Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd
[2013] WASCA 36
•20 FEBRUARY 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: ELECTRICITY GENERATION CORPORATION t/as VERVE ENERGY -v- WOODSIDE ENERGY LTD [2013] WASCA 36
CORAM: McLURE P
NEWNES JA
MURPHY JA
HEARD: 8 & 9 OCTOBER 2012
DELIVERED : 20 FEBRUARY 2013
FILE NO/S: CACV 133 of 2011
BETWEEN: ELECTRICITY GENERATION CORPORATION t/as VERVE ENERGY
Appellant
AND
WOODSIDE ENERGY LTD
First RespondentBP DEVELOPMENTS AUSTRALIA PTY LTD
Second RespondentCHEVRON AUSTRALIA PTY LTD
Third RespondentBHP BILLITON PETROLEUM (NORTH WEST SHELF) PTY LTD
Fourth RespondentSHELL DEVELOPMENT (AUSTRALIA) PTY LTD
Fifth Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :LE MIERE J
Citation :ELECTRICITY GENERATION CORPORATION t/as VERVE ENERGY -v- WOODSIDE ENERGY LTD [2011] WASC 268
File No :CIV 1548 of 2009
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :LE MIERE J
Citation :ELECTRICITY GENERATION CORPORATION t/as VERVE ENERGY -v- WOODSIDE ENERGY LTD [2011] WASC 268 (S)
File No :CIV 1548 of 2009
Catchwords:
Longterm gas contract - Proper construction - Reasonable endeavours obligation - Exclusion clause - Duress - Unlawful conduct - Restitution - Rescission - 'Sole remedy' clause - Exclusionary effect
Legislation:
Nil
Result:
Appeal allowed in part
Category: A
Representation:
Counsel:
Appellant: Mr N C Hutley SC & Mr J C Giles
First Respondent : Mr C L Zelestis QC, Mr B Dharmananda SC & Ms S E Russell
Second Respondent : Mr C L Zelestis QC, Mr B Dharmananda SC & Ms S E Russell
Third Respondent : Mr C L Zelestis QC, Mr B Dharmananda SC & Ms S E Russell
Fourth Respondent : Mr C L Zelestis QC, Mr B Dharmananda SC & Ms S E Russell
Fifth Respondent : Mr C L Zelestis QC, Mr B Dharmananda SC & Ms S E Russell
Solicitors:
Appellant: Jackson McDonald
First Respondent : Lavan Legal
Second Respondent : Lavan Legal
Third Respondent : Lavan Legal
Fourth Respondent : Lavan Legal
Fifth Respondent : Lavan Legal
Case(s) referred to in judgment(s):
Allason v Campbell [1998] ECWA Civ J0226‑9
Australian and New Zealand Banking Group v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149
B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419
Barton v Armstrong [1973] 2 NSWLR 598
Barton v Armstrong [1976] AC 104
Beerens v Bluescope Distribution Pty Ltd [2012] VSCA 209
Borrelli v Ting [2010] UKPC 21
Carr v Gilsenan (1946) St R Qd 44
CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601
Commissioner of Taxation v Scully [2000] HCA 6; (2000) 201 CLR 148
Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693
Coshott v Lennon [2007] NSWCA 153
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40
Crescendo Management v Westpac (1988) 19 NSWLR 40
CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714
Cypjayne Pty Ltd Babcock & Brown International Pty Ltd (2011) NSWCA 173; (2011) 282 ALR 152
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500
Dimskal Shipping Co SA v International Transport Workers Federation (The Evia Luck) [1992] 2 AC 152
DSND Subsea Ltd v Petroleum Geo‑Services [2000] BLR 530
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2011] WASC 268 (S)
Enimont Overseas AG v Jugotanker Zadar (The Olib) [1991] 2 Lloyd's Rep 108
Furphy v Nixon [1925] HCA 34; (1925) 37 CLR 161
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1
Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (1993) 40 NSWLR 206
Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215
H & E Van der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Hulton v Hulton [1917] 1 KB 813
Ingram v Ingram (1938) 38 SR (NSW) 407
J & G Knowles & Associates v Commissioner of Taxation [2000] FCA 196; (2000) 96 FCR 402
J‑Corp Pty Ltd v Mladenis [2009] WASCA 157; (2010) 26 BCL 106
Mackay v National Australia Bank Ltd [1998] 4 VR 677
Magsons Hardware Ltd v Concepts 124 Ltd [2011] NZCA 559
Mason v The State of New South Wales [1959] HCA 5; (1959) 102 CLR 108
McCourt v Cranston [2012] WASCA 60
McIntyre v Nemesis DBK Ltd [2009] NZCA 329; (2010) 1 NZLR 463
Mitchell v Pacific Dawn Pty Ltd [2011] QCA 98
Nissho Iwai Australia Ltd v Malaysian International Shipping Corporation, Berhad [1989] HCA 32; (1989) 167 CLR 219
Nixon v Furphy (1925) 25 SR (NSW) 151
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705
Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161
Pao On v Lau Yiu Long [1980] AC 614
Patman v Fletcher's Fotographics Pty Ltd (1984) 6 IR 471
Pavey & Matthews v Paul [1987] HCA 5; (1987) 162 CLR 221
Perum Building and Construction Pty Ltd v Tallenford Pty Ltd [2007] WASCA 245; (2008) 24 BCL 361
Pinnel's Case (1602) 5 Co Rep 117(a); (1602) 77 ER 237
R v Her Majesty's Attorney-General for England and Wales (New Zealand) [2003] UKPC 22
Re Hooper & Grass' Contract [1949] VLR 269
Rookes v Barnard [1964] AC 1129
Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516
Royal Bank of Scotland plc v Etridge (No 2) [2000] 2 AC 773
Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634
Shepherd v Australia and New Zealand Banking Group Ltd (1996) 20 ACSR 81
Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38
Spira v Commonwealth Bank of Australia [2003] NSWCA 180; (2003) 57 NSWLR 544
State Government Insurance Officer (Qld) v Rees (1979) 144 CLR 549
Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574
Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576
TA Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd [1956] SR (NSW) 323
Technical Products Pty Ltd v State Government Insurance Officer (Qld) [1989] HCA 24; (1989) 167 CLR 5
The Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447
The Council of the City of Sydney v West [1965] HCA 68; (1965) 114 CLR 481
The Siboen and The Sibotre [1976] 1 Lloyds Rep 295
Trimis v Mina [1999] NSWCA 140; (1999) 16 BCL 288
Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366
Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251
Vantage Navigation Corporation v Suhail & Saud Bahwan Building Materials LLC (The Alev ) [1989] 1 Lloyds Rep 138
Waters Lane Pty Ltd v Sweeney [2007] NSWCA 200; (2008) Aust Contract R 90‑287
Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276; (2008) Aust Contract R 90‑278
White Rose Flour Milling Co Pty Ltd v Australian Wheat Board (1944) 18 ALJR 324
Wigan v Edwards (1973) 47 ALJR 586
TABLE OF CONTENTS
McLure P's Reasons ................................................................................................................ 8
Factual background
The reasonable endeavours clause (grounds 1 and 2)
Duress (ground 4)
The construction of cl 22 of the GSA
Newnes JA's Reasons............................................................................................................. 19
Murphy JA's Reasons............................................................................................................ 19
Introduction
The events of June ‑ September 2008
As at 4 June 2008
June ‑ September 2008
The events of January 2008
The scheme of the GSA
Recitals
Sale and purchase of gas, duration and total volumes
Annual minimum quantity - take or pay
Daily quantities - MDQ and SMDQ
The terms governing SMDQ
Breach of cl 3.3
Agreed prices for MDQ and SMDQ
Nominations
[Suppressed] days notice - Rolling Nomination Notice
Daily Delivery Obligation.[Suppressed] hour notice - Daily Nomination
Daily Nominations above MDQ
Variations on less than [suppressed] hours' notice - Short Notice Nomination
Quantities notified in good faith
Subsequent allocation of gas
Sellers' obligations met under cl 9 Upper and Lower limits
Shortfall Gas
Other provisions
Clause 3.3 - the judge's findings and the sellers' arguments
Clause 22.7(c) - the judge's construction
Clauses 9.12 and 12.1 breaches - the judge's findings
Grounds of appeal and notice of contention
Grounds of appeal
Notice of contention
Ground 1 - cl 3.3 - disposition
Grounds 2 and 3 - disposition
Ground 5 - disposition
Ground 4 and the notice of contention - disposition
The pleaded case
The judge's findings of fact
The supplemental agreements
The nature of the arguments
Disposition
Ground 6 and notice of contention
Clauses 9.11 ‑ 9.14 - overview
Clause 12
The issue
Disposition
McLURE P: I have had the advantage of reading the reasons of Murphy JA. I agree with him, generally for the reasons he gives, that grounds of appeal 1, 2 and 4(a) should be upheld and that grounds 3 and 6 should be dismissed. I differ from Murphy JA on the construction of the contractual limitation and exclusion provisions in connection with a duress claim in unjust enrichment. Before going to that subject, I wish to make some additional remarks relating to the central issue, being the proper construction of the reasonable endeavours requirement in cl 3.3 of the long term Gas Sale Agreement dated 4 March 2004 between the respondents (collectively the Sellers) and the appellant (Verve or the Buyer) (GSA).
The Sellers need no introduction. At all material times Verve, a statutory corporation, was the major generator and supplier of electricity to that part of the State known as the South West Integrated Scheme (SWIS), an area that includes Perth. It is in effect the supplier of last resort to the SWIS. The parties to the GSA are corporate behemoths. They, no doubt with considerable legal assistance, have carefully delineated the legal and factual issues put forward for judicial determination in this litigation.
Factual background
I will confine the summary of the factual background to matters informing my analysis. In June 2008 there were two principal suppliers of gas into the Western Australian market, the Sellers and Apache Energy (Apache). The Sellers and Apache operated gas production plants located in the North West of Western Australia. Gas from both the Sellers' plant and the Apache plant is transported to the South West by the Dampier to Bunbury Natural Gas Pipeline (DBNGP).
At all material times the Sellers and Apache supplied gas into the DBNGP for multiple buyers. The Sellers' plant could reliably produce a daily quantity of gas, described as 'firm gas' or 'uninterruptable gas' and another, smaller quantity, the production of which was not reliable and is generally referred to as 'interruptible' gas.
The gas is extracted from natural reservoirs, processed and supplied into the pipeline in a continuous process. The capacity of a plant to process gas is affected by a number of matters that are outside the suppliers' control, including the amount of spare capacity in the pipeline at any time. The supply of gas is a process, not a transaction. The unique nature of the sale of gas is reflected in the terms of the GSA, in particular, the nomination and supply provisions (summarised below).
Under the GSA, the Sellers have a firm obligation to supply up to the maximum daily quantity of gas (MDQ) nominated by Verve, within a tolerance of plus or minus [suppressed]%. The MDQ at the relevant time was [suppressed] TJ/day. Verve is also contractually entitled to nominate, and the Sellers have to use reasonable endeavours to make available for delivery, up to an additional [suppressed] TJ/day of gas in excess of MDQ, defined as SMDQ (supplemental maximum daily quantity).
Clause 9 of the GSA provides for flexibility in the nomination and supply obligations, in recognition of the unique challenges of supplying gas into a pipeline servicing a number of suppliers and their buyers. Its important features are as follows:
•each 'Day' (24 hours commencing at 8.00 am on a day and ending at 8.00 am the next day) the Buyer must nominate the quantity of its gas requirements for each of the following [suppressed] Days (the Rolling Nomination Notice) (cl 9.1);
•in a subsequent Rolling Nomination Notice the Buyer may vary its nomination for a Day (cl 9.1(d));
•the Daily Nomination for a Day is the last nomination received by the Sellers for that Day prior to [suppressed] hours before the start of that Day (cl 9.1(e));
•the Sellers must make available for delivery on each Day within plus or minus [suppressed]% of the lesser of the MDQ in effect for that Day and the Daily Nomination for that Day (defined as the Daily Delivery Obligation) (cl 9.2). Thus, the Sellers' supply obligation (within the stated tolerances) is confined to MDQ;
•in accordance with cl 3.3, if the Daily Nomination exceeds the MDQ the Sellers must use reasonable endeavours to make the nominated SMDQ available for delivery to the Buyer (cl 9.3);
•within [suppressed] hours prior to the start of a Day the Buyer may request a variation (Short Notice Nomination) to the Daily Nomination for that Day or a prior Short Notice Nomination;
•in response to a Rolling Nomination Notice and a Short Notice Nomination, the Sellers are obliged, not later than [suppressed] hours after its receipt, to notify the Buyer of the aggregate quantity of gas the Sellers intend to make available for delivery for the Days the subject of the nomination (cl 9.1(b), cl 9.4(b)). The Sellers notification of intent is not binding;
•if the Sellers give a Short Notice Nomination Quantity under cl 9.4(b), then to the extent that that quantity is more than the Daily Delivery Obligation (which must include MDQ and may, but not must, include SMDQ) the Sellers must use reasonable endeavours to supply the excess;
•the Buyer must ensure its nominations (and variations thereto) are made in good faith and, at the time notified, are the best estimate as a Reasonable and Prudent operator of its gas requirements for the relevant Day. The Sellers owe equivalent obligations in notifying the Buyer of quantities it intends to supply (cl 9.6);
•the amount of gas allocated for a Day is done by the Sellers the following Day (ie retrospectively), having regard to the amount the Buyer wishes to have allocated to it in respect of the previous Day (cl 9.7 ‑ cl.9.9).
