Electricity Generation and Retail Corporation trading as Synergy v EIT Kwinana Partner Pty Ltd

[2022] WASCA 3

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   ELECTRICITY GENERATION AND RETAIL CORPORATION trading as SYNERGY -v- EIT KWINANA PARTNER PTY LTD

(ACN 115 348 171) [2022] WASCA 3

CORAM:   QUINLAN CJ

MITCHELL JA

VAUGHAN JA

HEARD:   10, 11 & 14 JUNE 2021

DELIVERED          :   18 JANUARY 2022

FILE NO/S:   CACV 80 of 2020

BETWEEN:   ELECTRICITY GENERATION AND RETAIL CORPORATION trading as SYNERGY

Appellant

AND

EIT KWINANA PARTNER PTY LTD

(ACN 115 348 171)

First Respondent

SUMMIT KWINANA POWER PTY LTD

(ACN 116 803 779)

Second Respondent

NEWGEN POWER KWINANA PTY LTD

(ACN 116 827 546)

Third Respondent

FILE NO/S:   CACV 81 of 2020

BETWEEN:   ELECTRICITY GENERATION AND RETAIL CORPORATION trading as SYNERGY

Appellant

AND

EIT KWINANA PARTNER PTY LTD

(ACN 115 348 171)

First Respondent

SUMMIT KWINANA PTY LTD

(ACN 116 803 779)

Second Respondent

NEWGEN POWER KWINANA PTY LTD

(ACN 116 827 546)

Third Respondent

ON APPEAL FROM:

Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA

Coram:   HILL J

Citation: EIT KWINANA PARTNER PTY LTD -v- ELECTRICITY GENERATION AND RETAIL CORPORATION TRADING AS SYNERGY [2020] WASC 238

File Number            :   CIV 2877 of 2018

Catchwords:

Contract – Construction of commercial contracts – Tradable Purchase Agreement – Wholesale Electricity Market – Wholesale Electricity Market Rules – Spinning Reserve Service – Whether obligation to pay Spinning Reserve Capacity Payment – Declaration as to proper construction of contract

Legislation:

Electricity Industry Act 2004 (WA)
Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA)
Wholesale Electricity Market Rules
Electricity Industry (Independent Market Operator) Regulations 2004 (WA)
Electricity Industry (Independent Market Operator) Repeal Regulations 2018 (WA)

Result:

Appeal allowed

Category:    B

Representation:

CACV 80 of 2020

Counsel:

Appellant	:	B Dharmananda SC & M J Sims
First Respondent	:	S K Dharmananda SC & E M Heenan
Second Respondent	:	S K Dharmananda SC & E M Heenan
Third Respondent	:	S K Dharmananda SC & E M Heenan

Solicitors:

Appellant	:	Squire Patton Boggs
First Respondent	:	Johnson Winter & Slattery – Perth
Second Respondent	:	Johnson Winter & Slattery – Perth
Third Respondent	:	Johnson Winter & Slattery – Perth

CACV 81 of 2020

Counsel:

Appellant	:	B Dharmananda SC & M J Sims
First Respondent	:	S K Dharmananda SC & E M Heenan
Second Respondent	:	S K Dharmananda SC & E M Heenan
Third Respondent	:	S K Dharmananda SC & E M Heenan

Solicitors:

Appellant	:	Squire Patton Boggs
First Respondent	:	Johnson Winter & Slattery – Perth
Second Respondent	:	Johnson Winter & Slattery – Perth
Third Respondent	:	Johnson Winter & Slattery – Perth

Cases referred to in decision:

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251

Bass v Permanent Trustee Company Ltd [1999] HCA 9; (1999) 198 CLR 334

Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219

Commissioner for Railways (NSW) v Agalianos [1955] HCA 27; (1955) 92 CLR 390

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees [2017] HCA 12; (2017) 261 CLR 544

EIT Kwinana Partner Pty Ltd v Electricity Generation and Retail Corporation trading as Synergy [2020] WASC 238

Hancock Prospecting Pty Ltd v BHP Minerals Pty Ltd [2003] WASCA 259

Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29

Harman Nominees Pty Ltd v Leighton Shores Pty Ltd [2012] WASCA 189

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896

JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112

Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60

Locke v Dunlop (1888) 39 Ch D 387

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181

Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 264 CLR 541

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603

Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85

Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80; (2019) 55 WAR 89

Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164; (2014) 48 WAR 261

Table of Contents

Introduction

Background matters

Market Participants

Buying and selling electricity in the Wholesale Electricity Market

System Management

Spinning Reserve Service

Capacity Credits

Relevant provisions of the TPA

Slices

Clauses 2 and 3 – Capacity Declarations and Energy Nominations

Energy Nominations and Energy Payments

Capacity Payments

Clause 5 – Capacity Credits

Clause 7 – System matters

Issues of construction

Clauses 7.1(j) and 7.3 – Spinning Reserve Capacity Payment

Clause 7.2 – Actual Spinning Reserve Costs

The learned primary judge's conclusions

Clauses 7.1(j) and 7.3 – Spinning Reserve Capacity Payment

Clause 7.2 – Actual Spinning Reserve Costs

Declaration

Grounds of appeal

Notice of contention

Synergy's submissions on appeal

Synergy's submissions as to the operation of the Market Rules

Synergy's submissions as to the Spinning Reserve Capacity Payment

Synergy's submissions as to Actual Spinning Reserve Costs

The IPP's submissions on appeal

The IPP's submissions as to the operation of the Market Rules

The IPP's submissions as to the Spinning Reserve Capacity Payment

The IPP's submissions as to Actual Spinning Reserve Costs

Disposition

General legal principles

Text, context and purpose in contractual construction

The Market Rules as relevant contractual context

Grounds 1 to 4 and notice of contention – clauses 7.1(j) and 7.3

Preliminary observations

Purpose and policy of cl 7.3

Clauses 7.1(j), 7.2 and 7.3 all relate to the same payment obligation

Clause 7.3 only requires payment for nominated and held Slices

Grounds 5 and 6 – cl 7.2

Conclusion

Schedule – Table of Defined Terms

JUDGMENT OF THE COURT:

Introduction

1. The first and second respondents carry on business as the NewGen Power Kwinana Partnership (the IPP).[1]

   [1] Those words and phrases in these reasons that begin with capital letters are defined terms. The schedule to these reasons contains a table of defined terms identifying the paragraph of these reasons, the clause of the Tradable Purchase Agreement or the rule of the Wholesale Electricity Market Rules in which those terms are defined, respectively.

2. The IPP owns and operates a 320 MW natural gas‑fired power station in Kwinana (the Power Station). The Power Station, which was completed in October 2008, is connected to the South West interconnected system (the SWIS), the transmission and distribution system that distributes electricity throughout the South West region of Western Australia. The third respondent, NewGen Power Kwinana Pty Ltd, is the agent of the IPP.[2]

   [2] The respondents were all jointly represented in the appeal. For ease of reference, when dealing with the respondents' contentions in the appeal these reasons refer to the IPP (rather than the respondents).

3. The IPP built the Power Station pursuant to a Development Agreement between the IPP and Western Power Corporation (Western Power) dated 5 November 2005. Western Power was, at the time, the principal generator, distributor and retailer of electricity in Western Australia. Western Power has since been disaggregated and its operations devolved to a number of separate corporations, including the appellant, Electricity Generation and Retail Corporation trading as Synergy (Synergy). Synergy is relevantly the successor to Western Power in relation to the contractual rights and obligations in issue in this appeal.

4. On 5 November 2005 Western Power and the IPP also entered into another agreement, the WPC Tradable Purchase Agreement (the TPA). The TPA is, inter alia, a bilateral contract for the supply of energy by the IPP, as a generator, to Western Power, as a customer.

5. This appeal concerns the proper construction of the TPA, and in particular, cl 7 of the TPA.[3]

   [3] The appeal consolidated two separate appeals by Synergy (CACV 80 of 2020 and CACV 81 of 2020). The separate appeals arise because Synergy and the IPP each commenced proceedings by way of originating summons (CIV 1235 of 2019 and CIV 2877 of 2018), seeking declaratory relief as to the construction of the TPA. Synergy's application (CIV 1235 of 2019) was dismissed. Declaratory relief was granted in the application brought by the IPP (CIV 2877 of 2018). The appeals were consolidated by order of Registrar Eaton on 3 September 2020.

6. Clause 7 of the TPA makes provision for the payment, by Western Power, of a Spinning Reserve Capacity Payment. The principal issue of contractual construction in the appeal is whether:[4]

   (a)Western Power is only obliged to pay the Spinning Reserve Capacity Payment in relation to 1‑megawatt Slices[5] of energy generation capacity that Western Power has nominated be held by the IPP as Spinning Reserve Slices during a relevant Trading Period (as Synergy contends); or

   (b)Western Power is obliged to pay the Spinning Reserve Capacity Payment in relation to Slices deemed to be Available for Spinning regardless of whether Western Power has nominated those Slices be held as Spinning Reserve Slices (as the IPP contends).

   [4] As will become clear, this summary of the principal issue is necessarily in general terms. The issues of construction raised in the appeal are considerably more diverse and complex.

   [5] A 'Slice' is a parcel of the Power Station's energy generation capacity. The size of each Slice is 1 MW (megawatt) of energy generation capacity.

7. The practical significance of this issue of construction for the parties arises from the agreed fact that, since the commencement of the TPA, neither Western Power, nor its successor Synergy, have ever nominated that a Slice be held by the IPP as a Spinning Reserve Slice.[6] If Synergy's construction of cl 7 is correct, neither Western Power nor Synergy have at any time incurred a liability for the Spinning Reserve Capacity Payment.

   [6] EIT Kwinana Partner Pty Ltd v Electricity Generation and Retail Corporation trading as Synergy [2020] WASC 238 (Primary reasons) [64], [81].

8. In construing the TPA, a significant feature of the contractual context is the Wholesale Electricity Market in the SWIS established by regulations made pursuant to s 122 of the Electricity Industry Act 2004 (WA). Those regulations, the Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA), make provision for the making of market rules to govern the market for the wholesale supply of electricity in the SWIS and the operation of the SWIS.[7]

   [7] The Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA) (Electricity Industry (Wholesale Electricity Market) Regulations), have since undergone many amendments. For the purposes of these reasons, references to the Electricity Industry (Wholesale Electricity Market) Regulations are references to the regulations as at the date of the TPA.

9. The Wholesale Electricity Market Rules (the Market Rules) were made by the relevant Minister on 1 October 2004.[8] They were amended twice in 2005, prior to the making of the TPA, on 9 September 2005[9] and 25 October 2005.[10] While the Market Rules have since been amended on a number of occasions (including in early 2006), it is the Market Rules as they existed at the time that the parties entered into the TPA that are relevant for the purpose of these reasons. Save where expressly indicated, references in these reasons to the Market Rules are references to the Market Rules as at 5 November 2005.

   [8] Western Australia, Government Gazette, No 177 (5 October 2004).

   [9] Western Australia, Government Gazette, No 171 (9 September 2005).

   [10] Western Australia, Government Gazette, No 197 (25 October 2005).

10. A proper understanding of the Market Rules is essential to the task of construing the TPA. Not only were the Market Rules undoubtedly part of the background known to the parties, a great many of the concepts in the TPA are taken directly from the Market Rules. Indeed, a number of the words and phrases in the TPA are defined to have the meaning given to those words and phrases in the Market Rules.

