Truenergy Pty Ltd v Dispute Resolution Panel

[2009] VSC 581

IN THE SUPREME COURT OF VICTORIA	Not Restricted
AT MELBOURNE COMMON LAW DIVISION

No. 7650 of 2009

TRUENERGY PTY LTD	Plaintiff
v
DISPUTE RESOLUTION PANEL	Defendants
(APPOINTED ON 12 JANUARY 2009 UNDER CHAPTER 7 OF THE VICTORIAN GAS INDUSTRY MARKET AND SYSTEM OPERATION RULES) & ORS

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JUDGE:	CAVANOUGH J
WHERE HELD:	Melbourne
DATE OF HEARING:	4, 7 December 2009
DATE OF JUDGMENT:	7 December 2009 (Ex tempore). Revised reasons published 10 December 2009
CASE MAY BE CITED AS:	Truenergy Pty Ltd v Dispute Resolution Panel
MEDIUM NEUTRAL CITATION:	[2009] VSC 581

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Administrative Law – Judicial review – Gas industry market rules – Dispute resolution panel – No error of law by dispute resolution panel – Application dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C M Caleo SC with	Clayton Utz
Mr J D Pizer
For the Second Defendant	Mr P D Crutchfield SC with	Allens Arthur Robinson
Ms F Gordon
For the Third Defendant	Mr J W S Peters SC with	Mallesons Stephen Jaques
Mr S R Senathirajah
For the Fourth Defendant	Mr N J O’Bryan SC with	Minter Ellison
Mr P Gray

_________________________________________________________________________________
HIS HONOUR:

1. This is an application for judicial review of a decision made on 11 May 2009 by a Dispute Resolution Panel under the Victorian Gas Industry Market and Systems Operations Rules (“the Rules”) and a consequential decision of the Panel as to costs made on 26 June 2009. The substantive decision (which includes the reasons) of the Panel is annexed to these reasons for judgment. The factual and legislative background is fully apparent from the Panel’s decision.

2. The Rules provide that where a matter is referred to a Dispute Resolution Panel, the Panel must select procedures and processes that accord with certain stated principles, including that they be “simple, quick and inexpensive”.[1] In the same spirit, I consider that it is appropriate to give judgment immediately.

   [1]              Rule 7.2.4(c)(2)(A).

3. I have listened very intently to what Mr Caleo S.C. for the plaintiff has had to say,[2] but I am not persuaded at all that there was any error of law on the part of the Panel, and I propose to dismiss the application.

   [2]              The precise nature of the plaintiff’s criticism of the Panel’s reasoning is hard to pin down. The plaintiff’s amended originating motion states two grounds. Ground 1 complains that the Panel “erred in law by construing the expression ‘likely to materially affect the operation of the market’ in clause 6.7.2(a)(2) of [the Rules] to mean a relevant reduction that affects the market such that ‘it cannot operate effectively, or perhaps its capacity for effective operation is materially limited, such that it is appropriate in the circumstances for VENCorp to determine prices which do not exceed the administered price cap (paragraph [38] of the Decision)’”.

4. The reasons of the Panel speak for themselves.3 I am not persuaded that the Panel was wrong in any respect in the construction that it adopted4 of the critical provision of the Rules, namely clause 6.7.2(a)(2). Under that clause a system force majeure event5 occurs when one or other of three specified events occurs and VENCorp reasonably

