Woodside Energy Ltd v Electricity Generation and Retail Corporation, t/as Synergy
[2015] WASC 397
•26 OCTOBER 2015
WOODSIDE ENERGY LTD -v- ELECTRICITY GENERATION AND RETAIL CORPORATION, t/as SYNERGY [2015] WASC 397
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 397 | |
| Case No: | CIV:1774/2013 | 16-19 FEBRUARY 2015 | |
| Coram: | LE MIERE J | 26/10/15 | |
| 37 | Judgment Part: | 1 of 1 | |
| Result: | Gas acquired under gas swaps is gas purchased | ||
| B | |||
| PDF Version |
| Parties: | WOODSIDE ENERGY LTD CHEVRON AUSTRALIA PTY LTD SHELL AUSTRALIA PTY LTD BHP BILLITON PETROLEUM (NORTH WEST SHELF) PTY LTD BP DEVELOPMENTS AUSTRALIA PTY LTD ELECTRICITY GENERATION AND RETAIL CORPORATION, t/as SYNERGY |
Catchwords: | Contract Contract interpretation Principles of construction Meaning of the word 'purchase' Determining if a transaction is a sale |
Legislation: | Sale of Goods Act 1893 (UK) |
Case References: | Aldridge v Johnson (1857) 199 ER 1476 Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [2014] NSWCA 279 Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] 4 All ER 677 Colby Corporation Pty Ltd v Commissioner of Taxation (2008) 165 FCR 133 Diamond Shamrock Exploration Co v Hodel (1988) 853 F.2d 1159 Doe d Meyrick v Meyrick (1833) 3 Tyr 916 Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 Frederick Lawrence Ltd v Freeman, Hardy & Willis Ltd (1959) 1 Ch 731 HL Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd (1957) 1 QB 159 Hollingsworth v Lee (1949) VLR 140 Inland Revenue Commissioners v Gribble [1913] 3 KB 212 Owners of Shin Kobe Maru v Empire Shipping Co Inc [1994] 181 CLR 404 Sahade v BP Australia Pty Ltd [2004] NSWSC 512 Sun World International Inc v Registrar, Plant Breeder's Rights (1998) 87 FCR 405 Tovir Investments Pty Ltd v Waverley Council [2014] NSWCA 379 Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 Wilkie v Gordin Runoff Ltd (2005) 221 CLR 522 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- First Plaintiff
CHEVRON AUSTRALIA PTY LTD
Second Plaintiff
SHELL AUSTRALIA PTY LTD
Third Plaintiff
BHP BILLITON PETROLEUM (NORTH WEST SHELF) PTY LTD
Fourth Plaintiff
BP DEVELOPMENTS AUSTRALIA PTY LTD
Fifth Plaintiff
AND
ELECTRICITY GENERATION AND RETAIL CORPORATION, t/as SYNERGY
Defendant
Catchwords:
Contract - Contract interpretation - Principles of construction - Meaning of the word 'purchase' - Determining if a transaction is a sale
Legislation:
Sale of Goods Act 1893 (UK)
Result:
Gas acquired under gas swaps is gas purchased
Category: B
Representation:
Counsel:
First Plaintiff : Mr B Dharmananda SC & Mr M J Feutrill
Second Plaintiff : Mr B Dharmananda SC & Mr M J Feutrill
Third Plaintiff : Mr B Dharmananda SC & Mr M J Feutrill
Fourth Plaintiff : Mr B Dharmananda SC & Mr M J Feutrill
Fifth Plaintiff : Mr B Dharmananda SC & Mr M J Feutrill
Defendant : Mr C G Colvin SC & Mr D J Jackson
Solicitors:
First Plaintiff : Herbert Smith Freehills
Second Plaintiff : Herbert Smith Freehills
Third Plaintiff : Herbert Smith Freehills
Fourth Plaintiff : Herbert Smith Freehills
Fifth Plaintiff : Herbert Smith Freehills
Defendant : Clifford Chance
Case(s) referred to in judgment(s):
Aldridge v Johnson (1857) 199 ER 1476
Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [2014] NSWCA 279
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] 4 All ER 677
Colby Corporation Pty Ltd v Commissioner of Taxation (2008) 165 FCR 133
Diamond Shamrock Exploration Co v Hodel (1988) 853 F.2d 1159
Doe d Meyrick v Meyrick (1833) 3 Tyr 916
Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640
Frederick Lawrence Ltd v Freeman, Hardy & Willis Ltd (1959) 1 Ch 731
HL Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd (1957) 1 QB 159
Hollingsworth v Lee (1949) VLR 140
Inland Revenue Commissioners v Gribble [1913] 3 KB 212
Owners of Shin Kobe Maru v Empire Shipping Co Inc [1994] 181 CLR 404
Sahade v BP Australia Pty Ltd [2004] NSWSC 512
Sun World International Inc v Registrar, Plant Breeder's Rights (1998) 87 FCR 405
Tovir Investments Pty Ltd v Waverley Council [2014] NSWCA 379
Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503
Wilkie v Gordin Runoff Ltd (2005) 221 CLR 522
- LE MIERE J:
The dispute
1 The issue in this action is the construction and application of a long term gas sale and purchase agreement made on 4 March 2004 (the Agreement). The plaintiffs, each of which is a major energy corporation, are the participants in the North West Shelf Venture, one of Australia's largest resource projects. The defendant is a State-owned corporation responsible for operating the State's electricity generators on the State's South West Interconnected System. Under the Agreement, a corporate predecessor of the defendant which, together with its corporate predecessors is described as the Buyer, agreed to purchase up to a specified quantity of gas from the plaintiffs who are described as the Sellers. I will sometimes refer to the plaintiffs as the Sellers and the defendant as the Buyer or Synergy which is the defendant's trading name.
2 Clause 4.2(c) of the Agreement provides that the Buyer will each year pay the Sellers for an Annual Minimum Quantity (AMQ) of gas whether or not the Buyer has taken that quantity. The AMQ is the sum of two components. The first component, the Minimum Quantity, is a specified fixed quantity. The second component is 70% of the quantity by which the Buyer's Aggregate Gas Requirements (BAGR) for that year exceeds the Minimum Quantity. BAGR for a period is defined by cl 4.1(a) to mean the total quantity of gas purchased, or gas taken which was previously paid for but not taken, in that period by the Buyer or an Affiliated Company of the Buyer other than certain specified exceptions.
3 During the term of the Agreement, Synergy entered into gas swap agreements with third parties. Broadly speaking, a gas swap or gas-for-gas swap is a transaction where the delivery of gas at one time or location is traded for an equivalent amount of gas delivered at another time or location. A gas swap agreement may or may not involve a fee payable by one party to the other and may or may not specify a price for the gas which is being delivered under the Agreement. One series of swap transactions by Synergy, with counterparty K, has involved the supply of a large quantity of gas to Synergy with a commitment to supply the same quantity of gas to K at a later date. Other swaps involve lesser, but still material, quantities of gas.
4 The dispute between the parties concerns whether gas acquired by Synergy under the gas swap agreements is to be included in BAGR. If it is, then Synergy will be obliged to pay a larger amount under the AMQ provisions of the Agreement than it has in fact paid. The main issue between the parties is whether, on the proper construction of the Agreement, gas taken by Synergy under the gas swap transactions is 'gas purchased' by the Buyer for the purposes of cl 4.1(a) of the Agreement and therefore is to be included in BAGR for the relevant period.
The Gas Swaps
5 Between 1 July 2006 and 30 June 2012 the defendant entered into at least the 24 gas swap transactions with the counterparties described in Part A of confidential annexure A to the re-amended statement of claim. The plaintiffs divide the swap transactions into three categories which are set out in the plaintiffs' confidential document entitled 'Characterisation of gas swap agreements' dated 19 February 2015. I will briefly describe each category.
6 The plaintiff describes the first category as 'swaps with immediate payment'. This category consists of the swap agreements with Parties B and N and two of the swap agreements with Party A (numbers 1 and 3). The first leg of the transactions within this category is where the counterparty delivers gas to Synergy. Title in the gas passes to Synergy on delivery. Synergy pays the counterparty for the gas it has received. The second leg of the transaction is where Synergy delivers an equivalent quantity of gas to the counterparty. What distinguishes this category of swap agreements is that they involve an immediate payment by Synergy for gas acquired from the counterparty.
7 The plaintiff describes the second category of swap agreements as 'swaps with secondary payment'. This category includes the swap agreements with Parties K, F, G, H, L and M and one of the agreements with Party A, (number 2 of 3) and Party I (number 2 of 2). The first leg of the transaction is the counterparty delivering gas to Synergy. Title in the gas passes to Synergy. Synergy does not pay the counterparty for the gas. The second leg is the delivery by Synergy to the counterparty of an equivalent amount of gas. If Synergy does not deliver to the counterparty a quantity of gas equivalent to the gas Synergy acquired from the counterparty then Synergy has an obligation to pay the counterparty for an amount of gas equivalent to the difference between the amount of gas acquired by Synergy and the amount of gas delivered by Synergy to the counterparty. Senior Counsel for the defendant, Mr C Colvin SC, describes such payments as a 'secondary payment'. It is this obligation, or potential obligation, to make a 'secondary payment' which distinguishes this category of swap agreements from the swap agreements which involve no payment by Synergy for the gas acquired by it or the difference between the amount of gas acquired by it.
