00 hrs on the Working Day immediately preceding each Saturday, in a form to be agreed between the parties. Clause 3.1(b) provides:
“The Weekly Availability Forecast shall specify the anticipated Availability of each Unit and where applicable the Combustion Turbine for the period of seven (7) days from and including the relevant Saturday and shall include the following details:
(i)the time at which any Unit will become Unavailable, the relevant Derating Condition, the extent of the Unavailability and the expected duration of the Unavailability;
(ii)the Unit Status attributable to each Outage;
(iii)the then current Actual Coal Stockpile at GPS and the expected delivery of coal for the next eight weeks;
(iv)confirm any Outages in respect of Units previously arranged with Stanwell;
(v)Departures of ramp rates from standard and nomination of Units selected to high ramp rate and Units selected to low ramp rate; and
(vi)changes from the Notified Smelter Demand in accordance with Clause 6.2(b).”
Clause 6.2(a)(i) notes that, as the appellant is the Nominated Generator for GPS, it is “responsible for the commitment and decommitment of the Units and the Combustion Turbine”. Clause 6.2(a)(ii) then provides for the circumstances in which the respondents may withdraw a Unit or the Combustion Turbine from service or otherwise reduce the Available Capacity of GPS in cooperation with the appellant.
Clause 6.3(a) provides:
“Subject to Clause 6.3(d), Stanwell may make GPS Dispatch Offers and GPS Rebids in respect of the Available Capacity of GPS into the Spot Market and, subject to Clause 21, Stanwell is entitled to receive all monies in relation to the Availability of GPS and dispatch of Available Capacity of GPS including:
(i)Trading Amounts;
(ii)monies payable by System Control for provision of Ancillary Services; and
(iii)all other compensation, revenue and amounts in respect thereof payable by System Control or third parties under the Rules or otherwise.”
Clause 6.3(b) deals with the frequency with which the appellant may submit a Dispatch Offer and one or more Rebids. That entitlement is at the appellant’s discretion “to maximise its overall revenue and profit position on a power station by power station or portfolio basis”, but is subject to the appellant’s compliance with the restrictions in clause 6.3(d) and taking into account the appellant’s obligations under clause 7 and the provisions of clause 23.4B. There are constraints on the appellant in exercising the entitlement under clause 6.3 that are set out in paragraphs (c) and (d).
Clause 6.3(c) provides:
“Stanwell shall use reasonable endeavours to submit GPS Dispatch Offers, GPS Rebids and Non-market Ancillary Services Offers that:
(i)are based upon the relevant Notified Availability for the Trading Day;
(ii)are consistent with the operating limits established pursuant to this Agreement, including the Technical Specifications;
(iii)have regard to the Commitment and Dispatch Estimate for the Trading Day; and
(iv)have reasonable regard to opportunities to optimise the supply of Economy Purchase Energy to the Participants.”
The restrictions set out in clause 6.3(d) preclude the appellant from submitting GPS Dispatch Offers or GPS Rebids under clause 6.3(c) which are likely to cause a Unit or the Combustion Turbine to be dispatched where the respondents have, exercising reasonable judgement, advised the appellant that such dispatch may result in identified failures or risks such as failure to comply with the respondents’ health and safety obligations, a risk of significant loss or damage to plant and equipment or a failure by the respondents to meet the requirements of Good Operating Practice. Under clause 6.3(e), if the appellant submits GPS Dispatch Offers or GPS Rebids in breach of clause 6.3(d), the respondents have the right to withdraw a Unit or the Combustion Turbine or otherwise reduce the available capacity of GPS to the extent that the offers or rebids are in breach of clause 6.3(d).
Clause 11.1 regulates the circumstances in which the respondents are required to or may operate the Combustion Turbine. Clause 12.1 regulates the circumstances in which the appellant is entitled to provide Ancillary Services to “System Control”. System Control is defined in the annex to mean “AEMO or such other entity that may at any time and from time to time operate and administer the Market in accordance with the Rules”. Paragraph (c) of clause 12.1 deals with the circumstances where the respondents must comply with a direction or instruction from the appellant to provide a Non-market Ancillary Service.