materially impact upon, alter or change the way the market works” accords better with the
language of clause 6.7.2(a)(2) and would accommodate the facts of the present case.
On the other hand, in oral submissions, the plaintiff departed from ground 2(a) of its
amended originating motion in that it did not press the proposition that a relevant reduction
that was likely merely to “bring about a material price change” necessarily amounted, by
itself, to a system force majeure event. Similarly, the plaintiff did not really press the
proposition in ground 2(b) that a relevant reduction that materially affected “market
participant behaviour (ie the method that Market Participants use to balance their trades)”
necessarily amounted, by itself, to a system force majeure event.
Initially, the plaintiff did maintain in oral submissions that a relevant reduction that caused or
contributed to the market price being set at VoLL pursuant to clause 3.2.4, by itself, necessarily
gave rise to a system force majeure event (transcript pp 91 and 248). However, later, upon
being pressed with the suggestion that the Rules seem to contemplate that a relevant
reduction can lead to the price being set at VoLL without thereby necessarily producing a
system force majeure event (and a consequent need to declare an administered price cap), the
plaintiff’s senior counsel said (at transcript pp 253 lines 21 to 254 line 29) that he did not rely
solely on the relevant reduction having caused the price to be set at VoLL. He called in aid, as
well, the matters referred to in grounds 2(a), (b) and (c), namely material price change, change
in market participant behaviour and change in the method of price setting. However, with
respect, it is difficult to follow this submission, because none of these changes is independent
of the very circumstance that the relevant reduction has caused the price to be set at VoLL.
Each reference to such a “change” is really either a restatement of the circumstance itself or a
reference to the consequences of it.
Contrary to the apparent intent of ground 2 of the amended originating motion and of
paragraph 46 of its written outline of submissions dated 12 October 2009, the plaintiff said on
numerous occasions during oral argument that it was confining itself to an attack on the
Panel’s construction of clause 6.7.2(a)(2) and was not suggesting that on the proper
construction of the clause, the Panel would have been, or would on remittal be, obliged to
reach a particular result.
During oral argument the plaintiff criticised the Panel’s reasoning in a respect not reflected in
the amended originating motion or in its written outlines of submissions. It submitted that
the inclusion of the above quoted words “such that it is appropriate in the circumstances for
VENCorp to determine prices which do not exceed the administered price cap” at the end of
the last sentence of paragraph 38 of the Panel’s decision meant that the Panel was according
to VENCorp (and to itself) an untrammelled discretion to decide in what circumstances it was
“appropriate” for VENCorp to make a determination of the kind sought by the plaintiff.
Finally, the plaintiff submitted that none of the contextual and textual considerations on
which the Panel relied in paragraphs 38 and 39 of its decision in fact supported its
construction of clause 6.7.2(a)(2).

1. In paragraph 36 the Panel summarises the plaintiff’s argument as advanced to the Panel.

2. In paras 37 – 38 of its decision.

3. This term and the other italicised terms contained in this sentence are defined in the glossary to the Rules.

SC: AP 2 JUDGMENT
Truenergy Pty Ltd v Victorian Gas Industry Market
and System Operation Rules & Ors

considers that the event has resulted in a reduction of normal flow into the gas transmission system and “that reduction is likely to materially affect the operation of the market or materially threaten system security”. Nor am I persuaded that there is any real substance in any of the criticisms that are made by the plaintiff in relation to the contextual[6] and textual[7] considerations by reference to which the Panel drew support for its decision. It seems to me that each of those considerations probably was supportive of the construction of clause 6.7.2(a)(2) that the Panel arrived at. In any event, the critical matter is really unassailable, namely that what happened on 22 November 2008 was seen by the Panel to have been the market operating throughout in accordance with the Rules, subject to an upper limit of VoLL, and in accordance with the market objectives as defined in the glossary to the Rules.[8]

[6]              Decision, para 38.

[7]              Decision, para 39.

[8]              Decision, para 37.

1. Further, I myself cannot see anything wrong with the observation of the Panel to the effect that “[t]he operation of the market is materially affected in the relevant sense when it cannot operate effectively, or perhaps its capacity for effective operation is materially limited, such that it is appropriate in the circumstances for VENCorp to determine prices which do not exceed the administered price cap”.[9] That observation is fully in line with the Rules read as a whole.[10]

   [9]              Decision, para 38.

   [10]             It does not erect a standard or threshold of impossibility or incapacity. Rather, it speaks of “effective” operation, meaning, no doubt, effective operation in accordance with the Rules and the market objectives. Questions of degree and judgment are inescapable. VENCorp’s perception of the likely extent and duration of any supply problem will very frequently be significant, as it was on this occasion. Further, the last part of the passage plainly did not involve the Panel according to VENCorp or to itself an untrammelled discretion to decide when it was “appropriate” to determine prices which do not exceed the administered price cap. Rather, the Panel was merely having regard to the consequences of any finding of “system force majeure event” in order to inform its interpretation of the definition of that expression.

