Tap (Harriet) Pty Ltd v Burrup Fertilisers Pty Ltd

[2010] WASC 137

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   TAP (HARRIET) PTY LTD -v- BURRUP FERTILISERS PTY LTD [2010] WASC 137

CORAM:   LE MIERE J

HEARD:   20 APRIL 2010

DELIVERED          :   15 JUNE 2010

FILE NO/S:   CIV 2329 of 2009

BETWEEN:   TAP (HARRIET) PTY LTD

Plaintiff

AND

BURRUP FERTILISERS PTY LTD
Defendant

(BY ORIGINAL ACTION)

BURRUP FERTILISERS PTY LTD
Plaintiff by Counterclaim

AND

TAP (HARRIET) PTY LTD
First Defendant by Counterclaim

APACHE NORTHWEST PTY LTD
Second Defendant by Counterclaim

KUFPEC AUSTRALIA PTY LTD
Third Defendant by Counterclaim

APACHE CORPORATION
Fourth Defendant by Counterclaim

(BY COUNTERCLAIM)
 

Catchwords:

Practice and procedure - Application for separate trial of issues under O 32 r 4 Rules of the Supreme Court 1971 (WA) - Issues to be framed as questions - Factors to consider - Overlap of evidence - Whether the court will be determining issues on a hypothetical basis - Whether will reduce issues in dispute - Whether gives rise to significant contested factual issues

Legislation:

Rules of the Supreme Court 1971 (WA), O 32 r 4

Result:

Separate trial of the issues in [(a)] of the application granted
Separate trial of the issues in [(b)], [(c)], [(d)] of the application declined

Category:    B

Representation:

Original Action

Counsel:

Plaintiff:     Mr C G Colvin SC

Defendant:     Mr J A Thomson

Solicitors:

Plaintiff:     Mallesons Stephen Jaques

Defendant:     Blake Dawson

Counterclaim

Counsel:

Plaintiff by Counterclaim         :        Mr J A Thomson

First Defendant by Counterclaim    :        Mr C G Colvin SC

Second Defendant by Counterclaim :        Mr P J Booth

Third Defendant by Counterclaim   :        Mr C G Colvin SC

Fourth Defendant by Counterclaim :        Mr P J Booth

Solicitors:

Plaintiff by Counterclaim         :        Blake Dawson

First Defendant by Counterclaim    :        Mallesons Stephen Jaques

Second Defendant by Counterclaim :        Middletons

Third Defendant by Counterclaim   :        Mallesons Stephen Jaques

Fourth Defendant by Counterclaim :        Middletons

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

AWB Ltd v Cole (No 2) [2006] FCA 913; 233 ALR 453

City of Swan v Lehman Brothers Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86

Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1

1. LE MIERE J:  The defendant (Burrup Fertilisers) applies for a separate trial of the following preliminary questions:

   (a)the issues raised by the following allegations:

   (i)the Re‑Amended Statement of Claim, dated 28 October 2009, save for paragraph 10 and prayer A;

   (ii)the following paragraphs of the Re‑Amended Defence and Counterclaim, dated 4 February 2010:

   (A)Paragraphs 1‑7, 8(a), 8(b), 8A‑10 (to the extent that it refers/relates to 8(a) and 8(b)), 11, 12, 12A, 15 (to the extent that it refers to paragraphs mentioned here) and 16 (to the extent that it refers to paragraphs mentioned here); and

   (B)prayer A(a)‑A(f);

   (iii)the following paragraphs of the Plaintiff's Reply and First and Third Counterclaim Defendants' Defence to Counterclaim, dated 9 December 2009:

   (A)paragraphs 1‑10, 12, and 26 (to the extent that it refers to paragraphs mentioned here)

   (iv)the following paragraphs of the Second Defendant by Counterclaim's Defence to Amended Defence and Counterclaim, dated 9 December 2009:

   (A)paragraphs 1‑3, 4(a)‑4(h), 5‑7, 8(a)‑8(c), 9‑15 and 20 (to the extent it refers/relates to paragraphs mentioned here);

   (v)Burrup's Replies ‑ paragraph 1 (to the extent that it refers/relates to paragraphs mentioned here):

   (b)whether the definition of 'Force Majeure' contained in clause 13.1 of the GSA includes an event or circumstance which occurred prior to the execution of the GSA;

   (c)whether the definition of 'Force Majeure' contained in clause 13.1 of the GSA applies to an event or circumstance which could have been reasonably anticipated, without more, or whether clause 13.1 of the GSA only applies to an event or circumstance which both could not have been reasonably anticipated and could not have been reasonably prevented; and

   (d)whether the Defendant is prevented by clause 8.3(a) of the GSA from presently contracting to purchase its future gas requirements from another gas seller to the extent that the uncommitted Proven Reserves which a Counterclaim Defendant is required to maintain by virtue of clause 5.2(b) of the GSA will become exhausted in the future.