11. For this reason, a significant portion of the parties' written and oral submissions in the appeal were devoted to a close analysis of the Market Rules. Those submissions, which were of great assistance to the Court, involved a degree of nuance and attention to detail that might reasonably be thought to travel beyond that of the hypothetical reasonable businessperson looking to the Market Rules as context for understanding the TPA. That is not a criticism of the parties (far from it); it is simply to recognise the complexity of the task of contractual construction in this case.

12. In addition, as will also be apparent, while the Market Rules were in existence at the time that the parties entered into the TPA, at that time the Market Rules had not yet been deployed or operated in practice. The first day of trading on the Wholesale Electricity Market was 21 September 2006.[11] In that context, while the TPA was undoubtedly drafted with the Market Rules directly in mind, the TPA at times uses concepts from the Market Rules in a way that diverges from their use in the MarketRules themselves.

    [11] Energy Market Commencement Notice, Government Gazette, No 162, 19 September 2006.

13. Moreover, at a textual level, there are a number of respects in which the provisions of the TPA are clumsily drafted, in particular by its reliance (or, more correctly, over‑reliance) on multiple definitions nested within other definitions. The linguistic complexities embedded within cl 7 of the TPA, for example, have the result that whatever constructional choice is made between the alternative constructions contended for by the parties as to the liability of Western Power for the Spinning Reserve Capacity Payment, one is left with textual anomalies that must simply be accepted rather than resolved.

14. On the primary issue of construction in the present case, the learned primary judge (Hill J) concluded that the Spinning Reserve Capacity Payment under cl 7 of the TPA was payable in respect of Slices of energy deemed to be available for nomination by Western Power to be held as Spinning Reserve Slices, regardless of whether Western Power had nominated those Slices as Spinning Reserve Slices or directed the IPP to provide a Spinning Reserve Service.

15. For the reasons that follow, we have reached a different conclusion to that of the learned primary judge. In our view, properly construed, cl 7 of the TPA does not oblige Western Power to make a Spinning Reserve Capacity Payment in relation to a Slice of energy unless, inter alia, Western Power has nominated that Slice as a Spinning Reserve Slice for the relevant Trading Period.

16. It follows that we would allow the appeal.

17. We will begin these reasons with an introductory discussion of a number of background matters and set out the relevant provisions of the TPA, including cl 7. We will then identify the issues of construction in more detail, before summarising the learned primary judge's conclusions, the grounds of appeal and the parties' competing constructions of cl 7. As will be seen, while the IPP resisted the appeal, it nevertheless contended for a construction of the TPA that differed, in significant respects, from that of her Honour.

Background matters

1. There are a number of general background matters, reflected in the Market Rules, that must be mentioned in order to understand the nature of the Wholesale Electricity Market (or, the Market) within which the TPA operates.

Market Participants

1. Within the Market electricity is traded between Market Generators[12] and Market Customers,[13] both of whom are defined in the Market Rules as Rule Participants and must register as such under the Market Rules.[14] Persons registered as Market Generators, as the name suggests, are persons who own, control or operate generation systems forming part of the SWIS or which are electrically connected to that system. Similarly, persons registered as Market Customers are persons who purchase electricity from Market Generators and then on‑sell electricity to retail customers.

   [12] Market Rules, cl 2.28.6 ‑ cl 2.28.8, cl 11 (definition of Market Generator).

   [13] Market Rules, cl 2.28.10 ‑ cl 2.28.11, cl 11 (definition of Market Customer).

   [14] Market Rules, cl 2.28.1, cl 11 (definition of Rule Participant).

2. Rule Participants registered as either Market Generators or Market Participants are defined as Market Participants.[15] Persons registered as one class of Rule Participant, may, however, be registered in another class or classes of Rule Participant (a Market Generator may, for example, be registered as a Market Customer and vice versa). There are also other classes of Rule Participant to which we will return later.

   [15] Market Rules, cl 2.28.17, cl 11 (definition of Market Participant).

3. For present purposes it suffices to observe that the IPP is a Market Generator and that Western Power was, and as its successor Synergy now is, a Market Customer. Synergy, as a Market Customer, buys electricity from the IPP as a Market Generator. Western Power has at all times also been a Market Generator, as Synergy is today.

Buying and selling electricity in the Wholesale Electricity Market

1. Market Participants buy and sell electricity in the Market in broadly two ways:

   (a)through Bilateral Contracts between individual Market Generators and Market Customers; and

   (b)through the Short Term Energy Market (or STEM), a forward market in which Market Participants can buy and sell energy through an auction process conducted with respect to each Trading Interval (of 30 minutes) in each Trading Day.[16]

   [16] Market Rules, cl 11 (definition of Short Term Energy Market (STEM)).

2. The definition of Bilateral Contract in the Market Rules is as follows:[17]

   Bilateral Contract: A contract formed between any two persons (excluding System Management) for the sale of electricity by one of those persons to the other.

   [17] Market Rules, cl 11 (definition of Bilateral Contract).

3. As will be seen, the TPA is expressed to be a Bilateral Contract between the IPP and Western Power, although, as will become apparent, the TPA also serves other purposes.

4. The STEM operates as a clearing house, in the sense that Market Generators and Market Customers do not buy and sell energy on the STEM directly to, and from, one another. Rather, Market Participants purchase and sell energy on the STEM from, and to, another entity, the Independent Market Operator (IMO).

5. The IMO is a body corporate established by the Electricity Industry (Independent Market Operator) Regulations 2004 (WA).[18] It is responsible for administering and operating the Market Rules[19] and one of its functions is operating the STEM, including undertaking the STEM Auction process.[20]

   [18] The IMO has since ceased to operate and has been replaced in the Market Rules by the Australian Energy Market Operator Limited (AEMO). See Electricity Industry (Independent Market Operator) Repeal Regulations 2018 (WA). Consistent with the focus in the reasons on the Market Rules as at 5 November 2005, we have continued to refer to the IMO (instead of AEMO).

   [19] Market Rules, cl 11 (definition of IMO).

   [20] Market Rules, cl 6.9, cl 11 (definition of STEM Auction).

6. The IMO is itself a Rule Participant under the Market Rules.[21]

   [21] Market Rules, cl 2.28.1, cl 11 (definition of Rule Participants).

7. As we will address in more detail later, prior to each Trading Day, Market Generators may make submissions to the IMO in relation to energy to be supplied in the relevant Trading Day. In that regard a Market Generator may:

   (a)make a Bilateral Submission, identifying the net quantity of energy to be sold to other Market Participants for each Trading Interval of the Trading Day;[22] and

   (b)make a STEM Submission, which will include, inter alia, information as to the quantity of energy assumed to be available from each of its Facilities[23] in preparing the STEM Submission.[24]

   [22] Market Rules, cl 6.2, cl 6.7.1.

   [23] Market Rules, cl 2.29.1, cl 11 (definition of Facility).

   [24] Market Rules, cl 6.3B.1, cl 6.6.2A.

1. The Stem Auction, conducted by the IMO, determines the quantity of energy sold by a Market Generator through the STEM.

2. In simple terms the energy generated by a Market Generator during a particular Trading Day will, subject to certain exceptions, generally be a function of the quantities sold under Bilateral Contracts and the quantities sold through the STEM.

System Management

1. Another Rule Participant under the Market Rules is System Management.[25] System Management was, at the time of the TPA, a segregated business unit of Western Power, which had the function of operating the SWIS in a reliable and safe manner.[26]

   [25] More recently System Management's functions under the Market Rules have been conferred on AEMO (see Affidavit of Andrew Clive Sutherland affirmed on 30 October 2018 [15] ‑ [20] (GAB 5)). Again, consistent with the focus of these reasons, we have continued to refer to System Management as carrying out the relevant functions under the Market Rules.

   [26] Electricity Industry (Wholesale Electricity Market) Regulations, Regulation 13; Market Rules, cl 2.2.1.

2. The operation of the SWIS in a reliable and safe manner requires the constant management of electrical frequency within the system. In order for an electrical system to remain secure, it is necessary for production and demand within the system to be matched at all times. Where there is more demand than production, the frequency of the electrical system drops, with the system becoming unreliable and potentially unsafe.[27]

   [27] Affidavit of Andrew John Everett affirmed on 8 February 2019 [6] (GAB 952).

3. The requirement for system security and reliability in the SWIS is reflected in the following, interlocking, defined terms in the Market Rules:[28]

   Power System Adequacy: The ability of the SWIS to supply all demand for electricity in the SWIS at the time, allowing for scheduled and unscheduled outages of generation, transmission and distribution equipment and secondary equipment.

   Power System Reliability: The ability of the SWIS to deliver energy within reliability standards while maintaining Power System Adequacy and Power System Security.

   Power System Security: The ability of the SWIS to withstand sudden disturbances, including the failure of generation, transmission and distribution equipment and secondary equipment.

   [28] Market Rules, cl 11 (definitions of Power System Adequacy, Power System Reliability and Power System Security).

4. The maintenance of Power System Reliability and Power System Security is dealt with in ch 3 of the Market Rules and is the responsibility of System Management.

5. In order for System Management to be able to provide power system reliability and security, it is necessary for it to be able to respond to any changes in system frequency by increasing energy supply or decreasing energy demand so as to bring the system into 'balance'. That need in turn means that energy generation capacity within the SWIS must be held in 'reserve' in order for electricity to be able to be quickly dispatched in order to maintain system frequency in the event of an unexpected drop in frequency (for example, by a loss of supply).

6. The services required to provide that reserve energy generation capacity are defined in the Market Rules as Ancillary Services. The Market Rules provide the following definition of Ancillary Service:[29]

   Ancillary Service: A service, including those described in clause 3.9, that is required to maintain Power System Security and Power System Reliability, facilitate orderly trading in electricity and ensure that electricity supplies are of acceptable quality.

   [29] Market Rules, cl 11 (definition of Ancillary Service).

7. Ancillary Services, therefore, are services that System Management may acquire, in order to enable it to maintain system reliability and security.

8. In carrying out its functions, System Management is required to determine all Ancillary Service Requirements[30] of the SWIS including by reference to Ancillary Service Standards. Ancillary Service Standards are prescribed by reference to certain performance standards in relation to the various types of Ancillary Service.[31]

   [30] Market Rules, cl 3.11.1, cl 11 (definition of Ancillary Service Requirements).

   [31] Market Rules, cl 3.10. See [50] below in relation to the Ancillary Service Standard for Spinning Reserve Service.

9. Western Power itself was a power generator. In that regard, the Market Rules recognise, as was the case, that the need for Ancillary Services may be met with Western Power's own power generating facilities.[32] That is, in managing the SWIS in a reliable and safe manner, System Management may obtain Ancillary Service Requirements from Western Power (now Synergy) in its capacity as a Market Generator. Indeed, the Market Rules contemplate that Western Power will be the primary source of Ancillary Services and that System Management will only obtain Ancillary Services elsewhere where Western Power cannot meet the Ancillary Service Requirements or where there is a 'less expensive alternative'.[33]

   [32] Market Rules, cl 2.2.2(a), cl 3.11.8.

   [33] Market Rules, cl 3.11.8.

10. In these latter circumstances, in carrying out its functions, System Management may contract with other persons, including Market Participants, for the provision of Ancillary Services. Such a contract is defined in the Market Rules as an Ancillary Service Contract:[34]

    Ancillary Service Contract: A contract between System Management and a Market Participant for the provision by that Market Participant of an Ancillary Service or Ancillary Services to System Management.

    [34] Market Rules, cl 11 (definition of Ancillary Service Contract).

11. It will be apparent, when one compares the definition of 'Ancillary Service Contract' with that of 'Bilateral Contract' (at [23] above), that while System Management must be a party to an Ancillary Service Contract, in the case of a Bilateral Contract, System Management is expressly excluded as a person who may be a party to such a contract.