Clause 14.1 deals with payment statements. Under clause 14.1(a), the appellant must on each “Monthly Statement Date” prepare and submit to the Operator a statement specifying in respect of the relevant preceding Month the sums due from the respondents to the appellant in respect of the Charges specified in subparagraph (i), the Heat Rate Protection Payments due from the appellant to the respondents, the sums due from one Party to another Party for the “Stockpile Incentive Payment”, and any other charges or payments that may become due pursuant to the IPPA. Stockpile Incentive Payment is defined in the annex as having the meaning set out in paragraph 10.11 of Schedule 16. Paragraph 10.11 sets out a formula calculating the Stockpile Incentive Payment for any Month. The formula requires the Stockpile Level for the relevant Month. Schedule 16 has its own set of definitions and Stockpile Level “is the end of month coal stockpile level based on a bi-monthly physical measurement on a tonnes basis as reported in the Operators Monthly Report”.
Clause 18.1 provides that at the Date of Transfer the NMC of GPS shall be deemed to be 1613 megawatts which shall apply until a revised NMC is determined pursuant to clause 18.
The purpose of clause 23 is set out in clause 23.1:
“The purpose of this Clause 23 is to establish procedures for the procurement of coal for GPS and the management of the associated coal risks with a view to:
(a)deleted intentionally;
(b)minimising the long term costs of electricity generation to meet the requirements of the Smelter and Stanwell;
(c)ensuring that there are adequate supplies of coal to meet the Station Annual Forecast and the actual generation requirements of GPS;
(d)minimising BSL’s and Stanwell’s exposure to coal price fluctuations; and
(e)providing the Participants with the flexibility to acquire low cost coal under contract.
Reference may be made to this Clause 23.1 in order to assist the resolution of any dispute or difference between the Parties concerning the terms or application of this Clause 23.”
There is an acknowledgement by the Parties in clause 23.2(a) of the coal supply and transport arrangements in respect of GPS that were put in place as at the Date of Transfer and that the coal forming the subject matter of those contracts and which were subject to take or pay obligations under the contracts was agreed to be “Committed Coal” for the relevant purposes. There is an acknowledgment then in clause 23.2(b) of the fact those initial coal supply arrangements had either terminated or expired and that various other contracts had been entered into by the Participants pursuant to clause 23.5(e) for the supply of coal to GPS and that under clause 23.5(d) the minimum coal deliveries under those contracts are regarded as Committed Coal for the relevant purposes. Committed Coal is defined in the annex to mean the coal that must be taken or paid for pursuant to contracts entered into by the respondents pursuant to the procedures established under clause 23 for use at GPS, including coal purchased as contemplated in clause 23.2.
Under clause 23.3(a), the respondents must provide the GPS Forecast Data to the appellant by 15 March of each year (or such other date as the parties agree). Paragraphs (b) and (c) of clause 23.3 provide:
“(b)In addition, by 15 March of each year or such other date as the Parties may agree, the Participants shall if requested by Stanwell upon not less than sixty (60) days’ written notice, and may in any event, provide to Stanwell for each of the next five (5) succeeding Contract Years, the anticipated cost of additional delivered coal for the purpose of longer range dispatch forecasting based on a range of annual coal consumption estimates notified to the Participants by Stanwell.
(c)No later than 15 June in each year the Participants shall confirm or revise the GPS Forecast Data for the next Contract Year provided to Stanwell under Clause 23.3(a) by giving notice of the confirmation or revisions to Stanwell, together with such information supporting the GPS Forecast Data as Stanwell may reasonably require.”
The timing of the Station Annual Forecast is linked to the provision of the GPS Forecast Data, as clause 23.3(d) requires the appellant, following receipt of, and having regard to the GPS Forecast Data, to “provide the Station Annual Forecast to the [respondents] in accordance with Clause 5A to assist in coal procurement and planning, for each of the succeeding five (5) Contract Years or such longer period as the Parties may agree”.
Under clause 23.4A(a) the respondents are required to prepare and provide to the appellant by 15 October of each year (or such other date as the parties may agree) their “Annual Coal Procurement Plan” for the next Contract Year.
Paragraphs (b) and (c) of clause 23.4A then provide:
“(b)The Participants shall prepare the Annual Coal Procurement Plan in good faith, taking into account the final Station Annual Forecast pursuant to Clause 5A.6.
(c)It is the responsibility of the Participants to manage, at their discretion, the overall supply of coal using Good Operating Practice so that the Station Annual Forecast can be met.”
