Macquarie Generation v CNA Resources Ltd

[2001] NSWSC 1040

CITATION:	Macquarie Generation v CNA Resources Ltd [2001] NSWSC 1040
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50057/01
HEARING DATE(S):	13 & 14 November, 2001
JUDGMENT DATE:	15 November 2001
PARTIES :	Macquarie Generation [Plaintiff] CNA Resources Ltd (formerly Peabody Resources Ltd) [Defendant]
JUDGMENT OF:	Palmer J

COUNSEL :	B.W. Walker SC, I.M. Jackman, M. Leeming [Plaintiff] N. Young QC, P.W. Collinson [Defendant]
SOLICITORS:	Speed & Stracey [Plaintiff] Allens Arthur Robinson [Defendant]
CATCHWORDS:	CONTRACTS - OFFER AND ACCEPTANCE - CONDITIONAL OFFER - Whether an offer expressed to be subject to a condition can be accepted - whether a condition to an offer was "spent" by reason of subsequent events and the offer then became capable of immediate acceptance - INVITATION TO TENDER - CONTRACT - Whether submission of tender which did not comply with the requirements of the Invitation to Tender brought into existence a contract to conform to the tender requirements of the Invitation - whether the terms of the tender submitted could be ignored - CONTRACT - WRONGFUL REPUDIATION - Alleged agreement requiring formal contract to be executed subsequently - Plaintiff proposes formal contract containing terms materially inconsistent with earlier contract - Plaintiff requires Defendant to execute formal contract - whether Plaintiff demonstrates intention not to be bound by terms of earlier contract.
CASES CITED:	- Buhrer v Tweedie [1973] 1 NZLR 517 - Dickinson v Dodds (1876) 2 ChD 463 - Shevill v Builders Licensing Board (1982) 149 CLR 620
DECISION:	No contract as alleged came into existence; Summons dismissed with costs.

Introduction

1    By Summons filed on 21 April 2001 the Plaintiff seeks a declaration that the Defendant has wrongfully repudiated an agreement for the supply of coal which, the Plaintiff says, came into existence in March 2001. The Plaintiff claims damages for the alleged wrongful repudiation.

2 On 17 August 2001 the Court ordered, pursuant to Part 31 of the Supreme Court Rules, that the question of liability be separately determined. That is the only issue which I have to decide.

3    The evidence in the case is entirely documentary and the issues to be resolved depend upon the way in which a relatively small number of documents are to be construed.

4    At the heart of the controversy is the issue whether any contract for the supply of coal came into existence between the parties at all.

Facts
5    The relevant facts may be stated very briefly.

6    Some time about mid-2000 the Plaintiff, by Specification 47/2000, invited tenders for the supply of crushed coal, in accordance with quality requirements defined in the specification, in the range of 10 to 40 million Gigajoules per annum for a period up to ten years (“the Invitation to Tender”). The time within which tenders were to be lodged was extended to noon on 3 October 2000.

7    It was a term of the Invitation to Tender that all tenders submitted were to be irrevocable, open for 180 days after the close of the tender period and were to be capable of immediate acceptance by the Plaintiff.

8    On 29 September 2000 the Defendant submitted its tender in response to the Invitation to Tender. The Defendant’s tender (called “the General Tender”) contained proposals to supply coal from two areas known as Ravenswood West and Ravenswood East. The Ravenswood West area was the subject of a Mining Lease Application by the Defendant (“MLA 91”) which had not yet been converted into a Mining Lease. Apparently, the only matter outstanding before MLA 91 could be converted into a Mining Lease was the acquisition by the Defendant of certain land from three landholders.

9    The General Tender purported to be subject to a number of conditions, the detail of which I will come to shortly. However, one of the conditions was that all proposals for supply contained in the General Tender were subject to the final approval of the Board of the Defendant’s ultimate holding company, P&L Coal Holdings Corporation (“P&L”). The General Tender stated the reason for this condition, which was that the Defendant’s parent company had decided to quit its Australian coal industry investments by selling off the subsidiaries which held those investments. That proposed sale, it was said, was likely to occur during the tender process.

10    The Defendant’s parent company did proceed with the sale of its subsidiaries, as had been indicated in the General Tender. The sale of the shares in the Defendant to Coal & Allied Industries Ltd (“Coal & Allied”) was completed in January 2000 and the Defendant changed its name from Peabody Resources Ltd to CNA Resources Ltd.

11    The Board of the Defendant’s former parent company, P&L, has never given its approval to the Defendant’s General Tender.

12    On 12 February 2000 the Plaintiff wrote to the Defendant stating that it had selected the Defendant as one of the Preferred Tenderers, as that term is defined in the Invitation to Tender. The letter requested negotiations in order to refine further issues.

13    On 2 March 2001, Coal & Allied wrote to the Plaintiff advising that it was in the process of conducting a review of the Defendant’s operations. The letter stated that Coal & Allied had studied the tenders submitted by the Defendant in response to the Plaintiff’s Invitation to Tender, and continued:
“These tenders are conditional and capable of acceptance only on satisfaction of the relevant conditions, which have not been satisfied. In particular, each of the tenders is subject to P&L Coal Holdings’ Board approval and this approval was not obtained.”


