Macquarie Generation v Peabody Resources Ltd

Case [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Electricity Legislation Amendment Act 1995 (NSW) (repealed)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…

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AGLC
Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361
Case
[2000] NSWCA 361
Decision Date

CaseChat Overview and Summary

Macquarie Generation (the appellant) appealed a decision concerning two coal supply contracts, 3806C and 4007C, with Peabody Resources Ltd (the first respondent) and Renison Limited (the second respondent). The dispute centred on alleged misrepresentations made by Peabody regarding the workforce size and operational capacity of the Narama Joint Venture, which was formed to supply coal to the Electricity Commission of New South Wales (the Commission). The appellant, as the successor to the Commission, argued that these representations, made during the tender process and at the time of contract formation, were false and had induced the Commission to enter into the contracts.

The court was required to determine whether certain representations made by Peabody concerning the Narama Joint Venture's workforce and operational capacity were false, and if so, whether these misrepresentations induced the Commission to enter into Contract 4007C. Specifically, the court had to consider whether a representation, true at the time it was made, could be considered a continuing representation that became false due to a change in circumstances before the contract was concluded, thereby rendering the contract voidable. The court also had to assess the legal principles governing the duty to correct representations that have become untrue.

The court applied the principle established in *With v O’Flanagan*, which holds that a party making a representation has a duty not to leave the other party under an error when circumstances change and falsify that representation, particularly when there is an interval between the representation and the contract, and the representee relies on the representation. However, the court cautioned against an absolute interpretation of this duty, emphasising that the applicability of the continuing representation principle depends on the specific facts and circumstances, and whether it was reasonable for the representee to rely on the representation at the time of contract. The court found that the representations made by Peabody regarding the workforce size were indeed false at the time of contract, and that the Commission relied on these representations, making the contract voidable.

The appeal was dismissed, and the appellant was ordered to pay the costs of the respondents.

Orders

Orders of the court

Appeal dismissed with costs

Background

Background to the litigation

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.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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.