Electricity Generation Corporation T/As Verve Energy v Woodside Energy Ltd & Ors; Woodside Energy Ltd & Ors v Electricity Generation Corporation T/As Verve Energy

[2013] HCATrans 301

[2013] HCATrans 301

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P47 of 2013

B e t w e e n -

ELECTRICITY GENERATION CORPORATION (ABN 58 673 830 106) T/AS VERVE ENERGY

Appellant

and

WOODSIDE ENERGY LTD (ABN 63 005 482 986)

First Respondent

BP DEVELOPMENTS AUSTRALIA PTY LTD (ABN 54 081 102 856)

Second Respondent

CHEVRON AUSTRALIA PTY LTD (ABN 29 086 197 757)

Third Respondent

BHP BILLITON PETROLEUM (NORTH WEST SHELF) PTY LTD (ABN 41 004 514 489)

Fourth Respondent

SHELL DEVELOPMENT (AUSTRALIA) PTY LTD (ABN 14 009 663 576)

Fifth Respondent/

Office of the Registry
  Perth  No P48 of 2013

B e t w e e n -

WOODSIDE ENERGY LTD (ABN 63 005 482 986)

First Appellant

BP DEVELOPMENTS AUSTRALIA PTY LTD (ABN 54 081 102 856)

Second Appellant

CHEVRON AUSTRALIA PTY LTD (ABN 29 086 197 757)

Third Appellant

BHP BILLITON PETROLEUM (NORTH WEST SHELF) PTY LTD (ABN 41 004 514 489)

Fourth Appellant

SHELL DEVELOPMENT (AUSTRALIA) PTY LTD (ABN 14 009 663 576)

Fifth Appellant

and

ELECTRICITY GENERATION CORPORATION (ABN 58 673 830 106) T/AS VERVE ENERGY

Respondent

FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 5 DECEMBER 2013, AT 10.00 AM

Copyright in the High Court of Australia

____________________

FRENCH CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, may I deal with three matters arising from yesterday before I move on.  The first concerns that paragraph of the Dr McKeagney statement, 64.5 at page 329.  That in fact was struck out by the trial judge on 15 March 2011.  It appears in page 208 of the transcript, but at page 221, which is in the appeal books – that is in volume 1, page 189 about line 30 – she subsequently gave evidence in‑chief that at that meeting the sellers’ representatives present essentially:

said yes to interrupting SMDQ under those contracts.

Your Honours, this was evidence to the same effect.  Your Honours, I apologise for not having picked up that that had been struck out.    The second matter, your Honours, concerns a question raised by your Honour Justice Crennan:  was there any relevant legislation, to put it shortly.  There is some legislation, your Honours.  We have given your Honours a note dealing with the topic, but the short effect of it is that whilst it created an obligation to supply a quantity of gas to what is now Verve, the quantity was one below MDQ.  It says nothing about SMDQ.  Your Honours, the detail of it is set out in the note we have given.

The third matter, your Honours, was – I said I would give your Honours a note on whether SMDQ was subject to the take or pay obligation and, your Honours, we have given that note which sets out the details of it.  Your Honours will see that.  I do not propose to go back to that.  Could I move then, your Honours, to the matters with which I was about to deal yesterday?  I am dealing with the question of had there been the application of pressure. 

In dealing with that aspect, may I just say this first?  That the short fact is that the need to obtain fuel otherwise than as SMDQ does appear to be the very thing that is contemplated by clause 22.7(c) which your Honours will see in volume 2 at page 555.  Your Honours, the argument or the view taken by the Court of Appeal would seem to have the effect that every breach of clause 3.3 would amount to duress allowing recovery of overpayments without there being the application of the cap provided for by clause 22.7(c).

Your Honours, our submission is that the President in the Court of Appeal erred in finding that Verve had no practical alternative but to enter into the short‑term agreements.  But, even if they were – and that is her finding at paragraph 29, volume 3, page 1074.  Could I invite your Honours, perhaps, to note while in that area of the appeal books, that in paragraph 33, in relation to the matter I mentioned a moment ago, paragraph 33 concludes with the observation that:

The economic duress claim was relied on as an attempt to avoid the effect of cl 22.7(c) and cl 22.9 of the GSA.

Now, your Honours, our submission is that her Honour did not really confront the question whether there was pressure which had been applied by the sellers but rather simply focussed on the prevalent circumstances and we would submit that she and Justice Murphy at paragraph 183 at page 1113 erred in holding that there was an exertion of pressure on Verve by the sellers.  We simply, we would submit, informed them that we would not supply SMDQ, we were in a position where we were able to sell to other buyers, we made no threat to extract funds, they chose to enter into fresh contracts with each of the sellers and with MIMI and that, we would submit without more, does not constitute an application of pressure by us.

Your Honours, could I turn to the second element in the duress inquiry, to put it that way, to succeed in a claim for duress the plaintiff has to demonstrate that the pressure was illegitimate.  Your Honours, we have dealt with that in our written submissions in‑chief at paragraphs 85 to 98 and, your Honours, as your Honours will see in paragraphs 90 to 96:

no clear test as to what amounts to “illegitimate” pressure has been authoritatively stated –

in the decisions.  We would submit that it is not correct to say, as our learned friend’s submissions contend, that an actual or threatened breach of contract simpliciter is relevantly illegitimate for the purposes of the law of duress and I should say that that approach appears to have been taken by the President in paragraph 26 at page 1074.

Your Honours, whilst Justice Murphy did not directly consider whether the pressure was illegitimate, his reasoning at paragraphs 184 to 200, that is commencing at page 1114, does suggest that he considered that the conduct was illegitimate because it was done in breach of contract. 

Your Honours, could we submit and I will come to some decisions in just a moment – could we submit that not every breach of contract should be regarded as giving rise as being an illegitimate application, as it were.  Indeed, if every threatened breach of contract amounted to illegitimate pressure then many contractual modifications which were negotiated under circumstances of some pressure would not be enforceable. 

Your Honours, modifications of contract are permitted most commonly where there is some settlement of a disputed claim and the nature of the disputed claim is likely to be such that at least one of the parties would be in breach of contract by carrying out the claim that is made.  Your Honours, the issue was not really dealt with by Justice McHugh in his relatively short reasons in Crescendo Management in 19 NSWLR 40 at page 46 A to B. He said that:

Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct.  But the categories are not closed.

But His Honour did not go on to develop what amounted to unlawful threats nor, of course, unconscionable conduct.  Could I just pause to say one thing, your Honours, in relation to unconscionable conduct?  There had been a case based on unconscionability against us in this case, which was abandoned on the first day of the trial.  You will see that at page 178. Your Honours, I mention that in passing. 

Your Honours, what we would submit is that his Honour’s dictum in the case did not establish that every threatened or actual breach of contract should be regarded as providing for unlawful pressure – as providing for illegitimate pressure, and that is the real question, whether or not the conduct was unlawful in the broad sense of including breaches of contract.  Your Honours, the view that not every threatened breach of contract should be treated as illegitimate for relevant purposes is supported by a number of observations in the decisions and elsewhere.  Could I go first ‑ ‑ ‑

HAYNE J:   Before you come to that, was there not a breach of contract in Crescendo by the bank refusing or failing to pay over the money?

MR JACKSON:   I think that is right, your Honour, yes.

HAYNE J:   And yet held no duress.  Is that right?  Or held duress?

MR JACKSON:   I am not sure, your Honour.  I will have to check.  I have been looking at too many of these cases.

HAYNE J:   I was struck by the heading “no operative duress”.

MR JACKSON:   Yes.  My learned friend says, went off on a causation point.  May I adopt that for the moment, taking whatever the consequences might be?

HAYNE J:   Justice McHugh’s view that most cases turn on questions of causation.

MR JACKSON:   Yes, your Honour.  That appears to have the cause of some of his judgments.  Your Honour, I will not take that any further.  I was going to refer your Honours, first, to Goff & Jones:  The Law of Unjust Enrichment, (8^th, 2011) at 316 to 318 and particularly in paragraph 10‑42.  Your Honours will see ‑ ‑ ‑

FRENCH CJ:   Sorry, what page was that, again?

MR JACKSON:   Page 316, your Honour.

FRENCH CJ:   Thank you.

MR JACKSON:   Paragraph 10-42.  Your Honours will see if one goes over to the next page, 317, the first new paragraph, the observations offered that:

In some circumstances a threat to break a contract may be characterised as illegitimate.  But not all threats to do so are illegitimate.  A threat may be illegitimate if the person making the threat knew that he would be in breach of contract if it were implemented.  But what if the person who made the threat believed that it was commercially reasonable for him to ask for a variation of an existing contract?

And, your Honours, that is developed a little.  But the situation posited there is not really very far from a case such as at present.  Your Honours, I was going to say there is a decision of the Privy Council which I will mention first.  It is Attorney‑General for England andWales v R [2004] 2 NZLR 577. In that case – and could I just say this about it, your Honours, without going to it in any detail – at page 583, paragraph 16, Lord Hoffman noted that the legitimacy of pressure had to be looked at from two aspects:

first, the nature of the pressure and secondly, the nature of the demand which the pressure is applied to support –

He said in paragraph 17 that, whilst generally speaking, the threat of any form of unlawful action would be regarded as illegitimate.  It did not need to be decided in the particular case.  Your Honours, that case was referred to in a case to which I will now come and that is a decision of the New Zealand Court of Appeal in McIntyre v Nemesis DBK Ltd [2010] 1 NZLR 463 at 469. Your Honours, in that case in paragraph [30] – perhaps commencing at paragraph [28] – it is said:

There is some academic debate as to whether a threat to breach a contract is necessarily illegitimate pressure.

There is a reference to the alternative views in the remainder of paragraph [28] and then paragraph [29].  Your Honours, in paragraph [30], there is a reference to the passage from Lord Hoffman to which I just referred.  Then it said:

This observation must be understood against the background of Salmon J’s comments at [115] of the High Court judgment in that case . . . where he said:

And your Honours will see the quotation to the effect:

There are no definitive criteria –

and two‑thirds of the way down the page –

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.  An example of the latter might be a party’s threat to disclose information which would discredit the victim.

Now, your Honours, in relation to the first of those, a threat to break a contract when the change in circumstance is beyond their control has meant they are genuinely unable to perform, is again something that is close to the particular case.  It is right of course to say that we were in fact able to provide approximately the same volume of gas, but it was provided under different circumstances of pressure.

Your Honours, could I give two further references without taking your Honours to them.  The first is a case of North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705, and at page 719 letter E, Justice Mocatta observed that:

A threat to break a contract may amount to such “economic duress.”

Also, your Honours, in a decision of B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419, both Lord Justice Griffiths and Lord Justice Kerr thought that a threat to break a contract may constitute duress, but Lord Justice Griffiths at page 428 letter D said that it would by no means always constitute duress. Your Honours, our submission is that the determination of whether the pressure applied by the defendant was illegitimate required consideration of the whole of the circumstances, taking into account the approach referred to by Lord Scarman in Pao On, to which I have already referred, in [1980] AC 614 at 635, C to E.

Could I move then, your Honours, to the question of good faith.  We would submit that the fact the sellers acted in good faith is irrelevant, but not a determinative factor.  The relevance of good faith, your Honours, was adverted to in Barton v Armstrong [1976] AC 104 at 121E, in a passage to which I referred earlier, whether the plaintiff had been subjected to an improper motive for action. Your Honours, could I give two references from Birks, without taking your Honours to the passages. The first is Birks’ Introduction to the Law of Restitution, the 1989 revision at pages 182 to 184, and then to his article, “The Travails of Duress” [1990] LMCLQ 342 at 345 to 347.

Now, your Honours, we have referred in our written submissions in‑chief in paragraph 101 to a number of cases, CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714 at 719D. You will see in the passage there referred to that Lord Justice Steyn said:

it might be particularly difficult to establish duress if the defendant bona fide considered that his demand was valid.

His Lordship said he refrained “from saying ‘never’” but your Honours will see that he raised the issue.  Could I refer also, your Honours, without taking your Honours to the case, to D & C Builders Ltd v Rees [1966] 2 QB 167 at 626F. If I could refer also to a case – I took your Honours to the passage yesterday – that is judgment of Justice Dyson in DSND Subsea Ltd v Petroleum Geo‑services ASA [2000] BLR 530 at 545, paragraph 131 and also paragraph 134.

FRENCH CJ:   Are you asking us in this area to substitute the evaluative judgment for that of the Court of Appeal?

MR JACKSON:   I am sorry, to substitute?

FRENCH CJ:   An evaluative judgment as to illegitimate pressure?

MR JACKSON:   Well, your Honour, in one sense that is right but one does need to bear in mind that in the first place the decision of the Court of Appeal on this issue was one which itself was reversing the primary judge and the question really is whether the Court of Appeal was correct in dealing with this issue.  Your Honour, I have to say in this regard that the way in which the issue arises in this Court is, although I am dealing with it first as a part of our notice of contention point, so we are seeking to say there was error in the Court of Appeal in taking its view and evaluative though it may have been the facts are all established and it is decision which we would say was simply erroneous.

HAYNE J:   But do you proffer any proposition about the content that is to be given to the various terms of disapproval that swirl around in the area, it seems, without perhaps much articulation?

MR JACKSON:    Yes.  Well, your Honour, that does seem to be the position.  Could we deal with it in this way, your Honour?  The cause of action appears to have the two elements to which I referred earlier:  one being that there is conduct which is unlawful or in some way improper.  This is conduct which on the assumption falls within the unlawful category in the sense that it would involve a breach of an obligation.  It is unlawful, not in any criminal sense, but in that sense.

So the question which arises in that regard is whether that conduct is conduct which, though unlawful, gives rise to the second aspect and that is the application of pressure which is not legitimate.  Your Honour, there are inevitably value judgments involved in all these concepts.  So far as the illegitimate pressure is concerned, there are a number of features, we would submit, to be taken into account.  One is the circumstances in which the parties find themselves.  We accept that.  The second feature is a question of the conduct of the parties following the application of the conduct which is said to amount to pressure and I should have said an anterior one is to seek to identify what the pressure was.

Now, if you arrive at a situation where the pressure is something brought about by circumstances then it is difficult we would say, in our submission – I am sorry, brought about by circumstances without there being more than a breach of contract, without it being one which is intentional in the sense of being intended to bring about the result - I have taken it perhaps a little further than intentional, might be necessary but intention, not intended to bring about that result, then it is difficult, we would submit, to say that the pressure that has been applied, which derives from the circumstances, amounts to duress.

One needs to add to that, your Honours, a further feature and the further feature is that where the duress is said to be constituted by actual or threatened breach of contract, a feature to which I will come is that if the contract makes provision for the very thing that is said to give rise to the duress, then one would not ordinarily treat duress as occurring in circumstances where the contract recognises the possibility and makes specific provision for the consequence of that possibility.

HAYNE J:   But in the circumstances of this case where there is supply of gas for use and onward supply?

MR JACKSON:    In part, yes.

HAYNE J:   Or simply supply of gas for use by Verve Energy?

MR JACKSON:    Well, for use and some onward disposition, I think, your Honour, too.

HAYNE J:   Is the question of legitimacy, or perhaps more accurately, is the question of pressure, before you get to legitimacy, a question which includes the need to have reference to Verve’s position?  Yes, it wanted to perform its contracts presumably; yes, it wanted to use the gas but what was its position if, through force majeure, it could not?  If it could not gain supply, what was its position?  Then, if any of those is relevant, is it important or unimportant to know whether the sellers in this case had any knowledge of these matters?

MR JACKSON:   Well, your Honour, could I just say in relation to the last part of that, first of all.  The seller’s knowledge, your Honours, would seem to be involved and a matter capable of being considered in determining whether the pressure was illegitimate.  Meaning by that, if their good faith is relevant then, of course, their knowledge of what might happen would be germane to resolution of that issue. 

So far as the knowledge of the activities of the person being supplied and the position of Verve is concerned, your Honour, difficult, we would submit, to state a general proposition that knowledge is irrelevant.  But one would think that knowledge is, perhaps, not a necessary though a significant element in determining whether the pressure – in determining at least the effect of the pressure that has been applied.

HAYNE J:   Simply that, it seems we are in a different realm of discourse from the classic duress of goods.  A has B’s goods and says, no you are not getting them back unless.  Here you have, perhaps not even intersecting contractual obligations at two different levels of a commercial market in which you have two large commercial enterprises which have made their commercial arrangements with or without back‑out provisions which would relieve them from being under pressure.  Those are commercial choices that are made.

MR JACKSON:   Your Honour, that is why, we would submit, that a particularly relevant matter, if one is looking at the existence of duress is to look at what the existing situation is contractually between the parties.  Sometimes cases involve the existence of some statutory obligations, too, as distinct from contractual ones.  But dealing with contractual ones, really at the heart of it one might think, is that if the events that have taken place are ones for which there has been contractual provision made then, we would submit, it was difficult to regard the happening of those events as, first of all, necessarily and secondly, ordinarily, amounting to duress.

Although, I suppose, one must recognise the possibility that – which I can put in this way, as the Court has on at least one previous occasion said you cannot treat the fact that damages will be available as an excuse for not performing your contract according to its terms.  That is one aspect of it, but at the same time if one looks at a contract the nature of which is that it involves provision of say, gas, or some other form of supply which is potentially liable for interruption and there is provision made for that, then one looks prima facie to the contract, we would submit.

Your Honours, could I just say in relation to the evidence and the findings below, of course as was noted by the President at page 1074 in paragraphs 28 to 29:

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 . . . the evidence was that the Sellers were unable to satisfy all of the demand for gas in the relevant period –

and your Honours, the evidence did not support any inference that we had –

threatened Verve or demanded that it enter into the short term gas supply agreements.

