Sagasco South East Inc v BHP Petroleum (Australia) Pty Ltd - [2000] WASC 6

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION: SAGASCO SOUTH EAST INC & ORS -v- BHP PETROLEUM (AUSTRALIA) PTY LTD & ORS [2000] WASC 6

CORAM: PARKER J

HEARD: 19 JULY 1999

DELIVERED : 21 JANUARY 2000

FILE NO/S: CIV 2404 of 1998

BETWEEN: SAGASCO SOUTH EAST INC (ARBN 002 383 023)
First Plaintiff
BORAL ENERGY PETROLEUM PTY LIMITED (ACN 010 728 962)
Second Plaintiff
BORAL ENERGY AMADEUS NL (ACN 010 137 121)
Third Plaintiff
PAN PACIFIC PETROLEUM NL (ACN 000 749 799)
Fourth Plaintiff
CARNARVON OIL AND GAS NL (ACN 009 256 544)
Fifth Plaintiff
ROY ANTONY RADFORD
Sixth Plaintiff
AND
BHP PETROLEUM (AUSTRALIA) PTY LTD (ACN 006 923 879)
First Defendant
MOBIL EXPLORATION AND PRODUCING AUSTRALIA PTY LTD (ACN 004 588 827)
Second Defendant
INPEX ALPHA LIMITED (ARBN 003 730 756)
Third Defendant

Catchwords:

Contract - Construction - Whether context requires words to be given a meaning other than the defined meaning - Whether defined meaning gives rise to absurdity

Energy and resources - Gas and oil - Agreement for sale of gas from oilfield and for its transportation by Project Pipelines - Daily Pipeline Demand Charge - Formula for calculation of Charge - Defined meaning includes gas "made available for delivery through Project Pipelines" - Total shutdown of production - Whether meaning other than defined meaning intended

Legislation:

Nil

Result:

On trial of preliminary issue: Held that "DG" in cl 17.1 equals zero

Representation:

Counsel:

First Plaintiff                :     Mr M J McCusker QC & Ms P E Cahill
Second Plaintiff            :     Mr M J McCusker QC & Ms P E Cahill
Third Plaintiff               :     Mr M J McCusker QC & Ms P E Cahill
Fourth Plaintiff             :     Mr M J McCusker QC & Ms P E Cahill
Fifth Plaintiff                :     Mr M J McCusker QC & Ms P E Cahill
Sixth Plaintiff               :     Mr M J McCusker QC & Ms P E Cahill
First Defendant             :     Mr J W K Burnside & Mr N L Strawbridge
Second Defendant         :     Mr J W K Burnside & Mr N L Strawbridge
Third Defendant           :     Mr J W K Burnside & Mr N L Strawbridge

Solicitors:

First Plaintiff                :     Pullinger Stewart
Second Plaintiff            :     Pullinger Stewart
Third Plaintiff               :     Pullinger Stewart
Fourth Plaintiff             :     Pullinger Stewart
Fifth Plaintiff                :     Pullinger Stewart
Sixth Plaintiff               :     Pullinger Stewart
First Defendant             :     Minter Ellison
Second Defendant         :     Minter Ellison
Third Defendant           :     Minter Ellison

Case(s) referred to in judgment(s):

Adelaide Petroleum NL & Ors v Poseidon Ltd & Ors (1990) 98 ALR 431
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Case(s) also cited:

Nil

PARKER J: This is the trial of a preliminary issue.
The proceedings were commenced in the Supreme Court of South Australia and were transferred to this Court pursuant to the Jurisdiction of Courts (Cross-vesting) Acts of South Australia and Western Australia. The trial of the preliminary issue was originally ordered by Prior J of the Supreme Court of South Australia.
For present purposes the preliminary issue may be identified as whether on the proper interpretation of cl 17 of the Griffin Gas Sales Agreement, and in particular whether in the circumstances identified in the pleadings, "DG" equals zero or some other amount.
By consent of the parties, on 2 June 1999 it was ordered that the agreement known as the "Griffin Natural Gas Sales Agreement" executed on 30 September 1993 stand as the totality of the evidence received and admitted at the trial of this preliminary issue.
The Griffin Gas Sales Agreement identified in the preliminary issue is the same document as the Griffin Natural Gas Sales Agreement which constitutes the evidence. In these reasons this will be referred to as the "Agreement".
There have been some changes to the parties to the Agreement since its execution in 1993. These are not material for present purposes. In these reasons I will refer to the parties to the Agreement as they were at the time of the pleadings.
In the Agreement the defendants were conveniently identified as the sellers and the plaintiffs were identified as the buyers. That will also be a convenient description for the purposes of these reasons.