Verve has an obligation under the GSA to take and pay for, or pay for even if not taken, the 'Annual Minimum Quantity' which is the sum of the Minimum Quantity ([suppressed] TJ per day) and [suppressed]% of the quantity by which Verve's aggregate gas requirements (BAGR as defined) exceed [suppressed] TJ per day, provided it is not less than [suppressed] (cl 4.2). The take or pay provision ensures to the Sellers a minimum fixed annual revenue from Verve. It was no part of Verve's case that the practical effect of the take or pay obligation was that Verve would have to pay for not taking SMDQ.
The GSA price for gas is different for different tranches (cl 6.1). At the material time (ie after the reset date) the price per day is highest up to [suppressed] TJ (tranche A), second highest up to [suppressed] TJ of MDQ (tranche 1), drops for the balance of MDQ (tranche 2) and increases again for SMDQ (tranche 3). The GSA provides for a gas price adjustment (cl 6.2) that applies to all gas supplied including SMDQ, as does the provision for gas price reviews (cl 7.2).
During the week ending on 3 June 2008 Verve had nominated [suppressed] TJ a day of SMDQ gas for the period 4 to 10 June 2008. The Sellers had accepted those nominations. The nominations reflected Verve's demand for gas immediately prior to a fire at Apache's plant on 3 June 2008 (the Apache incident) which shut down the supply of gas from that plant. The shut down of the Apache plant reduced the gas supply to the Western Australian market by 30% to 35%. Demand exceeded supply.
A further consequence of the Apache incident was that Verve required more fuel in order to meet its statutory and contractual electricity supply obligations, which increased as other electricity generators in the SWIS could not supply electricity into the SWIS due to the lack of available gas. To meet its obligations, Verve's only economically practical alternative was to obtain gas from the Sellers.
On 4 June 2008 the Sellers refused to supply SMDQ gas to Verve for an indefinite time. On the same day the Sellers offered to supply Verve [suppressed] TJ of gas a day for the period 4 to 29 June 2008 at a price per GJ that was many multiples higher than the GSA price. Under protest, Verve entered into a fully interruptible short term gas supply agreement with the Sellers and another (MIMI) for the supply of [suppressed] TJ of gas per day for the period 4 to 29 June 2008. The effect of the agreement was that the Sellers had an unfettered discretion to supply or not supply gas under the agreement. It was in effect a put option.
The Sellers and MIMI also entered into a number of similar contracts with other buyers, with the Sellers having the same unfettered discretion to supply or not to supply gas. The aggregate quantity of gas sought from the Sellers was far in excess of what the Sellers could produce and supply, after taking into account their existing firm supply commitments.
In mid‑June 2008 the Sellers invited tenders for the purchase of gas under a further short term interruptible agreement for the period 30 June to 29 September 2008. Under protest, Verve lodged a tender which was accepted and Verve and the Sellers (and MIMI) entered into a further fully interruptible gas supply agreement.
The reasonable endeavours clause (grounds 1 and 2)
Against that factual background I turn to the construction issues, starting with the scope and content of the reasonable endeavours obligation in cl 3.3 and when that obligation arises. For ease of reference, I set out cl 3.3 of the GSA:
3.3Supplemental Maximum Daily Quantity
(a)If in accordance with Clause 9 (Nominations) the Buyer's nomination for a Day exceeds the MDQ, the Sellers must use reasonable endeavours to make available for delivery up to an additional [suppressed] TJ/Day of Gas in excess of MDQ (Supplemental Maximum Daily Quantity or SMDQ).
(b)In determining whether they are able to supply SMDQ on a Day, the Sellers may take into account all relevant commercial, economic and operational matters and, without limiting those matters, it is acknowledged and agreed by the Buyer that nothing in paragraph (a) requires the Sellers to make available for delivery any quantity by which a nomination for a Day exceeds MDQ where any of the following circumstances exist in relation to that quantity:
(i)the Sellers form the reasonable view that there is insufficient capacity available throughout the Sellers' Facilities (having regard to all existing and likely commitments of each Seller and each Seller's obligations regarding maintenance, replacement, safety and integrity of the Sellers' Facilities) to make that quantity available for delivery;
(ii)the Sellers form the reasonable view that there has been insufficient notice of the requirement for that quantity to undertake all necessary procedures to ensure that capacity is available throughout the Sellers' Facilities to make that quantity available for delivery; or
(iii)where the Sellers have any obligation to make available for delivery quantities of Natural Gas to other customers, which obligations may conflict with the scheduling of delivery of that quantity to the Buyer.
(c)The Sellers have no obligation to supply and deliver Gas on a Day in excess of their obligations set out in Clauses 3.2 and 3.3 in respect of MDQ and SMDQ respectively.
There was an element of artificiality about the construction task in the appeal as it was undertaken without reference to all the facts which gave rise to the dispute. Each side advanced a construction for which they contended. The Sellers conceded that, if Verve's construction was upheld, they had gas available for the supply of SMDQ to Verve in the relevant period (4 June to 29 September 2008). The inference from their submissions was that the Sellers chose not to make SMDQ gas available to Verve in the relevant period because of the significant market price distortion caused by the Apache incident. Demand exceeded supply and the market price of gas skyrocketed.
These facts drove the Sellers to advance a construction of cl 3.3 which in my view is not open. The gravamen of their construction involves three steps. First, the phrase in cl 3.3(b) that '[i]n determining whether they are able to supply SMDQ on a Day, the Sellers may take into account all relevant commercial, economic and operational matters' (emphasis added) is separate and distinct from, and forms no part of, the Sellers' obligation in cl 3.3(a) to use reasonable endeavours to make SMDQ available for delivery. Secondly, the Sellers' determination of their ability to supply is subjective and can be made at any time up to the start of the relevant gas Day. Thirdly, in making their subjective determination the word 'able' in context permits the Sellers to decide whether or not to supply solely by reference to its best economic or commercial interests. On this construction, the Sellers can, for example, refuse to make SMDQ available solely because the gas price under the GSA falls below the market price and the reasonable endeavours obligation is confined to operational matters.
The Sellers' construction is inconsistent with the natural and ordinary meaning of the text of cl 3.3. The natural and ordinary meaning of that clause is that the Sellers must use reasonable endeavours to supply to Verve SMDQ the subject of a nomination under cl 9, from the time of receipt thereof, the scope and content of which (objective) obligation is informed and delineated by the more specific matters and examples in cl 3.3(b).
In context, 'able' in cl 3.3(b) means capability and capacity to supply the nominated SMDQ, having regard to the specified matters and examples therein. That meaning of 'able' is consistent with the meaning of 'unable' in cl 4.1(b)(v) in which the inference is that if the Sellers are unable to supply, the expectation was that Verve would have to look to another supplier. That is also the case with cl 22.7(c) which juxtaposes the Sellers' failure to use reasonable endeavours to supply SMDQ with the Sellers' obligation to pay Verve's actual costs (subject to a cap) in obtaining alternative fuel, the implication being that the failure to use reasonable endeavours is expected to result in non‑supply by the Sellers.
The natural and ordinary meaning is also consistent with the commercial objectives and operational challenges evident from the terms of the GSA as a whole. It is true that Verve is under no obligation to nominate SMDQ (and I assume, under no practical, GSA sourced economic pressure to do so) and that the Sellers are under no direct obligation to supply SMDQ nominated by Verve or to reserve gas or production capacity for that purpose. On the other hand, it was accepted by all parties (correctly in my view) that the Sellers are not obliged to refrain from agreeing to sell gas to third parties even if such sales reduced or eliminated the Sellers' capacity to supply Verve with SMDQ in the future. This is particularly significant given that cl 9 nominations are limited to [suppressed] days in advance. This provides a likely explanation for the non‑reservation of gas and production capacity. Moreover, the take or pay obligation ensures to the Sellers a minimum fixed annual revenue from Verve. Thus, the effect of the provisions as a whole reflects a balancing of interests. It is also significant that the parties agreed to a price for SMDQ and mechanisms for adjustment and review thereof over the course of the [suppressed]‑year term of the GSA. I would be very slow to conclude that the agreed contractual price for SMDQ was intended to reflect only the floor price. That would be the effect if the Sellers' construction of cl 3.3 was upheld.
Having upheld what I understand to be Verve's construction of cl 3.3, the Sellers' concession applies. Thus, gas was available for the supply of SMDQ to Verve in the relevant period.
Accordingly, not only have the Sellers breached their obligation in cl 3.3 of the GSA, if it had been performed the Sellers would have supplied to Verve the nominated SMDQ in the relevant period.
Duress (ground 4)
Economic duress is a common law doctrine which is part of the law of contract and unjust enrichment and is a close cousin of the equitable doctrine of undue pressure. In view of my conclusion as to the scope of cl 22.9 of the GSA, it is unnecessary for the disposition of this appeal to determine whether economic duress is also part of the law of tort. Although the grounds of appeal (4(b) and 5(b)) are confined to the tort of duress, the oral submissions ventured into the area of unjust enrichment.
It is apparent from the pleading that Verve relied on the common law doctrine. There are two material facts of the cause of action in economic duress being (1) that illegitimate pressure was applied which (2) induced the victim to enter into the contract (or make a non‑contractual payment); the illegitimate pressure does not have to be the sole reason for the victim entering into the contract, it is sufficient if it is one of the reasons: Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, 46 (McHugh JA).
If the pressure involves an actual or threatened unlawful act, it is prima facie illegitimate. If the pressure is lawful, it may be illegitimate if there is no reasonable or justifiable connection between the pressure being applied and the demand which that pressure supports: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 401 (Lord Scarman); R v Her Majesty's Attorney-General for England and Wales (New Zealand) [2003] UKPC 22 [15] ‑ [20].
An actual or threatened breach of contract is unlawful conduct for the purposes of the economic duress doctrine: Furphy v Nixon (1925) 37 CLR 161; Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38; TA Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd [1956] SR (NSW) 323.
No party to the appeal contended that it is a material fact of the common law cause of action that the person applying the pressure must do so for the purpose of compelling the victim's consent to the contract or payment (cf Seddon NC and Ellinghaus MP, Cheshire and Fifoot's Law of Contract (9th ed, 2008) [13.1]). However, that purpose is ordinarily present in most successful economic duress claims where there are threats and demands, express or implied.
There is no finding below that the Sellers acted for an improper purpose. The Sellers advised Verve that they would not supply SMDQ. The evidence does not support an inference that this was done for the purpose of compelling Verve to enter into the short term gas supply agreements. To the contrary, the evidence was that the Sellers were unable to satisfy all of the demand for gas in the relevant period. Moreover, Verve accepts that the Sellers acted in the genuine belief that they were not in breach of their reasonable endeavours obligation under the GSA.
Further, the evidence does not support an inference that the Sellers threatened Verve or demanded that it enter into the short term gas supply agreements. The reality was that they did not have to. The Sellers' statement of fact (it would not supply SMDQ) in combination with the surrounding circumstances (the dramatic reduction in the supply of gas to the market which in turn increased Verve's electricity supply obligations and thus its gas requirements) left Verve with no practical alternative but to pay the Sellers what had become the new (temporary) market price. However as the trial judge found, the Sellers knew that their refusal to supply SMDQ placed enormous pressure on Verve which left it with no option but to accept the Sellers' offer on the table. The live question is whether the Sellers 'applied' pressure on Verve, not whether they made threats or demands (express or implied): CrescendoManagement (46); Borrelli v Ting [2010] UKPC 21. In my view they did. The known consequences of their conduct was, in the circumstances, so dramatic that threats and demands were superfluous.