Now your Honours, her Honour said at paragraph 29 that it was not necessary to show that we threatened them or demanded they enter into the short‑term gas agreement, but they had “no practical alternative”.  Of course, they did have the alternative of using more expensive fuels if they wanted to, such as diesel, which was relatively significantly expensive.  But, your Honours, what we would seek to submit is that the absence of a practical alternative is not, at least in the present case, sufficient to constitute the application of illegitimate pressure by us, particularly where the unlawful conduct is a mistaken or inadvertent breach of contract.

Your Honours, could we also say that if one is looking at all the circumstances, one of the things that took place was, particularly in relation to the second short‑term contract, that Verve was given an opportunity to tender for gas, which it did, and it chose to tender at a price which would exclude other buyers who were seeking gas and people to whom, in the end, we could not supply.  Your Honours, could I go for a moment to the two short‑term agreements.  I do not think I really need to take your Honours to the actual parts of them; if I could just tell your Honours where they are.

In relation to the first short‑term agreement, the dealings that took place may be seen in volume 2 between pages 600 up to 670.  I took your Honours, I think, yesterday to those documents showing the suitors who wanted gas and those who could not get it.  In relation to the second short‑term agreement, as your Honours will see, Verve considered carefully the price at which it should tender.  You will see that in volume 1, page 289, paragraphs 85 to 95 and, your Honours, that is in the statement of Mr Waters of Verve.  Your Honours, ultimately the price for the second term ones were set by Verve’s tender.

Your Honours, could we say that at the time of the tender, Verve knew that an option available to it – and we are talking about a period three months ahead – was to take court proceedings to establish its rights.  You will see that in Mr Water’s statement at page 288 paragraph 82.  Your Honours, what we would seek to say, in effect, in conclusion on the point was that if one takes into account all the relevant circumstances there was no application of a legitimate pressure by us and it is simply a case where the seller’s remedy was damages for breach of contract. 

Your Honours, could I come then to the third issue?  It is the question of rescission.  Your Honours, Verve’s claim is for the additional amounts which, on its case, it was obliged to pay in order to obtain supplies of gas in substitution for those which might have been provided if we had not been in breach of the obligation under clause 3.3.  Your Honours, we would submit that is, in a sense, an unpromising position from which to start and it is unpromising because, as I have submitted, it appears to be the very matter contemplated by clause 22.7 of the agreement. 

The unpromising nature of the claim, we would submit, is compounded by two matters.  One is that in dealing with restitutionary claims, as the Court has said, it is important to consider the relationship between the proposed claim and the applicable contractual provisions.  This aspect was emphasised by the Court in Lumbers v W Cook Builders Pty Ltd (in liq)(2008) 232 CLR 635. At page 663 in paragraph 79 in the joint reasons of four members of the Court, your Honours will see the observation made in about the fifth line:

as is well apparent from this Court’s decision in Steele v Tardiani, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made.  It is essential to consider how the claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean –

a case to which I have taken your Honours –

“serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract”.

To the same effect, your Honours, was Chief Justice Gleeson in that case, at page 655, paragraph 47, where you will see that he quoted the observation of Lord Goff in Pan Ocean Shipping and went on to say that, your Honours will see the last five lines of the quotation.

Now, your Honours, the second matter is this.  This is a case where it is contended as a consequence of the duress, the party upon whom the duress was applied entered into contracts but it avowedly does not seek to set those contracts aside.  Your Honours will see this noted by the judges in the Court of Appeal, by the President at paragraph 32 at page 1075.  May I just pause to say, your Honours, that her Honour has obviously made an error.  It describes the “sellers” – it means Verve – on two occasions and the fact that it is Verve appears in Justice Murphy’s reasons, paragraph 204, to the same effect.

But we would say that instead of seeking to set aside the contracts made under duress Verve seeks, in substance, compensation for damages for breach of contract.  May I say, your Honours, if one treats the position as one where there needed to be rescission, as we would submit, of course the gas they got could not be given back.  But the appropriate thing would be to say, “Well, you got the gas.  Its value at that time was X.  You pay us that, we will pay you back the money you gave us.”  The two would, in effect, cancel out because the finding was that it was an agreed fact that the prices they paid were the market price for gas at the time.  So this case would simply be one left as a case for damages for breach of contract involving, of course, the caps.

But if I could just say this, your Honours?  There is a substantial body of opinion to the effect that the remedy available in cases of duress, where duress has brought about entry into further agreements, is that unless those agreements are set aside, moneys paid pursuant to them are not recoverable on the basis of restitution.  Your Honours, that view is supported by a number of decisions and the views expressed in various texts. 

Your Honours, we prepared a bundle which - rather than try to take your Honours one by one to these things, we have prepared a bundle and the relevant passages should be highlighted in each of the cases dealing with, first of all, a number of decisions and also some discussions in the text in relation to that issue.  Your Honours, the effect is to say that pressure renders a contract entered into because of it, voidable, not void.  If the contract is made under duress, the contract has to be avoided in order for there to be recovery of money paid under it. 

Your Honours will see a number of cases and the relevant passages, together with the discussion, in the number of texts to which we have there referred.  A misspelling, I think, the name of the third author of the last text there referred to.  Unless your Honours want me to, I had not proposed to go through those one by one but we would refer your Honours to those passages.

FRENCH CJ:   Underlying it, is the proposition that the affirmation of the contract is inconsistent, not so much with the assertion of duress, but with reliance upon duress?

MR JACKSON:   Yes, your Honour.  Well, perhaps if one starts in a sense at the other end, because the situation that one has is that contracts, in this case the short‑term contracts, have been entered into.  The contracts as between the parties to them are ones that are operable – in fact, they are operated.  Those contracts, never having been set aside, have regulated the supply and payment for the gas that was provided for under them and one sees, of course, that they are in a situation where the proportions were different for a start and MIMI was a party to them which was one of the contractors which it was not before.  So, because the contracts are voidable on the assumption of duress, until avoided, they remain in force and one then ends up with two conflicting positions, in a sense.

Are the contracts in being?  They are not set aside, they are effective.  On the other hand, there is a claim that there has been conduct which has led to the entry into them, but if the contracts are effective between the parties, until they are set aside, they govern the legal situation.  Your Honours, that is why, we would submit, that one sees that in cases of duress, in cases of fraud, that unless one sets aside these contracts, and I will come to this a little more in a moment, then the contracts apply and there is not a claim for payment of the money under them – for the money that was paid under them by way of restitution. 

Could I say this, your Honours?  The concept to which I have been referring is not one of novelty in the sense that in two decisions, Weston v Downes – may I give the short reference – 99 ER 19, and Towers v Barrett 99 ER 1014, it was held that a money had and received claim was only available when it was shown that any special contract that had been made in consequence of the conduct in question had been rescinded. Justice Gaudron relied on those cases in Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 385 to conclude that right to recover on a failure of consideration, a money had and received claim also, required the contract to be brought to an end, assuming it is an entire contract, Chief Justice Mason also at pages 355 and 6.

Your Honours, there are two, again, old cases dealing with cases of fraud, where a contract where the vitiating factor was fraud it was held that the appropriate remedy was to set aside the contract, but if the contract could not be set aside, for example, if it had been executed and it was not possible to reverse what had occurred there could not be a claim in money had and received.  Your Honours, may I give the reference to those, Campbell v Fleming 110 ER 1122 and Clarke v Dickson 120 ER 463; we have referred to them in our written submissions.

The two cases were cases where there had been fraud but even then, the money had and received claim was not available to enable the claimant to recover loss suffered as a result of the fraud while taking the benefits of performance under the contract.

Now, your Honours, we would submit that Justice McLure and Justice Murphy on this occasion deciding in our favour were correct in applying these principles at paragraphs 201 to 206, page 1119 Justice Murphy, and Justice McLure, paragraph 33, page 1075.  Could we refer, particularly, to what was said by Justice Murphy at paragraph 201 at page 1119.

HAYNE J:   In the bundle of papers you gave us at page 8 of that bundle there is an extract from Pao On’s Case.

MR JACKSON:   Yes, your Honour.

HAYNE J:   I take it that the proposition you are advancing is expressed – well, a slightly different viewpoint but to the same effect at page 634 of [1980] AC just above letter D to E?

MR JACKSON:   Yes, your Honour.  That is something which really is reflected in Lumbers, too.  Your Honours, I am conscious of the time but may I just say a couple more things about the rescission aspect of the case?  I have referred earlier to the fact that the proportions to be supplied under the short‑term agreement were different from those under the gas supply agreement.

There are two points to it.  The first is that MIMI is a party to the short‑term agreements, it was not a party to the GSA nor to these proceedings, nor did it play any part in the conduct amounting to duress.  What it did was to provide gas to Verve in circumstances where the other sellers on the relevant assumption had failed to use reasonable endeavours to make available SMDQ.  That is the very thing to which clause 22.7(c) appears to apply.

The second point is that the proportions were different.  Under the gas supply agreement, the proportions can be seen at clause 26.3 at page 560 and one sees that, I think, Woodside was 50 per cent, BP and Chevron were 16 and two‑thirds and BHP Billiton and Shell were only eight and a third per cent each, and given the different proportions between the two sets of agreements we would submit just cannot be concluded that all amounts received under the short‑term agreements were received by the sellers on account of their actual or threatened breach of the GSA because, for example, BHP Billiton, their actual or threatened breach was to 8 and one third per cent yet they contracted with Verve to supply 16 and two‑thirds per cent under the short‑term agreements. 

If the duress claim, as is accepted, arises only if there is an actual or threatened breach of the gas supply agreement, then half the money that BHP Billiton and Shell received was received without any duress, they gave more than they had any obligation to give.  Your Honours, there is a number of contentions made by our learned friends in their written submissions. We have dealt with them in our submissions in reply.  If there is anything further I need to do after our learned friends have dealt with that may I deal with that by way of reply.

Your Honours, could I come then to the question of clause 22.7(c), which we would submit is a matter of great significance in relation to the case.  Clause 22.7, your Honours will see – it is in volume 2, page 555.  The contention which we advance is, to put it shortly, that Verve’s claim based on duress falls directly within the terms of 22.7(c), and that any liability of the sellers based on the claim for duress is within the words in 22.7(c):

in respect of a failure to use reasonable endeavours to meet a Buyer nomination above MDQ up to SMDQ –

Those are the words, of course, of 3.3(a).  Your Honours, it is with respect quite clear, we would submit, that Verve’s claim in duress is based on a contravention by the sellers of the obligation referred to in clause 3.3(a).  That that is so is made manifest by several matters – first of all, by the nature of the claim set out in the pleadings.  It there appears, and I will come to this in just a moment, that at the heart of the claim in duress is the notion that duress arose because of the actual or threatened failure of the sellers to comply with clause 3.3(a). 

If one goes to the further re‑amended statement of claim at page 31 in volume 1, you will see the claim in duress commencing at the bottom of page 40 – the heading is “Duress” – and at the heart of the contentions based on duress are the allegations at page 40A in paragraphs 30, 33, 34, 35 and 36 of the statement of claim.  Could I go to those for a moment?  You will see that paragraph 33 refers back to the conduct described in paragraphs 19 and 24, and if one goes to paragraph 19 at the bottom of page 37, you will see the conduct relied on is that:

the defendants would not make SMDQ gas available –

That is one of the aspects of it, and then if one goes to paragraph 24, you will see the further similar thing said in paragraph 24(2).  Your Honours, they are essentially that we would not make SMDQ gas available at the SMDQ prices.  Your Honours, if one goes then back to paragraph 34, you will see in dealing with duress, it says that:

The defendants’ conduct . . . was in breach of the Agreement, as pleaded in paragraphs 29(a) and 30(a) –

each of which, if one goes to those paragraphs, refers back to our conduct.  It says we breached the agreement “as pleaded in paragraph 15” or “as pleaded in paragraph 17”.  If one goes back to 15 and 17 at page 37, you can see that they refer specifically to breaches of clause 3.3.

Your Honours, if one pauses at that point, we would submit, that pleading makes it apparent, we would say, that the liability in duress is, to use the words of 22.7(c):

in respect of a failure to use reasonable endeavours –

The second point is, your Honours, that our learned friends’ written submissions make it clear, indeed, we would say, clear beyond measure, that the liability in duress is based on a failure to comply with clause 3.3.  Your Honours will see that in paragraph 55 of our learned friends’ written submissions.  I took your Honours to that at an early point of our submissions, but could I refer also to paragraphs 70, the first sentence, 71, the first sentence and 93, the second sentence, of those submissions.

Your Honours, having said those forensic things, if I can put it that way, could I then go back to the terms of clause 22.7 at page 555.  Your Honours, the essence of Verve’s case is that the sellers failed to use reasonable endeavours to supply SMDQ in addition to MDQ.  In consequence, Verve was obliged to “obtain” alternative fuel at a higher price than the gas price.  Your Honours, that does seem to be the very thing with which clause 22.7(c) is dealing.  Could I say if one looks at the terms of 22.7(c), it does not speak in terms of particular causes of action.  You will see its opening words are:

The liability of each Seller in respect of –

It does not say, breach of contract.  It says:

in respect of a failure to use reasonable endeavours to meet a Buyer nomination –

et cetera.  Your Honours, we would submit there is no reason to treat 22.7(c) as referring only to claims for damages for breach of contract.  It uses the expression “liability in respect of a failure to use reasonable endeavours”.  Your Honours, the term “in respect of” is, of course, a provision which denotes relationship or connection between two things.  The Court has on many occasions said the meaning of the term – or the meaning of the term in terms of its application must depend on the context.

But, your Honours, if one looks at the context here, one sees that there are limitations on the liability of the buyer, referred to in clause 22.6.  One sees there are limitations on the liability of the sellers set out in clause 22.7.  So far as the buyer is concerned, the maximum liability is that contemplated by 22.6(a) and the terms of 22.6(b) make it clear that we cannot claim consequential loss.  But, so far as we are concerned, we are not liable for consequential loss, 22.7(a).  There is a maximum aggregate liability provided for by 22.7(b) and then there is the specific provision in respect of SMDQ in 22.7(c).

To that, your Honours, one should also add clause 22.9 at page 556.  Your Honours, I meant to say 22.9.  I do not know if I did or I did not, but if I did not, I intended to.  Your Honours will see at page 556 that clause 22.9 says that:

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 –

Now, your Honours, that would really seem to be covering a pretty broad field and if one looks to see what is meant by that concept, and your Honours will see it uses the expression “in respect of any breach of this Agreement”, that takes one back to 22.6, 22.7 and, in particular to 22.7(c) and there is no very good reason, in our submission, to read the terms “in respect of” narrowly in either 22.7 or 22.9.

Your Honours, could I refer also, without going in detail, to the points we have made in our submissions in‑chief at paragraph 169.  Could we say that the reasons in the Court of Appeal, Justice Murphy’s dissenting reasons at volume 3 page 1108 we would submit are correct.  Could I go to that briefly for a moment?  You will see his Honour’s introductory remarks at paragraph 163 and going through to 165.  We would refer to his Honour’s observations in 167 and his very important observations in paragraph 168 and, in particular, 168(a). 

The reasoning of the President to the contrary is essentially in paragraph 40 at page 1077.  Your Honours will see that the reasoning appears essentially to be that there must be a sufficient or material connection between the liability and the breach.  What is sufficient or material depends on the context and the words:

‘in respect of’ are not wide enough to capture liability . . . for economic duress even though a material fact thereof is the contractual breach –

and then, your Honours, one sees the “explanation” if I could use that term in inverted commas in the last sentence of paragraph 40 and could I just say this, that does not seem to sit very well with the actual words of clause 22.7(c) and, your Honours, the circumstances of this case are the very thing to which 22.7 applies. 

The last sentence of her Honour’s reasons appears to contain the assumption that a matter cannot be, in effect, in respect of A if it is also in

respect of B - Sir Edward McTiernan’s old example, “No dogs in the park - is that a law with respect to dogs or a law with respect to parks?” and his answer was both.  But, of course, it can be.  Your Honours, we refer to other matters in our written submissions and those are the submissions I wish to make orally.

FRENCH CJ:   Thank you, Mr Jackson.  Yes, Mr Hutley.

MR HUTLEY:   If your Honours please.  We rely, of course, on our written submissions, but can I deal with the contract point first?  Before turning to the text of the GSA, a number of preliminary observations should be made.  Firstly, the argument advanced by the sellers in this Court as to the meaning of clause 3.3 is a wholly new one.  The argument advanced at trial and in the Court of Appeal can be seen respectively at volume 3, 1023, paragraphs 60 to 63 and it was repeated in the Court of Appeal at 1027, paragraph 17 and it would be sufficient to take your Honours shortly to that. 

HAYNE J:   With a view to making a forensic point or a Coulton v Holcombe point?

MR HUTLEY:   Your Honour, a number of points.  I accept it is a question of construction – I can deal with it.  But, importantly, the criticisms made of the Court of Appeal’s reasons were criticisms of their reasons dealing with an argument which was wholly different to the argument advanced here.  In fact, the argument advanced here was expressly abjured by Mr Zelestis, both at trial and on appeal.  He, in effect, accepted that when there was an obligation to undertake reasonable endeavours, it was free of what he described as the commercial judgment power which existed by reason of the first clauses in 3.3(b). 

He characterised those first clauses as an antecedent condition precedent which vested in the joint venturers an untrammelled discretion to do that which was in their commercial self‑interest.  He said that on the true construction of the contract, the obligation to exercise reasonable endeavours only arose on the very day nominated for gas delivery.  So, in other words, up until that point in time there was no obligation to use reasonable endeavours and, up until that time, the joint venturers had an untrammelled discretion as to whether they would or would not perform, judged by reference to their commercial self‑interest. 

