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

The High Court of Australia considered appeals and cross-appeals arising from a dispute between Electricity Generation Corporation (trading as Verve Energy) and Woodside Energy Ltd and others concerning the interpretation of a contract for the supply of natural gas. The core of the dispute involved the calculation of the price payable for gas supplied under a long-term agreement, specifically how adjustments for inflation should be applied.

The central legal issue before the High Court was the proper construction of clause 10.2 of the Gas Supply Agreement, which stipulated that the "Base Price" for gas would be adjusted annually in accordance with the Consumer Price Index (CPI). The parties disagreed on whether the CPI adjustment should be applied to the Base Price as it stood at the commencement of the contract, or whether it should be compounded annually, reflecting the cumulative effect of inflation over time. This interpretation question was critical to determining the quantum of payments owed by Verve Energy to Woodside.

The High Court, in a joint judgment, held that the plain language of clause 10.2 indicated that the CPI adjustment was to be applied to the Base Price as it was at the commencement of the contract, and that this adjusted price would then form the basis for the next year's adjustment. The Court rejected the argument that the clause mandated a compounding adjustment, finding that such an interpretation would require clearer and more explicit language. The Court emphasised the importance of adhering to the literal meaning of contractual provisions unless there was a compelling reason to depart from it, and that the principle of *pacta sunt servanda* (agreements must be kept) guided the interpretation of commercial contracts.

The High Court allowed Verve Energy's appeal in part and dismissed Woodside's cross-appeal, varying the orders of the Full Federal Court. The Court remitted the matter to the Federal Court for redetermination of the amount of damages payable, consistent with the High Court's interpretation of clause 10.2.