I agree with Murphy JA for the reasons he gives that the Sellers' genuine belief that they were not acting in breach of the GSA does not preclude a finding of economic duress. A knowing breach will often be a relevant, and sometimes even determinative, circumstance but it is not a material fact on which the cause of action depends.
The Sellers refusal to supply SMDQ, resulting from a breach of their reasonable endeavours obligation under the GSA, constituted the application of illegitimate pressure on Verve which was a cause of it entering into the short term gas supply agreements. Accordingly, the short term gas supply agreements are voidable: Crescendo Management.
However, there was no plea by the Sellers, no finding by the trial judge and no ground of appeal, or application in the appeal, seeking a finding that Verve had elected to avoid (rescind) the short term gas supply agreements. This is rescission at the election of the contractual party not a court ordered remedy. As to the various meanings of the term rescission, see Meagher RP, Heydon JD and Leeming MJ, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (4th ed, 2002) [24-005] ‑ [24‑035]. Notwithstanding that the evidence was all one way, the Sellers confined their case to a claim that it was not necessary to avoid or rescind the short term gas supply agreements.
I agree with Murphy JA for the reasons he gives that Verve can have no cause of action in unjust enrichment for economic duress (which could only be for the difference between the amount Verve paid under the short term gas supply agreements for the SMDQ less the amount which it would have had to pay under the GSA, so no issue of restitutio in integrum arises) unless and until the short term gas supply contracts are rescinded. See also, Mitchell C, Mitchell P and Watterson S, Goff & Jones: The Law of Unjust Enrichment (8th ed, 2011) [10‑01]. Accordingly, any unjust enrichment economic duress claim must fail. Verve of course would also be entitled to the excess paid under the short term gas supply contracts as damages flowing from the breach of the GSA but for the damages cap in cl 22 of the GSA. The economic duress claim was relied on in an attempt to avoid the effect of cl 22.7(c) and cl 22.9 of the GSA.
The construction of cl 22 of the GSA
Clause 22 of the GSA deals with 'Default' which is defined to mean a Financial Default or a Non‑financial Default. A Financial Default means a party's failure to satisfy an obligation to pay or cause to be paid an amount of money arising under the GSA. The definition of 'Non‑financial Default' expressly excludes 'a failure to make Gas available for delivery'. Thus, a failure to supply gas in breach of the GSA is not a 'Default'. Clause 22.8 deals with termination of the GSA for extended failure to make gas available for delivery.
Clause 22.7 provides:
22.7Limitation of liability - Seller
(a)The Sellers are only liable for direct and foreseeable loss incurred by the Buyer as a result of a Seller default excluding loss of profits. In no event will the Sellers have any liability to the Buyer for loss of profit or anticipated profit, business interruption, loss of opportunity, indirect or consequential loss or loss of use suffered by the Buyer or any other person (whether in contract, tort or otherwise).
(b)The maximum aggregate liability of each Seller under this Agreement is limited to its Proportionate Share of:
(i)$[suppressed] in any 12 Month period (and the pro‑rata proportion of $[suppressed] in respect of any period where the Sellers' failure to supply Gas is for a period less than 12 Months); and
(ii)$[suppressed] over the Contract Term (provided this cap on the Sellers' liability will not apply in respect of a failure to supply Gas to the extent the Sellers cease doing all that is reasonable to resume supply to the Buyer).
(c)The liability of each Seller in respect of a failure to use reasonable endeavours to meet a Buyer nomination above MDQ up to SMDQ is limited to its Proportionate Share of the amount by which the actual costs incurred by the Buyer in obtaining alternative fuel exceed the amount equivalent to the Gas Price, up to a maximum liability of that Seller's share of the Tranche 3 Price per GJ.
Clause 22.7(a) relates to 'defaults', which is not the defined term. Clause 22 as a whole confirms that the GSA does not exclude liability under the general law for a 'default' but limits and excludes amounts and types of damages.
The expression 'Gas Price' in cl 22.7(c) is defined in cl 6.1 to be the dollar amounts per GJ for the different tranches of gas. The tranche 3 price is for SMDQ.
Verve relies on a narrow construction of the term 'failure' for the non‑application of cl 22.7(c) to its breach of contract claim. I agree with Murphy JA as to the proper approach to the construction of cl 22, applying Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, 510, and with his construction of the word 'failure' in cl 22.7(c).
If Verve had been successful on its unjust enrichment claim, the question would be whether the liability of each Seller in unjust enrichment would be 'in respect of' a failure to use reasonable endeavours to meet a buyer nomination for SMDQ.
There must be a sufficient or material connection between the Sellers' liability in unjust enrichment for economic duress and the breach of cl 3.3 of the GSA: J & G Knowles & Associates v Commissioner of Taxation (2000) 96 FCR 402 [26] ‑ [28]. What is 'sufficient' or 'material' depends on the context: State Government Insurance Officer (Qld) v Rees (1979) 144 CLR 549; Technical Products Pty Ltd v State Government Insurance Officer (Qld) (1989) 167 CLR 5. In my view, the connecting words 'in respect of' are not wide enough to capture liability in unjust enrichment for economic duress even though a material fact thereof is the contractual breach that is the failure to use reasonable endeavours. The Sellers' liability for economic duress stems not from the failure to use reasonable endeavours but in taking advantage of the pressure generated by that breach to obtain a benefit that is well outside the scope of the GSA.
Clause 22.9 does not assist the Sellers. It provides, under the heading 'Exclusive remedies':
The remedies expressly set out in this Agreement for breach of this Agreement are the sole and exclusive remedies of the Parties in respect of any breach of this Agreement or for negligence or any other tort arising from any act or omission in the course of or in connection with the performance of this Agreement and, notwithstanding any other provision in this Agreement, each Party releases all other Parties from any claim for Loss or damage of any kind (including loss of profit, indirect loss, consequential loss or loss of use) due in whole or in part to the negligence of any Party in connection with the performance or non‑performance of this Agreement.
In its natural and ordinary meaning, the express remedies to which cl 22.9 refers (including cl 22.7) are the sole and exclusive remedies but only in respect of any breach of the GSA or for a tort that is relevantly connected with conduct under the GSA. The connector for tort in cl 22.9 ('arising from … or in connection with' an act or omission under the GSA) is much wider than the connector for breach of the GSA and would include any tort of duress. However, cl 22.9 does not apply or extend to remedies for unjust enrichment.
In conclusion, I would uphold grounds 1, 2, 4(a) and contention 2 (which relates to the tort of duress) and dismiss grounds 3, 4(b), 5 and 6.
NEWNES JA: I agree with McLure P.
MURPHY JA:
Introduction
This appeal concerns the proper construction of a long‑term gas supply contract between the appellant (the buyer) and the respondents (the sellers) dated 4 March 2004 (GSA). It was a take or pay contract. The sellers are participants in the North‑West Shelf Venture which produces gas from gas fields in the North‑West continental shelf. The buyer supplies electricity to the south‑west of Western Australia and uses gas, amongst other fuels, for its power plants.
In broad terms, the sellers agreed to sell and make available for delivery, to the buyer, a certain total volume of gas over the contract period. Provision was also made for an annual minimum quantity of gas and for delivery of daily quantities of gas.
The principal issues in the appeal relate to the effect of provisions dealing with the supply of daily quantities of gas. Relevantly, the GSA provided in effect for the supply of a certain daily quantity of gas, Maximum Daily Quantity (MDQ), and contained provisions relating to the supply of a maximum additional daily quantity in addition to that quantity. The additional maximum quantity is called 'supplemental maximum daily quantity' or SMDQ. There are also issues concerning contractual restrictions on liability, and a question of alleged duress.
The relevant background covers two discrete periods - events in June ‑ September 2008 and events in January 2008. These reasons follow the course in which the appeal was argued, and I will deal first with the events of June ‑ September 2008.
The events of June ‑ September 2008
The following is taken from the undisputed findings made by the primary judge (with reference to his reasons where appropriate), except to the extent otherwise indicated.
As at 4 June 2008
In early June 2008, the sellers, together with another company in which they were in joint venture (MIMI), had firm, ie in effect minimum, supply obligations (subject to buyer's nominations) of [suppressed] TJs per day. At this time, the sellers also had a reliable gas production of approximately [suppressed] TJ per day. The figure of [suppressed] TJ per day excluded additional 'reasonable endeavours' obligations to supply gas.
The sellers could increase production temporarily, but not reliably, by about [suppressed] TJ per day.
At this time, another gas producer (Apache) had gas processing facilities at Varanus Island. Apache delivered gas to its customers via the Dampier to Bunbury Natural Gas Pipeline. For several years Apache and the sellers (and MIMI) had a practice of endeavouring to supply gas to each other if the other was experiencing production difficulties which affected its capacity to supply gas to its customers.
On 3 June 2008, there was an explosion at Apache's Varanus Island facility, which resulted in the cessation of gas production from that facility. This in turn reduced significantly the supply of natural gas to Western Australia. On 6 June 2008, a written agreement was concluded between the sellers, MIMI and Apache (Apache agreement) under which the sellers agreed to supply Apache [suppressed] TJ per day (GB 468). As a result, Apache sought a supply of gas from the sellers (and MIMI) for Apache's customers, including gas for customers who required gas for electricity generation in regional areas of Western Australia.
In addition, as a result of the Varanus explosion, there were many other customers seeking to buy gas from the sellers at this time, at prices well above the prices contained in the GSA. The aggregate quantities of gas sought from the sellers were in excess of those which the sellers could produce and supply, after taking into account their existing firm capacity commitments.
As between the buyer and the sellers, the parties by this time had adopted a nomination process which was not strictly in accordance with the relevant provisions of the GSA (cl 9.1). The nominations, relevantly for present purposes, included, in addition to the buyer's minimum daily quantity, an additional [suppressed] TJ per day as supplemental maximum daily quantity or SMDQ.
It is appropriate to note, at this point, that it was common ground in the appeal that, for the purposes of cl 3.3(a) of the GSA, there were nominations by the buyer in accordance with cl 9 covering a period of [suppressed] days in advance.
On the morning of 4 June 2008 (ie before the Apache agreement was executed), the sellers, by their agent, told the buyer that because of the disruption to Apache's supply, the sellers could not supply any SMDQ gas in June, but they could supply the equivalent volume at a nominated price which was higher than the SMDQ price. The buyer ultimately agreed, later that day, to purchase this additional gas in a separate short‑term contract under 'protest'. This contract, dated 4 June 2008, was for the supply of [suppressed] TJ per day (the 'first supplemental gas agreement') (GB 259).
June ‑ September 2008
On 20 June 2008, the sellers' agent informed the buyer that the buyer would not receive any SMDQ under the GSA, and if the buyer wanted gas above its daily minimum quantity, it would have to enter a tender process for that additional gas. The buyer submitted, and won, a tender made under 'protest', as a result of which it entered into another short‑term contract (the 'second supplemental gas agreement') for the supply of an additional [suppressed] TJ per day for the period 30 June to 30 September 2008.
The buyer in fact continued to nominate SMDQ for the period 4 June to 30 September 2008 (reasons [72]).
In the meantime, the sellers themselves entered into a number of short‑term contracts for the supply of gas to other parties which were terminable on 72 hours' notice. The contracts were 'fully interruptible' which meant that there was no obligation under those contracts for the sellers to supply any particular quantities of gas to those parties.
By mid‑August 2008, Apache was supplying gas again and a number of the sellers' short‑term contracts with other parties were terminated. The judge rejected a contention by the buyer to the effect that the sellers had capacity to sell [suppressed] TJ per day as SMDQ on the basis of a total capacity of [suppressed] TJ per day and less than [suppressed] TJ per day of gas committed under the sellers' long‑term and then existing short‑term supply contracts (reasons [80] ‑ [84]). The judge found, in effect, that in the period June to September 2008, the sellers had capacity of [suppressed] TJ per day. (Ground 3 of the grounds of appeal challenges the judge's finding that the buyer had not proved that the sellers were able to supply [suppressed] TJ of SMDQ gas a day to the buyer from 18 August 2008 to 29 September 2008).
The events of January 2008
The other issue in the case arises from the events of January 2008. (Reasons [7] ‑ [9], [33] ‑ [42]).
The sellers had certain technical problems in their Karratha plant which led them to curtail the supply of their gas on 26 and 27 January 2008. As a result, the sellers delivered less than the agreed contractual quantities to the buyer on 26 and 27 January 2008. The under‑delivery was [suppressed] TJ on 26 January and [suppressed] TJ on 27 January 2008.
