REST SEA Gas Pipelines Pty Limited v APT SEA Gas Holdings Pty Limited

[2010] NSWCA 296

New South Wales

Court of Appeal

CITATION:	REST SEA Gas Pipelines Pty Limited v APT SEA Gas Holdings Pty Limited [2010] NSWCA 296
HEARING DATE(S):	5 November 2010
JUDGMENT DATE:	5 November 2010
JUDGMENT OF:	Allsop P at 1; Hodgson JA at 25; Campbell JA at 26
EX TEMPORE JUDGMENT DATE:	5 November 2010
DECISION:	The Orders of the Court are: 1. Appeal dismissed with costs. 2. Cross-appeal dismissed with no order as to costs.
CATCHWORDS:	CONTRACT – construction – whether there was unconditional acceptance of an offer in accordance with partnership agreement – objective and contextual approach to interpretation
CATEGORY:	Principal judgment
CASES CITED:	APT SEA Gas Holdings Pty Limited v ANP SEA Gas Holdings Pty Limited [2010] NSWSC 1221 Carter v Hyde [1923] HCA 36; 33 CLR 115 International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; 234 CLR 151 Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181 Pacific Carriers Limited v BNP Paribas [2004] HCA 35; 218 CLR 451 Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 ZHU v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530
PARTIES:	REST SEA Gas Pipelines Pty Limited (ACN 101 412 033) (Appellant/First Cross-Respondent) APT SEA Gas Holdings Pty Limited (ACN 124 754 767) (First Respondent/Cross-Appellant) ANP SEA Gas Holdings Pty Limited (ACN 099 332 297) (Second Respondent/Second Cross-Respondent)
FILE NUMBER(S):	CA 2010/323974
COUNSEL:	P R Whitford SC, C O Gleeson (Appellant/First Cross-Respondent) D B Studdy SC, R C A Higgins (First Respondent/Cross-Appellant) I M Jackman SC, P Zappia (Second Respondent/Second Cross-Respondent)
SOLICITORS:	Clayton Utz (Appellant/First Cross-Respondent) Chang, Pistilli & Simmons (First Respondent/Cross-Appellant) Freehills (Second Respondent/Second Cross-Respondent)
LOWER COURT JURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	2010/323974
LOWER COURT JUDICIAL OFFICER:	Brereton J
LOWER COURT DATE OF DECISION:	22 October 2010
LOWER COURT MEDIUM NEUTRAL CITATION:	APT SEA Gas Holdings Pty Ltd v ANP SEA Gas Holdings Pty Ltd and anor [2010] NSWSC 1221

2010/323974

ALLSOP P
HODGSON JA
CAMPBELL JA

Friday 5 November 2010

REST SEA GAS PIPELINES PTY LIMITED v APT SEA GAS HOLDINGS PTY LIMITED

Judgment

1 ALLSOP P: This is an expedited appeal from orders made in the Equity Division declaring that the first respondent had accepted an offer made to sell shares in two wholly owned subsidiaries. (See APT SEA Gas Holdings Pty Limited v ANP SEA Gas Holdings Pty Limited [2010] NSWSC 1221.)

2 The background and context of the dispute is clearly and shortly expressed by the primary judge in [1]-[2] of his reasons as follows:

“[1] HIS HONOUR : Each of the plaintiff APT SEA Gas Holdings Pty Limited ("APT"), the first defendant ANP SEA Gas Holdings Pty Limited ("ANP"), and the second defendant REST SEA Gas Holdings Pty Ltd (“REST”) is the holding company of, and owns 100% of the shares in, two special purpose vehicles (SPVs) which together comprise the six partners in the ‘SEA Gas partnership’, under a partnership agreement dated 11 February 2002 (“the Partnership Agreement”), in connection with a high pressure natural gas pipeline between Iona in Victoria and Adelaide. APT owns 100% of the shares in APT SPV2 Pty Ltd and APT SPV3 Pty Ltd ("APT Partners"); ANP owns 100% of the shares in ANP SEA Gas SPV2 Pty Ltd and ANP SEA Gas SPV3 Pty Ltd ("ANP Partners"); and REST SEA Gas Holdings Pty Ltd (“REST”) owns 100% of the shares in REST SEA Gas SPVl Pty Ltd and REST SEA Gas SPV2 Pty Ltd ("REST Partners"). On 25 August 2010, ANP agreed to sell its shares in the ANP Partners to a third party (State Infrastructure Holdings (SEA Gas) Pty Ltd) (“SIH”) for a price of $98,849,053. That sale was subject to rights of pre-emption enjoyed by APT and REST under the Partnership Agreement. Accordingly, on 25 August, at 1540, ANP gave a notice to APT and REST under clause 22 of the Partnership Agreement offering them the whole of ANP’s shares in ANP Partners for the same price ("the Transfer Notice"). The offer contained in the Transfer Notice was expressed to be open for a period of twenty Business Days from the date of the Notice (that is, until 22 September 2010). The terms and conditions of the offer contained in the Transfer Notice were said to be those contained in the Notice itself and the attached Share Sale Agreement with SIH ("SSA") and Escrow Agreement.