14    A meeting of representatives of the parties took place on 7 March 2001. A minute of the meeting records that the Defendant’s representatives emphasised that it was not possible for the condition in the General Tender relating to P&L Board approval to be met.

15    On 15 March 2001 the Plaintiff wrote to the Defendant in the following terms:
“We were naturally very disappointed to hear you say at our last meeting that Rio Tinto [Coal & Allied’s parent company] did not regard the tender made by Peabody as binding. Immediately before you bought Peabody we were in serious negotiations with them about limited parts of their tenders and we were expecting a quick response.
Disappointment aside, we do not accept your position, and so that there are no misunderstandings, Notice accepting the Peabody Combined Option is attached.”

16    Enclosed with that letter was another letter dated 15 March 2001 in the following terms:
“You are hereby notified that Macquarie Generation accepts the Combined Option (as referred to in 1.4.3 of Peabody’s tender) from Peabody Resources Limited consisting of Option 1 of your tender set out in Schedule E(I) concerning Ravensworth West and Option 2 of your tender set out in Schedule E(II) concerning Ravensworth East.
In accordance with the provisions of the Invitation to Tender our acceptance referred to above constitutes the formation of an agreement between yourselves and ourselves and each of us must execute all documents and do all things necessary to record the formation of that agreement.”


17    On 11 April 2001 the Plaintiff wrote to the Defendant, enclosing Coal Supply Contracts which it had prepared as containing the terms of the binding agreement which it said had been brought into existence by its acceptance on 15 March 2001 of the Combined Option contained in the General Tender. The Contracts had been executed by the Plaintiff under seal. The letter requested that the Defendant execute and return the contracts.

18    Apparently, there was no response to this letter from the Defendant before 27 April 2001, when the Plaintiff filed its Summons seeking a declaration that the Defendant had wrongfully repudiated both an agreement said to have been brought into existence upon submission by the Defendant of the General Tender (which I will for convenience call “the Tender Agreement”) and a Coal Supply Contract said to have brought into existence on 15 March 2001 by the Plaintiff’s Notice of that date.

19    During the course of submissions, Mr Walker SC, who appears with Messrs Jackman and Leeming of Counsel, informed the Court that the Plaintiff no longer sought a declaration that the Tender Agreement had been wrongfully repudiated. He did, however, maintain the contention that the Tender Agreement had come into existence as a binding contract between the parties.

The issues
20    A great many points have been argued with ability and ingenuity by Counsel in the case but, I think, the essential issues may be reduced to the following:
– Did a contract (that is, the Tender Agreement alleged by the Plaintiff) come existence between the parties when the Defendant delivered the General Tender to the Plaintiff in response to the Invitation to Tender?
-– If so, what were the terms of the Tender Agreement in so far as they may be presently relevant?
– Regardless of the existence of a Tender Agreement, did the General Tender itself comprise an unconditional offer by the Defendant immediately capable of acceptance by the Plaintiff?

– If so, was that offer still open to the Plaintiff to accept on 15 March 2001
– Did a contract for the supply of coal come into existence on 15 March 2001 by reason of the Plaintiff’s Notice of Acceptance of that date and, if so, what were the terms of that contract?
– If such contract did come into existence, did the Plaintiff itself wrongfully repudiate that contract by insisting that the Defendant execute a formal contract for the supply of coal in the terms contained in the documents executed by the Plaintiff and delivered to the Defendant under cover of the Plaintiff’s letter of 11 April 2000?
– If a contract for the supply of coal came into existence, did the Defendant wrongfully repudiate it?

The Invitation to Tender
21    It is now necessary to set out the terms of the documents which fall to be construed. Regrettably, they are of some length.