That appears from the three steps – and I will not read them to your Honours – in paragraph 17 in the judgment.  But it is important that your Honours see that that was the case which was made.  That was the case which was addressed by the Court of Appeal.  So if the Court of Appeal’s judgment is to be overturned, it is not because they are wrong – they were clearly right on the arguments advanced because my learned friend does not advance the argument – it is because of a wholly new argument.  Now, it was important to understand the context in which that argument was advanced by Mr Zelestis and that appears from paragraph 16 of the President’s judgment.  That is at 1071:

The Sellers conceded that, if Verve’s construction was upheld –

that is the construction which was successful and maintained –

they had gas available for the supply of SMDQ to Verve in the relevant period.

So at all material times my learned friend conceded that unless he had an untrammelled discretion of the variety he contended he had as at paragraph 17, he conceded that the joint venture had available to it and was able, that is perfectly capable to delivering the gas to us.  That was the context in which that argument took place.

In other words, his submission was that the words “In determining” down to “matters” in 3.3 identified a wholly separate antecedent entitlement to the attachment of the obligation to use reasonable endeavours.  That step was wholly subjective and could be exercised up to the “start of the relevant gas Day”, that is, in effect, the seventh day in a nomination procedure - I will take your Honours to clause 9 in due time – with respect to that amount of gas up to 30 terajoules above MDQ which is referred to as SMDQ.

Up to that time the sellers could act wholly in their self‑interest and had relevantly an unfettered discretion.  On the gas day where, should that precedent to denounce a desire to supply not be exercised, his position was an obligation to use reasonable endeavours attached.  He never suggested, nor has it been suggested, until my learned friend raised, that one could during the period of operation of the obligation to use reasonable endeavours voluntarily disenable oneself to make gas available.  This is the first time that has been suggested.

It was accepted that if the reasonable endeavours obligation was to have any content at all, you could not, once the obligation had attached, voluntarily, that is, untrammelled by circumstances which existed at the time of its attachment, decide to disable yourself to fulfil your obligation to give reasonable endeavours.  In other words, you could not, as it were, on the very day at the end of the period – and I will come to it – is go into the spot market and sell all your available gas and say, “I’m not meeting my obligation with respect to SMDQ”.

In effect, it was essential to the argument advanced because it was essential to maintaining any content to the obligation to use reasonable endeavours that do not advance that contract argument.  Our learned friends, although not specifically embracing it, in essence are saying that.  They are saying that the obligation to use reasonable endeavours has zero content, because one can always act in one’s commercial self‑interest.  Now, there is a worry word thrown into that by my learned friends, a little wrinkle called “significant” and I will have to deal with that in due course.

HAYNE J:   Before you come to that, does this aspect of your argument depend upon erecting a dichotomy between physical ability to supply and, on the other side, either commercial willingness, described perhaps as commercial discretion about supply, or described perhaps, as you do in paragraph 2 of your outline of oral submissions, as willingness to supply?

MR HUTLEY:   Not a perfect dichotomy in the way your Honour has indicated.  Can I explain why?

HAYNE J:   Of course.

MR HUTLEY:   Our essential point is that “able” means something, and “able” means having a capacity and a capacity by reference to the realities of, in effect, physical, commercial and economic circumstances.  If I have, for example, sold as a result of a contract before the arrival of the obligation to use reasonable endeavours all the SMDQ gas to someone else – I have committed to it – I may have physical brute capacity to supply the SMDQ.  But for the purposes of this clause of reasonable endeavours, I am not commercially able to supply because if I did so it would put me in breach.

Your Honour, when one speaks of “ability”, we say it means something.  It means “objectively able in a real commercial sense”, and that means having regard to the economic realities, i.e. is the obligation underwater – you do not have to do it when it is there.  Is it the subject, for example, of a presold obligation which has occurred before the arrival of the obligation for reasonable endeavours, and I will come to how that occurs in a moment.  If, for example, you have entered into a call option which you have given to a third party for gas, which may have a performance date – a call date at any time up to the delivery day, you can say “I am not able to deliver into this contract because commercially I am exposed to another obligation which, if it falls in, I will not be able to meet, and I do not know whether it will fall in”.  So there can be a whole range of commercial and economic circumstances which speak to ability/able.  So “able”, your Honour, we say, has a meaning which is a meaning which is sensible in the context of what is called physical – I always forget that trichotomy ‑ ‑ ‑

KIEFEL J:   Are you not injecting a notion of legality into the commercial ‑ ‑ ‑

MR HUTLEY:   I am sorry, your Honour?

KIEFEL J:   Are you not injecting a notion of legality into the commercial question?

MR HUTLEY:   Not legality in a strict sense, with respect, your Honour.  It is in effect of, am I commercially able to supply to you when I have committed to sell the gas to someone else?  The answer to that is – I am sorry, your Honour.

CRENNAN J:   But what about if there is an emergency, which we all know about, 3 June or whatever, and that expression in 3.3(b)(i) where there is a reference to a “reasonable view [about] insufficient capacity”, having regard not only to existing commitments – I know you have dealt with those, and that is easy enough to understand – but that expression “likely commitments”, I am putting it to you in the context of a known emergency which will create pressure in terms of capacity.

MR HUTLEY:   Your Honour, two points.  In point of fact, the joint venture, whether it was the Domgas or the international joint venture, Incremental Gas Pipeline Joint Venture - I always forget it, can I call it the Incremental Joint Venture - never had one obligation to supply gas to anyone.  It never committed to supply a zac of gas, a gigajoule to anyone.  You have not been taken to the fully interruptible contracts.  I will have to take you to them.  Clause 5 of those makes it perfectly clear they are a put option for the benefit of the Incremental Gas Joint Venture, exercisable by delivery.  They were never under one obligation. 

The irony of this case is my learned friends put forward the position that they were doing everything – they were kind of, in effect, a St Bernard dog.  Now, when one goes to the actual evidence, the St Bernard dog had determined to make as much money as Mr de la Fuente, as it is said, was available up in the wastes of Switzerland in the snow.  It was selling the brandy and it was selling it at the highest price it could…..out of anyone.

HAYNE J:   I thought that was what our capitalist system was based on, Mr Hutley.

MR HUTLEY:   Your Honour, there is absolutely ‑ ‑ ‑

HAYNE J:   I thought that is what corporations existed for.

MR HUTLEY:   Precisely, your Honour.  I accept absolutely that that is the case.  As long as one understands that was a wholly profit maximising exercise, my learned friend suggested that they were doing some form of social good.  They were not.  So they, in effect, reserved unto themselves, the complete capacity to deliver or not deliver as they thought fit.  They have admitted that they – at all material time, the joint venture had our gas available to it.  They could deliver into our contract at any time.  That was the admission that was made by Mr Zelestis and he made that, your Honour, at a time, if one goes into the transcript, where we were going to set about proving exactly that fact and he did not want us to prove it so he made an admission.

So, there was, quote, no emergency which spoke to their capacity.  There was no emergency which spoke to any commitment.  They had none.  They refused to enter into any.  What they wanted to do, and what they did, was not meet their commitment to us and reserve to themselves to supply or not supply to other people at such price as they thought fit.  There was no obligation, for example, for them not to, on the day of the gas, saying we are not going to supply into the short‑term contracts unless you triple the price.  They could have done that and, as your Honour Justice Hayne would observe, that is capitalism.  I accept that completely.

But, your Honour, there is nothing about the circumstances in this case which speaks to the ability of this organisation, this joint venture to deliver to us.  It was accepted they could, and the reason why my learned friends have abandoned the construction of Mr Zelestis is because it was hopeless.  But they have adopted one which, in our respectful submission, is even more hopeless because effectively it means, and there is no getting away from it, there was no obligation to use reasonable endeavours – period.  Because you could always profit maximise and if you could profit maximise any decision short of doing things to the colour of your hair, is profit maximising by definition, i.e. from the perspective of the joint venture or the joint venture involved.  To take up your Honour Justice ‑ ‑ ‑

CRENNAN J:   Then there was also, was there not, a cost minimising on your side of the bargain so that there was no obligation, as I understood it, but please correct me if I have misunderstood, no obligation in relation to this supplementary gas for your clients to make a nomination if, in fact, the market price I presume would give a better deal in relation to that need.

MR HUTLEY:   Your Honour is quite correct but can I explain to your Honour why sophisticated commercial organisations entered into this complex regime and I am going to have to take your Honours through it in 9 because one has to – my learned friend did not take it through 9 which is essential to understand – to understanding clause 3.  It is this.  Your Honour will recall ‑ ‑ ‑

HAYNE J:   Just can I clear one thing off the deck.  If the Apache incident had not occurred, Verve could have called for SMDQ?

MR HUTLEY:   It did, yes.

HAYNE J:   If Apache had not – if the incident had not occurred and there had not been a shortfall it could have called?

MR HUTLEY:   It was.  It was calling up to the time; it was calling - of course, yes.

HAYNE J:   Would have been supplied at the price?

MR HUTLEY:   Well, may or may not have depending upon ‑ ‑ ‑

HAYNE J:   No, but if there had been no Apache incident?  There had not been the shortage in the market because there was not competition in the market.  The clause would have operated according to its terms, would it not?

MR HUTLEY:   Yes, I accept that, your Honour.

HAYNE J:   So it is a false premise to proceed on the footing that the construction urged against you gives the clause no work to do. 

MR HUTLEY:   With respect, no.  With respect, let it be assumed halfway through our notification they decided that it was in their profit maximising interest to leave the gas in the ground because they thought it was going to be more valuable in 10 years’ time.  Now, if our learned friends are right, that would have been perfectly within their power to do because that would be a commercial judgment of theirs as to what was in their interest.  When your Honour asked me the counterfactual, I am assuming that they would not make a judgment that it was not in their commercial interest not to supply us, but if they did make a decision that was in commercial interest not to supply us, on our learned friend’s construction, they had complete liberty to do so even after we had sent them a notice and I will come to the notice in a moment.  That is the point, with respect, your Honour. 

The clause has nothing to do because if they decide they do not want to deliver it, unless they are doing it perversely, they decide they do not want to do it because it is in their commercial interests.  If that is the case, there is no obligation to use reasonable endeavours.  So, in other words, if they do it, they do it and if they do not do it, short of being perverse, they do not do it and that is lawful. 

That is the difficulty.  That is the precise reason that Mr Zelestis took the approach that he wanted to, in effect, have 3.3(b), the introductory paragraph, antecedent to the obligation to use reasonable endeavours because there is no way that one could qualify, in our respectful submission, nor has one been advanced, if my learned friend is right, what the obligation to use reasonable endeavours means.  They may have supplied to us.  I accept what your Honour says, but if they decided it was not in their interests not to supply to us, they could not have supplied to us.

So, in other words, there is no operative obligation, setting aside that they would refuse to do it for the colour of our hair, on us because, by hypothesis, if they do not think it is in their commercial interest to supply it to us, on the construction advanced against us, they are at liberty not to. 

Now, the only way my learned friend seeks to address that is to say something with respect to, for example, price, that there must be something called a significant difference.  Now, what that is is wholly undefined.  How one would judge what it was wholly undefined.  If it is significant, one would have thought it should be significant to the joint venture.  Profit maximising organisations do not do things which are insignificant because the, in effect, transaction costs of doing insignificant means you do not do them.

That is the difficulty with the construction.  That is why Mr Zelestis and Verve, at all courts up until this Court, took the approach they do.  There is now a change and the change amounts to this.  At all times from the engagement of this obligation – and it is only from the engagement of this obligation that there has one reasonable endeavours – it is only seven days.  For seven days they have to use reasonable endeavours to make this available to us, that is, to supply it.  They have to, under clause 9 – and I will take your Honours to it in a moment – each day send us a notice telling us whether they intend to make it available, every day for the seven days.  In effect, they have to keep us on notice, obviously relevant – and that is 9.2(b).  I will take your Honours to it in a minute.

Obviously, to determining that exercise, they have to determine whether they are able to supply, both at a predictive level and on the day at an actual level.  That exercise speaks to true ability, commercial or physical, in the way we have described.  It does not confer upon them an untrammelled discretion.  To answer your Honour Justice Crennan’s question, is why would such a clause be in existence?  Your Honour, as observed by the President at paragraph 4 of her judgment in the Court of Appeal ‑ ‑ ‑

HAYNE J:   Page?

MR HUTLEY:   Page 1067, your Honour.  The character in which these agreements are entered into of industrial undertakings where they are two types of gas – one called “firm gas” or “uninterruptible gas” and the other one is what is called “interruptible gas”.  Firm gas is gas which you can predictably sell forward.  In other words, you can go into the market and you can enter into a long‑term contract to sell a portion, or such portions as you think appropriate, of uninterruptible gas.  Interruptible gas is a different question.  It is a problem, commercially.  How do you enter into, as it were, long‑term arrangements bearing upon something which you cannot be sure will be there, in other words are you left, with respect to such gas, to merely sell it from time to time into the spot market?

If, however, you design an arrangement such as, we say, the clauses in this contract, which gives to the buyer an incentive to nominate interruptible gas for periods – over periods each week, seven days ahead, and affords to that nominating buyer some degree of security that the buyer, one, will have a fixed price for such gas and, secondly, reasonable endeavours will be undertaken to make it available, that is, to sell it, conditioned by the ability of the sellers in the way that we advance, that is apt to encourage a buyer to invest and buy with some regularity or increase the likelihood that it will, the non‑secure interruptible gas. 

That is a benefit to the sellers.  That is why they enter into a complex regime such as under this contract with respect to this gas.  It gives encouragement to the buyers to avail themselves of it because they get some security through the reasonable endeavours.  They get a fixed price over the period of the notification and, therefore, not exposed to, as it were, the vagaries of the market.  The buyer – the sellers develop a relationship with the buyer who has a relationship which makes it – gives some degree of probability which the sellers consider, no doubt, valuable for having negotiated it with respect to that interruptible gas.

HAYNE J:   Let it be assumed that all this is accurate and not just at a rather elaborated statement about the way in which parties have allocated risk.  What is the consequence?  What is the point that ultimately is made, though, this description of the contractual arrangements?

MR HUTLEY:   The point, your Honour, is simply this.  If you construe this contract as our learned friends do, that, in effect, reasonable endeavours has no content, this is a bargain not worth having because if they can act in their own self‑interest in all circumstances, profit maximising, they have no constraint at any moment upon them.  They can have regard to the entirety of all relevant commercial, economic and operational matters means anything of interest to their business.

CRENNAN J:   What do you say it means, Mr Hutley?

MR HUTLEY:   What it means, all relevant commercial, economic and operational matters qualifies the word “able”.  “Able” means able.  That is ‑ ‑ ‑

HAYNE J:   Physically able.

MR HUTLEY:   Your Honour, commercially able – commercially or physically, ie it will not put you into breach of contract.  It will not make you lose actual money.  It will not, in effect, ruin the equipment, the sorts of things, with respect, which informs a real decision as to whether you are going to deliver or not.

KIEFEL J:   But they are only commercial negatives, what about commercial positives?

MR HUTLEY:   Your Honour, if you have an opportunity to sell somewhere else, as they have, that, we say, is a wonderful thing to have but it does not speak to your ability to deliver to us unless you have committed to it prior to coming under the obligation to use reasonable endeavours. 

HAYNE J:   That is a timing argument.

MR HUTLEY:   Your Honour, I accept that is one aspect.  Even if it is not, if you have not got a commitment, if you are not obliged, there is nothing which speaks to your ability.  It was accepted as a fact.  It was common ground they could.

HAYNE J:   Let me put it to you this way.  A view of the contract is that there is a minimum take or pay.  Do you accept that?

MR HUTLEY:   There is a minimum take and pay, your Honour.

HAYNE J:   There is a maximum fixed commitment which the sellers must make available for supply.

MR HUTLEY:   Your Honour refers to MDQ?

HAYNE J:   Yes.

MR HUTLEY:   Yes, your Honour.

HAYNE J:   SMDQ, I put to Mr Jackson, might be understood as can the sellers supply it, and the sellers can say “not if we can sell it elsewhere at a greater price.”

MR HUTLEY:   Your Honour, if that just means “willing”, I accept your Honour.  If your Honour construes “able” to mean “willing”, I accept what your Honour says completely.

HAYNE J:   No, if they can sell it elsewhere, and if they cannot sell it elsewhere at a greater price, they are bound to sell it to you.

MR HUTLEY:   But your Honour, commercial considerations could be, for example – your Honour, the difficulty one runs into with that is look at the commercial considerations if that be correct.  Let it be assumed that one determines that another seller comes within the seven day period.  Assume for a moment we are dealing solely within the seven day period.  Another buyer comes, because we accept if they enter into a commitment outside the seven day period, which covers the seven day period, they can do exactly what they like.  We have no rights about gas committed in any way outside the seven day period.  Your Honour, can I, in answering your question, deal with on that assumption.  I know I have to deal with the timing thing.

One asks the question, let it be assumed on the gas day a large or commercial organisation comes to them and says “we want to start dealing with you”, and they decide “it is in our commercial interest today to give them a teaser.  Let us sell them the gas at a very cheap price because in the long term, we can develop a relationship which is profit maximising for this organisation.”  On my learned friend’s construction, there is nothing to stop them doing that, because they would say “taking into account all relevant operation commercial matters, we consider it in our commercial interest to sell this at a discount today because we are going to make a motza in the future.”

In our respectful submission, if our learned friend is right, that must flow, because that is a relevant commercial matter.  If it is one cent more valuable, they get an opportunity – somebody comes along in the spot and says “we will pay you one cent more than you are getting from these people”, and they determined that that is profit maximising in the sense that, for example, they think “we are only making one cent on it at the moment, get another cent, it doubles our profit – we will do it.”  That they could do, according to our learned friends.  If they predicted that there was going to be an enormous spike in European volumes in the next five or 10 years, why could they not in the day say “we are not going to call on it now.  We are going to leave this in the ground.  We will bank it.”  That would be in their commercial self‑interest.