Background

The sellers were developing an off-shore oil field or undersea petroleum reservoir - the Griffin Project - within permit areas which they hold. These were located off the north-west coast of this State at a point a little south of Onslow. To optimise petroleum or oil recovery from the Griffin Project the sellers desired to reach agreement for the sale, disposal and banking of the natural gas by-product of their recovery process.
Under the agreement the sellers agreed to sell to the buyers natural gas ("gas") extracted by the sellers from undersea locations contained within the permit areas of the sellers, ie from the Griffin Project. The terms and conditions of the sale of the gas to the buyers were governed by the Agreement.
In order to effect the ultimate resale of the gas by the buyers, two pipelines described in the Agreement as the "Project Pipelines" were constructed, one from the sellers' permit areas to a Delivery Point (the "GJV Pipeline"), and the second (the "TJV Pipeline") from that Delivery Point to connect with a gas pipeline which runs from Dampier to Bunbury. I will refer to the Dampier to Bunbury Pipeline as the "DBNG Pipeline".
For simplicity of understanding (but with minor inaccuracy) it may be said that the GJV Pipeline commenced at sea at the landward edge of the sellers' permit areas, coming ashore at a point to the south of Onslow where it passed through an on-shore processing plant of the sellers and then stopped at the Delivery Point, where there was a metered connection to the TJV Pipeline which then ran overland to connect with the DBNG Pipeline which, in turn, carried the gas to markets in the south-west of the State.
The sellers were responsible for the construction of the GJV Pipeline and the buyers were responsible for the construction of the TJV Pipeline, in accordance with another agreement between the sellers and the buyers known as the Pipeline Agreement.
The Agreement was one of a number entered into at the same time by the buyers and sellers. The parties have not seen it to be necessary to introduce the other agreements into evidence in these proceedings although there is some limited reference to one of them, the Pipeline Agreement, in the pleadings.
The Agreement having been concluded, the contemplated project pipelines and installations were constructed and gas deliveries from the sellers to the buyers were commenced pursuant to the Agreement on 19 May 1994. The buyers in turn delivered the gas into the DBNG Pipeline pursuant, it seems, to contracts of the buyers for delivery and re-sale of the gas. The gas was then transported by the DBNG Pipeline to markets in the south-west of this State.

Events of 10 November 1997 and following

In order for the sellers to extract petroleum and gas from the permit areas (from the Griffin Project) a purpose built vessel, which was in truth a floating production storage offtake, known as the "Griffin Venture" had been constructed. From counsel's submissions it appears this was moored at sea and all the petroleum and gas extracted from beneath the sea by the sellers was taken on board the Griffin Venture. After some processing which included the separation of the gas from the petroleum, gas was pumped from the Griffin Venture to the commencement of the GJV Pipeline and thence, pursuant to the Agreement, through the Project Pipelines to the DBNG Pipeline. What, if anything, was done to the gas as it passed through the seller's on-shore processing plant to the Delivery Point is a matter which neither party has seen reason to identify by evidence.
On 10 November 1997 a fire occurred in the engine room of the Griffin Venture. As a consequence all production of petroleum and gas was shutdown. It was necessary for the Griffin Venture to sail to Singapore for repairs. As a consequence there was no production of petroleum or gas from the Griffin Project and there were no deliveries of gas by the sellers to the buyers pursuant to the Agreement between 10 November 1997 and 12 March 1998. While petroleum production recommenced on 12 March 1998 it seems that the malfunctioning of a gas export valve prevented deliveries of gas from the sellers to the buyers pursuant to the Agreement until early April 1998, but these proceedings are concerned only with the period 10 November 1997 to 12 March 1998.
The buyers contend that in these circumstances, pursuant to the terms of the Agreement, there was payable to them by the sellers a Pipeline Demand Charge. The Agreement provides a formula for the daily calculation of the Pipeline Demand Charge. The buyers claim that in accordance with this formula the Pipeline Demand Charge payable by the sellers for the period 10 November 1997 to 12 March 1998 is $1,409,626.42. In these proceedings the buyers claim that amount together with interest.
This claim is disputed by the sellers who deny that any amount is payable. The sellers assert in their defence that between 10 November 1997 and 12 March 1998 they were prevented from performing their obligations under the Agreement to deliver gas to the buyers by virtue of Force Majeure within the meaning of the Agreement, with the consequence that by virtue of cl 28 of the Agreement their obligations under the Agreement were suspended throughout that period.
The sellers further contend that on the true construction of the Agreement, in the circumstances revealed by the pleadings, the figure attributable to the term "DG" in the formula for the daily calculation of the Pipeline Demand Charge ("PDC") is 25. The formula is set out in cl 17.1 of the Agreement; it is: PDC = CR_n x (25 - DG) x 1000. Hence, in the sellers' contention, if DG = 25 by virtue of Force Majeure, then the resolution of the formula becomes:
"PDC = CR_n x (25 - DG) x 1000
PDC = CR_n x (25 - 25) x 1000
PDC = CR_n x 0 x 1000
PDC = 0"
It is on this basis that the sellers contend that nothing is payable by them by way of Pipeline Demand Charge between 10 November 1997 and 12 March 1998. The buyers do not accept that the fire constituted an event of Force Majeure and contend, in any event, that in the circumstances the figure attributable to the term "DG" in the formula is zero with the consequence that the amount of $1,409,626.42 is payable by the sellers.
For the purpose of the trial of this preliminary issue I am, in effect, to assume that the total loss of production between 10 November 1997 and 12 March 1998, in the circumstances outlined above which are those identified in the pleadings, was due to Force Majeure within the meaning of the Agreement. On that assumption, the issue for decision is whether on the proper construction of cl 17 of the Agreement "DG" in the formula for the calculation of the Pipeline Demand Charge is equal to zero, or to 25 or perhaps to some other amount.