12. There are various types of Ancillary Service, which depend upon the capacity of the Facility to respond to particular situations of frequency variation.

13. One of the types of Ancillary Service is a Spinning Reserve Service.

Spinning Reserve Service

1. A Spinning Reserve is a type of supply capacity held in reserve. It is defined in the Market Rules as follows:[35]

   Spinning Reserve: Supply capacity held in reserve from synchronised Scheduled Generators, Dispatchable Loads or Interruptible Loads, so as to be available to support the system frequency in the event of an outage of a generating works or transmission equipment or to be dispatched to provide energy as allowed under these Market Rules.

   [35] Market Rules, cl 11 (definition of Spinning Reserve).

2. According to the uncontentious evidence before the learned primary judge, the purpose of Spinning Reserve is to ensure that, when there is a sudden and unexpected loss of supply of electricity, there is sufficient generation capacity held in reserve that it may be ramped up quickly to manage and restore the supply‑demand balance. This requires generation capacity that could otherwise be dispatched to meet the prevailing operational market demand, to be withheld from the energy market pending the occurrence of an event which results in an unexpected loss of electricity supply.[36] In this sense, a Spinning Reserve is reserved capacity at the 'supply side' (i.e. by a power generator).

   [36] Affidavit of Andrew John Everett affirmed on 8 February 2019 [7] (GAB 952).

3. Alternatively, Spinning Reserve can be provided at the 'demand side' (i.e. by a power consumer). That is, Spinning Reserve can be provided by large industrial loads that are willing to voluntarily disconnect in the event of an unexpected loss of electricity supply. Spinning Reserve provided in this manner is referred to as interruptible load.[37]

   [37] Affidavit of Andrew John Everett affirmed on 8 February 2019 [7] (GAB 952).

4. These concepts are reflected in the Market Rules' provisions in relation to Spinning Reserve Service. In that regard, cl 3.9.2 and cl 3.9.3 provide:

   3.9.2Spinning Reserve Service is the service of holding capacity associated with a synchronised Scheduled Generator, Dispatchable Load or Interruptible Load in reserve so that the relevant Facility is able to respond appropriately in any of the following situations:

   (a) to retard frequency drops following the failure of one or more Registered Facilities;

   (b) to supply electricity if no Fifteen Minute Reserve is available and the alternative is to trigger involuntary load curtailment; and

   (c) to avoid the need to start and stop a Scheduled Generator over a short period during the peak system load.

   3.9.3Spinning Reserve response is measured over three time periods following a contingency event. A provider of Spinning Reserve Service must be able to ensure the relevant Facility can:

   (a) respond appropriately within 6 seconds and sustain or exceed the required response for at least 60 seconds; or

   (b) respond appropriately within 60 seconds and sustain or exceed the required response for at least 6 minutes; or

   (c) respond appropriately within 6 minutes and sustain or exceed the required response for at least 15 minutes,

   for any individual contingency event.

5. As will be apparent from these provisions, a Spinning Reserve Service, under the Market Rules, refers to the 'service' by which a power generator 'holds' or 'reserves' capacity, and not to the actual dispatch or supply of electricity from that reserve when called upon to do so. As cl 3.9.3 makes clear, Spinning Reserve refers to energy generation capacity that can be accessed (and dispatched) very rapidly (i.e. within seconds and minutes). References to a 'Service' in this context, however, are generally references to the reserving of capacity, whether that capacity is actually used or not.

6. In addition to holding capacity that may be rapidly dispatched, a Spinning Reserve Service may also include an Interruptible Load, where a consumer of electricity is prepared to curtail consumption in response to a change in system frequency.[38]

   [38] Market Rules, cl 11 (definition of Interruptible Load).

7. The standard for Spinning Reserve Service is a level which satisfies, inter alia, the following principle:[39]

   (a)     the level must be sufficient to cover the greater of:

   i. 70% of the total output, including parasitic load, of the generation unit synchronised to the SWIS with the highest total output at that time; and

   ii.the maximum load ramp expected over a period of 15 minutes.

   [39] Market Rules, cl 3.10.2(a).

8. It is Spinning Reserve, and in particular the Spinning Reserve provided by the IPP as a generator, that is the subject of the relevant provisions of the TPA in the present case.

9. For present purposes, it may also be noted that cl 3.9 of the Market Rules also contemplates other forms of Ancillary Services that might be the subject of an Ancillary Services Contract. For example, a Fifteen Minute Reserve service is the service of holding capacity where the relevant Facility is able to respond within 15 minutes for at least one hour or respond within one hour for at least eight hours.[40] As can be seen, Spinning Reserve is characterised by rapid response times, in the event that it is called upon.

   [40] Market Rules, cl 3.9.4, cl 3.9.5.

10. Other forms of Ancillary Service include Load Rejection Reserve Service[41] and System Restart Service.[42]

Capacity Credits

[41] Market Rules, cl 3.9.6, cl 3.9.7.

[42] Market Rules, cl 3.9.8.

1. There is another, quite different, sense in which the Market Rules refer to Reserve Capacity and that is in the context of what are known as Capacity Credits. Reserve Capacity and Capacity Credits are dealt with in ch 4 of the Market Rules.

2. A Capacity Credit is a notional unit of capacity provided by a Facility, equivalent to 1 MW of capacity.[43] Capacity Credits are held by the Market Participant registered in respect of a Facility. Thus, for example, the IPP holds a Capacity Credit for each 1 MW Slice of the capacity of the Power Station.

   [43] Market Rules, cl 11 (definition of Capacity Credit).

3. Market Customers are, in turn, required to have a sufficient number of Capacity Credits in order, in effect, to participate in the Wholesale Electricity Market. The quantity of Capacity Credits required by a Market Customer, which is set by the IMO, is known as the Individual Reserve Capacity Requirement.[44]

   [44] Market Rules, cl 4.28.7, cl 11 (definition of Individual Reserve Capacity Requirement).

4. Under the Market Rules, a Market Customer can acquire Capacity Credits (in order to meet its Individual Reserve Capacity Requirement) by procuring them 'bilaterally' (i.e. entering into an arrangement with another Market Participant, who agrees to allocate its Capacity Credits to the Market Customer).[45] To the extent that the Individual Reserve Capacity Requirement of a Market Customer is not covered by the Capacity Credits allocated to it, the Market Customer is exposed to a cost referred to in the Market Rules as its Shortfall Share.[46]

   [45] Market Rules, cl 4.14.2, cl 9.4, cl 9.5.

   [46] Market Rules, cl 9.7.1.

5. For present purposes, nothing turns on the calculation of the Shortfall Share. It suffices to observe that it provides the mechanism by which, in practical terms, a Market Customer is required to procure the allocation to it of Capacity Credits.

6. It is also important to note that the 'trade' in the allocation of Capacity Credits is separate and distinct from both the trade in electricity in the Market (referred to at [22] to [30] above) and the provision of Ancillary Services to System Management (referred to at [31] to [53] above).

7. It will be necessary to return to aspects of the Market Rules in more detail later in these reasons. The above summary, however, is sufficient to put the relevant provisions of the TPA in their broad context.

Relevant provisions of the TPA

1. The first matter to note about the TPA as a whole, is that it serves a number of distinct contractual purposes. The variety of those contractual purposes is reflected in the Recitals to the TPA:[47]

   AThis agreement is entered into as part of Stage II of Western Power's Power Procurement Program. It forms one of the Project Agreements pursuant to which the IPP will build, own and operate the Power Station.

   BThis agreement is intended to form a Bilateral Contract between the IPP as a generator and Western Power as a customer, and also a contract by which capacity is traded bilaterally (within the meaning of the Market Rules).

   CThe IPP has agreed to make Capacity Credit Allocation Submissions and Bilateral Submissions to the Market in favour of Western Power on the terms of this agreement.

   [47] TPA, Recitals (GAB 16 ‑ 17).

2. The text of the TPA, considered as a whole, reveals that it makes separate provision in relation to each of the three matters we have referred to above in the discussion of background matters (see [18] to [60] above). That is, various parts of the TPA may properly be described as:

   (a)a Bilateral Contract between the IPP and Western Power for the sale of electricity;

   (b)a bilateral arrangement between the IPP and Western Power, under which the IPP agrees to allocate its Capacity Credits to Western Power; and

   (c)an Ancillary Services Contract between the IPP and System Management for the provision of Spinning Reserve Services.

3. There was some dispute as to the extent to which each part of cl 7 may be characterised as an Ancillary Services Contract, a matter to which we will return. Nevertheless, to the extent that it provides for Spinning Reserve Services by the IPP to System Management, it is clear that the TPA meets the definition in the Market Rules of an Ancillary Services Contract.[48] Indeed, the parties accepted that aspects of cl 7 of the TPA ought to be characterised as an Ancillary Services Contract.[49]

   [48] The evidence before the learned primary judge included evidence from a Manager at Synergy that the respondents had never been a party to an ancillary Service Contract with System Management (Affidavit of Andrew John Everett affirmed on 8 February 2019 [9] (GAB 954)). Whether the TPA, in part, meets that description is, of course, a matter of contractual construction rather than a matter for evidence.

   [49] Appeal ts 41 - 42, 68, 96 - 97, 181, 186, 265, 272, 321.

4. This immediately points up an important matter of contractual context for understanding the TPA; namely that Western Power, as one of the contracting parties, may be understood as having entered into the TPA in two distinct capacities:

   (a)first, and perhaps most obviously, Western Power entered into the TPA as a Market Customer, that is as a purchaser of electricity from the IPP and as the recipient of the allocation of the IPP's Capacity Credits; and

   (b)secondly, Western Power, acting through its segregated business unit known as System Management, entered into the TPA as the legal entity through which System Management could contract.

5. The significance of the distinction between Western Power qua Market Customer and Western Power qua System Management will be taken up later in these reasons.

6. Before turning to the operative provisions of the TPA, it is appropriate to briefly identify some of the various classifications of Slices under the TPA.

Slices

1. As noted above, a Slice is defined in the TPA to mean 'each parcel of energy generation capacity, the size of which is the Slice Capacity'. The Slice Capacity means the capacity of a Power Station Capacity Slice, which is 1 MW of energy.

2. Schedule 1 to the TPA is a Slice Specification Schedule, which designates (by number) each of the Slices the subject of the TPA and includes other information relevant to each Slice, including a Capacity Classification. There are 310 Slices in total in the Slice Specification Schedule (310 MW being the Total Tradable Capacity under the TPA).

3. According to the Slice Specification Schedule, Slices are classified as either MSC, FC or NFC.[50] Slices with the Designated Numbers 1 to 174 are classified as MSC, Slices with the Designated Numbers 175 to 308 are classified as FC and Slices with the Designated Numbers 309 and 310 are classified as NFC.

   [50] What the letters MFC, FC and NFC in these abbreviations actually stand for is not revealed by the TPA. Each of the parties proffered their own suggestions as to what the letters might refer to but, alas, those suggestions did not coincide. In a case that was conspicuous for counsels' industry, skill and comprehensive mastery of the brief, the provenance of these abbreviations must remain the one matter in the appeal that was left shrouded in mystery.

4. Pursuant to cl 11 of the TPA, Western Power may on‑sell Slices to third parties. A Slice in the Slice Specification Schedule that has not been on‑sold by Western Power is defined in the TPA as a WP Slice. WP Slices are comprised of the following:

   (a)MSC Slices, being WP Slices that are classified as MSC in the Slice Specification Schedule;

   (b)FC Slices, being WP Slices that are classified as FC in the Slice Specification Schedule; and

   (c)NFC Slices, being WP Slices that are classified as NFC in the Slice Specification Schedule.