Clause 23.4A(d) provides:
“Each Annual Coal Procurement Plan shall include the following:
(i)changes to coal information provided in the GPS Forecast Data relevant to details of maximum and minimum contracted volumes, anticipated delivery schedule and price for all contracts for the supply of coal for the next Contract Year;
(ii)changes to coal information provided in the GPS Forecast Data relevant to anticipated delivery schedules (in tonnes per month) for deliveries of coal to GPS in the next Contract Year; and
(iii)the Participants’ anticipated end of month coal stockpile forecasts for the next Contract Year, on a month by month basis, (‘Projected Monthly Coal Stockpile Forecast’).”
The respondents must also, pursuant to clause 23.4A(e), prepare and provide to the appellant by the last Working Day of each Month (or such earlier date as the Operations Committee may agree) a revised coal procurement plan for each of the next two Months which is the “Monthly Coal Procurement Plan”. Under clause 23.4A(f), each Monthly Coal Procurement Plan must include an anticipated end of Month GPS coal stockpile forecast for each of the next two Months which is referred to as the “Revised Monthly Coal Stockpile Forecast”, taking into account the anticipated levels of dispatch as disclosed in the most recent Commitment and Dispatch Estimate.
Clause 23.4A(g) expressly provides that it is the respondents’ and the appellant’s intention to maintain the coal stockpile at GPS within a range between 300,000 tonnes and 800,000 tonnes which is referred to as the “Acceptable Coal Stockpile Range”.
Clause 23.4B(a) then provides for the rules for stockpile management. It sets out what happens, subject to clause 23.4B(c), if the Revised Monthly Coal Stockpile Forecast for any given Month is less than 300,000 tonnes. The purpose of doing so is specified in each of subparagraphs (i) and (ii) as:
“in order to ensure that so far as practicable the coal stockpile is maintained within the Acceptable Coal Stockpile Range and that in any event, the Revised Monthly Coal Stockpile Forecast is brought within the Acceptable Coal Stockpile Range by no later than the third (3rd) Month after the Month in which the relevant Revised Monthly Coal Stockpile Forecast is given”
Clause 23.4B(b) sets out what happens, subject to clause 23.4B(c), if the Revised Monthly Coal Stockpile Forecast for any given Month is greater than 800,000 tonnes. The purpose of so doing is specified in each of subparagraphs (i) and (ii) as:
“in order to ensure that so far as practicable the coal stockpile is maintained or is brought within the Acceptable Coal Stockpile Range and in any event does not at any time exceed 900,000 tonnes and is brought within the Acceptable Coal Stockpile Range by no later than the third (3rd) Month after the Month in which the relevant Revised Monthly Coal Stockpile Forecast is given; or”
Clause 23.4B(c) provides:
“If the Revised Monthly Coal Stockpile Forecast for any Month is not within the Acceptable Coal Stockpile Range and either Party acting reasonably believes that this is attributable to a combination of:
(i)the levels of dispatch of power at GPS (taking into account the anticipated levels of dispatch as disclosed in the most recent Commitment and Dispatch Estimate); and
(ii)either:
(A)the deliveries of coal arranged by the Participants; or
(B)a reduction in the Availability of GPS below the forecast availability,
then either Party may refer the matter to the Operations Committee for a determination as to what steps should be taken by the Parties to bring the coal stockpile within the Acceptable Coal Stockpile Range having regard to the mechanisms listed in Clauses 23.4B(a) and 23.4B(b) and giving due weight to the circumstances that gave rise to the anticipated coal stockpile at GPS being outside the Acceptable Coal Stockpile Range.”
Clause 23.4B(d) then sets out the consequences for the purposes of calculating amounts payable by the appellant under the IPPA, if a Party is required to procure additional coal to satisfy the requirements of clause 23.4B(a). Clause 23.4B(e) refers to the payment of any Stockpile Incentive Payment that is subject to clause 23.4B(f) which specifies that the appellant shall not be liable to pay the Stockpile Incentive Payment to the respondents to the extent that clause 23.4B(b)(ii) applies.