Your Honour, once you allow that they can, in effect, take into account all relevant commercial, economic and operational matters and commercial matters means their commercial benefit, untrammelled after the incursion of the obligation, it is hard - in our respectful submission, there is no answer to the proposition that the content of the obligation to use reasonable endeavours evaporates because if they think it is beneficial enough not to sell it to us that must be because it is significant to them and that is a relevant commercial matter.

My learned friends would point to just one circumstance, the circumstance that because of the Apache collapse, there was a large spike in price by multiple – I cannot, of course, refer to the multiples of the price.  But that, in principle, is absolutely no different to all the other matters that I have referred to.  They simply are exactly parallel – a little profit, developing a relationship, leaving it in the ground, whatever.  They are profit maximising exercises by the organisation.  If you can take that into account, you can exclude it and ergo unless you assume they are acting perversely, they can just decline to deliver.  Can I explain to your Honour about clause 9?

HAYNE J:   Just before you do, that is the contention against you is that SMDQ will be delivered if there is no commercial rival to buy it and that the content of the obligation is, we will deliver it, but if there is a commercial rival willing to buy it at a higher price, no, you have not committed to it.  You have committed to your minimum.  We have committed to our maximum and SMDQ is different.

MR HUTLEY:   But, your Honour, with respect, it does not use the word in the introductory process.  It says “all relevant, commercial and operational matters”.

HAYNE J:   Yes. 

MR HUTLEY:   It just does not mean the presence of a commercial rival.

HAYNE J:   Yes, I know, leaving aside operational requirements and planned maintenance and the like. 

MR HUTLEY:   No, no, but the examples I have given, with respect, are commercial matters.  They are no different.  Your Honour, it is not just on the day there is a dollar.  It is commercial matters.  Your Honour, to read it in limited to a higher price – and my learned friend does not even want it to be a higher price – is it a significantly higher price, or any higher price?  If that is all it means, that does not come out of the language, with respect.  That is a gloss on the language and it is a gloss to deal with this particular circumstance.  It says “all relevant”.  We say, relevant means relevant to something and it means relevant to ability.

FRENCH CJ:   You accept that loss would be relevant to ability, that the transaction would generate a loss.

MR HUTLEY:  If they were producing SMDQ, such that its price did not cover its costs – firstly, it is unlikely that they would be producing it, but they certainly could decline to give it to us.

FRENCH CJ:   Loss is a slippery concept, as we know.

MR HUTLEY:   I understand.

FRENCH CJ:   Why not say loss of economic opportunity informs ability, if you accept that projected loss, in the particular case, informs ability?

MR HUTLEY:   Your Honour, if one uses it in true economic terms then every example I have given would be exactly the same because that would be a loss of economic opportunity.

FRENCH CJ:   Yes.

MR HUTLEY:   In other words, if their treating there of economic costs - every example which the sellers judged made it better for them not to supply would be assessment that their “opportunity costs” were higher in not supplying than supplying.  If that means - it becomes a discretionary matter in the way I have indicated.  As long as they think it is economically advantageous not to supply they do not have to supply.  If that is what it means it means willing, subject to a carve‑out for what I call the “colour of the hair” objection and we can set that aside because nobody would design a contract around that.

That is precisely why Mr Zelestis took the approach to construction he did at first instance because he knew and we submit it is inexorable that if one moves 3.3(b) into the reasonable endeavours you end up at that position and it removes it of any content, it just becomes willing, and if it means willing we lose, your Honour, but if it becomes willing one cannot pretend that one is dealing with an obligation to use reasonable endeavours.

KIEFEL J:   Does your argument depend upon a particular understanding of 3.3(b)(iii)?

MR HUTLEY:   No, your Honour.  3.3(b) – I am sorry?

KIEFEL J:   Clause 3.3(b)(iii), in relation to whether or not they can take account of whether or not they had better prices.

MR HUTLEY:   No, your Honour.  There is 3.3(b)(i) about “existing and likely” and “existing” would be an actual promise, “likely” we would say something like a call option, ie, that you had the risk of a likely commitment or something like that.

KIEFEL J:   So you are not placing any reliance upon an implicit limitation arising from (iii) where there is a particular obligation in a legal sense.

MR HUTLEY:   Your Honour, one has to confront it in this construction, and we do confront, and our learned friends seek to avoid confronting the meaning of the word “able”.  They want to avoid talking about “able” and my learned friends keep talking about “make available”.  We say “able” means something.  “Relevant” must qualify “able”, just as a matter of grammar.  It says:

In determining whether they are able . . . the Sellers may take into account all relevant commercial –

Now, relevant is relevant to what?  We say it must be “In determining whether they able” must be “able”.

KIEFEL J:   But “able” could be more neutrally simply in a position to, could it not?

MR HUTLEY:   Your Honour, if “able” means in the sense of the euphemism, when you come into a store and somebody has an opportunity to sell at a higher price, “Can you sell it to me?”, and they say, “We are not able to”, to take the example that the Chief Justice observed, then we lose.  I accept that.  But, your Honour “able” there is used, in my respectful submission, and should be in the context of a reasonable endeavours obligation which is an objective thing because one is talking about capacity by reference to those matters, capacity in a commercial sense, physical legal, economic loss.  That is what one is talking about.

KIEFEL J:   Why does it not reflect, as Mr Jackson submitted, “make available for delivery”?

MR HUTLEY:   Can I answer that this way, your Honour, by explaining how this clause works through clause 9.  I will just take your Honours shortly to that.  If one goes to clause 9, which is at 527, it says:

Subject to paragraph (d), not later than 14.00 hours each Day, the Buyer must, by notice to the Sellers’ Representative (Rolling Nomination Notice), nominate the quantity of Gas (which may exceed the MDQ) which the Buyer requires under this Agreement for each Day for the following 7 Days.

So, in other words, on each day you send a rolling nomination nominating the gas you want for the following seven days:

The Sellers’ Representative must, within 4 hours after receiving a Rolling Nomination Notice, notify the Buyer of the aggregate quantity of Gas which the Sellers intend to make available for delivery to the Buyer for each Day for the following 7 Days.

Can I stop there?  The moment you send a 9.1 obligation, 9.1 notice, 3.3(a) is engaged because it says:

If in accordance with Clause 9 (Nominations) the Buyer’s nomination for a Day exceeds the MDQ –

So in other words, if I send a nomination under (a), if it exceeds MDQ, you have an engagement of the reasonable endeavours obligation under 3.3(a).  That is a reasonable endeavours obligation which informs your response, which has to happen within four hours.  So you have, in effect, got to then – and an aspect of whether you intend to make available will obviously involve an assessment as to whether you are able to supply, and that will be part of the exercise you engage in conformably with your reasonable endeavours obligation. 

Informing your decision as to whether you intend to supply, you will have to have regard, obviously, make an evaluative judgment sometime in the future as to whether you are able to supply and that will be able with regard to the matters which are relevant to ability of a commercial, economic or operational variety.  That is, we say, how this clause was intended to operate.

You then go back to 9.1, and it tells you, if the seller, take a point.  If you nominate for a day, and can I say some SMDQ – and can we assume it is the entirety rather than use some all the time, i.e., MDQ plus 30 TJ – the seller might write back and say, “I do not intend to supply SMDQ”.  That does not relieve the seller if the buyer the next day sends the same notice nominating SMDQ from the obligation.  It still remains under the obligation, and circumstances about its ability may have changed. 

For example, it may have had a call option for the gas which expired by some third person within the 24 hours involved.  It may have concluded, “I could not come to the conclusion that you are able to deliver the gas seven days out because I was exposed to a contingent obligation to make available gas out of my component which would inconsistent with that.  So I have said to them, I do not intend.  I have got a repeat notice the next day.  It has nominated again.  I have got to, in effect, determine whether I am able.  It is not just a question of whether I want to commercially.  I cannot say, I do not like – I think it is best not to supply SMDQ because I would like to leave the gas in the ground for the next 20 years.  That is in my commercial self‑interest because I believe out there it will extend the life of the mine, of the resource; I can make a lot more money in there”.  That is not within their judgment.  They have to say, “Am I able, having to regard to the circumstances that now confronts me” – and so it goes on.  Then (c) deals with sort of default situations and the like with respect to these notices and how it was.  Then it says:

The Buyer may, in a Subsequent Rolling Nomination Notice, vary its nomination for a Day up to 48 hours prior to the start of that Day. 

In other words, up to 48 hours prior to the day nominated for delivery, we have a capacity to raise or decrease our nomination and if we do, once that occurs, the obligation to use reasonable endeavours attaches to that.

The Daily Nomination for a Day –

this is a particular clause –

is the last nomination received by the Sellers’ Representative for that Day prior to 48 hours before the start of that Day.

So, 48 hours before the start of the day you have a thing which has particular significance called a “daily nomination”.  Then, 9.2 deals with the firm obligations and the firm obligation is really the daily delivery obligation which is the lesser of MDQ and the daily nomination.  In other words, if you nominate less than MDQ that becomes your firm the daily delivery obligation.  Clause 9.3:

In accordance with clause 3.3, if the Daily Nomination for a Day exceeds the MDQ each Seller must, in addition to its obligations up to MDQ, use its reasonable endeavours to make its Proportionate Share . . . available –

so, in effect, it has an obligation once you get to the 48, reinforcing – you have got an obligation to make that available.  Our learned friends say, if an opportunity arises, any opportunity, to sell that gas or to do something which is profit maximising, we assume, that means you are relieved of the reasonable endeavours obligation.  It just ends.  They decide a minute before it is due to be delivered, I want to sell it to somebody else, the opportunity arises because it is a higher price.  I just sell it to them.  In our respectful submission, that is right.  It simply has no content.  It is just, in effect, saying deliver it if you feel like it.  Commercial ‑ ‑ ‑

FRENCH CJ:   What does 9.3 do in addition to clause 3.3?  What additional obligation, on your submission?

MR HUTLEY:   I am sorry, in addition to its obligations up to MDQ, that is up to “use its reasonable endeavours”.  I do not say it adds a particular further obligation because 9 ‑ ‑ ‑

FRENCH CJ:   This is in relation to SMDQ?

MR HUTLEY:   This is in relation to SMDQ, your Honour.  It is, in effect, reinforcing that there is a reasonable endeavours obligation and, in effect, it ties to this daily nomination to the extent that it is above MDQ, up to SMDQ level of 30 terajoules.  In our respectful submission, one asks the question, how do you determine whether you are fulfilling that?  You have regard to your ability.  Able, and if you are able as was common ground, here, they were, because they had no excess obligation.  It was common ground that they were able.  They say, “able” does not mean able, it means do you desire in your commercial interest to do it.  If that is right, we lose.

FRENCH CJ:   Can I just come back to 9.3 for a minute?  Does it make any difference to your argument if 9.3 is not there?

MR HUTLEY:   Not particularly, your Honour, it merely is just accentuating the point.  It is tying it to the daily delivery obligation.  It has told you what the daily delivery obligation is.  It is really just reinforcing the reasonable endeavours obligation which comes with the nomination attaches to that aspect over SMDQ – over MDQ.  Now, 9.4 provides for variations and it says at any time within 48 hours prior to the start of the day ‑ ‑ ‑

HAYNE J:   What are we getting out of the particular, necessary mechanics that are supplied by 9?  What light is it casting on 3.3?

MR HUTLEY:   With respect, your Honour, it is casting this light.  A highly complex detailed arrangement were put in place between these parties to acquire risks and benefits were allocated.  There was an obligation which is accentuated over and over again to use reasonable endeavours.  My learned friend’s position is, essentially, subject to a wriggle room about substantial, if it is in their interest not to sell because of, to take your Honour’s example, a higher price, they do not have to.  Whenever that higher price affords itself and, we say, that is not consistent with the use of the terms in 3.3 which speaks to ability.

HAYNE J:   Well, I think we have that point, Mr Hutley, more than once.  What are we getting out of the mechanics of 9?

MR HUTLEY:   Your Honour is getting this out, and if your Honour is not getting anything out of it, I have lost your Honour.  That may be the case but, your Honour, one cannot get away from the fact, in our respectful submission, that the construction advanced by our learned friends is really there is no “reasonable endeavours” obligation because of the qualification.  We say that would give, because of its repetition, because of its centrality, would be a most extraordinary result and is not done by construing the words “relevant, commercial, economic matters” other than qualifying a concept of “able”, which speaks to the reality of ability of capacity, as the Court of Appeal construed.  If that is right, we win, and it comes down to that.

It is the centrality of this regime and its complexity.  It speaks of the fact that these parties thought there was a real obligation, and a real obligation by reference to objective facts, not by reference to the commercial profit maximising whim of the vendors, which in our respectful submission inevitably results if we are wrong.  That, I hope, is what your Honour is getting out of it.  Your Honour is about to ask me a question or not?

GAGELER J:   Well, no.  Are you going to continue taking us through clause 9?

MR HUTLEY:   Yes, now.  Clause 9.4 deals with variations and variations which can take place, what are called “short notice variations”.  They also subject you to an obligation to use reasonable endeavours in 9.5(i) – in other words, you have got a reasonable endeavour obligation there, i.e. if there are changes to try and meet it.  Clause 9.6, your Honour, tells one that:

The Buyer must ensure that each nomination notified under Clause 9.1(a) and any variation . . . is made in good faith and . . . is the Buyer’s best estimate as a Reasonable and Prudent Operator of its Gas requirements –

The definition of “reasonable and prudent operator of gas” is at 568, and –

The Sellers’ Representative must ensure that any quantity notified under Clauses 9.1(b) and 9.4(b) –

which is the corresponding –

is made in good faith and . . . is the Sellers’ Representative’s best estimate as a Reasonable and Prudent Operator of the Gas available for delivery . . . to the Buyer –

so in other words, looking to the concept of availability in the context of ability, being your reasonable endeavours obligation.  Just to note, your Honour, at 568, your Honours will find the definition of “Reasonable and Prudent”.  That means:

a person who exercises that degree of diligence, prudence and foresight reasonably and ordinarily exercised by skilled and experienced operators under similar circumstances and conditions in accordance with applicable laws –

so in other words, informing their judgments about ability and availability.  They have to bring an objective standard.  It is not, your Honour, words redolent of the construction advanced by our learned friends.  It is redolent of a concept of objective ability.

A number of the criticisms made of the Court of Appeal’s judgment, when looked at in the context of the arguments which were advanced, will be seen to have fallen away because they were dealing with particular aspects of that argument. 

Next, we accept that with one minor error at the second sentence of paragraph 126 which was insignificant, having regard to the first sentence which shows that it is significant - that is at 1096 – and a debate as to the true construction of the sentence in paragraph 130 which we have referred to in our outline, the reasoning of the Court of Appeal, in our respectful submission, is impeccable and is correct and “able” goes to capacity.

We put it this way.  If one is duty‑bound to use reasonable endeavours to make available gas, and you do not supply it when you have the gas at all material times, you have incurred no obligation to sell it to anyone.  You are not disabled by any physical or other operational circumstances and all you wish to do is to apply the gas more profitably.  In our respectful submission, you cannot say that you have used reasonable endeavours to supply that gas.

Those are the facts in this case.  You simply have not done it.  It is, in our respectful submission, a misuse of the English language.  Having regard to any commercial or operational matters, you are able.  It is available.  You have it there.  You are not committed to any person to deal with it.  You choose not to deal with it because you want to make more money.  If that is the content of this clause, it has, in our respectful submission, no content.

FRENCH CJ:   I think you have been there before, so ‑ ‑ ‑

MR HUTLEY:   The only point is ‑ ‑ ‑

FRENCH CJ:   It is a short point, in a sense.

MR HUTLEY:   Yes.

FRENCH CJ:   Your contention is that the appellant’s construction strips the clause of any content by way of obligation ‑ ‑ ‑

MR HUTLEY:   I just make one further point and then I will ‑ ‑ ‑

FRENCH CJ:   ‑ ‑ ‑ subject to perversity.

MR HUTLEY:   The one thing that my learned friends referred to is something called “significant”.  There had to be a significant difference.  That was never defined – what it meant.

CRENNAN J:   It was making the point, was it not, that the Court of Appeal favoured the construction which they did because they had difficulty in seeing what room there was for operation otherwise.  But, subject to price issues where your clients might want to minimise costs, or the sellers might want to maximise profits, but not on those sorts of days – on the sorts of days where there is nothing particularly significant about a price fluctuation or anything of that sort – this contract has operation.

MR HUTLEY:   With respect to your Honour, significant to whom?  Significant to the sellers – it must be.  “Significant” is a relative term.  It is not an objective term.  It is a relative term.  If they think it is worth changing ‑ ‑ ‑

CRENNAN J:   But it would be significant to your client not to make this request if it was in their commercial interests to obtain their gas from some other source, because their shareholders would be happy because the costs on that day would be lower, that sort of idea.

MR HUTLEY:   If one is looking at it from my client’s point of view?

CRENNAN J:   Yes.

MR HUTLEY:   But your Honour, we do not have an obligation to use reasonable endeavours.  My learned friend says they have to supply it unless there is a significant difference in the price between what they can sell.  But if it was an insignificant difference, they would not try to sell it – that is, the joint venture – to anybody else because it would not be worth their while.  It is only if they consider it significant that they do it, because that would be the profit maximising thing to do.  And what is significance?  Is it a percentage?  Is it a figure?  Is it related to the internal rate of return?  Is it related to the interest rate?  What is it related to?  It is a meaningless worry word, in our respectful submission, which advanced the matter not at all.

Your Honours, we – and this right we have acquired, remember is only a seven‑day right.  That is what we bargained for, and we get that.  They cannot deliberately take that away by selling to someone else.  That is inconsistent with fundamental law about reasonable endeavours obligations such as was in Butts v O’Dwyer (1952) 87 CLR 267 at 280, where this Court approved Duncan v Mell in the New South Wales State Reports, which said you cannot, when you are under a reasonable endeavours obligation, go out and do something deliberately which makes it impossible for you to, in effect, achieve the end.  That is inconsistent with using reasonable endeavours, and we say that is why you cannot go and sell it to us on the spot price at any price you want. 

