146 Particulars are given by reference to five letters between the parties from March to May 1996.
147 In evidence the plaintiff has gone well beyond the particulars. A specific objection is taken on this point, I over-rule this objection. The plaintiff's case has been clear to the defendant since the compilation of the trial bundle pursuant to the order of Murray J. No claim of prejudice is made and senior counsel for the defendants dealt with the extra documents he thought merited special attention.
148 The pleading of genesis and aim is an attempt to bring the plaintiff within the term expressed by Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1385, he, in turn, appropriating the phrase from Cardozo J in Utica City National Bank v Gunn (1918) 118 NE 607.
(Page 34)149 In the present case I consider that evidence which sets out the factual matrix whereby the agreement came to be made and its objective aim is relevant and admissible. 150 That is not to say, however, that all the plaintiff's provisional exhibits are admissible. It is, in part, a matter of degree, but many of the provisional exhibits seem to be direct evidence of negotiations and subjective intention, not genesis and aim even taking a liberal view of these headings.
151 The search is for the meaning of the contract and the intention of the parties as expressed by the agreement. Where evidence goes beyond the background circumstances or objective aim and strays into the expressed intention of the parties, I think that evidence must be rejected.
152 I shall indicate which exhibits I have relied upon and their purpose. In respect of such exhibits I over-rule the objection.
153 Counsel for the plaintiff referred to portions only of the exhibits as having relevance. I have concentrated on those portions.
154 I regard correspondence between the parties prior to the media statement of 6 February 1996 with the accompanying briefing statement as being too remote from the Interim Access Agreement to have sufficient bearing on its genesis or its aims. The correspondence sets out, somewhat tortuously, the first steps and negotiating positions but the material prior to February 1996 is too ambiguous to form a reliable guide to genesis and aim of an agreement concluded in October 1996 against the background of the Ministerial media statement which spelled out the State's proposed course.
155 The documents provisionally accepted as exhibits 7, 8, 12, 13, 15, 16, 18, 19, 19A, 20, 21, 22, 23, 24, 25, 25A, 26, 27, 33, 35, 39A, 40, 41, 42, 43, 44, 45, 46, 48C, 50, 53, 53A, 60A, 64 and 65 are rejected. Exhibits 46, 48C, 53A are at this stage rejected only so far as their tender is supported on genesis and aim. Their relevance to frustration is dealt with later.
156 Exhibits 74, 79, 83 and 86 are the letters particularised in the statement of claim par 8AA. I consider each is relevant and admissible for the purpose of proving genesis and aim.
(Page 35)157 Exhibits 79A, 80 and 89A are relevant and admissible as tending to show that the aim of the agreement was to provide interim access until the terms of the open access regime was made known to the parties. 158 Exhibit 81 does not sufficiently go to aim. It is merely a comment to 81A and is rejected.
159 I consider both portions highlighted by the plaintiff on exhibit 93 are relevant and admissible.
160 Exhibit 93A is a draft and does not further understanding of the genesis or aim of the executed agreement and tender is rejected.
161 In exhibit 97 the plaintiff relies on the defendant's note to conditions precedent. This does not add to understanding of the genesis and aim as it bears on the phrase under consideration and is rejected.
162 Exhibits 98, 98A and 104 show negotiations which do not sufficiently bear on genesis and aim and are rejected.
163 Exhibit 137 consists of notes of a meeting at the Office of Energy on 18 July 1996. These are relevant and admissible to the objective aim of the Interim Access Agreement.
164 Exhibits 138 and 139 relate to a submission to the defendant and are relevant and admissible to the genesis and objective aim of the Interim Access Agreement.
165 It is not necessary for me to set out the substance of each document which I have considered in searching for the genesis and objective aim of the Interim Access Agreement. From the extrinsic material it is obvious that everyone, the plaintiff, the defendant and the Minister, proceeded on the basis that the defendant continued to enjoy rights of access under the Goldfields Gas Pipeline Agreement, whatever the terms of an open access regime. The genesis of the Interim Access Agreement was the need to provide temporary access by the defendant to the plaintiff's distribution system until the open access regime had crystallised.
166 The aim of cl 5 was to provide a procedure for transfer, or possible non-transfer, to the open access regime once that regime was made known to the defendant so that it could make appropriate commercial decisions.
167 With the use of extrinsic material, I would construe "as it applies to NPPL" as referring to applicability to the entity rather than its functions. Part of the open access regime was the Electricity Transmission
(Page 36)Regulations in force from 1 January 1997. That part of the regime did not apply to NPPL because it was connected to the distribution system. The open access regime applied to NPPL from 1 July 1997 when the Electricity Distribution Regulations came into effect.
168 I find that the plaintiff has made good its plea as to genesis and aim in the statement of claim par 8AA and par 8AB. 169 Finally, I take into account the stated intention of the Minister, the terms of the Competition Principles Agreement, the Goldfields Gas Pipeline Agreement Act 1994 and the Electricity Corporation Act 1994. Where there are competing constructions of the Interim Access Agreement, I favour a beneficial interpretation which would allow access to the South-West Interconnected System by the defendant as soon as possible. The construction of the Interim Access Agreement contended for by the plaintiff achieves this goal.
