Macquarie Generation v Peabody Resources Ltd - [2000] NSWCA 361

NEW SOUTH WALES COURT OF APPEAL

CITATION: Macquarie Generation v Peabody Resources [2000] NSWCA 361

FILE NUMBER(S):
41040/98

HEARING DATE(S): 26 July 2000
27 July 2000
28 July 2000

JUDGMENT DATE: 14/12/2000

PARTIES:
Macquarie Generation
Peabody Resources Limited (ACN 004 447 938)
Renison Limited (004 490 304)

JUDGMENT OF: Mason P Beazley JA Giles JA

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): 50191/97

LOWER COURT JUDICIAL OFFICER: Einstein J

COUNSEL:
Appellant: B Walker SC/I Jackman/M Leeming
First Respondent: D F Jackson QC/A G Bell
Second Respondent: S G Finch SC/D B Studdy

SOLICITORS:
Appellant: Speed & Stracey
First Respondent: Freehill Hollingdale & Page
Second Respondent: Allen Allen Hemsley

CATCHWORDS:
contract
misrepresentation
inducement
falsity
continuing representation
indemnity costs

LEGISLATION CITED:
Electricity Legislation Amendment Act 1995 (NSW) (repealed)
Energy & Services Corporations Act 1995 (NSW)
Energy (Pacific Power) Act 1969 (NSW)

DECISION:
Appeal dismissed with costs

JUDGMENT:

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 41040/98
Comm D 50191/97

MASON P
BEAZLEY JA
GILES JA

Thursday, 14 December 2000

MACQUARIE GENERATION v PEABODY RESOURCES LIMITED & ANOR
FACTS
Macquarie Generation was the successor pursuant to statute to the interests of the Electricity Commission of New South Wales in two contracts for the supply of coal. The first contract (Contract 3806C) was made with Costain Australia (no Peabody Resources Limited) and the second (Contract 4007C) with an unincorporated joint venture between Peabody Resources Limited and Renison Limited.
Proceedings were brought against Macquarie Generation for breach of each contract by the failure to pay monies due for coal supplied under each contract. Macquarie Generation cross-claimed in respect of Contract 4007C alleging that entry into the contract had been induced by a material misrepresentation during the tender process as to workforce numbers in the proposed mining operation to which the tender related.
Held at first instance:
(i) Upon its proper construction, cl 3B.14 of Contract 3806C required Macquarie Generation to accept and pay for coal within a + or- tolerance of 5% at the usual contract rate.
(ii) There was no material representation of a continuing nature which induced the entry into Contract 4007C and that Macquarie Generation was liable under the contract.
(iii) Macquarie Generation should pay the costs on an indemnity basis in respect of issues abandoned during the course of the hearing.
Macquarie Generation appealed against each finding.
HELD
As to Contract 3806C
per Beazley JA (Mason P and Giles JA agreeing)
(i) The trial judge’s construction of cl 3B.14 was correct.
As to Contract 4007C
per Mason P, Beazley JA and Giles JA (in separate judgments)
(i) The representation as to workforce numbers was not a continuing representation. It was expressly limited as to the date at which it was made and so was not operative as at the date of entry into the contract. On that basis alone the appeal should be dismissed. See also obiter comments of Mason P and Beazley JA (in separate judgments) on the issues of materiality, inducement and falsity.
As to indemnity costs
per Beazley JA (Mason P and Giles JA agreeing)
(i) The trial judge’s conclusion that the issues abandoned by Macquarie Generation were “groundless with no or no reasonable prospects of success” was well based.
(ii) It had not been shown that his Honour’s discretion had miscarried.
(iii) Accordingly the order as to indemnity costs should stand.
ORDER
Appeal dismissed with costs.

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 41040/98
Comm D 50191/97

MASON P
BEAZLEY JA
GILES JA

Thursday, 14 December 2000

MACQUARIE GENERATION v PEABODY RESOURCES LIMITED & ANOR
JUDGMENT

MASON P: I have had the benefit of reading the judgment of Beazley JA.
Rescission for misrepresentation in relation to a carefully negotiated written contract requires close examination of the alleged misrepresentation and its impact upon the representee at the time of contract. The representation must be false when acted upon (Briess v Wooley [1954] AC 333 at 353-4).
Legal concepts relating to “continuing representations” and “materiality” are useful tools of analysis, but they are to be applied in their particular factual matrix. The search must be focussed upon the impact upon the representee’s mind at time of contract of certain types of information conveyed by the representor at an earlier point of time. If the representee is then labouring under an inducement stemming from the representor, the latter will be precluded in equity from retaining “what he had obtained from [the representee] by a material misstatement on which the latter was entitled to rely as being true” (Nocton v Lord Ashburton [1914] AC 932 at 955 per Lord Haldane LC).
The appellant has to establish that the representation in the facsimile of 16 November 1989 induced the contract and that it was false at the time it did so. The respondents are not responsible for any clearly independent misinterpretation or misapplication of the information conveyed in the facsimile.
The necessary starting point is to identify what information the facsimile conveyed when it was sent. The appellant must first establish what it was that was represented on 16 November 1989 in the facsimile, fairly construed in its context.
A representation must be false to ground the remedy of rescission. Silence is insufficient in the absence of a duty to disclose. One situation where such a duty exists is where to the knowledge of the representor the facts change between the time of the representation and the time when it is acted upon. In a frequently cited passage, Turner LJ said in Traill v Baring (1864) 4 De G J & S 318 at 329, 46 ER 941 at 946:
I take it to be quite clear, that if a person makes a representation by which he induces another to take a particular course, and the circumstances are afterwards altered to the knowledge of the party making the representation, but not to the knowledge of the party to whom the representation is made, it is the imperative duty of the party who has made the representation to communicate to the party to whom the representation has been made the alteration of those circumstances; and that this Court will not hold the party to whom the representation has been made bound unless such a communication has been made.
A leading case that illustrates the principle is With v O’Flanagan [1936] Ch 575. The defendant, a medical practitioner wishing to sell his practice, represented in January that the practice had brought in £2,000 per annum for the preceding three years and that he had a panel of 1480 patients. Although the statement was then true, it had ceased to be so when the contract was signed in May. Because of illness, the defendant was absent from the practice from time to time with the result that the takings of the practice had dwindled to virtually nothing, and the number of panel patients had fallen to 1260. Upon discovering these facts immediately after completing the purchase, the purchaser rescinded the contract. The English Court of Appeal held that the rescission was valid notwithstanding that the contract was not a contract uberrimae fidei and even though the circumstances which falsified the representation arose after the representation was made. Applying Turner LJ’s statement, Lord Wright MR spoke (at 584-5) of:
…the duty [which] rests upon the party who has made the representation not to leave the other party under an error when the representation has become falsified by a change of circumstances. This question only occurs when there is an interval of time between the time when the representation is made and when it is acted upon by the party to whom it was made, who either concludes the contract or does some similar decisive act; but the representation remains in effect and it is because that is so, and because the court is satisfied in a proper case on the facts that it remained operative in the mind of the representee, that the Court holds that under such circumstances the representee should not be bound.(emphasis added)
See also Romer LJ at 586.
One finds statements which, if taken out of context, suggest that the duty to correct an original representation is absolute (cf Ray v Sempers [1974] AC 370 at 389F) or that a representation is “deemed to be repeated” (Briess v Woolley [1954] AC 333 at 354, 358). However, the words which I have emphasised in With indicate that the duty of positive disclosure depends upon the circumstances of the case. It is not the law that any representation, however limited or ephemeral, is deemed to continue until contract independent of its terms and regardless of time or circumstances. Traill and With were cases where the representee was found to have relied upon the representation at the time of contract and they were also cases where this was both a reasonable and natural thing to do. It will not always be appropriate to treat a representation as continuing.
Two Australian cases illustrate this narrower understanding of Turner LJ’s proposition.
In Dalgety & Co Ltd v Australian Mutual Provident Society (1908) VLR 481, a proponent for life assurance answered printed questions relating to his health. There was a final question asking whether there were any other circumstances within his knowledge with which the insurer ought to be acquainted and he answered “No”. After the proposal had been accepted and before the premium was paid, the proponent consulted a doctor and made arrangements to be operated on for a growth which ultimately proved to be cancerous. On these facts, Cussen J concluded that the proponent knew and believed that the growth was possibly malignant and that the doctors suspected it of being so. It was held that the contract of insurance was voidable.
In the course of a careful review of English and American authorities, Cussen J said this (at 506, 508, citations omitted, emphasis added):
The general rule, both at law and in equity, is that mere silence with regard to a material fact, where there is no duty to divulge it; will not avoid a contract; but even in ordinary contracts, if during negotiations one party has made a statement which he believes to be true, but which is incorrect in fact and material to the contract, and he discovers its incorrectness before the contract is completed, he is under an obligation to retract his erroneous statement; and if he deliberately does not do so, and the other party is misled, it would be fraud. The same rule would apply, I think, even in ordinary contracts where the incorrectness of the statement arose from a change of circumstances after it was made, because, in the case of an express representation, the rule is that prima facie it is to be taken as continuing up till the moment when the contract is completed. There may be, of course, representations of such a character that a change would occur from mere lapse of time, or there may be other reasons why this prima facie rule should not apply, such as that the other person in fact knows of the changed circumstances, or can be presumed to know, or waives information on the subject. …
The effect of these authorities is that there is a general rule that a representation, once made in the course of a negotiation for a contract, prima facie continues in force until it is withdrawn or altered, and such a representation, unless withdrawn or altered, is construed to mean that the facts represented are at the time of making the contract true, and when made by a proponent for insurance, that no other material facts are then known to him.
It is to be observed that Cussen J speaks of a prima facie rule as to continuing representations and that he gives instances of how that rule may be displaced.
To similar effect is the analysis of Smith J in Jones v Dumbrell [1981] VR 199. Shareholders in a proprietary company were induced to sell to the controller of an associated company upon the latter’s representation that he desired and intended to purchase the shares in order to continue the business for the benefit of his family. The representor had been a shareholder for a long period and the plaintiffs preferred the business to be sold to persons associated with him rather than outsiders. They transferred the shares at an undervalue on the basis of the representation. A claim for damages for fraudulent misrepresentation was fought on the basis that, whether or not the representation was true when made, it was a continuing representation which was false at all times from November 1963 (two months after the time it was made) when the defendant offered to sell a controlling interest in the company at a large profit. Smith J held that it was clear law that a representation by a man as to his state of mind was a representation of fact sufficient to found an action for damages for deceit. He also held that the representation in the present case was material and that it had induced the defendants to sell their shares.
His Honour noted that the evidence did not establish that the representation was false when made. In this context he cited Turner LJ’s dictum and referred to With v O’Flanagan. He referred (at 203) to “the continuing nature of most representations” (emphasis added) and said:
When a man makes a representation with the object of inducing another to enter into a contract with him, that other will ordinarily understand the representor, by his conduct in continuing the negotiations and concluding the contract, to be asserting, throughout, that the facts remain as they were initially represented to be. And the respresentor will ordinarily be well aware that his representation is still operating in this way, or at least will continue to desire that it shall do so. Commonly, therefore, an inducing representation is a “continuing” representation, in reality and not merely by construction of law.
I accept, with respect, the statement by Cussen J in Dalgety and Co Ltd v Australian Mutual Provident Society [1908] VLR 481, at p506, that “the rule is that prima facie (the representation) is to be taken as continuing up till the moment when the contract is completed”. But this, I think, merely lays down a presumption of fact, justified by ordinary human experience, leaving the matter to the court for determination as a question of fact on the whole of the evidence.
In his references to representations which continue in fact and not merely constructively, Smith J was making the point that the representor’s duty to correct a representation that is subsequently falsified depends upon the continuing operation of the representation. It can hardly be inequitable to seek to retain a contract where there was no reasonable basis for reliance upon an earlier representation by the time the contract was formed, quite apart from the representor’s subjective perception at that time.
See also Tiplady v Gold Coast Carlton Pty Ltd (1984) 3 FCR 426 at 458 (Fitzgerald J).
American law is similarly nuanced. Continuing representations are discussed in American Jurisprudence 2d “Fraud and Deceit” §242, where the following appears (citations omitted):
Representations continue to be operative where, on a fair construction of the arrangements between the parties, one of them is to be entitled to rely upon a certain representation until he receives notice to the contrary. Likewise, representations will continue in effect where they are made with a view to be relied upon in the future. Also, a representation made without any restrictions has been regarded as continuing.
Cases cited in support of the first sentence include Monier v Guaranty Trust Co 82 F 2d 252, cert denied 298 US 670. A firm of cotton brokers applied for a loan from a bank on 13 June 1930. The bank officer asked for a more recent financial statement than that of December 1928 which was on file. The plaintiffs sent an audited statement showing the firm’s net worth as of 31 March 1930. The loan was approved and drawn down. The bank sought to rescind the contract for loan on the basis of misrepresentation. Between 31 March and the date of the loan an employee of the plaintiffs had speculated causing very substantial losses. The plaintiffs were ignorant of this wrongdoing, but the falsity of the accounts as at the date of the loan was relied upon by the bank as a ground of misrepresentation. This defence was rejected by the Circuit Court of Appeals, Second Circuit. The Court (Manton, Learned Hand and Swan, Circuit Judges) were unanimous in the view that the mere handing over of the 31 March financial statement did not represent conditions on a later date. Speaking for the majority, Judge Swan said (at 254, citations omitted):
The statement on its face shows that it represents conditions on a certain date. Any material falsity in the facts asserted as existing on that date would be ground for rescinding a loan made in reliance on the statement, regardless of the borrower’s innocence in making the false assertion. But the statement does not purport to assert the exact situation on the date when it is handed to the prospective lender. Both parties know there must have been changes in the ordinary course of business. Since the one seeking credit is aware that the other is relying on the supposition that there have been no changes of a character likely to affect his action, the borrower must disclose any detrimental changes of which he knows. Not to do so would be a fraudulent concealment. But we cannot think that the business community regards the man seeking credit as making a warranty or a representation implied in fact that there has not occurred without his knowledge any detrimental change in the conditions shown on his statement of prior date. If the lender wants such assurance, he can demand it. Not infrequently a statement contains a provision that it may be deemed to continue to reflect the financial condition unless notification is given to the contrary. In the absence of such a provision, or of a demand by the lender for such assurance, or of written or spoken words by the borrower from which such assurance may be inferred, the reasonable understanding is that the financial statement speaks as of its date, and that the borrower is charged only with the duty of not concealing material changes of which he knows or is charged with knowing.
Judge Learned Hand dissented on another point and he emphasised that his concurrence on the above point applied only to the particular circumstances and not generally to the consequences of delivering any financial statement which bears an earlier date. He said (at 257):
I agree that when McLaren delivered to Sample the financial statement, audited as of March 31st, he should not be understood to have guaranteed that the figures still held good, or that the plaintiffs’ net worth was as great as it had then been. On its face it was the work of professional accountants, the result of an examination of the books such as accountants alone can make.
In the area of present discourse (rescission at general law), any duty to correct a representation that was true when made but which later became false in fact is dependent upon the currency of that representation. A correction will no longer be relevant where a representation has lapsed.
Some representations are so closely connected to a transaction in time and context that they will apply up until its consummation (eg the restaurant diner’s implied representation of intention to pay for a meal: Ray v Sempers). Others are by their very nature renewed from minute to minute (eg the bigamist who continuously misrepresents capacity to marry and lawful status every day the couple live together: Meluish v Milton (1876) 3 Ch D 27 at 35). But not every representation can be forced into such a framework.