8 The plaintiffs describe the third category of swap transactions as 'swaps with no payment'. This category consists of the swap agreement with Party D, one of the swap agreements with Party G (number 2) and one of the swap agreements with Party I (number 1). The first leg of the transaction is the counterparty delivering gas to Synergy. Title in the gas passes to Synergy on delivery. Synergy makes no payment for the gas. The second leg is the delivery of gas by Synergy to the counterparty. Synergy is obliged to deliver to the counterparty an equivalent amount of gas to the amount it received. Synergy does not have the option of delivering a lesser quantity and paying the counterparty for the shortfall. The counterparty does not have the option of requiring Synergy to pay for the shortfall amount of gas. If Synergy fails to deliver an equivalent amount of gas to the amount received from the counterparty it is in breach of the Agreement and liable to pay liquidated damages.
9 The Agreement with D has two components. One is a 'swap agreement with no payment' of the sort I have described. The second aspect is that Synergy may obtain additional gas at times of peak usage. Synergy pays D a specified price per gigajoule for gas delivered by D to Synergy during the peak period.
10 The plaintiffs say that 'gas purchased' in cl 4.1(a) of the Agreement means gas acquired for valuable consideration. The plaintiffs say that all of the gas acquired by Synergy under the gas swap agreements is gas acquired for valuable consideration and therefore forms part of the BAGR for the period in which the gas was acquired. The defendant accepts that if 'gas purchased' means gas acquired for valuable consideration then all of the gas acquired by Synergy under the gas swap agreements is part of the BAGR for the period in which the gas was acquired.
11 The defendant says that 'gas purchased' means gas acquired for money or money's worth. The defendant accepts that even if its interpretation of 'gas purchased' is correct then nevertheless gas acquired by Synergy under the swap agreements in Category 1 (swaps with immediate payment) is gas forming part of the BAGR for the period in which the gas was acquired. The defendant also accepts that gas acquired by Synergy under the provision for the supply of 'peak gas' under the swap agreement with D is also 'gas purchased' and therefore forms part of the BAGR for the period in which the gas was acquired. The defendant says that gas acquired by the defendant under the remainder of the swap agreements, that is the swap agreements in Category 2 (swaps with secondary payment) and Category 3 (swaps with no payment), except for the 'peak gas' component of the swap agreement with D, is not 'gas purchased' and therefore is not part of the BAGR for the period in which the gas was acquired or at all.
12 The plaintiffs accept that if 'gas purchased' means gas acquired for money or money's worth then the swap agreements in Category 3 (swaps with no payment), except for the 'peak gas' component of the swap agreement with D, is not 'gas purchased' and does not form part of the BAGR for the period in which the gas was acquired by Synergy or at all. However, the plaintiffs say that even if 'gas purchased' means gas acquired for money or money's worth then nevertheless gas acquired by Synergy under the swap agreements in Category 2 (swaps with secondary payment) is 'gas purchased' and forms part of the BAGR. That is because each of those agreements involves a 'secondary payment' under which Synergy pays for gas acquired.
Separate trial of issues of liability
13 I made orders for the separate trial of issues of liability. The purpose of the orders is to determine all issues of liability and to determine the quantification of the volume of gas swaps between the defendant, Synergy, and K and to defer to a later date the trial of all other issues as to the quantum of the claim of the plaintiffs, the Sellers. These are my reasons for determining the issue of liability. The essential question is whether the acquisition of gas by Synergy under the gas swap transactions is required to be included in the calculation of BAGR and therefore AMQ for a Contract Year for which it is obliged to pay the Sellers, the plaintiffs.
The competing constructions
14 Synergy claims that the reference to 'purchased' in cl 4.1(a) of the Agreement means acquisition of title by payment of money or its equivalent. Acquisition of title to gas usually occurs with delivery or, as usually described, when the gas is taken. Therefore, a purchase involves payment and delivery. Where payment is made in advance, then there is no purchase until the gas has been taken. Where delivery occurs and the parties have agreed that delivery is on the basis that there will be payment of an agreed sum to buy the gas then there is still a purchase because payment has been effected by the seller extending credit in the amount required to be paid. Synergy says that it did not acquire the gas it acquired under the gas swap agreements, except for the 'swaps with immediate payment' by payment of money or its equivalent and therefore did not purchase the gas it acquired under the gas swap agreements (except for the 'swaps with immediate payment').
15 The Sellers claim that the words 'gas purchased' in cl 4.1(a) are not confined to an acquisition of a quantity of gas for money and include an acquisition for other valuable consideration. The Sellers say that acquisition of gas occurs when the gas is taken, that is the Buyer takes delivery of the gas. A purchase occurs whenever gas is taken for valuable consideration. Therefore, the Buyer purchased all of the gas it acquired under the gas swap agreements.
16 Alternatively, the Sellers submit that if a purchase necessarily involves an obligation to pay money then it is sufficient if the payment of money is a secondary obligation, that is an obligation to pay money which arises in the circumstances defined in the agreement. The Sellers say that the Buyer acquired gas under many, but not all, of the gas swap agreements in circumstances where there was a secondary obligation to pay money and in those instances the Buyer purchased the gas it acquired under those gas swap agreements.
Overview of the Agreement
17 The Agreement is titled 'Sale and Purchase Agreement'. The parties are described as the Sellers and the Buyer. The Agreement consists of Recitals, a Contract Overview (which does not qualify any substantive provisions), Part A - Key Commercial Provisions, Part B - General Conditions, Part C - Definitions and Interpretations and four schedules. The Agreement contains provisions which indicate that the Sellers supply gas to buyers other than Synergy: See cl 4.5 and cl 12. Synergy's demand for gas will fluctuate as the electricity market fluctuates and demand for electricity from Synergy fluctuates. Synergy may purchase its gas requirements, above the minimum quantities set out in the Agreement, from suppliers other than the Sellers: see cl 4.2(b) and (c).
18 The recitals establish a number of things. First, each Seller is entitled to receive as its own property and dispose of a share of natural gas produced from specified petroleum titles (the Titles) held by the Sellers or their affiliated companies under specified petroleum production licences. Secondly, the Buyer desires to purchase gas for the Buyer's Facilities, that is all plant, machinery and other equipment downstream of the Dampier to Bunbury Natural Gas Pipeline (DBNGP) outlet points at which the Buyer receives gas from the operator of the DBNGP as may from time to time be necessary to receive from the Sellers and use the quantities of gas to be made available for delivery by each Seller in accordance with the Agreement. Thirdly, the parties have an existing relationship under a contract described as the South West Contract and the parties intend to replace that arrangement as set out in the Agreement. Fourthly, it is the intention of the parties that the Agreement reflects and facilitates a long-term partnership between the Sellers and the Buyer. Recital C says that two things are consistent with that partnership model. First, the Sellers accept that if the Buyer loses market share there is a potential for lower than expected gas sales. Secondly, the Buyer intends to purchase most of its gas requirements from the Sellers (although up to 30% of those requirements above the Minimum Quantity may be purchased from other suppliers) within the terms of the Agreement to the extent feasible.
19 The key commercial provisions govern delivery quantities, price, and delivery. The Agreement is a long term contract. It is to continue until the earlier of the expiry of 20 years or delivery of the Total Contract Quantity under the Agreement. There is a further extension to allow for the Agreement to continue until the end of the Makeup Period which is the period during which makeup gas, which will be referred to later in these reasons, may be taken.
20 Under the sale and purchase clause, cl 1, each Seller agrees to sell and make available for delivery gas to the Buyer and the Buyer agrees to receive and pay for, or pay for if not taken, gas from each Seller in the quantities at the price and in the manner determined under the Agreement. The gas made available for delivery by the Sellers must be derived from natural gas recovered from the Titles except that the Sellers may, but are not obliged to, include as part of the gas made available for delivery gas produced from natural gas recovered from other areas. The gas made available for delivery by the Sellers is to be delivered in a common and commingled stream and each Seller is deemed to have made available for delivery its proportionate share of the gas made available for delivery in a common and commingled stream.
21 The maximum aggregate quantity of gas that the Sellers are required to make available for delivery under the Agreement is the Total Contract Quantity (TCQ). The maximum quantity of gas that the Sellers are required to make available for delivery on any day is a specified quantity described as the Maximum Daily Quantity or MDQ which varies between summer and winter. Clause 9 of the General Conditions in the Agreement contains a complex scheme for nominating the quantities of gas required in the next seven day period. If Synergy's daily nomination exceeds MDQ, each Seller must use reasonable endeavours to make the excess available in accordance with cl 3.3 which describes the excess as Supplemental Maximum Daily Quantity or SMDQ.
22 Clause 4 of the Agreement deals with the amount of gas the Buyer is obliged to take and pay for or pay for without taking in a Contract Year, which is a defined period of 12 months. Clause 4.2(c) provides that the Buyer will pay the Sellers for an AMQ of gas whether or not the Buyer has taken that quantity. Clause 4.2(b) defines AMQ as the sum of the Minimum Quantity and 70% of the quantity by which the BAGR exceeds the Minimum Quantity. The Minimum Quantity is a specified amount.
23 Clause 4.1(a) and (b) define BAGR and quantities of gas which are expressly not included in the calculation of BAGR in a Contract Year. The dispute between the parties concerns the construction and application of the definition of BAGR. Clause 4.1 is:
4.1 Buyer's Aggregate Gas Requirements
(a) The Buyer's Aggregate Gas Requirements (BAGR) for a period means, subject to Clause 19.4(c) (Partial assignment by the Buyer), the total quantity of gas purchased, or gas taken which was previously paid for but not taken, in Western Australia in that period by the Buyer or an Affiliated Company of the Buyer other than, in respect of that period:
…
(b) The calculation of BAGR in a Contract year does not include:
…
25 The Minimum Quantity can be reduced by an 'offset' if the Sellers supply gas to a power producer with the effect of directly reducing Synergy's market share. Clause 4.5 in effect provides that the Minimum Quantity may at the Buyer's election be reduced for a Contract Year if, during that year, a Seller has supplied gas to a non-affiliated power producer and there is a loss in the Buyer's generation load caused by that supply. Such a reduction will only be made where Synergy has not disabled itself from taking the Minimum Quantity.