The terms of the Agreement

The terms of the Agreement primarily relied on in the course of submissions were:
"1.1     In this Agreement, including the Recitals, the following expressions shall have the following meanings unless the context otherwise requires:
…
"Delivery Point" is defined in clause 6.2;
…
"Griffin Gas" means natural gas produced from the Griffin Project and made available for delivery through the Project Pipelines;
…"
"Delivery of Gas
6.1      Griffin Gas (other than Tranche 3 gas which is sold directly by Sellers to Sellers' Customers) will be deemed to have been delivered by Sellers to Buyers under this Agreement when that Griffin Gas has been delivered to the Delivery Point by Sellers and taken by Buyers through the Delivery Point ("Delivered Gas").
6.2      For the purposes of this Agreement, the Delivery Point shall be the outlet flange of the Metering Facilities which shall be located immediately downstream of Sellers' onshore natural gas processing facilities.
6.3      Title and risk to Delivered Gas will pass from Sellers to Buyers at the Delivery Point. Title and risk to Banked Gas and Stored Gas which is called down under Clause 13.7 or Part 15, and delivered in the form of Substitution Gas, shall pass from Buyers to Sellers upon delivery by Buyers at the point of interconnection between the TJV Pipeline or the Existing Tubridgi Pipeline as appropriate and the DBNG Pipeline.
Transportation of Gas
7.1      Neither Sellers nor Buyers shall charge to the other under this Agreement any tariff, charge or other consideration in respect of the use of the Project Pipelines for the transportation of Griffin Gas.
7.2      Sellers shall bear all costs and risks in respect of the transportation of Griffin Gas from the Griffin Project to the Delivery Point.
7.3      Buyers shall bear all costs and risks in respect of the transportation of Griffin Gas from and beyond the Delivery Point.
Sellers' and Buyers' Facilities
8.1      In this Agreement:
"Sellers' Facilities" means all such plant, equipment, infrastructure, works and facilities as may be necessary to treat, deliver or otherwise handle Griffin Gas from and between the Griffin Project and the Delivery Point.
"Buyers' Facilities" means all such plant, equipment, infrastructure, works and facilities as may be necessary to take, store, bank, deliver or otherwise handle Griffin Gas from and between the Delivery Point and the DBNG Pipeline.
…
Pipeline Demand Charge
17.1     During the first ten years of the Contract Period Sellers shall pay to Buyers a Pipeline Demand Charge which shall be calculated on a Daily basis as follows:
PDC = CR_n x (25-DG) x 1000
Where:
PDCmeans the Pipeline Demand Charge payable in respect of any Day in Quarter n (in dollars per GJ);
CR_n = CR₁ x [1 + 0.2 (CPI_n - CPI₁)]
CPI₁
Where:
n as at 1 January 1992 equals zero and shall continue in numerical sequence each Quarter thereafter;
CR_n means Charge rate per GJ for Quarter n and being $0.45 per GJ as at 1 January 1992;
CR₁ means $0.45 per GJ;
CPI_n means the CPI for the Quarter ending three months prior to the beginning of the Quarter in which the Day in question falls.
CPI₁ means the CPI effective as at 1 January 1992.
DGmeans the aggregate up to 25 of the following quantities of natural gas (expressed in TJ):
(a)Tranche 1 Gas for the Day in question;
(b)Griffin Gas which has been made available by Sellers to Buyers during the Day in question but not taken by Buyers;
(c)Griffin Gas which is not delivered by Sellers to Buyers during the Day in question for reasons of Force Majeure;
(d)any relief claimed by Sellers under clause 17.2 and clause 17.3 for the Day in question; and
(e)the quantity of Griffin Gas which would have been delivered during the permitted interruptions under Part 24, assuming delivery at a uniform rate of 25TJ per Day.
17.2     Sellers may, on one or more occasions during the Contract Period, elect by written notice to Buyers to be relieved and discharged from the obligation to pay the Pipeline Demand Charge, for a quantity of Griffin Gas specified in the notice, provided that the nominated quantities of Griffin Gas during the Contract Period shall not exceed a total of 2,000TJ. Upon each election by Sellers Buyers shall not be obliged to take the nominated quantity of Griffin Gas or to pay the Non-Take Charge in respect of the nominated quantity of Griffin Gas.
17.3     If Sellers give notice under clause 11.3 the total nominated quantity of Griffin Gas referred to in clause 17.2 shall increase from 2,000TJ by the aggregate quantity of Tranche 2 Gas the subject of Sellers' notice actually made available up to a maximum quantity of 6,000TJ.
…
Force Majeure
28.1     For the purposes of this Agreement, "Force Majeure" means any event or circumstance not within the control of Buyers or Sellers and which by the exercise of due diligence, such Buyer or Seller is not reasonably able to prevent or overcome including, without limiting the generality of the foregoing:
(a)acts of God, including but not limited to epidemics, landslides, earthquakes, cyclones, floods and washouts;
(b)strikes or other industrial disturbances;
(c)acts of the enemy including but not limited to wars, blockades or insurrections;
(d)riots and civil disturbance;
(e)valid laws, rules, regulations, orders or decrees of the Federal or State Government or of any local government or of any statutory authority;
(f)shortage of necessary equipment, materials or labour;
(g)refusal or delay in obtaining any necessary consents or approvals from any Government authority;
(h)unavoidable accidents, breakdown of or loss or damage to plant, equipment, materials or facilities necessary for a party's operations;
(i)any production shutdown or interruption which is validly required or directed by State or Commonwealth Government or government agency having authority to so require or direct;
(j)any production shutdown or interruption required to conform to design or regulatory limits on production and pipeline facilities, whether arising due to environmental conditions or circumstances or otherwise;
(k)pipeline ruptures however caused;
(l)collisions or maritime accidents however caused;
(m)"perils of the sea" as that phrase is understood for the purposes of marine insurance; and
(n)any other matter reasonably beyond the control of the affected Buyers or Sellers.
28.2     Subject to the provisions of this Part, the obligations under this Agreement of a Buyer or Seller affected by Force Majeure (other than the obligation to make any payment due hereunder) shall be suspended to the extent that performance thereof is prevented during the continuance of the Force Majeure and the period necessary to prepare for and rectify or overcome the effect of the Force Majeure.
…
28.6     At any time when Force Majeure is in effect, Sellers shall have the right to dispose of Griffin Gas as it deems appropriate in its sole discretion to avoid shutting in oil production facilities."
[It is to be noted that in the Agreement the references to TJ are to terajoules and the references to GJ are to gigajoules. 1 terajoule equals 1000 gigajoules. 1 gigajoule equals 1,000,000,000 joules].