If you have sold it forward, outside before the obligation, fine, but you do not have a complete liberty to frustrate the re‑availability by choosing to sell it as you think fit at any moment, because if you do, there is no obligation, and it is inconsistent with the whole notion, in our respectful submission, of reasonable endeavours.

GAGELER J:   Do you read the reference in clause 3.3(b)(i) to “existing and likely commitments” as commitments existing or likely at the day of nomination?

MR HUTLEY:   Yes, because that is when the obligation attaches, and there never was a commitment here so it does not really arise.  That is why our learned friends do not rely on it, and have never relied on (b)(i) because they have never had any commitment.  They say they could never get into (b)(i) because they just did not have any requirement.  That is how we put it, your Honour.

Your Honours, I think as your Honour says I will be – I will just tell your Honours something about the short‑term gas contracts, just to make good the point of their fully interruptible nature.  If your Honours would be kind enough to go to volume 2 of the appeal book, I can take your Honours to 817 to the general conditions, and it is clause 5 of the general conditions which is the point.  Firstly, each of these contracts is a separate contract with a different supplier.  MIMI had a different contract to all the others, so the presence or absence of MIMI is irrelevant; I will come to that in due course.  But if your Honours go to 5(a), it says ‑ ‑ ‑

CRENNAN J:   What page is it, I am sorry?

MR HUTLEY:   Page 817, your Honour.

CRENNAN J:   Thank you.

MR HUTLEY:   It says:

The deliveries that each Seller may make under the Contract are fully interruptible and the Sellers are entitled to curtail (including to zero) prior to or during a Gas Day any anticipated delivery for that Gas Day under the Contract in their absolute discretion.

So, in other words, there is no obligation upon them to deliver at all and they simply deliver or do not deliver as they think fit.

HAYNE J:   And?

MR HUTLEY:   And, therefore, your Honour, there never was a commitment which interfered in any way to their ability to supply to us; never.  In fact, they actually supplied to us the very gas through a different joint venture, but it was the same organisation – same structure.  We got the gas.  The only thing is that we got the gas; they say they put it under a different contract, and so we have to pay.

KIEFEL J:   Well, they conceded they were able to supply.

MR HUTLEY:   Yes, exactly, but they never had a commitment to supply to anyone.  Every contract allowed them to do as they thought fit.  That is all I wanted to say on the contract, if your Honours please.  Can I now turn to the question of duress?  The facts have been addressed by Mr Jackson and we have set these out in our submissions at paragraphs 10 to 22.  We have also referred in our outline at paragraph 6 to the paragraphs in the judgments where the relevant facts appear and the position is relatively simple.

On 4 June Mr de la Fuente, on behalf of the Domgas joint venture, told Ms Clare on behalf of Verve that the Domgas joint venture could not supply SMDQ in June, including the volumes already nominated and secondly, that the incremental pipeline gas joint venture could supply the gas on a fully interruptible contract at a much higher price.  Ms Clare informed Mr de la Fuente that Verve considered this to be a breach of contract.  A fully interruptible gas agreement was terminable on 24 hours’ notice.  For June, was entered into at a volume of 25 terajoules, and your Honours will find that at application book 3, 804.  The five terajoule reduction was due solely to authority questions and the urgency of the moment.

Now, Mr de la Fuente knew that Verve needed the gas.  That appears from his cross‑examination ‑ and I am not going to take your Honours through it ‑ between 225 and 230 in the appeal books.  He knew that we had to have it.  Verve continued to nominate SMDQ throughout June and your Honours will see the document which shows those nominations at AB 3, 870 and following.  Following that your Honours will see the daily, in effect, response of the joint venture in saying they would not be supplying SMDQ over the period of the nomination.

So, in other words, nominations go on, forward, continuous throughout the period, response, “We don’t intend to supply”.  Towards the end of that month the joint venture decided to operate a tender system on terms identical to the June arrangement other than as to price and the termination period increased to 72 hours from 24 hours.  So, in other words, the buyers could terminate the contract on 72 hours notice as opposed to 24 hours notice.

The joint venture members were aware of the continuing need of Verve for the gas and that it was acting under protest and Verve was awarded a contract.  Now, all that, also, is clear from the transcript at 253, lines 4 – in 255 in appeal book 1, 230 and following and findings to that effect which my learned friend took you to establish that.

Economic duress, as your Honours have heard, involves the application of illegitimate pressure.  If that pressure produces a contract which confers benefits at the expense of the plaintiff that benefit is recoverable and the recoverability, we submit, is not contingent upon setting aside the contract, the reason for the advance.  The first issue, therefore, is whether illegitimate pressure was exerted.  The cases tell us this is further dissected into, firstly, identifying the illegitimate acts or omission and, secondly, identifying the pressure of the requisite intensity arising from the illegitimate act or omission.

The using of “arising from” draws attention to the significance of the impugned behaviour.  That behaviour will take place in an environment which will influence the capacity of the impugned behaviour to impose pressure of the requisite intensity, however, that environment would exist in the counterfactual world absent the behaviour.  It is a given.  In other words, in this case, had there not been a refusal to supply, the circumstances of the Apache disaster would have had zero effect upon our client.

The only thing that caused our client to be under pressure was the act of refusal to supply under the agreement.  We say there is no point in the question that the joint venture did not exert the pressure.  They created the pressure, they brought it to bear.  It was brought to bear of effect by their act, for the purposes of this, threatening to not comply with their obligations and not complying with their obligations.

The illegitimate pressure.  Now, throughout the period early June to late September the sellers were constantly threatening to breach the GSA.  That is found in the judgment at first instance at paragraph 72, application book 3, 1028, line 10.  They also continuously breached the contract.  At application book 3 at 866 your Honours will see the lists of the nominations under the GSA throughout the relevant period and it was invariably for the full SMDQ.  I will just shortly point out to your Honour how it works.

These are, in effect, lists.  They are not actually the notices themselves, they are summaries of the notices which identifies in the first column the date; the second column, the amount notified.  Then one can go over to the fourth column and that identifies the amount accepted and that is always MDQ.  So there was a continual notification up to SMDQ and acceptance only of MDQ.  That appears in the following documents from 871 where you can see the actual notices sent back by the Domgas joint venture.

FRENCH CJ:   Now, at proposition 8 in your outline, is that a proposition about the facts of this case or is that a proposition about what is sufficient to constitute a legitimate pressure?

MR HUTLEY:   Your Honour, could I just grab proposition 8 in my outline, momentarily.  I have put it somewhere.  It has disappeared.  I am sorry, your Honour, in the rush I have lost proposition 8.  Thank you, your Honour.

FRENCH CJ:   Yes, what is the answer?

MR HUTLEY:   It is either or.  Your Honour, I have forgotten the question in my search.

FRENCH CJ:   The question was, is that a statement of principle or is that a statement about a conclusion to be drawn on the facts of this case?

MR HUTLEY:   We say in the jurisprudence in this Court it has never been a requirement for the application of duress that one appreciates the wrongfulness of one’s conduct.  In fact, it has in all the cases dealing with, in effect, impermissible exactions of money pursuant to contracts, in this Court and in Australia, it has never been the case that, as it were, recognition of its breach is required and, we say, a breach, a threat of a contract, is a breach of contract is illegitimate conduct.

FRENCH CJ:   As to the first limb of the sentence, is it your proposition that a threatened breach or a breach of contract can constitute illegitimate pressure or is a relevant factor in determining what constitutes a legitimate pressure?

MR HUTLEY:   Your Honour, we say it will be illegitimate conduct.  Whether it constitutes illegitimate pressure will depend upon the circumstances going to the character of the force.  That is why the cases which say not every breach of contract leads to duress, such as the judgment of Lord Justice Griffiths, are clearly correct.  It has to be illegitimate conduct and it has to be illegitimate conduct which involves the application of illegitimate pressure and therefore one has to, in effect, as a test as to the quality of pressure and it is in the quality of the pressure that these cases usually rise and fall, i.e. have you put the person in the position where they practically have no choice but to give in, and that is how we put it, your Honour. 

That is why, in effect, the negotiated modification of the contract cases never give rise to this problem, because they are never in the context, or generally not in the context, of a backward and forward free negotiation where there is no choice but to accede to the demand.  That is why they do not involve duress.  We do not say, a breach of contract per se is illegitimate pressure.

CRENNAN J:   If the proposition is right that rescission is not required, paragraph 19, how does the remedial position get sorted out in terms of damages in respect of a tort and the cap on damages under the contract not rescinded?

MR HUTLEY:   Your Honour, with respect, the cap on the damages is under a contract, the GSA.  That is not the contract with which the illegitimate pressure is concerned.  The contract the subject of the illegitimate pressure were the short‑term contracts entered into in early June and late June 2008.  So the cap, in a sense – being a cap under the GSA – if its construction does not protect from duress, is beside the point. 

All it says is we cannot recover by way of, in effect, restitution without giving credit for that damages award.  We accept that.  We accept our damages must come off our restitutionary remedy, or, in other words, they do not have to pay us damages to the extent that we have got restitution.  We cannot be, in effect, doubly indemnified for – we can only recover our unjust enrichment and if we have been paid by way of damages an amount, we do not seek a double recovery.

That, in our respectful submission, does not speak to this issue and that, with respect, is a different point.  The real question on that point, as we understand it, is our learned friend says, before you can get any restitutionary remedy under the fully executed short‑term contracts, you have to set them aside. They say to set them aside, you have to get restitutio in integrum.  They now say that to give restitutio in integrum we have to give back the gas notionally.  Giving back the gas notionally had to give it back at its then market price and Bob’s your uncle, even though it was induced by illegitimate pressure, you cannot get any money because the gas was worth what you demanded.  That is as we understand the logic.  We say that is wrong and I will come to the reason why we say that is wrong, but that is as we understand the argument we confront.

That is why we say the threatened breach, really, induced as it was found by the Court of Appeal, paragraphs 31 and 183 at 1075 and 1113, was induced by the threatened breach.  This Court – and your Honours have been taken to Smith v William Charlick 34 CLR 38, provided that illegitimate pressure or duress could lead to recovery in principle of sums. Your Honours were taken to the judgment of Mr Justice Isaac at paragraphs 56 and 57. I will not take your Honours back to that.

If I could take your Honours, however, shortly, to what was said by Justice Higgins at 64 and 65.  His Honour dissented in the result but his dissent related to his Honour’s conclusion that there was wrongful conduct on the part of the Wheat Board in demanding the extra amount of money, because he said on the true construction of the Act, they were precluded from doing his.  But in points of principle as to pressure, his Honour was in complete accord with the majority.  If one goes to 64 at about the first full paragraph:

Now, pressure may be legitimate:

and then goes on and at about point 8 he says:

For my part, I quite accept the view that compulsion may exist when the party receiving is not breaking any duty to the party paying; but the fact that the compulsion exists does not necessarily show that the party paying can recover the money – e.g., in the case put of the property owner. 

So, he goes on.  Then, at the top of the next page:

The question in each case of payment under compulsion is, was the compulsion justifiable or not – was the party receiving entitled to use, or threaten to use, the whip?

So, in other words, what his Honour says is that one has to look to the justifiability of the compulsion and then his Honour refers in point 5:

In each case the proper issue would seem to be, had the party receiving the money the right to take advantage of his neighbour’s necessity or not.

Then he refers to a case of Hills v Street where, in effect, there was a recovery of part of the money, in effect, importuned in respect of a landlord and tenant situation because compulsion was exerted.  Justice Rich at page 68 said:

In my opinion, once it is conceded, as I agree it must be conceded, that there was no obligation on the Board or any other representative of the Government to enter into business relations with the respondent, there was nothing in the facts which made the respondent’s payment “involuntary” –

Now, my learned friend also took your Honours to Nixon v Furphy and took your Honours to passages at paragraphs 170 and 172.  Their Honours approved the judgment of Mr Justice Long Innes in Nixon v Furphy in 25 SR, relevantly the passage being at 157 of the judgment – I am sorry, at 160 of the judgment where Mr Justice Long Innes said the following:

‘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.  Such compulsion is a legal wrong, and the law provides a remedy by raising a fictional promise to repay.”

They refer earlier to what was said by Justice Isaac in Smith v Charlick.  Can I note one other thing about all these cases.  Here, the imposition made was one which was honestly believed to be entitled to be required.  That appears from page 157 in the report.

Now, in this Court in an unreported decision of Justice Rich in White Rose Flour Milling Company Proprietary Limited v Australian Wheat Board 18 ALJR 324 ‑ ‑ ‑

GAGELER J:   Where did you get this?

MR HUTLEY:   From the State Archives – National Archives, your Honour.  Your Honours will see the statement of principle is at page 7 in the report.

FRENCH CJ:   When you say “report”, do you mean a copy of the judgment?

MR HUTLEY:   A copy of the judgment, thank you, your Honour, yes.

HAYNE J:   Which has been reproduced in such a fashion it cannot be read.

MR HUTLEY:   I do apologise, your Honour.  It came to you in a way that it cannot be read?  I will ensure that that is overcome.  Are all your Honours in that ‑ ‑ ‑

FRENCH CJ:   Yes, 7 is hopeless.

KIEFEL J:   Yes, it is just the last page.

MR HUTLEY:   It is always the way.  The one that matters is the one that you do not have.  I do apologise, your Honours.  I will ensure that over the adjournment your Honours have a legible copy.  I will not read it now.  Could I also ask your Honours to note this?  At pages 6 and 7 in the transcript of the judgment it is quite clear that the wrongdoer believed that it was acting correctly. 

The next case in the history is a case of In re Hooper & Grass’ Contract [1949] VLR 269. The relevant passage is at 272 in the judgment of Mr Justice Fullagar when a member of the Supreme Court. Again, this was a case where there had been a demand for an excessive payment in relation to a contract of sale. That payment had been acceded to. Again, your Honours, it is quite clear if your Honours look at 272 that all parties thought they were acting honestly. They believed they were entitled to it. At 272 in the middle of the page his Honour said:

In such a case I think the true rule of law is that a payment under protest is not a voluntary payment, whatever the position may be where the payment is not made under protest.  It makes no difference that the vendor honestly believed that he was legally entitled in any case to the price which he asked.  In these cases there is very reasonably said to be a practical compulsion to pay a demand not justified by law.

Again, the intent is thought to be irrelevant.  Finally in this history, or next to finally, is T.A. Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd (1956) 56 SR (NSW) 323. This is a case where there was a contract – the headnote supplies the fact – to supply galvanised iron from overseas into Australia at a price. The supplier overseas, due to market changes overseas, demanded an increased price, which the purchaser acceded to. It is also to be noted, as at 324 in the last full paragraph that Mr Hazleton, who was the overseas supplier, honestly believed he was entitled to make demand for the increased price. Nevertheless, in the judgment of the court, the principles derived from Smith v William Charlick and Nixon v Furphy were applied to say that one could recover the excess payment under the contract, and the argument was from 327 at about point 8 over onto the next page.  Then one comes to Crescendo Management v Westpac, and I will not take your Honours to it; your Honours have been taken to it.

The next case is the Full Federal Court decision in Westpac v Cockerill (1998) 152 ALR 267, where your Honour Justice Kiefel wrote the leading judgment, and the relevant statements are at 289 in the report. It was a judgment principally concerned with the issue of legitimacy, and your Honour considered the question as to whether illegitimate conduct could be conduct which was not per se illegal, and your Honour said the authorities said they could. The point of importance, your Honour, and we say with respect your Honour is wholly correct, is that the important points about duress are not looking at, in effect, the state of mind of the applier of the pressure, but looking at the position of the person subjected to that pressure. That appears from the bottom of 289 over to 290. I will not read it, your Honours.

What we say the cases show the following, is that illegitimate conduct is firstly an open class which includes tortious and contractual wrongs and threats of such.  Secondly, there is no general requirement that the perpetrator recognised the illegitimate nature of his, her or its conduct.  In our respectful submission, the impact of the illegitimate conduct is the focus of the inquiry.

The sellers would have this Court hold that in this field, a requirement of recognition should be imposed in the area where threatened breach or breach of contract is engaged.  No coherent reason is advanced for accepting that class or those classes of conduct, and no case has decided the contrary.  The cases to which my learned friend took your Honours merely insofar as they referred to this issue, the CTN v Gallagher Case was one where one was concerned with lawful conduct, not unlawful conduct, and therefore the issue of bona fides was considered to be of significance, and the B &S Design Case in the judgment of Lord Justice Griffiths was merely dealing with the question of duress.

So in other words, we say the case is stretching all the way back to Smith v William Charlick in this country have said that, in effect, the intent of the wrongdoer is a matter of indifference, and we say they were right.  Can I now turn to the question of the exertion of pressure?  The first issue is the requisite impact of any pressure on the party complaining.  There can be no doubt that Verve considered that it had no commercial alternative but to take up the short‑term gas agreements.

Further, there can be no doubt that the sellers were aware that that was Verve’s position and that was found in the Court of Appeal at paragraph 29, application book 3, 1074.  The activity which induced Verve’s attitude and thus induced its conduct was the statement and position maintained that there would be no SMDQ from the sellers.  It may be accepted that the sellers did not threaten withholding SMDQ in order to induce Verve to enter into the short‑term agreements.

We submit in those situations economic illegitimate – pressure was exerted of sufficient intensity to engage the principals.  There is no eggshell skull principle in economic duress.  A degree of fortitude is expected of the object of the conduct, i.e. the conduct must have a sufficient force to effect the conduct of an individual who has reasonable certain characteristics.  There have been a number of cases which have referred to the formulation of this characteristic and we have referred to them in paragraph 80 of our submissions, the degree of fortitude which is expected of an individual and I will not repeat them.