2. The plaintiff/first defendant by counterclaim (Tap) and the second and fourth defendants by counterclaim (collectively Apache) submit that the court should make an order for the separate trial of questions or issues in (a) but should not make an order for the separate trial of questions (b), (c) or (d).

When preliminary questions will be ordered

1. Order 32 r 4 of the Supreme Court Rules 1971 (WA) provides that the court may order that any question or issue whether of law or fact or partly of law and partly of fact and whether raised by the pleadings or by agreement of the parties or otherwise be tried separately from any other question or issue.

2. In AWB Ltd v Cole (No 2) [2006] FCA 913; 233 ALR 453 Young J reviewed the authorities concerning O 29 r 2(a) of the Federal Court Rules which provides that the court may make orders for the decision of any question separately from any other question, whether before, at, or after any other trial.  In City of Swan v Lehman Brothers Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86, Rares J at [27] in turn summarised the principles extracted from the relevant authorities by Young J as follows:

   (1)As a general rule the starting point is that all issues of fact and law should be determined at the one time.

   (2) A party seeking the determination of separate questions must satisfy the court that it is 'just and convenient' for the order to be made.  The order must be made on concrete facts, either established or agreed, for the purpose of quelling a controversy between the parties so as to produce a conclusive or final judicial decision on the issue, which is of a real, not hypothetical, importance to the determination of the controversy.

   (3)There are special problems where the separate issue involves a mixed question of fact and law, although it may still be able to be decided as a separate issue.  However, care must be taken in precisely formulating the question and specifying the facts upon which it is to be decided.

   (4) The court must have all relevant matters before it as a precondition of it being asked to exercise its discretion if the separate question involves the grant or refusal of declaratory relief.

   (5) It may still be appropriate to determine a separate question even if it will not resolve all the issues, provided that there is a strong prospect that the parties will agree upon the result when the core of the dispute has been decided or if the decision will obviate unnecessary and expensive hearings of other questions.

   (6)Generally speaking an issue will not be appropriate for separate determination if it is simply one of two or more alternative ways in which an applicant or plaintiff frames its case and its determination would leave other significant issues unresolved.

   (7) It is relevant to consider whether:

   • the separate questions will contribute to the saving of time and cost by substantially narrowing the issues for trial or even lead to the disposal of the proceedings;

   • they will contribute to the settlement of the proceedings;

   • they will give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of the trial;

   • there will be any significant overlap between the evidence adduced on the hearing of the separate question and a trial;

   • the questions will prolong, rather than shorten, the proceedings.

3. The court should approach the separate trial of issues with caution.  In Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 Kirby and Callinan JJ said:

   The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real.  Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation in the factual matters relevant to one issue are relevant to others, and they all overlap.

   The second and related comment is this.  A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the courts, rather than the parties', interests.

   Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single‑issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question [168].

The action

1. The plaintiff/first defendant by counterclaim (Tap), second counterclaim defendant (Apache Northwest), third counterclaim defendant (Kufpec) and the first defendant/counterclaim plaintiff (Burrup) are parties to a gas sale and purchase agreement (GSA) made on 17 December 2001, and varied on 13 December 2002.  Apache Northwest replaced various other related parties by a Deed of Assumption in 2004.  The variations which occurred on 13 December 2002 are contained in the GSA Variation Agreement and in a side letter between Apache Northwest's predecessors and Burrup.  The fourth counterclaim defendant (Apache Corporation) has guaranteed performance of the GSA by a Guarantee and Indemnity entered on or about 13 December 2002.  It has been joined into the present proceedings so that it will be bound by the rulings as to the proper construction of the GSA.

The Supply Obligation

1. When the GSA was entered into Burrup proposed to construct an ammonia plant on the Burrup Peninsula for production and supply of ammonia.  The GSA is to be construed as three separate agreements between Burrup and each of Apache Northwest, Tap and Kufpec for the supply of gas to operate the ammonia plant once it commenced operations.  Pursuant to each of these agreements, Apache Northwest, Tap and Kufpec have agreed to sell a minimum monthly quantity of gas to Burrup for 25 years after the commencement date of 15 July 2005, when the ammonia plant was to commence operations.