22    The parts of the Invitation to Tender relevant to the issues I have to decide are as follows:
“2 SCOPE OF INVITATION TO TENDER
2.1 Macquarie is seeking Tenders for the supply of coal for periods up to ten years commencing between 1 January 2001 and 1 January 2004. Tenders may be for any quantity of coal in the range 10 to 40 million Gigajoules per annum.
…
3.5 Closing of Tenders
3.5.1 All Tenders must be lodged by the Closing Time. Tenders lodged after the Closing Time will not be considered.
…
3.6 Validity Period
Tenders remain open and irrevocable for one hundred and eighty (180) days from the Closing Time or such extended period or periods as may be agreed between Macquarie and the Tenderer in writing.
3.7 Preferred Tenderers
3.7.1 After the Closing Time Macquarie will evaluate the Tenders and may select one or more Tenderers as Preferred Tenderers.
3.7.2 Macquarie will by Notice inform Preferred Tenderers of their selection as a Preferred Tenderer.
…
3.9 Acceptance
3.9.1 Macquarie may Accept any Tender by any Preferred Tenderer by Notice to that Preferred Tenderer signed by Macquarie, whether or not Macquarie has requested or entered negotiations with that Preferred Tenderer.
3.9.2 Acceptance of a Tender by Macquarie constitutes the formation of an agreement between Macquarie and the Tenderer on the conditions set out in the Tender as varied by agreement, if any, negotiated under Clause 3.8.
3.9.3 Negotiation under Clause 3.8 with any Tenderer does not affect Macquarie’s ability to Accept any Tender in the form originally submitted.
3.9.4 The Tenderer and Macquarie must execute all documents and do all things necessary to record the formation of the agreement under Clause 3.9.2.
…
4 ALTERNATE TENDERS
4.1 Tenderers must submit Conforming Tenders
Tenderers submitting Alternate Tenders must also submit a Conforming Tender.
4.2 Alternate Tenders to be Submitted in Accordance with Invitation to Tender
Alternate Tenders must be submitted strictly according to conditions set out in this Invitation to Tender except Clause 7.
4.3 Must be a Detailed Proposal
Alternate Tenders must be submitted as a Tender sufficiently detailed to be capable of Acceptance without the necessity for further explanation or negotiation between the Tenderer and Macquarie.
4.4 Negotiation of Alternate Tender
All content of Alternate Tenders may be negotiated between Macquarie and the Tenderer at the request of Macquarie and agreement of the Tenderer.
4.5 Acceptance of Alternate Tenders
4.5.1 Macquarie may Accept any Alternate Tender by any Preferred Tenderer by Notice to that Preferred Tenderer signed by Macquarie, whether or not Macquarie has requested or entered negotiations with that Preferred Tenderer.
4.5.2 Acceptance of an Alternate Tender by Macquarie constitutes the formation of an agreement between Macquarie and the Tenderer on the conditions set out in the Alternate Tender as varied by agreement, if any, negotiated under Clause 3.8 and 4.4.
…
6 THE TENDER PACKAGE
6.1.1 The Tenderer must lodge 1 complete original set and 2 complete copy sets of the following documents:
(a) Schedule A – Executed Tender Agreement
(b) Schedule B – Tenderer Information (Clause 5.2)
(c) Schedule C – List of Addenda (Clause 3.3.4)
(d) Schedule E – Executed Tender Form
…
7 REQUIREMENTS OF TENDERS
7.1 Tender must be on basis of Supply Contract
Tenders must be for the supply of Coal strictly in accordance with the Supply Contract.
…
SCHEDULE A
TENDER AGREEMENT
MACQUARIE GENERATION – COAL SUPPLY


Name_______________________________________(The Tenderer)
of _________________________________________

in consideration of Macquarie agreeing (subject to the conditions set out in the Invitation to Tender) to consider the Tender:

(a) tenders to supply coal to Macquarie;

(b) agrees to be bound by all the conditions set out in the Invitation to Tender and Addenda;

(c) undertakes to provide such further information as is required for the evaluation of the Tenderer’s financial capability and capacity to supply coal; and

(d) grants permission for Macquarie to reveal the contents of the Tenderer’s Tender and subsequent Tender information provided to Macquarie’s officers and staff, and to its consultants and advisers

Dated _____________2000

THE COMMON SEAL of

PTY LIMITED is affixed in the presence of

_______________________ _______________________
Signature of Authorised Person Signature of Authorised Person

_______________________ _______________________
Office Held Office Held

_______________________ _______________________
Name of Authorised Person Name of Authorised Person ”


23    A “Conforming Tender” is defined as one which strictly complies with the Invitation to Tender, including, without limitation, the Supply Contract, a pro forma of which was part of the Invitation to Tender. An “Alternative Tender” is defined as one which is not a Conforming Tender.

The General Tender
24    The relevant parts of the General Tender delivered by the Defendant are as follows:

“1 EXECUTIVE SUMMARY
1.1 The Tenderer
The tendering company is Peabody Resources Limited, Australian Business Number (ABN) 96 004 447 938.
This tender contains a conforming tender, and has been prepared in response to and in accordance with Specification 47/2000 issued by Macquarie Generation for the supply of coal to the Bayswater and Liddell Power Stations.
1.2 Subject to Board Approval
All proposals contained herein are tendered subject to final approval by the Board of P&L Coal Holdings Corporation, the ultimate owner of Peabody Resources Limited. The US parent has decided to sell its Australian coal industry investments by way of sale of shares in the UK based subsidiaries through which this investment is held. There is a likelihood that a change of ownership of Peabody Resources Limited will occur during the validity period of this tender, i.e., within the next six months.
…
1.4 The Proposal
1.4.1 Ravensworth West
It is proposed to supply Macquarie Generation with four hundred and fourteen million gigajoules (414 million GJ) at the rate of 42 million Gigajoules per annum for ten years commencing on 1st January, 2002, in accordance with the pricing detailed in Option 1 of Schedule E(1) of this tender submission. This is a supply equivalent to 2,000,000 tonnes per annum from 1st January, 2002 to 31st December, 2011, a total of 20 million tonnes.
This proposal is listed as Option 1 on Schedule E(1) of the accompanying tender documents. It is subject to the following conditions:–
(i) Conversion of MLA 91 into a Mining Lease;
(ii) use of existing Ravensworth South/Narama facilities;
(iii) Ability to source from alternative Ravensworth Operations’ Mines;
(iv) Variation of the basis of calculation of penalties;
(v) Price escalation via the application of a Rise and Fall Formula;
(vi) No Supplier liability for consequential losses;
(vii) Deletion of Environmental Law Restrictions.
These conditions are discussed in detail in the Section 2 Conditions below.
1.4.2 Ravensworth East
It is proposed to supply Macquarie Generation with a number of options ranging from 40 million GJ to 67.2 million GJ for 10 years commencing on 1st January, 2004, in accordance with the pricing options detailed in Schedule E(II) of this tender submission. This is a supply equivalent to either 2, 2.25 or 3.25 million tonnes of coal per annum from 1st January, 2004 to 31st December, 2013, a total of 20, 22 or 32 million tonnes.
Option 1 is a conforming tender for 40 million gigajoules as required by Clause 4.1 of Volume 1 of the Invitation to Tender. The price tendered of $1.41 per gigajoule recognises the absence of a Rise and Fall Formula in the pro forma Contract and the significant exposure borne by the Supplier in those circumstances.
Options 2 & 3 are for 46.1 million gigajoules and 67.2 million gigajoules per annum respectively for a period of ten years from January, 2004. Options 2 and 3 are subject to the following conditions:
(i) Ability to source from alternative Ravensworth Operations’ Mines;
(ii) Variation of the basis of calculation of penalties;
(iii) Price escalation via the application of a Rise and Fall Formula;
(iv) No Supplier liability for consequential losses;
(v) Deletion of Environmental Law Restrictions.
These conditions are discussed in detail in the Section 2 Conditions below.
1.4.3 Combined Option
Peabody also offers a combined supply option to Macquarie Generation comprising the Ravensworth West Option 1 in conjunction with any of the Ravensworth East options.
For this combined supply option, Peabody is prepared to discuss a discount price over the price submitted for the Ravensworth East options.

…

2 CONDITIONS
2.1 Ravensworth West only
2.1.1 Issue of Mining Lease
The Ravensworth West Exploration Licence was awarded to Peabody Resources Limited in 1996 to be used as a vehicle to compete for domestic coal contracts. Since that time, considerable effort and over one million dollars have been expended in drilling and environmental studies. Development Consent for the resource was issued in 1999.
The current status of Ravensworth West is a Mining Lease Application (MLA 91). The only issue which must be finalised before the acceptance of the Mining Lease Application and conversion into a Mining Lease is the purchase of the land required for mining.
The land to be purchased involves negotiations with only three landowners. Preliminary discussions have been held.
This tender is conditional upon the granting of a Mining Lease over the subject area MLA 91. The proposed timetable requires notification of acceptance of the Ravensworth West option by 31st December 2000 and negotiation of an agreed Contract by 15th February, 2001. Delay in the timeframe will necessitate a consequent deferral of initial deliveries under the contract. It is envisaged that a twelve-month (approximate) lead-time is required for the commencement of coal deliveries.

2.1.2 Use of Existing Ravensworth South/Narama Facilities
The infrastructure and coal delivery facilities employed by Ravensworth South and Narama were constructed by Peabody as a requirement of the Ravensworth South Contract 3806C. Ownership of the facilities reverts to the Principal upon completion of Contract 3806C currently scheduled for late 2000/early 2001.
Refer to Clause 2B.8.7 of Contract 3806C which states in part:–
‘On completion of deliveries under the Contract, ownership of all fixed infrastructure (buildings, conveyors, crushing stations, workshops, etc.) shall pass to the Principal.’
The Narama Contract 4007C contains, as an agreed inclusion, an allowance for the free use of the Ravensworth South infrastructure until December, 2012.
‘The Principal approves of the Contractor’s proposal to use the existing infrastructure at the Ravensworth South mine, extended where necessary, for the duration of this contract.’
The status of the current ownership of the facilities is not clear to Peabody, evidenced by correspondence received from Macquarie Generation dated 25th September, 2000 (Mr Ray Durie):-–
‘Macquarie is currently reviewing ownership and other matters concerning Ravensworth infrastructure and has not finalised its positions on those matters.’
Notwithstanding this uncertainty, this tender price is based on the assumption of free unrestricted use of the facilities, i.e., a concession identical to that contained in Narama’s Contract 4007C. This concession does not extend the term of the agreement as deliveries under this proposal are scheduled to cease in December, 2011.

2.2 Departures Common to Ravensworth West and Ravensworth East Non-Conforming Tenders
The following variations apply to Option 1 of Schedule E(I) – Ravensworth West and Options 2 & 3 of Schedule E(II) – Ravensworth East:–

2.2.1 Supply from Ravensworth Mines
The tenders are conditional upon the inclusion of an addition to the contract identical to that agreed in the Deed of Variation to Contract 4600000361 dated 21st June, 2000.
‘The Supplier reserves the right to Deliver the coal from any of the Ravensworth Mines, providing there is no penalty to Macquarie. The Supplier undertakes that this right will only be exercised in response to operational issues at the Ravensworth Mines and will not be employed as a trading opportunity.’