[2] At approximately 1240 on 22 September, REST delivered a notice to the Chair of the Partnership Committee, unconditionally accepting ANP’s offer in respect of 100% of the shares in ANP Partners. At approximately 1430 on 22 September, APT faxed a notice to the Chair of the Partnership Committee, purporting to accept the offer in respect of 50% of the shares. The effect of this notice is the main issue in the case. Further, at approximately 1622 and 1716 on 22 September 2010, APT emailed and faxed further correspondence to the Chair of the Partnership Committee; the effect of this correspondence is also an issue in the proceedings. On 24 September 2010, ANP by its solicitors asserted that only REST had validly accepted the offer in the Transfer Notice and that, accordingly, ANP was obliged to transfer 100% of the shares in ANP Partners to REST upon payment of the purchase price stated in the Transfer Notice. On 29 September 2010, APT obtained ex parte interlocutory relief preventing ANP from taking any steps to transfer more than 50% of the shares in ANP Partners to REST. That relief was subsequently continued, by consent, pending the final hearing.”

3 The primary Judge set out the issues at [3] of his reasons as follows:

“[3] Four main issues arise in the proceedings:

(1) Did APT, by the acceptance notice sent at 1430 on 22 September 2010, unconditionally accept the offer constituted by the Transfer Notice in accordance with clause 22 of the Partnership Agreement)?
(2) If not, would the correspondence sent by APT at 1622 and 1716, if within time, have resulted in an unconditional acceptance of the offer constituted by the Transfer Notice?
(3) If so, was that correspondence received while the offer remained open?
(4) If there was no valid acceptance by APT, was the Transfer Notice valid and effective for the purposes of clause 22 of the Partnership Agreement?”

4 His Honour answered these issues:

1. Yes.
2. Not applicable but if relevant yes.
3. Yes.
4. Unnecessary but if necessary yes.

5 The matter is one of considerable financial importance for the parties. We are in a position to resolve the matter today by reference to question (1). It is better that the parties have their commercial answer promptly on this dispositive issue rather than wait for obiter dicta to be formulated and expressed.

6 I am of the view that his Honour was, in substance, correct in his analysis of the first question in [4]-[30] of his reasons which I do not propose to set out.

7 It was submitted that his Honour misapplied principle in his analysis of the relevant correspondence by putting too much weight on context and by not properly appreciating the ambiguity and lack of clarity in the documentation concerned, being the letter of APT of 22 September 2010 sent at 2.30 pm.

8 I do not agree with the criticisms of his Honour’s reasons. His Honour rightly looked at context in accordance with what the High Court said in Carter v Hyde [1923] HCA 36; 33 CLR 115, which is in accordance with the High Court’s objective and contextual approach to objective interpretation to be found in a number of High Court authorities of recent years, including Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers Limited v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461-462 [22]; ZHU v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at 176 [40], and International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53].

9 Individual criticism was made of minor expressions of his Honour in the third sentence of [22] and parts of [26] which were said to be portrayals of the erroneous use of subjective intention in construing the letter. With respect, I disagree with those constructions of his Honour’s reasons. Properly read, these paragraphs should not be read other than in the context of the clear principle his Honour elsewhere enunciated being an objective approach. His Honour speedily and promptly, four days after the hearing, delivered a detailed and careful body of reasons. That dispatch with which his Honour dealt with the matter should also be seen as the background to what might perhaps be seen, with respect, as a small example of infelicity of expression.