26 Brief mention should also be made of Shortfall Gas which is defined and dealt with in cl 9.11 of the General Conditions of the Agreement. Shortfall Gas is an amount of gas equal to any gas properly nominated by the Buyer which the Sellers fail to deliver for any reason other than failure by the Buyer to accept delivery or force majeure.
27 The last clause to which I need refer at this time is cl 19.4(c) to which the definition of BAGR is subject. Clause 19 of the General Conditions deals with assignment. Clause 19.2 deals with assignment by the Buyer of the Agreement or its rights in the Agreement and assignment of an interest in a Key Asset which is the Buyer's generating plant used in the calculation of BAGR. Clause 19.4 deals with a partial assignment by the Buyer of its rights and obligations under the Agreement. Clause 19.4(c), to which the definition of BAGR is subject, provides that in a case of a proposed assignment by the Buyer of part of the Key Assets without any assignment of a corresponding part of the Agreement, the Sellers must not withhold or delay their consent to such an assignment where the specified conditions are met. Neither party submitted that cl 19.4(c) affects the issue in this case about the interpretation of BAGR.
Surrounding circumstances
28 Evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. It is common ground that cl 4.1 is relevantly ambiguous and that the court may have regard to the surrounding circumstances in interpreting the contractual provision. In Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 French CJ, Hayne, Crennan and Kiefel JJ said at [35] that appreciation of the commercial purpose or objects to be secured by the contract is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating.
29 Synergy led evidence about the market for gas in Western Australia at the time of making the Agreement. I accept that the following characteristics of that market were known to participants in the market, including the Buyers and the Sellers at the time the Agreement was made. First, gas swaps occur in the gas market. Secondly, Synergy entered into gas swaps. Thirdly, most buyers of large volumes of gas acquire gas under long term take or pay contracts. Fourthly, one of the reasons a gas buyer would enter into gas swaps was to obtain flexibility as to the time or place of delivery that was not available under its long term take or pay contracts. Fifthly, there was little ability for a gas buyer to obtain that flexibility by other means such as spot sales, gas banking or gas storage. Sixthly, Synergy was going to meet most of its gas requirements by paying the Sellers in money to supply gas under the Agreement. Seventhly, the Sellers were in the business of supplying gas in return for money and it was not part of their business to enter into gas swaps with a gas buyer.
Principles of construction
30 In Electricity Generation Corp v Woodside Energy French CJ, Hayne, Crennan & Kiefel JJ [35] reaffirmed the principles that apply to the construction of a commercial contract. First, an objective approach is to be adopted in determining rights and liabilities of parties to a contract. Second, the meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. Third, the court must consider the language used by the parties, the surrounding circumstances known to them and the commercial purpose or object of the contract. Fourth, the commercial purpose or object is informed by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating. Fifth, commercial contracts should be given a business-like interpretation on the assumption that the parties intend to produce a commercial result.
31 In construing a document the whole of an instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must, if possible, be construed so as to render them all harmonious, one with another: Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99, 109 - 110 (Gibbs J). In Wilkie v Gordin Runoff Ltd (2005) 221 CLR 522 Gleeson CJ, McHugh, Gummow & Kirby JJ said of a policy of directors' liability insurance:
In construing the policy, as with other written documents, preference is given to a construction supplying a congruent operation to the various components of the whole [16].
32 The plaintiffs say that the recitals, and in particular recital C supports their construction. Recitals are part of the Agreement. They may play a role, not merely to provide context to the operative part of the contract, but as a direct aid to construction: J W Carter, 'The Construction of Commercial Contracts' [13] - [37] and the cases there cited.
Use of words 'Buyer's Aggregate Gas Requirements' to construe definition
33 One principle of interpretation addressed by counsel is the use that might be made of the defined words to construe the definition. In this case, 'Buyer's Aggregate Gas Requirements' is a defined term. Senior Counsel for the sellers, Mr Dharmananda SC, submitted that the words of the defined expression may help to elucidate ambiguities in the definition. Mr Dharmananda submitted that cl 4.1(a) is directed to a calculation of the total quantity of gas that meets a Buyer's or an affiliate's aggregate gas requirements for a period in Western Australia. That is cl 4.1(a) is focused on defining the total quantity of gas required by the Buyer or an affiliate in a period in Western Australia.
34 The authors of 'The Interpretation of Contracts in Australia', Sir Kim Lewison and David Hughes, say that when the construction of a defined term is at issue, the label used will itself be a highly relevant contextual factor. The authors refer to Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] 4 All ER 677 where the parties agreed on a definition of a 'Minimum Guaranteed Residential Unit Value', which was defined according to a formula. Lord Hoffmann held that the label assigned to the formula was relevant to the interpretation of the formula. He said:
The contract does not use algebraic symbols. It uses labels. The words used as labels are seldom arbitrary. They are usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition. In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parts of the agreement [17].
- Lord Walker agreed at [94] that it was legitimate to 'give weight to the natural meaning of words in a definition'.
35 In Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 the High Court considered Property Law Act 1974 (Q) s 71(2)(b) which defined the expression 'instalment contract' to mean 'an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than the deposit) without becoming entitled to receive a conveyance in exchange therefore'. If the words of s 71(2)(b) were given their ordinary meaning then the contract in question in that case was an 'instalment contract', because it was a contract under which the purchaser was bound to make a payment other than a deposit, namely a payment of interest, without becoming entitled to receive a conveyance in exchange therefore. The vendor argued that the word 'instalment' in the defined term 'instalment contract' colours the meaning to be given to the definition. The High Court rejected that argument. The court considered that the meaning of the definition was not ambiguous and it was not permissible to use the defined term to depart from the ordinary meaning of the words of the definition. Gibbs J said:
It is impermissible to construe a definition by reference to the term 'defined'. The expression is given by the statute a special meaning which must be applied whether or not it accords with the ordinary meaning (507).
36 In Owners of Shin Kobe Maru v Empire Shipping Co Inc [1994] 181 CLR 404 the High Court cautioned against the use of defined words to construe the meaning of a definition. The court said:
The Act's description of a claim falling within s 4(2) as a 'proprietary maritime claim' is of no assistance in construing the expression 'a claim … relating to … ownership'. The use of the word 'proprietary' in the term to be defined does not colour the meaning to be given to the definition which follows it. It would be quite circular to construe the words of a definition by reference to the term defined [419].
37 In Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [2014] NSWCA 279 Leeming JA, with whom Beazley P and Tobias AJA agreed, stated that he was conscious of the criticism expressed, in the context of a statutory definition, in Shin Kobe Maru, against using the defined words to construe the definition but respectfully doubted that that can be universally true. The matter was recently addressed by Basten JA, with whom Macfarlan and Leeming JJA agreed, in Tovir Investments Pty Ltd v Waverley Council [2014] NSWCA 379. Basten JA said:
There are circumstances in which it is impermissible to use the defined term in giving meaning to a definition: Wacal Developments Pty Ltd v Realty Developments Pty Ltd [1978] HAC 30, 140 CLR 503 at 507 (Gibbs J) and Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc [1994] HAC 54; 181 CLR 404 at 419 (the Court). However, in each of those cases the Court rejected use of an adjective in the defined term to read down a definition which otherwise widened the ordinary meaning (in Wacal) or the meaning which would derive from existing practice and principle (in 'Shin Kobe Maru'). It seems unlikely that the approach eschewed in those cases was intended to be universally rejected: Barangaroo Delivery Authority v Lend Lease (Millers Point) Pty Ltd [2014] NSWCA 279 at [11] (Leeming JA, Beazley P and Tobias AJA agreeing). As explained by Lord Hoffmann, dealing with the word 'successor' in tenancy legislation, '[a]lthough successor is a defined expression, the ordinary meaning of the word is part of the material which can be used to construe the definition': Birmingham City Council v Walker [2007] 2 AC 262 at [11]. A similar approach has been adopted in construing contractual provisions: Hardy Wine Company Ltd v Janevruss Pty Ltd [2006] VSCA 28 at [5] (Callaway JA, Eames and Ashley JJA agreeing); Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [17] (Lord Hoffmann); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2014] NSWCA 323 at [47] (Macfarlan JA), [103] (Meagher JA); Barangaroo at [10] - [12].
The present case involves a definition neither giving an expression a 'special meaning' (in the language of Wacal) nor limiting what might otherwise constitute an expansive definition. Indeed, the Waverley LEP lacks the degree of precision and formality one expects in a statute. In such circumstances, reliance may be appropriately be placed on the term being defined. As will be seen shortly, there was a volume of material in the present case which suggested that the premises in question were intended for use by travellers of a kind commonly described as backpackers [20] - [21].
38 Where a term is defined by the contract, the court must construe the contract by reading the words of the definition into the operative text of the contract. A court may not use the words of a defined term to contradict the definition of the defined term. Nor should the court use the defined term to cut down or expand the meaning of the definition unless the context and purpose of the contract taken as a whole requires that course. Nevertheless, in an appropriate case the court may have regard to the defined term in giving meaning to a definition.
39 The definition of Buyer's Aggregate Gas Requirements does not give the expression a 'special meaning' or contradict the ordinary and natural meaning of the definition; nor does it limit what might otherwise constitute an expansive definition. The definition, in the context of the Agreement, is capable of more than one meaning. In those circumstances, the defined term might properly be used to ascertain the meaning of the definition. As I will explain, the word 'Requirements' in the defined term 'Buyer's Aggregate Gas Requirements' supports the plaintiff's construction.