2.2.2 Application of Penalty Formulae
The prices tendered assume an adjustment to the Ash, Moisture and Sulphur formulae such that penalties are calculated on the basis of the Mean Monthly Characteristic for Ash, Moisture and Sulphur. Peabody requests the opportunity to discuss a bonus for deliveries of coal with a sulphur content below 0.8%.

2.2.3 Rise and Fall Adjustment
The prices tendered [excepting Option 1 of Schedule E(II)] will be subject to Rise and Fall Adjustment at 75 percent of CPI from the base date of 30th September, 2000.

…

2.2.4 No Supplier Liability for Consequential Losses
Peabody is not prepared to be subject to payment for consequential losses over a ten-year period.

…

2.2.5 Environmental Law Restriction
Peabody is not prepared to indemnify Macquarie Generation against variations to Sulphur Emission Laws over a ten-year period.

…”


25    As part of the General Tender, the Defendant executed under seal a document in the form of Schedule A to the Invitation to Tender.

Was there a Tender Agreement?
26    The Plaintiff contends that when the Defendant delivered the General Tender to the Plaintiff, containing in particular the document in the form of Schedule A executed by the Defendant, a binding contract came into existence between the parties containing the terms and conditions set out in the Invitation to Tender. In so far as is presently relevant, those terms were said to be to the following effect:
– The Plaintiff would not consider tenders lodged after Closing Time (Clause 3.5.1).
– A tenderer could not withdraw a tender during the tender period of 180 days from Closing Time (Clause 3.6).
– After Closing Time the Plaintiff would evaluate the tenders received (Clause 3.7.1).
– If Macquarie gave Notice of Acceptance of a tender, that acceptance would constitute an immediately binding contract between the parties upon the terms set out in the tender and in the Invitation to Tender, subject to such later variations as might be agreed (Clauses 3.9.2, 4.5.2).
– After acceptance of a tender, both parties would execute a formal document recording the terms of the existing binding contract constituted by the tender and its acceptance (Clauses 3.9.4, 4.5.4).
– A tenderer would submit a tender in a form capable of immediate acceptance so as to constitute a binding contract (Clauses 4.3, 3.9.4).

27    The consequence of the Tender Agreement coming into existence, the Plaintiff says, is that:
– Those parts of the General Tender which would not comply with the requirements of the Invitation to Tender should be construed as not intended to deprive the proposals in the General Tender of the quality of being unconditional offers immediately capable of acceptance so as to constitute a binding contract for the supply of coal.
– The Defendant was not at liberty to withdraw the unconditional offers constituted by the proposals in the General Tender during the period of 180 days after Closing Time, so that those offers were open to be accepted by the Plaintiff on 15 March 2001.

28    Mr Young QC, who appears with Mr Collinson for the Defendant, submits that no Tender Agreement as alleged came into existence, for the following reasons.

29    First, if the Invitation to Tender is to be taken as an offer by the Plaintiff to evaluate tenders received prior to Closing Time, it can only be taken as an offer to evaluate those tenders which complied with the requirements of the Invitation to Tender. The Defendant did not accept that offer in terms because the General Tender did not comply with the requirements of the Invitation to Tender.

30    Second, the promises by the Plaintiff to evaluate tenders in accordance with the provisions of the Invitation to Tender were illusory; the Plaintiff really undertook no substantive obligations at all because they were all avoidable at the Plaintiff’s discretion. Accordingly, the Plaintiff provided no consideration in support of the Tender Agreement.

31    I do not need to consider the Defendant’s second submission because, in my opinion, its first submission is correct.

32    The Plaintiff says that Clause 1.1 and Clause (b) of Schedule A in the General Tender clearly demonstrate an intention by the Defendant that the General Tender comply in every respect with the requirements of the Invitation to Tender. The Invitation to Tender required that a tender, whether a Conforming Tender or an Alternate Tender, be in a form such as to be immediately capable of acceptance. Accordingly, one must construe the rest of the General Tender to give effect to that intention. Where there are ambiguities in the construction of the language of the General Tender, the Court must lean in favour of a construction which will give effect to the Defendant’s intention that the General Tender constitute offers capable of immediate acceptance.

33    Accordingly, says the Plaintiff, one should treat Clause 1.2 of the General Tender as having no contractual effect or consequence. That is because the clause, on its face, makes all offers contained in the General Tender subject to the condition of P&L Board approval, so that the offers would not be capable of immediate acceptance by the Plaintiff, contrary to the provisions of Clauses 4.3 and 3.9.4 of the Invitation to Tender. Because Clause 1.2, if taken literally, is inconsistent with the intention of the Defendant apparent from Clause 1.1 and the two provisions are impossible to reconcile, Clause 1.2 should simply be disregarded.

