Electricity Generation Corporation v Woodside Energy Ltd

The dispute in this matter concerned a long-term gas supply agreement (GSA) between Electricity Generation Corporation (Verve) and Woodside Energy Ltd and others (the Sellers). Following a gas explosion at a third-party plant that significantly reduced supply to the market, the Sellers refused to supply supplemental gas to Verve at the price stipulated in the GSA. Instead, they offered to supply equivalent quantities under separate, short-term agreements at a substantially higher market price. Verve contended that this refusal constituted a breach of the Sellers' obligation to use "reasonable endeavours" to supply supplemental gas. The High Court of Australia was required to determine whether the Sellers had breached their contractual obligations.

The central legal issue before the High Court was the construction of the Sellers' obligation under the GSA to use "reasonable endeavours" to supply supplemental gas, particularly in light of a contractual provision allowing them to consider "relevant commercial, economic and operational matters" when determining their ability to supply. The Court had to ascertain whether the Sellers' refusal to supply at the GSA price, and their subsequent offer to supply at market rates, was consistent with their contractual commitments, especially given that it was common ground that the Sellers had the capacity to supply the nominated quantities.

The High Court reasoned that the Sellers' obligation to use "reasonable endeavours" was not absolute and was qualified by their right to take into account all relevant commercial, economic, and operational matters. The Court held that the Sellers were entitled to consider the prevailing market price and the opportunity to enter into more profitable short-term agreements when assessing their ability to supply supplemental gas under the GSA. The explosion and subsequent market conditions were considered relevant commercial and economic matters that the Sellers were permitted to take into account. Consequently, the Court concluded that the Sellers had not breached their obligation to use reasonable endeavours, as their actions were within the scope of the contractual provisions.

In Matter No P47/2013, the appeal was dismissed with costs. In Matter No P48/2013, the appeal was allowed with costs, and the orders of the Court of Appeal of the Supreme Court of Western Australia were set aside and replaced with an order dismissing the appeal to that Court with costs.