Legal Principles

There is no real issue between the parties as to the legal principles to be applied. The submissions of the buyers to which no objection was taken by the sellers may be summarised as follows.
Where the meaning and effect of a term is unambiguous, the plain and ordinary meaning of the words will prevail unless the language used is uncertain or reasonably capable of bearing more than one meaning; Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.
Where a term of a contract is uncertain the task is to ascertain the parties' objective intention as evidenced by the context in which they contracted; Codelfa Constructions (supra).
A consideration of the context in which the parties contracted includes, in respect of a commercial contract, a consideration of the commercial purpose of the contract; Adelaide Petroleum NL & Ors v Poseidon Ltd & Ors (1990) 98 ALR 431.
As neither party seeks to place extrinsic evidence before the Court, other than the Agreement itself, the task is to determine the natural and ordinary meaning of the words used or, alternatively and only if necessary, the objective intention of the parties by reference to the agreement alone.

The contentions of the parties

In the factual circumstances raised by the pleadings the parties agree that Part (c) of the definition of DG in cl 17.1 was the only operative provision of that definition during the period 10 November 1997 to 12 March 1998.
In their first and primary proposition, the buyers place emphasis on "Griffin Gas" and "not delivered" in Part (c) of the definition of DG. They then rely on the definition of "Griffin Gas" in cl 1.1 which is "… natural gas produced from the Griffin Project and made available for delivery through the Project Pipelines" (emphasis added). It is submitted that this is a precise and detailed meaning. As no gas was produced from the Griffin Project during the relevant period, it is submitted that no gas was (or could have been) made available for delivery through the project pipelines.