The provisions under clause 23.4B are supplemented by clause 5A.10(a)(v) in circumstances where, as a result of an Allowed Adjustment under clause 5A.9, the affected Party issues a Revised Monthly Coal Stockpile Forecast on the basis of the Allowed Adjustment. Clause 5A.10(a)(v) then applies if, under the Revised Monthly Coal Stockpile Forecast, an anticipated end of Month GPS coal stockpile forecast is outside the Acceptable Coal Stockpile Range and that involves having regard to the relevant paragraphs to clause 23.4B and the circumstances which gave rise to the request for an Allowed Adjustment pursuant to clause 5A.7.
Clause 23.4C deals with the circumstances where the appellant may by written notice advise the respondents that it wishes to supply coal in addition to Committed Coal to GPS and that is referred to as “Stanwell Short Term Coal”.
Pursuant to clause 23.5(a), the appellant may request that the Parties meet to identify and evaluate prospective coal supply options that may be available to the respondents to meet a projected shortfall in the amount of coal under contract to meet the Station Annual Forecast, an Allowed Adjustment under clause 5A.9 or the requirements of clause 23.4B.
Clause 23.5(b) then provides:
“If the Participants first notify Stanwell, the Participants may decide to seek bids for coal for GPS:
(i)to meet a projected shortfall in the amount of coal under contract to meet the Station Annual Forecast;
(ii)to meet an Allowed Adjustment under Clause 5A.9 (via 5A.10(a)(iii)) or in a manner that best meets the objectives mentioned in Clauses 23.l(b) and 23.l(d); or
(iii)to meet the requirements of Clause 23.4B.”
Clause 23.5(c) deals with coal bids in some detail. For the purpose of dealing with the arguments on this appeal, it is only necessary to refer to subparagraphs (i) and (ii) of clause 23.5(c) which provide:
“(i)Upon receipt of a request pursuant to Clause 23.5(a) or notice under Clause 23.5(b), the Parties shall meet and discuss the impact that the purchase of additional coal may have on stockpile levels to determine whether such additional coal is required. Unless otherwise agreed, additional coal shall not be purchased that would result in the Actual Coal Stockpile level exceeding 450,000 tonnes if GPS was dispatched in accordance with the Station Annual Forecast (including any approved Allowed Adjustment).
(ii)Subject to Clause 23.5(c)(i), if requested by Stanwell in accordance with Clause 23.5(a)(i), or if the Participants so decide in accordance with Clause 23.5(b)(i), the Participants shall seek ‘arms-length’ bids for the supply of the amount of coal agreed with Stanwell (provided that the quality of coal is suitable to be burned at GPS) and, if appropriate, seek bids for transport of such coal. Unless otherwise agreed, the bids for the supply of coal shall be based on contract terms such that the supply is for a period in the range of five (5) to twelve (12) years and with a flexibility in the annual rate of delivery of at least ten percent (10%) less than or greater than the average annual rate of delivery.”
Approach to the construction of the IPPA
The IPPA is a complex commercial arrangement between sophisticated parties and was drafted with the assistance of experienced lawyers. The appellant’s description of the IPPA as a “sophisticated, complex, multipurpose agreement” is apt. It was not in issue on the appeal that the approach to the construction of the IPPA must reflect that it is such a commercial contract, as explained by French CJ and Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35]:
“Both [parties] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. 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’.” (footnotes omitted)
A similar approach was expressed by Gageler J who was the other member of the court in Electricity Generation at [53]:
“Commercial parties contracting at arm’s length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant.”
This approach to the construction of a commercial contract was summarised pithily by French CJ and Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]:
“The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.” (footnotes omitted)
It does not detract from the primary judge’s conclusion that clause 23.5 focused on Contract Year 1 of the Station Annual Forecast that clause 23.5(c)(ii) proposes, unless the parties otherwise agree, that bids for the supply of coal are based on contract terms such that the supply is for a period in the range of five to 12 years. That is consistent with the long term of the IPPA. As the respondents also pointed out, the reference to flexibility in the annual rate of delivery of at least 10 per cent less than or greater than the average annual rate of delivery for the contract terms for the coal bids is concerned with the variance in the rate of delivery and not the variance in the tonnage of coal supplied.
Because of the relationship between clause 23.4B and clause 23.5, the conclusion of the primary judge that the reference to “the anticipated levels of dispatch as disclosed in the Station Annual Forecast” and “the level of dispatch identified in the Station Annual Forecast” in clause 23.4B did not include a reference to the upper estimates or the lower estimates is also relevant in construing the reference to Station Annual Forecast in clause 23.5.