As indicated by Cussen J in one of his examples in Dalgety, a representation may become spent by substantial lapse of time and obvious change of circumstances. It must follow that it lies within the power of the representor so to frame a statement that it has a “use by” date. Company prospectuses are of this nature. So long as nothing is said or done to extend that date, it must as a general rule cease to be capable of being relied upon as a material representation.
There are conflicting decisions on the question of duty of disclosure in relation to a disclosure of the present intention of a negotiating party (cf Traill and Wales v Wadham [1977] 1 WLR 199 as approved in Jenkins v Livesey [1985] AC 424 at 439. See Treitel, The Law of Contract 10th ed 1999 at p365). I shall assume that a statement of present intention may have some enduring effect such that if it is or becomes false then it will ground rescission unless retracted. But this does not preclude the representor from expressly limiting the temporal scope of the representation. Thus, if a person said “I intend to remain teetotal until I am 18” any inherent representation of fact could not survive the representor’s coming of age. In my view the present representation is of this nature.
I wish to reserve my position about the overlapping factual issues of materiality and inducement. Elcom’s Mr Henness is recorded as having said that Elcom’s choice would be based purely on economics and that it was his opinion that it was probable that the political decision would also be based upon economics (Blue 663). The Commission was subject to ministerial direction (see Electricity (Pacific Power) Act 1960, s7). The Minister’s approval was to be sought for this contract and there is credible evidence that job losses in this industry were politically sensitive. It should not be assumed that all discussion between senior Elcom officers and the Elcom minister was recorded, or that the Minister’s written approval on the day of the formal recommendation was the only dialogue pertinent to this important contract.
Those dealing with Government would be familiar with decisions turning upon matters other than pure economics. Mr Flanagan sought the workforce numbers so as to be in a position to inform the Minister. He wanted to ensure that the Minister had the correct figures, in case he was asked a question in Parliament about it “which was highly likely”.
Elcom’s costings “levellised” the respective tenders and, in so doing, the retrenchment costs of closing Hebden’s mine were factored in. Non sequitur that additional “political” costs of highly publicised job losses were immaterial, or that disclosure of their likelihood might not have led to bargaining designed to offer something more to the displaced Hebden workers and thus assuage the political pain of the announcement of rejection of Hebden’s tender. Alternatively, the award of the contract might have been delayed while Elcom endeavoured to finesse the deal, acting under ministerial orders.
True, all of this might not have been in Elcom’s financial interests if there was a real risk of the deal falling through at the last minute. However, I do not assess this risk very highly.
The Commission was a statutory corporation representing the Crown (see Electricity Commission of New South Wales v Australian United Press Ltd (1954) 55 SR(NSW) 118). In those circumstances, a misrepresentation coming to the knowledge of the Minister under whose direction the Commission conducted its affairs and influencing that Minister in his actions would arguably be capable of grounding a valid rescission (cf Attorney General (NSW) v Peters (1924) 34 CLR 146).
However, it is unproductive for me to explore this issue at further length or to reach any conclusion on the issues of materiality and inducement because my view about (non)-continuing representation is ample basis to dismiss the appeal concerning Contract 4007C.
For similar reasons I find it unnecessary to reach a concluded view about falsity, although I favour the appellant’s position. My inclination is that the Narama Joint Venture had in fact materially revised its earlier estimate. The fact that the process was ongoing does not negate the fact that a new estimate of “about 90 people” had been reached.
I agree with Beazley JA in relation to the remaining issues. Each appeal should be dismissed with costs.
BEAZLEY JA: This appeal involves two contracts for the supply of coal to New South Wales power stations.
The first contract (Contract 3806C) was entered into between the Electricity Commission of New South Wales and Costain Australia Limited on about 22 June 1987 and involved the supply of coal to the Bayswater and Liddell Power Stations until the coal resource was exhausted. The issue on appeal in relation to this contract is the price payable for certain coal delivered under the contract.
The second contract (Contract 4007C) was entered into between the Electricity Commission of New South Wales for the one part and Costain Australia Limited and Renison Limited for the other part on or within a few days of 29 June 1990. It involved the supply of coal to Bayswater and Liddell Power Stations until December 2012. The appellant claims to be entitled to equitable recission of this contract.
The Parties
Because of changes in names and corporate structures since entry into the contract, the parties require a brief introduction. None of what follows is contentious.
Until 1995, the Electricity Commission of New South Wales (a state owned instrumentality) was the sole supplier of electricity in New South Wales. At that time, pursuant to legislative change, the Electricity Commission (the Commission) was abolished and Pacific Power was constituted as a continuation of the same legal entity as the Commission (Electricity Legislation Amendment Act 1995 (NSW) (repealed)). In 1996 there was a further restructuring of the electricity supply industry in New South Wales. Pursuant to the Energy & Services Corporations Act 1995 (NSW) and the Energy Services Corporations (Transfer of Pacific Power’s Assets) Order 1996, Pacific Power’s assets and liabilities were transferred to the appellant, Macquarie Generation. The consequence for present purposes is that Macquarie Generation, is the successor to the Electricity Commission’s interest in both Contracts 3806C and 4007C. For convenience I will retain the reference to the Commission as encompassing the Electricity Commission and its successors.
The first respondent, Peabody Resources Limited (Peabody) was formerly known as Costain Australia Limited. As there is nothing relevant in the change of name, I will refer to the first respondent as Peabody unless the context requires otherwise. As at the date of Contract 3806C, Peabody was the lessee of Coal Lease No 110, Ravensworth South Coal Mine. Ravensworth Coal Mine was the source of the coal to be supplied by Peabody under that contract.
The second respondent, Renison Limited (Renison) has been the holder of coal mining leases in the Hunter Valley since about 1965.
In 1989 Peabody and Renison entered into an unincorporated joint venture (the Narama Joint Venture) for the purpose of tendering in respect of the Commission’s Specification 4007 which relevantly, called for tenders for the supply of up to 2 million tonnes of coal per annum over a 20 year period.
Contract 4007C
As the more complex issues are raised in relation to Contract 4007C it is convenient to deal first with the appeal in relation to it.
Factual Overview
The need for the issue of Specification 4007 arose because of the imminent expiration of an existing coal supply contract, held by Hebden Mining Company (Hebden) in respect of the Commission’s coal lease at Swamp Creek. Tenders closed on 18 September 1989. There were five tenderers including the Narama Joint Venture and Hebden. In accordance with the requirements of the Specification, Narama Joint Venture’s tender provided for the supply of a specified annual tonnage of steel for 20 years at a fixed base price as at a base date of 1 June 1989. Price fluctuation provisions were included. Documents obtained on discovery in the proceedings revealed that the Narama Joint Venture’s base price was calculated on an initial work force of 144 persons for the first seven years of the contract.
The Narama Joint Venture was advised shortly prior to 1 March 1990 that its tender had been accepted. A contract was entered into on about 29 June 1990. An alternative bid included in its tender was rejected and is irrelevant to the proceedings. Contracts were also awarded to three of the other tenderers, BP Coal, Bayswater Colliery and Drayton. The Hebden tender was rejected.
Neither Specification 4007 nor the Narama Joint Venture’s tender made express reference to the number of persons to be employed for the purposes of the contract. Rather, the Specification called for the prescription of a Labour Index based on a representative labour force for the purpose of calculating the contract tonnage price from time to time in respect of various percentages of the annual contract tonnage.
As there was much debate during the appeal as to whether labour costs (and therefore labour numbers) had any relevance to the tender and later to the contractual provisions, it is necessary to briefly understand the costing structure of the contract.
Price together with various factors relevant to price were dealt with in cl 7.8 and following of the Specification. Clause 7.8.1 provided that the price per tonne was the price stated in schedule C1 for the delivery quantity applicable:
“7.8.1 The price per tonne for coal of Standard Coal Quality delivered to the Principal shall be that price stated in Schedule No. C1 for the delivery quantity applicable. Each price per tonne in Schedule No. C1 (hereinafter referred to as the ‘Base Price’) shall be stated for conditions relating to the costs of labour, materials and other factors of production as set out in Schedule C2 applying at the Base Date as stated in Clause 8.3 of the Annexure to the General Conditions.”
Clause 7.8.2 provided:
“The ‘Contract Price per Tonne’ for coal delivered in a particular month will be the relevant Base Price per Tonne adjusted to reflect changes in costs in accordance with Clauses 7.9, 7.10 and 7.11.”
Clauses 7.9, 7.10 and 7.11 contained “price fluctuation provisions for costs of producing and delivering coal”. Clause 7.9.2 provided:
“The Contract Price per Tonne for coal per tonne delivered in a particular calendar month shall be the relevant Base Price adjusted to reflect cost variations effective up to the middle of the preceding month, in accordance with a weighted mix of indexes to be nominated by the Tenderer in Appendix No. 2.1. The proportion of weighting of the Base Price per Tonne to which each Index applies shall be subject to agreement between the parties prior to entering into the Contract but in no case shall the sum of the weightings exceed unity.”
Clause 7.11 dealt specifically with the Labour Index. It provided relevantly:
“7.11.3 Appendix No 2.2 and the Tables in Appendix No. 2.4 indicate the method by which the Labour Index Numbers are to be calculated and the Tenderer is required to provide only the relevant details for Appendix No. 2.3 with his offer. These details include the number of employees in the nominated labour categories which are to comprise the representative labour force and the relevant award rates as at the Base Date, also the Workers’ Compensation Insurance Rate Average Premium Rate as defined below.
Appendix 2.3 specified the items (and the cost of such items) to be included in the “representative labour force” calculation, including open cut allowances, experience allowances, superannuation, annual leave for certain categories of employees, annual leave loadings and night shift allowances.
Clause 7.11.4 provided:
“Whilst the Tenderer is free to nominate numbers and categories of labour considered representative of the mine workforce it is desired for the purposes of administrative efficiency to place a reasonable limitation upon the number of categories to be used for these provisions and for this purpose the categories nominated may be less than but should not exceed ten.” (emphasis added).
Clause 7.11.5 contained “Explanatory Notes for the Calculation of Labour Index Number[s]”. In particular it required:
“The details of the relevant representative labour force as nominated in Appendix No. 2.3 are transcribed to columns 1 - 4 of the Labour Table in Appendix No. 2.4.
Column 5 of that Labour Table requires the Loaded Rate per Hour on the particular days to be determined separately for each award classification of employee nominated in the representative labour force and such rates shall be calculated in accordance with the method set out in Appendix No. 2.2 having regard to the award rates, allowances, loadings, conditions and entitlements then applying.
The Column 5 rates in the Labour Table are multiplied by the number of employees of each award classification nominated in Column 4 and the products entered in Column 6. These products are then totalled to determine the Total Products figure for the Labour Table.
…”
Clause 8.9.1 provided relevantly:
“The Contractor shall be deemed to have:
…
(f) informed himself as to the availability of labour and the accommodation required; and
(g) satisfied himself as to the correctness and sufficiency of his offer for the Work under the Contract and that the rates and prices stated therein cover the cost of performing all his obligations under the Contract.”
Provision was also made for Payroll Tax, Workers’ Compensation Insurance. The “resultant ‘Hourly Labour Cost’ [was] finally divided by the number of employees in the labour force to compute the respective Labour Index Numbers for the relevant days”.
Contract 4007C reflected these provisions of the Specification. The trial judge categorised the contract as a “fixed price Contractor’s Risk contract subject to adjustment … in accordance with price fluctuation provisions which applied published indices through a mathematical formula devised by [the Commission] and specified in the [contract]”. This is clearly correct. His Honour further accepted the submission of senior counsel for Peabody that:
“The Contractor’s actual costs of labour or other factors of production or performance, and the Contractor’s actual profit through performance, have no relevance to the operation of [the] Contract. [It is] not [a] ‘Cost Plus’ [Contract] and there is no provision requiring the monitoring or recovery of the Contractor’s actual costs in the pricing provisions.”
I also agree with this as an accurate reflection of the operation of the Contract in so far as it relates to pricing.
The Narama Joint Venture’s ‘base price’ for its tender was $23.62 per tonne for 100 percent of its contract tonnage. Other prices were tendered for lower percentages of annual contract tonnage. Its nominated weighting for the labour index was 0.4503. This translated to $10.03 in dollar terms or approximately 40 percent as a component of the total contract price. The nominated weighting of the labour index was derived from the calculations set out in Appendix 2.3 of the tender. Those calculations were based on 240 employees divided into seven categories of labour, each category being related to a particular industrial award. The calculations in Appendix 2.3 were transposed and complied with the requirements of cl 7.11.4.
The operation of the index did not depend upon the total number of employees, but rather upon the percentage number of employees in each award category, hence the tender and contract terminology of “representative labour force”. The irrelevance of the actual number of employees to the calculation of the Labour Index is illustrated by the fact that during the course of negotiations between the Commission and the Narama Joint Venture after the close of tenders, the Commission, by facsimile dated 9 November 1989 requested the Narama Joint Venture to:
“submit an amended Appendix No. 2.3 reflecting a reduction in the number of classifications to four. In addition, it is requested that the total number of employees be reduced to ten, with appropriate distribution between the four classifications.”
The Narama Joint Venture responded:
‘Clause 7.11.4 of the Specification states, inter alia, ‘and for this purpose, the categories nominated may be less than but should not exceed ten’.
Our tender embraced seven categories. The decision to reduce the number is complex, and requires a considerable degree of risk assessment. In the event that our offer is successful, and mindful or the Commission’s position, we would be prepared to discuss this matter further on the understanding that it should not affect the price tendered nor increase our exposure to lack of recognition of increased labour costs.”
The facsimile of 9 November followed a meeting between Commission officers and representatives of the Narama Joint Venture on 3 November 1989. This was one of several meetings held at that time as part of the negotiation and evaluation process following the submissions of the tender. The meeting of 3 November covered a range of issues. One issue related to a request by the Commission officers for the Narama Joint Venture’s labour force numbers and classifications. The only evidence of the terms of the request is contained in notes of the meeting taken by Mr Schroder, the Commercial Accountant in Costain’s commercial group which record:
“Build up employment - estimated #’s + classification
Representative Labour Force
- Allowances
- #’s class involved etc
- review to simplify
- streamline”
There then follows a heading “Costain Reply”. About a page and a half into that entry the following notation appears:
“Manning - will give sched.
No of Classf’n
agree to discuss after award of c.”
Of the persons present at the meeting only Mr Knights (Costain General Manager, Coal, Ravensworth and Warkworth Mines), gave evidence. Although there was no issue that Mr Schroder’s note was accurate, Mr Knights had no specific recollection of the request having been made at the meeting. However, he was certain that prior to the meeting there had been no discussion between the Commission and the Narama Joint Venture representatives about manning levels.
On 14 November 1989, Elcom forwarded a facsimile to the Narama Joint Venture seeking the following information:
“PLEASE PROVIDE ESTIMATED NARAMA WORKFORCE NUMBERS, BROKEN DOWN INTO UNION REPRESENTATION, FOR THE YEARS 1991, 1992, 1993, 1994, 2000 AND 2005.
YOUR RESPONSE IS REQUESTED NO LATER THAN CLOSE OF BUSINESS 15th NOVEMBER 1989.
(THIS REQUEST WAS INADVERTENTLY OMITTED FROM OUR FACSIMILE DATED 9th NOV 1989)”
Mr Knights responded on 16 November 1989:
“In response to your faxed request … of 14th November, 89 we provide the estimated Narama work force.”
On a separate page the following table was set out under the heading:
“CURRENT MANNING ESTIMATES BY UNION FOR NARAMA AS AT 16th NOVEMBER 1989

