GEC Alsthom Australia Pty Ltd v Brimbank City Council

[1998] FCA 174

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 91 of 1993

BETWEEN:

GEC ALSTHOM AUSTRALIA PTY LTD
Applicant

AND:

BRIMBANK CITY COUNCIL
First Respondent

MAUNSELL PTY LTD
Second Respondent

AND:

BRIMBANK CITY COUNCIL
Cross Applicant

GEC ALSTHOM AUSTRALIA PTY LTD
First Cross Respondent

MAUNSELL PTY LTD
Second Cross Respondent

JUDGES:	RYAN J
DATE:	2 MARCH 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

On 18 August 1997, I made orders giving effect to earlier reasons for judgment published on 20 February 1996.  The orders of 18 August 1997 included the following paragraphs:

2.THAT IT BE DECLARED that Brimbank is obliged to indemnify GEC against any direct loss attributable to Brimbank’s failure to supply a gas energy flow of 95 gigajoules per hour Lower Calorific Value for a period of 10 years from 1 March 1992.

(In this declaration “net loss of income” includes the amount calculated after deducting:

(a)from the power which it is assumed would have been generated but for the said failure to supply a gas energy flow at the stipulated rate

(i)15% attributable to engine and other plant downtime

(ii)11% attributable to parasitic loss;

(b)from the income which would have been received from time to time from the sale of the net power which it is assumed would have been so generated

(i)any savings achieved by GEC in consequence of the supply of gas to it being reduced from time to time to below 95 gigajoules per hour;

(ii)royalties calculated in accordance with cl. 3 of the Gas Supply Agreement on the basis that the first instalment other than the Initial Royalty fell to be calculated on 24 December 1992)

3.THAT Brimbank pay to GEC an amount calculated in accordance with the declaration in paragraph 2 of this Order  after allowing for the savings referred to in sub-paragraph (b)(ii) thereof achieved to 31 January 1996 which have been agreed in the sum of $875,996 and for calculation errors in respect of the same period in the sum of $41,564.

4.THAT Brimbank pay to GEC interest on the amounts calculated in accordance with paragraphs 2 and 3 of this Order as due to GEC from month to month from April 1992 to the date of payment at the rate of 11% per annum.

5.THAT Brimbank pay to GEC from month to month after the payment referred to in paragraph 4 of this Order until 1 March 2002, or further order, an amount calculated in accordance with the declaration in paragraph 2 of this Order.

6.THAT Maunsell pay to Brimbank the amounts paid by Brimbank to GEC in accordance with paragraphs 3, 4 and 5 of this Order and an amount representing the expenses incurred by Brimbank as a result of the gas energy flow from the Hulett Street site having been less than 95 gigajoules per hour Lower Calorific Value.

It is clear that there has been omitted from paragraph 2 of that order a reference to “net loss of income” which is partly defined in the later part of that paragraph as requiring to be calculated after deducting the items described in sub-paragraphs (a) and (b) of paragraph 2.  It is not disputed that paragraph 2 should be amended by inserting immediately before the words “net loss of income” the words “‘direct loss’ means ‘net loss of income’ and...”.  Nor is it disputed that paragraph 4 should be amended by adding by after the numeral “3” the word and numeral “and 5” and that the numeral “3” should be substituted for the numeral “4” where appearing in paragraph 5.  I shall therefore order that paragraphs 2, 4 and 5 of the order of 18 August 1997 be amended accordingly.

How is “net loss of income” to be calculated?
The approaches respectively taken to the calculation of the amount contemplated by paragraph 2 of the order of 18 August by the applicant and Mr Ryan, a chartered accountant retained by the respondents, differ over whether, as Mr Ryan contends, the net loss of income is to be calculated after ascertaining, by reference to GEC’s records, the actual number of kilowatt hours lost in peak and off-peak generation as a result of gas energy flow having been reduced to below 95 gigajoules an hour.  In my view, the terms of the earlier order make clear that the calculation contemplated by paragraph 2 is entirely hypothetical or “theoretical” to use the term favoured by Mr Ryan.  Thus, at p 3 of the reasons for judgment of 18 August 1997 I concluded the discussion of downtime by observing (emphasis added):

In the absence of any evidence suggesting a more precise method of allowing for this factor, I shall order that GEC’s hypothetical net operating revenues from a gas flow of 95 GJ-hr be calculated on that basis.

Similarly, in discussing parasitic loss I concluded at p 4 of the same reasons:

Because of the hypothetical nature of the exercise involved in imputing to GEC a level of production which would have been achieved had the supply of gas been as warranted by Sunshine, actual experience at much lower levels of production can provide only a rough and ready guide to the appropriate allowance for parasitic loss.  On a broad view of all the evidence, including that of early forecasts of parasitic loss, I consider that the appropriate allowance to be made in calculating GEC’s hypothetical net achievable production is 11%.

Had it been intended that the calculation should be based on recourse to daily production records there would have been no need to impute broad average percentages of 15% to engine and other plant downtime and 11% to parasitic loss.  The actual allowances to be made in respect of those matters could have been calculated at the same time as recourse was had to GEC’s daily records for the purpose of calculating the actual generation achievable on a given day but for the deficiencies in the volume or quality of gas on that day.  On the other hand the method favoured by Mr Ryan, since it preserves the deductions of the average percentages of 15% for engine and other plant downtime and 11% for parasitic loss, countenances an element of double counting of those deductions which would impose an unfair detriment on GEC. 