Meaning of 'purchased'
40 The issue in this case concerns the interpretation of BAGR and in particular what is included within 'gas purchased' in the definition of BAGR which is 'the total quantity of gas purchased, or gas taken which was previously paid for but not taken, in Western Australia in that period by the Buyer …'. Counsel referred to a number of authorities on the meaning of the word 'purchase'. The precise meaning of a word depends on its context. In use, the meaning of a word is defined by its context but words also have a range of meanings made up of possible contexts in which they are usually found. The cases referred to by counsel addressed the meaning of 'purchase' in contexts different from the use of 'purchase' in the Agreement and therefore do not establish the precise meaning of 'purchase' in the Agreement. Nevertheless, the authorities, like dictionary definitions, are useful in identifying the range of possible meanings of 'purchase'.
41 The first meaning of 'to purchase' in the online Macquarie Dictionary is 'to acquire by the payment of money or its equivalent'. The second meaning given is 'to acquire by effort, sacrifice, flattery etc'. The meaning at law is said to be 'to acquire, as an estate in lands, otherwise than by inheritance'.
42 In Inland Revenue Commissioners v Gribble [1913] 3 KB 212 the Court of Appeal of England and Wales considered whether persons claiming under a marriage settlement could be said to have purchased the reversion of a lease for the purposes of s 14 of the Finance Act 1910 (UK) which exempted from reversion duty a reversion to a lease purchased before a specified date. The majority held that the word 'purchase' was used in the ordinary commercial sense of 'buy' and that persons claiming under a marriage settlement did not purchase the reversion within the meaning of the section. Cozens-Hardy MR referred to the case of an exchange. The Master of the Rolls did not decide whether an exchange was a purchase within the meaning of the section but said that the inclination of his opinion is that exchange is not a purchase within the subsection. Kennedy LJ also said that he would leave the question of whether purchase includes cases of barter until the question arose, but added:
But if a man tells me in ordinary life 'I have just purchased a house', I certainly do not suppose he has been exchanging another house for it.
- Buckley LJ, in dissent, said that the word 'purchase' may mean one of four things:
'Purchaser' may, as it seems to me, mean any one of four things. First, it may bear what has been called the vulgar or commercial meaning; purchaser may mean a buyer for money. Secondly, it may include also a person who becomes a purchaser for money's worth, which would include the case of an exchange. Thirdly, it may mean a purchaser for valuable consideration, which need not be money or money's worth, but may be, say, a covenant, or the consideration of marriage. Fourthly, it may bear that which in the language of real property lawyers is its technical meaning, namely, a person who does not take by descent.
Buckley LJ considered that the word 'purchaser' in the section was not confined to 'purchaser for money' and extended it to 'purchaser for value'.
43 In Hollingsworth v Lee (1949) VLR 140 Barry J considered the meaning of the phrase 'by purchase' in reg 60A of the National Security (Landlord and Tenant) Regulations which provides that 'a person who becomes the lessor of prescribed premises … by purchase … shall not within a period of six months after the date of the agreement for purchase, give a notice to quit'. Barry J said that the phrase 'by purchase' has its popular meaning and envisages a person acquiring a dwelling house by way of bargain and sale for money or other valuable consideration.
44 In Frederick Lawrence Ltd v Freeman, Hardy & Willis Ltd (1959) 1 Ch 731, the England and Wales Court of Appeal considered whether a landlord had 'purchased' its interest in premises for the purposes of the Landlord and Tenant Act 1954 (UK). The premises had been assigned to the landlord. No consideration was expressed in the transfer but it contained a declaration that covenants to pay rent and observe the covenants of the lease and to indemnify the assignor were incorporated in the assignment. The court held that 'purchased' in the statutory provision meant 'bought for money' and did not include the acquisition of property in consideration of giving a covenant. In delivering the judgment of the court Romer LJ said:
If this question were res integra there would, we think, be much to be said - particularly having regard to the dictionary definition of the word 'purchase' to an example of which we later refer - for the view that the word 'purchase' in the section under review should not be confined to a transaction of buying for money or (strictly) money's worth.
- His Lordship said that 'the limited construction of the word appears to involve serious anomalies' in the statutory context. However, the Court held that the meaning of the word 'purchase' of 'buying for money' in HL Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd (1957) 1 QB 159 was binding on the court.
45 In Sahade v BP Australia Pty Ltd [2004] NSWSC 512 there was an issue whether an agreement which conferred on BP a right of first refusal to purchase the premises entitled BP to require Cantoni to grant it an option to purchase the premises on the same terms as an option deed Cantoni had entered into with Parkview. Parkview drew a distinction between an intention to purchase property and an intention to acquire an option to purchase property. At [31] Campbell J said that the word 'purchase' has a range of meanings. At [32] Campbell J referred to authorities where 'purchase' has been applied to different transactions. In Doe d Meyrick v Meyrick (1833) 3 Tyr 916 the testator, being possessed of certain estates which were his old family estates and also having purchased several estates for money considerations and exchanged several parts of the family estates for other lands devised all his lands and real estates 'which I have hereto for from time to time purchased from different persons' to his sisters. The question was whether the lands which the testator had obtained by exchange passed under this devise to his sisters. The Court of Exchequer held that they did. Lord Lyndhurst CB said:
[The lands] were purchased, not indeed with money, but with other lands which were given for them; and we are bound to give the word its usual interpretation, unless there is some circumstance to show, and to show clearly, that the testator intended to use it in a different sense. No such circumstance appears in the Will, or was suggested at the Bar; and we are of opinion, therefore, that the land in question passed by the devise.
46 In Colby Corporation Pty Ltd v Commissioner of Taxation (2008) 165 FCR 133 a drilling contractor had consumed diesel fuel using its own machines in carrying out drilling operations for a mining company. The mining company supplied the fuel to the contractor under a contract and for the purpose of carrying out the contracted activities. No separate charge was made by the mining company for the fuel. However, some contracts provided for alternative payment rates for the work done by the contractor depending on whether the mining company supplied the fuel or the contractor supplied its own fuel - although the mining company supplied the fuel in this instance. The drilling contractor argued that it had 'purchased' the fuel for the purposes of s 53 of the Energy Grants (Credits) Scheme Act 2003 (Cth). The contractor argued that it acquired property in the fuel and it had provided consideration for the fuel by agreeing to accept a lower contract rate for its work than it would have accepted had it supplied its own fuel. The Administrative Appeals Tribunal found that the contractor did not acquire a proprietary interest in the fuel and moreover even if it had acquired a proprietary interest in the fuel it had not purchased the fuel. On appeal to the Full Federal Court the contractor argued that it had acquired the fuel by purchase. Branson and Stone JJ said:
Section 53(1) of the Energy Grants Act uses the transitive verb 'purchase' in its ordinary, everyday sense as meaning 'to acquire by the payment of money or its equivalent': The Macquarie Dictionary 2nd reved 1987. By using 'purchase', s 53(1) distinguishes the acquisition of the off-road diesel fuel to which it applies from acquisition by, for instance, gift or theft. The requirement for 'money or its equivalent' is one necessary element of a purchase. The other stems from the concept of acquisition. … In the circumstances, therefore, to establish that it 'purchased' the fuel, the [contractor] had to show: (a) pursuant to the mutual intention of the parties expressed or implied in the contracts it acquired property in the fuel (the intention requirement); and (b) that it did so by the payment of money or its equivalent or, put another way, that it gave consideration for the fuel (the payment requirement).
In relation to the payment requirement, the fact that the parties agreed that the fuel had been supplied pursuant to the contracts satisfies that requirement [25] - [26].
47 The correlative of purchase or buy, sell, has received different interpretations according to its context. In Sun World International Inc v Registrar, Plant Breeder's Rights(1998) 87 FCR 405 the issue was whether a transaction involving the transfer to various persons of plant and reproductive material of a variety of grape vine in which restrictions were placed on the use to which the plant and reproductive material could be put were sales for the purposes of the Plant Variety Rights Act 1987 (Cth). Burchett J said:
Under the common law, the primary meaning of the word 'sale' refers to a transfer of the property and goods from a seller to a buyer for a consideration in money called the price … [406].
- His Honour found, however, that in the context of the particular legislation that was not the meaning of the word 'sale'. The common law to which Burchett J referred is, or is strongly influenced by, the common law concerning the sale of goods.
48 The question of whether a transaction is a sale has commonly arisen under sale of goods legislation. To constitute a sale under the Sale of Goods Act 1893 (UK) and legislation modelled on that Act, it is necessary that the consideration for the transfer of the property in the goods should be in money. Where goods are supplied or promised in exchange for goods, the transaction is a barter or exchange. A transaction is a true barter only when the goods of the one party are specifically traded or promised for the goods of the other. The authors of Benjamin's Sale of Goods (8th ed) say at [1-037] that it is possible to distinguish certain other situations where an element of price is discernible, so that they may be treated as sales. The authors say that there is nothing to prevent parties from expressly agreeing that what might have been a barter shall take the form of reciprocal sales, with a mutual set-off of prices and, if necessary, a cash adjustment. In Aldridge v Johnson (1857) 199 ER 1476 it was agreed that 32 bullocks valued at £192 should be transferred by Aldridge to Knights and that 100 quarters of barley valued at £215 should be transferred by Knights to Aldridge, the difference of £23 to be paid in cash. The authors say that an agreement such as that is quite capable of being constituted as reciprocal sales, which is what the court appears to have done in Aldridge v Johnson. The authors add that had the deal been that 100 quarters of barley be traded for 32 bullocks, or for 32 bullocks plus a sum of money, without any valuation of the consideration on either side, it could only be regarded as a barter. The authors further say that it is possible to treat a transaction as a sale where the buyer has the option of delivering goods, or the seller the option of taking goods in lieu of the payment of an agreed money price and the option is not exercised.