34    I am unable to accept this submission: it places too much weight on the general introductory words of Clause 1.1 and no weight at all on the clear, express and intractable words of Clause 1.2. I cannot construe the introductory words of Clause 1.1, namely “this tender contains a conforming tender and has been prepared in response to and in accordance with” the Invitation to Tender as directing the reader, in effect, to expunge from the document not only the overriding condition stated in Clause 1.2, but the detailed conditions expressly stated in Clauses 1.4.1, 1.4.2, 2.1.1 and 2.2.1. The conditions stated in those paragraphs are important; they go to the very willingness of the Defendant to enter into any contract at all with the Plaintiff. In my opinion, they must be treated as if they were intended to be taken as an essential part of the General Tender.

35    The Plaintiff then submits that Clause 1.2 of the General Tender should be construed not as a condition to the Tender itself but, in some way, as a provision entitling the Defendant to withdraw the Tender in the event that a prospective purchaser of its shares is deterred by the possibility that the Defendant might be obliged to enter into a long term Coal Supply Contract with the Plaintiff. The consequence of construing the clause in that way, says the Plaintiff, is that by 15 March 2001 the condition in Clause 1.2 was “spent” because the P&L Board was no longer entitled to give or withhold any approvals in respect of the Defendant’s affairs.

36    I cannot agree that Clause 1.2 can be construed as conferring a right to withdraw the Tender at some later time. The clear and intractable language of the clause indicates that it is the very tender of the proposals contained in the General Tender which is subject to the P&L Board approval; if that approval is not given, the tender of the proposals is to have no effect.

37    Even if I were to construe Clause 1.2 in the way urged by the Plaintiff, the result would be that the clause introduced a condition contrary to the requirement in Clause 3.6 of the Invitation to Tender that a tender not be withdrawn for a period of 180 days after the Closing Time. The General Tender would, therefore, not be an acceptance in terms of the Plaintiff’s offer as contained in the Invitation to Tender. At most, the General Tender would be a counter-offer.

38    Because the General Tender did not evidence an acceptance in terms of the Plaintiff’s offer in the Invitation to Tender to evaluate tenders which complied with the requirements of the Invitation, I hold that no Tender Agreement as alleged by the Plaintiff came into existence upon delivery of the General Tender to the Plaintiff.

Was the General Tender an offer capable of acceptance?
39    The Plaintiff submits that, in the end, it does not matter very much whether a Tender Agreement as alleged came into existence. The terms of the Invitation to Tender and the General Tender, at the very least, indicate a common intention of the parties that, if the General Tender proffered offers capable of acceptance by the Plaintiff and the Plaintiff accepted one or other offer, then there should be an immediately binding contract, one of the terms of which was that the parties would subsequently enter into a formal Coal Supply Contract documenting the terms of the offer which had been accepted. That submission is, I think, correct.

40    The critical question is, therefore, whether by the terms of the General Tender, the Defendant made an offer to the Plaintiff capable of immediate acceptance.

41    In submitting that there was such an offer, the Plaintiff encounters the same difficulties with Clause 1.2 and the other conditions of the General Tender which I have discussed in relation to the alleged Tender Agreement.

42    The Defendant submits that Clause 1.2 clearly stipulates that all proposals in the General Tender are subject to the P&L Board’s final approval. The General Tender, therefore, contained five conditional offers for coal supply. An offer expressed to be subject to a condition is not an offer capable of acceptance until the condition is fulfilled. In support of this proposition, the Defendant relies upon Buhrer v Tweedie [1973] 1 NZLR 517.

43    In that case, the defendant made a written offer to purchase the plaintiff’s house upon certain terms. The plaintiff signed an “acceptance” of that offer but in that “acceptance” he purported to vary some of the terms. Then he added the words “this acceptance is subject to final approval by my solicitors” . The defendant signed this “acceptance” by way of agreement. The plaintiff purported to withdraw from the sale before his solicitors had given any approval. The defendant contended that a contract had come into existence when the defendant had signed his agreement to the plaintiff’s “acceptance” and the condition as to solicitors’ approval was a condition as to performance of that contract, not a condition of the offer itself.

44    Wilson J held that the plaintiff’s signed “acceptance” was in reality a counter-offer and that the counter-offer, being expressly made subject to the solicitors’ final approval, was not binding and capable of acceptance until such approval was given. The condition simply indicated that the plaintiff was not prepared to enter into a contract prior to obtaining his solicitors’ approval.

45    With respect, I think that his Honour’s decision was correct in principle; it is directly in point and I propose to follow it. In my opinion, the offers contained in the General Tender were conditional offers incapable of acceptance by the Plaintiff unless and until the PL Board gave final approval to the General Tender. The condition in Clause 1.2 clearly indicated that the Defendant was not prepared to permit the Plaintiff to accept an offer, thereby bringing about a binding contract, prior to the P&L Board giving its final approval.

46    I must now return briefly to the Plaintiff’s submission that the condition in Clause 1.2 had become “spent” by 15 March 2001 so that the offers in the General Tender were unconditional by that date and could be accepted by the Plaintiff.

