Regional Power Corporation v Pacific Hydro Group Two Pty Ltd
[2013] WASC 46
REGIONAL POWER CORPORATION -v- PACIFIC HYDRO GROUP TWO PTY LTD [2013] WASC 46
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 46 | |
| Case No: | CIV:1925/2012 | ON THE PAPERS | |
| Coram: | KENNETH MARTIN J | 22/02/13 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Preliminary issues to be determined | ||
| B | |||
| PDF Version |
| Parties: | REGIONAL POWER CORPORATION PACIFIC HYDRO GROUP TWO PTY LTD ENERGIS AUSTRALIA PTY LTD formerly known as PACIFIC HYDRO GROUP THREE PTY LTD NORTH WESTERN ENERGY PTY LTD formerly known as ORD ENERGY PTY LTD |
Catchwords: | Preliminary issue Three issues of four agreed Dispute on fourth opposed issue Criteria for preliminary issue Assumption as to correctness of facts pleaded by plaintiff Nature of losses characterised by exclusion clause in contract applicable to indirect and consequential losses |
Legislation: | Electricity Corporations Act 2005 (WA), s 147 Rules of the Supreme Court 1975 (WA), O 1 r 4A, O1 r 4B, O 31 r 2 |
Case References: | Allen v Gulf Oil Refining Ltd [1981] AC 1001 Bass v Permanent Trustee Company Limited (1999) 198 CLR 334 BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268 Bolivia Republic v National Bolivian Navigation Co (1876) 24 WR 361 Jacobson v Ross & Jacobson [1995] 1 VR 337 Landsdale Pty Ltd v Moore [2009] WASCA 176 Smith v Maloney (1998) 19 WAR 209 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
PACIFIC HYDRO GROUP TWO PTY LTD
First Defendant
ENERGIS AUSTRALIA PTY LTD formerly known as PACIFIC HYDRO GROUP THREE PTY LTD
Second Defendant
NORTH WESTERN ENERGY PTY LTD formerly known as ORD ENERGY PTY LTD
Third Defendant
Catchwords:
Preliminary issue - Three issues of four agreed - Dispute on fourth opposed issue - Criteria for preliminary issue - Assumption as to correctness of facts pleaded by plaintiff - Nature of losses characterised by exclusion clause in contract applicable to indirect and consequential losses
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Legislation:
Electricity Corporations Act 2005 (WA), s 147
Rules of the Supreme Court 1975 (WA), O 1 r 4A, O1 r 4B, O 31 r 2
Result:
Preliminary issues to be determined
Category: B
Representation:
Counsel:
Plaintiff : No appearance
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Solicitors:
Plaintiff : Ashrust Australia
First Defendant : Lavan Legal
Second Defendant : Lavan Legal
Third Defendant : Lavan Legal
Case(s) referred to in judgment(s):
Allen v Gulf Oil Refining Ltd [1981] AC 1001
Bass v Permanent Trustee Company Limited (1999) 198 CLR 334
BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268
Bolivia Republic v National Bolivian Navigation Co (1876) 24 WR 361
Jacobson v Ross & Jacobson [1995] 1 VR 337
Landsdale Pty Ltd v Moore [2009] WASCA 176
Smith v Maloney (1998) 19 WAR 209
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1 KENNETH MARTIN J: By an amended writ of 21 August 2012 Regional Power, which trades as Horizon Power (the plaintiff), seeks damages for breach of contract against the defendants. The plaintiff brings proceedings as successor to the State Energy Commission of Western Australia (SECWA). It relies upon s 147 of the Electricity Corporations Act 2005 (WA) to bring the proceedings in its own right.
2 The relevant contract in respect of which relief is sought was made 18 October 1994 between SECWA and the Pacific Hydro Pty Ltd (Pacific Hydro) corporation. There was a deed of novation, also of 18 October 1994 between SECWA, Pacific Hydro and the three defendants.
3 The parties' pleadings in this matter are closed. They comprise:
(a) plaintiff's amended statement of claim of 30 August 2012;
(b) further amended defence of the defendants of 14 November 2012; and
(c) plaintiff's amended reply of 22 November 2012.