*UNION*	*1991*	*1992*	*1993/2000*	*2001*	*2005*
A.C.S.E.F.	0	9	15	22	22
F.E.D.F.A.	0	31	42	65	65
F.M.M.A.	0	14	17	34	34
E.T.U.	0	3	6	15	15
A.M.U.W.	0	12	20	41	41
APPRENTICES	0	3	6	11	11
A.C.S.A.	0	15	15	42	42
NON-UNION	0	0	0	2	2
*TOTAL*	0	87	121	232	232”

Mr Knights said he saw the request as one of a number of requests for information made by the Commission at this time and he saw the provision of the information “as being part of the process of gaining the contract”.
There is no dispute that the contents of the facsimile transmission of 16 November 1989 were true as at that date. However, the appellant contends that the estimate of “121 employees in 1993/2000” constituted a representation of manning estimates which was continuing as at the date of entry into the contract on 29 June 1989 and was false as at that date. The allegation of falsity is based upon an entry in a file note of a Narama Joint Venture meeting held on 27 June 1990 which stated:
“Manning
Costain is revising its early year manning levels to take advantage of revised labour practices as they are being determined. It appears that early year manning will be about 90 people, a reduction from levels predicted in the feasibility study.”

The appellant contends that this entry is evidence that as at 27 June 1990, the Narama Joint Venture had revised its estimate of manning levels and that, as the representation made in November 1989 was material and had been relied upon by the Commission, the Narama Joint Venture was under an obligation to disclose the re-estimation to the appellant prior to entry into the contract.
Findings of the Trial Judge
At the hearing at first instance all issues relating to the representation - materiality, reliance, falsity and whether it was a continuing representation - were in issue.
The trial judge found against the appellant on every issue. Each of these matters remained in issue on the appeal.
The Law
The law which governs each of these issues was not subject to any real dispute between the parties. Where the parties are at issue is in relation to the factual findings made by his Honour. It is not, therefore, necessary to deal with the legal principles in great depth. However, an overview is of assistance to put the factual issues into context.
For an innocent misrepresentation to be actionable, the representee has to establish both materiality and inducement: see Smith v Chadwick (1884) 9 App Cas 187 where Lord Selborne LC said at 190:
“… [the representation] must be material, and it must have produced in his mind an erroneous belief, influencing his conduct.”
Spencer Bower and Turner in Actionable Misrepresentation, (3rd Ed), at 131 describe the distinction between materiality and inducement as being the difference between “[i]nducement in fact, as distinguished from a tendency to induce (which is materiality)”. Both inducement and materiality are questions of fact. See Andrews v Mockford (CA) [1896] 1 QB 372 at 374; Gipps v Gipps [1978] 1 NSWLR 454 esp Hutley JA at 460; Sinclair v Preston [1970] WAR 186 (FC) per Burt J at 191.
Spencer Bower and Turner define “materiality” (at 144) to mean a representation whose:
“tendency, or its natural and probable result, is to induce the representee to enter into the contract or transaction which in fact he did enter into, or otherwise to alter his position in the manner in which he did in fact alter it … The representation must be shown to have been capable of inducing, as well as the actual precursor of, the inducement, in order to satisfy the definition.”
The views of the parties as to materiality are, in the usual case, irrelevant: Spencer Bower and Turner at 144; Holliday v Lockwood [1917] 2 Ch 47 per Astbury J at 53 - 55; Beachey v Brown (1860) EB&E 796; Angus v Clifford [1891] 2 Ch 449.
However, there may be special circumstances known to the representor operating in a particular case, such that a representation, although unlikely to induce an ordinary reasonable person to enter into the contract, is material to the particular representee. The question in those cases is “whether the statement was material, not to the contract, but to the inducement”. See Gordon v Street (CA) [1899] 2 QB 641; Spencer Bower and Turner at 151. In Nicholas v Thompson [1924] VLR 554, McArthur J said at 578:
“… [where] to the knowledge of the representor, there may be ‘special circumstances or peculiarities … in the situation, of the representee, of such a character as to render the particular representation of the utmost importance to the particular representee to whom it was addressed, though it would be utterly inoperative on the mind of a normal person under normal conditions’ the representation would be material as between the parties.”
Inducement has two aspects to it: see Halsbury’s Laws of England 4th Ed para 1069 and 1071; Cheshire Fifoot and Furmston’s Law of Contract 11th Ed at 262; Spencer Bower and Turner at 136; Savill v NZI Finance Ltd [1990] 3 NZLR 135. There must be an intention to induce and as Spencer Bower and Turner state at 136 “there must … be a purpose on the part of the representor to induce the particular representee, or a class of which [the representee] forms one, to act upon the representation”. The editors of Chitty on Contract 25th Ed at 408 state that such a proposition can only be correct if it “means no more than that the representee cannot complain unless the misrepresentation was addressed to [the representee], or to a class of persons of whom [the representee] was one”. There is some academic discourse which argues that this is all that is required: see McLauchlan: Materiality and Intention to Induce - Are They Requirements for Actionable Misrepresentation [1990] NZ Recent Law Review 271.
Carter and Harland’s Contract Law in Australia (1996) state that:
“The representor must have intended the representation to reach, and induce to contract, the representee who claims to have been induced to contract. …
Similarly, it appears that even where there is a misrepresentation directly by A to B in one context and later B acts in reliance on it in a different context by not involving A, the misrepresentation is no longer operative.”
This appears to accord with the formulation in Spencer Bower and Turner. Carter and Harland conclude that the “ultimate motive or purpose … is irrelevant as a matter of law, but intention to induce is essential”: see Smith v Chadwick.
Intention to induce, can be presumed if the language of the representation is calculated, or of its nature, would be likely to induce a normal person to act as the representee did. In this regard, there is a significant overlap between the presumptive intent of the representation and materiality and evidence which proves the one often proves the other.
The second element, namely, the necessity to prove inducement in fact, does not require any particular legal explanation. A misrepresentation will not be actionable unless the representee was in fact induced, the onus being on the representee to prove the fact: Coaks v Boswell (1886) 11 App Cas 232; Australian Steel and Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202; Attorney-General of New South Wales v Peters (1924) 34 CLR 146.
Inducement in fact may also be proved presumptively, although this is an inference of fact, not law. As Lord Blackburn pointed out in Smith v Chadwick at 196:
“… if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, and it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement.”
The dual requirement that inducement be both intended and established in fact was explained in Attwood v Small (HL) (1838) 6 CI & Fin 232 in these terms:
“… general fraudulent conduct signifies nothing; that attempts to over-reach go for nothing; that an intention and design to deceive may go for nothing, unless all this dishonesty of purpose, all this fraud, all this intention and design, can be connected with the particular transaction, but must be made to be the very ground upon which this transaction took place, and must have given rise to this contract. … The party must not only have been minded to overreach, but he must actually have overreached … and, moreover, the representations so made must have had the effect of deceiving the purchaser; and moreover, the purchaser must have trusted these representations, and not to his own acumen, not to his own perspicacity, not to inquiries of his own.”
The representation does not have to be the only inducing cause of the contract. Nor does it have to be the decisive or a necessary factor in the decision taken by the representee: National Australia Bank v Cunningham [1990] ATPR 41-047; Australian Steel & Mining Corporation Pty Limited v Corben per Hutley JA at 207; Leighton Properties v Hurley [1984] 2 Qd R 534, per Connolly J at 540. Rather, the inducement will be proved if it is established that the representation was one of the factors which contributed to the decision which was made: Barton v Armstrong [1973] 2 NSWLR 598; Gould v Vaggelas (1985) 157 CLR 215 at 236; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 578-585. If the representation does not affect the decision making process, that is, does not play a part in the decision which is made, there will be no inducement: Barton v Armstrong per Lord Cross at 3. In Field v Shoalhaven Transport Pty Ltd [1970] 3 NSWR 96, the test was stated by Asprey JA in these terms:
“… the test of material inducement is not whether the plaintiff’s action would but whether it might have been different if the misrepresentation had not been made …”
Thus, it is not relevant for the Court to determine whether, if the true position had been known, the representee would or would not have altered his position in relation to the contract. “It is enough if a full and exact revelation of the material facts might have prevented him from doing so”: Spencer Bower and Turner at 139. See Reynell v Sprye, Sprye & Russell (1852) 1 De GM & G 660 at 708; Re London & Leeds Bank Limited; Ex parte Carling (1887) 56 LJ Ch 321 at 323, 324.