49 The authors of the Cheshire & Fifoot's Law of Contract (10th Aust ed) at [16.77] discuss s 17 of the Statute of Frauds which applies to a contract for the sale of any goods of the value of $20 or upwards. At [16.78] the authors observe that the section does not include contracts of exchange. At [16.79] the authors say that considerable difficulty has been experienced in isolating contracts for the sale of goods from other similar transactions such as barter. The authors say that the test is whether the price can be distinguished from the goods. If one party offers goods in return for other goods, no such differentiation is possible and the contract is one of exchange or barter. But if one party offers goods in return for goods and money, the goods and money together constitute the price, and the contract is one of sale. Only if the matter transferred on either side consists of goods, and nothing but goods, is the transaction properly described as exchange. The authors cite Aldridge v Johnson in support of that proposition.
50 In my view, a number of things may be said about the word 'purchased'. First, it is capable of a range of meanings including acquired for money or money's worth on the one hand and acquired for valuable consideration on the other hand. Secondly, the more common meaning in commerce is to acquire for money or money's worth. Thirdly, where the goods of one party are transferred or promised for the goods of the other, and nothing but goods, the transaction is commonly described as an exchange or barter. Fourthly, a transaction that involves the transfer of goods on either side is commonly described as a sale and purchase if an element of price is discernible. Fifthly, the meaning of 'purchased' in a contract is to be ascertained from its context, having regard to the whole of the contract, the surrounding circumstances known to the parties and the commercial purpose or object of the contract.
The meaning of 'gas purchased' in the definition of BAGR
51 The meaning of 'gas purchased' in cl 4.1(a) of the Agreement is gas purchased for valuable consideration. That meaning is consistent with the ordinary meaning of 'gas purchased' and is defined by the context of cl 4.1(a) including the key commercial provisions of the Agreement and the commercial objects of the Agreement. A reasonable reader of the Agreement knowing the circumstances known to the parties and having regard to the whole of the Agreement would understand the expression 'gas purchased' to include gas acquired by Synergy for valuable consideration. The circumstances known to the parties include that all of the gas acquired by Synergy is acquired for valuable consideration. Synergy is not a gas producer. It does not acquire gas by gift, theft, or inheritance or by any means other than acquiring it for valuable consideration.
52 The obligation of the Buyer under cl 4.2 is to pay the Sellers for an AMQ of gas each year whether or not the Buyer has taken that quantity of gas. This is a key commercial provision of the Agreement. The obligation is a two tier obligation. The first tier is an obligation to take and pay for, or pay for if not taken, a specified fixed amount - the Minimum Quantity or MQ. The second tier is an obligation to take and pay for, or pay for if not taken, 70% of the quantity by which BAGR for that year exceeds MQ, which I will refer to as the Additional Amount. This take or pay obligation provides the Sellers with an assured income stream. The purpose of take or pay clauses is to apportion the risks of gas production and sales between the buyer and the seller. The seller bears the risk of production. To compensate the seller for that risk, the buyer agrees to take or pay for if not taken, a minimum quantity of gas. The buyer bears the risk of market demand. The take or pay clause ensures that if the demand for gas does down, the seller will still receive the price for the contract quantity delivered each year: Diamond Shamrock Exploration Co v Hodel (1988) 853 F.2d 1159, [32] - [33].
53 The second tier of the obligation on the Buyer under cl 4.2 is that the Buyer must take and pay for or pay for if not taken all or some proportion of its gas demand or requirements in excess of the Minimum Quantity. The object or purpose of such a clause is to ensure that the seller obtains further sales, and hence income stream, if the buyer's demand for gas increases whilst not obliging the buyer to purchase gas in excess of the minimum quantity if its demand or requirement for gas does not exceed the minimum quantity. The obligation of the Buyer to take and pay for, or pay for if not taken, 70% of the Additional Amount ensures that the Sellers benefit if the Buyer's demand or requirement for gas exceeds the Minimum Quantity whilst at the same time giving the Buyer the ability to obtain 30% of that Additional Amount from other sources if it can do so on more favourable terms.
54 The concept of BAGR is tied to the Buyer's demand or requirement for gas. That is reflected in recital C which says that the Buyer intends to purchase most of its gas requirements from the Sellers although up to 30% of those requirements above the Minimum Quantity may be purchased from other suppliers. It is reflected in the offset provisions of cl 4.5, the exclusions from BAGR in cl 4.1(a) and cl 4.1(b), in the worked examples set out in sch 4 to the Agreement, and the reference in cl 4.1(d) to 'gas suppliers'. The use of the word 'Requirements' in the defined term 'Buyer's Aggregate Gas Requirements' also reflects that the defined term refers to the Buyer's demand for or requirements for gas in the relevant year. I will explain those conclusions later in these reasons.
55 BAGR is tied to the Buyer's demand or requirements for gas, that is the gas acquired by the Buyer for valuable consideration. It is not consistent with the key commercial provisions of the Agreement and the commercial objects of the Agreement apparent from those provisions and the recitals to oblige the Buyer to acquire 70% of only that part of the Additional Amount purchased for money or money's equivalent and to leave the Buyer free to acquire all of its demand or requirements for gas in excess of the Minimum Quantity if it is able to do so by acquiring the gas other than by payment in money or money's equivalent.
Recital C shows Agreement concerned with Buyer's requirements
56 The Agreement is for a long term partnership between the Sellers and the Buyer. The Sellers are to provide gas to the Buyer from the specified petroleum titles held by the Sellers or their affiliated companies. Recital C provides that the Sellers and the Buyer intend that the Agreement 'reflects and facilitates a long term partnership between the Sellers and the Buyer'. Paragraphs (a) and (b) of recital C disclose the nature of that partnership. The Buyer intends to purchase most of its gas requirements from the Sellers. The recital connects 'gas purchased' with 'gas requirements'. The acknowledgement that the Buyer intends to purchase most of its gas requirements from the Sellers shows that the parties objectively intended that a gas requirement will be met by a 'purchase'. There is no reason to read down that statement of intention to an intention that the Buyer intends to purchase most of the gas which it purchases for money from the Sellers. The natural meaning of the recital is that the parties intend that the Buyer should purchase most of its gas requirements or demand from the Sellers. First, the Sellers require an assured income stream from the Buyer's obligations under the Agreement. That is reflected in the take and pay or pay if not taken nature of the Buyer's obligations under the Agreement. An arrangement that limits the gas which the Buyer is obliged to acquire from the Sellers to a subset of the Buyer's requirements or demand for gas, that is gas purchased for money, is not consistent with that object. Secondly, paragraph (a) of the recital refers to the potential for lower than expected gas sales if the Buyer loses market share. The recital is focused upon the Buyer's requirements or demand for gas which will be affected by its market share. The Sellers are to benefit from an increase in the Buyer's demand or requirements for gas.
Offsets provision (cl 4.5) shows Agreement concerned with Buyer's requirements
57 The Buyer's obligation to take and pay for or pay for if not taken gas is reduced if it loses market share. That is provided for by the 'offsets' provision (cl 4.5) which will reduce the Minimum Quantity if the Sellers provide gas to a competitor of the Buyer.
58 Clause 4.5 provides in effect that the Minimum Quantity may at the Buyer's election be reduced for a Contract Year if during that year a Seller has supplied gas to a non-affiliated power producer and there is a loss in the Buyer's generation load caused by that supply. That is, the Minimum Quantity is able to be reduced if the Buyer does not need as much gas as initially agreed as the minimum by reason of a non-affiliated power producer, that is a competitor, needing and obtaining such gas from a Seller. The Buyer is required to take or pay for the AMQ only if there was no competing power producer that was supplied by one or more Sellers. In that event the Buyer is able to reduce the Minimum Quantity and, in that way, the AMQ. The Buyer is required to take or pay for the AMQ only if this is feasible for the Buyer in a competitive market. Clause 4.5 is directed to the quantities of gas to be acquired by the Buyer. If its needs reduce by reason of competition and supply by a Seller to a competitor, the Buyer may reduce the Minimum Quantity. The focus on quantities required or to be acquired by the Buyer shows that 'gas purchased' in cl 4.1(a) is concerned with the Buyer's requirements or demand for gas, the gas that is to be acquired by the Buyer, whether for money or for other valuation consideration.
Exclusions from BAGR
59 The exclusions from BAGR in cl 4.1(a) and cl 4.1(b) show that BAGR is concerned with the Buyer's requirements or demand for gas. I will now refer to those exclusions.
Clause 4.1(a)(i) - (iv) (exclusions from BAGR)
60 Clause 4.1(a) excludes from the calculation of BAGR specific quantities of identified gas. Those exclusions support the interpretation that BAGR is concerned with the Buyer's requirements or demand for or use of gas and is not confined to gas acquired by the payment of money or money's equivalent. Clause 4.1(a)(ii) excludes the Mid-west Gas Load, that is gas supplied into the Mid-west pipeline for electricity generation in associated mineral processing facilities to the extent that the gas supplied does not exceed a specified quantity per annum. Clause 4.1(a)(iii) refers to the first specified quantity of gas per annum provided by the Buyer for the Peaking Plant, that is the power generation facility constructed by Transfield Services Ltd at Kemerton, the ordinary operation of which is to generate electricity into the South West Interconnected System to provide for that portion of the load that is at or near the peak (or maximum) load on that system in any 24 hour period. Clause 4.1(a)(iv) is gas used in any Additional Generation Facility, that is any power station or facility constructed after the date of the Agreement other than the Peaking Plant, to the extent that the Buyer has established in accordance with cl 3.5 that the gas requirements of such Additional Generation Facility are not reasonably capable of being supplied in whole or part pursuant to the terms of the Agreement. Those quantities of gas are described in terms of their use, not the type of consideration for which they were or had been acquired.