2. Having considered the parties’ written submissions and having listened to everything that has been said over the last two days, I am entirely satisfied that, if anything, the Panel’s approach was unduly favourable to the plaintiff. In truth, the Panel was called upon to do no more than to, in effect, judicially review the decision of VENCorp which in turn was a decision on a matter committed to the “reasonable consideration” of VENCorp. The Panel went beyond that and found positively that the market had operated not only in accordance with the Rules, but also in accordance with the market objectives as defined in the glossary to the Rules.

3. The situation is similar to that referred to by J D Phillips JA in S v Crimes Compensation Tribunal[11]:

   “It is in this context that it is sometimes said that where the question is one of degree, involving some element of value judgment, the question is one of fact, not law: Edwards (Inspector of Taxes) v Bairstow [1956] A.C. 14 at 33 per Lord Radcliffe; de Smith, para. 5-084. Thus if the question whether the claimant's circumstances fall within the statutory description is one on which minds can legitimately differ, involving a value judgment on the evidence (or other material), it is a matter for the tribunal. In that category one can put most questions of a causal link, or (in a case like this) whether some identified expense was the result of the relevant injury, or whether the claimant suffered “total or partial incapacity for work”. Involving questions of degree and evaluation, on the facts as otherwise established, these are essentially questions of fact which are committed to the tribunal, and not to the court.”

   [11] [1998] 1 VR 83 at 89.

4. It seems to me that those observations apply here once one rejects, as I do, the plaintiff’s attack on the Panel’s construction of the relevant provisions.[12]

   [12]             Indeed, as I remarked during the hearing, unless the plaintiff could persuade the Court that the Panel had made an error of construction, the plaintiff would have needed to show that the Panel had been obliged to determine that VENCorp, in turn, had been obliged to consider (on the material before VENCorp) that the relevant reduction “[was] likely to materially affect the operation of the market …”. It would have been a strong thing to reach such a conclusion in a case where the plaintiff had sought a finding from VENCorp which VENCorp had declined to make, in relation to a matter on which, in effect, the plaintiff had borne the onus of proof: cf Ericsson Pty Ltd v Popovski (2000) 1 VR 260 at 265 per Brooking JA; Director of Public Prosecutions v Theophanous [2009] VSC 325 (Osborn J) at [59].

5. The proceeding will be dismissed. I will hear counsel on the question of costs.

In ground 2, the plaintiff alleges that the Panel should have construed the expression “likely to materially affect the operation of the market” in clause 6.7.2(a)(2) “to mean a relevant reduction that is likely to materially affect the functions and processes of the market, namely:

(a)         the determination of market price, at least to the extent of a material price

change; or

(b)        market participant behaviour (ie the method that Market Participants use to

balance their trades); or

(c)         the manner in which the market operates (ie the method used to determine

market price, namely VoLL, rather than the bids made by the Market Participants.”
(My emphasis).

In paragraph 43 of its written outline of submissions dated 12 October 2009, the plaintiff asserted that “something that is likely to materially affect the operation of the market is something that is likely to materially impact upon, alter or change the way the market works”. This proposition is repeated in para 5.2 of the plaintiff’s written outline of submissions in reply dated 2 December 2009. At first sight it is difficult to distinguish the plaintiff’s proposition from the Panel’s proposition that “the operation of the market is materially affected when it cannot operate effectively, or perhaps its capacity for effective operation is materially limited, such that it is appropriate in the circumstances for VENCorp to determine prices which do not exceed the administered price cap”. However, the plaintiff submitted orally that the Panel, by using the expression “cannot operate effectively” and the expression “capacity for effective operation”, was erecting a standard or threshold that was much too high in relation to the operation of the market, namely impossibility or incapacity. Such a standard or threshold could never realistically be met, it submitted; and that is why the Panel rejected its case. By contrast, it said, its own proposed standard of “likely to

SC: AP 1 JUDGMENT
Truenergy Pty Ltd v Victorian Gas Industry Market
and System Operation Rules & Ors

SC: AP 3 JUDGMENT
Truenergy Pty Ltd v Victorian Gas Industry Market
and System Operation Rules & Ors

SC: AP 4 JUDGMENT
Truenergy Pty Ltd v Victorian Gas Industry Market
and System Operation Rules & Ors