In Gould v Vaggelas Wilson J summarised the principles which govern the question of whether inducement has been proved, including presumptively, as follows:
“Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances. Examples commonly given of such circumstances are that the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the fraudulent representations. It is entirely accurate to speak of an onus resting on a defendant to draw attention to the presence of circumstances such as those I have described in order to show that the inference of the fact of inducement which would ordinarily be drawn from the fraudulent making of a false statement calculated to induce a person to enter into a contract followed by entry into that contract should not in all the circumstances be drawn. But it is no more than an evidentiary onus - an obligation to point to the existence of circumstances which tend to rebut the inference which would ordinarily be drawn from the primary facts. When all the facts are in, the fact-finding tribunal must determine whether or not it is satisfied on the balance of probabilities that the misrepresentations in question contributed to the plaintiff’s entry into the contract. The onus to show that they did is a condition precedent to relief and rests at all times on the plaintiff.”
See also Brennan J at 250 - 251.
A representation once made, is usually taken to be continuing: see Smith v Kay (1859) 7 HLC 750 at 759. If it is continuing, there is duty on the representor to inform the representee should there be a change in circumstances which is relevant to the representation: see Traill v Baring (1864) 4 De G J & S 318 at 329 per Turner LJ:
“… it is the imperative duty of the party who has made the representation to communicate to the party to whom the representation has been made the alteration of these circumstances; and that this Court will not hold the party to whom the representation has been made bound unless such a communication has been made.”
See also Brownlie v Campbell (1880) 5 App Cas 925 at 950 per Lord Blackburn. In With v O’Flanagan [1936] 1 Ch 575 at 584-5, Lord Wright MR, having referred to the above line of authority said:
“This question only occurs when there is an interval of time between the time when the representation is made and when it is acted upon by the party to whom it was made, who either concludes the contract or does some similar decisive act; but the representation remains in effect and it is because that is so, and because the Court is satisfied in a proper case on the facts that it remained operative in the mind of the representee, that the Court holds that under such circumstances the representee should not be bound.”
Romer LJ at 586 stated the principle in the following terms:
“If A. with a view to inducing B. to enter into a contract makes a representation as to a material fact, then if at a later date and before the contract is actually entered into, owing to a change of circumstances, the representation then made would to the knowledge of A. be untrue and B. subsequently enters into the contract in ignorance of that change of circumstances and relying upon that representation, A. cannot hold B. to the bargain. There is ample authority for that statement and, indeed, I doubt myself whether any authority is necessary, it being, it seems to me, so obviously consistent with the plainest principles of equity.”
This principle can be viewed in another way. The representation must be true when acted upon: Spencer, Bower and Turner para 75; Briess v Woolley [1954] AC 333 at 354. Accordingly, even if there is no duty of disclosure but information has been volunteered which is material and which subsequently becomes false, the representor must correct the information or take the consequences: see Sibley v Grosvenor (1916) 21 CLR 469 at 473 per Griffith CJ (Gavan Duffy and Rich JJ agreeing).
Was the Representation Material?
The trial judge held that the representation was not material. The essence of this finding was that the representation was not relevant to the terms of the contract or to questions of profitability. In reaching this conclusion the trial judge had regard to the context in which the inquiry was made, the construction of the contract, the unlikelihood of the estimate remaining accurate for any extended period, the fact that no reason was given for the request when made and the fact that the further consideration that the Commission’s officers responsible for evaluating the tenders did not consider labour numbers were a major issue.
Senior counsel for the Commission submitted that his Honour’s findings which led him to conclude that the representation was not material ignored the fact that the contract was made in a broader context which had clear political overtones. This was so, even though at a meeting between the Narama Joint Venture and Elcom officers on 25 May 1989 (the purpose of which was to discuss the Narama bid and seek advice from the Electricity Commission on a variety of issues), one of the Elcom officers, Mr Henness, principally responsible for analysing the tenders, is recorded to have said:
“The Electricity Commission of New South Wales choice would be based purely on Economics.
It is J Henness’s opinion that it is probable that the political decision would also be based on Economics.”
These comments are recorded as having been made in the context of a discussion which, at that point, focussed on the quantity of coal required by the Commission, and the inability of Hebden after the completion of the existing Swamp Creek contract to provide an adequate supply of coal.
Senior counsel for the Commission submitted that, notwithstanding the emphasis given to commercial considerations by the Commission, the comment “it is probable that the political decision would also be based on economics” left scope for matters other than economics to be relevant and this was clearly comprehended by the Joint Venture, as evidenced in one of the second respondent’s internal documents, dated 18 September 1989 (the date the tender closed):
“The Commission says that it will evaluate competitive bids on purely economic grounds for comparative cost of delivered energy. A political risk to the private tenderer, however, must be recognised. The Minister must appear clearly justified in closing an existing mine and not replacing it with a potential adjacent mine from its own reserves. There will be some employee retrenchments from Swamp Creek who cannot be absorbed by Narama.”
The appellant points to other evidence which demonstrated the importance, in the overall process, of the political dimension of the contracts to be awarded pursuant to Specification 4007 and, in particular, the sensitivity of job losses in this industry. For example, employment issues were addressed in the EIS, which was submitted with the Narama Joint Venture’s tender. There were references in that document to “unfortunate retrenchments” when mining at Ravensworth South concluded. There was also a study of the direct and indirect employment effects of employment at Narama. The EIS stated that 114 new positions would be needed to bring the mine into operation - some 7 less than the numbers notified to the Commission on 16 November 1989. There was no reaction by the Commission officers evaluating the tender to this change.
Employment in the coal mining industry, especially in the Hunter region, had been a sensitive and topical public issue for a number of years. For example, in the Singleton Argus newspaper of 24 October 1989, some ten days before the 3 November 1989 meeting when the Commission officers raised “manning” issues, the Minister was reported as having said “the days of mines closing and jobs declining are over”. On reading this, a Commission officer, Mr Lynch sent a note to Mr Henness, stating:
“You might recall that I thought the Minister had said something like this!! I wonder where it leaves us with regard to Swamp Creek?”
Mr Lynch was another of the Commission officers involved in the evaluation of the tenders.
The sensitivity of the employment issue was also conceded by the Narama Joint Venture’s counsel in its submissions at trial:
“… there was a degree of political sensitivity surrounding these contracts, not so much in relation to price but in relation to how many people would or would not lose their jobs.
…
What that shows … is that when [the Commission]… asked about labour [they weren’t] concerned about it for an analysis of the costing. Why [they were] concerned was, and it is a perfectly justifiable concern of course for a government instrumentality, was that the more efficient practices at Narama could adopt would lead to people losing their jobs.”
The question which arises, however, is whether the relevance of employment figures - and in particular job losses - to the obvious political concerns referred to meant that the representation contained in the 16 November facsimile was a material representation. In order to determine the question of materiality it is necessary to deal with further of the evidence.
In dealing with this issue, I should point out that, at this stage, I am not concerned with the question whether the representation was or was not a continuing representation.
I have already referred to the fact that following the closing of tenders on 18 September 1989 there were consultations between representatives of the Commission and the Narama Joint Venture in relation to the tender. There were consultations with the other tenderers during the same period. The Commission also commenced preparing its evaluation of the tenders. As at 14 November 1989 Mr Henness had prepared a progress report of the “Tender Analysis” in which he stated:
“1. Discussions have continued with all five tenderers for coal supply:
…