47    The condition in Clause 1.2 was inserted for an obvious commercial purpose. P&L was, at the time of the General Tender, in the process of selling the shares in the Defendant. As appears from the clause itself, there was no way of knowing at that stage whether a proposing purchaser would regard a long term Coal Supply Contract with the Plaintiff upon the terms of the General Tender as an incentive or as a disincentive to an acquisition of the Defendant. If a purchaser, in the course of its due diligence, determined that it wished to have the benefit of the General Tender then it would, obviously, require as a term of the acquisition and upon its completion that the P&L Board give final approval to the General Tender for the purposes of Clause 1.2.

48    On the other hand, if the purchaser made known that it regarded the General Tender as a disincentive to the acquisition, then the P&L Board would simply do nothing about approving the General Tender because the offers in the General Tender would remain conditional and incapable of acceptance – there would be no risk of the purchaser finding that the Defendant had subsequently become bound to the Plaintiff’s acceptance of the General Tender.

49    That this was the commercial purpose and intended operation of Clause 1.2 is, in my opinion, quite clear. Far from Clause 1.2 being “spent” by 15 March 2001, it had by that time achieved its purpose: it had prevented, and was continuing to prevent, the new owner of the Defendant, namely Coal & Allied, from being burdened by the Plaintiff’s acceptance of unconditional offers contained in the General Tender.

50    For these reasons, I am satisfied that as at 15 March 2001 all offers contained in the General Tender remained conditional offers subject to fulfilment of the condition specified by Clause 1.2, that the condition had not been fulfilled, and that the offers were, therefore, incapable of acceptance by the Plaintiff. The Plaintiff’s purported Notice of Acceptance of that date was ineffective to bring into existence any contract between the Plaintiff and the Defendant.

51    This finding is sufficient to dispose of the proceedings. However, as the matter is unlikely to rest here, I should give my conclusions as to the remaining issues.

Withdrawal of offer
52    The Defendant submits that if the offers in the General Tender had become unconditional after the acquisition of the Defendant by Coal & Allied, the offers were nevertheless withdrawn by the Defendant prior to their acceptance by the Plaintiff on 15 March 2001. I think that this submission is correct.

53    As I have held, there was no Tender Agreement which prevented the Defendant from withdrawing any offer in the General Tender at any time. Accordingly, under the general law, the Defendant was free to withdraw its offers at any time before acceptance by the Plaintiff: Dickinson v Dodds (1876) 2 ChD 463, at 472, 473. Withdrawal of an offer, to be effective, must be communicated but there is no particular formula which must be employed: all that is necessary is that the offeror make known to the offeree that the offeror no longer wishes to proceed: ibid.

54    In the present case, Coal & Allied’s letter of 2 March 2001 (para.12) and the statement of the Defendant’s representatives at the meeting of 7 March that it was not possible for the condition in Clause 1.2 of the General Tender to be met (para.13) made it quite clear to the Plaintiff that the Defendant did not regard itself as subject to any unconditional offer in the General Tender capable of acceptance by the Plaintiff, and that the Defendant would not regard acceptance by the Plaintiff as binding. In other words, the Defendant gave clear notice that it did not wish to proceed. The Plaintiff was under no misapprehension in this regard, as its letter of 15 March shows (para.14).

55    In my opinion, if any offer in the General Tender was at any time unconditional and open for acceptance, then it was effectively withdrawn by the Defendant on 2 March or 7 March at the latest, prior to purported acceptance by the Plaintiff on 15 March.

Wrongful repudiation by Plaintiff
56    The Defendant submits that, even if a Coal Supply Contract came into existence on 15 March 2001 by reason of the Plaintiff’s Notice of Acceptance of that date, that contract was wrongfully repudiated by the Plaintiff itself prior to or upon the commencement of these proceedings.

57    This is so, the Defendant says, because the Plaintiff has insisted that the Defendant execute formal Coal Supply Contracts which are not in conformity with the agreement made on 15 March in substantial respects. Accordingly, the Plaintiff has expressed a clear intention not to be bound by the terms of the agreement which was made on 15 March.

58    I am of the opinion that the Defendant’s submissions are correct, for the following reasons.

59    The Plaintiff’s Notice of 15 March 2001 accepted the Combined Option in the General Tender. This consisted of Option 1 for Ravensworth West (General Tender Clause 1.4.1) and Option 2 for Ravensworth East (General Tender Clause 1.4.2). Both of these Options were expressly subject to conditions which must have been part of the terms of any contract to be formed by acceptance of the offers of those Options.

60    The contractual conditions for Ravensworth West Option 1 included conversion of MLA 91 into a Mining Lease. This was clearly an essential condition. Coal could not be supplied from Ravensworth West until a Mining Lease had been secured. Before that could occur, the land required for mining had to be purchased. This was made plain by Clauses 1.4.1 and 2.1.1 of the General Tender.

61    Further, Clauses 1.4.1 and 2.2.4 made it clear that the Defendant’s offer in respect of Ravensworth West Option 1 excluded any term in the formal Coal Supply Contract which might subject the Defendant to liability for consequential loss. The contractual conditions in the Ravensworth East Option 2 also excluded any term in the formal Coal Supply Contract which might subject the Defendant to liability for consequential loss.