4 The pleaded cause of action advanced by the plaintiff for breach of contract, concerns the Ord Hydro Power Station which is located adjacent to Lake Argyle, near the township of Kununurra in Western Australia. The power station was commissioned in October 1996. The agreement of 18 October 1994, said to have been breached by the defendants, concerns their commitments to supply power from the power station to SECWA. The agreement is referred to by the parties as the PPA.
5 Over time SECWA's rights under the PPA were transferred to Western Power (1 January 1995) and further, following the disaggregation of Western Power in 1996, to the plaintiff by provisions in the Electricity Corporations Act.
6 There was an incident during August 2006 which is said to have been the result of an outage at the power station. Flooding ensued. It is said that the power supplied from the power station was interrupted for approximately two months.
7 Paragraph 14 of the amended statement of claim (ASOC) pleads the flooding incident was caused 'in the following way':
(a) there was a loss of load signal at the power station (the Load Loss);
(Page 4)
- (b) the Load Loss caused a trip in one of the hydro generators leading to a subsequent trip in the second hydro generator;
(c) as a result of the hydro generators losing power and going offline, the power station was de-energised;
(d) the emergency generator failed to automatically start; and
(e) as a result of the matters pleaded in (a) - (d) above, no power supply was available to the pumping system (certain particulars are then provided).
8 Paragraphs 15 - 18 explain the plaintiff's case concerning causation and damage as follows:
15. On or about 27 August 2006, the emergency generator failed to start because the programmable logic controller used to start the emergency generator had been incorrectly wired, such that its batteries were not adequately charged at the time of the Flooding Incident. (Confidential particulars are provided).
16. If the emergency generator's programmable logic controller had been correctly wired, such that it would have been operational on or about 27 August 2006, the pumping system installed to prevent a flooding of the power station would have been functional such that the flooding would not have occurred.
17. On or about 27 August 2006 the ADM generators were offline. (Confidential particulars are provided).
18. If the ADM generators were online on or about 27 August 2006, the power outage would not have occurred as a constant an uninterrupted power supply would have been maintained.
9 The plaintiff essentially complains of a breach of the PPA by the defendants, in failing to operate the power station in compliance with cl 6.1 or cl 10.1 of the PPA. These clauses from the PPA (which I have not yet seen) are described in par 10(a) and par 10(g) of the ASOC. They make reference to certain standards as regards Power Station and Transmission Facilities in compliance with 'Good Engineering and Operating Practices' (as defined in the PPA). In the case of cl 10.1 there is an asserted obligation to operate and maintain the power station and transmission facilities in accordance with such practices, as well as 'to use all reasonable endeavours to ensure that ADM operated and maintained its facilities in accordance with the provisions of cl 10.1 of the PPA' (ADM is a reference to Argyle Diamond Mines, see par 4 of the ASOC).
(Page 5)
10 The plaintiff also pleads an implied term of the PPA, arising as a matter of law, to the effect (see par 11 of the ASOC) 'Pacific Hydro Entities would use reasonable care to ensure that the Power Station and Transmission Facilities were operated in accordance with Schedule 1, and, in particular, to ensure that supply incidents in the ADM operations did not cause significant load rejections'.
11 Schedule 1 of the PPA is said to be a report concerning operation of the Power Station and Transmission Facilities (see par 10(a)(ii) of the ASOC).
12 As to the assertions of resultant breach damage, the plaintiff claims that there was a total supply outage following the flooding incident. This required the plaintiff to construct, install and operate additional power generation facilities at another power station owned and operated by it, namely the Kununurra Power Station. The damages costs as claimed include generating costs, labour costs, accommodation and meal costs, equipment costs and diesel costs, aggregating to just over $4 million.
13 A further amended defence (FAD) filed on behalf defendants, does not accept any liability for damages. It raises in defence various contractual provisions within the PPA concerning a need for 'notice', where there is a Event of Default (see par 10A of the FAD) and as well, various other contractual provisions including the force and effect of a liquidated damages clause.
14 The defendants further contend that the plaintiff has been contractually confined to the limited relief remedies as found in cl 23.1 and cl 23.2 of the PPA, even in the event that the plaintiff established all of its liability allegations at trial (see par 20A of the FAD).