It follows, in the buyers' submission, that as no gas was produced or made available for delivery by the sellers during the period, there was no "Griffin Gas" (as defined) which the sellers did not deliver because of Force Majeure within the meaning of Part (c) of the definition of DG in cl 17.1. It is contended that there was simply no Griffin Gas during the period. It follows, in the submission of the buyers, that throughout the period 10 November 1997 to 12 March 1998 DG equals zero.
Furthermore, the buyers submit, Force Majeure events do not relieve the parties of any payment obligation arising under the agreement because of the express exception in cl 28.2 from the suspension of the obligations under the Agreement viz "(other than the obligation to make any payment due hereunder)".
The sellers response to this first proposition is, in the end, to submit that in the definition in cl 17.1 of DG, "Griffin Gas" does not bear its defined meaning. It is submitted that DG should be seen to be the amount of gas which would have been produced from the Griffin Project but for the Force Majeure. It is submitted that figure is not zero; it is 25TJ, or alternatively a lower amount to be established by evidence, but in any event it is not zero.
The sellers submit that cl 17 must be read in light of the entire contract and that a meaning is required other than the defined meaning to avoid an absurd result. The absurdity is identified as being that if the definition of Griffin Gas in cl 1.1 is applied to the definition of DG in cl 17.1, and that definition of Griffin Gas is read with the provisions as to delivery in cl 6.1 and cl 6.2, then the Force Majeure exception could only operate in respect of Force Majeure events which prevent gas at the outlet flange at the Delivery Point being passed through the outlet flange. It is submitted this would have such a precise and limited operation as to be absurd. Indeed, it is submitted that when the nature of the events of Force Majeure specified in cl 28.1 are considered, they or at least those identified in cl 28.1(a),(c),(f),(h),(i), (j), (l) and (m) could not operate, or could only operate in the most artificial and contrived circumstances, if the defined meaning of Griffin Gas is applied to the definition of DG. Thus, it is submitted that in the definition of DG a meaning of Griffin Gas other than that defined in cl 1.1 is required by the context.
The sellers also advanced in argument in response to the first proposition of the buyers that the proposition implicitly read Force Majeure in Part (c) of the definition of DG as qualifying "not delivered" rather than qualifying the entire phrase. In the sellers' submission, if it is seen to qualify the entire phrase Part (c) may sensibly be read as providing - What Griffin Gas would have been delivered but for the Force Majeure event? On this view, it is submitted, it is really immaterial what meaning is given to Griffin Gas as the issue becomes what amount of gas would have been delivered by the sellers if the Force Majeure event had not prevented them (producing and) delivering.
This submission led the sellers to submit that the definition of DG in cl 17.1 is ambiguous, and that evidence is necessary as to the true meaning of Griffin Gas for the purpose of cl 17. On this basis the sellers maintain the position they have held since the trial of this preliminary issue was first proposed before Prior J, that there should be no decision on the preliminary point because of the need for evidence.
The buyers also raise a second proposition founded, they contend, in the objective intention of the parties. Reliance is placed on recitals D and E of the Agreement which provide:
"D.Sellers are developing the Griffin Project primarily as an oil field development, and desire to enter into an agreement for the sale, disposal and banking of the natural gas so as to enable the optimisation of the oil recovery from the Griffin Project.
E.In respect of the development, it is envisaged that natural gas will be transported to a delivery point on the mainland through a pipeline from the Griffin Project as constructed by Sellers and from the Delivery Point to the DBNG Pipeline through a pipeline as constructed by Buyers."
From recital D it is contended that the commercial purpose of the Agreement from the sellers perspective, is that desire to sell, dispose and bank the gas by-product of their oil field in order to optimise oil recovery. From this and from the Agreement as a whole it is evident, it is submitted, that gas production is not the purpose of the Agreement, nor is it regulated by the Agreement. The Agreement is concerned with the sale and disposal of the gas by-product. This involves its transportation - by pipelines - and delivery and the receipt of payment for transportation and delivery. The buyers contend it is reasonable, therefore, to infer an objective intention on the part of the parties that the sellers would bear the sole risks of production of gas. Accordingly, risk sharing by the application of Force Majeure is submitted to be inappropriate to gas production by the sellers. By contrast, it is contended that some risk sharing in the transportation, delivery and payment for gas would be appropriate in the Agreement as these elements are the central commercial purpose of the Agreement. Such risk sharing is achieved on the buyers' contentions it is submitted, but not on the sellers' submissions.
Further, from recital E and cl 8 it is contended that the commercial purpose of the Pipeline Demand Charge is to guarantee a minimum return on the buyers' investment in constructing and maintaining part of the pipeline infrastructure in circumstances where the buyers are unable to derive a profit from the on-sale of gas by reason of non-delivery by the sellers. It is contended that this commercial purpose would be frustrated by treating non-production of gas by the sellers, as opposed to non-delivery of gas, as an event to which Force Majeure applies.
This also led the buyers to contend that the Force Majeure provisions would be applicable only to that portion of the project which is the subject of the Agreement, ie from the commencement of the sellers' section of the Project Pipelines through the Delivery Point to the end of the buyers' section of the Project Pipelines, ie the junction of the Project Pipelines with the DBNG pipeline. As the Force Majeure event relied on by the sellers occurred outside this portion, it is contended that it should not be seen to have been intended that the sellers would have the benefit of the Force Majeure provisions in such circumstances.
In response to this second proposition, the sellers submit that this involves an artificial isolation of the production of gas from its sale and transportation. The process is one, it is submitted; by its nature it is continuous and indivisible. Further, it is submitted that the buyers' second proposition restricts the Force Majeure provisions to a most limited operation and it overlooks the operation of cl 19 which, inter alia, requires the sellers to commit to the fulfilment of their obligations under the Agreement sufficient gas produced from the Griffin Project to assure delivery of available Tranche 1 gas to the buyers and precludes the sellers from disposing of Tranche 2 gas produced and available for sale from the Griffin Project to any other party (but the buyers).