Narama Joint Venture - Levellised price $29.13 per tonne for the 20 year, 2.0 Mtpa option. No major outstanding issues require further resolution prior to any acceptance of the Narama offer.
…
It is intended that a submission recommending the placement of coal supply contracts be submitted to the December 13th, 1989 Commission meeting for approval.”

The report also indicated that there were only minor outstanding matters in relation to the other tenders save for Hebden’s. Mr Henness noted that after further adjustments to the levelised prices, ranking of tenders had not changed from earlier assessments and that:
“Significantly, the Narama price at this stage is $5.15 per tonne less than Hebden’s lowest price (20 year, 2.9 Mtpa offer), and $9.74 per tonne less than Hebden 20 year supply at 2.0 Mtpa.”

The levelised price was a mechanism used by the Commission to assess the competitiveness of the tenders. It did this by adding to each tender price various costs which the Commission would or might have to bear in relation to each proposed contract but which were not part of the tender price. The cost of retrenchment of the entire Swamp Creek workforce was a cost added to the Narama Joint Venture tender for the purpose of ascertaining its levelised tender price.
The final tender analysis was dated 6 December 1989. It recommended to the Commission’s board the acceptance of all tenders except Hebden’s. The report set out the “Major Issues” which arose if its recommendations were accepted. The loss of jobs at Swamp Creek was dealt with under this heading. The report stated:
“(a) By not accepting an offer from Hebden Mining Company, the current Swamp Creek operation will be forced to close at the end of the existing contract with the progressive loss of some 200 jobs. The coal in the deposit is not suitable for export without a power station supply contract for the major portion of production. The manning required by the Narama mine is 87 in 1992 increasing to 121 in 1993. No additional mining labour is required at Narama prior to the expected completion of mining at Swamp Creek in mid 1991. Advice received from Hebden on 29th June, 1989 is that, should it not be successful in being awarded a contract, it will need to commence retrenchments early in 1990.
The issue of responsibility for retrenchment payments which were introduced into the coal industry after the initial contract was entered into with Hebden has not been resolved. The Company contends that the Commission is responsible for reimbursement of such payments and will undoubtedly claim them from the Commission. Hebden has estimated that payments of $5 million would be involved and these have been included as a potential costs against the Narama tender as a worst case.”
The contents of this second paragraph explain why the cost of retrenchments was included as a component of Narama’s levellised base price.
Under a heading “Analysis of Supply Strategies”, the following appeared:
“In a broader context, the competitive pricing of the four lowest priced offers, if accepted, would put the Commission in a better commercial position with respect to future tenders, particularly for supply from the Commission’s own mines. It is unlikely that many of these mines could offer better prices than those received for these tenders.
The two 20 year tenders proposed for acceptance (from BP Coal and Narama) enable a reduction in the proportion of the Hunter Valley supplies which must be replaced in the period 2001 to 2002. The potential contestability of the market at that time is therefore increased. Figure 1 illustrates the proposed change in the Commission’s position.
This market contestability in the year 2000 may be significantly impacted by export steam coal price levels at that time. The Australian Bureau of Agriculture and Resource Economics, in its 1989 Outlook for Australia Mineral Resources Exports to 2000, has forecast a 3.4% real average annual increase in the export steaming coal price up to the year 2000 (refer Figure 2). As the potential market for coal supplies to Bayswater/Liddell at that time will most likely include a number of mines supplying this export market, it is considered prudent to take the opportunity now to secure some supplies beyond that date based on current competitive pricing.” (emphasis added)
The Board met on 15 December 1989 and resolved to accept the four nominated tenders. It advised the Minister of this by memorandum dated 22 December 1989. In doing so it informed the Minister that:
“It is to be noted that, as a result of the Board’s decision, the current Swamp Creek operation will be forced to close at the end of the existing contract (mid 1991) with the progressive loss of some 200 jobs. The coal in the deposit is not suitable for export without a power station supply contract for the major portion of production. The manning required by the Narama mine is 87 in 1992 increasing to 121 in 1993. No additional mining labour is required at Narama prior to the expected completion of mining at Swamp Creek in mid 1991. Advice received from Hebden is that, should it not be successful in being awarded a contract, it will need to commence retrenchments early in 1990, with most recent advice being retrenchment of 13 people as early as 1st January, 1990.
The proposed actions to shut the Swamp Creek mine and open the Narama mine will require the approval of the Joint Coal Board, whilst the Department of Minerals and Energy are involved in the cessation of mining activity. Subject to the Minister’s concurrence, it is proposed to approach these organisations for the necessary approvals.
Accordingly, it is recommended that approval be given to proceed with the above course of action with respect to the award of coal supply contracts and the sale of the dragline.”
The Minister gave his approval on the same day.
The Minister was not advised of the methodology used to assess the tenders, nor was he advised that there was uncertainty as to whether the Commission was responsible for the cost of the Swamp Creek retrenchments or that that cost had been added to the Narama Joint Venture tender price so as to assess its competitiveness. However, Mr Flanagan recognised that the inclusion of the cost of retrenchment of the whole Swamp Creek workforce in the Narama Joint Venture’s levelised price paid no regard to the fact that there would be a “pick up” of jobs once Narama came into operation (albeit two to three years after the Swamp Creek retrenchments commenced).
Mr Flanagan agreed in cross-examination that he would not expect the recipient of a competitive tender bid to be advised what profit element was built into the bid. He said however, that he would expect some detail of the costs analysed. His evidence was:
“Q In the normal course would you agree with me that it would not be your expectation that tenderers would give you details of their costs analyses which they use for arriving at their base price?
A Well, if the base price is the price which has to be escalated, then I think they have to give us some details of the costs analyses of that and they do so with the price adjustment clause.
His attention was then directed to the fact that the cost structure of these contracts was determined by the weighting of various components. The cross-examination on this point proceeded:
Q            But the price adjustment clause gives a particular weighting, doesn’t it?
A            Yes.
Q            And in giving that particular weighting in this case, the condition the Commission put on it, as you understood the position, was that 10 per cent had to be fixed.?
A            Yes.
Q            And in considering tenders, may we take it, it would be your expectation that Mr Henness and his assistants would give consideration to the appropriateness of the weightings?
A            Yes.
…
Q            May we take it, so far as you can recall, at no time, up to the time this contract was entered into, or for that matter subsequently, did Mr Henness or anyone else from Mr Henness’s department say to you that the weightings were either unreasonable or were operating unreasonably?
A            No, they didn’t.”
It was apparent from this and other of his evidence that Mr Flanagan had little familiarity with the individual tenders at the time the four successful tenders were approved by the Board. In particular, he had never seen the weighting for labour given by the various tenderers for the purpose of the Labour Index in each tender. He did not know, for example, there was a difference in the weighting given to the labour costs in the Bayswater tender as compared to the Narama Joint Venture tender. He was not given any information as to how labour costs were made up and he said that was something which did not bother him at the time.
Notwithstanding his lack of familiarity with the Labour Indexes in each tender Mr Flanagan said in cross-examination that he would have considered a change in the labour force from 121 to 82 as “a significant commercial matter”, because:
“the base price of the coal was largely dependant on labour. 40 per cent of the base price of the coal was made up by labour costs and if the labour had suddenly reduced by about a third, I would regard it as a significant commercial matter.”
His evidence continued:
“Q          And you then [said] that you would have instructed your officers to go along and renegotiate the price, in light of that information?
A            Yes.
Q            What I want to ask you is: What would you have done had Costain or Peabody simply said to you ‘We are not prepared to reduce the price because of the risks inherently involved in a long term contract’ of the nature of that in question?
A            Well, they knew that those risks were there when they tendered and they tendered on the number of 121. I would want to know why they suddenly found they could now do it with 86.
Q            What I want to ask you is: If, at the end of the day, regardless of your inquiries, they simply said they were not prepared to reduce the base price, or the labour index, at all, what would you have done?
A            I would have taken the matter back to the board to find out if the board still wanted to proceed on these matters.
Q            You just don’t know what the board would have done in those circumstances?
A            No, I can’t be sure.
Q            Indeed, you can’t be sure of what you would have done in those circumstances?
A            I would have recommended to the board that we talk to the other tenderers again, because I think there was a significant matter here that had not been dealt with by Narama to our satisfaction.”
Notwithstanding that Mr Flanagan said he would have gone back to the Board and recommended they talk to the other tenderers, he had to concede that he would not have expected a tenderer to approach the Commission after a tender had closed offering a lower price because of some change of circumstance, if its bid was otherwise competitive. This was clear from the following cross-examination:
“Q          But if the contractor put in a price, say $4 or $6 per tonne better than its nearest equivalent competitor, you would have been satisfied from that alone that it was competitive, would you not?
A            Yes, except, as I say, if there was a change made during the tender negotiations then we would want to know why the change was being made.
Q            Why do you suggest the tenderer should come to you and say ‘Look, we can do it cheaper’?
A            I suppose it is hard to answer that question. If they were making changes, then I think we would want to see some justification for it. If they came to us and said they wanted an increase in staff, then they would make sure they could justify it in order to try and get the base price increased.
Q            Would you mind just focusing on my question for the moment? Why do you say it was your expectation that if a tenderer discovered, after he submitted his tender, that he could possibly, because of changed circumstances, make a greater profit than he previously anticipated, he was under an obligation to go and tell you?
A            I find it hard to answer that in terms of an obligation. I would have expected him to come along and say ‘Look, we are able to mine this more effectively and more efficiently’ by doing this or doing that.
Q            Would you have expected Mr Henness or Mr Lynch to go and tell Narama, if it be the case, that their tender was at a considerably lower price than anyone else’s, and they could get the contract, even if they offered a price a little bit higher?
A            No.
Q            Why, in those circumstances, do you suggest the tenderer should come along and tell you that because of changed circumstances it could make more profit than it originally anticipated?
A            I can’t answer that question. I don’t know why.
Q            In your experience has it ever occurred?
A            I can’t recall it occurring, no.
Q            In your experience did the Electricity Commission ever go to a tenderer and say ‘Look, charge us a bit more because you will still be competitive’?
A            No.
Q            The reason that you can’t recall either of the two events happening is because it is something which never occurs in a tender process in your experience, does it?
A            Well, that particular aspect, no, it doesn’t. If there are changes being negotiated during the period of the contract negotiation, we expect to know about it.
Q            You expected to know about something which would affect the tenderer’s ability to perform the contract. Correct?
A            Yes.
Q            You didn’t expect to know about something which might make the tender more profitable or, for that matter, less profitable to the tenderer?
A            No. That’s right.” (emphasis added)
He also conceded the Commission was effectively only interested in the “bottom line” of each tender.
Finally, he accepted that in the hypothetical circumstance that he had instructed his officers to seek to renegotiate the contract, he would have told them to take “what prudent steps” were necessary to ensure the contract did not go off. He also said that had they been unsuccessful, the Commission would have had “no option” but to “go ahead” with the Narama Joint Venture tender. This was simply because the Commission could not get the supplies it needed at a competitive cost without the Narama Joint Venture contract.
I have already mentioned Mr Flanagan’s lack of familiarity with the individual tenders. The evidence to which I have just referred is indicative of Mr Flanagan’s lack of understanding of how Specification 4007 and the Narama Joint Venture tender worked. It is a fair assessment in my opinion to say that Mr Flanagan did not fully understand the concept of weighting or how it was derived, other than that he knew that in the Narama Joint Venture tender the weighting given to labour was 40 percent of the price component.
In my opinion, Mr Flanagan’s evidence as to the commercial significance of the workforce numbers, was, with respect to him, an ex post facto justification for seeking to get out of the contract. The real reason for seeking the workforce numbers was so as to be in a position to inform the Minister of the position. This is the effect of his affidavit evidence that:
“If the Electricity Commission had been advised of such a decrease [from 121 to 82] in proposed additional employee numbers, I would have immediately notified the Minister, in writing, of these changes.”
And his examination-in-chief on that evidence:
“Q          My question is: Why would you have done that?
A            Because I wanted to ensure that the Minister had the correct figures, in case he was asked a question in Parliament about it, which was highly likely.
Q            Why do you say it was highly likely?
A            Because there had been the statement made earlier that there were to be no closures in the Hunter Valley, and somebody might have asked the question as to what is gong to happen.”
It is apparent from this evidence that the representation was not a representation which, in my opinion, had as its “tendency [the] natural and probable result … to induce the representee to enter into the contract”. It was simply not relevant to any aspect of the contract.
The tender was not based on a workforce of 121. It was based on a representative work force of 240. If the actual labour force numbers were relevant to the weighting to be given to labour, it would have been expected that the Commission officers assessing the tenders would have required an amendment when they were advised of the estimated labour force of 121 - half the number used for the representative number. In fact, there is no evidence that the Commission ever factored the estimated workforce of 121 into the calculation of cost contained in the tender. The Commission’s reliance on actual workforce numbers to prove materiality becomes more untenable when it is remembered that on 9 November 1989, the Commission had wanted to reduce the numbers used for the representative labour force and the number of classifications used for the purpose of the labour index.
Before leaving this area, I should record that the Commission submitted that the construction of the contract was not relevant to the issue of materiality. That submission may have been at odds with the position it took at trial. But even if it was not, it will be apparent from my reasons that I do not agree that the proper construction of the contract was irrelevant.
There may of course be cases where the contract and/or its construction is not relevant to the question of materiality. That occurs where there is some special circumstance operating which is particular to the representee and known to the representor.
I do not consider that this case falls into that category. Although, in this case, there was the issue of the political sensitivity of job losses in the coal industry, I do not consider that the evidence established that this representation was material to the Commission. The test of materiality in such a case is, as stated earlier, whether the representation is material to the inducement, not to the contract. Here it was not. The fact is there were going to be job losses in the order of about 200 positions on the likely closure of the Swamp Creek Mine. Acceptance of the Narama Joint Venture tender was not going to change that position. Admittedly, it was expected there would be some cross over of labour from Swamp Creek to Narama. However, that factor played no part in the Commission’s consideration, nor is there any evidence that that was an inducing factor.
There was other evidence which might explain why the workforce numbers were requested. If the Narama Joint Venture tender was accepted the Hebden tender would not be accepted with the consequence that its mine at Swamp Creek would have to close. New mining developments and mine closures required the approval of the Joint Coal Board. In the Tender Analysis report, attention was drawn to the fact that the Joint Coal Board might be reluctant to issue an approval for Narama if Swamp Creek was thereby forced to close. The report does not say that this was the reason why the numbers were sought, nor was there any reliance by the Commission on this as material. If it was a reason for requiring the information that does not mean, of itself, that it was material and inducing. It simply means it was relevant. In my opinion, something more is necessary to establish materiality and inducement.
The appellants submitted that the uncertainty in the industry, and in particular the uncertainty as to any capacity to change work practices would render manning estimates based on existing work practices more, rather than less, likely to remain meaningful over an extended period. I consider that this submission begs the question and is answered, not only by his Honour’s conclusion, but by the fact that the contract provisions relating to price operated according to their own terms regardless of whether labour numbers increased or decreased.
Was the Representation Continuing?
The trial judge found that the representation was not a continuing one. He considered that there were six circumstances determinative of this issue against the Commission:
“(a) The fact that on the evidence the Joint Venture supplied the estimate as a routine response to a list of requests.
(b) The absence of any evidence that manning levels as to absolute numbers was a matter of significance to the Electricity Commission for any nominated reason.
(c) Mr Knights’ concession that the Joint Venture saw the giving generally of information to the Commission as ‘part of the process of gaining the contract’ is to be seen in context and is not to be given a significance out of all proportion to the context. The crucial circumstance is that the Joint Venture acting reasonably, had no reason to believe, and on my findings are not shown to have believed, that the estimate was a matter of importance or significance to the Commission in assessing the tender. Nor was that matter in fact of importance or significance to the Commission in assessing the tender. See the inference drawn in the Judgment at paragraph 636.
(d) The volatile nature of the industry in a period of industrial unrest at the time when the representation was made and thereafter.
(e) The fact that there was nothing in the words of the facsimile or in the evidence to show:
(i) That the facsimile estimate was intended by the Joint Venture to have an ambulatory effect.
(ii) That the estimate was believed by officers of the Electricity Commission as having an ambulatory effect or as being intended by the Joint Venture to have an ambulatory effect.
(iii) That the representation viewed objectively, was or could in the circumstances in which it was made and bearing in mind its subject matter and the volatile nature of the industry at the time, have been reasonably regarded by officers of the Commission as intended to have an ambulatory effect.
(f) The careful way in which the estimate was presented with the ‘as at 16 November 1989’ wording.”