Each day's short delivery was only notified to the buyer on the next day, so that in fact, on the days in question, the buyer drew more than its allocation of gas from the pipeline.
On each of 27 and 28 January 2008 the buyer gave notice that it required delivery of the shortfall gas from each of the preceding days. Under the GSA (as more particularly explained later), this required, in effect, the sellers to use reasonable endeavours to deliver the shortfall gas within [suppressed] days. The sellers did not do so.
The judge found two breaches relating to these events. One was a failure to use reasonable endeavours to supply the shortfall (a breach of cl 9.12 of the GSA). The other was that the original short delivery involved a failure to allocate gas equitably, in breach of cl 12.1 of the GSA.
The scheme of the GSA
Recitals
The recitals of the GSA include provision to the effect that the agreement is intended to reflect a 'long‑term partnership' between the parties, and that consistently with the 'partnership model', the buyer intends to purchase most of its gas requirements from the sellers, including its requirements above minimum daily quantity levels, to the extent feasible (although up to [suppressed]% of gas above minimum quantity levels may be purchased elsewhere) (recital C).
Sale and purchase of gas, duration and total volumes
By cl 1.1, the sellers agree to sell, and make available for delivery, gas to the buyer, and the buyer agrees to receive and pay for, or pay if not taking, gas from the sellers, in the quantities and at the price and in the manner determined under the agreement.
By the operation of cl 2.1 and cl 3.4, the contract period was, in effect (and subject to certain exceptions), for the period from the commencement date to [suppressed].
By cl 3.1, the total quantity of gas to be made available under the GSA (subject to certain offsets) is [suppressed] PJ.
Annual minimum quantity - take or pay
By cl 4, provision is made for the buyer to pay the sellers for an Annual Minimum Quantity of gas (AMQ). This is calculated by reference to a defined Minimum Quantity of, relevantly, [suppressed] TJ per day plus [suppressed]% of the 'Buyer's Aggregate Gas Requirements' as defined.
By cl 4.6(a), the Minimum Quantity for a contract year is reduced by quantities of:
(i)gas which the buyer could not accept in circumstances where it is excused from liability because of Force Majeure circumstances; and
(ii)gas which the sellers did not make available for delivery on any day, whether such gas is Shortfall Gas (where cl 9.12(a)(vi)(B), or cl 9.12(b) apply), or where the sellers are excused from liability by Force Majeure, or excused from liability by cl 11.2 (permitted interruptions).
By cl 4.6(b), the quantity of gas not accepted or not delivered (as the case may be) for the purpose of cl 4.6(a) is (save for a Planned Interruption Day), in effect, the amount of gas by which the Daily Nomination for that day up to the maximum daily quantity exceeds the quantity of Delivered Gas for that day.
Daily quantities - MDQ and SMDQ
By cl 3.2, the maximum quantity of gas that the sellers are required to make available on any day is MDQ (relevantly [suppressed] TJ in summer and [suppressed] TJ in winter).
In addition, the GSA provided that the sellers 'must use all reasonable endeavours' to make available up to an additional [suppressed] TJ of gas per day. This additional amount, above MDQ, is called SMDQ: cl 3.3(a). Clause 3.3 is set out in full below.
The terms governing SMDQ
Clause 3.3 of the GSA provides:
3.3Supplemental Maximum Daily Quantity
(a)If in accordance with Clause 9 (Nominations) the Buyer's nomination for a Day exceeds the MDQ, the Sellers must use reasonable endeavours to make available for delivery up to an additional [suppressed] TJ/Day of Gas in excess of MDQ (Supplemental Maximum Daily Quantity or SMDQ).
(b)In determining whether they are able to supply SMDQ on a Day, the Sellers may take into account all relevant commercial, economic and operational matters and without limiting those matters, it is acknowledged and agreed by the Buyer that nothing in paragraph (a) requires the Sellers to make available for delivery any quantity by which a nomination for a Day exceeds MDQ where any of the following circumstances exist in relation to that quantity:
(i)the Sellers form the reasonable view that there is insufficient capacity available throughout the Sellers' Facilities (having regard to all existing and likely commitments of each Seller and each Seller's obligations regarding maintenance, replacement, safety and integrity of the Sellers' Facilities) to make that quantity available for delivery;
(ii)The Sellers form the reasonable view that there has been insufficient notice of the requirement for that quantity to undertake all necessary procedures to ensure that capacity is available throughout the Sellers' Facilities to make that quantity available for delivery; or
(iii)where the Sellers have any obligation to make available for delivery quantities of Natural Gas to other customers, which obligations may conflict with the scheduling of delivery of that quantity to the Buyer.
(c)The Sellers have no obligation to supply and deliver Gas on a Day in excess of their obligations set out in Clauses 3.2 and 3.3 in respect of MDQ and SMDQ respectively.
Breach of cl 3.3
The sellers' liability for a failure to use reasonable endeavours to make available SMDQ is limited by cl 22.7: cl 22.7(c) and cl 9.10(a).
Agreed prices for MDQ and SMDQ
By cl 6, the parties agreed specific prices for MDQ gas and for SMDQ gas, subject to certain escalation provisions.
Nominations
Clause 9 provides a scheme for the buyer to nominate the amount of gas required in advance of delivery.
[Suppressed] days notice - Rolling Nomination Notice
The first relates to a [suppressed] day period. The buyer must, by 2 pm each day, give the sellers notice (a Rolling Nomination Notice), which nominates the quantity of gas (both MDQ and above) which the buyer requires for each of the next [suppressed] days: cl 9.1(a). In response, the sellers must notify the buyer of the quantities of gas they intend to make available for each day in that [suppressed] day period. If no response is given, the sellers are deemed to have notified the buyer of the aggregate quantity which the sellers have most recently notified to the buyer for a delivery for a day, or, if no such previous notice has been given, a quantity equal to the Daily Delivery Obligation: cl 9.1(b) and (c)
Daily Delivery Obligation
Subject to, relevantly, cl 9.3 (ie subject to the SMDQ reasonable endeavours obligation) the sellers must make available the 'Daily Delivery Obligation'. The Daily Delivery Obligation is, in effect, the lesser of MDQ for that day and the Daily Nomination for that day (plus or minus [suppressed]% if necessary for operational reasons). See cl 9.2.
[Suppressed] hour notice - Daily Nomination
By cl 9.1(d), the buyer may by notice given up to [suppressed] hours prior to the day of delivery, vary its nomination for that day. The 'Daily Nomination' is the last nomination received by the sellers in the [suppressed] hours prior to the date to which the varied nomination relates: cl 9.1(e).
Daily Nominations above MDQ
Clause 9.3 provides that in accordance with cl 3.3, if the Daily Nomination exceeds MDQ for a day, the sellers must 'in addition to its obligations up to MDQ' use reasonable endeavours to make the excess quantity available for delivery to the buyer, up to the amount of SMDQ (ie [suppressed] TJ per day).
Variations on less than [suppressed] hours' notice - Short Notice Nomination
Clause 9.4 deals with variations to notice within the [suppressed] hour period prior to the start of a day. A notice given in such a time frame varying a Daily Nomination for the day is a Short Notice Nomination. A Short Notice Nomination may vary an earlier Short Notice Nomination: cl 9.4(a). By cl 9.4(b) the sellers are to respond by notifying the buyer the quantity of gas which they intend, but are not obliged, to make available pursuant to the Short Notice Nomination. This amount, in the sellers' responsive notice, is called the Short Notice Nomination Quantity. If no response is given, the sellers are deemed to intend to make available the Daily Delivery Obligation (in effect the lesser of MDQ and the Daily Nomination for that day). By cl 9.4(d) if the sellers, prior to the start of the relevant day, consider that they will be unable to deliver the Short Notice Nomination Quantity, they are obliged to give notice to that effect to the buyer.
By cl 9.5(a), subject to cl 9.5(b), the sellers must use reasonable endeavours to supply the gas specified in the Short Notice Nomination Quantity insofar as it is above Daily Delivery Obligation, and must use reasonable endeavours to deliver the Short Notice Nomination Quantity if it is less than the Daily Delivery Obligation.
Clause 9.5(b) provides that the sellers are not obliged to make available for delivery any quantity in excess of SMDQ.
Quantities notified in good faith
By cl 9.6(a) the buyer must nominate its quantities in good faith and, at the time notified, the quantities nominated must represent its best estimate as a Reasonable and Prudent Operator of its Gas requirements under the GSA for the relevant day. Clause 9.6(b) provides that the sellers (by their representative) must ensure that any quantities notified to the buyer under cls 9.1(b) and 9.4(b) are estimated in good faith and, at the time notified, represent the Sellers' Representative's best estimate as a Reasonable and Prudent Operator of the Gas available for delivery by the sellers to the buyer for the relevant day.
Subsequent allocation of gas
By [suppressed] on the day following delivery, the buyer 'may' notify the sellers of the quantity of gas which it wishes to have allocated to it in respect of the previous day. This is the 'Desired Quantity': cl 9.7(a).
The parties acknowledge that the Desired Quantity is the quantity of gas which reflects the buyer's actual gas requirements for that day and minimises any surcharges imposed on the buyer under a gas transportation agreement: cl 9.7(c).
If the buyer does not give notice of its Desired Quantity for a day, then the buyer is deemed to have notified the sellers that the Desired Quantity for that day is the quantity equal to the Daily Nomination or, if applicable, the Short Notice Nomination for that day: cl 9.7(b).
By cl 9.8 (and subject to certain exceptions) the sellers agree to allocate gas delivered in accordance with the following priorities:
(a)first, a quantity which meets the Desired Quantity;
(b)secondly, to allocate gas on a reasonable endeavours basis as close as reasonably practicable to the Short Notice Nomination Quantity;
(c)thirdly, to allocate an amount as close as reasonably practicable to the Daily Delivery Obligation.
Sellers' obligations met under cl 9 Upper and Lower limits
Without limiting the sellers' liability to use reasonable endeavours in respect of SMDQ gas, and gas the subject of a Short Notice Nomination, the sellers are deemed to have met their delivery obligations under cl 9 if the quantity of Delivered Gas for a day (excluding for this purpose any Shortfall Recovery Quantity) is no greater than the Upper Limit and no less than the Lower Limit.
The Upper Limit is the greatest of the Daily Nomination (plus [suppressed]%), the Short Notice Nomination Quantity (plus [suppressed]%), and the Desired Quantity for that day.
The Lower Limit is the least of the Daily Delivery Obligation (less [suppressed]%), the Short Notice Nomination Quantity (less [suppressed]%) and the Desired Quantity for that day. See cl 9.10(a) ‑ (c).
Shortfall Gas
Where gas delivered for a day is less than the Lower Limit (other than as a result of Force Majeure or because the buyer fails to take it) the difference between the two is Shortfall Gas: cl 9.11(a). The sellers must notify the buyer, as soon as reasonably practicable, if there is Shortfall Gas on a day: cl 9.11(b).
The buyer must notify the sellers either that it does not require the Shortfall Gas to be delivered, or that it does require some or all of it to be delivered. The amount of Shortfall Gas which the buyer requires to be delivered is the Shortfall Recovery Quantity: cl 9.11(c).
If the buyer does not require delivery of any Shortfall Gas, then the sellers are not required to make the shortfall available for delivery; the buyer must not seek to recover it through varying nominations for that purpose; the Shortfall Quantity will be deducted from the minimum quantity for that contract year; and the buyer's sole remedy is (subject to a specified exception) to sue the sellers for damages, subject to the limitations in cl 22.7: cl 9.12(b).
If the buyer does requires delivery of a Shortfall Recovery Quantity:
(a)the sellers must use reasonable endeavours to make it available within [suppressed] days (the Shortfall Recovery Period);
(b)the sellers must give notice of the day or days on which such gas will be delivered;
(c)such quantity is not to be included by the buyer in any variations of its nominated quantities;
(d)the Shortfall Recovery Quantity will be delivered in priority to quantities in excess of MDQ, but behind the Daily Delivery Obligation;
(e)if the Shortfall Recovery Quantity has not been delivered in the relevant [suppressed] day period, the sellers are deemed to be in default, the quantity will be deducted from the minimum quantity for that contract year, and the buyer's sole remedy (subject to a specified exception) is to sue for damages, subject to the limitations in cl 22.7;
(f)if the Shortfall Recovery Quantity has been duly delivered, the buyer's sole remedy is to recover from the seller any surcharges paid by the buyer under a gas transportation agreement directly resulting from the shortfall. See cl 9.12(a).