Clause 4.1(b) - exclusions from BAGR
61 The specific exclusions from BAGR in cl 4.1(b) indicate that 'the total quantity of gas purchased, or gas taken which was previously paid for but not taken' (BAGR) includes gas acquired for valuable consideration and not only gas acquired for money or its equivalent. Clause 4.1(b) provides that specified quantities of gas or gas used or gas purchased are not included within BAGR. It is convenient to consider the exclusions in the sub-paragraphs of cl 4.1(b) separately.
Clause 4.1(b)(i) - gas already included in BAGR from previous Contract Year
62 By cl 4.1(b)(i) the calculation of BAGR in a Contract Year does not include any quantities of gas already included in BAGR for a previous Contract Year including gas recovered from underground gas storage which was included in BAGR for a previous Contract Year. The apparent purpose of cl 4.1(b)(i) is to exclude from the calculation of BAGR any quantities included in previous periods. That is, the focus is on when gas was acquired by the Buyer to determine the extent of its take or pay obligation if it acquired gas from third parties to a greater extent than agreed. The parenthetical clause in cl 4.1(b)(i) ('including gas recovered from underground gas storage which was included in BAGR for a previous Contract Year') indicates that there was a use or acquisition of gas by the Buyer within the meaning of 'gas purchased' if the Buyer acquires gas for storage - when first acquired for storage it is to be counted within BAGR.
Clause 4.1(b)(iii)
63 Clause 4.1(b)(iii) assumes that 'gas purchased' includes gas taken under a gas swap transaction. By cl 4.1(b)(iii) the calculation of BAGR in a Contract Year does not include gas purchased by the Buyer solely for the purpose of completing a gas swap transaction where the other transaction constituting the gas swap has already been included in BAGR. That is, if gas is purchased by the Buyer in a relevant period to complete a gas swap transaction, the quantity of gas so purchased is not to be included in the calculation of BAGR if the acquisition of gas by the Buyer under the first leg of the gas swap transaction has already been included in BAGR. The fact that cl 4.1(b)(iii) operates on the footing that quantities of gas acquired by the Buyer under the first leg of the gas swap transaction could be included in the calculation of BAGR indicates that, viewed as a whole, the parties objectively intended that 'gas purchased' includes gas acquired under a gas swap. Gas acquired under a gas swap is acquired for valuable consideration. Thus, the objective intention is that if gas is acquired by the Buyer under a gas swap transaction, the quantity of gas acquired would be included in the calculation of BAGR in the period in which the acquisition occurred. The objective intention was that if gas was then obtained by the Buyer to meet its obligation to supply gas to the counterparty, the quantity of gas obtained by the Buyer would not need to be included in the calculation of BAGR. The exception in cl 4.1(b)(iii) is directed to avoid a 'double counting' of quantities of gas acquired by the Buyer in a relevant period or an earlier period.
64 The defendant says that on the plaintiffs' case there could never be a case where the other transaction was not included in BAGR. Therefore, the qualifying words are redundant. The defendant says the better view is that they reflect a view that there will be instances where gas will be purchased to complete a swap where the first leg has not been counted in BAGR. This will only be the case where there is no payment involved in the swap. The defendant says that this argument is supported by the language used in the worked example to which I will refer in more detail later in these reasons. The notes to the adjustment for the exclusion for gas swaps state 'excluded from BAGR if previously purchased and included in BAGR'. The defendant says that the conditional way in which the note is expressed is consistent only with its case. Not all swaps are excluded. Swaps are only excluded if previously purchased and included in BAGR.
65 The plaintiffs submit that the words in cl 4.1(b)(iii) are words of description; they do not indicate that only particular gas swaps are included within the words 'gas purchased'. The plaintiffs say that if the parties had been concerned to differentiate between types of swap transactions with some to be counted in BAGR and some to be excluded the parties would have differentiated between swaps to be included and those not to be. The plaintiffs say that the parties did not differentiate between swaps to be included in BAGR and those not to be but explicitly agreed or assumed that quantities of gas acquired under swaps would be counted. The plaintiffs say that the parties were focused on avoiding double counting and that is the point of cl 4.1(b)(iii) and tells against the defendant's argument.
66 The qualifying words in the exception in cl 4.1(b)(iii) do not discriminate between types of gas swap transactions. That is, the exception in cl 4.1(b)(iii) operates on the basis that an acquisition of gas under the first leg of any gas swap transaction would be included in the calculation of BAGR. This is consistent with the whole of cl 4. The qualifying words in the exception in cl 4.1(b)(iii) give content and meaning to the exception. It applies if an acquisition of gas under the first leg of a gas swap transaction has been, in the ordinary course, included in the calculation of the Buyer's total gas requirements in a relevant period. The plaintiffs' interpretation of BAGR is harmonious with cl 4.1(b)(iii).
Clause 4.1(b)(vii) - gas purchased before 1 January 2013 and held within underground storage
67 By cl 4.1(b)(vii) the calculation of BAGR in a Contract Year does not include gas purchased by the Buyer before 1 January 2003 and held in underground storage as at 1 January 2003 (such amount being less than a specified quantity). The plaintiffs say that this exception makes plain that gas taken from storage and used by the Buyer in a relevant period (including from 1 January 2003) cannot be included in the calculation of BAGR if that gas came from what was held in underground storage as at 1 January 2003 (up to the specified quantity). The plaintiffs say that there would be no need for this exception if 'gas purchased' or the additional words in cl 4.1(a) had the confined meaning advanced by the defendant. Clause 4.1(b)(vii) indicates that cl 4.1(a) is directed at identifying the total quantities of gas used or taken by the Buyer in a relevant period. Furthermore, the exceptions in cl 4.1(b)(i) and cl 4.1(b)(vii) both provide that gas obtained from storage is not to be counted in the calculation of BAGR if the gas was previously included in BAGR or purchased before 1 January 2003. On the recovery of the gas from storage, there would be a transaction - 'gas purchased' - as between the Buyer and the entity involved in storing the gas. The evident purpose of the exceptions is to exclude such gas purchases. The plaintiffs' interpretation of BAGR is harmonious with cl 4.1(b)(vii) as it is with cl 4.1(b)(iii).
Worked examples
68 The worked examples of calculating BAGR and AMQ in sch 4 to the Agreement show that 'swap gas' is to be included in BAGR. Clause 4.2 defines AMQ and how it is to be calculated. Clause 4.2(c) provides that the Buyer will pay the Sellers for the AMQ of gas whether or not the Buyer has taken that quantity. The Buyer must pay for the quantity of gas equal to the shortfall between the quantity taken and the AMQ. Clause 4.2(c) has four sub-paragraphs which set out the manner in which the Buyer must pay for the shortfall. Clause 4.2 concludes with the statement that worked examples of the calculation of AMQ and the operation of the various matters dealt with in cl 4 are set out in sch 4. The clause states that the examples are for illustrative purposes only.
69 The worked examples in sch 4 calculate BAGR by first calculating the 'total gas purchased and taken or prepaid gas used by Buyer' in the period and then deducting from that amount specified exclusions. The note in relation to 'total gas purchased and taken or prepaid gas used by Buyer' is 'purchased and taken, or used from all suppliers including recovered makeup gas'. The worked example starts by calculating all the gas used by the Buyer in the period and then making certain deductions, some of which have the function of avoiding double counting. One exclusion is for 'swap gas'. The plaintiffs say that this shows that gas acquired by the Buyer under a gas swap transaction is included in the calculation of BAGR and then when the Buyer acquires gas from the Sellers to fulfil the second leg of the swap transaction it is excluded from BAGR so as to avoid double counting.
70 The plaintiffs also draw attention to the note to 'swap gas' which is 'excluded from BAGR if previously purchased and included in BAGR'. The plaintiffs make two points. First, it is consistent with the plaintiffs' contention that swap gas is included in the calculation of BAGR when the gas is acquired by the Buyer from a third party and then when the Buyer acquires the gas from the Sellers to fulfil the second leg of the swap transaction, that gas is excluded from BAGR so as to avoid double counting. Secondly, the words 'if previously purchased and included in BAGR' in reference to swap gas shows that the parties intended that swap gas is considered to be gas 'purchased'.
71 The defendant says that the note 'excluded from BAGR if previously purchased and included in BAGR' in relation to 'swap gas' supports its construction. Senior Counsel for the defendant, Mr Colvin, says that the word 'if' shows that the parties intended that 'swap gas' would sometimes, but not always, be excluded from BAGR. It would be excluded if the swap gas had previously been 'purchased'. That is, the parties intended that gas swaps sometimes can involve a purchase and sometimes they do not; it is not enough for gas to have been acquired under a gas swap that it amounts to the purchase of gas. In my opinion the words chosen by the draftsman are a convenient means of expression and are not intended to convey that a particular class of gas swaps are not to be excluded. All gas swaps involve valuable consideration. The defendant's case is that gas swaps do not involve Synergy acquiring gas for money. The word 'if' in the note provides no basis for distinguishing gas swaps where gas is acquired for money or money's worth from those which do not. It is inconsistent with the object and purpose of the Agreement to make such a distinction.