His Honour concluded:
“The circumstance that the representation when made on 16 November 1989, was not material is itself, it seems to me, a powerful indicator that the representation was not a continuing one.”
Although I do not endorse each of the factors listed by his Honour as assisting the determination whether the representation was continuing (and in particular, I do not consider that the question of materiality is relevant in determining the nature of the representation) I agree with his Honour’s conclusion that the representation was not ever a continuing representation. In my opinion, the language of the representation itself is decisive on this issue. It is an estimate, broken down into union groupings, as at a particular date. The fact it is an estimate, of itself, gives the figures provided their own internal flexibility, although a reduction of 33% would not, in my opinion, fall within the flexible parameters of an estimate. However, I cannot see anything in the language of the representation which permits it to be read in any way other than that it was an estimate as at a particular date.
Nor do I believe there are any surrounding circumstances which require any other construction to be placed on the representation. To the extent that there are surrounding circumstances, they point to this representation not being a continuing one. In particular, this was a known volatile workforce and the representation was made at a time of contemplated structural change in the industry.
Even if the representation was continuing when it was made, it was not operative as at the date of entry into the contract, for the connected reasons of lapse of time and intervening circumstances. There was some seven months between the date of the representation and the date of the contract and during that time, on 27 April 1990, the Coal Mining Industry Interim Consent Award (Production and Engineering) was handed down to take effect from 9 April 1990. Relevantly, the Award did two things. First, it provided for broad-banding classifications. Secondly, it provided a simplified award structure. The effect of the broad banding, which was a first time initiative in this industry, was to reduce some 60 award classifications to 9 broad groupings. The possibility if not the probability of reduction in workforce numbers as a result was obvious, and known to the Commission. Mr Flanagan conceded as much. He said:
“Q          So you do recall this award?
A            Yes.
…
Q            What it meant in industrial terms was that you might get less employees, more efficient work practices, but you may well have to pay a bit more at the end of the day?
A            Yes, that is an interpretation of it, yes.
…
Q            No doubt, when it was brought to your attention you took the view that in your mind, either in the short or long term, it could well lead to a reduction in the overall labour force?
A            Basically, yes, I have to say that.
Q            No doubt, had you thought about it, you would have appreciated that there was a possibility that it could have led to a reduction in the work force required by companies such as Narama?
A            Yes.
Q            You didn’t seek in any way to renegotiate the tender consequent upon the introduction of that particular award?
A            No.”
It follows that even if I am wrong in concluding that the representation was not material, it was either not a continuing one, or was spent to the knowledge of the Commission by the time Contract 4007C was entered into.
That leaves for consideration the issues of inducement and falsity.
Inducement
The Commission contended that it relied on the respondent and that this was evidenced by reference to it in the Tender Analysis report of 6 December 1989. His Honour however found that the Commission faced an initial hurdle in establishing inducement by misrepresenting the information in the facsimile. In the tender analysis report the following statement appears:
“The manning required by the Narama mine is 87 in 1992 increasing to 121 in 1993”
This is to be contrasted with the wording of the representation “current manning estimates by union for Narama as at 16th November 1989”.
It should also be noted at this point that there was no reference in the tender analysis of the introduction of the Interim Award, let alone any reference to the likely effect on labour numbers flowing from the implementation of the award.
The Tender Analysis Report was placed before the Board at its meeting on 15 December 1989. The statement was reproduced verbatim in the Report as to Narama manning requirements in the Memorandum to the Minister dated 22 December 1989. His Honour held that there was no evidence that the actual terms of the representation were ever before the Commission or the Minister. This finding is both correct and conclusive of this issue against the appellant. Even if, contrary to my view, the representation could be construed as a continuing representation, the appellant can only be successful if it can establish that it was “induced in fact” by the representation made. It had never been and cannot be the law that a party can rely upon its own interpretation of a representation if that interpretation does not accord with the true sense conveyed by that representation.
The appellant seeks to meet his Honour’s finding by contending that there is no difference in substance between the terms of the facsimile of 14 November 1989 and the contents of the analysis report of 6 December 1989, for the reason that “[n]o predicted manning level could be a fact as opposed to an estimate”. Whilst the submission is logical in its terms, it ignores the fact that there is a vast difference in a representation which refers to “estimates” made as at a particular date, and a statement in the analysis report which uses the language of certainty (“the manning level required is” (emphasis added)) and which gives no impression of the possibility of changing reference or the notion that the process of estimation is ongoing.
His Honour found that there were other matters which independently supported a finding that Elcom placed no reliance on the representation. In particular, there was nothing in the analysis of the tenders submitted which indicated that actual workforce numbers were relevant to any consideration of the tenders which were being undertaken. His Honour accepted that although the Narama bid was treated, for competitive analysis purposes, as having to bear the burden of the retrenchment costs at Hebden, that was quite different to a suggestion that actual numbers were relevant to its assessment of the bid. I agree with his Honour’s reasoning in this regard.
His Honour also concluded that the workforce numbers were sought by the Commission so as to be able to inform the Minister, so that he in turn would be able to answer questions in Parliament. I have already dealt with Mr Flanagan’s evidence on this issue and reached the same conclusion as his Honour in relation to materiality. This same evidence is relevant to the question of inducement, with the same result.
In agreeing with his Honour’s conclusion that the Commission was not induced by the representation, I should indicate that there is evidence the other way. Mr Flanagan said that had he known of the decrease, he would have instructed his officers to seek to renegotiate the contract. The Commission relies on this evidence as demonstrating that the Commission might have taken a different position if the misrepresentation had not been made. Mr Flanagan’s evidence, however, has to be viewed in context, and in particular against the background that he was under a misapprehension as to how Specification 4007 operated. Mr Knights evidence on any hypothetical renegotiation made this even more apparent. He pointed out that:
“the level of employment in a mine that wasn’t commenced until 1993 was irrelevant to the base price as at 1 June 1989 and actual numbers of employment had no relevance to the indices either.”
He said that had the Narama Joint Venture been approached it would have wanted to understand why the basis of the contract was being altered “from a fixed price, plus escalation of indices to something that was gong to share labour costs” and that such request “would be clearly outside our understanding of the contract”. He then gave the following evidence:
“Q Let’s assume you went back to Mr Henness or had made plain to Mr Henness, on his initial contact to you, the sorts of things you have been saying in your last couple of answers, and Mr Henness had said to you: Look, the contract will remain the same. The black letter of it will remain exactly the same. What we are asking you for is, if you want to have a contract of that type, are you able to reduce either the base price or change the labour index in some fashion?
A I would have repeated the statement that we would need clarification. To say the black letter remains the same, and then behave in a manner that ignores the black letter, would be something that I do not believe Mr Henness would ever, ever propose.”
Mr Henness was not called to give evidence.
Mr Knights cross-examination continued:
“Q          Your tender, in September 1989, did not say anything about employee numbers, did it?
A            Yes - or no.
Q            Other than, so far as numbers were mentioned in the appendices, near the end, in relation to the labour index?
A            There was a notional workforce.
Q            Yes. Your revised offer of May 1990 did not relevantly make any changes in that regard?
A            No.
Q            The statements given to the Commission on 16 November as to numbers was a statement which was outside the contract in effect, wasn’t it? The document you supplied never became part of contract 4007C?
A            Yes.
Q            I think you have taken on board the assumptions I am asking you to make, but, in a nutshell, if Mr Henness had come to you and said: You told us 121. We now think it may be 90 or 82. We think there may be some cost savings. Can you change the contract a bit. You say you would have said to him words to the effect: You’re trying to change the nature of the contract and we want to know exactly what you’re talking about?
A            Yes, I would have. The price we bid was bid as at a base date. the indices that we put in for adjusting that price over the life of the contract were from a base date and Mr Henness would be asking me to vary that process.”
He reiterated later that had Mr Henness asked him to renegotiate because of some radical changes which had occurred affecting one or more of the components relevant to cost, Mr Henness would in effect be “trying to change the nature of the contract”.
When viewed in context, I do not think that Mr Flanagan’s evidence establishes that the Commission might have sought to renegotiate the contract. at the most it establishes that he might have instructed his officers to renegotiate. I do not consider that that is sufficient to establish inducement which must relate in this context to what a party might have done in relation to the contract which was entered into. There is no evidence as to what those officers might or would have done. This is of particular relevance because the effect of Mr Flanagan’s evidence is that he would have been wanting his officers to renegotiate the contract on a different basis to that called for by Specification 4007. Mr Knights had serious reservations as to whether Mr Henness would have done that, and as I have said, Mr Henness did not give evidence.
It is quite possible that Mr Henness would have explained to Mr Flanagan why the possible reduction in the estimate of labour force numbers did not impact upon the contract. But whatever be the position, there is no evidence of what he might have done, and accordingly, in my view no evidence of inducement.
Accordingly, I consider that the challenge to the trial judge’s finding in relation to inducement must also fail.
Falsity
That leaves the question of falsity.
The falsity relied upon by the appellant is that before the contract was entered into, and at least by 27 June 1990, the Narama Joint Venture had revised its estimate and that there was then a new estimate of about 90.
The evidence of the revision is the entry in the minutes of the Narama Joint Venture meeting of 27 June 1990 that Peabody is “revising early year manning levels to take advantage of revised labour practices as they are being determined”. That is evidence of a process which was still ongoing, rather than evidence of a final concluded position, even as to estimates. The entry continued “[i]t appears early year manning will be about 90 people …”. Again, I consider that this is the language of an ongoing process, rather than anything having been concluded.
Mr Knights gave evidence that as at the time of that meeting (which he had not attended) he had not approved of any reduction in workforce numbers. He said that the FEDFA, one of the important unions involved in the industry was not, at that stage, a party to the consent award and did not become a party until November that year. He said that there were a whole range of predictions being discussed at the time ranging from 120 to “nought”. More significantly, he stated that “if it is a prediction I would simply say: That’s fine, it is your prediction. If it was communicated to Renison as Costain’s estimate, I would have violently opposed it”.
Mr Knights also said that, so far as he was concerned, he was of the view that up until the review was done for the revised EIS, 120 was the most likely outcome.
During the course of submissions senior counsel for the Commission restricted its challenge to the trial judge’s finding on the question of falsity to an allegation that estimates had been revised at that date. The terms of the entry in the minute do not support that conclusion. Rather, the minutes reflect that which is asserted by Mr Knights in his evidence, namely, that there was a process of revision going on, given the restructure in the industry, that there remained significant uncertainty as to what the end result of that restructure would bring, and no definite position had been reached in relation to workforce (which at that stage could only ever have been an estimate). In my opinion, his Honour’s finding in relation to falsity should stand.
It follows that I would dismiss the appeal in so far as it relates to contract 4007C.
Claim Under Contract 3806C
By separate amended summons Peabody sought a declaration that upon the proper construction of Contract 3806C the Commission was required to accept from Peabody up to 105 percent of the annual tonnage and to pay for that coal at the price prescribed by the contract. It claimed to be entitled, pursuant to that construction of the contract, to the sum of $3,918,153.49 in respect of coal delivered in June 1997. The trial judge found in favour of Peabody in that sum together with interest.
It was common ground between the parties that in June 1997, 139,097 tonnes of coal from Lease 110 were delivered by Peabody to the Commission and that these deliveries constituted in excess of 100 percent and less than 105 percent of the annual contract. The matter in issue between the parties was the price at which the Commission was required to pay for the coal. The resolution of that issue depended upon the proper construction of cl 3B.14 and cl 2A.4.1 of the contract, which provide:
“Payment for Coal Deliveries in Excess of Scheduled Quantities
In the event that the Contractor, for any reason, wishes to supply the Principal in any year a quantity of coal in excess of that which is scheduled under the Contract, the Principal may either:
(a) refuse the additional quantity of coal; or
(b) accept the additional quantity, which shall be paid for at 50% of the appropriate rate per tonne shown in Schedule No. C1, the appropriate rate being the lower of the rate for the scheduled tonnage as a percentage of the Annual Contract Tonnage or the rate for the aggregate tonnage delivered in the year, similarly expressed as a percentage of the Annual Contract Tonnage provided in this latter case that where the aggregate deliveries exceed 120% of the Annual Contract Tonnage, the rate applicable for such, 120% shall be the appropriate rate for the purposes of this Clause.
Refusal by the Principal under (a) above shall not in any way prejudice any other of the Principal’s rights under the Contract.
The above conditions shall not apply where the quantity of deliveries in any year is within a tolerance of +5% above that which is scheduled under the Contract.”
and
“As far as practicable, the Contractor shall endeavour to maintain an even rate of daily deliveries of coal to the Delivery Point in accordance with the Daily Contract Tonnage as defined in Clause 1.3 …”
Peabody claimed that it was entitled to be paid pro rata for its delivery of coal in June 1997 at the same price as 100 percent of annual contract tonnage - that is, it was entitled to be paid an additional 5 percent over and above the payment for the 100 percent delivered. The Commission contended that the “5 percent tolerance in cl 3B.14 should be construed as an unintended variation in quantity”, and as Peabody had conceded that when it delivered the extra tonnage in June 1997 it knew it was doing so and did so with the intention of exceeding 100 percent of the Annual Contract Tonnage, it was not entitled to the full price for the amount in excess of 100 percent but was only entitled to 50 percent of the contract price for that quantity.
It is useful at this point to set out paras (1) - (4) of his Honour’s reasoning as to the construction of cl 3B.4. His Honour said:
“(1)       The contractual provisions entitle Peabody if it ‘for any reason wishes to supply … in any year a quantity of coal in excess of that which is scheduled under the Contract …’ to do so.
(2)         Macquarie Generation cannot refuse to accept such deliveries under sub-paragraph (a) of Clause 3B.14, ‘where the quantity of deliveries in any year is within a tolerance of +5% above that which is scheduled under the contract’.
(3)         It is clear from the language used in Clause 3B.14 that the Clause contemplates a situation where the Contractor wishes to deliver more than the scheduled tonnage for the particular year and the Principal does not wish to take the coal. In such a case, sub-paragraph (a) permits the Principal the option to refuse to take the coal, or to take it but on the basis that only 50% of the Contract Price is payable for the excess quantity by reference to Commercial Schedule No. C1.
(4)         Clause 3B.14 also makes it clear that the Principal does not have those options available ‘where the quantity of deliveries in any year is within a tolerance of +5% above that which is scheduled under the contract’.”
Senior counsel for the Commission accepted that taken on its own, this reasoning was unexceptional. Senior counsel for Peabody was of a like view. However, the parties diverged in their views thereafter.
It was submitted on behalf of the Commission that cl 2A.4.1 directly informed the construction of cl 3B.14 and that his Honour erred in construing the word “tolerance” in cl 2A.4.1 as meaning an allowable or permissible variation without addressing the context in which a variation was allowable or permissible. It was submitted that the word “tolerance” in cl 3B.14 had to be construed in context of a contract which imposed an obligation on the contractor to “as far as practicable … endeavour to maintain an even rate of daily deliveries … in accordance with the Daily Contract Tonnage” (cl 2A.4.1). In that context, tolerance, that is allowable or permissible variation, meant an margin for unintended error. It was submitted that to construe the contract otherwise would be to invite the contractor to break its contract.