Other provisions
Clause 6 deals with the gas price. Clause 7 deals with price review. Clause 8 concerns delivery points and cl 10 provides for billing and payment. Clause 11 deals with permitted interruptions, including planned maintenance.
Clause 12 addresses curtailments of supply if there is insufficient capacity to meet supply obligations to the buyer and to the sellers' other customers. Clause 12 provides:
12.1Restricted capacity
Subject to Clause 12.2, if for any reason the quantities of Gas available to the Sellers for delivery to the Buyer and to comply with their supply obligations to their other customers are insufficient to comply with their total supply obligations (Curtailment) then, without prejudice to any of the rights or remedies available to the Buyer, the Sellers must comply with and give effect to the following:
(a)to the extent that Gas is required to be delivered by Sellers to [suppressed] to ensure the safe operation of the [suppressed] Gas Distribution System, the Sellers may give first priority to [suppressed] for that quantity (Priority Quantity); and
(b)gas available to the Sellers for delivery to its customers on a Day during a period of Curtailment, in addition to the Priority Quantity, will be allocated on an equitable basis with the delivery obligations to all of the other customers of the Sellers (including, but not limited to, [suppressed] in respect of the Sellers' delivery obligations in excess of the Priority Quantity).
12.2Existing contracts
The allocations referred to in Clause 12.1 are subject to the curtailment provisions of existing contracts which the Sellers have for the supply of Natural Gas from the Titles, in the terms as they stand as at the date of this Agreement, but nothing in this Clause 12 relieves any Seller from liability for its failure to comply with its delivery obligations under this Agreement.
12.3Notice of restricted capacity
The Sellers' Representative will immediately notify the Buyer if any restriction of capacity as referred to in Clause 12.1 has occurred.
Clause 13 deals with the quality of the gas. Clause 18 concerns force majeure.
Clause 22 deals with defaults, and remedies. It includes cl 22.4 and cl 22.5, which deal with 'Default' as defined. 'Default' is defined to mean 'Financial Default' or a 'Non‑financial Default'. It does not include a failure to make gas available for delivery: definition of 'Non‑financial Default'; cl 22.4.
Clause 22.6 and cl 22.7 provide:
22.6Limitation of liability - Buyer
(a)The maximum liability of the Buyer in respect of Gas not taken under this Agreement will be limited to its liability to pay for Gas not taken in accordance with Clause 4.2 (Annual Minimum Quantity), together with any interest payable pursuant to Clause 10 (Billing and payment).
(b)Subject to and without limiting paragraph (a), the Buyer will only be liable for direct and foreseeable loss incurred by the Sellers as a result of a Buyer's Default. In no event will the Buyer have any liability to the Sellers for any loss of profit or anticipated profit, business interruption, loss of opportunity, indirect or consequential loss or loss of use suffered by the Sellers or any other person (whether in contract, tort or otherwise). Nothing in this paragraph (b) relieves the Buyer from its express payment obligations to the Sellers under this Agreement.
22.7Limitation of liability - Seller
(a)The Sellers are only liable for direct and foreseeable loss incurred by the Buyer as a result of a Seller default excluding loss of profits. In no event will the Sellers have any liability to the Buyer for loss of profit or anticipated profit, business interruption, loss of opportunity, indirect or consequential loss or loss of use suffered by the Buyer or any other person (whether in contract, tort or otherwise).
(b)The maximum aggregate liability of each Seller under this Agreement is limited to its Proportionate Share of:
(i)$[suppressed] in any 12 Month period (and the pro‑rata proportion of $[suppressed] in respect of any period where the Sellers' failure to supply Gas is for a period less than 12 Months); and
(ii)$[suppressed] over the Contract Term (provided this cap on the Sellers' liability will not apply in respect of a failure to supply Gas to the extent the Sellers cease doing all that is reasonable to resume supply to the Buyer).
(c)The liability of each Seller in respect of a failure to use reasonable endeavours to meet a Buyer nomination above MDQ up to SMDQ is limited to its Proportionate Share of the amount by which the actual costs incurred by the Buyer in obtaining alternative fuel exceed the amount equivalent to the Gas Price, up to a maximum liability of that Seller's share of the Tranche 3 Price per GJ.
Clause 22.7(a) refers to a Seller 'default', and not 'Default', as defined. Accordingly, it includes a failure to make gas available for delivery. Clause 22.7(b) relates to a failure to supply gas and cl 22.7(c) relates to a failure to use reasonable endeavours to supply nominated SMDQ gas.
Clause 22.8 deals with termination for extended failure to make gas available for delivery.
Clause 22.9 provides:
22.9Exclusive remedies
The remedies expressly set out in this Agreement for breach of this Agreement are the sole and exclusive remedies of the Parties in respect of any breach of this Agreement or for negligence or any other tort arising from any act or omission in the course of or in connection with the performance of this Agreement and, notwithstanding any other provision in this Agreement, each Party releases all other Parties from any claim for Loss or damage of any kind (including loss of profit, indirect loss, consequential loss or loss of use) due in whole or in part to the negligence of any Party in connection with the performance or non‑performance of this Agreement.
Clause 3.3 - the judge's findings and the sellers' arguments
The essence of the judge's findings on construction are recorded at [68] ‑ [70] of his Honour's reasons:
The context of the obligation to supply SMDQ is important. Under the GSA there is no obligation imposed on the Sellers to reserve gas or production capacity for the supply of SMDQ gas if it is required by the plaintiff. Nor is there any obligation imposed on the plaintiff to take or pay for any SMDQ gas. The plaintiff is under no commitment to buy SMDQ gas and the Sellers have made no commitment to sell or to reserve gas or production capacity. The Sellers are under no obligation to the plaintiff to refrain from agreeing to sell gas to third parties on commercial terms, even if such sales reduce or eliminate the Sellers capacity to supply additional gas to the plaintiff.
Clause 3.3(b)(i), (ii) and (iii) set out circumstances in which the Sellers are not obliged to provide SMDQ gas. Clause 3.3(b)(i) provides that the Sellers are not required to make SMDQ gas available for delivery where they form the reasonable view that there is insufficient capacity available throughout the Sellers' facilities having regard to all existing and likely commitments of each Seller and each Sellers' obligations regarding maintenance, replacement, safety and integrity of the Sellers' facilities. If the Sellers have a contractual commitment to supply gas such that it has insufficient additional gas available to supply SMDQ gas then it is not required to supply that SMDQ gas to the plaintiff. The commitments referred to in cl 3.3(b)(i) are not confined to commitments existing at the time the GSA was entered into. The Sellers are at liberty to enter into new contracts with third parties by which they commit to supply gas even if that commitment has the effect that the sellers will have insufficient additional gas to be able to meet nominations of SMDQ gas by the plaintiff.
These considerations lead to the conclusion that cl 3.3(b) conditions the Sellers' obligation to use reasonable endeavours to make available for delivery SMDQ on the Sellers being 'able to supply SMDQ on a Day'. The meaning and content of 'able' is informed by the words 'the Sellers may take into account all relevant commercial, economic and operational matters'. In the context of cl 3.3(b) commercial matters include the sale of gas to other customers or potential customers and the profitability of such sales compared with the profitability of supplying SMDQ under the GSA. The Sellers may take such matters into consideration in determining whether they are 'able to supply SMDQ on a Day'.
In relation to the interaction between the nomination process in cl 9 and cl 3.3, the judge said [74]:
The defendants submit, and I accept, that cl 3.3, read with cl 9, does not impose on the Sellers an obligation to use their best endeavours to supply SMDQ for the [suppressed] Days after a nomination has been made. Upon its proper construction cl 3.3(a) imposes on the Sellers an obligation to use reasonable endeavours to make SMDQ gas available for the current Day under consideration. Clause 3.3(a) operates upon the Buyer's nomination for a Day, not for the whole of the [suppressed] Day period.
The judge's findings on construction reflect the arguments advanced by the sellers at trial and in this appeal. In this appeal the sellers placed particular reliance on the following matters: first, that the additional SMDQ gas was not the subject of a firm commitment; secondly, that the word 'able' may, in its dictionary meaning, include an element of volition; thirdly, that the matters specified in cl 3.3(b) all involved matters of self‑interest from the sellers' perspective; fourthly, that a significant feature of cl 3.3(b) is 'that it expressly gives to the [sellers], themselves, the right to determine their own ability to supply SMDQ gas on any given day' (written submissions par 32).
Clause 22.7(c) - the judge's construction
The judge held that if, contrary to his findings on the proper construction of cl 3.3, the sellers were in breach of cl 3.3, the damages for the breach were limited by cl 22.7(c) of the GSA. His Honour said [97]:
It is from the contractual wording, read in context, that the parties' intentions must be ascertained. In this case cl 22.7(c) specifically addresses the liability of the Sellers 'in respect of a failure to use reasonable endeavours to meet a Buyer nomination above MDQ up to SMDQ' and limits that liability. The policy behind the modern approach to interpretation of exclusion clauses is based on the concept that the court should not impose a strained construction upon an exclusion clause, but should give effect to the intentions of the contracting parties who are capable of protecting their interests and deciding how to allocate risks: Glenmont Investments Pty Ltd v O'Loughlin [No 2] (2000) 79 SASR 185 [258]. Furthermore, cl 22.7(c) is a limitation clause not an exemption clause; the courts do not regard limitation clauses with the same hostility as exclusion clauses: Ailsa Craig Fishing Co Ltd v Malvern FishingCo Ltd [1983] 1 WLR 964, 966 (Lord Wilberforce), 970 (Lord Fraser). The subject matter of the limitation clause is the obligation of the Sellers to use reasonable endeavours to make available SMDQ, which obligation is created by cl 3.3 of the GSA. It is a strained meaning of the clause to confine the words 'a failure to use reasonable endeavours to meet a Buyer nomination above MDQ up to SMDQ' to apply to a failure which is not wilful or deliberate. The natural and ordinary meaning of 'a failure to use reasonable endeavours' is that the party did not use reasonable endeavours, whether deliberately or otherwise.
Clauses 9.12 and 12.1 breaches - the judge's findings
The judge found that cl 11.2(b) did not negate the sellers' obligation to use reasonable endeavours to deliver the Shortfall Recovery Quantity within [suppressed] days, and did not absolve the sellers from liability for the consequences of breaching that obligation, unless the failure to use reasonable endeavours was 'on account of unplanned activities' (reasons [41]).
His Honour also found that the obligation to equitably allocate gas in accordance with cl 12.1 applies to permitted interruptions of supply under cl 11.2(b) (reasons [51]).
In relation to the interaction between the cap on liability contained in cl 22.7 and the relevant breaches, the judge found, in supplementary reasons, Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2011] WASC 268 (S) [5] ‑ [6]:
that the plaintiff cannot recover damages resulting from the defendants' failure to comply with their obligations under cl 12 to allocate gas on an equitable basis on 26 January in addition to damages for the defendants' failure to use reasonable endeavours to make the Shortfall Recovery Quantity, arising from the failure to deliver gas on 26 January 2008, available for delivery within the Shortfall Recovery Period in breach of cl 9.12. Clause 9.11(c) requires the Buyer to notify the Sellers' Representative whether or not it requires some or all of the Shortfall Gas Quantity to be delivered (Shortfall Recovery Quantity). If the Buyer notifies the Sellers' Representative that it does not require any of the Shortfall Gas Quantity to be delivered then the Buyer may sue the Sellers for damages and such damages are subject to the limitations in cl 22.7. Alternatively, the Buyer may notify the Sellers' Representative that it requires some or all of the Shortfall Gas to be delivered. The Buyer cannot require all of the Shortfall Gas to be delivered and sue the Sellers for damages.
When the gas supply was interrupted on 26 January, the plaintiff gave notice that it required all of the Shortfall Gas to be delivered. That Shortfall Gas included the quantity of gas which the defendants were required, but failed, to deliver under cl 12.1. Having elected to require all of the Shortfall Gas to be delivered the plaintiff's remedies were confined to those provided for in cl 9.12(a). Clause 9.12(a)(vi)(B) provides that if at the end of the Shortfall Recovery Period the Shortfall Recovery Quantity has not been delivered to the buyer then a Seller default will be deemed to have occurred and the Buyer's sole remedy (other than the potential right to terminate the agreement pursuant to cl 22.8) is to sue the Sellers for damages subject to the limitations in cl 22.7. The plaintiff cannot maintain a claim for damages for the failure to deliver gas in accordance with the defendants' obligations under cl 12.1 to allocate gas on an equitable basis in addition to its claim for damages pursuant to cl 9.12(a)(vi)(B).