5. An Original FC Slice is a Slice that is classified as FC in the Slice Specification Schedule (i.e. whether it has been on‑sold or not). The Original FC Slices, therefore, are those with the Designated Numbers 175 to 308.

6. We turn then to relevant parts of the operative provisions of the TPA.

Clauses 2 and 3 – Capacity Declarations and Energy Nominations

1. Clause 2 of the TPA deals with what may be described as the primary purpose of the TPA; namely a Bilateral Contract between the IPP as generator and Western Power as customer for the sale of electricity.

Energy Nominations and Energy Payments

1. Pursuant to cl 2.1, subject to the power of the IPP to declare certain Slices to be Unavailable, each WP Slice (i.e. a Slice that has not been on‑sold by Western Power) is deemed to be Available for each Trading Period.[51] Any declaration that a WP Slice is Unavailable must be made two hours before the time that the IPP must provide a Bilateral Submission to the IMO for the relevant Trading Day.[52]

   [51] A Trading Period under the TPA is equivalent to a Trading Interval under the Market Rules (i.e. 30 minutes).

   [52] TPA, cl 2.1(c). As will be seen, a Bilateral Submission to the IMO must be made by 8.30 am on the day before the Trading Day (see [153] below).

1. Save for those Slices that have been declared Unavailable, Western Power may, pursuant to cl 2.2, make an Energy Nomination in respect of each WP Slice for each Trading Day[53] and is deemed to make an Energy Nomination for Slices 1 to 151.[54] An Energy Nomination is defined as a nomination specifying that a Bilateral Submission is required with respect to that WP Slice during a Trading Period.

   [53] TPA, cl 2.2(a).

   [54] TPA, cl 2.2(a)(iii). Slices 1 ‑ 150 are defined in the TPA to be Minimum Turndown Slices.

2. The IPP is required to make a valid and binding Bilateral Submission to the IMO for each Trading Day in accordance with the procedures set out in the Market Rules for all Energy Nominations.[55]

   [55] TPA, cl 2.4(a).

3. Clause 3.1 makes provision for payments to the IPP with respect to Energy Nominations. Under that subclause Western Power is required to pay an Energy Payment in respect of each Nominated WP Slice, calculated in accordance with formulae set out cl 3.1(a) and (b).

4. It should also be noted, in relation to Energy Nominations and Energy payments that, while the IPP is required to make a valid and binding Bilateral Submission and Western Power is required to make Energy Payments in respect of them, the TPA does not oblige the IPP to actually dispatch energy from the Power Station in order to meet its obligations. Pursuant to cl 2.11 of the TPA ('Market risks') the parties acknowledge that:

   (a)the IPP is not required to generate and dispatch energy from the Power Station to meet its requirements under the TPA;

   (b)the IPP bears the costs and risks under the Market Rules of any failure to dispatch energy as required; and

   (c)Western Power bears the costs and risks under the Market Rules in relation to taking energy other than in accordance with the Market Rules.

5. As the parties submitted at the hearing of the appeal, the IPP could, for example, acquire the energy it has committed to provide to Western Power (in a Bilateral Submission) by purchasing that energy on the STEM. In that way, the IPP could meet its obligations under the TPA without generating energy in a particular Trading Period.[56]

Capacity Payments

[56] Appeal ts 208, 328.

1. Clause 2 of the TPA also makes provision for the identification of Slices eligible for Capacity Payments by Western Power under the TPA (defined as Eligible Slices). In that regard, cl 2.6(a) and cl 2.6(b) determine those Slices that are Eligible Slices. In general terms, all WP Slices are eligible for a Capacity Payment other than:

   (a) those declared by the IPP to be Unavailable because the IPP has been prevented from dispatching from the Power Station by reason of an event of force majeure;[57]

   (b) WP Load Shedding Slices;[58] and

   (c) NFC Slices where the Trading Period Temperature exceeds the Maximum Temperature for the relevant Trading Period.[59]

   [57] TPA, cl 2.1(b)(ii), cl 2.6(b)(i).

   [58] TPA, cl 2.6(b)(ii). Load Shedding Slices are WPC Slices that are subject to WP Load Shedding (which essentially involves the involuntary reducing or disconnecting of Load from the SWIS).

   [59] TPA, cl 2.6(b)(iii).

2. Clause 3.2 provides that Western Power must pay to the IPP a Capacity Payment, in respect of each Eligible Slice for each Trading Period, calculated in accordance with formulae set out cl 3.2(a) and (b).

Clause 5 – Capacity Credits

1. Clause 5 of the TPA makes provision in relation to Capacity Credits. The IPP is required, by cl 5.1 to hold and maintain 308 Capacity Credits for the duration of the Term[60] of the TPA.[61]

   [60] TPA, cl 1(a). The Term of the TPA is 25 years from the Commencement Date (unless the TPA is terminated earlier in accordance with its terms).

   [61] TPA, cl 11 (definition of TCO).

2. Clause 5.3(a) provides that:

   The IPP must make, or procure, a Capacity Credit Allocation Submission that allocates the WP Capacity Credits to Western Power … on each occasion that the Market Rules provide for the allocation of Capacity Credits by the IPP.

3. Having regard to their subject matter, and the text itself, all of the rights and obligations of Western Power to this point in the TPA (indeed up to and including cl 6) may be characterised as rights and obligations of Western Power qua Market Customer or Market Participant.

Clause 7 – System matters

1. Given its centrality in the appeal, it is appropriate that we set out cl 7 of the TPA in full:

   7System matters

   7.1Spinning Reserve

   (a)Subject to:

   (i)the IPP making a Spinning Unavailability Declaration with respect to the Original FC Slice in that Trading Period in accordance with clause 7.1(b);

   (ii)any contrary obligations of the IPP to provide Spinning Reserve Services to the IMO or System Management; or

   (iii)any obligation to provide energy which arises as a result of submissions made to the Market prior to the Spinning Reserve Nomination Time which could not have been lawfully avoided by the IPP,

   each Original FC Slice will be deemed to be Available for each Trading Period for Western Power to nominate for Spinning Reserve Services (Available for Spinning) in accordance with this clause 7.1.

   (b)The IPP may declare an Original FC Slice to be unavailable for spinning by making a Spinning Unavailability Declaration in accordance with clause 7.1(c) in respect of those Trading Periods in relation to which:

   (i)the relevant Original FC Slice is declared Unavailable for the relevant Trading Period in accordance with clause 2.1(b);

   (ii)the Power Station is not intended to operate during the relevant Trading Period due to a Planned Outage; or

   (iii)the IPP does not reasonably believe that the Power Station will be able to operate due to an outage that, at the time of making the relevant Spinning Unavailability Declaration, prevents the Power Station from operating.

   (c)If the IPP is to make a Spinning Unavailability Declaration under clause 7.1(c), the IPP must make that Spinning Unavailability Declaration no later than 2 hours prior to the time that the IPP must provide a Bilateral Submission to the IMO for the relevant Trading Day.

   (d)No later than 30 minutes prior to the time that the IPP must provide a Bilateral Submission to the IMO for the relevant Trading Day, the IPP must notify Western Power of the number of Original FC Slices that are Available for Spinning that have not been the subject of:

   (i)with respect to FC Slices, an Energy Nomination by Western Power; or

   (ii)with respect to an Original FC Slice that has been On‑Sold (including any Original FC Slices that have been subsequently on‑sold in accordance with an Off‑taker TPA), an energy nomination by an Off‑taker,

   in each Trading Period of the relevant Trading Day.

   (e)Within 10 minutes of receiving notification from the IPP in accordance with clause 7.1(d), Western Power may nominate a number of Original FC Slices up to the number notified by the IPP in accordance with clause 7.1(d) for a Trading Period, to be held as Spinning Reserve Slices for that relevant Trading Period.

   (f)Subject to clause 7.1(a), an Original FC Slice that has been nominated as a Spinning Reserve Slice must be held by the IPP for the purposes of providing Spinning Reserve Services.

   (g)Subject to clause 7.1(a) Western Power or System Management may, at any time during a Trading Period in respect of which an Original FC Slice has been nominated a Spinning Reserve Slice, direct the IPP to provide the Spinning Reserve Service within the Spinning Reserve Response Time.

   (h)Subject to clause 7.1(i), the IPP must provide the Spinning Reserve Service in accordance with a direction under clause 7.1(g).

   (i)The IPP is not obliged to provide the Spinning Reserve Services where this would be contrary to a Dispatch Instruction received from System Management which could not have been lawfully avoided by the IPP.

   (j)Western Power will pay the Spinning Reserve Capacity Rate to the IPP with respect to each FC Slice that is Available for Spinning provided by the IPP in accordance with this clause 7.1.

   (k)The parties acknowledge that the benefits and obligations in clauses 7.1 to 7.3 may be assigned by Western Power, separately to the remainder of this agreement, with the consent of the IPP, such consent not to be unreasonably withheld. It will be unreasonable for the IPP to withhold its consent if the proposed assignee of the benefits and obligations referred to in this clause 7.1(k) is financially and technically capable of performing such obligations. In respect of an assignment as part of a disaggregation or privatisation, an entity which meets the criteria in clause 10.4 or 10.5 (respectively), other than the requirement to be a Market Customer, is deemed financially and technically capable for the purposes of this clause 7.1(k). Clause 10.7(b) applies to the assignment of the benefit and obligations in clauses 7.1 to 7.3.

   (l)The parties agree to meet and negotiate in good faith between 1 June 2008 and 30 November 2008 to consider any additional procedures required to ensure that a nomination for Spinning Reserve Services by Western Power pursuant to clause 7.1(b) is effective to allow the provision of the Spinning Reserve Services.

   7.2Spinning Reserve Capacity Rate

   The Spinning Reserve Capacity Rate payable by Western Power in respect of each FC Slice that is Available for Spinning is calculated using the following formula:

Spinning Reserve Capacity Raten	=	Actual Spinning Reserve Costs (n-1)
		A

Where:

n	is the number of the relevant Quarter with Quarter 1 being the Quarter in which the Commencement date occurs;
Actual Spinning Reserve Costs (n-1)		are the average charges imposed by System Management on the IPP's spinning reserve in respect of the Power Station in the Quarter prior to the relevant Quarter expressed in $ per hour; and
A is the greater of:
(a)    the number of FC Slices (n-1); and
(b)    one.

7.3Spinning Reserve Capacity Payment

Western Power must pay to the IPP a Spinning Reserve Capacity Payment in respect of each FC Slice that is Available for Spinning calculated in accordance with the following formula for each Trading Period:

Spinning Reserve Capacity Payment =    Slice Capacity x

Spinning Reserve Capacity Rate x

Trading Period Fraction.

For the avoidance of doubt, the IPP will also be entitled to receive any payments relating to the provision of Spinning Reserve Services by the IPP in accordance with clause 7.1(h).

7.4Other Ancillary Services

With respect to Other Ancillary Services, the parties agree that, as soon as reasonably practical after the Market allows for Other Ancillary Services to be provided from the IPP to Western Power, the parties will meet to agree procedures and commercial terms for the provision of Other Ancillary Services from the IPP to Western Power.

1. In addition to the text of cl 7 itself, cl 35 of the TPA contains a number of defined terms relevant to the construction of cl 7. Those definitions, which apply unless a contrary intention appears, are:

   Ancillary Services has the meaning given in the Market Rules.