62    On 11 April 2001 the Plaintiff sent to the Defendant two Coal Supply Contracts, executed by the Plaintiff under its seal and dated 11 April 2001, one in respect of coal supply from Ravensworth West and the other for supply from Ravensworth East.

63    The Ravensworth West Contract did not contain the Defendant’s stipulated condition relating to the conversion of MLA 91. The Plaintiff’s covering letter simply said:
“Ravensworth West – Issue of Mining Lease
[The Plaintiff] accepted [the Defendant’s] tender on 15 March 2001 and expects that [the Defendant] is doing all things necessary so as not to unnecessarily delay the granting of a mining lease of MLA 91. Please advise us of the progress in that respect.”

64    Further, both the Ravensworth West and the Ravensworth East Contracts submitted by the Plaintiff contained a term imposing liability on the Defendant for consequential loss (Clause 10.1.3(i)). As to the Defendant’s refusal in the General Tender to accept liability for consequential loss, the Plaintiff in its covering letter merely said:
“These concerns are adequately addressed in Clause 10.1.3(i).”


65    The Plaintiff’s letter of 11 April concluded with the request that the Defendant execute the contracts and return them as soon as possible.

66    There is no evidence suggesting that there was any further communication between the parties before the Plaintiff filed the Summons in these proceedings just over two weeks later, on 27 April 2001.

67    It is clear that by 7 March 2001 the Plaintiff realised that the Defendant would not proceed on any proposal contained in the General Tender. The Plaintiff intended to force the issue. It is inconceivable that, by this time, it was not receiving careful advice from its solicitors. Despite the known intention of the Defendant, the Notice of Acceptance was despatched on 15 March. Thereafter, formal contracts for the supply of coal were prepared – again, obviously with the benefit of legal advice. The Plaintiff must have known that, at the very least, it was improbable in the extreme that the Defendant’s resolve not to proceed would melt away when it was confronted with those formal contracts, executed by the Plaintiff, and accompanied by a request to execute and return them.

68    Anyone of any commercial experience understands – as the parties at this time must have understood – that what was happening was that both sides were preparing for legal combat. When the Defendant received executed formal contracts from the Plaintiff it must have known then, if not before, that that was the Plaintiff’s ultimatum before declaration of war. The Defendant called the Plaintiff’s bluff, kept its head below the ramparts and waited for the opening shot. The Plaintiff made its decision to stand by its ultimatum: it commenced the proceedings. In doing so, it took a stand on the executed Contracts which it had delivered to the Defendant on 11 April, founding its case on the assertion that the Defendant’s refusal to execute those Contracts was a wrongful repudiation of the agreement which, it said, came into existence on 15 March. The Plaintiff did not come to Court, as it might have done, seeking declarations as to the existence of a contract and as to its terms. It acted peremptorily in commencing an action for damages, doubtless hoping thereby to force the Defendant to the negotiating table.

69    So much is plain to anyone versed in the ways of the commercial world and the toils of commercial litigation. As far as I am aware, Judges in the Commercial List of the Supreme Court are not required to bring to the seat of judgment minds as fresh and unsullied by experience as those which they undoubtedly possessed when first they lay, mewling and puking, in their mothers’ arms.

70    I am satisfied that the Plaintiff has evinced a firm intention that, in so far as it will perform any alleged agreement with the Defendant, it will do so only upon the terms contained in the Coal Supply Contracts delivered to the Defendant on 11 April. I am satisfied that the terms of those Contracts differ in material respects from those of the 15 March agreement, if it existed, as must have been obvious to the Plaintiff.

71    For those reasons, I am satisfied that, on 11 April 2001 and thereafter, the Plaintiff has demonstrated an intention not to be bound by the terms of the agreement of 15 March – if it existed – or else has demonstrated an intention to perform that agreement only in a manner substantially inconsistent with its obligations thereunder and not in any other way: Shevill v Builders Licensing Board (1982) 149 CLR 620, at 625-6.

72    Accordingly, I hold that if there was an agreement brought into existence between the parties as at 15 March 2001, the Plaintiff, by its conduct on and after 11 April, has wrongfully repudiated it.

Wrongful repudiation by the Defendant
73    The Plaintiff alleges that the contract for the supply of coal was wrongfully repudiated by the Defendant by its letter of 2 March 2001: see Summons paras.10, 13, 14, 25. No other act of repudiation by the Defendant is pleaded.

74    The Defendant submits that the letter of 2 March precedes the formation of the coal supply agreement which, on the Plaintiff’s case, came into existence on 15 March. The letter could not repudiate a contract which did not exist.

75    The Defendant’s submission is plainly correct.

Orders
76    The Plaintiff fails on all issues. The Orders of the Court are:
(1) The Plaintiff’s Summons is dismissed.
(2) The Plaintiff is to pay the Defendant’s costs of the proceedings.
(3) Exhibits may be returned.

– oOo –

Last Modified: 11/16/2001