The first step in calculating the amount by which Brimbank is obliged to indemnify GEC in accordance with paragraph 2 of the order of 18 August 1997 is to quantify the hypothetical amount of power which would have been generated but for the failure to supply gas energy flow of 95 gigajoules per hour for the period from 6 April 1992 to 31 January 1996.  Because of differential prices paid by the SECV (now “Powercor”) for power supplied during peak and off-peak hours, it is necessary to divide the total number of kilowatt hours hypothetically so generated into peak and off-peak generation.

It is then to be assumed that all five generator sets would have been operated to produce those hypothetical quantities of power during peak and off-peak hours subject to similarly hypothetical deductions for downtime and parasitic loss.  The savings referred to in paragraph 2(b)(i) of the order of 18 August 1997 are also hypothetical in the sense that their calculation requires, first, an assumption as to what it would have cost GEC to run the five generator sets at the capacity necessary to convert a gas energy flow of 95 gigajoules per hour.  The “savings” are to be arrived at by then deducting the actual cost to GEC of operating its plant at the reduced levels permitted by the deficient gas energy flow.  Any difficulty in relation to this step was averted by the parties, having agreed in quantifying the savings in respect of the period to 31 January 1996 at $875,996.

“Calculation Errors”
There is much force in the suggestion made on behalf of the respondents that in an essentially hypothetical calculation of the type which I consider is contemplated by paragraph 2 of the earlier order, it is inappropriate to allow a deduction for “calculation errors”.  The reasons for judgment which accompanied the orders of 15 August 1997 dealt with this question, as it was argued, under a separate head.  The conflicting evidence discussed in those reasons was directed to “corrections” to GEC’s calculations of actual lost revenue in the period from 1992 to 1994.  In the event, those calculations were only relevant to the imputation of an average percentage of downtime for reasons not attributable to deficiencies in the quantity or quality of gas.  Accordingly, the amount finally accepted as referable to those calculation errors should not be allowed to Brimbank in calculating the amount payable under paragraph 2 of the order of 18 August 1997.  That order must therefore be further amended by deleting from paragraph 3 the words appearing after the figures “$875,996”. 

Royalties
This matter was discussed at pp 4-5 of my reasons for judgment of 18 August 1997.  Reference was there made to the stipulation in the Gas Supply Agreement that Sunshine (now Brimbank) should pay royalties by way of an initial amount of $3,824,075 and a residual amount equal to 3.75% of the amount received by GEC for the supply of electricity to the SECV subject to an annual minimum of $108,000 to be adjusted by reference to the Consumer Price Index.  In those earlier reasons I was concerned with the date of the “anniversary of this Agreement” from which was to be calculated GEC’s liability to make up the shortfall between the residual royalties actually paid to Sunshine and the minimum amount of $108,000 as adjusted. 

It was not clear that the minimum amount of $108,000 as adjusted would be equal to 3.75% of the amount which would have been received by GEC had it been able to supply electricity to the SECV generated from a gas energy flow of 95 gigajoules per hour.  If it is not, because of the hypothetical exercise involved in the calculation of GEC’s loss as explained above, it will be necessary to credit Sunshine with the amount of residual royalties which it would have received had sales of electricity been made in volumes predicated on generation using gas energy flows of 95 gigajoules per hour.  Sub-paragraph 2(b)(ii) of the order of 18 August 1997 should be applied accordingly.

Interest
On behalf of Maunsell, Mrs Rees of Counsel argued that interest on the amounts payable from time to time to GEC by way of indemnity should not be calculated from the end of each month on which an amount became payable but only from the date on which each invoice rendered by GEC was payable according to its terms. She instanced an invoice for loss of revenue for September 1995 which was dated 9 October 1995 and was expressed to be “due and payable within 14 days”. However, the interest provided for in my order of 18 August 1997 was not interest on a debt which accrues and becomes payable in accordance with the relevant term (if any) of the contract pursuant to which the debt comes into existence. It was ordered pursuant to s 51A(1) of the Federal Court of Australia Act 1976 which gives the Court entering judgment for the recovery of money a general discretion as to the rate of interest, the amount on which it is payable and the date from which it is to be calculated (not being earlier than the date when the cause of action arose).

In the present case a cause of action arose on each occasion on which GEC became entitled to an indemnity against loss flowing from delivery of gas at less than the rate of 95 gigajoules per hour.  It is sensible for the amount of the indemnity to be calculated at the end of each calendar month in which the loss is sustained.  Interest should similarly accrue on each amount from the end of the month in which that amount of loss was suffered.  It is common ground that the plant was not operative before 6 April 1992 so interest should be calculated from 30 April 1992 for the part month ending on that date and monthly thereafter.  To the extend necessary, I shall further amend paragraph 4 of the order of 18 August 1997 to give effect to this ruling.

Conclusion
I have circulated with these reasons a draft order to be made in substitution for the order of 18 August 1997 incorporating the amendments which it seems to me should be made to the earlier order to give effect to the reasons explained above.  I shall hear Counsel at a mutually convenient time on the final form of the proposed substituted order and on the question of the costs of GEC’s motion on notice dated 4 December 1997.

I certify that this and the preceding (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:            2 March 1998

Counsel for the Applicant and First Cross Respondent:	Mr J Middleton, QC and Mr M Garner
Solicitors for the Applicant and First Cross Respondent:	Colin Biggers & Paisley
Counsel for the First Respondent and Cross Applicant:	Mr J G Larkins, QC and Mr T North
Solicitors for the First Respondent and Cross Applicant:	Schetzer Brott & Appel
Counsel for the Second Respondent and Second Cross Respondent:	Mrs K Rees
Solicitors for the Second Respondent and Second Cross Respondent:	Ebsworth & Ebsworth
Date of Hearing:	26 February 1998
Date of Judgment:	2 March 1998