Grounds of appeal and notice of contention
Grounds of appeal
Ground 1 of the grounds of appeal alleges that the judge erred in dismissing the buyer's claim for damages for breach of cl 3.3 and cl 9.3 of the GSA, when his Honour should have held that on a proper construction of the agreement:
(a)the sellers were obliged to use reasonable endeavours to supply [suppressed] TJ of SMDQ gas each day throughout the period 4 June to 29 September 2008;
(b)the obligation to use reasonable endeavours required the sellers to make available SMDQ gas to the buyer, notwithstanding that other potential buyers, to whom the sellers were not obligated to supply gas, were willing to pay substantially more for gas than the price payable by the buyer for SMDQ gas;
(c)the sellers breached their obligation to use reasonable endeavours in respect of SMDQ gas and are liable to pay damages.
Grounds 2 and 3 are in the alternative to ground 1. By ground 2, the buyer alleges that the judge erred in failing to find that the sellers had breached their obligation to use reasonable endeavours in respect of the period 4 to 10 June 2008. In this regard, it is alleged that his Honour erred in holding that the obligation to use reasonable endeavours only arose when the day of supply came to be considered. Instead, it is alleged, his Honour should have held that the obligation was triggered on acceptance of a nomination for the supply of SMDQ gas. It is alleged that the nomination was accepted for the period 4 June to 10 June 2008 and the sellers breached their obligation and are liable to pay damages.
By ground 3, the buyer further alleges that the judge erred in finding that the buyer had not proved that the sellers were able to supply [suppressed] TJ of SMDQ gas a day to the buyer from 18 August 2008 to 29 September 2008.
By ground 4, the buyer alleges that if ground 1 is established, the judge erred in law in dismissing the buyer's claim for damages for the 'tort' of economic duress when his Honour should have held that, in informing the buyer that SMDQ would not be supplied in the period 4 to 29 June and in the period 30 June to 29 September 2008, and in not supplying SMDQ in those periods, the sellers were threatening to, and did breach the GSA, which constituted illegitimate pressure which induced the buyer to enter into the supplemental agreements to buy gas at higher prices.
By ground 5 the buyer alleges that the judge erred in law in holding that the buyer's claim for damages was limited by cl 22.7(c) of the GSA, when he should have held that, properly construed, that clause did not operate to limit the sellers' liability to pay damages for:
(a)a deliberate or wilful breach of cl 3.3 and cl 9.3;
(b)the 'tort' of duress.
By ground 6, the buyer alleges that the judge erred in law in finding that the buyer could not recover damages both for the sellers' failure to comply with its obligations to allocate gas equitably under cl 12.1, as well as for the sellers' failure under cl 9.12(a)(i) to use reasonable endeavours to make available the Shortfall Recovery Quantity of gas in the [suppressed]‑day period after 26 January 2008.
Notice of contention
In relation to ground 4 of the appeal, the sellers contend that the limitation in cl 22.7(c) applies to any damages in respect of duress, when cl 22.7(c) is read with cl 22.9 of the GSA.
In relation to ground 6, the sellers contend that, to the extent that the primary judge did not so find, an award of damages for breach of cl 12.1 would impermissibly provide double recovery for the same loss.
Ground 1 - cl 3.3 - disposition
In my view, the judge erred in his construction of cl 3.3, read with cl 9.3. Prima facie clause 3.3 is to be read in the ordinary way that a document is to be read, that is from the beginning onwards to its end: McCourt v Cranston [2012] WASCA 60 [71]; Patman v Fletcher's Fotographics Pty Ltd (1984) 6 IR 471, 474 ‑ 475. The following observations may be made about the structure and language of cl 3.3.
First, the opening words of cl 3.3(a) refer to the nomination process in cl 9. By the opening words of cl 3.3(a), the parties have provided that if the buyer nominates SMDQ 'in accordance with cl 9', the sellers must use reasonable endeavours to make available for delivery the SMDQ gas. Under cl 9, nominations of SMDQ gas may be made in the Rolling Nomination Notice (the [suppressed] days' notice), the Daily Nomination (notice up to [suppressed] hours prior to delivery day) or the Short Notice Nomination (where notice is given within the [suppressed]‑hour period prior to delivery day). It is a nomination in accordance with cl 9 which conditions cl 3.3(a). Clause 3.3(b) is not expressed to be the conditioning event. Moreover, once the condition is satisfied, the obligation under cl 3.3(a) arises with immediate effect. The obligation to use reasonable endeavours to supply nominated SMDQ for a particular day is a continuing obligation running from the receipt of the notification of the nomination 'in accordance with cl 9', up until the time of delivery. Obviously, the later the notification of SMDQ under cl 9, the greater the chance that cl 3.3(b)(ii) will apply to preclude the delivery of the SMDQ gas. (Clause 3.3(b)(ii) is discussed in [130] below).
Secondly, whilst the phrase 'reasonable endeavours', like the term 'best endeavours' must take its meaning from the particular provision and its setting within the broader contractual context in which the words appear, prima facie, it is apt to signify an obligation to do all that can reasonably be done in the circumstances, but no more, to achieve the contractual object: Waters Lane Pty Ltd v Sweeney [2007] NSWCA 200; (2008) Aust Contract R 90‑287 [101] ‑ [107], referring to Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 64; Cypjayne Pty Ltd Babcock & Brown International Pty Ltd (2011) NSWCA 173; (2011) 282 ALR 152 [67].
Thirdly, the requirement to 'use reasonable endeavours' in cl 3.3 is expressed in the language of obligation. Clause 3.3(a) uses the word 'must'. Clause 3.3(c) and cl 9.3 refer, in effect, to the requirement as one of the sellers' 'obligations'.
Fourthly, the obligation with respect to the delivery of SMDQ is an important feature of the GSA, as appears not only from cls 3.3 and 9.3, but also cl 9.2(a), with reference to the Daily Delivery Obligation, and cl 9.10(a), with reference to deemed compliance with delivery obligations under cl 9. Recital C also indicates that the parties expected that at least [suppressed]% of gas above minimum quantity levels would be taken from the sellers as SMDQ.
Fifthly, by opening cl 3.3(b) with the words 'In determining whether they are able to supply SMDQ on a Day', it appears that the parties have then directed their attention to giving some definition to the nature and scope of the obligation to 'use reasonable endeavours' in cl 3.3(a). The commencement of the subclause with the preposition 'in' suggests that the determination referred to in cl 3.3(b) is something included within the obligation to use reasonable endeavours in subclause (a), rather than a separate and independent matter which conditions the very operation of cl 3.3(a).
Sixthly, the word 'able' (which is often used in contradistinction to 'willing') in cl 3.3(b), is, in its ordinary meaning, apt to signify capability or capacity. When used in cl 3.3(b), the word 'able' prima facie expresses the notion of the sellers' capability or capacity 'to supply SMDQ on a Day'.
Seventhly, in that regard, the sellers, by cl 3.3(b) may take into account 'all relevant commercial, economic and operational matters'. These specified matters, which may be taken into account by the sellers, are referable to the capacity or capability of the sellers to deliver SMDQ in accordance with their obligation to use reasonable endeavours. Clause 3.3(b) does not in terms, nor on its fair reading by implication, give the sellers, in effect, a discretion (governed only by bona fides and proper purposes) to make available SMDQ gas for supply if they consider it to be in their interests to do so.
Eighthly, the use of the word 'acknowledged', preceded by the words 'without limiting those matters' in cl 3.3(b), suggest that the matters identified in subpars (i) ‑ (iii) of cl 3.3(b) are intended to be illustrative of, but are not an exhaustive list of, the circumstances in which the agreement to use reasonable endeavours does not require the sellers to make available for delivery SMDQ. Subparagraphs (i) and (ii) of cl 3.3(b) depend upon the sellers forming a 'reasonable view'. Subparagraph (i) addresses the situation where the sellers reasonably form the view that there is 'insufficient capacity' to supply SMDQ having regard to all 'existing and likely commitments', and the sellers' obligations regarding maintenance, safety and the like. The word 'commitments' connotes obligations. A 'likely' commitment may include a contract with another party under which provision was made for the minimum delivery obligation to increase on the day that the seller is seeking SMDQ under the GSA, or a commitment to another party which had not then been undertaken, but would likely be engaged at a time relevant to the dates proposed in the buyer's nomination. Subparagraph (ii) refers to a lack of capacity to provide SMDQ where the seller reasonably considers that it has not been given sufficient notice to undertake all necessary procedures to have the additional gas available. Subparagraph (iii) refers not to an overall lack of capacity, but to the performance of delivery obligations to other customers which are inconsistent with scheduling SMDQ on the particular day that the buyer seeks to have it delivered.
Ninthly, it is to be noted that the parties expressly agreed that the sellers' liability for a breach of the reasonable endeavours obligation to supply SMDQ would be limited in accordance with cl 22.7(c). The advertence to breach and the express delineation of the scope for liability in the event of breach, are not conducive to a construction of cl 3.3 to the effect that the sellers are not required to use reasonable endeavours to make available SMDQ gas unless they first determine that it is in their interests to do so. It is objectively unlikely that the parties intended that the limitation would only operate upon an obligation as attenuated as that advanced by the sellers on their construction. Clause 22.7(c) is, objectively, intended to operate as a significant allocation of contractual risk where reasonable endeavours have not been used in relation to gas which is not itself the subject of firm delivery obligations. The GSA provides for a number of reasonable endeavours obligations, but only one, in connection with the supply of SMDQ gas, is made the subject of limitation in cl 22.7(c).
In White v AWB, Rich J said (326) that 'practical compulsion was sufficient' and did not suggest that there was, first, a need to find malafides.
In Nixon v Furphy there was no suggestion that the plaintiff's claim would only have succeeded if the defendant had knowingly acted in breach of the agreement in requiring the payment of interest. Indeed, that was a case where different views of the contract were evidently open and there was a divergence in view in the High Court as to whether the defendant's contention as to the meaning of the contract was correct. In that case there was an issue as to whether, on the proper construction of a contract for the sale of land, the defendant vendor was entitled to be paid certain amounts of interest. The defendant vendor had threatened not to complete the contract, and to terminate it, unless the interest was paid. The plaintiff purchasers denied that they were liable, but made the payment sought from them, in effect under protest, and subsequently sought to recover it in proceedings before Long Innes J. Long Innes J held that the defendant's construction of the contract as to its entitlement to interest was incorrect, and that the payment had been 'made by the plaintiffs involuntarily and under the compulsion of a threat of an unauthorised interference with the plaintiff's contractual and proprietary rights' (158). His Honour in that regard referred to the following observations of Isaacs J in Smith v William Charlick Ltd (56):
'Compulsion' in relation to a payment of which refund is sought, and whether it is also variously called 'coercion,' 'extortion,' 'exaction,' or 'force,' includes every species of duress or conduct analogous to duress, actual or threatened, exerted by or on behalf of the payee and applied to the person or the property or any right of the person who pays or, in some cases, of a person related to or in affinity with him.
In the High Court (Furphy v Nixon) each of the judges (Knox CJ, Isaacs & Higgins JJ) upheld the finding that pressure was applied. The majority (Isaacs J dissenting) also upheld the finding that the vendor had breached the contract on its proper construction. In that case, in relation to duress, the 'position of the purchasers' (Isaacs J's expression at 172) included the circumstance, known to the vendor, that the purchasers would be in serious difficulties with their sub‑purchasers if the contract in question were cancelled (Higgins J at 178 ‑ 179).
With respect to the defendant's knowledge of the plaintiff's circumstances, the court may more readily find inducement where the defendant knows of the prejudicial effect that its actions will have, and where it may be inferred (from that knowledge in the context of all the circumstances) that it has applied the illegitimate pressure in order to induce the plaintiff to enter into the impugned transaction: cf Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215, 236. Gould v Vaggelas was a case involving fraudulent misrepresentation, but the test of causation in Australia is the same for duress: see Barton v Armstrong (631, 633) and Crescendo v Westpac (46).