15 The defendants invoke cl 26.1 of the PPA, contending its exclusionary effect is such that no party was to be liable to another in contract, tort, warranty, strict liability or any other legal theory for any indirect, consequential, incidental, punitive or exemplary damages or loss of profits (see par 21.2 of the FAD).
16 Hence, it is the contention of the defendants that all heads of loss and damage as are claimed by the plaintiff under its ASOC are irrecoverable, as they constitute 'an indirect or consequential loss' (see par 21.3 of the FAD).
17 Accordingly, the defendants assert that even if such claimed loss happened, it was by reason of its innate character, indirect or
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- consequential loss and such loss will be recoverable, by reason of cl 26.1 of the PPA (see par 21.4 of the FAD).
18 By an amended reply the plaintiff joins issue against various matters. At par 4 the plaintiff says:
[O]n the proper construction of the PPA, particularly clauses 18, 19, 20 and 23:
(a) clauses 19 and 23 are not an exclusive code as to compensation for any and all breaches of the PPA;
(b) clause 19.2 of the PPA only applies in relation to such events as which trigger the obligation to pay liquidated damages being the failure to meet specified performance thresholds;
(c) as the breaches in respect to which a claim is made relate to obligations outside the scope of clause 18, the scheme for liquidated damages and Provided Energy Percentage Credits does not apply so as to defeat such claim as made or limit the amounts to be paid by way of compensation; and
(d) as the defendants appear to recognise at paragraph 10B.1 and 20A.2 of the further amended defence, the breaches in respect of which a claim is made did not require the giving of notice and event of default as defined only arises when a notice is given.
19 My review of the pleadings shows that the overall parameters of dispute between the parties, arising out of the outage and ensuing flooding incident of 27 August 2006, appear to be relatively narrow.
20 The parties are agreed the court can determine three preliminary issues by reference to certain agreed facts. They differ only as to whether a fourth question (formulated between the parties), is appropriate for further determination as a preliminary issue in the overall exercise that will occur.
21 The three preliminary issues in respect of which the parties are agreed are:
[O]n the proper construction of the PPA:
1. do clauses 19, 20, 21, 22 and 23 provide the only remedies for a breach of clause 6.1, 10.1 or the implied term pleaded at paragraph 11 of the amended statement of claim, or is the plaintiff entitled to remedies available to it at common law for breaches of clauses 6.1, 10.1 or the implied term or any of them?
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- 2. can the plaintiff recover damages at common law in the absence of an Event of Default (as defined in the PPA) triggering the remedial regime under clauses 19, 20, 21, 22 and 23 of the PPA?
3. can the plaintiff recover damages at common law for breach of the PPA by the defendants where there is no agreement between the plaintiff and the defendants that the breach did not have a material, adverse affect on the plaintiff under clause 23.2?
22 The fourth proposed issue, over which there is contention, is:
4. if the answer to question 3 above is 'yes', are the heads of loss and damages claimed by the plaintiff at paragraph 21 of the amended statement of claim recoverable against the defendants in light of the exclusion for certain types of loss and damage at clause 26.1 of the PPA?
The suitability of question 4 as a preliminary issue
23 The parties exchanged written submissions concerning the 'suitability of "consequential loss question for preliminary determination"'.
24 In short, the defendants strongly advocate the suitability of the fourth question, whilst the plaintiff strongly resists.
25 The defendants written submissions of 6 December 2012 refer to standard touchstones for assessing determination such as this, namely,
(a) whether the question is one of law rather than disputed facts (see Rules of the Supreme Court 1971 (WA) (RSC), O 31 r 2);
(b) whether the question necessarily arises in the proceeding (see Bolivia Republic v National Bolivian Navigation Co (1876) 24 WR 361, 362);
(c) whether there is a significant possibility a separate trial of the issue may lead to settlement (Smith v Maloney (1998) 19 WAR 209 [223] (Malcolm CJ)), and whether the issues determination is likely to result in substantial saving in time,inconvenience and expense to both parties (Landsdale Pty Ltd v Moore [2009] WASCA 176[22] (Newnes JA) following Smith v Moloney and Allen v Gulf Oil Refining Ltd [1981] AC 1001); and
(d) policy considerations in RSC O 1 r 4A and r 4B, concerning the modern principles of case flow management.