The first proposition

In the circumstances raised by the pleadings, if the fire on the Griffin Venture was a Force Majeure within the meaning of cl 28.1, then its effect was to cause a total cessation of the sellers' production of both petroleum and gas from the Griffin Project for the period 10 November 1997 to 12 March 1998. It would follow that by force of cl 28.2 the sellers' obligations under the Agreement would be totally suspended for that period, "other than the obligation to make any payment due" under the Agreement.
An obligation of the sellers to make a payment to the buyers under the Agreement is created by cl 17.1, which requires that for the first 10 years of the Agreement the sellers shall pay a Pipeline Demand Charge to be calculated on a daily basis. The formula for the calculation of this Pipeline Demand Charge is set out in cl 17.1 and has been identified earlier. DG is a component of that formula. DG is itself defined in cl 17.1. The defined meaning of DG refers in each of Parts (a) to (e) of the definition to "Griffin Gas". This is directly the case in Parts (b), (c) and (e), and is indirectly so in Parts (a) and (e) where reference is made respectively to "Tranche 1 Gas" and to cl 17.2 and cl 17.3. The reference to Tranche 1 Gas can, by the definition in cl 1.1, include Banked Gas, but as Banked Gas means Delivered Gas by cl 6.1 that is also necessarily Griffin Gas. Both cl 17.2 and 17.3 deal with Griffin Gas. Hence, the gas referred to in all parts of the definition of DG is Griffin Gas.
The differences in phraseology in the definition of DG in cl 17.1 between
•gas which has been made available … but not taken (Part (b)),
•gas which is not delivered (Part (c)), and
•gas which would have been delivered during permitted interruptions (Part (e)),
is to be noted. Necessarily, Part (b) assumes production and that gas is made available. If it not taken it would normally have to be flared, ie burned into the atmosphere or reinjected into the oilfield processes which do not occur at the Delivery Point but at an earlier stage (see cl 18). Part (c) does not refer to gas being made available or to gas not being taken. Instead it identifies non-delivery, a concept which appears capable of including gas not being made available and gas being made available but not taken. Part (c) gives rise to the question of how to determine the quantity of gas which is not delivered by reason of Force Majeure. The words suggest this enquiry is directed to the quantity which, in fact, is not delivered for that reason. Where gas is not delivered because, having been made available it is not taken, that enquiry might be readily answered but it is to be anticipated that the question might not be so readily answered where, by Force Majeure, gas is not made available. Whatever be the answer to those questions, the contrast is to be noted between the enquiry as to the actual position apparently contemplated by Part (c) of the definition, and the more hypothetical enquiry contemplated by Part (e) which refers to the quantity of gas which would have been delivered during an interruption or suspension of delivery of Griffin Gas as permitted by cl 24. In such a situation Part (e) directs that, during the interruption or suspension, delivery at a uniform rate - which is stipulated to 25TJ per day - is to be assumed. Counsel for the buyers contends with some persuasiveness that similar words would have been found in Part (c) had the sellers' submission as to the intention of the parties been correct. In the absence of such a provision in Part (c) the buyers submit it becomes impossible for the sellers' interpretation to be applied, as it is not possible to determine the quantity of gas which would have been produced and made available on any particular day during the period in question from the Griffin Project had there not been a total cessation of production. This is apparent, it is submitted, from provisions such as cl 11.2, cl 11.4, cl 14.1, cl 14.2, cl 15.2, cl 16.2, cl 16.4 and cl 17 which are predicated on the assumption that the flow rate may vary as, by virtue of the nature of the process of production, gas does not flow at a uniform rate from the Griffin Project.
In any event the marked difference between Part (c) and Part (e) of the definition of DG places a significant obstacle in the way of the seller's argument that Part (c) should be construed as providing - What Griffin Gas would have been delivered but for the Force Majeure event? Had that been the intended meaning it is not apparent why the style and words of Part (e) was not used in Part (c). The difference suggests that a different meaning was intended.
The buyers emphasise the deliberate use of the phrase "Griffin Gas" in the definition of DG in cl 17.1 and further emphasise the very particular definition which cl 1.1 applies to that phrase. In an agreement drawn with legal advice as part of a complex and sophisticated commercial enterprise the deliberate use of defined words is not to be lightly passed over even where, as here, cl 1.1 in its general introduction leaves open the possibility of another meaning for a defined phrase where the context otherwise requires.
The definition of Griffin Gas in cl 1.1 contains three elements which require some consideration.
First, the gas must have been "produced from the Griffin Project" to be Griffin Gas. As the buyers' submit, where there is a total cessation of production of gas from the Griffin Project an obvious consequence is that there can be no Griffin Gas (save for Banked Gas which is not the present case). It is possible, though not the most obvious possibility, that these words are intended merely to distinguish gas from the Griffin Project from other gas. Even if that were so there remain the other two elements.
Secondly, the gas produced from the Griffin Project must be "made available for delivery". "Delivery" is not itself a defined word but "Delivered Gas" and "Delivery Point" are each defined by cl 6. It is from cl 6.1 and cl 6.2 that the sellers derived support for their submission that the application of the defined meaning of Griffin Gas in cl 17.1 leads to absurdity. This submission seeks to make good the proposition that by applying the defined meaning of Griffin Gas the Force Majeure provisions of the Agreement could only operate in respect of a Force Majeure event which actually prevented gas at the outlet flange (the Delivery Point) being passed through the outlet flange; it being difficult to imagine such a circumstance actually occurring. While this may be seen as a possible construction it does not appear to be the only one, or the most natural or likely. The relevant notion is that of produced gas being made available for delivery. While the actual point of delivery is the outlet flange, and while pursuant to cl 6.1 delivery is "deemed" when Griffin Gas has been delivered to and taken through the Delivery Point, when the subject matter is the delivery of piped gas which is necessarily flowing under pressure it is not immediately apparent or necessarily the case that the intended operation of the definition is to restrict the notion of "made available for delivery" to gas at the actual point of deemed delivery. Indeed, the sellers' submissions appear to blur the distinction between "Delivered Gas" as defined by cl 6.1 and gas "made available for delivery" in the definition of Griffin Gas.