2. Burrup is obliged to purchase its gas requirements for the ammonia plant on an exclusive basis up to the maximum daily quantity (MDQ), to the extent that each of Apache Northwest, Tap and Kufpec are able to deliver gas to Burrup on each day up to the MDQ and so deliver gas:  cl 8.3(a).  The maximum quantity of gas which Apache Northwest, Tap and Kufpec are obliged to supply over the 25 years is specified in cl 5.2(a).  Apache Northwest, Tap and Kufpec have reserved the right to deliver gas from any Field, always in accordance with the terms of, and on the conditions in, the GSA.  A 'Field' is defined to mean each gas field located in any permit or production licence in which Apache Northwest, Tap and Kufpec have a prescribed beneficial interest or from which they have otherwise contracted to acquire gas.

3. Clause 15.1(a) provides that no party to the GSA shall be liable for damages for breach of the GSA other than damages for direct losses suffered from such breach, or for liquidated damages payable under the GSA, or for damages payable under an insurance policy.  This is subject to an exception where a party commits a wilful default of the GSA, in which case liability for this default is not limited.  The payment of liquidated damages relates to a breach of the obligation to supply gas.  By the side letter, if Tap or Kufpec default in their obligation to deliver gas under the GSA, Apache Northwest is bound to ensure delivery of their share of gas.  Apache Corporation has guaranteed to Burrup the due and punctual performance by Apache Northwest of certain obligations and liabilities under the GSA.

The reserves obligation pursuant to cl 5.2(b) of the GSA

1. Pursuant to cl 5.2(b) of the GSA Apache Northwest, Tap and Kufpec are required to maintain certain levels of uncommitted proven reserves of gas for supply to Burrup.  Clause 5.2(b) states that:

   With effect from the Commencement Date, at any time the Sellers [ie Apache Northwest, Tap and Kufpec] shall have sufficient uncommitted Proven Reserves available for supply to the Buyer [ie Burrup] under this Agreement for the lesser of 20 years [representing a specified quantity of gas] and the remaining term of the Supply Period, calculated at the DCQ [ie, daily contract quantity of a specified amount] …

   'Proven Reserves' are reserves calculated using probabilistic methods prescribed by the Society of Petroleum Engineers for the recovery of developed or undeveloped gas reserves.  Apache Northwest's performance of this obligation has been expressly guaranteed by Apache Corporation.

2. Apache Northwest, Tap and Kufpec all admit that currently they have not identified sufficient uncommitted Proven Reserves of the Harriet Joint Venture available for supply to Burrup under the GSA for the lesser of 20 years (representing their proportionate share of the specified quantity of gas) and the remaining term of the supply period, calculated as their proportionate share of the daily contract quantity of the specified amount per day.  The admission has been framed in terms of the Harriet Joint Venture, which is a joint venture which comprises Apache Northwest, Tap and Kufpec.  

Burrup's characterisation of the issues between the parties

1. Burrup submits that there are broadly four issues which arise between the parties and an additional fifth issue raised by Burrup.

2. The first issue concerns the proper construction of the gas supply obligation.  Burrup contends that the gas supply obligation is unlimited by the source of gas.  Apache Northwest, Tap and Kufpec contend that they are only obliged to supply gas as participants in the Harriet Joint Venture, but they are entitled to choose to supply gas from any Field.

3. The second issue is whether the reserves which must be considered for the purposes of satisfying the reserves obligation are limited by the source of gas.  Burrup contends that the reserves obligation is not confined by reference to any particular source of gas.  Apache Northwest, Tap and Kufpec contend that the reserves obligation is confined to sources of gas available to them as participants in the Harriet Joint Venture.

4. The third issue only arises on the construction of the GSA advanced by Apache Northwest, Tap and Kufpec.  If Apache Northwest, Tap and Kufpec do not have sufficient uncommitted Proven Reserves, they claim that this is a result of an event of force majeure, namely that the anticipated Proven Reserves have not equalled reasonable expectations at the time when the GSA was entered.

5. Burrup claims that no event of force majeure has occurred on a proper construction of the GSA.  Apache Northwest, Tap and Kufpec do not contend that any external event or circumstance has occurred which changed the level of reserves since the GSA was entered.  Those parties contend that there is an event of force majeure resulting from the extent of the reserves based upon further investigations by Apache Northwest, Tap and Kufpec.  Burrup submits that the question is whether, on the proper construction of the GSA, there is a force majeure event if the relevant circumstance (ie, the actual level of reserves) existed when the GSA was made and has not itself since changed.

6. Burrup submits that this question of construction corresponds to the question (b) which Burrup has posed for determination, namely the question:

   whether the definition of 'Force Majeure' contained in clause 13.1 of the GSA includes an event or circumstance which occurred prior to the execution of the GSA?