A consideration of the language of clause 23.5 in context does not support the appellant’s approach to treating clause 23.5 as applying to events over a much longer time period than those specified in clauses 23.5(a)(i) and clause 23.5(b)(i). When it is understood that clause 23.5 applies to Contract Year 1 of the Station Annual Forecast, the primary judge’s analysis is compelling. The appellant has failed to show the primary judge was in error in construing Station Annual Forecast clauses 23.5(a)(i), 23.5(b)(i) and 23.5(c)(i).
Available Coal Stockpile
In paragraph 5A of the application in proceeding 761 of 2018, the appellant sought the following:
“In the alternative to paragraph 5, a declaration that on the proper construction of the IPPA, where in clauses 23.4A and 23.4B:
(a)there is reference to a coal stockpile forecast or a stockpile level forecast, that forecast is to be a forecast of the ‘Actual Coal Stockpile’ as defined in the IPPA;
(b)there is a reference to a coal stockpile, that is a reference to the ‘Actual Coal Stockpile’ as defined in IPPA.”
The relief was sought by the appellant in relation to the uncapitalised references to “coal stockpile forecast” in clauses 23.4A and 23.4B. That expression was also used within clause 23.4A to produce defined terms, the meaning of which was based on “coal stockpile forecast”. Those defined terms of “Projected Monthly Coal Stockpile Forecast” in clause 23.4A(d)(iii) and “Revised Monthly Coal Stockpile Forecast” in clause 23.4A(f) should therefore also be considered in dealing with the construction of “coal stockpile forecast” in clauses 23.4A(d) and (f).
The expression “stockpile level forecast” is used in clauses 23.4B(a) and (b). The expression “coal stockpile” is used in clauses 23.4A(g) and 23.4B(b) and (c).
There is a defined term in the annex of “Actual Coal Stockpile” which means “the amount of coal, in tonnes, that is held in a stockpile at GPS and which can be recovered from the stockpile using normal site facilities at a continuous rate sufficient to operate GPS at its [Net Maximum Capacity]”.
For the reasons set out in [201]-[202] and [205]-[211] (but excluding the last sentence of [211]) of the 2018 reasons, the appellant submits that the declaration that was sought in paragraph 5A of its application should have been made. The respondents in their notice of contention seek to affirm the primary judge’s reasons on alternative grounds that the parties objectively intended the references in clause 23 to the “coal stockpile” to be references to the entire stockpile, or alternatively, the issue would be more appropriately determined at trial, or alternatively, the declaration should have been refused on discretionary grounds. The first alternative is based on evidence before the primary judge that identified factual matters of potential relevance to the construction of clause 23, without identifying the extent to which such matters were notorious or known to all parties. The notice of contention provides particulars of the relevant evidence. The second alternative, based on discretionary grounds, relies on an evidentiary matter that it was unclear whether the coal stockpile as measured and reported by the respondents was higher or lower or the same as the Actual Coal Stockpile and that the dispute raised by the relief sought in paragraph 5A was hypothetical.
Before addressing the parties’ submissions on this topic, it is appropriate to refer to how the parties dealt with this topic before the primary judge.
The respondents submitted to the primary judge that, as the definition of Actual Coal Stockpile was amended at the same time that clause 23.4B was introduced into the IPPA in 2009, the construction of coal stockpile forecast and stockpile level forecast should proceed on the basis that there was an intentional use of different language in clauses 23.4A and 23.4B. The respondents also relied on the fact that from the respondents’ perspective the coal represented working capital that carries with it holding costs and there was a financial incentive for the respondents not to have any more coal in the stockpile than necessary.
On a practical level, the respondents also submitted that there was an existing contractual obligation under clause 3.1(b) of schedule 3 to the IPPA to include in the Weekly Available Forecast the then current Actual Coal Stockpile. The respondents relied on the evidence before the primary judge in the affidavit of Mr C C Windsor who was the Superintendent Production Commercial & Engineering of GPS employed by the operator who reviewed the operator’s documents from 2009 and expressed the view at paragraph 55 of his affidavit that “the reporting of surveyed or estimated coal stock quantities at that time was on the basis of the entire coal stock with no allowance or deduction for ‘unrecoverable’ or ‘unusable’ quantities”. Mr Windsor also stated at paragraph 69 of his affidavit that the process of the weekly report pursuant to clause 3.1 of schedule 3 had been adjusted over time and was undertaken by teleconference, there was no deduction or allowance for unusable coal and the operator had never made reference to unusable coal in reporting coal stockpiles.