The third point serves to add emphasis to the second. The definition provides that the produced gas must be made available for delivery "through the Project Pipelines". The Project Pipelines are defined in cl 1.1 by reference to the Pipeline Agreement but the allegation in the statement of claim, which is admitted by the defence, is that the Project Pipelines are what I have described as the GJV Pipeline and the TJV Pipeline, ie the sellers' pipeline from the Griffin Project which brings the gas ashore to the Delivery Point, and the buyers' pipeline which carries the gas overland from the Delivery Point to the DBNG Pipeline where it is on-sold by the buyers. In such a factual context, which is established by the Agreement under consideration, the notion of gas being made available for delivery through two pipelines, the Delivery Point being at their junction, would well accommodate the construction that gas is "made available" by being passed from the source of supply, ie the Griffin Project, into the GJV Pipeline so that it could be delivered by passing through the GJV Pipeline and then the TJV Pipeline to the DBNG Pipeline.
While, as an aid to analysis, I have considered separately the second and third points, they appear more properly to be viewed as the one composite notion, ie gas "made available for delivery through the Project Pipelines". In the context of this Agreement relating to the transport and sale of gas from the sellers' oil field I would see the use of the words "through the Project Pipelines" in the definition as inter alia indicating that "made available for delivery" should not be confined to gas at the precise point and moment when it actually passes through the Delivery Point, but as comprehending gas at least from the point where it is committed to, or made available for, delivery pursuant to the Agreement by being introduced into the GJV Pipeline from the Griffin Project by the sellers so that it might flow through the GJV and the TJV Pipelines to the DBNG Pipeline. I say "at least" because, given the nature of the commodity and the agreed scheme for its transportation and sale after production, the notion of "made available" for delivery in this context might also be found to comprehend gas which is produced by the sellers from the Griffin Project and is available to be transported through the Project Pipelines and is intended for this use by the sellers, but which is prevented from entering the Project Pipelines and being transported through them. Later in these reasons, other provisions of the Agreement are identified which could support such a view. I stop short of considering that view however, because I need not resolve it to deal with this preliminary question and it is preferable that I do not do so as it would appear to be a question directly raised by other issues in these proceedings.
The view outlined above that gas made available for delivery through the Project Pipelines comprehends at least gas that has been committed to delivery pursuant to the Agreement by being introduced into the GJV Pipeline from the Griffin Project by the sellers so that it can pass through the GJV and the TJV Pipelines, appears to me to be within the plain and ordinary meaning of the words of the definition of "Griffin Gas" in cl 1.1. When the defined meaning of Griffin Gas, so understood, is applied to the definition of DG in cl 17.1, and in particular to Part (c) of that definition, it is not apparent that the result is one which should properly be described as absurd. The absurdity of result for which the sellers contended arises in essence from the extremely confined operation which their submissions sought to give to the definition of Griffin Gas. When that definition is more carefully considered and its words are given their more natural meaning, as has been identified in these reasons, the result in its application in cl 17.1 is one which does not suggest practical or commercial absurdity or difficulty.
In particular, the sellers' written submissions, maintained in argument with some variation, that cl 28.1(a), (c), (f), (h), (i), (j), (l) and (m) would be incapable or substantially incapable of operating if the definition in cl 1.1 of Griffin Gas were applied in cl 17.1, appear to depend on the sellers' submission that this definition has the effect of confining Griffin Gas to gas at the Delivery Point which is prevented from passing through the outlet flange. The main force of this submission falls away if the definition of Griffin Gas is read as I have suggested in these reasons. The same is true of the sellers' submissions that if the defined meaning of Griffin Gas was applied to cl 17.1, Part (b) of the definition of DG it would be tautologous, cl 17.2 could not operate and cl 28 would be largely ineffective.
Other provisions of the Agreement may be seen either to support the adoption of the construction of the definition of Griffin Gas in cl 1.1 which I have preferred in these reasons, or to be consistent with that construction, and generally to be inconsistent with the sellers' extremely narrow construction of the definition. Examples are:
•Clause 7.1 refers to the charges for the use of the Project Pipelines for the transportation of Griffin Gas.
•Clause 7.2 places the risk in the sellers of the transportation of Griffin Gas from the Griffin Project to the Delivery Point.
•Clause 7.3 places the risk in the buyers of the transportation of Griffin Gas beyond the Delivery Point.
•Clause 8.1 defines sellers' facilities as plant, etc necessary to treat, deliver or otherwise handle Griffin Gas from and between the Griffin Project and the Delivery Point.
There is a corresponding definition of Buyers' Facilities.
•Clause 19.2 recognises that the sellers may use Griffin Gas for operation of their facilities located offshore and/or onshore.
•Clause 19.6 reserves to the sellers the right to process any Griffin Gas before delivery to buyers.
•Clause 22.1 obliges the sellers to pay all imposts applicable prior to delivery of the Griffin Gas at the Delivery Point.
•Clause 28.6 provides that when Force Majeure is in effect the sellers have the right to dispose of Griffin Gas to avoid shutting in oil production facilities.
Of these, in particular cl 28.6, but also cl 19.6 and cl 22.2, might encourage the even wider construction of "made available for delivery through the Project Pipelines" which has been tentatively identified in these reasons, but each is consistent with the construction which I have adopted. By contrast, the submission of the sellers in respect of these provisions is generally that in each a meaning of "Griffin Gas" other than the meaning defined in cl 1.1 is necessary. This position is unpersuasive, especially as it involves implying in so many provisions, including cl 17.1, a meaning other than the defined meaning.