(Page 8)
26 The defendants contend that all relevant considerations are fulsomely met for the fourth proposed issue, concerning consequential loss and the exclusion of that loss and damage under cl 26.1 of the PPA.
27 For the purposes of determining this application I was not provided with a copy of the PPA, itself (although there is frequent reference to various of its provisions in summary form in the pleadings, as well as in the parties submissions).
28 Concerning cl 26.1, the defendants set out the text of this PPA clause in their submissions (without objection). It is said to read:
Neither the [Defendants] nor the [Plaintiff] shall be liable to the other party in contract, tort, warranty, strict liability or any other legal theory for indirect, consequential, incidental, punitive or exemplary damages or loss of profits.
29 From the defendants' perspective, an issue four determination exercise, as is mooted, is primarily an exercise in proper characterisation of the plaintiff's claimed losses, after properly construing cl 26 of the PPA.
30 The defendants' FAD expressly invokes cl 26 in aid of an end exclusionary position negating these claimed losses. But the plaintiff's ASOC and amended reply remain essentially silent as to cl 26 or its implications.
31 By written submissions the defendants, as regards what they see as an exercise in characterisation, say (see par 17):
The plaintiff pleads that it suffered the Claimed Loss as a result of the power supply outage, which resulted in the flooding of the Power Station (as defined in the ASOC). The effect of the Flooding Incident (as defined in the ASOC) was that the Power Station was unable to supply power to the Plaintiff for approximately two months, and the Plaintiff incurred the Claimed Loss in order to provide an alternative source of power. While a number of facts pleaded in the ASOC regarding the reasons for the power outage are in issue between the parties, these facts in issue include neither the fact of the Flooding Incident, nor the fact that it caused an interruption in power supply for approximately two months ...
32 The defendants point out that proposed issue four has been formulated by reference to the heads of loss of damage 'claimed' by the plaintiff in its ASOC. Accordingly, the defendants say that resistance by the plaintiff to issue four on the basis that additional evidence needs to be
(Page 9)
- adduced (concerning the context in which the claimed loss arose) misconstrues the nature of the question.
33 The plaintiff's written submissions of 18 January 2013 contend (see par 5) that 'the Court cannot resolve the dispute over the applicability and effect of clause 26 without descending into questions of fact that should be properly determined at trial'. In consequence the plaintiff says the fourth proposed issue is not amenable to preliminary determination.
34 The plaintiff also contends that the fourth proposed issue as to its losses invokes not a two stage, but a three stage analysis and that the defendants have ignored the first vital step in the analysis.
35 The plaintiff's stages of analysis are to (see par 10 of the written submissions):
(a) determine the nature of the plaintiff's losses and the manner in which those losses were incurred (Step 1);
(b) properly construe clause 26 of the PPA (Step 2); and
(c) determine whether the plaintiff's pleaded losses fall within the properly construed meaning of clause 26 (Step 3).
36 The plaintiff accepts that Steps 2 and 3 raise questions of law. But it then says Step 1 is plainly concerned with questions of fact, such as what was done in response the defendants breach and, when it was done and how it was done (see pars 13 and 15 of the written submissions). Answers to these questions, it is argued, will necessarily colour any assessment of the direct, indirect or consequential character of the plaintiff's losses.
37 The plaintiff also says it does intend to adduce evidence at trial about proper meanings in context of the word 'consequential' at the time the PPA was entered in 1994 as a part of the construction exercise (see par 14 of the written submissions). The plaintiff also foreshadows leading extrinsic evidence at trial as to the surrounding circumstances of the construction of cl 26. It says it is in a process of 'making inquiries' about this and its inquiries are still ongoing concerning the true meaning of the word 'consequential', when the PPA was executed in 1994. (I reiterate, however, that neither the ASOC nor the amended reply address cl 26 of the PPA or its meaning. There is no plea to date, or particulars, of any relevant mutually known surrounding circumstances that can bear upon a contractual construction exercise.)
(Page 10)
38 Accordingly, the plaintiff's assertion of an intention to search for, and possibly lead, 1994 framed extrinsic evidence presents to me now, to adopt American football parlance, as something of a 'Hail Mary' aspiration, grounded more in a future hope than present day reality.