It seems to be accepted that – and what we say is that the degree of pressure which must be exerted is one of which one can say, as a matter of, as it were, common sense, that the object of the pressure has no real choice but to accede to the pressure.

FRENCH CJ:   To coin a word, they are not able to do anything else.

MR HUTLEY:   Quite.  And in our case it was accepted, and there is a finding, that my client had an obligation, in effect, as the supplier of electricity of last resort to south‑west Western Australia.  If we did not have this gas there were brownouts.  In fact, going to diesel was not an opportunity.  There was a crisis in the availability of diesel which was proved, as a matter of fact.  We either took this gas or we could not meet our obligations to supply electricity and that really was not disputed at trial.

GAGELER J:   Are there findings to that effect?

MR HUTLEY:   Yes, your Honour.  I will just get the precise finding.  Thus, in effect, this case does not present an occasion to identify with precision the point at which pressure is sufficient to amount to duress.  This is a case where Verve had no real option.  The sellers, in effect, say there are two reasons why their conduct did not constitute the requisite pressure.  Those are first that Verve could have obtained an interlocutory injunction requiring the sellers to use reasonable endeavours to supply SMDQ. 

Secondly, that the sellers did not make a threat because they did not act with the purpose of causing Verve to enter into the short term agreements.  Now, we will deal with both of those in turn but firstly, this is what they do not say.  The sellers did not say that Verve did not need the gas to perform its existing obligations.  Nor do they deny that they knew that Verve needed the gas.  Now, if one goes – in this regard, if your Honours look at the judgment of the President at paragraph 2 of the judgment, it says we were:

in effect the supplier of last resort –

Your Honour, the need for the gas was, in effect, admitted on the pleadings.  If your Honours go to paragraphs 37(a) and (b) of the amended statement of claim at 24B and see the response to it at application book – sorry, it is at page 27 I am sorry, is the allegation.  The response is in paragraph 24B and it is at page 91 of the pleading.  I will take your Honours to it shortly.  Paragraph 37 says:

At all times from and including 4 June 2008 the defendants knew, as was the fact, that:

(a)The plaintiff required, to perform its statutory functions . . . that the defendants supply to it the SMDQ gas requested –

(b)The plaintiff could not obtain a sufficient quantity of gas from another source –

your Honours go over to page 91, it says:

As to paragraph 37, save to deny that it was a matter known to the defendants, the defendants admit the matters in paragraphs 37(a) and 37(b).

The finding, your Honour, of Justice McLure at paragraph 29 at 1074 is to this effect:

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 sellers, until something said by my learned friend in his submissions, did not say that there was another supply of gas or a substitutable product which was available at an economic price.  In fact, there was not, at an economic price or at all.  I am not going to take your Honours through it because the statement of Mr Waters concludes that at paragraph 42 and that it was not an option.  Your Honours would have to go to paragraphs 47, 52, 62, 67, 71 to 72 and 88 at application book 1, 277 and 290.  That just shows that there was a crisis in the availability of diesel.  Diesel was some factors again in price per gigajoule than that which we had to pay under short‑term contracts.  But, in point of fact, in the crisis circumstances, there was a crisis in the availability of diesel.  So there was no practical alternative to my client but to accede to these demands.  There was no cross‑examination on it.

Nor do the sellers say that they were prepared to negotiated with Verve or enter into an agreement that would have preserved everybody’s respective rights, they just said it is not coming.  One way, in effect, one can avoid – there is no need for these things to happen – is for a person who hears, I think X and the other side thinks Y, can say is, let us enter into an agreement.  We supply the gas and what you pay will be a function of whether you are right or we are right – simple. 

That is how you avoid, if you are commercially wont to avoid the exertion of undue pressure in a situation where there is a dispute.  They said that they were not in breach.  We said that they were.  They did not say, we will supply the gas to you and we can then go and have a case in which we will fight a whole series of issues and there are a whole series of issues in this case, an enormous number of issues which will determine whether what we are doing is lawful.

Instead, we were left with “we are not supplying SMDQ, here is an offer.”  Our only so-called alternative is to go and seek an interlocutory injunction and, with respect, we cannot add to the debate which took place between the courts.  The chance of getting an interlocutory injunction of any use in this case or a final injunction determination in this period was precisely zero.

If one goes to the pleadings in this case – I do not want to take your Honours to them because I am aware of the time – there was a whole host of issues raised by the other side as to the engagement of clauses such as 3.3(b)(i) about physical capacity.  That was raised as an issue.  If one confronted that, they only went away two years later in, as it were, the cauldron of a full hearing when people had to stump up and prove it.  To imagine that could have been done in the timeframe we are dealing with is really, with respect, fanciful.  The court would have just said “it is a matter of money, we cannot help you”, I think as your Honour Justice Hayne observed.

The sellers, in effect, accept that they were a monopolist in the particular market, a market in which Verve had to buy gas if it were to comply with its existing statutory and contractual obligations.  They are referred to by the Court of Appeal in paragraph 11 in volume 3, 1070.  We could not buy an alternative fuel, so we had to do the deal.  I am not going to say anything further about the interlocutory injunction.

FRENCH CJ:   That might be a convenient moment, Mr Hutley.

MR HUTLEY:   Yes, your Honour.

FRENCH CJ:   We will adjourn until 2 pm.

AT 12.43 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 1.59 PM:

FRENCH CJ:   Yes, Mr Hutley.

MR HUTLEY:   Thank you, your Honour.  Your Honours, I had dealt with the issue of the injunction and I do not wish to say anything further.  Now next, as we understand our learned friends’ submissions, they rely on the fact, which Verve accepts, that their purpose in refusing supply of SMDQ was not to cause Verve to enter into the short‑term agreements, that is, in other words, it was not designed to force us to enter into the agreement and, as we say, they say they are profit maximising organisations and their attitude is that if we chose to do so, it was a matter for us, as we understand the argument.

But of course, as the findings are in the Court of Appeal and in this regard, your Honour, I should give your Honour Justice Gageler a reference to one further finding; that is paragraph 11 in the judgment of the President at 1070 about the only economically practical alternative of Verve was to enter into the contract.

GAGELER J:   Your reference to brownouts was just a little embellishment, was it?

MR HUTLEY:   Yes.  Well, the finding was is that they could not meet their supply obligations.  I mean, brownouts; that was not found as a fact, that was a bit of colour.  It is getting close to Christmas.

GAGELER J:   Sort of colour.

MR HUTLEY:   Tone.  So, in other words, there was a knowledge that we had no choice but to enter into the agreement.  We say the focus is on the wrong point, for the reasons that your Honour Justice Kiefel exposed in Cockerill.  The real question is the focus on the effect upon our clients.

Now, the sellers’ argument also has a surprising, we say wrong, consequence.  If having a purpose, in effect, to cause the person towards whom the pressure is directed to do something is a necessary integer of economic duress, then economic duress is likely to only have application in a market in which there is only one buyer and one seller.

Inevitably, that is a market likely to exist only for a very short time but on the seller’s argument economic duress has no application where there is a market with multiple buyers where demand exceeds supply, at least if the person to whom the duress is directed is not the marginal buyer.  So, in other words, because there were more they did not have to direct it at us, they knew it was a consequence and they knew it was inevitable that we would have to succumb yet they did not need to direct it to us because there was a superfluity of buyers over sellers so we say that that point is wrong. 

Can I now turn to the issue of relief.  The Court of Appeal refused leave to Verve on the basis that it had failed to apply to set aside the short‑term supply contracts, and that is the Court of Appeal’s judgment at paragraphs 32, 33 and 201 to 206 at, respectively, 1075 and 1119.  In this regard, could we take your Honours to what was said by the court, shortly, at 378 and 379 in David Securities (1992) 175 CLR 353 on this topic and the passage is in the joint judgment commencing at, “Although this alternative approach is” over to the next page through the reference to what was said by Justice Deane in Pavey & Matthews.  Beneath that it says:

Accordingly, it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable.  Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality.

Then there is reference to what was said by the Court of Appeal in Westpac Banking Corporation and to certain circumstances giving:

rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment.”

Of course, and we accept this is not expressed by reference to payments made under a contract as a statement of principle is of general application, this is also, we submit, the case with respect to duress as the consequence flowing from the application of duress may well involve the conferral of a benefit other than through the entry of a contract in the cases which, in this Court, I have taken your Honours to involve.  It may, for example, cause a person not to exercise a right to determine a contract.  Thus, as a matter of principle, it must be that restitution can be obtained in respect of duress without the necessity to determine the contract under which the payment was made as a result of the duress.  The question is ‑ ‑ ‑

HAYNE J:   Why?  You assert the conclusion.  I understand that.  What is the reasoning that is getting you to that conclusion?

MR HUTLEY:   Your Honour, there may be duress post entry to a contract not for the entry of a contract which applies duress with respect to the rights exercised under the contract.

HAYNE J:   Yes, duress to require payment of a sum not due under the contract.  I understand that. 

MR HUTLEY:   Exactly.  It is a short introductory point – is that one can, in effect, obtain recovery of moneys paid without interfering with the existence of the contract.

HAYNE J:   Because the money was not paid under the contract.

MR HUTLEY:   Your Honour, it may be, for example, let it be assumed there was a right to determine a contract and duress was applied to force you to suspend, not exercise that right and also, as it were, to continue to perform the contract.  There may be money paid then under the contract because you have not availed yourself of the right to determine the contract. 

HAYNE J:   The point I am asking you to address is whether it is right to apply singularity of rule to variety of circumstances. 

MR HUTLEY:   Your Honour, I accept that completely.  Where we are going is to say, depending upon the circumstances which the question arises under, you can have an application without necessity to set aside the contract or otherwise.  So, in effect, there is no – our point is simply this.  There is no absolute and general rule established by any binding authority or, in our respectful submission, as a matter of principle, which requires that if duress leads to the entry into a contract which leads to the conferral of an identifiable unjust enrichment, that to recover it there must by hypothesis be a setting aside of the contract.  Often it will.  I will take your Honours through some of the cases. 

Our simple point is, there is no doctrinal necessity to do that because the fundamental principle which is exposed in David Securities is that the vitiating factor to the receipt of the benefit is the improper conduct, whether it be mistake, duress or the like. 

After that it is a question, we submit, of remedy.  The remedy may, and in many cases will – and I will take your Honour to the one case where this point has been determined as a matter of principle – there it was required.  We say there is nothing, as a matter of principle, which requires it because the fundamental principle which underpins the restitutionary remedy is the existence of the vitiating factor and the conferral of the benefit.  That is the short point.

GAGELER J:   Mr Hutley, if you recovered in restitution the payments that you made could you then be sued for those payments under the contract?

MR HUTLEY:   No, your Honour, because, your Honour, the relief would have barred the entitlement to sue us for the contract.  That would be the consequence of the relief.  We paid it under the contract.  If it was obtained through unjust enrichments and this Court made an order for it to be disgorged, they could not turn around and then say, “I would now like to see you on the promise under the contract”.  Put it this way, no one has suggested there be a circularity of action in that regard because the cause of action would be that we had failed to pay, we had not met our obligation, what?  We would have.  The Court would have relieved us.  It would have forced them to disgorge.

KIEFEL J:   On your analysis, the sellers would have to raise the contract by way of defence.  If you say you go from vitiating factor to remedy, the only thing that would break that would be if they could raise the contract by way of defence, that is to say, it became part of the question of whether or not it was unjust to retain the benefit.

MR HUTLEY:   Quite.  Exactly, your Honour.  It might be various things.  I will take your Honour to the one case where this has been discussed as a matter of principle in due course – The Olib – which is referred to by our learned friends – which is reported in [1991] 2 Lloyd’s Reports 108 at 111.

HAYNE J:   Not to Pao On? 

MR HUTLEY:   In our respectful submission, it does not say that is a matter of necessity, with respect, no.  No case has addressed this question.  If there has been a fully executed contract where all consideration has been - we paid, the goods have been received.  They have been destroyed.  The contract is “at an end” so far as any executory or ongoing obligations, one asks the question, what is the utility of the action to set aside?  If my learned friend is right and, in effect, we have to give counter‑restitution by reference to the value of the gas at the relevant time, then we just do not get any relief. 

KIEFEL J:   But even in the case of an executed contract, the damages are still governed by the contract, are they not?

MR HUTLEY:   Your Honour, we do not seek damages.  There is no attempt to seek damages for this.  We are seeking an unjust ‑ ‑ ‑

KIEFEL J:   But the question is whether that should be your remedy.

MR HUTLEY:   If your Honour finds, as a matter of construction – if the Court finds as a matter of construction by reason of clauses 22.7 and 22.9 there is a limitation to our liability then that is the end of it.  I accept that, your Honour.  But that is a question of construction which I only come to if I find I have a restitutionary remedy.  If I cannot get the remedy, you do not need to go to 22.7 or 22.9.  I just fail at that point.  I accept exactly what your Honour says.  But that is the next step that one comes to.

I was going to take your Honours shortly to Olib in that regard, if I could take your Honours to that.  Your Honours, that was a case which involved an application to set aside a service of a writ where the plaintiff sought repayment of some $440,000 under a settlement agreement resolving a rather complex dispute arising out of a charter of a vessel to carry styrene monomer.  That was the factual situation.

The settlement agreement provided for mutual releases, and your Honours will see that, if your Honours go to 111 at the bottom of the right‑hand column onto the next page.  It was in that context that Mr Justice Webster made the observation at page 118 in the first column at about point 3, and in the circumstances of that case, it was clearly correct; that is, you could not recover the moneys paid without setting aside the ongoing benefit of the release.  That was that the relief by way of unjust enrichment was excessive relief if the contract of settlement remained in place because you continued to have the benefit of the release.  We say in that circumstance, you may well be obliged as part of the relief by way of unjust enrichment, restitution, to take the step of setting aside the relevant contract.

But that does not establish, nor, in our respectful submission, could it establish, nor do any of the texts to which you have made reference engage in an analysis about what happens in circumstances such as the current where there has been full performance, full execution, and all one is really determining about is a matter of accounting; that is, how much should we get back?  In our respectful submission, that has not been determined.  No doctrine, we submit, necessitates that the precondition of what might be called a formal – and I mean strictly in this case – formal act of setting aside the contract take place.

What one is really looking for, and my learned friend says we have to notionally return to the value of the gas.  If that is right, and the value is measured at the date on which we receive the gas, then we do not get any money.  But that is not because of a necessity to set aside the contract.  That is because of what the court assesses is the measure of their unjust enrichment.  If the measure of their unjust enrichment on that accounting exercise, as we would have it, is nil, then we get nothing.  We understand that.  But there is nothing about that exercise which mandates or requires that we set aside the contract, and we say it is wholly inutile in this case.  There is nothing achieved by it beyond a formal antecedent to a question of accounting.

One other point to be made is, this Court in Roxborough gave restitution in respect of a contract where the contract was not set aside.  I do not want to say, that is what happened.  The English texts, for example, Goff & Jones, the edition to which my learned friend took you, at 3‑26, page 52 doubts whether that case would accord with the law in England.  I only make reference to that is because there may be a disparity in this regard between the principles which exist in this country and the principles exist in the United Kingdom which is the area to which the text to which you have been taken to are essentially those, although there are some Australian texts, but that has to be a question mark over those texts. 

We submit that in Roxborough v Rothmans, and I will not take your Honours to the relevant paragraphs, they are referred to in our submissions in the plurality judgment 14 to 19 and 25 to 27, and in the judgment of Justice Gummow at 62 to 66 and 104.  The principle which underlay the relief was, as it were, the existence of the vitiating factor with respect to the particular payment.  No need was perceived to set aside the contract ab initio or at all to afford that relief.  I accept it is to deal with a partial failure of several considerations but, in principle, we would say, if – and one of the reasons being, for example, Goff & Jones doubts its applicability in England is because they would say it infringes upon the principle of risk allocation in contract.  That is an issue for the United Kingdom, not for Australia. 

We say, if that be correct, there is no point in principle which would necessitate whether vitiating factor is duress that such a similar course be taken.  The question becomes a question of identification and the appropriateness of the relief in the circumstances.  We say, similar approach can be seen, again at the high level of principle, and I accept your Honour Justice Hayne’s remark, is what was said by this Court in Equuscorp v Haxton (2012) 246 CLR 498 at 516, paragraph 30.

Your Honours, the statement of principle there, we say, in effect, mandates or permits relief by way of the return of the unjust enrichment if appropriately identifiable without recourse to setting aside a contract in the circumstances of this case.  Nothing is achieved by the exercise.

And in that regard, in paragraph 32 reference was made to the statement of Justice Gummow at paragraph 104 in Roxborough v Rothmans of Pall Mall and the approach to relief there set out which we say is equally consistent.  Thus, we say that there is no authority in this Court or an appellate law court in any other country by way of determination.  In that regard could I take your Honours to Pao On.

Your Honours, it is important to look at the facts in Pao On and the facts involved an action upon an indemnity and therefore it was an executory contract, and it is against that background that the statement of principle which your Honour Justice Hayne has referred me to is, in our respectful submission, to be understood and we accept that in the case of an executory contract, because of, if one does not move to set it aside, one, it could be formed and, secondly, you can be taken to have elected that the relief which would be required would be by way – one step in the relief would be to set aside the contract, but that does not say, in our respectful submission, or in principle could say, that it is a necessity in every case.

Similarly, our learned friend referred to the Lumbers decision in this Court. We submit that that case, properly understood, is supportive of our position.  It was concerned with a quantum meruit claim where a contract applied, that is, in respect of a situation where there was an existing contract.  There was no room and no vitiating factor which spoke to that contract, non constat our situation.  The vitiating factor is the duress to the contract in respect of which we seek the restitution.

HAYNE J:   Constituted by actual or threatened breach of the GSA.

MR HUTLEY:   I accept that completely.

HAYNE J:   Yes.  Well, you cannot put them into watertight compartments, Mr Hutley.  Really.