   Available means an Energy Nomination may be made in respect of that WP Slice.

   Available for Spinning has the meaning given in clause 7.1(a).

   Other Ancillary Services means Ancillary Services other than Spinning Reserve Services.

   Spinning Reserve Capacity Payment has the meaning given in clause 7.3.

   Spinning Reserve Capacity Rate means a rate (specified in $/MWh) calculated in accordance with clause 7.2 that will be paid by Western Power to the IPP for each Slice that is providing Spinning Reserve Services in accordance with clause 7.

   Spinning Reserve Nomination Time means the time for making Energy Nominations under clause 2.2(a)(ii).

   Spinning Reserve Response Time has the meaning given in the Market Rules.

   Spinning Reserve Services has the meaning given in the Market Rules.

   Spinning Reserve Slice means, with respect to a Trading Period, an FC Slice nominated as such by Western Power under clause 7.1(d).

   Spinning Unavailability Declaration means, in respect of an FC Slice, a declaration specifying that FC Slice is unavailable for spinning during a Trading Period.

2. Finally, cl 19.1 of the TPA makes provision in relation to invoicing by the IPP. It provides:

   19.1   Monthly statement

   Within 5 Business Days following the end of each month during the Term (the Relevant Month), the IPP must give Western Power an invoice (Monthly Statement) setting out (in dollars) the:

   (a)aggregate amount of Capacity Payments payable by Western Power to the IPP in respect of all Eligible Slices and for all Trading Periods for the Relevant Month;

   (b)aggregate amount of Energy Payments payable by Western Power to the IPP in respect of all WP Slices the subject of Energy Nominations and for all Trading Periods for the Relevant Month; and

   (c)aggregate amount of Spinning Reserve Payments payable by Western Power to the IPP in respect of all FC Slices that are Available for Spinning and for all Trading Periods for the Relevant Month.

3. The phrase 'Spinning Reserve Payments' is cl 19.1(c) is not a defined term in the TPA.

4. We turn then to identify in more detail the issues of contractual construction that arise in the appeal.

Issues of construction

1. There are two broad issues of contractual construction arising in the appeal.

Clauses 7.1(j) and 7.3 – Spinning Reserve Capacity Payment

1. The first issue concerns the circumstances in which Western Power is obliged to pay the Spinning Reserve Capacity Payment, and in particular the identification of the Slices in relation to which Western Power is required to make such a payment.

2. The IPP contends that Western Power is required to pay the Spinning Reserve Capacity Payment in relation to all Original FC Slices (i.e. Slices 175 to 308), other than those referred to in cl 7.1(a)(i), (ii) and (iii). According to this construction, the defined term 'Available for Spinning' is determinative and refers to all such Original FC Slices.

3. Synergy contends that the Spinning Reserve Capacity Payment is only payable with respect to those Original FC Slices that have been nominated by Western Power to be held as Spinning Reserve Slices for the relevant Trading Period under cl 7.1(e) of the TPA. On that construction, if no FC Slices are nominated by Western Power to be held as Spinning Reserve Slices (and therefore no Slices are so held), Western Power is not liable to pay the Spinning Reserve Capacity Payment for that Trading Period. This construction involves a more nuanced approach to the term 'Available for Spinning' in cl 7, including placing emphasis on the phrase 'provided by the IPP' in cl 7.1(j) and the words 'for each Slice that is providing Spinning Reserve Services' in the definition of Spinning Reserve Capacity Rate as used in cl 7.2 and cl 7.3.

4. There are two related subsidiary issues that arise in the context of this first issue of contractual construction.

5. The first subsidiary issue is whether the payment obligation referred to in cl 7.1(j) and the payment obligation referred to in cl 7.3 are the same payment obligation (whereby cl 7.1(j), cl 7.2 and cl 7.3 are read together) or whether those provisions impose separate and distinct payment obligations (and if so, what).

6. Related to this is whether cl 7 makes provision for the payment by Western Power for the actual supply or dispatch of energy from Slices that have been held in reserve. That involves consideration of precisely what is meant by the expression Spinning Reserve Service as it appears in cl 7.1(f), (g), (h) and (i) and the final sentence of cl 7.3. In that regard, notwithstanding that the definition of Spinning Reserve Service in cl 35 of the TPA adopts the meaning given to the phrase in the Market Rules, there is a real issue as to the extent that the meaning in the Market Rules is coherently or consistently used in the provisions of cl 7.

7. In relation to these subsidiary issues, Synergy's position is, first, that cl 7.1(j) and cl 7.3 refer to the same payment obligation, namely Western Power's obligation to pay the Spinning Reserve Capacity Payment with respect to those Original FC Slices that have been nominated by Western Power to be held as Spinning Reserve Slices for the relevant Trading Period.

8. In relation to the second subsidiary issue, Synergy contends that the TPA makes no provision in relation to Western Power's (or System Management's) obligation to pay for energy actually supplied or dispatched from Slices that have been held in reserve in a given Trading Period. Payment for the dispatch or supply of such energy, Synergy contends, occurs by operation of the settlement process under the Market Rules.

9. The IPP's position in relation to the subsidiary issues is that cl 7.1(j) and cl 7.3 refer to, and impose, two separate and distinct payment obligations on Western Power. In that regard, the IPP contends that cl 7.1(j) imposes an obligation to pay the Spinning Reserve Capacity Rate for either (or both) of:

   (a)the holding of a nominated Spinning Reserve Slice (pursuant to cl 7.1(f)); and

   (b)the actual dispatch or supply of energy from a Slice that has been held in reserve.

10. As can be seen, while the IPP contended that cl 7.1(j) applied to either or both of these services, it submitted that it was not necessary to choose between those alternative constructions in the appeal. It will also be apparent that the first of the IPP's alternative constructions of cl 7.1(j) (that is, requiring payment for the holding of a nominated Spinning Reserve Slice) was partly consistent with Synergy's construction of the single payment obligation created by both cl 7.1(j) and cl 7.3.

11. On the IPP's construction, the separate payment obligation created by cl 7.3 is the obligation to pay the Spinning Reserve Capacity Payment in relation to all Original FC Slices (i.e. Slices 175 to 308), other than those referred to in cl 7.1(a)(i), (ii) and (iii).

Clause 7.2 – Actual Spinning Reserve Costs

1. The second broad issue of contractual construction in the appeal relates to the formula in cl 7.2 of the TPA for calculating the Spinning Reserve Capacity Rate. The Spinning Reserve Capacity Rate is both referred to in cl 7.1(j) and is a variable of the formula in cl 7.3.

2. The particular aspect of cl 7.2 in contention are the words 'the average charges imposed by System Management on the IPP's spinning reserve in respect of the Power Station' in the definition of Actual Spinning Reserve Costs _(n-1).

3. Synergy contended that these words (and in particular the phrase 'the IPP's spinning reserve in respect of the Power Station') refer to the charges imposed with respect to Spinning Reserve provided by the IPP; that is, when the IPP holds energy in reserve as a consequence of a nomination by Western Power.

4. The IPP, by contrast, contended that the definition of Actual Spinning Reserve Costs refers to the charges imposed on the IPP under the Market Rules for the provision of Spinning Reserve provided by System Management under the Market Rules. In that regard, the Market Rules provide for Ancillary Service Cost Recovery whereby Market Participants are allocated a share of the costs of providing Ancillary Services, including Spinning Reserve, in the SWIS.

5. As will be apparent, this second broad issue of construction in the appeal, only has practical significance in the event that the Spinning Reserve Capacity Rate and the Spinning Reserve Capacity Payment is payable by Western Power under the TPA.

The learned primary judge's conclusions

1. The learned primary judge's conclusions in relation to the issues of construction were, in summary, as follows. We will set out her Honour's conclusions in relation to the two broad issues of construction separately.[62]

Clauses 7.1(j) and 7.3 – Spinning Reserve Capacity Payment

[62] There was a third issue before the learned primary judge, namely whether the obligations under cl 7 of the TPA were transferred to Synergy upon the disaggregation of Western Power. Her Honour concluded that they were (Primary reasons [173]). That conclusion was not challenged on appeal.

1. The learned primary judge commenced her discussion of the first issue by identifying three different categories of FC Slices referred to in cl 7.1 of the TPA, namely:[63]

   (a)FC Slices deemed to be Available for Western Power to nominate for Spinning Reserve Services (pursuant to cl 7.1(a)) but which were not nominated (which her Honour described as Category 1);

   (b)FC Slices nominated by Western Power and held or quarantined by the IPP for the purposes of providing Spinning Reserve Services (pursuant to cl 7.1(e) and cl 7.1(f)) (which her Honour described as Category 2); and

   (c) FC Slices which the IPP has provided for Spinning Reserve Services and has been directed to dispatch or inject into the SWIS (pursuant to cl 7.1(g) and cl 7.1(h)) (which her Honour described as Category 3).

   [63] Primary reasons [80].

2. Using this categorisation, her Honour summarised the parties' respective positions, namely:[64]

   [64] Primary reasons [82] ‑ [83].

   (a)the IPP's contention that cl 7 provides for two types of payments to be made by Western Power to the IPP:

   (i)first, a payment under cl 7.1(j) for each FC Slice that has provided a Spinning Reserve Service (Categories 2 and 3); and

   (ii)secondly, a payment under cl 7.3 irrespective of whether the IPP has provided a Spinning Reserve Service (Category 1); and

   (b)Synergy's contention that cl 7 does not provide for any payment in respect of Category 1 Slices, and that:

   (i)the Spinning Reserve Capacity Payment is only paid where the WP Slices are nominated and quarantined to provide Spinning Reserve Services pursuant to the process set out in cl 7.1 of the TPA (Category 2). Synergy contended that this is the payment provided for in cl 7.3; and

   (ii)where nominated Slices are used to generate electricity which is dispatched and injected into the SWIS (Category 3), payment occurs under the Market Rules and not the TPA.

3. The learned primary judge identified a number of matters of background and context that were relevant to the issues of construction. Her Honour referred, in particular, to the following context:[65]

   (a)the TPA was entered into in contemplation of the disaggregation of Western Power and the establishment of the Wholesale Electricity Market;

   (b)the Market Rules that had been proclaimed at the date of entry into the TPA were the Market Rules as of 1 October 2004, as amended on 9 September 2005 and 25 October 2005;

   (c)System Management was a business unit of Western Power and was responsible for ensuring the maintenance of system security and reliability within the SWIS, including Spinning Reserve;

   (d)at that time, the IMO was responsible for administering the Market Rules and scheduling; and

   (e) the TPA governed the sale from a Market Generator to a Market Customer of electricity to be produced from a greenfields power station although on its express terms, the TPA did not require the Power Station to produce any electricity.

   [65] Primary reasons [102].

4. Having observed the difficulty in interpreting the TPA, given its use of definitions which, when inserted into the substantive provisions, produce results that cannot readily be understood, the learned primary judge reached the following conclusions.[66]

   [66] Primary reasons [102].

5. First, her Honour concluded that the phrase 'Available for Spinning' means each Original FC Slice, other than those that have been declared unavailable under cl 7.1(b), and is not restricted to those FC Slices that have been nominated by Western Power to be held for Spinning Reserve under cl 7.1(e). As to that critical conclusion, the learned Primary judge said:[67]

   In my view, for the following reasons, the phrase 'Available for Spinning' means each Original FC Slice, other than those which have been declared unavailable under cl 7.1(b), and is not restricted to those FC Slices that have been nominated by [Western Power] to be held for Spinning Reserve under cl 7.1(e). First, this construction is supported by the text of cl 7.1(a) where the reference to the nomination process contained in the words 'in accordance with this clause 7.1' appear after the definition 'Available for Spinning'. Second, the FC Slices nominated by [Western Power] and held by the IPP to provide Spinning Reserve Services are separately defined in the TPA as 'Spinning Reserve Slices'. Consistent with the principles I have summarised above, where the draftsperson could have used the same definition but has used a different definition, it is assumed that the objective intention of the parties was to change the meaning. Third, I consider that the use of the word 'deem' in the clause means that each Original FC Slice is available for Western Power to nominate for Spinning Reserve Services.