There is some tension between cls 2A.4.1 and 3B.14. However, it seems to me that the words of cl 3B.14 are such as to relate to any excess in delivery and to govern the price payable for such excess. The opening words of the clause, “in the event that the contractor for any reason, wishes to supply an excess quantity of coal” (emphasis added) point to such a construction. If the contractor seeks to supply such excess the Commission can (a) refuse to accept it or (b) accept it and pay for it at the lower rate. However, (a) and (b) do not apply if, on a yearly basis the total quantity of coal delivered is within a tolerance of +5 percent above that scheduled under the contract. There is nothing in that part of cl 3B.14 which indicates that it is confined to the “accidental” supply of between 100 percent and 105 percent. In summary, cl 3B.14 governs the rights and obligations of the parties in relation to the supply of additional coal on a yearly basis. Clause 2A.4.1 by contrast is directed, as Peabody submits, to an operational matter - that is, the relatively regular supply of coal on a daily basis. The reasons for that are unstated in the contract but are obvious.
It follows in my opinion that his Honour was correct in his construction of cl 3B.14.
However, the Commission further contends that his Honour by failing to find that a document dated 13 September 1991 did not become part of contract 3806C. It was pointed out that in its submissions at trial Peabody had asserted the letter did constitute a variation.
The letter of 13 September 1991 is headed:
“Contract 3806/C …
WEIGHTOMETER CALIBRATION DRIFT ADJUSTMENT TO TONNAGE
The following statements are for inclusion in the terms of Contract 3806/C”
It then sets out “Acceptable Tolerance for Weight” and specifies how tonnage is to be determined having regard to weigher error. The “Acceptable Tolerance” for weight is +/- 0.25 percent.
The Commission contends that “Tolerance” was used in this document means “margin for error” and hence “tolerance” in cl 3B.14 should be construed likewise.
In my opinion the usual principles of construction, that in the ordinary course, words be given the same meaning in a contract do not apply. Not only is the subject matter of the letter of 13 September 1991 vastly different from the terms of cl 3B.14, neither the precise expression or the context in which it appears bears any relationship to cl 3B.14. The expression refers to a tonnage tolerance and is a fraction of a percent. That is more typically the expression of a “margin for error”. Likewise, in the context of “weigh errors” the context is such that almost invariably, the word “tolerance” would mean margin for error.
For these reasons I consider that this ground of appeal must fail.
Appeal Against Order for Indemnity Costs
The Commission further appeals against his Honour’s order that the Commission pay the respondent’s costs on an indemnity basis in respect of certain claims brought by the Commission and which it abandoned during the course of its final submissions at trial.
The Commission had brought its claim against one or both respondents on four different bases. One was the misrepresentation case, which is the subject of the present appeal. The other three bases of claim were grounded in breach of contract.
These claims were categorised in the hearing as:
(i) The reasonable estimate claim. His Honour at para 19 summarised this claim as “a breach of a term of Contract 4007C that the figures in the Joint Venturer’s tender (and its final offer) for inclusion in the price fluctuation provisions, would reflect the Joint Venture’s reasonable estimate of employment costs”.
(ii) The failure to notify case (contract 4007C). His Honour at para 20 summarised this claim as “breach of a term of … 4007C … oblig[ing] the joint venturers, upon becoming aware of circumstances which made … the Labour Index inappropriate … to have notified the Principal … to have sought a meeting”.
(iii) the failure to notify case (contract 3806C), which was in essentially the same terms but instead related to Peabody: see para 23 of the judgment below.
The appellant sought damages in respect of each claim. The contract claim relating to Contract 3806C was abandoned shortly prior to trial. The other contract claims were abandoned at the conclusion of the evidence.
The appellant submitted before his Honour and on the appeal that it abandoned its case after completion of the evidence of Mr Gower, the respondents’ expert accountant. Mr Gower was the last witness examined in the proceedings. His evidence was to the effect that notwithstanding the actual reduction in workforce numbers at Narama, there had been no consequential increase in profit. The appellant contends that, it being obvious from Mr Gower’s evidence that it could not prove damage, it abandoned its claims. It submitted that it did so appropriately and responsibly and at the earliest opportunity, given that Mr Gower’s expert reports were filed late (one being filed after the conclusion of opening addresses). It submitted that in such circumstances, it should not be penalised by an award of indemnity costs: see Ragata Developments Pty Limited v Westpac Banking Corporation (unreported, 5 March 1993, Federal Court of Australia); Rouse v Shepherd [No 2] (1994) 35 NSWLR 277 at 281; Police Association of New South Wales v Higgins (unreported, 4 June 1997, Federal Court of Australia). In Higgins Lehane J said:
“Clearly the mere fact that an applicant does not persist with particular claims, so that at trial the issues are substantially narrowed, is not ordinarily regarded as a circumstance justifying an award of indemnity costs.”
The respondents assert that this presentation of the circumstances does not accord with the true background of the matter. It submits that:
(i) the claims were brought as a mechanism - designed to permit the appellant to get out of a long term contract which had become unprofitable because of significant changes in the market to which the contracts related;
(ii) that even before the commencement of proceedings it had informed the appellant its contract claims were untenable;
(iii) that the appellant only ever filed evidence from Mr Flanagan, whose evidence was confined to the misrepresentation claim;
(iv) that to the extent the appellant claimed it proposed to rely on the respondents discovered documents to prove loss, it had failed to get its own expert advise as to whether those documents would prove damage. Mr Gowan’s evidence was proof to the contrary.
Against this background, which his Honour dealt with in detail, his Honour concluded:
“To my mind there is considerable substance in Peabody’s submission that a close examination of the evidence makes good the proposition that Macquarie Generation at all material times knew or should have known that its cases ultimately abandoned, were groundless with no or no reasonable prospects of success. After a close examination of the chronology as set out in Peabody’s submissions … of the evidence and of the causes of action sought originally to be pressed that in relation to the cases ultimately abandoned, I have come to the conclusion that the present situation in which Macquarie Generation persisted in what should, on a proper consideration, have been seen to be cases having no reasonable prospect of success and against a background n which clear and early warning had been given by Peabody of the hopelessness of those cases.
…
My conclusion rests upon inter alia, the fact that the claims persisted in, in my view have been shown to have had significant deficiencies in evidence which would have been required to prove those cases.
This is particularly plain in the light of the failure of Macquarie Generation to seek to adduce any expert evidence or any lay evidence at all to explain how it was to be put that the labour index had become inappropriate. In my view, Macquarie Generation’s schedules on quantification of damages could never have proven this allegation without further evidence. I note also that Mr Gower’s evidence was evidence in response to those schedules on quantification of damages.”
The appellants submit that his Honour’s finding in para 59 is at odds with his statement in the judgment that the “cases now abandoned had raised complex and interwoven questions as to the construction of the contracts and to factual questions going to breach”.
It was further submitted that his finding that the damages could not have been proven “without further evidence” failed to have regard to the fact that four volumes of the Narama Joint Venture’s accounting documents and that the question whether or not an index which continued to rise significantly throughout the period when the costs represented by the index fell significantly, was capable of being resolved as a matter of construction and without the need for either lay or expert evidence.
As to the second of these contentions, the respondents submit that it is in effect, beside the point as each of the contract claims were brought forward on a false premise, namely that they were “cost plus” contracts rather than fixed contractor’s risk contracts. The respondents also drew attention to the fact that in his opening address, senior counsel for the appellant informed the court that in relation to the failure to notify case, the evidence did not support loss and that the appellants were seeking a remedy by way of termination for breach of condition.
In my opinion, his Honour’s conclusion that the abandoned cases “were groundless with no or no reasonable prospects of success” was correct. This conclusion does not detract from or make erroneous his comment in the main judgment that “complex and interwoven questions of construction” arose in respect of those claims. The proper construction of a contract with indexes and complex formulae is almost invariably complex and rarely simple. That factor alone does not permit a party to bring a matter to court, alleging breach in circumstances which involved a fundamental misunderstanding of the terms of the contract. I do not consider that the appellant’s fundamentally erroneous view of the contract could have withstood any reasonable examination of its terms. The respondents attempted to point this out to the appellant prior to the commencement of proceedings.
Nor do I consider that the appellant’s second criticism of his Honour’s reasons is made good. This was hard fought, sophisticated commercial litigation. It is not the stuff of such litigation to place huge quantities of financial documentation covering periods of many years without the benefit of expert analysis and assistance. For reasons unexplained to the trial judge and to this Court, the appellant chose never to present the court with that assistance. It is not clear to me that the appellant never obtained that assistance for its own purposes. Had it obtained such evidence, it would have been apparent that it would not have been able to prove loss.
In my opinion, it has not been demonstrated that his Honour’s discretion miscarried. Accordingly, I propose that the appeal be dismissed with costs.
GILES JA: I have had the advantage of reading the reasons of Beazley JA in draft.
The facts concerning contract 4007C are set out in Beazley JA’s reasons, and I will not repeat them. What was stated in Mr Knights’ facsimile of 16 November 1989 was correct as at 16 November 1989, and on any view for a significant time thereafter. The case of the Narama Joint Venture for rescission of the contract required that the facsimile made a continuing representation, that is, provided a statement of the estimated workforce holding good until notification of a changed estimated workforce or at least for a period of time encompassing entry into the contract. I do not think it did.
In my view the facsimile was a statement of a estimate as at 16 November 1989, good only as at that date or at most for a short time thereafter and subject to change without notice. This was because the facsimile was expressed to state a “current” estimate “as at 16 November 1989”, the specifically limited currency so given to it being underlined by it being no more than an estimate, by the lack of relevance of the workforce numbers to the working of the contemplated contract, and by the then foreseen restructuring of the industry together with the existing known volatility of work practices and hence in labour force.
The case for rescission of contract 4007C was correctly dismissed for this reason alone, and it is not necessary to go into the other matters considered by the trial judge and by Beazley JA.
As to contract 3806C and indemnity costs, I agree with the reasons of Beazley JA and have nothing to add.
In my opinion the appeal should be dismissed with costs.

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LAST UPDATED: 14/12/2000