MR HUTLEY:   Well, with respect, your Honour, that assumes the construction of the GSA - with respect.

HAYNE J:   It may be.  Does not your claim to what you claim as restitution depend upon the duress being constituted by actual or threatened breach of the GSA?

MR HUTLEY:   Yes.

HAYNE J:   Well, you cannot put them into watertight compartments, can you, and say, “Oh, the coercion related to the entry into the short‑term agreement.  Let us ignore the fact that the parties already stand in a relationship in the GSA where the duress is the actual or threatened breach of the GSA.”

MR HUTLEY:   But, your Honour, we have no opportunity by way of duress or otherwise to set aside the GSA. 

HAYNE J:   Just so.

MR HUTLEY:   Quite.  But, that, therefore, does not have ‑ ‑ ‑

HAYNE J:   But, you have a claim ‑ ‑ ‑

MR HUTLEY:   I understand, your Honour.

HAYNE J:   ‑ ‑ ‑for damages, capped or not may be a separate question of agreement between the parties, but you have a claim under that and you say that entry into the short‑term agreement, having been coerced by threatened breach later realised, your side should have, you say, restitution of the extent to which sellers were unjustly enriched.

MR HUTLEY:   Yes.

HAYNE J:   Do I capture your case?

MR HUTLEY:   Precisely, your Honour.

HAYNE J:   That that, in this case, is different from the damages that would lie under the GSA.  Why – because there is a cap under the GSA.  Is that right?

MR HUTLEY:   Yes, your Honour.

HAYNE J:   Yes.  So, you agree to a cap on the GSA but you say because there is a later short‑term agreement entered into, you sidestep that.  How can you determine these questions at the level of abstraction at which your argument is pitched without taking account of the rights and obligations under the GSA and is that not what Lumbers actually decided?

MR HUTLEY:   With respect, no.  Can I put it this way?  We accept, of course, that if on the true construction of the GSA, the cap extends to all amounts procured by duress then we cannot obtain any remedy.  That goes without saying.  If the construction argument is against us on the cap, then that is it.  If, however, the cap, on its true construction, was not intended to capture a claim for undue influence in respect of – perhaps not undue influence, duress in respect of another contract, the cap, we say, with respect, is neither here nor there.

We accept and, in our respectful submission, if the cap said in terms “and it does not apply to actions for duress”, it could not be said that our action was, in effect, inhibited by the existence of the cap.  Our submission is, on its true construction that is what the cap says.  We are wrong or we are right.  If we are right, the cap was part of the circumstance which afforded to our learned friends capacity to expose us to pressure but it does not speak to the existence or non‑existence of our remedy for restitution in respect of another contract procured by duress.  That is why, we say, Lumbers does not speak to that point, with respect.  Lumbers is dealing with a different question.

The contracts here were for the provision of gas contemplated to be consumed shortly after the gas entered the pipeline.  Of course, the actual gas delivered to the sellers and MIMI under their respective contracts into the pipeline on any given day is not, in any sense, delivered to Verve.  Verve acquires a right to take an equivalent sum at a remote point, namely, Perth, relevantly – or near Perth – of gas. 

The concept of restitutio in integrum is, in our respectful submission, really meaningless.  What one is talking about would be an accounting exercise whereby a value is attributed to the gas notionally payable by Verve which is set off against the consideration paid to the sellers.

That set-off can only be, in our respectful submission, the SMDQ price. Thus, the unjust enrichment equals the short‑term contract price, less the SMDQ price.  We submit, the law would not impose an entirely inutile requirement to set aside that contract truly, an epiphenomenon, in the philosophical sense, is simply, in our respectful submission, without doctrinal or principled basis in the circumstances.

Now, if the balancing figure attributable to Verve were other than SMDQ price, some principle basis for choosing that price would need to be identified.  To the extent that it departed from the SMDQ price, the relief, a money sum awarded would depart from the true unjust enrichment.  Such statements as there are to the contrary in the United Kingdom are dealt with in our submissions at paragraphs 115 to 117.  None involve, with respect, any analysis of the question with which your Honours are confronted in this case and the statement of Lord Goff in Dimskal Shipping Co SA which is in [1992] 2 AC 152, the relevant statement it is 165, reflected an agreed position of the party, as apparent from the statement. I will not take your Honours to it.

I have taken your Honours to the position in The Olib, the other case where it was applied in point of fact and that was clearly a circumstance where such relief by way of setting aside the contract was necessary and the Pao On statement was clearly dealing with an executory contract and we accept that in those circumstances such relief would be required.  It may well be, if the contract remains executory or provides ongoing benefits, recision must be sought, lest an election be made, but that says, with our respectful submission, nothing to the question in the case.

Our learned friends refer to her Honour Justice Gaudron’s statement in the Baltic Shipping Company at page 385 and her Honour was particular to observe that the reason for the need for the contract to be set aside lay in its very executory character.  That was the point to which her Honour drew attention, as to the reason in that case, for the contract to be set aside.  That is all we wish to say in relation to that point.  Can I now turn to the ‑ ‑ ‑

FRENCH CJ:   Can you just remind me, the short‑term contracts into which Verve agreed were fully interruptible?

MR HUTLEY:   Yes, your Honour.

FRENCH CJ:   So they operated, on your characterisation, as a kind of put‑option?

MR HUTLEY:   Put‑option, accepted by delivery.

FRENCH CJ:   What is to rescind?

MR HUTLEY:   What?

FRENCH CJ:   I suppose, what is to rescind?

MR HUTLEY:   Well, your Honour, there is a promise to pay under it, but in a practical sense, that is what we say, there really is nothing left.  The gas has come; it has been burnt, the money is paid.  We are talking about accounting.  We are not talking, in our respectful submission, in this case about any utility in undertaking this exercise.  None has been identified. 

Now, this takes us, with respect, to the next point.  Submissions at paragraph 154 and 155 of our learned friend’s submission, submit that recision is necessary because quantum is “complex”.  Let it be assumed that there is an issue with respect to the quantum.  It is not identified in any way why recision will help resolve any such complexity.  It remains a matter of accounting, just perhaps a little more difficult.

Now, in our notice of appeal, which your Honours will find at volume 3, pages 1134 and 1135, we set out in the orders sought, as it were, the outcome of the accounting exercise which we say should be done in the event that there is stripped from each of the Domgas joint venturers that amount they received by way of payment under the short‑term contracts in excess of SMDQ, and no challenge is made to the arithmetic of that calculation, as we understand it. 

There is raised an alternate approach to this exercise, brought about by the fact that there was an alteration of proportions between the gas which should have been supplied on our hypothesis under the Domgas contract by the several organisations who have several obligations to apply several proportions – my learned friend took you to them and I will come to the percentages in a minute – and the proportions which they severally were obliged to supply, in defence of “obliged”, did supply under the short‑term contracts. 

Our learned friends say you should get no more by way of the increment from each of the suppliers under the short‑term contracts than is equivalent to the amount of gas that they would have supplied under the GSA by way of SMDQ had they not breached the contract.  That is an alternate way of doing the calculations – alternate relief.

We have prepared an arithmetic analysis of the consequence of that approach.  We have given that to our learned friends, and the arithmetic is not in dispute.  Of course, the principle and whether it should be done is in dispute, but the arithmetic is not in dispute.  I can hand that up if that would be of assistance to the Court.  Could I hand up five copies; our learned friends have it. 

The effect of the alteration is merely to change the last two numbers - d and e at 1135 - because that is the only organisations which are supplying more under the short‑term contracts than they would have supplied under the GSA; that is BHP and Shell who are supplying, in effect, a sixth under the short‑term contracts, but a twelfth under the GSA.  That is, in effect, the accounting of the consequence.

Now, the question arises is which is the proper approach, if we are otherwise correct.  The difference is a few million, some million.  The quantum, we say, turns upon a choice as to the correct approach to calculating the quantum of restitution in the particular circumstances created by the seller’s internal arrangements.  Once the choice is made, no difficulty is presented.  It is just accounting. 

GAGELER J:   The title of this document is, perhaps, unfortunate for you.

MR HUTLEY:   Yes, your Honour, well, one can proof read and proof read, but it is not, your Honour – your Honour understands.  Could your Honour scratch that out?  The particular circumstances is that the sellers for their own reason, which were of no moment to Verve, chose to supply gas under the short‑term agreements in different proportions as between themselves to the supply of gas under the GSA.  The choice, we submit, should not distract from the fact that the sellers made the same gas available in the same volume in point of fact.  Clause 26.3 of the GSA defines the proportionate shares of each of the sellers to supply gas under the GSA, and your Honours will find that at volume 2560.  I think my learned friend directed your Honours to it.  It is:

Woodside Energy Ltd  50%

BP   16 ⅔%

Chevron  16 ⅔%

BHP   8 ⅓%

Shell   8 ⅓%  

Under the short term contracts, each of the sellers and Japan, LNG which is referred to as MIMI, supplied one sixth of the total of gas supplied.  Of course, that is application book 2, 816 and 859, and MIMI’s contract was a separate contract and no application could or was made to – or could be made with respect to a disgorgement of unjust enrichment by MIMI.  So, it was engaged in no breach of contract.

Now, we submit that the start of the analysis is the enrichment of the sellers at the expense of Verve.  The choice has been between the following.  The enrichment of the sellers is the difference between the SMDQ price and the price paid under the short‑term agreements of gas in point of fact supplied by each.  That is, from each seller one sixth of the total volume supplied on each day multiplied by the price differential.  The alternate choice is by analysing the enrichment as the additional amount paid under the short‑term agreements to each seller for that volume of gas which was suppliable by that seller under the GSA and was supplied by the seller under the short‑term agreement. 

In the first alternative, we submit, reverses the unjust enrichment.  Verve had a contractual right or series of contractual rights to SMDQ volume at the SMDQ price.  The illegitimate conduct vitiated Verve’s consent to pay the above SMDQ price under the short term contracts.  The payments by Verve unjustly enriched the sellers who received the payments in excess of the SMDQ price.

The enrichment is demonstrated in relation to each seller and can I take, for example, BHP.  It was obliged under the GSA to use reasonable endeavours with respect to 8 and a third per cent of 30 terajoules under the GSA. The obligation which at law was severable was one, however, which was operated or effectuated by wholly coordinated conduct amongst all the sellers under the Domgas joint venture.  In other words, it was not possible for BHP to delivery its gas without others delivering gas because any gas deliver was under the terms of the several agreements, as it were, allocated between them in their respective proportions.

FRENCH CJ:   This is all encapsulated in your submissions at 119 through to 123, is that right, ending with the words:

If the amount cannot be agreed, the question of the calculation should be remitted to the Court of Appeal.

MR HUTLEY:   Well, your Honour, I have to explain the principle basis first, your Honour.

FRENCH CJ:   Yes.

MR HUTLEY:   Now, in other words, there had to be a coordinated, in effect, meeting of the obligations.  In breach of that obligation by BHP it refused to supply its proportion of the SMDQ volume, again in coordination with the sellers.  As Mr de la Fuente said, that was done to maximise profits together with those of the other participants in the Domgas joint venture.  There was coordinated activity with the other sellers.  As part of that profit maximising exercise, BHP chose to supply 16 and two thirds per cent of 30 terajoules a day to Verve, together with the other sellers.

It is unjust enrichment, we submit, BHP at Verve’s expense, was to participate in the supply of twice the amount of gas to Verve at the increased price.  The enrichment at Verve’s expense was BHP in receipt of the difference between the amount payable for 16 and two thirds per cent of 30 terajoules per day under the GSA and the amount payable of that volume under the short‑term contracts.

Verve’s consent to the new BHP contract was vitiated because of BHP’s conduct in coordination with the other sellers.  That is the vitiating conduct.  If that is correct, we submit, the relief should be for the entirety of the excess from each participant.  Now, if that analysis is wrong, it becomes a simple matter to determine how much each of the sellers was enriched by their increased receipts in respect of their equivalent proportion of gas to what they would have supplied under the GSA in comparison to what they did supply under the short‑term contracts.

In other words, with respect to Woodside which I think had 50 per cent it comes down to one sixth and with respect to BHP who would have supplied one twelfth it stays at one twelfth and with respect to those who – or at one sixth it stays.  So the only difference is, with respect, to the receipts in respect of BHP and Shell who were supplying a lesser sum under the GSA.  Each of those, in our respectful submission, are just accounting exercises.  They are not matters which would speak to the issue of relief.  It is just a different question put in a different way.

Can I now turn to the question of the cap on liability?  That is clauses 22.7 and 22.9.  Clause 22.7 is concerned with the liability of each seller in respect of a failure to use reasonable endeavours to meet a buyer nomination.  That is effectively what it is.  The word “liability”, of course, is one which takes its meaning from its contents as this Court said in McDowell v Baker 144 CLR 413 at 428 by Justice Aickin, with which the other members of the Court agreed.

We submit shortly that here the word means responsible at law and we have referred to Littlewood v George Wimpey which is referred to in our outline and I will not take your Honours to the statement.  “In respect of”, similarly, takes it meaning from its context and we have referred to FCT v Scully and your Honour the Chief Justice’s statement to similar effect recently in the Khazal Case.  Again, two cases referred to in our outline.  I will not take you to it.

The point of 22.7 is to denote a relation between two or more subject matters.  The ambit of the relation is to be determined by the usual process of construction of the relevant agreement.  Secondly, there has to be a failure to use reasonable endeavours.  That identifies an actual departure from the obligation under clause 3.3 and clause 9 in its various aspects.  So, what one is talking about is an actual departure.

The clause is thus concerned with a relation between the seller’s obligation at law and an actual failure to use reasonable endeavours to meet a buyer nomination.  It is directed to the legal consequences flowing from an actual breach of contract.  It is not concerned with matters of threatened breach of contract in terms. 

Before turning to the facts and details of the clauses, we would make this initial observation.  Clause 22.7(c) and, for that matter, 22.9 – and in relation to 22.9 – economic duress which could be deployed in the context of non‑supply of SMDQ would, of its nature, almost necessarily have to involve a threat of breach of clause 3.3 and clause 9 to be effective, not an actual breach per se.  That is what has happened on 4 June – not an actual breach.  There were minor actual breaches at that time, important breaches, your Honour, because they ceased to perform to take reasonable steps in respect of the then outstanding nomination.

HAYNE J:   Was there not, then, a “once for all” statement of intention that during the emergency SMDQ would not be available.

MR HUTLEY:   Yes, your Honour.

HAYNE J:   Why is that not a breach of – or a statement of unwillingness according to your construction of the contract – unwillingness to perform according to its terms?

MR HUTLEY:   It is, your Honour.  It is an intimation of unwillingness to perform and insofar as it is not dealing with future obligations, unless accepted as a repudiatory breach, is not a breach of contract.  It is a threat of an ongoing breach of contract.  It is an intimation of future breach of contract, a very important one.  Fundamentally, a threat that going forward and – I have not looked at whether it would be sufficiently fundamental in the circumstances to go to the root of the contracts such that one could terminate it, but until that is done, it constitutes no breach of contract.

Thus, in effect, the effective pressure and illegitimate contract inducing these short‑term contracts was a threat of breach, not an actual breach, and essentially to bring duress to bear in respect of SMDQ to in a sense be able to, as it were, get something out of it – let me assume it is done for a purpose, because you could put this at the highest; the threat done not to deliver SMDQ for the next six months or for the purpose of getting them to enter into a contract, put at its highest, we would say that would be undue duress.  My learned friends, I think, would accept that if you knew it was a breach.

It is not an actual breach of contract.  It is a threat.  These clauses do not speak to threats.  In fact, the fact that they only speak to actual breaches when by its nature duress in this context is likely to involve threats supports the conclusion that on their true construction these clauses are not concerned with duress, because if they were directed to that, they would of necessity have excluded liability and capped liability with respect to threats of breach.

In this regard, my learned friend took your Honours to our pleading.  I will not take your Honours back to it, but if your Honours look at 19, 24, 33, 34 and 35, your Honours will see that one was dealing here by way of economic duress with a threat of breach.  That is what is alleged, and that is what is said to constitute the economic duress.  The continuation of the agreements, which are of course determinable on relatively short notice, was effectuated by the continuing threat not to supply SMDQ in the future.

HAYNE J:   At the time of each payment which you seek to recover, had there been a breach?

MR HUTLEY:   There would have been, yes, your Honour.  I accept that.  But your Honour, one vitiates the consent to enter into the contract ‑ ‑ ‑

HAYNE J:   Sure, but you are trying to recover payments made under the contract ‑ ‑ ‑

MR HUTLEY:   I accept that, your Honour.

HAYNE J:   ‑ ‑ ‑ and at that point there was a complete breach in respect of the sum that you were laying out.

MR HUTLEY:   I accept that, your Honour, but the duress which induced us to do that ‑ ‑ ‑

HAYNE J:   I understand that.  It had occurred before, you say, at a time of threat.

MR HUTLEY:   Yes.

HAYNE J:   I understand the point.

GAGELER J:   But it surely would not have been operative?  It would not have had the pressure.  The mere threat in itself would not have had the pressure without the subsequent breach.

MR HUTLEY:   Yes, your Honour, well with respect, no.  Subsequent breach, in effect, amounts to a threat with respect to the future as well.  One is looking at an organisation that is having to make decisions as to whether it stays in a contract.  This is an industrial organisation which cannot, in effect, make these decisions in an hour.  This is an organisation which, in effect, is confronted by a continuing ongoing threat for a specific period not to supply. 

FRENCH CJ:   In any event, the liability accrues at the time of payment under the short‑term contracts at the time at which there has been a breach.

MR HUTLEY:   I accept that, your Honour. 

FRENCH CJ:   Yes, and the question really is, is “in respect of” elastic enough to link the liability to the failure which has occurred. 