Implied term for termination on reasonable notice
170 This contention by the plaintiff proceeds on the basis that, contrary to what I have found as to the construction of the agreement and its applicability to the defendant, the interim agreement continued in force until 20 October 2000 and, unless terminated, will continue into the future.
171 In that event, the plaintiff argues, there should be implied into the Interim Access Agreement a term entitling either party to terminate on reasonable notice. The plaintiff argues that if such a term is implied the notice it has given can be viewed as pursuant to such a term.
172 The defendant in substance contends that such a term should not be implied for a number of reasons. As a matter of law, there is no warrant to imply such a term. In the circumstances of this contract it would make nonsense to imply such a term. If the open access regime does not apply to the defendant, the implication of such a term would have the effect of negating its access to the plaintiff's system.
Legal principles
173 I take the principles applicable from the judgment of McHugh J in Crawford Fitting v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 443:
(Page 37)".. whether a commercial agreement for an indefinite period may be terminated, the answer depends upon whether the agreement contains an implied term to that effect. … The existence of the term is a matter of construction. But the question of construction does not depend only upon a textual examination of the words or writings of the parties. It also involves consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed."
174 There is conflicting authority whether there is a presumption for or against perpetuity: Llanelly Railway & Dock Co v London & North Western Railway Co (1875) LR 7 HL 550; cf Martin Baker Aircraft Co Ld v Canadian Flight EquipmentLd [1955] 2 QB 556; In re Spenborough Urban District Councils Agreement [1968] Ch 139. 175 I adopt with respect the conclusion expressed by McHugh J at 444:
"In principle, the better view would seem to be that, although there is a presumption against implying a term that an agreement is terminable, ordinarily the nature of a commercial agreement will lead to the conclusion that the parties must have intended it to be terminable on notice."
176 This view is supported by reference to Australian Blue Metal v Hughes [1963] AC 74 per Lord Devlin at 98. 177 One way to approach the issue is to regard the implied term as part of an unexpressed agreement. This is sometimes tested by asking what the answer would have been at the time of the contract if someone had turned the attention of the parties to this question: "Do you intend that this contract should go to perpetuity or indefinitely?"
Can a term for reasonable notice be implied into the Interim Access Agreement
178 The starting point is in the title of the agreement: Interim Access Agreement.
179 "Interim" is an adjective meaning temporary or provisional. In context it qualifies the access agreement not access so it should be read as "interim agreement for access", not an "agreement for interim access".
(Page 38)180 This interpretation is confirmed by cl 5.1 and especially cl 5.2 and the use of the phrase "permanent agreement for access". 181 So the agreement itself was, in the intention of the parties, of a temporary or provisional nature not expected to last for perpetuity. This alone is sufficient to imply a term of termination on reasonable notice.
182 Furthermore, it is not necessary that the Interim Access Agreement last indefinitely without possibility of termination because, as I have found, the defendant has rights of access independent of the Interim Access Agreement under the Goldfields Gas Pipeline Agreement. The implication of a termination clause makes commercial sense because in the event that access by way of the open access regime is delayed, or its terms substantially different from the parties expectation, it allows each party to walk away and negotiate afresh. Implication of a term does not prejudice the defendant.
183 In this context it has to be remembered that the time for implication of the term into the contract is the time at which the contract was executed.
184 There are further facts leading to the conclusion that the parties intended the contract may be terminable.
185 From 10 October 1999, the obligation to pay line charges ended. As Mr Dyer's evidence subsequent to the event has noted, this effects a significant change in the relationship and considerable diminution in Western Power's revenue, however, that revenue might be characterised. The fact that the line charges were to an extent repayment of capital does not mean that the plaintiff could never levy a charge for line charges in the future. This fact was known to both parties in 1996.
186 I find the case for implication of a term of reasonable notice of termination compelling.
187 In all the circumstances I imply a term of reasonable notice into the agreement.
Is three months reasonable notice?
188 The term of three months is in excess of the minimum periods of default notices within the agreement. It is the period specified in cl 5.3 should negotiations fail.
(Page 39)189 The parties did try to negotiate in good faith but were unable to reach an agreement. The defendant does not really contend that the term of notice of three months (as opposed to the implication of any term of notice) is inadequate. 190 I find that the term of three months notice is, in the circumstances, reasonable notice.
191 The consequence is that the Interim Access Agreement came to an end on 20 January 2001.
Frustration
192 The plaintiff's next argument is that the contract has come to an end by reason of frustration.
193 Once again, to resolve this issue, each party relies upon Codelfa Constructions, one to assert that frustration has occurred, the other not.
194 The venerable authority of Krell v Henry [1903] 2 KB 740 arising from the cancelled coronation of Edward VII due to appendicitis, sets out the principles. Vaughan-Williams LJ traces the doctrine of the frustration from Roman law before concluding at 751:
"In each case one must ask oneself, first, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If all these questions are answered in the affirmative … I think both parties are discharged from further performance of the contract."