39 The plaintiff says embarking on a determination of the fourth proposed issue is conditioned on the answer to issue three being, 'yes'. It may never arise for determination. That is obviously correct. But in my view, that conditional feature alone will not stand against determining the fourth issue, if the other legal criteria, necessary for showing its viability and appropriateness for an early determination, are met.
40 The chief obstacle raised concerning the fourth proposed issue seems to be the contention (via Step 1) that some disputed issues of fact will present for determination and, therefore, the fourth issue is not an issue of law, in accordance with RSC O 31 r 2(1).
41 A last tranche of written submissions of 1 February 2013 from the defendants, presses for the fourth issue to be determined. Concerning an asserted conceptual obstacle of an underlying factual enquiry, the defendants observe that no steps have been taken to amend any of the plaintiff's pleadings. They say that the consequential loss claim issue is wholly appropriate to be decided, upon the legitimate premise of the facts as alleged in the ASOC 'being assumed to be true for the purposes of the application' (see part 3 of the defendants' submissions in reply).
42 The defendants also say a decision relied upon by the plaintiff to resist this issue being determined, namely BGC Residential Pty Ltd v Fairwater Pty Ltd [2012]WASCA 268, does not bear upon the present question at issue, which is, at base, one of characterisation of the plaintiff's asserted loss and damage, not the factual question of determining what is the loss and damage. I accept that analysis.
43 The defendants also say that merely because a court determines questions of law by reference to underlying facts, this will not necessarily result in the determination being regarded as one of mixed law and fact. This invokes observations by the plurality in Bass v Permanent Trustee Company Limited (1999) 198 CLR 334 [358]. Reliance is also placed upon observations by Brooking J in Jacobson v Ross & Jacobson [1995] 1 VR 337 [341] - [342] (and cited with approval in Bass [358]). These concern a court proceeding by reference to 'facts assumed to be correct for the purposes of the preliminary determination' (Jacobson v Ross & Jacobson [341]). Such an approach still leaves the defendants 'free to
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- dispute the fact concerned at the trial', if necessary (Jacobson v Ross & Jacobson [342]).
Determination as to proposal for preliminary issue four
44 In the end, I am of the view that there is a significant overall utility in the court resolving proposed preliminary issue four and that the exercise can be appropriately undertaken by reference to the assumed correctness of the facts as currently alleged in the ASOC. Such facts can be assumed to be true in this exercise, applying the Jacobson v Ross & Jacobson approach.
45 The nature of mooted issue four exercise seems overall to me to be relatively confined, particularly bearing in mind the particulars as to loss as currently provided at par 21 of the ASOC (identifying only generation costs, labour costs, accommodation and meal costs, equipment costs and diesel fuel costs) as the plaintiff's claimed damages associated with constructing, installing and operating additional power generation facilities from the Kununurra Power Station.
46 A major component of that damage is claimed generation costs of $1,293,394. This is said to be inclusive of costs associated with the delivering, commissioning and hiring of diesel generators.
47 The other major component of loss claimed (see particulars at par 21(v) ASOC) is the diesel fuel cost of $2,727,287 (excluding GST). This is for the extra diesel needed to run the extra generators required to run power generation facilities.
48 Two major tranches of claimed costs (as to generators and fuel) can be seen to comprise, overwhelmingly, the heart of the loss and damage pursued by the plaintiff, in a quantitative sense (approximately $4 million).
49 Whether or not the damages of that character do properly fall within the exclusionary ambit of cl 26.1 of the PPA, as indirect or consequential loss, assessed after the flooding incident and the alleged breaches of contract, presents, in my assessment, as a relatively confined exercise. It will be an exercise in assessing (characterising) the particular claimed losses. Such exercises in characterisation are routinely engaged in, not only by courts, but also, for instance, by insurance companies on a daily basis. Nothing particularly unique presents as to the nature of the characterisation task.
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50 I assess then to be a considerable utility in assessing the fourth proposed issue, if it arises for answer by reference to issue three.
51 Accordingly, I shall order the trial of the four preliminary issues. I will hear from the parties in terms of precise directions concerning a progression of the four issues to a hearing, including the finalising of the draft statement of agreed facts which the parties' submissions said were almost completed (see par 3 of the plaintiff's written submissions of 18 January 2013).
52 The costs of this exercise as regards to the fourth issue should be reserved.
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