MR HUTLEY:   With respect, if it does not extend to the threat – if it does not extend to the threat, then the threat is inducing the conduct as well as the actual breach and, your Honour ‑ ‑ ‑

FRENCH CJ:   But one may not exclude the other possibility that “in respect of” accommodates a liability which has accrued after the breach has occurred because of the integral connection.  It is a matter of how widely one construes “in respect of” really, is it not?

MR HUTLEY:   Quite.  I accept that, but it has not looked to the sorts of matters the clause which you would expect it to look to if it was concerned with duress in this context, in our respectful submission.  It does not speak to – it speaks to just the breach “in respect of” the breach.  It does not speak of “in respect of” the breach or a threatened breach.  It speaks of a very particular concentrated question and that, we say, objectively tends against a construction as exorbitant to as to relieve them of all liability including the imposition of economic duress.  That is the argument.

FRENCH CJ:   So would you accept that if there had been a failure to use reasonable endeavours, as a result of which you had to go off and buy somewhere else at a higher price, that the liability for that breach would be covered by the cap?

MR HUTLEY:   If we went elsewhere, I accept that, your Honour.  We cannot sue for mere breach of contract for an act of getting other supply.  I accept that because that is damages for the breach, but it is said that we are not able to recover relief by way of restitution in respect of another contract.  That is, the moneys – they have a defence to an action on another contract procured for this purpose by a threat of ‑ ‑ ‑

HAYNE J:   Defence to an action on another contract? 

MR HUTLEY:   No, no, in respect of another contract. 

HAYNE J:   That is, a defence to an action for the money, you say, was had and received.  

MR HUTLEY:   Yes, exactly.  So I am accepting it is in respect of another contract, that is why I use the terminology.  But, your Honour, the question is, is it in respect of the breach of this contract and, we say, it is an exorbitant reading to say in a context where the cause of action is for restitution upon duress in respect of a third contract that this exclusion clause or cap, whether it is 22.7 or 9, expressed in the limited terms of “in respect of” breach would extend that far.  That, in essence, is what we say that the Full Court – the Court of Appeal held.  They were correct to do so.

There is its focus upon breach and liability in respect of breach of the contract directs to the damages, as it were, that damage which flows from – or that liability which flows from the breach.  Not a cause of action to recover in respect of an independent contract or another contract which was procured by illegitimate pressure which was also procured by, and necessarily procured not only by breach but quintessentially by the threat of breach in an industrial…..  If that was sought to be the subject of limitation it could have been expressed so and, in our respectful submission, the words are simply not sufficiently broad to have the benefit which our learned friends say.  That is the same for 22.7 and 22.9.  We have given your Honour the seventh page to the White Rose decision in a way which is legible, I hope.

CRENNAN J:   If you are about to sit down, Mr Hutley, may I ask you a question which I hope will not detain you too long?  It is going back to the contract and it is page 519 of the second volume.

MR HUTLEY:   Would your Honour bear with me, I just put the contract away for the moment.

CRENNAN J:   It is to do with offsets which, as I understand it, is to do with readjusting the minimum quantity which is promised by the buyer, and I just wanted to ask you very briefly only about ‑ ‑ ‑

MR HUTLEY:   Can I just ‑ your Honour knows that minimum quantity is never SMDQ?

CRENNAN J:   Is never what?

MR HUTLEY:   SMDQ.

CRENNAN J:   No.

MR HUTLEY:   Cannot be.

CRENNAN J:   No, that is right.  No, I do understand that.

MR HUTLEY:   Right.  I am sorry, I just wanted to make sure that I ‑ ‑ ‑

CRENNAN J:   In fact, that is relevant to the question.

MR HUTLEY:   I am sorry, I do apologise, your Honour.

CRENNAN J:   I wanted to direct your attention to (g), if I might, which seemed to suggest to me that these very elaborate provisions in relation to possibly reducing the minimum quantity promised recognised that quantities outside the minimum quantity promised by the buyer and the maximum quantity to be delivered as promised by the seller – other quantities ‑ are quantities which are being bought and sold in a competitive market which I take it suggests subject to price fluctuations?  I am sorry if that is ‑ ‑ ‑

MR HUTLEY:   I am sorry, I do apologise, I am afraid I am missing ‑ ‑ ‑

CRENNAN J:   I am just trying to understand how these very elaborate provisions about minimum quantity work.  They seem to allow for reduction of the minimum quantity.

MR HUTLEY:   Yes.

CRENNAN J:   If you look, for argument’s sake, at (d)(iv) on page 519, you cannot reduce the minimum quantity if the buyer, for example, has closed down “gas‑fired power generation units”.

MR HUTLEY:   Yes.

CRENNAN J:   So the parties to the agreement are operating in this context that we are talking about very big ticket items of infrastructure, gas‑fired generation units, but the minimum quantity can be altered?

MR HUTLEY:   Yes, your Honour.

CRENNAN J:   And at 4.5(g) there is – I mean, I am not sure I entirely follow it, which is why I am asking for your assistance:

The Buyer acknowledges that nothing in this Agreement prevents a Seller from selling Natural Gas to a power producer –

Well, I guess that is just an ordinary reference to surplus requirements over and above whatever is the subject of these particular contractual requirements.

MR HUTLEY:   Yes.

CRENNAN J:   My question was whether it seemed to be recognised by the parties to this agreement that quantities other than the minimum quantity, which is a promise by the buyer, and the maximum deliverable quantity which is promised by the seller, are quantities which are going to be dealt with in a competitive electricity market, that is to say, they will be subject to different sort of pricing arrangements, price fluctuations, all that kind of thing.

MR HUTLEY:   Your Honour, I do not think you could say that there was any broad general principle.  The parties probably would acknowledge, as a background fact, that there was a market for gas.

CRENNAN J:   But not only just that there was a market for gas, but the buyer, for example, was permitted to buy requirements that were above the minimum quantity promised from wherever it liked, or whatever price it liked, even though there was a sort of understanding between the two of the parties expressed in the recitals, I think, that the general idea was that the buyer would be buying gas from the sellers.

MR HUTLEY:   We would not be – we were not ‑ ‑ ‑

CRENNAN J:   But the minimum and maximums were designed to give security of cash flow, security of supply, benefits to both, but outside the minimum and maximum requirements it seems that there is flexibility on both sides.

MR HUTLEY:   Your Honour, when your Honour speaks of flexibility on both – obviously there are parameters in which we commit to buy and they commit to sell.

CRENNAN J:   Yes.

MR HUTLEY:   Those parameters, to a degree, can be altered by the regimes which apply here, both in point of detail and over time depending upon what happens.  In fact, the very minimum and maximum quantities alter.  For example, your Honour will have heard reference by my learned friend to the reset date.  The reset date led to alterations, in effect, in the seasonal quantities.  I cannot remember the precise detail, but that transpired.  So, in effect, like any highly sophisticated agreement, they had a range of contingencies dealt with and they did.

CRENNAN J:   Well, it was meant to subsist, also, over a long time which I daresay is important to these considerations.

MR HUTLEY:   The detail of it, your Honour – my learned friend took your Honours to the clause, but there is at 509, your Honour, a thing called the “Contract Overview”.  Your Honours have not been taken to it.  But that, in effect, sets out, as it were, the broad parameters at a quick glance.  Your Honour, they are then, in effect, given effect to by somewhat complex terms.  I accept that, your Honour.  It was a long‑term contract for a total contract of a huge amount of gas and it, in effect, varied in its parameters

from time to time.  But the critical thing is – and outside what might be called the more fixed parameters there were looser parameters.  As we said, that is very much to be understood in the context of the fact found which was central to an understanding of how these contracts work of this distinction between firm and non‑firm gas.

CRENNAN J:   Is there a distinction between a firm obligation to supply and a non‑firm obligation to supply?

MR HUTLEY:   No, no, your Honour, there could be, in effect, fixed commitments with respect to firm gas and if your Honour goes to the prices and looks down them, your Honours will see the most expensive is the first tranche of firm.  Then there, in effect, is generally as you go up the tranche of a reduction of price but in respect of firm gas, that is committed gas, up to MDQ.  Then SMDQ has a price, your Honour, will note that is higher than the last tranche of MDQ, yet lower than the intermediate tranches. 

Now, this has obviously been designed to create benefits and incentives between the parties with respect to usage of gas in ways that one does not need get – and there was no evidence to the particular but obvious to a sort of analysis of profit maximising behaviour.  But the, as it were, type of gas would, I think your Honour is referring to, the less committed tranche ‑ ‑ ‑

CRENNAN J:   Yes.

MR HUTLEY:   ‑ ‑ ‑ we accept does not have, in effect, the absolute character of obligations that the others do.  The question is, as it were, the content of the relative uncertainty which exists between those gases and the more fixed gas and that is what ultimately lies between us, your Honour, and I will not return to it because, as the Chief Justice observes, it is a relatively short point about the meaning of that content.  But I do not, with respect, think that one can speak to the particular content by reference to some, as it were, division between what is certain and what is less certain.  The whole, as it were, the trick in the case, on the contract point, is the degree of the loosening of the certainty, if that assists ‑ ‑ ‑

CRENNAN J:   I understand that point.

MR HUTLEY:   ‑ ‑ ‑ in answering your Honour’s question.  If your Honours please, those are our submissions.

FRENCH CJ:   Thank you, Mr Hutley.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, may I deal first with clause 3.3 and, your Honours, it is strictly correct to say as Verve has contended that our argument as to the construction of the provision is not as ambitious, perhaps if I could use that word, as it had been put in the Court of Appeal.  But we are now attacking the construction put on the provision by that court and a construction in large measure adopted by it at the instigation of Verve.  Your Honours, one can see that from the meaning which is attributed to the term “able” in clause 3.3(b) and could I take your Honours forward to Justice Murphy at volume 3, page 1097, paragraphs 128 to 129 where you will see in the sixth and seventh items with which his Honour is dealing, his referenced the concept of what is meant by “able”.

Your Honours, the second point we would submit is that it is not correct to describe our argument as giving no binding operation to clause 3.3(a).  The true situation is that to which we adverted, we would submit, in‑chief, namely, that the sellers are required to make reasonable endeavours to make available SMDQ to Verve.  Reasonable endeavours has to be considered in the light of the ability of the sellers to take into account the matters referred to in the opening part of clause 3.3(b) and it is in that context that we spoke of the word “substantial” and it has its place.

Your Honours, I do not intend to go back to the argument.  Could I indicate to your Honours where in the transcript you will find what we said about that, page 10, lines 288 to 293; page 12, lines 383 to 396 and page 13, lines 418 to 458.  The third point in relation to clause 3.3 concerns the relationship between 3.3 and clause 9.  Your Honours will note in relation to clause 3.3 at page 511 in volume 2 that in its opening words it speaks of the “nomination for a Day” and then your Honours will also see the opening words of 3.3(b) where it speaks of, “In determining whether they are able to supply SMDQ on a Day”.

If one goes to clause 9.3 it adds, as our learned friends accepted I think, that it adds nothing to clause 3.3.  If you go to clause 9.6 which is at page 528 where some reliance was placed upon it also your Honours will see that it is looking at the position as at the two times contemplated by the provisions of 9.1(d) and 9.4, those times being in relation to 9.1(d), the day in which a buyer by “a subsequent Rolling Nomination Notice” varies its nomination and then in 9.4(b) it is speaking of a period, “Not later than 4 hours after receiving a Short Notice Nomination”.

Neither of those provisions, in our submission, was contemplated by clause 3.3.  Your Honours, could I turn then to some submissions that were made by our learned friends about some of the decisions in this Court.  The first concerns David Securities, your Honours, and in relation to David Securities (1992) 175 CLR 353, that decision is not in our submission inconsistent with the various authorities to which we have referred because in David Securities, the relevant contractual provision was void, so that there was no need for the loan agreements to be rescinded.  The provision had no valid operation.  The Court, when referring to the vitiating or qualifying factors that permit a claim in unjust enrichment – that is at page 379, about point 2 on the page – was not dealing with the question whether a contract made when a plaintiff was subject to a vitiating factor need not be first set aside.  Could I also say, your Honours, if one looks at page 379 of that case and goes down to the second last paragraph on the page, the one commencing about point 6 on the page, your Honours will see that it is said:

The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution.  Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust –

Then your Honours will see the reference in the last sentence or two of that paragraph to the fact that one can raise –

by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust –

Well, now, your Honours, if one looks at a case of the present kind, what you have is a contract.  I do not think I need to go to the actual terms of the short‑term agreements for the moment, but what your Honours will see is that in respect of the periods covered by them - they are specified in it – that the buyers have agreed to take particular quantities, the sellers agree that that the – both parties, I am sorry, agree that the actual supply is interruptible, but if it is taken there remains an obligation yet to be satisfied to pay for the gas that has been taken.

Now, your Honours, in one sense I suppose one can call it a put option, but the fact of the matter is that the contract is one which remains in being for the period that is contemplated, the first one for 26 days and the second for three months, and in relation to that the contract is in operation, it being operated by taking the gas and creating a continuing obligation to pay.  So that, your Honours, it is a case where there is an obligation where there is something intelligible in saying that the contract is capable of rescission.

Could I just say this, your Honours, that the argument ad misericordiam really advanced by our learned friends seems to be this, that because if you rescind those contracts you have to give back the gas that you got, notionally at least, and you give it back notionally by giving it back at the value of the gas at the time and it happens, because the facts are agreed in this regard, that the value of the gas is the same as the amount paid, so that the two amounts would cancel out, the situation which would then obtain would be that the buyer has the remedy provided for, for breach of contract. 

Whilst there may be the remedy of restitution, the quantification of the remedy amounts to nothing.  That leaves the buyer with the remedy of damages for breach of contract, but of course the problem is that the quantum of that is one which is capped by the agreement which is set out in clause 22.7(c).

Your Honours, that does not seem a situation which is very much removed from the situation referred to in the two passages in Lumbers to which I referred earlier where the nature of the restitution remedy has to be considered in the light of the contractual relationship – sorry, in light of the relationship provisions existing between the parties where there is an existing contract.  Your Honours, in the Pao On Case [1980] AC 614 at 634 it does seem clear enough if one goes to page 634 that – between letters D and E your Honours will see that:

justice requires that men, who have negotiated at arm’s length, be held to their bargains unless it can be shown that their consent was vitiated by fraud, mistake or duress.  If a promise is induced by coercion of a man’s will, the doctrine of duress suffices to do justice.  The party coerced, if he chooses and acts in time, can avoid the contract.

Your Honours will see just above letter G that:

duress does no more than render a contract voidable.

Your Honours, our learned friends relied also upon the decision of the Court in Roxborough and in relation to that the contention is advanced - your Honours will see it is in our learned friend’s submissions in paragraphs 102 to 106 and was advanced also orally.  It was to the effect that the Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 did away with the need to avoid contractual obligations before restitution could be obtained.

Your Honours, we have dealt with this point in our written submissions in paragraphs 141 and 142 and in paragraph 40 in reply.  Could we just say shortly that the Court effectively held in Roxborough that the contract was severable so far as the tax component was concerned and your Honours will see that, if I could perhaps just give the paragraph numbers, in paragraph 21 of the joint reasons of Chief Justice Gleeson and Justices Gaudron and Hayne; 75, Justice Gummow; 109, Justice Kirby and 199, Justice Callinan. 

Your Honours, unlike Roxborough, it is not possible to sever Verve’s obligation to pay for the gas delivered under the short‑term agreements.  It is the only consideration that it gave under those agreements and, your Honours, could we say that Justice Murphy was correct in distinguishing Roxborough in paragraph 206 of his reasons at page 1120 in volume 3.

Your Honours, our learned friends referred also to Equuscorp v Haxton (2012) 246 CLR 498 and I wonder if I could take your Honours to that for a moment? I wanted to go particularly to page 516, paragraph 30. Your Honours, that passage that is set out there is, in our submission, really against Verve’s contentions rather than in their favour, and it is against them because the last dot point referred to in paragraph 30 recognises that any prima facie entitlement is one capable of being displaced, and one of the reasons for displacement, in our submission, would be the existence of unrescinded, in a sense completed contracts.

Could I move then, your Honours, to clause 22.7 and if I could take your Honours to the provision which your Honours will see at page 555 of volume 2.  It is a provision between the two sets of parties and Verve in each case.  It is a provision contained in a contract to go for a long term.  It is a provision forming part of the suite, if I could use that expression, of provisions dealing with liabilities arising between the parties at various points and in particular it forms part of the limitation of the liability of the seller in a contract which also contains clause 22.9.  Clause 22.9 says that:

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 –

a connecting phrase again –

any breach of this agreement.

Now, your Honours, if one looks at what occurred your Honours will see that there had been buyer nominations - which our learned friend emphasised this morning – in respect of SMDQ in the whole of the relevant period and we did not accept at any point that we were obliged to meet those nominations and so we did not, in our submission, use on this assumption reasonable endeavours to meet the buyer nomination, the very thing that is contemplated by clause 22.7.

Your Honours, one asks then why is not the claim that might exist in duress, giving rise to a liability in us, why is it not a liability in respect of a failure to use reasonable endeavours, et cetera, in terms of 22.7(c)?  If that

is so, your Honours, that is the very thing, whatever form of liability it might be, that 22.7(c) contemplates. 

Finally in that regard, your Honours, could I take your Honours to volume 3 at page 1109 in the reasons for judgment of Justice Murphy on this issue, at paragraph 167.  You will see – your Honours, I shall not read it out, but what his Honour says in relation to that is something which we would submit is perfectly correct.

Your Honours, those are the matters on which I wish to make submissions.  Could I just say something about the money?  Your Honours will have the document our learned friends provided.  If we were to fail in the matter, the right figures, we would accept, would be those in the last five lines set out there.  Your Honour, those are our submissions.

FRENCH CJ:   Thank you, Mr Jackson.  The Court will reserve its decision.  The Court adjourns until 10 o’clock tomorrow morning.

AT 3.25 PM THE MATTER WAS ADJOURNED