In argument particular emphasis was placed on cl 8.1 and cl 19.2 by the sellers.
Turning to the definition of Sellers' Facilities in cl 8.1, it was said that the facilities necessary to handle Griffin Gas appeared wide enough to include the Griffin Venture and all their oilfield infrastructure. That could not be so, it is said, as cl 8.3 required the sellers to insure the Sellers' Facilities. The sellers' argument sought to justify from that some meaning other than the defined meaning of Griffin Gas was necessary in cl 8.1. I note, first, that much the same argument could be developed with respect to the definition of Buyers' Facilities so as to suggest that cl 8.3 would also require the buyers to ensure the sellers' oilfield infrastructure. Secondly, it appears to me that if there is a difficulty with the definition of Sellers' Facilities it does not arise form the use of the phrase Griffin Gas but from the construction placed on other elements of the definition.
Clause 19.2 it is said indicates that gas from the oilfield at any stage, including when it reached the Griffin Venture, was being referred to as Griffin Gas. This requires a meaning other than the defined meaning. That argument is predicated substantially on the narrow construction of the Griffin Gas definition which I have rejected. It also makes assumptions as to where and how gas may be used by the sellers pursuant to cl 19.2 for which there is no support in the materials placed before me. On the construction of the definition of Griffin Gas which I have preferred in these reasons it cannot be said that cl 19.2 could not have any operation if the defined meaning of Griffin Gas is applied. Clause 19.2 may be intended to deal with the seller's gas which has been "made available for delivery through the Project Pipelines", it being unnecessary in the Agreement to make any provision entitling the sellers to deal with their gas which is not "Griffin Gas".

The second proposition

The view I have reached in respect of the first proposition makes it unnecessary to examine in detail the alternative second proposition advanced by the buyers. Indeed it is undesirable that I should examine that in detail as the ultimate point of the submission is that the objective intention of the parties to be discerned from the agreement as a whole is that the Force Majeure provisions would apply only to facilities etc the subject of the Agreement, ie from the seaward commencement of the GJV Pipeline to the landward end of the TJV Pipeline, with the consequence that they could not apply to the Force Majeure event alleged in this case as that occurred on the Griffin Venture which is not part of the facilities the subject of the Agreement.
That submission encroaches substantially into the other issues which remain to be tried in these proceedings so that it is preferable that I do not consider them in detail at this point.
I would observe, however, that the nature of the Agreement and of the undertaking to which it is directed do not readily or obviously commend a view one way or the other whether the objective intention of the parties must have been that the sellers alone would bear the risk of non-production from their oilfield due to events of Force Majeure.
I should note also that the submissions of the parties with respect to the second proposition do not give rise, in my view, to any further consideration which tells materially in favour of the sellers' position that the definition of DG in cl 17.1 is ambiguous in the manner contended for by the sellers or that the application to it of the defined meaning of Griffin Gas gives rise to absurdity, or which otherwise would cause me to change the view I have reached with respect to the first proposition.

Conclusion

For these reasons it is my view that the preliminary issue is to be resolved by holding that in the circumstances identified in the pleadings "DG" in cl 17.1 of the Agreement equals zero.