The appellant made limited submissions before the primary judge on this issue, relying on the fact that clauses 23.4A and 23.4B were directed towards coal to be used for generation and dispatch and it made no sense to measure a stockpile which might contain a significant proportion of coal which would be excluded under the definition of Actual Coal Stockpile.
The focus of the parties’ submissions on the appeal were on [201]-[212] of the 2018 reasons, but that section of the reasons has to be read in the light of the section of the 2018 reasons (at [101]-[109]) in which the primary judge commenced the analysis of clause 23.4B and the purpose of coal stockpile management.
The primary judge observed (at [101] of the 2018 reasons) that clause 23.4B “represents an allocation of responsibility for maintaining the coal stockpile within an identified range of tonnes of coal” and that there was no corresponding provision in the 1994 IPPA. The primary judge noted (at [104]) that the aim of maintaining the stockpile within the Acceptable Coal Stockpile Range is supported by the operation of the provisions relating to the Stockpile Incentive Payment. The primary judge noted (at [105]) the definition of Stockpile Level for the purpose of Schedule 16 which is “the end of month coal stockpile level based on a bi-monthly physical measurement on a tonnes basis as reported in the Operators Monthly Report”. The primary judge summarised (at [106]) the respective ranges in the stockpile level that result in Stockpile Incentive Payments between the Parties calculated under paragraph 10.11 of Schedule 16:
“(a)if the stockpile level is between 300,000 tonnes and 450,000 tonnes, a payment from the Participants to CS Energy;
(b)if the stockpile level is between 450,000 tonnes and 600,000 tonnes, no payment by either party;
(c)if the stockpile level is between 600,000 tonnes and 750,000 tonnes, payment from CS Energy to the Participants; and
(d)if the stockpile level is between 750,000 tonnes and 900,000 tonnes, a higher payment from CS Energy to the Participants.”
The primary judge summarised (at [107] of the 2018 reasons) the effect of clause 23.4B where the stockpile level forecast is less than 300,000 tonnes or is greater than 800,000 tonnes. The primary judge then concluded (at [108]-[109]):
“[108] Clause 23.4B thus specifically provides for the parties’ respective responsibilities if the stockpile level forecast will fall outside the Acceptable Coal Stockpile Range within the next two months. In some circumstances, the responsibility to remedy the situation falls on CS Energy. In others, it falls upon the Participants.
[109]For present purposes, the significance is not in the detail of those respective rights or obligations but that the clause sets out a detailed code for the parties’ respective responsibilities and does so without there being any breach of contract. Similarly, the incentives provided for by the Stockpile Incentive Payment do not turn on any breach of contract.”
Although the appellant relies on [201]-[202] of the 2018 reasons, apart from a general statement in the first sentence of [201], [201] is concerned with the abandonment by the appellant of the relief sought in paragraph 5 of the amended originating application (in which the term “usable coal” was defined) and [202] merely recites the appellant’s submission. It should be noted that the primary judge (at [203]-[204] of the 2018 reasons) rejected the appellant’s expert’s evidence (about the reporting of coal stocks by reducing the survey measured volumes of the stockpile at GPS by 10 per cent where there was no expert opinion or factual basis to support that factor of 10 per cent) as inadmissible for the purpose of construing clause 23. There is no appeal against that ruling.
The primary judge then noted (at [205] of the 2018 reasons):
“Neither party adduced evidence as to whether measurements or forecasts of the coal stockpile made before the 1994 IPPA, or made after the 1994 IPPA but before the 2009 IPPA, included any practice of making any allowance for unusable coal or similar or that the parties knew of any such practice.”
This observation by the primary judge appears to be directed at the conclusion reached by Mr Windsor that was based on his review of the operator’s documents from 2009.