In TA Sundell v Emm Yannoulatos the vendor had agreed to sell galvanised iron from France to the purchaser. The vendor's costs of supplying the iron went up as a result of government actions in France. The vendor considered that it was entitled to pass on the additional costs and sought to do so through a higher price to the purchaser. It maintained that the price would still be 'considerably below prices for this material from Belgium, Japan and other world sources' (324). The purchaser ultimately paid, in substance under protest, the higher price required by the vendor. The Full Court referred (328) with evident approval to Nixon v Furphy, Re Hooper and White v AWB. There is no indication that it was necessary to find that the vendor had acted in bad faith in seeking to pass on the extra cost by way of an increase in the contract price.
In North Ocean v Hyundai, the party claiming duress expressly disavowed any allegation that the other party to the contract had sought the additional payments in bad faith (709).
In The Alev, Hobhouse J (at 145) said 'the plaintiffs did make a threat which was illegitimate, and, if it be relevant, they knew it to be illegitimate' (emphasis added). Also, in Spira v Commonwealth Bank of Australia [2003] NSWCA 180; (2003) 57 NSWLR 544 [73], after reference to McHugh JA's judgment in Crescendo Management v Westpac, Handley JA (Beazley JA & Tobias JA agreeing) said that whilst the act threatened must be unlawful, 'there is no requirement that the defendant should be aware that it is unlawful'. Also, insofar as an analogy may be drawn with duress involving money demanded by the colour of office, it is not necessary to show that in exerting pressure, the defendant acted in bad faith: Mason v The State of New South Wales [1959] HCA 5; (1959) 102 CLR 108, 141.
Further, in my opinion, the sellers' contentions are not assisted by the observations of McHugh JA in Crescendo Management v Westpac (at 47 ‑ 48) to which they referred. In Crescendo v Westpac, the plaintiff alleged that it had granted a mortgage on 8 July 1977 by reason of economic duress exerted on the plaintiff by the bank unlawfully withholding certain money from the plaintiff following the sale of certain property. McHugh JA held that the detention of the money by the bank was improper and constituted unlawful pressure (at 46F, 47B). His Honour nevertheless held that the duress did not induce the plaintiff to execute the mortgage on 8 July 1977, because the improper withholding of the money only occurred some days later, on 14 July 1977 (44F, 47B ‑ E). In the passage referred to in McHugh JA's judgment referred to by the sellers (at 47 ‑ 48), McHugh JA raised a potential argument to the effect that the bank had made a misrepresentation on 8 July 1977, that the relevant moneys would be released. His Honour observed, however, that at no stage of the proceedings had the plaintiff made an allegation that it executed the mortgage 'because of a false or fraudulent representation to that effect on 8 July'. His Honour continued 'I do not suggest for a moment that such a case could have succeeded', but that it was 'the only possible case which [the plaintiff] could have run'. His Honour was not, as I understand it, referring to a case for economic duress at that stage. Rather, his Honour considered that the only case that might possibly have been run to set aside the mortgage would have been a claim in deceit. But, as his Honour added, he was not suggesting that such a claim could have succeeded.
Nor does the reference to Pao On v Lau Yiu Long (at 635) assist the sellers. There, Lord Scarman, speaking for the Board, said:
In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised, and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v Horner [1915] 3 KB 106, relevant in determining whether he acted voluntarily or not.
In the present case there is unanimity amongst the judges below that there was no coercion of the first defendant's will. In the Court of Appeal the trial judge's finding ... that the first defendant considered the matter thoroughly, chose to avoid litigation, and formed the opinion that the risk in giving the guarantee was more apparent than real was upheld. In short, there was commercial pressure, but no coercion. Even if this Board was disposed, which it is not, to take a different view, it would not substitute its opinion for that of the judges below on this question of fact.
In that case the plaintiff's refusal to complete what was described as the 'main agreement' was not, on the facts as found, operative in inducing the defendant to enter into the subsequent guarantee upon which the plaintiff sought recovery from the defendant. His Lordship's observations seem to me go to the question of inducement. The passage does not support the proposition that a contractual entitlement wrongly asserted, albeit in good faith, cannot amount to 'illegitimate' pressure.
Mackay v National Australia Bank applied similar reasoning. In that case the appellants had executed a guarantee in favour of the bank on 20 February 1987. Proceedings were commenced a number of years later in which the appellants were ultimately successful in contending that the guarantee was unenforceable by reason of want of consideration, and the matter was remitted to the primary judge to determine the other issues raised in the proceedings. Those issues included whether a sum of $366,631, raised from the sale of the appellants' home, and retained by the bank, was recoverable by the appellants by reason of duress or by reason of demands made in connection with the guarantee which was subsequently held to be not enforceable, or whether, relevantly, the bank was entitled to retain the sum because the appellants had by 'voluntary agreement' permitted the proceeds to be applied in reduction of the debt owed by the company with which they were associated, to the bank. The primary judge found, as a fact, that the appellants had voluntarily allowed or arranged for the bank to apply the proceeds of the sale of their home in satisfaction of the company's debt, and the claim that it was done through coercion or compulsion, failed (683). The appeal was dismissed. Winneke P (with whom Batt JA agreed) said (686 ‑ 687):
At the end of the day, and on the facts which I am assuming, the bank made a demand of the appellants to repay the money owing by [the appellants' company] pursuant to an instrument which was later found to be unenforceable. It was within the power of the parties to the agreement upon whom the demand was made to resist that demand and to test its legitimacy. There will, ordinarily, be no compulsion of the sort which the law requires if payment cannot be enforced except through legal action which the person called upon to pay can resist. In other words, although the application of the doctrine must be determined according to the peculiar facts of each case, it will usually not be enough if the demand is made by one person in legal relationship with another, of that other, and the threat constituted by that demand is one that does not go beyond the threat of legal proceedings.
...
The onus was on the appellants to satisfy his Honour that in fact they sold their house and agreed to the application of the proceeds in the way in which they were applied because of compulsion. It is not enough that the evidence show that, even though there may have been compulsion, they had sold voluntarily despite it. See Mason v New South Wales per Menzies J at 136 and per Windeyer J at 143.
Tadgell JA (at 690) made observations to similar effect. Tadgell JA (with whom Batt JA also agreed) added that a bona fide threat by a secured creditor to exercise rights conferred by the security 'can scarcely be relevantly different from a bona fide threat to sue'. I would understand his Honour's observations in the context of the circumstances of that case. The benefit of the security instrument, ie the guarantee, could only effectively be obtained, in the event of dispute, through recourse to the court. Also, Mackay v National Australia Bank was a case where there was an assertion of a right which did not exist, not the non‑performance of an obligation which did exist.
The cases of CTN Cash and Carry v Gallagher and Beerens v Bluescope, were cases involving lawful acts and are of no real assistance in the resolution of this matter.
The buyer also drew attention to [21], [22] and [23] of the judgment in Magsons v Concept 124. At [23] the court quoted the following observations of the Court of Appeal in McIntyre v Nemesis DBK Ltd [2009] NZCA 329; (2010) 1 NZLR 463 [115]:
There are no definitive criteria for determining whether pressure is legitimate or illegitimate. The criterion most commonly resorted to is that of 'lawfulness'. Thus where the pressure consists of an unlawful act or a threat to commit an unlawful act, then prima facie the pressure is illegitimate. ... It follows that some instances of unlawful pressure may be legitimate and that some instances of lawful pressure may be illegitimate. An example of the former might be a party's threat to break a contract when a change in circumstances beyond their control has meant that they are genuinely unable to perform.
Even if the italicised observations were regarded as representing the common law of Australia (which it is unnecessary to decide), they do not apply to this case. Similarly, the genuineness of belief which the court considered a relevant factor in DSND Subsea Ltd v Petroleum Geo‑Services [2000] BLR 530 has no application here. The sellers here were not seeking genuinely to resolve a predicament into which they had been thrust, but were, albeit with a genuine belief in their own rectitude, seeking to exploit a commercial advantage.
Finally, mention should be made of the topic of rescission or avoidance. Binding agreements vitiated by duress of this kind are merely voidable, and not void: Furphy v Nixon (173); Universe Tankships Inc of Monrovia v International Transport Workers Federation (385); Barton v Armstrong (614, 617, 621) (cf 633); Pao On v Lau Yiu Long (635 ‑ 636); The Siboen and The Sibotre [1976] 1 Lloyds Rep 295, 336; North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (718 ‑ 719). A claim in restitution in respect of money paid pursuant to a binding agreement resulting from such duress requires rescission of the agreement: Dimskal Shipping Co SA v International Transport Workers Federation (165 ‑ 166); Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161, 164; Enimont Overseas AG v Jugotanker Zadar (The Olib) [1991] 2 Lloyd's Rep 108, 118. This accords with the principle that generally restitution does not operate in respect of an effective contract: Pavey & Matthews v Paul [1987] HCA 5; (1987) 162 CLR 221, 233 ‑ 236, 256, 266 ‑ 267; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251, 275; Trimis v Mina [1999] NSWCA 140; (1999) 16 BCL 288 [54]; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 [655]; Perum Building and Construction Pty Ltd v Tallenford Pty Ltd [2007] WASCA 245; (2008) 24 BCL 361 [23] ‑ [24]; Coshott v Lennon [2007] NSWCA 153 [10].
Also, even where a plaintiff claims money paid under a contract where the consideration has wholly failed, the plaintiff should elect to be entitled to recover the payment. The election may be made by the institution of proceedings to recover the money: Shepherd v Australia and New Zealand Banking Group Ltd (1996) 20 ACSR 81, 92 (Bryson J).
Whilst the buyer relied upon the observations of the Full Court in TA Sundell & Sons at (327, 328), it was not clear to me how the buyer sought to apply those observations in this case. In TA Sundell (327), the Full Court held that the plaintiff could recover the money on the basis of a total failure of consideration because the vendor had provided no consideration beyond that contained in the original agreement. In this case it might, perhaps, have been thought that the buyer might argue that under the supplemental agreements, the sellers not only promised nothing more than they had in the GSA, but promised substantially less, and that the rule in Pinnel's Case applied so as to prevent the sellers from contending that the supplemental agreements were supported by consideration. The rule in Pinnel's Case (1602) 5 Co Rep 117(a); (1602) 77 ER 237, and the question of whether the promise to perform an existing duty can amount to good consideration, are discussed by Seddon and Ellinghaus in Cheshire & Fifoot's Law of Contract, 9th Aust ed, pars 4.33 ‑ 4.39. None of these matters were, however, alleged or explored in the appeal.
Further, any reliance by the buyer on the observations of the Full Court in TA Sundell (328) would necessarily, in my view, involve a recognition that the supplemental agreements were only voidable and would require rescission before recovering any payment on the basis of money had and received. The buyer, however, eschewed the need for rescission.
The supplemental agreements having been performed, rescission would involve a consideration of restitutio in integrum: Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (4th ed, 2002) [24‑040]. It might, perhaps, have been argued that in equity's concurrent jurisdiction, counter‑restitution by way of return of the gas was unnecessary by reference to authorities such as Hulton v Hulton [1917] 1 KB 813, 821 and Allason v Campbell [1998] ECWA Civ J0226‑9, discussed in O'Sullivan, Elliott & Zakrzewski, The Law of Rescission, pars 18.42 ‑ 18.44. Again, these matters were not alleged or explored.
Finally, the decision in Roxborough v Rothmans of Pall Mall Australia Ltd does not advance the case for the buyer. That was a case where there had been a failure of a distinct and several part of the consideration in the agreement in respect of which restitution was claimed. There is no element of the price paid under the supplemental agreements which could be regarded as a several and distinct part of the consideration here.
Ground 6 and notice of contention
Clauses 9.11 ‑ 9.14 - overview
I have outlined [95] to [98] above the provisions concerning Shortfall Gas. It is nevertheless convenient here to set out cl 9.11(b) and (c), cl 9.12(a)(i) and (vi), cl 9.12(b) and cl 9.13, in terms:
9.11Shortfall Gas
...
(b)The Sellers' Representative must notify the Buyer if there is Shortfall Gas on a Day as soon as reasonably practical.
(c)The Buyer must, not later than [suppressed] Day after each Day on which Shortfall Gas arises, notify the Sellers' Representative that it either:
(i)requires some or all of that Shortfall Gas quantity to be delivered (the specified quantity being the Shortfall Recovery Quantity); or
(ii)does not require any of that Shortfall Gas quantity to be delivered.
9.12Delivery of Shortfall Recovery Quantity and remedies
(a)If the Buyer gives a notice in accordance with Clause 9.11(c)(i):
(i)the Sellers must use reasonable endeavours to make the Shortfall Recovery Quantity available for delivery within [suppressed] Days after the Day on which that Shortfall Gas arises (the Shortfall Recovery Period);
...