195 The doctrine of frustration was discussed and revisited to a degree by the House of Lords in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. 196 The test set out in Davis Contractors was considered by Stephen J in Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 from 160 where he ultimately applied a test close to that favoured by Lord Reid and Lord Radcliffe.
(Page 40)197 In Codelfa, Mason J agreed with this approach and stated the relevant passage from Lord Radcliffe in Davis Contractors at 729 as follows:
"… Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract … It was not this that I promised to do."
Mason J then continued at 357:
"… a contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken. …"
The application of the principles to the facts 198 The plaintiff's argument proceeds on the assumption that it has failed to make good any of its earlier arguments so that the position from 10 October 1999 and continuing is that the open access regime is not applicable to the defendant and there is no implied term of reasonable notice. As I have already held to the contrary, there is in one sense no reason for me to deal with this issue. However, because the question whether the plaintiff caused or contributed to the non-applicability of the open access regime as pleaded in par 13(b) of the second further amended defence and counterclaim remains to be determined in further proceedings, I should indicate whether in my judgment the circumstances are capable of amounting to frustration.
199 The plaintiff points to the fact that from 10 October 1999, Western Power is bound to provide access under the Interim Access Agreement but is no longer entitled to receive the line charges under the KMA Deed, these being the greater part of the income of the plaintiff under the agreement.
200 I do not consider the plaintiff's argument can succeed, whatever test or variation of the doctrine of frustration is applied to the particular facts.
201 If the three step test propounded by Vaughan-Williams LJ in Krell v Henry is used, the foundation of the contract was the need to provide
(Page 41)access to the defendant for an undetermined period until the introduction of the open access regime as applicable to the defendant.
202 Secondly, the performance of the contract has not been prevented. I accept that this test is subject to a variation in later cases, especially Davis Contracting,that prevention may mean performance under radically different circumstances. 203 In the end, it is a matter of judgment and degree as to whether the circumstances are sufficiently different from the original circumstances as to justify discharge of each party's obligations.
204 This judgment remains whether the epithet "radical" or some other epithet is used.
205 In this case I have limited evidence as to the line charges and their effect on the Interim Access Agreement. I have read exhibit 1, the agreement between the plaintiff and KMA in 1983. I have Mr Dyer's evidence of the change of income from 1999.
206 The plaintiff tendered a series of documents on the line charges which were provisionally received and are subject to objection. They are exhibits 46, 48C, 53, 74 and 97.
207 Exhibit 46 is a letter from the plaintiff to the defendant dated 7 September 1995. Exhibit 48C is a faxed copy of that letter with an annotation in the margin next to reference to line charges. Exhibit 53 is a letter from the Minister to the defendant. Exhibit 74 is a letter from the plaintiff to the defendant stating conditions precedent both of which were incorporated into the access agreement. This exhibit does not add anything. Exhibit 97 is a letter from the defendant to the plaintiff dated 28 May 1996.
208 Extrinsic evidence, of necessity, is required when the court is dealing with a claim for frustration due to external circumstances. I hold they are admissible for the purpose of deciding the plaintiff's case on frustration.
209 The evidence in these exhibits does not satisfactorily explain the radically different effect on the contract without line charges. At most they confirm the parties' understanding that the permanent contract would be concluded by 10 October 1999.
(Page 42)210 The third question is whether the failure of the open access regime to be applicable to the defendant by 10 October 1999 was in the contemplation of the parties at the time of execution of the contract. 211 While the parties' understanding may have been that the most likely date was 1 July 1997 or shortly after, and the further understanding that it would apply to the defendant before 10 October 1999, I cannot find an intention on the evidence that each party considered the Interim Access Agreement would, effectively end on 10 October 1999. This is a finding which must be made if the plaintiff's argument is to be made good.
212 Indeed the reasons which compel me to construe an implied term of the termination with reasonable notice impel me from a conclusion that the contract would be frustrated after 10 October 1999.
213 I do not consider the Interim Access Agreement has been frustrated.
214 I should, however, shortly deal with an argument advanced by the defendant as to why I should not find the contract has been frustrated.
215 The fact that the plaintiff was an instrumentality of the State and subject to directions from the Minister misses the point though it may have a relevance to the adjourned consideration of par 13(b) of the defence. The enquiry is as to the parties' intentions in 1996.
216 The plaintiff was a body corporate though it was also an agent of the Crown at that time.
217 The focus of attention must be on the plaintiff's intentions and understandings not what it might or might not be directed to do, nor on what the Minister might or might not independently decide to do with respect to the open access regime.
The defendants counterclaim for declarations and injunctions
218 In view of my finding in favour of the plaintiff, the defendant's counterclaim for declarations fails.
219 There remains extant however, portion of the claims for injunction as follows:
"B. Against the plaintiff, an injunction restraining the plaintiff … ceasing to provide the defendant with access to portions of the plaintiff's system.
(Page 43)C. Against the State, a mandatory injunction requiring the State to ensure that the plaintiff … does not cease to provide the Defendant with access to portions of the plaintiff's system."
220 On the construction of the Goldfields Gas Pipeline Agreement, I have found that the defendant is entitled to access to portion of the plaintiff's system and that access has been ensured by the State.