The primary judge referred (at [206]-[208] of the 2018 reasons) to the definition of “Actual Coal Stockpile”, that the defined term was used only in clause 3.1(b)(iii) (of Schedule 3 Part 1) and clauses 23.5(c)(i) and 30.6, and that the reference in clause 23.5(c)(i) was relevant to the question of the proper construction of the expressions “end of month coal stockpile forecasts”, “coal stockpile” and “stockpile level forecast”.
The primary judge expressed (at [209] of the 2018 reasons) a reservation as to whether the distinction argued by the respondents should be drawn between the meaning of “coal stockpile” in clause 23 otherwise and the meaning of Actual Coal Stockpile in clause 23.5(c)(i):
“In clause 23.5(c)(i), the question to be asked is whether additional coal would cause the Actual Coal Stockpile to exceed 450,000 tonnes. That is a forecast. I can see no obvious reason, having regard to the purpose of the respective provisions, why the parties would have intended to exclude coal that can’t be recovered at a continuous rate sufficient to operate GPS in clause 23.5(c)(i) but intended to include that coal in the meaning of “coal stockpile” when it is used elsewhere in clause 23.”
The primary judge rejected (at [210] of the 2018 reasons) the respondents’ argument that a reason for a different meaning of “coal stockpile” in clause 23 is that the stockpile maintenance incentives are related to notional holding costs that are indifferent to whether the coal can be recovered, stating (at [at 210]):
“The parties’ respective rights under clause 23.4B are not simply about notional holding costs. If anything, that is what the Stockpile Incentive Payment provided for in clause 10.11 of Schedule 16, previously discussed, is directed towards. But that provision uses the definition of “Stockpile Level” in clause 1.1 of Schedule 16, that specifically refers to the bi-monthly physical measurement on a tonnes basis as reported in the Operator’s Monthly Report, which is not used in clause 23.”
The primary judge then concluded (at [211] of the 2018 reasons):
“It does not follow, therefore, that the ‘coal stockpile’, or equivalent, referred to in clause 23, apart from the use of Actual Coal Stockpile in clause 23.5(c)(i), is necessarily to be addressed without regard to the recoverability of the coal in the stockpile, on a survey basis only. But it also does not follow that some notional reduction of the quantity of the stockpile, as surveyed, is required based on an allowance for the amount of unusable coal that may be compacted into the pad below the stockpile.”
The primary judge’s view set out (at [212] of the 2018 reasons) was that the declaration sought by the appellant should not be made.
The analysis (at [201]-[211]) suggests that, in the absence of evidence of what was known to the appellant’s predecessors and the respondents about the measurements or forecasts of the coal stockpile before the 2009 amendments to the IPPA, the primary judge was cautious about resolving the issue raised by paragraph 5A of the amended originating application in proceeding 761 of 2018 (which was a late addition to the application) as a matter of construction of the IPPA only.
On the hearing of this appeal, even though the respondents did rely expressly on [205], both parties tended to focus their attention on [211] of the 2018 reasons as the critical part of the primary judge’s reasoning in deciding not to make the declaration. The issue raised by paragraph 5A was one issue amongst many issues that were being determined by the primary judge on the basis of the construction of the contractual documents without deciding any disputed questions of fact. In this section of the primary judge’s reasons (at [201]-[212]), the conclusion (at [212]) depends on all the preceding analysis in that section of the reasons and, importantly, [205]. A fair reading of that section of the reasons reveals that the primary judge exercised the discretion to refuse to make the declaration sought by the appellant, because of the lack of evidence on relevant matters referred to in [205] which may have affected whether it was appropriate to construe clause 23. This is similar to, but not identical with, the particulars of the first alternative basis relied on by the respondents in their notice of contention that the issue was more appropriately determined at trial.
The issue for the primary judge was therefore whether it was appropriate to make a declaration on the construction of clause 23 when there was potentially evidence that may have a bearing on whether that declaration was of utility. In the circumstances, I am not satisfied that the appellant has shown there was an error in the primary judge’s decision not to make the declaration sought by the appellant on the basis of the material before the primary judge.
Order
Neither party made submissions on costs in their written outlines or at the hearing of the appeal or requested the opportunity to make submissions on costs after the outcome of the appeal was known. In those circumstances, it is appropriate to dispose of the question of the costs of the appeal. There is no reason why costs should not follow the event. The order therefore should be:
Appeals dismissed with costs.
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