   [67] Primary reasons [108].

6. Secondly, her Honour concluded that cl 7.3 required a payment to be made in respect of each FC Slice that is deemed to be available (or what her Honour described as Category 1 Slices).[68] To this extent, the learned primary judge accepted the construction contended for by the IPP.

   [68] Primary reasons [112].

7. Her Honour so concluded for the following reasons (in summary):

   (a)the payment provided for in cl 7 (Spinning Reserve Capacity Rate) used the word 'capacity'. Her Honour considered that the use of the word 'capacity' drew a distinction between the capacity of the Slices to provide Spinning Reserve Services and the use of the Slices for Spinning Reserve Services. This supported the construction that the payment obligation arises in relation to the maximum number of FC Slices that are available to provide Spinning Reserve Services as opposed to the FC Slices that are providing the Spinning Reserve Service;[69]

   (b)clause 7.1(j) and cl 7.3 use the phrase 'Available for Spinning' rather than the phrase 'Spinning Reserve Slices'. In that regard, her Honour said that the draftsperson could have used the phrase 'Spinning Reserve Slices' in cl 7.3 if the intention was to limit payment to FC Slices which were nominated and held or quarantined to provide Spinning Reserve Services, but did not;[70]

   (c)the context in which 'Spinning Reserve Capacity Rate' is used in cl 7.3 reflects the objective intention of the parties to incorporate the numerical rate (calculated in accordance with cl 7.2) and not the text of this definition in cl 35. If the numerical rate is inserted into cl 7.3 rather than the definition, no constructional choice is required;[71]

   (d)the text of the subclauses within cl 7 dealing with payment (cl 7.1(j), cl 7.2 and cl 7.3) refer to payments being made 'with respect to each FC Slice that is Available for Spinning'. Save for cl 7.1(j), which her Honour addressed later, the text of these clauses refer to payment to be made with respect to each FC Slice that is deemed to be available to be nominated for Spinning Reserve Services;[72]

   (e)other provisions of the TPA confirmed this construction. In this regard her Honour referred to the provisions in cl 2, whereby Western Power was required to make payments with respect to both 'capacity' and 'use' in a manner that was mirrored in cl 7.3.[73] Her Honour also referred to cl 19.1 in relation to monthly statements, which also refers to Spinning Reserve Payments by reference to Slices that are 'Available for Spinning'.[74]

   [69] Primary reasons [113] ‑ [117].

   [70] Primary reasons [120].

   [71] Primary reasons [121].

   [72] Primary reasons [122].

   [73] Primary reasons [123] ‑ [125].

   [74] Primary reasons [126]. Her Honour concluded that while the phrase 'Spinning Reserve Payments' was not a defined term in the TPA, on its proper construction, this was a reference to Spinning Reserve Capacity Payments.

8. The learned primary judge then returned to cl 7.1(j) and, in particular, to the phrase 'Available for Spinning provided by the IPP in accordance with this clause 7.1' (emphasis added).

9. In this context, her Honour concluded that cl 7.1(j) did not give rise to a separate payment obligation to that in cl 7.3. In that regard the learned primary judge accepted Synergy's submission that cl 7.1(j), cl 7.2 and cl 7.3 must be read together.[75] To that extent her Honour rejected the IPP's construction.

   [75] Primary reasons [128].

10. In this regard, her Honour observed that the reference to 'each FC Slice that is Available for Spinning provided by the IPP in accordance with this cl 7.1' in cl 7.1(j) gave rise to a constructional choice; namely whether the words in italics imposed an additional requirement and required the FC Slice to have been provided by the IPP as Spinning Reserve Services or whether the words in italics were, in effect, surplus. The learned primary judge noted that in submissions before her, the parties ultimately agreed that the obligation in this subclause concerned what her Honour described as Category 2 Slices, namely those FC Slices that were nominated for Spinning Reserve Services.[76]

    [76] Primary reasons [132].

11. Despite that agreement, her Honour concluded that the words in italics (provided by the IPP) were unnecessary and did not impose any additional requirement or require the FC Slice to have been provided for Spinning Reserve Services.[77] That is, her Honour concluded that those words were, indeed, surplusage.

    [77] Primary reasons [132].

12. Finally, the learned primary judge considered that her construction of the obligation to pay the Spinning Reserve Capacity Payment in relation to Category 1 Slices had a commercial rationale, although her Honour acknowledged that this was a topic on which minds may differ.[78]

Clause 7.2 – Actual Spinning Reserve Costs

[78] Primary reasons [135].

1. In relation to the second broad issue of construction, the learned primary judge accepted the construction contended for by the IPP. That is, her Honour concluded that the reference to 'the average charges imposed … on the IPP's spinning reserve in respect of the Power Station' in the definition of Actual Spinning Reserve Costs referred to the charges imposed on the IPP under the Market Rules for the provision of Spinning Reserve provided by System Management under the Market Rules for the SWIS generally.[79]

   [79] Primary reasons [179], [189] ‑ [201].

2. Her Honour concluded that the Market Rules at the time of entry into the TPA required the IPP to pay its share of Spinning Reserve calculated by reference to the risk presented by the Power Station. It was, her Honour concluded, this charge that was the Actual Spinning Reserve Costs in the formula in cl 7.2 of the TPA.[80]

Declaration

[80] Primary reasons [201].

1. In light of her Honour's conclusions, the learned primary judge made the following declaration as to the construction of the TPA:

   It is declared that on the proper construction of clause 7.3 of the written agreement, dated 5 November 2005, between the [IPP] and [Synergy] entitled 'WPC Tradable Purchase Agreement' (the TPA), absent:

   (a) the [IPP] making a 'Spinning Unavailability Declaration' for one or more 'Slices' pursuant to clause 7.1(b) of the TPA;

   (b) any contrary obligation of the [IPP] to provide 'Spinning Reserve Services' to the Australian Energy Market Operator (AEMO) or System Management; or

   (c) any obligation to provide energy which arises as a result of submissions made to the Wholesale Electricity Market no later than 1 hour prior to the time the [IPP] must provide a Bilateral Submission to AEMO for the relevant Trading Day,

   [Synergy] must pay to the [IPP], for each Trading Period of 30 minutes, a 'Spinning Reserve Capacity Payment' (as defined in clause 7.3 of the TPA) for each parcel of energy generation designated under the TPA as Slices 175 to 308 deemed to be available for each Trading Period for [Synergy] to nominate for Spinning Reserve Services in accordance with clause 7.1 of the TPA, regardless of whether the [IPP has] been directed by [Synergy] or System Management to provide, and whether or not the [IPP has] provided Spinning Reserve Services.

2. Notwithstanding the learned primary judge's conclusions in relation to the Spinning Reserve Capacity Rate, her Honour did not make a declaration as to the proper construction of cl 7.2 of the TPA, reflecting the construction at [120] to [121] above.

3. We turn then to the grounds of appeal.

Grounds of appeal

1. There are six grounds of appeal. They are as follows:

   1. The learned judge erred in law ([2020] WASC 238 (J) [102] ‑ [136]) in construing cll 7.1, 7.2 and 7.3 of the written agreement, dated 5 November 2005, entitled 'WPC Tradable Purchase Agreement' (TPA), between the first and second respondents (together IPP) and Western Power Corporation (a body corporate established by s 4(1) of the Electricity Corporation Act 1994 (WA)) (WPC) and in concluding that, absent:

   (a)the IPP making a 'Spinning Unavailability Declaration' for one or more 'Slices' pursuant to cl 7.1(b) of the TPA;

   (b)any contrary obligation of the IPP to provide 'Spinning Reserve Services' to the Australian Energy Market Operator (AEMO) or System Management; or

   (c)any obligation to provide energy which arises as a result of submissions made to the Wholesale Electricity Market no later than 1 hour prior to the time the IPP must provide a Bilateral Submission to AEMO for the relevant Trading Day,

   the appellant ([Synergy]) must pay to the IPP, for each Trading Period of 30 minutes, a 'Spinning Reserve Capacity Payment' (as defined in cl 7.3 of the TPA) for each parcel of energy generation designated under the TPA as Slices 175 to 308 deemed to be available for each Trading Period for [Synergy] to nominate for Spinning Reserve Services in accordance with cl 7.1 of the TPA, regardless of whether the IPP has been directed by [Synergy] or System Management to provide, and whether or not the IPP has provided Spinning Reserve Services.

   2. The learned judge erred in law in failing to conclude that, on the proper construction of cll 7.1, 7.2 and 7.3 of the TPA, WPC (or its relevant statutory successor, [Synergy]) is required to pay the 'Spinning Reserve Capacity Payment' (as defined in cl 7.3 of the TPA) only if:

   (a) the IPP has not declared, under cll 7.1(b) and 7.1(c) of the TPA, that the parcels of energy generation capacity designated under the TPA as Slices 175 to 308 (and referred to in paragraph 2(b) below) are the subject of a 'Spinning Unavailability Declaration';

   (b) the IPP notifies WPC (or its relevant statutory successor, [Synergy]), as required by cl 7.1(d) of the TPA, of the number of parcels of energy generation capacity designated under the TPA as Slices 175 to 308 that are available to be nominated for 'Spinning Reserve Services' (as defined in the Wholesale Electricity Market Rules as at 5 November 2005 when the TPA was made (MR) as the service of holding capacity in reserve for use if necessary); and

   (c) WPC (or its relevant statutory successor, [Synergy]) makes a nomination pursuant to cl 7.1(e) of the TPA of such Slices up to the number notified by the IPP in accordance with cl 7.1(d) of the TPA for such nominated slices to be held as 'Spinning Reserve Slices' (as defined in the TPA),

   and the 'Spinning Reserve Capacity Payment' is required to be paid only with respect to such nominated Slices.

   3. More particularly, the learned judge erred in law (J[102] ‑ [125], [136]) in concluding that cl 7.3 of the TPA requires [Synergy] to pay to the IPP a payment in respect of each FC Slice that could be nominated and quarantined for Spinning Reserve Services even if there was no nomination under cl 7.1(e) of the TPA.

   4. Further, the learned judge erred in law (J[127] ‑ [135]) in concluding that cl 7.1(j) of the TPA contains surplus words (namely, 'provided by the IPP in accordance with this clause 7.1') and provides that [Synergy] must pay the IPP under cl 7.3 in respect of each FC Slice that could be nominated and quarantined for Spinning Reserve Services even if there was no nomination under cl 7.1(e) of the TPA.

   5. The learned judge erred in law (J[189] ‑ [201], esp J[201]) in concluding that, on the proper construction of cl 7.2 of the TPA, 'Actual Spinning Reserve Costs', as used in cl 7.2 of the TPA and in the formula in cl 7.2, refers to the average charges imposed on the IPP for Spinning Reserve in relation to the Kwinana Power Station.

   6. The learned judge erred in law in failing to conclude that, on the proper construction of cl 7.2 of the TPA, 'Actual Spinning Reserve Costs', as used in cl 7.2 of the TPA and in the formula in cl 7.2, refers to the average charges imposed on relevant Market Participants (namely, generators) under the MR with respect to spinning reserve (if any) provided by the IPP from the Kwinana Power Station following a nomination under cl 7.1(e) of the TPA.