(vi)if at the end of the Shortfall Recovery Period the Shortfall Recovery Quantity:
(A)has been delivered to the Buyer, the Buyer's sole remedy will be an amount equal to the surcharges (if any) imposed on the Buyer under a Gas Transportation Agreement as a direct result of the occurrence of the Shortfall Gas and which amount is payable to the Buyer by the Sellers upon the Buyer providing evidence of such surcharges to the reasonable satisfaction of the Sellers;
(B)has not been delivered to the Buyer:
(1)a Seller default will be deemed to have occurred;
(2)the quantity which is not made available for delivery during the Shortfall Recovery Period will be deducted from the Minimum Quantity for that Contract Year in accordance with Clause 4.6; and
(3)the Buyer's sole remedy (other than the potential right to terminate this Agreement pursuant to Clause 22.8) is to sue the Sellers for damages (subject to the limitations in Clause 22.7).
(b)If the Buyer gives a notice in accordance with Clause 9.11(c)(ii):
(i)the Sellers will not be required to make available for delivery to the Buyer a quantity equal to that Shortfall Gas;
(ii)the Buyer must not vary its nomination for one or more Days for the purpose of recovering a quantity equal to some or all of the Shortfall Gas;
(iii)that quantity of Shortfall Gas will be deducted from the Minimum Quantity for that Contract Year in accordance with Clause 4.6; and
(iv)the Buyer's sole remedy (other than the potential right to terminate this Agreement pursuant to Clause 22.8) is to sue the Sellers for damages (subject to the limitations in Clause 22.7).
9.13Shortfall Gas on consecutive Days
If there is a Shortfall Gas on consecutive Days, the Shortfall Gas for each Day will be treated separately and the procedure set out in clauses 9.11 and 9.12 will apply to each occurrence of Shortfall Gas.
Reference should also be made to what is, in effect, the opposite of Shortfall Gas, which is 'Excess Gas'. Clause 9.14(a) provides, in effect, that if delivered gas for a day exceeds the Upper Limit, the difference between the delivered gas and the Upper Limit for that day is Excess Gas. Clause 9.14(b) provides that if there is Excess Gas, the buyer's 'sole remedy' for the over‑supply will be an amount which equals any surcharge imposed on the buyer under a gas transportation agreement as a direct result of the Excess Gas.
Clauses 9.11 to 9.14 are to be read in the context that cl 9.2 provides, relevantly, that the sellers 'must' make available for delivery each day, the Daily Delivery Obligation which is, in effect (within a certain tolerance), the lesser of MDQ and the Daily Nomination for that day.
For the remainder of this section of the reasons I will, for ease of reference only, refer to the Daily Delivery Obligation as MDQ, and references to MDQ should be understood on that basis.
It is apparent from cl 9 that the fundamental delivery obligation is MDQ. If Excess Gas is delivered, the buyer's 'sole remedy' is an amount equal to the surcharges incurred by the buyer from the pipeline operator arising from the imbalance for that day. Where there is an under-supply less than MDQ, if the buyer gives notice for the under‑supply to be corrected in whole or in part, and it is corrected by the sellers within the [suppressed] day period allowed, the buyer's 'sole remedy' is, again, to recover any surcharges imposed by the pipeline operator. If the buyer notifies the sellers not to rectify the under-supply, then the buyer's 'sole remedy' is, relevantly, to sue the sellers for damages subject to cl 22.7. Similarly, if the buyer requires the under‑supply to be rectified in whole or in part, and the required Shortfall Recovery Quantity has not been delivered, there is 'deemed' a 'Seller default' and the buyer's 'sole remedy' is relevantly, to sue the sellers for damages, subject to cl 22.7. It is evident that the buyer is not entitled to recover damages for under‑supply which has been rectified in accordance with the provisions of cl 9.12, and both in that case, as with over-supply in accordance with cl 9.14, the buyer's claim is limited to a claim in debt. Where, however, the under-supply is not required to be rectified, or is not rectified when required in accordance with cl 9.12, any loss caused to the buyer on account of surcharges is, in effect, subsumed within the claim for damages. The meaning of 'sole remedy' for the purposes of cls 9.12(a) and (b) is discussed below.
Clause 12
Clause 12 deals with priorities and the equitable allocation of gas where 'for any reason' the quantities of gas available to the sellers for delivery to the buyer and to comply with their supply obligations to other customers, are insufficient to comply with their total supply obligations. It provides a mechanism for dealing with the consequences of insufficient gas being available to the sellers to meet all their supply obligations, including to the buyer. It regulates how any potential under-supply to the buyer under the GSA is to be dealt with in those particular circumstances. It does not say that in those circumstances, the sellers must supply the full complement of MDQ gas to the buyer before the delivery of any gas to other customers. Nor does it say that the commitment to the buyer is subservient to the sellers' other commitments (save in respect of the [suppressed] Priority Quantity). Rather, it requires an equitable distribution, but 'without prejudice' to the buyer's other rights or remedies for short supply.
Clause 12.3 requires the sellers immediately to notify the buyer of any restriction of capacity under cl 12.1. It is apparent that cl 12 is intended to operate where insufficient gas may lead to short supply (relevantly less than MDQ) to the buyer. If the sellers had sufficient gas to supply MDQ to the buyer but breached the equitable allocation obligation under cl 12.1 by supplying the whole of MDQ to the buyer in preference to an equitable allocation amongst all their customers, the buyer could have no complaint as it would receive the whole of MDQ, albeit as a result of the breach of cl 12.1. The significance of the obligation in cl 12.1 only appears, in practical terms, when the breach of cl 12.1 leads or contributes to the under‑supply of MDQ to the buyer. For example, if the sellers, in breach of cl 12.1, under‑supplied gas on a day where there was a permitted interruption under cl 11.2, the failure to allocate gas equitably would inform the scope of the buyer's claim for damages if the buyer had given notice (under cl 9.11(c)(ii)) that it did not require the Shortfall Gas to be delivered. The damages would extend to the component of under‑delivery relating to the breach of cl 12.1, but not to the remainder. Similarly, if a notice was given requiring delivery of the Shortfall Gas (under cl 9.11(c)(i)), and such gas was not delivered in circumstances where permitted interruptions under cl 11.2 continued over the Shortfall Recovery Period, the damages claim would only extend to the component of Shortfall Gas represented by the breach of cl 12.1.
The issue
The buyer contends that the breach of cl 12.1 on 26 January 2008 sounds in damages, for which it is entitled to claim recovery. It says that such a claim is limited by cl 22.7(b). The buyer says that this claim is in addition to a claim which it has under cl 9.12(a)(vi)(B) in respect of non‑delivery of the Shortfall Recovery Quantity, which claim is also limited by cl 22.7(b). The buyer contends that each claim arises from a separate breach on separate days. The sellers contend that the parties have clearly excluded any separate claim to damages for breach of cl 12.1 by agreeing, in effect, a code which exhaustively addresses all the consequences of short supply, howsoever caused, including by virtue of a breach of cl 12.1.
Clear words are required to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law: Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 [23]; Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574, 585; J‑Corp Pty Ltd v Mladenis [2009] WASCA 157; (2010) 26 BCL 106 [44]; Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276; (2008) Aust Contract R 90‑278 [217] ‑ [219].
Disposition
Clause 9.11 positively obliges the buyer to make an election as to how it wishes to address an occasion of under-supply. Clause 9.12 provides for a detailed contractual regime, including in relation to contractual remedies, which is to be applied in consequence of the buyer's election under cl 9.11(c). The importance of the application of the scheme is confirmed by cl 9.13, which provides that where there is Shortfall Gas on consecutive days, the Shortfall Gas for each day is to be treated separately and the procedures set out in cl 9.11 and 9.12 must be applied to each 'occurrence' of Shortfall Gas. There is nothing to suggest that cls 9.11 to 9.12 operate in a way which discriminates between the causes of under‑supply. That view of cls 9.11 and 9.12 is, I think, confirmed by cl 9.16, which directs attention to the only way in which cl 9 could be altered in its operation.
Where the buyer does not require any of the Shortfall Gas quantity to be delivered, cl 9.12(b)(iv) provides that the buyer's 'sole remedy' (other than the right to termination under cl 22.8) will be damages. This must be a reference to the buyer's remedy with respect to the occasion of under‑delivery which gave rise to the Shortfall Gas on the gas day the subject of the cl 9.11(c) notice.
Where the buyer does require some or all of the Shortfall Gas quantity to be delivered, and the sellers deliver such gas within the relevant [suppressed] day period, cl 9.12(a)(vi)(A) provides that the buyer's 'sole remedy' will be an amount equal to the surcharges. Again, this must refer to the buyer's remedy with respect to the occasion of under‑delivery which gave rise to the Shortfall Gas on the gas day the subject of a cl 9.11(c) notice.
Where the buyer does require some or all of the Shortfall Gas quantity to be delivered, and the seller does not deliver such gas within the relevant period, cl 9.12(a)(vi)(B) provides that a Seller 'default' will be deemed to have occurred, and the buyer's 'sole remedy' (other than the right to terminate under cl 22.8) will be damages. It is not an actual breach of cl 9.12(a)(i) in failing to use reasonable endeavours which sounds in damages in this context. It is, by operation of cl 9.12(a)(vi)(B), the failure to supply the Shortfall Recovery Quantity, whether or not reasonable endeavours have been used, which triggers the right to claim damages. A 'default' is merely deemed. The result is that cl 22.7(a) and (b) which apply to sellers' failures to supply gas, apply to such damages claim. The express reference to cl 22.7 in cl 9.12(a)(vi)(B)(3) must be a reference to cl 22.7(a) and (b), and not to cl 22.7(c). (Even where there is a deemed default, on the judge's reasoning in relation to cl 11.2(b), the sellers would still not be liable if cl 11.2 applied, subject to the due performance of cl 12.1.)
In their context the words 'sole remedy' in cl 9.12(a)(vi)(B)(3) must also, in my view, refer to the buyer's remedy with respect to the occasion of under‑delivery which gave rise to Shortfall Gas on a gas day. This is confirmed, in my view, when regard is had to cl 22.7(b). Clause 22.7(b) applies with respect to a 'period' where the sellers have failed to supply gas. Supply obligations occur on each gas day and cl 22.7(b) is directed to the period of non‑supply, irrespective of the cause of the non‑supply.
Turning to the buyer's particular arguments, it is contended that his Honour erred in effectively deciding that the buyer had made an election between inconsistent rights under the general law which precluded the pursuit of the claim for breach of cl 12.1. Reference was made to Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, 655. In my view, that was not the tenor of his Honour's observations. Rather, as I understand it, his Honour considered that cl 9.11(c) required an election as to whether the buyer required the sellers to take steps to make up the Shortfall Gas in accordance with cl 9.12, which sets out the remedies to be applied.
Next, the buyer points out that cl 12.1 includes the words 'without prejudice to any of the rights or remedies' available to the buyer. That is so, but the rights and remedies available to the buyer are those stemming from the election the buyer must make under cl 9.11(c). The parties did not intend that short delivery would be excused by the sellers complying with the obligation to allocate equitably under cl 12.1. Some confirmation of that is to be found in cl 12.2 which provides, inter alia, that 'nothing in this Clause 12 relieves any Seller from liability for its failure to comply with its delivery obligations under this Agreement'.
Finally, the buyer contends that the construction favoured by the judge has an uncommercial consequence, in that at the time that the Shortfall Gas occurs, the buyer is unlikely to know whether the sellers have breached the allocation requirements required under cl 12.1, yet, within one day of the shortfall, must give the notice under cl 9.11(c). It said that it is objectively unlikely that the parties contemplated that the buyer would be required to elect between inconsistent rights in circumstances when it was unlikely to know whether it had a right to damages under cl 12.1. This argument is circular and assumes the correctness of the proposition which it sets out to prove. Whether or not the buyer is aware of the causes of short delivery, the agreement plainly provides that it is required to make the election so that the consequences of under‑delivery may be addressed in accordance with cl 9.12.
In my opinion the provisions of cl 9.12 provide, in effect, a contractual code dealing with the under-supply of MDQ (and its consequences) for whatever reason, including where the under-supply arises from the breach of cl 12.1. The parties by their agreement, have set up a comprehensive scheme which excludes any separate right to claim damages for breach of cl 12.1 where the breach causes or contributes to the under‑supply of MDQ gas on any gas day.
I would dismiss ground 6. It is unnecessary to deal with the notice of contention.
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