7. Also, as part of the force majeure issue, Burrup claims that, as a matter of proper construction, there is no event of force majeure where an event could be reasonably anticipated.  This corresponds to question (c) which Burrup has posed for determination (as it proposes it should be slightly amended), namely the question:

   Whether the definition of 'Force Majeure' contained in clause 13.1 of the GSA applies to an event or circumstance which could have been reasonably anticipated, without more, or whether clause 13.1 of the GSA only applies to an event or circumstance which both could not have been reasonably anticipated and could not have been reasonably prevented?

8. On the force majeure issue, Burrup also says that, as a matter of fact, the failure to have sufficient reserves could have been reasonably anticipated.

9. The last issue between the parties is the consequence of a breach of the reserves obligation, if there is no event of force majeure.  Apache Northwest, Tap and Kufpec contend that their only liability for breach of the reserves obligation is payment of liquidated damages if and when they fail to supply gas in the future.

10. Burrup claims that, on a proper construction of the GSA, Apache Northwest, Tap and Kufpec commit a wilful default of the reserves obligation if they deliberately commit uncommitted Proven Reserves to other purchasers and deliberately do not contract to acquire sufficient gas reserves.  Burrup also claims that Tap has deliberately not contracted to acquire sufficient gas reserves.  Hence, Burrup claims that the limitation confining damages to liquidated damages does not apply to Tap.

11. Burrup also contends that, to the extent of a breach of the reserves obligation, it is presently released from the obligation to purchase gas exclusively from Apache Northwest, Tap and Kufpec, and may presently enter a contract to purchase a corresponding amount of gas from another gas seller for supply in the future, with delivery commencing when the anticipated reserves run out.  On this basis, Burrup says that its damages will be the difference between the contract price under the GSA and the contract price from the other gas seller.

12. This last matter corresponds to question (d) which Burrup has posed for determination, namely the question:

    Whether the defendant [ie Burrup] is prevented by clause 8.3(a) of the GSA from presently contracting to purchase its future gas requirements from another gas seller to the extent that the uncommitted Proven Reserves, which a Counterclaim Defendant is required to maintain by virtue of clause 5.2(b), of the GSA will become exhausted in the future?

Issues raised in par (a) of the application

1. Tap and Apache broadly agree that the first and second issues identified by Burrup are issues which arise on the pleadings although they may draft the issues somewhat differently.   They agree that the first two issues identified by Burrup are issues as to the proper construction of the GSA about which the parties are in dispute.

2. The parties agree that the issues raised by the paragraphs in the pleadings set out in par (a) of the defendant's application give rise to questions of construction that may be conveniently tried as separate issues.

3. In a draft amended chamber summons dated 7 April 2010 the defendant described the issues raised by the paragraphs in the pleadings referred to in par (a) of the chamber summons as follows:

   (aa)whether the obligation of each of the first to third counterclaim defendants to supply gas to the defendant/plaintiff by counterclaim is limited to supplying gas available to the first to third counterclaim defendants as participants in the Harriet Joint Venture or whether that obligation is not limited to supplying gas from any particular source;

   (ab)whether the obligation of each of the first to third counterclaim defendants to have sufficient uncommitted Proven Reserves to satisfy clause 5.2 of the GSA is confined by reference to gas available to the first to third counterclaim defendants as participants in the Harriet Joint Venture or whether that obligation is not confined to gas from any particular source.

1. In their written submissions Apache draft the questions to which the relevant pleadings give rise somewhat differently.  However, the parties are agreed as to the substance of the issues which arise from those pleadings.  The parties all submit that it would be convenient to separately try those issues.

2. I am satisfied that it is just as convenient to separately try the issues referred to in par (a) of Burrup's application.  The parties have framed the issues as the issues raised by the allegations made in specified paragraphs of the pleadings.  In my view that it is not an appropriate way to frame the issues to be separately tried in this action.  The separate issue must be stated with particularity.  If the issues to be separately tried are described as the issues raised by the specified allegations in the pleadings the parties may disagree at the trial of the separate issues as to precisely what issues those pleadings give rise to.  It would be inconvenient if the court is required at the trial of the separate issues to determine what those issues are before determining them.  Accordingly, I require the parties to frame the issues to be separately tried in the form of questions rather than as issues raised by allegations in specified paragraphs of the pleadings.

The other issues

1. I am not satisfied that it is just and convenient to order that the questions or issues in par (b), (c) and (d) of Burrup's application be tried as separate issues.