2. It will be apparent that grounds 1 to 4 relate to what we have described as the first broad issue of construction: namely, the circumstances in which Western Power is obliged to pay the Spinning Reserve Capacity Payment, and whether it is payable in respect of all Original FC Slices other than those referred to in cl 7.1(a)(i), (ii) and (iii), or only those Original FC Slices that have been nominated by Western Power to be held as Spinning Reserve Slices.

3. Grounds 5 and 6 concern the second broad issue of construction: the definition of Actual Spinning Reserve Costs in cl 7.2 of the TPA.

Notice of contention

1. In responding to the appeal, the IPP filed a notice of contention, challenging the learned primary judge's conclusion that cl 7.1(j) does not give rise to a separate payment obligation to that found in cl 7.3. The notice of contention provides:

   Contrary to J[128] ‑ [129], cl 7.1(j) of the TPA imposes an obligation on [Synergy] to pay to the IPP the Spinning Reserve Capacity Rate with respect to each Spinning Reserve Slice held during a Trading Period by the IPP pursuant to cl 7.1(f), or from which Spinning Reserve is dispatched during a Trading Period pursuant to cl 7.1(h) of the TPA, which payment obligation is separate from [Synergy]'s obligation to pay the Spinning Reserve Capacity Payment for which cl 7.3 of the TPA provides.

2. It will be apparent that this contention relates to the first of the issues of construction and in particular to the learned primary judge's reasoning that is the subject of ground 4 of the appeal.

3. In oral submissions senior counsel for the IPP accepted that it was critical to the IPP's construction that there was a separate payment obligation in cl 7.3. Senior counsel accepted that this was a different approach to that adopted by the learned primary judge. The IPP relied on cl 7.3 for its preferred construction and eschewed cl 7.1(j) insofar as the IPP accepted that payment under cl 7.1(j) is only for Slices 'provided by the IPP' in accordance with cl 7.1, ie nominated Slices.[81]

   [81] Appeal ts 306 - 308.

4. Accordingly, the matter raised by the IPP's notice of contention was key to the IPP's preferred construction of cl 7.

5. In the circumstances it is convenient to consider the issues by reference to the two broad issues we have earlier identified; namely, first the circumstances in which Western Power is obliged to pay the Spinning Reserve Capacity Payment under the TPA (grounds 1 to 4 of the appeal, and the notice of contention), and, secondly, as to the definition of Actual Spinning Reserve Costs in cl 7.2 of the TPA (grounds 5 and 6 of the appeal).

Synergy's submissions on appeal

1. Synergy's substantive submissions commenced by distinguishing between three separate kinds of Slices dealt with in cl 7 of the TPA. Synergy referred to those different Slices as:[82]

   (a)those Slices that can be nominated by Western Power for Spinning Reserve Services, which it referred to as cl 7.1(a) Slices;

   (b)those Slices that are nominated by Western Power to be held for Spinning Reserve Services through the process described in cl 7.1(d), (e) and (f), which it referred to as nominated Slices; and

   (c)those nominated Slices for which there is an obligation to dispatch energy in accordance with a direction referred to in cl 7.1(g), (h) and (i), which it referred to as dispatched Slices.

   [82] Appellant's submissions [5].

1. In particular, in relation to the phrase 'provided by the IPP' in cl 7.1(j), in our view:

   (a)properly construed those words are not (as the learned primary judge found) mere surplusage. The inclusion of those words reveals an intention that the payment obligation in cl 7.1(j) (being the same payment obligation as that in cl 7.3) is a payment for the IPP having done something in accordance with the TPA;

   (b)accordingly, cl 7.1(j) is not (and indeed, is not capable of being construed as) a passive payment obligation that periodically arises based on a deemed number of Slices in relation to which no service is provided by the IPP; as would be the case with a payment obligation that was a 'pass through mechanism' reflecting charges imposed on the IPP elsewhere by the Market Rules;[241]

   (c)the recognition that cl 7.1(j) cannot be a merely passive payment, explains why it was essential to the IPP's construction that cl 7.1(j) and cl 7.3 referred to two separate payment obligations. That is because its construction of cl 7.3 as being a 'pass through mechanism' would amount to a passive payment obligation. If, as we find, the payment obligations are the same, the only way that the payment obligation in cl 7.1(j) could be construed as a 'pass through mechanism' as well would be to ignore the words 'provided by the IPP' or (as the learned primary judge did) conclude that they are surplusage;

   (d)at one level, therefore, the key to the constructional choice in this case is whether the words 'provided by the IPP' in cl 7.1(j) are to be regarded as surplus or not. Unlike the learned primary judge, in our view, they were not. Rather, in our view, they were intended to have operative effect by ascribing descriptive meaning.

   [241] See [217] above.

2. This is reinforced, in our view, by the use of the defined term 'Spinning Reserve Capacity Rate' in each of cl 7.1(j), cl 7.2 and cl 7.3, which defined term refers to each 'Slice that is providing Spinning Reserve Services'.[242] Whether or not 'Spinning Reserve Capacity Rate' as it is used in cl 7.3 reflects the objective intention of the parties to incorporate the numerical rate (calculated in accordance with cl 7.2) and not the text of this definition in cl 35 (as her Honour concluded),[243] the use of that defined term in each of cl 7.1(j), cl 7.2 and cl 7.3 (and only in those clauses)[244] makes clear that it relates to something done by the IPP (something provided) and not a passive 'pass through' payment.

   [242] Clause 35.

   [243] See [114(c)] above.

   [244] Save for the definition in cl 35 itself, 'Spinning Reserve Capacity Rate' appears nowhere else in the TPA.

3. The term 'Available for Spinning' in cl 7.1(a) is itself what creates the real ambiguity in the clause as a whole. Read in isolation, it could be construed as referring to all the Slices 'deemed to be Available' to be nominated to be held in reserve, and so when included in cl 7.3 to include even those Slices for which there is no nomination and no holding in reserve. To expand its use, throughout cl 7, as referring to the 'deemed' Slices on every occasion is, however, to adopt too rigid and formulaic an approach to the construction of cl 7 as a whole.

4. In particular, it is noteworthy that cl 7.1(a) includes the words 'to nominate for Spinning Reserve Services'. As we have explained at [274] to [281] above, in a number of places cl 7 uses the phrase 'Spinning Reserve Services' to mean dispatch of energy, rather than its meaning in the Market Rules as being the service of holding energy generation capacity in reserve. The use of the phrase in cl 7.1(a) may also be understood in that sense; that is in the sense of dispatch (the end of the process described in cl 7.1 as a whole), for which the 'nomination' to hold is an intermediate step in that process. The definition as a whole therefore tends to blur the distinction between 'availability', 'nomination' and 'dispatch'.

5. Indeed, the use of 'Spinning Reserve Service' in cl 7.1(f) to (i) to mean dispatch, sheds light on the meaning of the phrase 'Available for Spinning', and in particular the phrase 'Available for Spinning provided by the IPP', as they appear in cl 7. Those phrases, particularly the latter phrase, may be understood as denoting those Slices that are able ultimately to be provided as 'Spinning Reserve Services' as that phrase is used in cl 7.1(f) to cl 7.1(i) to mean the dispatch of energy; that is those Slices that have been nominated and held in reserve for that purpose. While such a meaning, of course, does not accord with the meaning of Spinning Reserve in the Market Rules, it does make sense in the context of the TPA's idiosyncratic use of Spinning Reserve Service discussed above.

6. So understood, in our view, the language of cl 7 reveals an intention that the Slices in respect of which the Spinning Reserve Capacity Payment referred to in cl 7.3 of the TPA is payable are those Slices that are in fact available to be dispatched as Spinning Reserve Services (as that expression is used in cl 7.1(f) to cl 7.1(i) to mean the dispatch of energy). In the context of cl 7 as a whole, in our view, the phrase 'Available for Spinning provided by the IPP' properly and comfortably bears the meaning of Slices that have been nominated by Western Power to be held as Spinning Reserve Slices.

7. In addition to the language of cl 7 bearing that meaning, in our view, such a construction best produces a commercial result, a result that makes commercial sense and is consistent with the commercial object of the agreement.

8. In that regard, as we have concluded above, the objectively discerned commercial object of cl 7 is to enable Western Power (and more particularly System Management) to obtain Ancillary Services from the IPP and, in particular, for Western Power to be able to require the IPP to hold energy generation capacity in reserve as Spinning Reserve. The provision of Spinning Reserve (being the holding of energy generation capacity in reserve for the potential dispatch of energy if required) was the contractual benefit to be obtained by Western Power by the inclusion of cl 7 in the TPA.

9. By nominating Slices to be held in reserve, in accordance with the process in cl 7.1(b) to (e), Western Power could oblige the IPP not to use those Slices, Slices which it would otherwise have been able to use to generate energy which could be traded for value on the STEM. As a matter of commercial common sense it is the performance of that contractual obligation for which a reasonable businessperson would expect the IPP to be paid. That is, in our view, the fundamental point of an Ancillary Services Contract, such as cl 7.

10. With respect to the contrary view reached by the learned primary judge, in our view, it would make no commercial sense for the IPP to be paid the Spinning Reserve Capacity Payment in relation to Slices which it has not been obliged to hold, and has not in fact held, in reserve as Spinning Reserve. According to the construction contended for by the IPP, it would be entitled to the Spinning Reserve Capacity Payment in circumstances in which it has not provided any Ancillary Service at all. On the contrary, it would be entitled to payment based on a deemed number of Slices which bear little or no relationship to such a service.

11. The only way in which such a result could be regarded as a commercial result, or making commercial sense, would be if the purpose of cl 7.3 was indeed to be a pass through mechanism wholly unrelated to the provision of a Spinning Reserve Service by the IPP. As we have concluded above, there is nothing in the text and structure of cl 7 which reveals such a policy or purpose.

12. Indeed, given that there is, in our view, clearly only one payment obligation created by cl 7 as a whole, to adopt the remainder of the IPP's construction would lead to the commercially bizarre result that the IPP would not be remunerated for actually holding energy generation capacity as Spinning Reserve, whereas the IPP would receive a 'pass through' payment unrelated to any obligation on its part to hold Spinning Reserve (in the very clause concerned with the provision of Spinning Reserve).

13. For these reasons, in our view, grounds 1 to 4 must be upheld. That is:

    (a)on their proper construction, cl 7.1, cl 7.2 and cl 7.3 of the TPA:

    (i)oblige Western Power to pay the Spinning Reserve Capacity Payment only if, following the process in cl 7.1(b) to (e), Western Power has nominated that Original FC Slices be held as Spinning Reserve Slices for a relevant Trading Period; and

    (ii)the Spinning Reserve Capacity Payment is required to be paid only with respect to such nominated Slices (grounds 1, 2 and 3); and

    (b)cl 7.1(j) of the TPA does not contain surplus words and that the the phrase 'Available for Spinning provided by the IPP' confirms that the subclause refers only to those Slices that have been nominated and held as 'Spinning Reserve' (ground 4).

14. Similarly, the notice of contention should be rejected. The learned primary judge was correct to conclude that cl 7.1(j), cl 7.2 and cl 7.3 were to be read together and that cl 7.1(j) and cl 7.3 do not give rise to separate payment obligations.

Grounds 5 and 6 – cl 7.2

1. In light of the conclusion that we have reached as to the construction of cl 7.3, namely that Western Power is only obliged to pay the Spinning Reserve Capacity Payment in relation to Slices of energy that it has nominated be held by the IPP as Spinning Reserve Slices during a relevant Trading Period, the issue of construction raised in grounds 5 and 6 does not strictly arise.