Defined term shows Agreement concerned with Buyer's requirements
72 The plaintiffs argue that cl 4.1(a) is directed to a calculation of the total quantity of gas that meets the Buyer's gas requirements for a period in Western Australia. That is, cl 4.1(a) is focused on defining the total quantity of gas required by the Buyer in a period in Western Australia. The plaintiffs say that the word 'Requirements' in the defined term Buyer's Aggregate Gas Requirements was not accidental. It informs the meaning of the defined term. The plaintiffs submit, and I agree, that the use of the words 'Gas Requirements' in the defined term 'Buyer's Aggregate Gas Requirements' indicates that BAGR is directed to the Buyer's requirements or demand for gas in a Contract Year, it is directed to all the gas acquired by the Buyer for valuable consideration, not a subset of gas acquired - gas acquired for money or money's worth.
Reference in cl 4.1(d) to 'gas suppliers'
73 The terms of cl 4.1(d) show that the calculation of BAGR is intended to take into account all gas acquired by the Buyer for valuable consideration, not only gas acquired for the payment of money.
74 Before setting out cl 4.1(d) it is necessary to refer to cl 4.1(c). Clause 4.1(c) provides that after the end of each Quarter, the Buyer will for information purposes only provide the Sellers with the Buyer's best estimate of BAGR for that Quarter and within ten working days after the end of each Contract Year, the Buyer must provide the Sellers with a detailed statement of BAGR for that Contract Year. Clause 4.1(d) provides that the Sellers may request that the Buyer provide reasonable supporting evidence of BAGR specified in the notice pursuant to par (c). The Buyer is not obliged to provide the Sellers with information regarding the identity of the Buyer's other gas suppliers and the terms of those gas supply contracts.
75 The plaintiffs say that cl 4.1(d) refers to the Buyer's other gas suppliers and the terms of their gas supply contracts. A gas swap transaction involves a supply of gas pursuant to a contract by a supplier and is thus a gas supply contract. The plaintiffs say that when cl 4.1(a) and cl 4.1(d) are considered together 'gas purchased' includes a supply of gas under a gas swap transaction.
76 Senior Counsel for the defendant, Mr Colvin, submitted that the words 'gas suppliers' are equally apposite to describe a person who has been paid for gas or a person who has provided gas where there has been valuable consideration provided. The description 'gas suppliers' does not say anything about how the BAGR provision is to be construed.
77 The reference to the Buyer's other gas suppliers and the terms of their gas supply contracts supports the plaintiffs' construction. The ordinary meaning of 'gas suppliers' includes persons who supply gas by way of gas swap and gas supply contracts would ordinarily include contracts under which gas is supplied for valuable consideration, whether for a consideration of money or other valuable consideration.
Other terms of the Agreement
78 For the reasons stated, the context and objects of the key commercial provisions of the Agreement lead to the conclusion that 'gas purchased' in the definition of BAGR includes not only gas acquired for money or monies worth but also gas acquired for other valuable consideration. The plaintiffs submitted that the terms of cl 4.2(b) and cl 4.2(c), and in particular the word 'taken' in cl 4.2(c) referring to the payment obligation of the Buyer for AMQ 'whether or not the Buyer has taken that quantity' from the Sellers also support their construction. I do not find that the use of the word 'taken' in cl 4.2(c) assists in resolving the meaning of BAGR in cl 4.1(a). In my view, the structure in context of cl 4.2(c) is such that the word 'taken' is apposite whichever is the proper construction of 'BAGR'.
Three principal arguments of the defendant
79 The defendant advanced ten principal arguments in favour of its construction. I have already referred to some of those arguments. However, I should refer expressly to three of the principal arguments advanced by the defendant. First, the defendant says that in a commercial instrument that provides for the terms upon which gas may be acquired in return for payment of money there needs to be good reason to displace the usual commercial meaning of 'purchase', that is acquire for money.
80 Essentially, the defendant's argument is that the usual 'commercial' meaning of 'purchase' is to acquire for money or money's worth and that meaning should only be displaced if the context and object or purpose of the Agreement show that a different meaning is intended. As I have set out above, the more common commercial meaning of 'purchase' is to acquire for money or its equivalent. However, the common range of meanings of 'purchase' includes to acquire for valuable consideration and that is not a strained or unusual meaning of the word. The meaning of 'purchase' in cl 4.1(a) must be ascertained from its context, having regard to the whole of the contract, the surrounding circumstances known to the parties and the commercial purpose or object of the contract as well as the words of cl 4.1(a) itself. In my opinion, the context of the definition of BAGR, the key commercial provisions of the Agreement, and the other provisions of the Agreement to which I have referred show that the word 'purchased' is not used in the definition of BAGR in its limited meaning of to acquire for money.
81 Secondly, the defendant says that the phrase 'gas purchased, or gas taken which was previously paid for but not taken' in the definition of BAGR must be interpreted as a coherent whole and consideration of the second limb of the definition indicates that 'purchased' means acquired for money.
82 The defendant's argument is as follows. The second limb of the definition of BAGR is dealing with a case where consideration was provided at an earlier time and acquisition, that is when the gas was taken, occurred at a later time. The defendant says that a purchase occurs when both consideration and acquisition of title have occurred, as stated for example in Colby. Therefore, where valuable consideration has been provided but the gas has not been taken, it would not be counted in BAGR on the basis that it was 'purchased'. It will only be counted if it fits within the second limb of the definition. However, where the consideration that has been given is not payment of money or its equivalent then the word 'paid' is inapposite. It may be possible to construe the word 'purchased' to capture cases where valuable consideration has been provided and gas has been taken but the second limb of the definition would not capture cases where valuable consideration other than the payment of money has been provided and gas is taken in a later year. The consequences of the plaintiffs' construction is that some purchases will be counted in BAGR and some would not. In contrast, the defendant's interpretation leads to no such anomaly. On the defendant's construction both limbs of the definition work coherently. Therefore, the use of the words 'previously paid for but not taken' support the defendant's case; the use of the word 'paid' shows that the parties meant purchase by payment of money in the first limb of the definition.
83 The plaintiffs submit that the defendant's contention is based on the argument that the second limb limits the first. The plaintiffs submit that the words 'or gas taken which was previously paid for but not taken' are words of extension not words that were objectively intended to limit the width of 'gas purchased'. The plaintiffs say that the second limb of the definition deals with makeup gas and that is clear from the worked examples in sch 4. The notes at the top of the page refer to makeup gas. The notes use the words 'including the recovered makeup gas'. The plaintiffs do not contend that the second limb of the definition refers only to makeup gas but they do contend that they cover all circumstances where consideration for gas is provided in an earlier period and the gas is received in a later period.
84 The plaintiffs submit that 'gas purchased' refers to an acquisition of gas for valuable consideration and accept that both of those elements have to be met for the acquisition to be counted in BAGR. But, contrary to the defendant's assertion, the plaintiffs do not accept that a transaction under which consideration is provided before the gas is acquired must fall within the words of extension. The plaintiffs say that such an acquisition falls within the words 'gas purchased'. A party can pre-pay for gas and obtain delivery later. Such a sale is 'gas purchased' and, to avoid doubt, is also within the words of extension - the second limb of the definition.
85 I do not find the defendant's argument on this point to be persuasive. The plaintiffs' explanation of the second limb of the definition is plausible and consistent with the Agreement as a whole. The second limb of the definition does not lead to the conclusion that 'gas purchased' must necessarily be gas acquired for money or money's worth.
86 Thirdly, the defendant says that, contrary to the reasoning I have advanced above, there are good commercial reasons why confining BAGR to cases where Synergy pays for gas makes sense. The defendant's argument is as follows. The defendant and other similar electricity generators have commercial opportunities that involve acquiring gas without purchasing it. In such cases Synergy obtains title to the gas as part of a transaction in which it provides consideration other than payment. For example, Synergy acquires gas as part of a transaction by which it, in effect, sells some of its gas transportation capacity. Synergy acquires title to the gas, ships it using its pipeline capacity and then delivers the gas to the third party. Synergy could not buy the quantity of gas from the Sellers instead of entering into the transaction. Another example is where Synergy may be supplied with gas as part of an arrangement whereby the gas is to be used to generate electricity for the supplier and there is no payment by Synergy for the gas. These are cases where the supply could not be directed to the Sellers under the Agreement because the other contracting party has its own source of gas. These and other possible scenarios are cases where the purchase of gas from the Sellers under the Agreement is not open to Synergy as an alternative way to participate in the opportunity. It would be uncommercial for BAGR to include quantities of gas that were used by Synergy that it could not buy from the Sellers under the Agreement as an alternative source of supply. The inclusion of such quantities in BAGR would mean that dealings that did not involve purchases would increase the likelihood that there would be Accumulated Makeup that Synergy could not recover under the Agreement. By using the term 'purchase' in defining BAGR the parties intended that it was only where Synergy had the option of buying from the Sellers as part of its ordinary dealings that 70% of purchases above the Minimum Quantity were to be made from the Sellers.
87 The plaintiffs submit that the fact that the Buyer has commercial opportunities that it wishes to exploit under swaps or other arrangements is not a reason to construe the Agreement in the manner advanced for the following reasons. There is no foundation in the language of the Agreement for a construction to give that opportunity to the Buyer. Nor is there any foundation in the language of the Agreement for construing the Agreement to confine purchases to the acquisition of gas that the Buyer could have obtained from the Sellers. As to transportation or location swaps, swaps were intended to be included in the calculation of BAGR and the exclusions in cl 4.1(b)(i) and cl 4.1(b)(iii) ensure that there is no double counting. Where gas is purchased under tolling arrangements, that is where Synergy may be supplied with gas as part of an arrangement whereby the gas is to be used to generate electricity for a supplier, there is no payment by Synergy for the gas and Synergy is required to take the gas from the supplier, an explicit exception is agreed in cl 4.1(b)(ii).