2. Issues (b) and (c) relate to construction of aspects of the GSA relating to force majeure and in particular to the timing of events said to constitute force majeure.  Apache claims, and I accept, that the force majeure claim will involve evidence as to the facts and circumstances which give rise to a claim of force majeure, as well as issues of construction of the GSA.  Apache contends that it is artificial to try to hear and determine construction issues relating to force majeure without the court also being fully informed as to the facts upon which the force majeure claim is based.

3. Those facts will involve the matter said to constitute events of force majeure, how they arose, and when and how they interfered with Apache's ability to perform the contract.  The evidence required to determine the proposed separate issues overlaps with the evidence that would be led at the trial of the remaining issues.

4. It may also create circumstances in which the court is asked to determine force majeure construction issues on a hypothetical basis, which may ultimately change when the full facts are presented.

5. The event or circumstance of force majeure relied upon by the sellers is that they did not have the required proven reserves at the commencement date and this could not have been reasonably anticipated at the time the parties entered into the GSA in 2001.  In its reply Burrup claims that there has been no event or circumstance that has occurred which has altered the position as at 2001.  Burrup proposes the determination of the question whether the force majeure as defined in the GSA includes an event or circumstance which occurred prior to the execution of the GSA.  Burrup argues that there has been no event or circumstance since December 2001 which has caused the failure to perform the proven reserves obligation.

6. Tap says that the question posed by Burrup is not to the point.  The issue between the parties is whether the failure to prove reserves by appraisal, exploration and development is an event or circumstance that could not have been reasonably anticipated or prevented.  Tap submits that no point would be served in determining an abstract question as to the meaning of the definition of force majeure.  The question to be resolved is whether the particular facts as established fall within the definition.  I accept that submission.  The issue does not lend itself to the formulation of preliminary questions for resolution divorced from the facts claimed to constitute the force majeure.

7. Tap submits that question (c) will not lead to any resolution of the controversy between the parties or enhance the prospects of settlement.  Tap submits that the sellers claim that there has been an event or circumstance of force majeure irrespective of whether the requirements in cl 13.1(a) and (b) are read conjunctively or disjunctively.  Further, Tap submits that the question is best resolved at the same time as other questions concerning the definition of force majeure are resolved.  I accept that submission.

8. Issue (d) relates to whether Burrup is obliged in certain circumstances to continue purchasing gas exclusively from the sellers.  Apache says that it is artificial to try and create a preliminary question which relates to exclusivity.  Apache submits that whether or not the joint venture participants are required to (or Burrup is permitted to) purchase gas from other persons will depend upon how the circumstances arose.  The evidence necessary to determine this issue will include Burrup's future gas requirements, including analysis of Burrup's historical gas use and nominations, other gas sellers in the market, and how and when uncommitted proven reserves may become exhausted in the future, including consideration of the identification of a number of additional exploration and appraisal prospects by the Harriet Joint Venture Participants.  Apache submits that these matters will involve traversing much, if not all, of the evidence needed for the broader force majeure and wilful default issues.  Apache submits that a determination of this issue will involve questions of fact as to what occurred, why it occurred and how it related to an inability to supply gas.  This will be part of the evidence necessary for the force majeure and wilful default issues.

9. Tap submits, amongst other things, that even if there may be circumstances where a breach of the obligation to have proven reserves may result in Burrup not being bound by the exclusivity obligation then proposed question (d) raises issues as to whether there is a breach of that obligation.  In other words, the answer to the question is that it depends upon whether there has been a breach of the obligation to have proven reserves and that in turn raises issues as to whether there has been wilful default and whether the failure to have the proven reserves is deemed not to be a breach by reason of force majeure.  Tap submits that no purpose would be served by asking the question because its resolution one way or the other depends upon resolution of all the factual and legal issues as to whether there has been a breach of the obligation to have proven reserves.

10. Finally, Tap submits that question (d) as proposed has temporal ambiguities.  That is, even though there may be a breach of the proven reserves at this time that does not mean that there will be a breach in the future or that there will be a shortfall when the time comes for delivery of gas.  These possibilities, Tap submits, are not reflected in the form of the question.  The issue is more complex than the proposed question suggests.  Tap submits that the issue gives rise to a number of questions the answer to which depends on the facts and hence it is not a proper question for determination as a preliminary issue.  I accept that submission.

Conclusion

1. There should be a separate trial of the preliminary questions raised by the allegations in the pleadings set out in par (a) of Burrup's application.  The separate issues to be tried should be set out in the form of questions.  The parties should confer on the form of those questions.

2. I decline to order that there be a separate trial of the issues referred to in par (b), (c) and (d) of Burrup's application.