2. That is because, as noted at the beginning of these reasons, it is an agreed fact that, since the commencement of the TPA, neither Western Power, nor Synergy, have ever nominated that a Slice be held by the IPP as a Spinning Reserve Slice. The consequence of our preferred construction of cl 7 is that neither Western Power nor Synergy have at any time incurred a liability for the Spinning Reserve Capacity Payment.

3. The only relevance of the second broad issue of construction in the appeal (namely, the proper construction of the words 'the average charges imposed by System Management on the IPP's spinning reserve in respect of the Power Station' in the formula for the Spinning Reserve Capacity Rate in cl 7.2) is that it would affect the calculation of the Spinning Reserve Capacity Payment, in the event that it was payable. In the absence of any such liability, the need or occasion for such a calculation does not arise.

4. Nevertheless, as it was fully argued, and as it may be regarded as bearing upon the construction of cl 7 as a whole, it is appropriate that we record our conclusions in relation to the broad issue of construction raised by grounds 5 and 6.

5. We would not have upheld grounds 5 or 6. In our view, the learned primary judge was correct to conclude that the reference to 'the average charges imposed … on the IPP's spinning reserve in respect of the Power Station' in the definition of Actual Spinning Reserve Costs refers to the charges imposed on the IPP under the Market Rules for the provision of Spinning Reserve provided by System Management under the Market Rules for the SWIS generally.

6. In that regard, in our view, the IPP's submissions as to the language in cl 7.2 should be accepted. As a matter of its natural and ordinary meaning, and in its context, the reference to charges 'by System Management' 'on the IPP's spinning reserve' must be understood to refer to a charge levied on the IPP rather than a charge levied by it. In that regard, as the IPP submitted, the word 'IPP's' in cl 7.2 most naturally operates on the entirety of the words that follow it, including the compound phrase 'spinning reserve in respect of the Power Station'.

7. This construction is, in our view, reinforced by the context of the Market Rules. In particular we accept that, at the time that the TPA was executed, the only charge imposed on Market Participants in respect of spinning reserve was the Reserve_Cost_Share(p,m) component of the Ancillary Service settlement amount and that that component reflected the margins associated with the provision of Spinning Reserve by Western Power.

8. In that context, we accept the IPP's submission, that as a matter of construction of the Market Rules, Margin_Peak(m) and Margin_Off‑Peak(m) relate to the margin on sales forgone and loss of efficiency by reason of Western Power's facilities providing Spinning Reserve.[245] In relation to margin on sales forgone, cl 2.23.12(d)(i)1 by its express words is unambiguously confined to Western Power's margin. In our view, cl 2.23.12(d)(i)2, where it refers to 'Registered Facilities that Western Power has scheduled', should be given a corresponding meaning, and refers to Western Power's Registered Facilities.

   [245] See [210] above.

9. It is important to recognise in this context, that this construction of cl 7.2 is not inconsistent with the construction we have reached in relation to cl 7.3 and the liability for the Spinning Reserve Capacity Payment generally. As we noted above,[246] notwithstanding its proposed construction of cl 7.3, the IPP nevertheless submitted that its preferred construction of the Spinning Reserve Capacity Rate was also an appropriate commercial rate to apply to charges relating to holding capacity. It did not advance the submission that its construction of cl 7.2 was a basis for concluding that it would not make commercial sense to apply the Spinning Reserve Capacity Rate to the calculation for payments based on nominated Slices.

   [246] See [227] above.

10. We accept the IPP's submissions in that regard. In our view, the use of a charge based on Western Power's own opportunity costs of providing spinning reserve in respect of the Power Station in the previous Quarter makes good commercial sense and produces a commercial result. In that regard, the Market Rules reflect an intention that Ancillary Service Contracts would be used where they will provide a less expensive alternative to Ancillary Services provided by Western Power's Registered Facilities.[247] Basing the price of Ancillary Services under the TPA, at least in part, upon Western Power's own costs in the previous Quarter, thus enabling System Management to make an assessment of the likely cost of making nominations under cl 7, in our view, facilitates that commercial objective.

    [247] See [39] above.

Conclusion

1. For the foregoing reasons, we would allow the appeal.

2. In light of our conclusion on grounds 1 to 4, we would set aside the declaration made by the learned primary judge as to the proper construction of cl 7.3 (set out at [122] above) and would make a declaration as to the proper construction of cl 7.1, cl 7.2 and cl 7.3 as they relate to the liability for the Spinning Reserve Capacity Payment.

3. In light of the matters set out at [322] to [324] above, we are of the preliminary view that there should not be a declaration as to the proper construction of cl 7.2, as it relates to the formula for the Spinning Reserve Capacity Rate. Our provisional view is that such a declaration would be hypothetical and would lack utility.[248]

   [248] Bass v Permanent Trustee Company Ltd [1999] HCA 9; (1999) 198 CLR 334 [49] (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne & Callinan JJ).

4. We will, however, hear from the parties in relation to the final orders in the appeal, including as to costs.

Schedule – Table of Defined Terms

Defined Term	Reasons	TPA	Market Rules
Actual Spinning Reserve Costs	[85]	cl 7.2
ADQ(p,d,t)	[169]	cl 6.17.2
AEMO	[26]
Allowable Revenue of Ancillary Service provision	[145]	cl 2.23.12(d), cl 2.23.12(e)
Ancillary Service Cost Recovery	cl 3.14
Ancillary Service(s)	[36]	cl 35	cl 3.9, cl 11
Ancillary Service Contract	[40]	cl 11
Ancillary Service Declaration	[155]	cl 6.6.1, cl 6.6.2A, cl 11
Ancillary Service Requirements	[38]	cl 3.11.1, cl 11
Ancillary Service Standards	[38]	cl 3.10
Availability_Cost_R(m)	[140]	cl 3.13.1
Availability Declaration	[155]	cl 6.6.1, cl 6.6.2A, cl 11
Available	[74], [86]	cl 2.1, cl 35
Available for Spinning	[85], [86]	cl 7.1(a), cl 35
Bilateral Contract	[23]	cl 35	cl 11
Bilateral Submission	[28	cl 35	cls 6.2, cl 6.7.1, cl 11
Capacity Classification	[68]	cl 35
Capacity Credit	[55]	cl 35	cl 11
Capacity Payment	[80]	cl 3.2, cl 35
DDAP(p,d,t)	[202]	cl 6.14.5, cl 9.8.1
Designated Numbers	[69]	cl 35
Development Agreement	[3]
DIP(p,d,t)	[169]	cl 6.17.6
Dispatch Instruction	[165]	cl 7.7.1
Dispatch Schedule	[168]	cl 6.15.1
DUDQ(p,d,t)	[202]	cl 6.17.1, cl 6.17.4, cl 9.8.1
Eligible Slices	[80]	cl 35
Energy Nomination	[75]	cl 2.6, cl 35
Energy Payment	[77]	cl 3.1, cl 35
Facility	[28]	cl 2.29.1, cl 11
FC Slice	[70]	cl 35
Fifteen Minute Reserve	[52]	cl 3.9.4 ‑ cl 3.9.5
IMO	[25] – [26]	cl 35	cl 2.28.1, cl 11
Individual Reserve Capacity Requirement	[56]	cl 4.28.7, cl 11
Interruptible Load	[49]	cl 11
IPP	[1]	Details
Load Rejection Reserve Service	[53]	cl 3.9.6 ‑ cl 3.9.7
Margin_Off-Peak(m)	[145]	cl 2.23.12(d), cl 3.13.3.
Margin_Peak(m)	[145]	cl 2.23.12(d), 3.13.3
Market	[18]	cl 35
Market Customer/s	[19]	cl 35	cl 2.28.10 ‑ cl 2.28.11, cl 11
Market Generator/s	[19]	cl 35	cl 2.28.6 ‑ 2.28.8, cl 11
Market Participant/s	[20]	cl 35	cl 2.28.17, cl 11
Market Rules	[9]	cl 35
Maximum Temperature	[80]	cl 35, Schedule
MCAP(d,t)	[144]	cl 6.14.2, cl 9.8.1, cl 9.9.2
MSC Slice	[70]	cl 35
Net Bilateral Position	[154]	cl 6.9.2
Net Contract Position	[160]	cl 6.9.13
NFC Slice	[70]	cl 35
Non-STEM Settlement Statement	[171]	cl 6.18
Original FC Slice	[71]	cl 35
Power Station	[2]	cl 35
Power Station Capacity Slice	[67]	cl 35
Power System Adequacy	[33]	cl 11
Power System Reliability	[33]	cl 11
Power System Security	[33]	cl 11
Portfolio Demand Curve	[155]	cl 6.6.1, cl 6.6.2A, cl 11
Portfolio Supply Curve	[155]	cl 6.6.1, cl 6.6.2A, cl 11
Reserve Capacity	[54]	cl 11
Reserve_Cost_Share(p,m)	[141]	cl 9.9.2(b)
Reserve_Share(p,t)	[140], [142]	cl 3.14.2, Appendix 2
Resource Plan	cl 6.5, cl 11
Resource Plan Submission	[161]	cl 6.5.1
Rule Participant/s	[19]	cl 2.28.1, cl 11
Scheduling Day	[153]	cl 11
Shortfall Share	[57]	cl.9.7.1
Slice Capacity	[67]	cl 35
Slice Specification Schedule	[68]	cl 35, Schedule 1
Slice	[67]	cl 35
Spinning Reserve	[44]	cl 11
Spinning Reserve Capacity Payment	[85], [86]	cl 7.3, cl 35
Spinning Reserve Capacity Rate	[85], [86]	cl 7.2, cl 35
Spinning Reserve Nomination Time	[86]	cl 2.2, cl 35
Spinning Reserve Response Time	[86]	cl 35	cl 3.9.3
Spinning Reserve Service(s)	[47], [85], [86]	cl 35	cl 3.9.2 ‑ cl 3.9.3
Spinning Reserve Slice	[86]	cl 7.1(d), cl 35
Spinning Unavailability Declaration	[85], [86]	cl 35
STEM	[22]	cl 35	cl 11
STEM Auction	[26]	cl 6.9, cl 11
Stem Clearing Price	[156]	cl 6.9.7
STEM Submission	[28]	cl 6.3B.1 ‑ cl 6.6.2A, cl 11
SWIS	[2]	cl 35	cl 11
Synergy	[3]
System Management	[31]	cl 35	cl 2.2.2, cl 11
System Restart Service	[53]	cl 3.9.8
Term	[82]	cl 35
Total Tradable Capacity	[68]	cl 35, Schedule 1
TPA	[4]	cl 1(a), cl 35
Trading Day	[22]	cl 35	cl 11
Trading Interval	[22]	cl 11
Trading Period	[74]	cl 35
Trading Period Temperature	[80]	cl 2.6, cl 35
UDAP(p,d,t))	[202]	cl 6.14.5, cl 9.8.1
Unavailable	[74] ‑ [75]	cl 35
UUDQ(p,d,t)	[202]	cl 6.17.1, cl 6.17.3, cl 9.8.1
Western Power	[3]	cl 35
Western Power AS Provider Payment (p,m)	[208]	cl 9.9.1
Wholesale Electricity Market	[18]
WP Load Shedding Slices	[80]	cl 2.6, cl 35
WP Slice	[70]	cl 35

I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.

SC

Associate to the Honourable Chief Justice Quinlan

17 JANUARY 2022