88 I do not find the defendant's argument persuasive. The contention that it would be uncommercial for BAGR to include quantities of gas that were used by Synergy that it could not buy from the Sellers under the Agreement as an alternative source of supply overlooks the fact that the Agreement is a negotiated package. The commercial interests of both parties must be considered when determining whether a particular meaning of the contract is 'commercial' or makes business commonsense. The object of the agreement is that the Buyer is to obtain most of its gas requirements, that is the gas it is to acquire, from the Sellers. The gas which the Buyer may acquire from sources other than the Sellers is limited to 30% of the difference between the Minimum Quantity and the total quantity of gas required, or to be acquired by, the Buyer.
Gas acquired under the Gas Swaps is 'gas purchased'
89 The gas acquired by Synergy under each of the Gas Swaps is 'gas purchased' for the purpose of calculating BAGR. I will consider the gas swap transactions by reference to the three categories into which the plaintiffs divided them.
Swaps with immediate payment
90 This category of swap agreements may be illustrated by the agreement between Synergy and B. The agreement uses the language of buyer and seller. The agreement operates by reference to periods described as the Bank Period and the Bank Payback Period. In the Bank Period the buyer will be Synergy and the seller will be B. In the Bank Payback Period the buyer will be B and the seller will be Synergy. During the Bank Period B will deliver to Synergy an amount of gas in accordance with nominations made by Synergy and Synergy will pay to B an amount equivalent to the specified price per gigajoule (Gas Price 1) multiplied by the quantity of gas delivered. Title to the gas passes on delivery. Gas Price 1 is a relatively low price. Banked Gas is the aggregate quantity of gas supplied by B to Synergy during the Bank Period. During the Bank Payback Period Synergy delivers gas to B. If prior to the end of the Bank Payback Period it is anticipated that there will be any remaining quantity of Banked Gas, B may elect to extend the Bank Payback Period or require Synergy to purchase the remaining quantity of Banked Gas at the specified price per gigajoule (Gas Price 2). Gas Price 2 is substantially higher than Gas Price 1. For present purposes the distinguishing characteristic of this agreement is that Synergy immediately pays B for the gas delivered to it.
91 The defendant agrees that the gas acquired by the defendant under the swap agreements in this category of swap agreements is 'gas purchased' for the purpose of calculating BAGR. That concession is properly made. That is apparent from the terms of the swap agreement between Synergy and B. This agreement provides for Synergy to purchase gas from B. Synergy acquires gas. Title and risk in the gas passes to Synergy at the delivery point of the gas. Synergy is obliged to pay money for the gas so acquired. It is a 'gas purchase' whichever interpretation of 'gas purchased' is adopted.
Swaps with secondary payment
92 This category of swap agreements may be illustrated by the four agreements between the defendant and K in Part A of confidential annexure A to the re-amended statement of claim, each of which are 'swaps with secondary payment'. The first agreement between the defendant, under its trading name Verve Energy, and K is entitled 'Gas Swap Agreement' and was made in 2007 and subsequently amended on a number of occasions. It is not necessary to refer to the amendments. The agreement uses the language of buyer and seller. The agreement refers to two delivery periods which I will described as the Verve Delivery Period and the K Delivery Period. During the Verve Delivery Period K is the seller and Verve is the buyer. During the K Delivery Period Verve is the seller and K is the buyer. The agreement provides for K to deliver to Verve amounts of gas in accordance with the agreement. The quantity of gas delivered to Verve and any quantity of gas available for delivery to Verve during the Verve Delivery Period but not accepted by Verve is called the Swap Quantity. During the K Delivery Period Verve is to deliver to K the quantity of gas nominated by K in accordance with the agreement up to a maximum of the Swap Quantity. Title to and risk in the gas delivered passes from the seller to the buyer when the gas passes the inlet flange at the respective delivery points. K agrees to pay Verve a swap fee calculated at an amount per gigajoule. The amount is an amount per gigajoule which is at least an order of magnitude less than the market price or value of the gas. If Verve fails to deliver to K the Swap Quantity during the K Delivery Period, K may extend the term for up to 12 months or require Verve to pay K a specified price per gigajoule for the undelivered gas.
93 The acquisition of gas by Synergy under these agreements is a 'gas purchase'. There are some notable features of this agreement which distinguishes it from a barter transaction. First, the Agreement uses the language of buyer and seller. Secondly, the total amount of gas that will be delivered by K to Verve during the contract period is not fixed. Thirdly, during the K Delivery Period Verve must make available for delivery the quantity of gas nominated by K in accordance with the agreement up to a maximum of the Swap Quantity. The Swap Quantity may exceed the quantity of gas delivered by K to Verve because it includes any quantity of gas available for delivery to Verve during the Verve Delivery Period but not accepted by Verve. Fourthly, a price is attributed to the gas. The Price is relevant to GST, it is used to calculate the amount which Verve is required to pay K if Verve fails to deliver the Swap Quantity to K during the K Delivery Period, and it enables a price to be discerned for the gas delivered. Fifthly, other charges, namely a Swap Fee and DBNGP Transport Charges are payable under the agreement. Sixthly, if Verve fails to deliver the Swap Quantity to K during the K Delivery Period, K may elect to require Verve to pay K the amount equal to the Price multiplied by the quantity of gas not delivered together with interest. The Price is a specified amount per gigajoule, which is in the order of the market price. The swap agreement is an agreement under which the defendant acquires gas to meet its requirements or demand for gas in the relevant period. The agreement is in the form of reciprocal sales, with a mutual setoff of prices and, if necessary, a cash adjustment. The defendant acquires gas for valuable consideration. The gas acquired by the defendant is 'gas purchased' for the purpose of calculating BAGR.
Swaps with no payment
94 The most problematic swap agreements are those falling within the plaintiff's third category - swaps with no payment. Swap Agreement No 2 with G illustrates this category of swap agreements. The agreement is entitled 'Gas Transportation Services Agreement'. The plaintiffs submitted that the apparent purpose of the swap agreement with G was to provide notional transport for gas acquired by G. Transport was effected by G supplying gas to the defendant, described by its then trading name of Verve, for its use and for the defendant to supply an equivalent quantity of gas to G over a period of time at different delivery points. G pays Verve a tariff for the gas supplied to it based on a percentage of a specified DBNGP (Dampier to Bunbury Natural Gas Pipeline) tariff. Verve does not make any payment to G. The agreement is not for a straight exchange of one thing for another thing. The agreement is that Verve and G will deliver different daily quantities of gas to each other. Title to the gas passes on delivery. The gas supplied by one party is to be setoff against gas supplied by the other party and any imbalance in gas quantities supplied is to be calculated on a monthly basis. The party who has delivered imbalance gas to the other party may elect to carry forward the imbalance gas credit into the next month or invoice the debtor party for the amount payable in respect of the imbalance gas at a price calculated in accordance with a formula in the Agreement. The parties are to use their best endeavours to ensure that at the end of each month the aggregate quantity of gas delivered by Verve to G equals the aggregate quantity of gas supplied by G to Verve unless otherwise agreed between the parties. To the extent that Verve has not already done so Verve will ensure that the aggregate quantity of gas delivered by Verve to G equals the aggregate quantity of gas supplied by G to Verve. If Verve has not supplied all of the gas that should have been supplied it must pay, by way of liquidated damages, to G an amount that is calculated by multiplying the shortfall by the gas sale price. The gas sale price is in the order of a gas market price escalated by CPI. The agreement is not a loan or bailment agreement because title to the gas passes on delivery. The agreement is more accurately described as a sale and purchase agreement than an exchange or barter because it is more than a simple exchange of one commodity for another. It is more accurately described as an agreement under which Verve acquired gas for valuable consideration. The defendant acquired gas for valuable consideration to meet its gas requirements or demand during the relevant period. It is a 'gas purchase' for the purpose of calculating BAGR.
95 It is necessary to refer separately to the agreement between Synergy and Party D. The agreement between Synergy and Party D is contained in an instrument entitled 'Gas Swap Service and Peak Gas Supply Term Sheet'. The plaintiffs say that the agreement has two apparent purposes. One is to obtain the supply of gas at a certain point because Synergy did not have transportation entitlements for that supply. The second purpose is that Synergy could obtain additional gas at times of peak usage. Synergy paid D the Gas Swap Charge which comprised a reservation tariff and usage tariff for the notional transport of gas from the receipt point to the delivery point. Synergy could also obtain additional gas at times of peak usage. Synergy pays D a specified price per gigajoule for gas delivered by D to Synergy at the delivery point.
96 The defendant agrees that the additional gas acquired by the defendant at times of peak usage is 'gas purchased'. That concession is properly made. Synergy acquires the gas and pays for it in money. It is 'gas purchased' which ever interpretation is adopted. The gas obtained by the defendant from D, other than the additional peak gas, is 'gas purchased' for the same reasons that the gas acquired by the defendant from G is 'gas purchased' for the purpose of calculating BAGR.
Conclusion
97 On the proper construction of cl 4.1(a) of the Agreement 'gas purchased' means gas acquired for valuable consideration. All of the gas acquired by the defendant under the 24 gas swap transactions with the counterparties described in Part A of confidential annexure A to the reamended statement of claim is 'gas purchased' for the purpose of calculating BAGR.
98 The parties should confer in relation to the quantification of the volume of gas purchased, and to be included in the calculation of BAGR, under the gas swaps between the defendant and Counterparty K. If the parties are unable to agree on that quantification I will give directions for further submissions in relation to that issue.
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