10 The question of the reading of the acceptance letter of 22 September 2010, being the letter of 2.30 pm is one to be undertaken in the position of the commercial parties involved. The question is whether, looked at objectively, the acceptance is to be understood as an unconditional objective acceptance or an objective manifestation of will to contract. If it is, there is a contract; if it is not to be so read, there has been no acceptance.

11 In my view, the letter is tolerably clear in its structure and terms. In the second paragraph, the letter, in accordance with cl 22 of the partnership agreement, accepts the offer as to 50 per cent of the sale interest. In the context of these sophisticated and well advised parties, the clear expression of the acceptance being in accordance with cl 22 carried with it the clear meaning that this was an unconditional acceptance by reference to cl 22.3(e) of the partnership agreement. The reader in this context would undoubtedly be taken to understand this.

12 The acceptance was sent, as the primary addressee, to a person who was the Chairperson of the SEA Gas Partnership Committee, as required by the partnership agreement.

13 The fifth paragraph referred to the position that was understood to be within an earlier letter of the offeror being the “Change of Control Consent Letter”. I do not set out again the paragraph which has been set out in his Honour’s reasons below. What is clear, in my view, from this letter is that another possible alternative was being identified and dealt with, that is, a perceived preference of the offeror for the transaction not to be the sale of the shares in the subsidiaries but in the holding company. This has been referred to in argument as an upstream manifestation of the arrangement rather than downstream in the subsidiaries. That was a subject matter dealt with by that paragraph and in my view in the following paragraphs. That was his Honour’s view and I think it is correct. The language of the letter supports this construction when the letter goes on to discuss this other possibility. In the next paragraph the use of the word “therefore” as the first word in the paragraph; the phrase “willing to accede to your preference and to instead ...”; and “a mechanical consequence of your preference” all tend to the tolerably clear view that the matter raised by the fifth paragraph has been dealt with. Similarly, in the next paragraph, the phrase “from this” in the second line directs attention to what passed before it. Although in that paragraph after the words “from this” the words continue “to give effect to this Acceptance Notice”, this is to be read in the context of the letter and, in my view, it conveys no different meaning to how this letter is dealing with this subject matter.

14 Thus, in my view, the meaning of this letter, properly understood objectively in the context in which it appears, is that there has been an unconditional acceptance and a discussion of other possibilities by reference to a perceived desire of the party to proceed in a different manner.

15 Emphasis was placed in submissions on the character of the changes in the annexed agreement. I do not think that those changes change the meaning of the letter as I have identified it. It can be accepted for the purposes of argument that some of them could be changes suitable for the operation or implementation on varying the basis of the downstream arrangement. However, that is not the point, in my respectful view. The annexure should be read and understood in the context in which it appears in the letter and, in my view, the letter was as I have described.

16 If that not be the correct view, and if the objective reader in the position of the parties and the recipient would understand that the mechanical changes were referable to the acceptance of the downstream arrangement, they were clearly, in my view, only suggestions for the furtherance of the documentation which was “sought [to be] identif[ied]” and were open to discussion. They are not, in my view, objectively to be read in any way as conditions on the acceptance or as part of a non-conforming acceptance to be understood as a counter-offer. They do not, in my view, detract in any way from the unconditional acceptance of the document.

17 For these reasons, in my view, the primary judge was correct in the way he examined the first issue.

18 If I be wrong about that, if the first letter was not an acceptance, it was not, however, a rejection or a counter offer. At the worst, in my view, if the appellant’s arguments are partially correct, it was an attempt at acceptance with insufficient clarity.

19 I hasten to say that is not my view, but if there is, as was submitted, doubt in the acceptance to deny the legal character of a contractual acceptance, it was nevertheless not a rejection or a counter-offer. The offer remained open and, in my view, the later correspondence on that day was sufficient to accept the outstanding offer.

20 For these reasons, in my view, the appeal should be dismissed with costs. This makes it unnecessary to deal with the cross-appeal and the notice of contention, other than by dismissing the cross-appeal with no order as to costs.

21 HODGSON JA: I agree.

22 CAMPBELL JA: I agree.

The orders of the Court are:

1. The appeal be dismissed with costs.

2. The cross-appeal be dismissed with no order as to costs.

**********