Contact Energy Limited v Natural Gas Corporation of New Zealand Limited
[2000] NZCA 132
•18 July 2000
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA65/00 |
| BETWEEN | CONTACT ENERGY LIMITED |
| Appellant |
| AND | NATURAL GAS CORPORATION OF NEW ZEALAND LIMITED |
| First Respondent |
| AND | POWERCO LIMITED |
| Second Respondent |
| Hearing: | 21 June 2000 |
| Coram: | Blanchard J McGechan J Young J |
| Appearances: | W M Wilson QC and C S Chapman for Appellant F Miller and N MacFarlane for First Respondent No Appearance for Second Respondent |
| Judgment: | 18 July 2000 |
| JUDGMENT OF THE COURT DELIVERED BY YOUNG J |
The parties
The parties to this litigation are Contact Energy Ltd (“Contact”), Powerco Ltd (“Powerco”) and Natural Gas Corporation of New Zealand Ltd (“NGCNZ”).
Contact is, inter alia, a wholesaler of gas.
Powerco owns a gas reticulation network in Taranaki. Up until May 1999 it was also a gas retailer.
NGCNZ operates, inter alia, as both a gas wholesaler and retailer. It will become necessary later in this judgment to differentiate between NGCNZ and Natural Gas Contracts Ltd, an associated company. Where such differentiation is necessary it will be made. Otherwise references to “NGCNZ” can be taken as meaning the National Gas Corporation group of companies generally.
Natural gas production and distribution in New Zealand
The Maui field, located off the Taranaki coast, produces most of New Zealand’s natural gas, approximately 75%. The Kapuni field produces a further 12.5% of New Zealand’s natural gas. There are, as well, a number of other fields which produce comparatively small amounts of gas.
The Maui field is operated by a group of companies usually referred to as the “Maui Mining companies”. The gas produced from the Maui field is acquired from these companies by the Crown. It is then sold by the Crown to three companies, Methanex, NGCNZ and Contact.
The gas extracted from the Maui field is treated at the Oaonui Treatment Station. It then enters what is known as the transmission system, that is a high pressure system of pipes operated (and largely owned) by NGCNZ. The transmission system covers much of the North Island.
There is an open access policy adopted in respect of the transmission system. In effect, anyone with up-stream gas entitlements can carry gas to exit points on the transmission system for delivery to gas retailers and/or large end-users. In this case, there are four relevant exit or delivery points. These are situated at New Plymouth, Waitara, Okato, and Oakura. Gas from these delivery points enters the Taranaki reticulation network owned by Powerco.
Gas in the transmission system is not earmarked as belonging to any particular wholesaler while it remains in that system. Gas is metered at the exit points and retailers advise NGC Transmission (which is a division of NGCNZ) how much gas has been extracted and from whom it has been purchased. This is the starting point for a reconciliation and allocation process which is the mechanism by which title to the gas is ascertained. In a real sense, this ascertainment process occurs retrospectively and is initiated by the actions of the purchaser.
NGCNZ also acquires some gas from the Kapuni field. This gas is purchased from Kapuni Gas Contracts Ltd, a company which has been referred to in this litigation as “KGCL”. To the extent to which this gas is relevant to the present case, the comments already made in relation to Maui gas are also applicable from the point that this gas enters the transmission system.
It will be necessary to discuss in some detail later the nature of the arrangements by which NGCNZ acquires gas from the Crown and KGCL.
The events leading to this appeal
By an agreement of 30 April 1997, Contact and Powerco entered into a complex arrangement intended to cover the supply of gas by Contact to Powerco for a period of ten years, that is from 1 April 1997 until 31 March 2007. Very broadly, the scheme of the arrangement was as follows:-
Powerco was to take or pay for an annual minimum quantity of gas amounting to .1875 PJ.
Powerco had the right to acquire annually a further .625 PJ of gas from Contact.
Contact had the right to require Powerco to take up to another .75 PJ per annum pursuant to an arrangement which can be regarded as being, in effect, a reverse right of pre-emption. If Powerco needed to purchase additional gas - that is over and above the .1875 PJ and the .625 PJ just referred to and gas taken pursuant to certain existing arrangements with third parties, Contact was entitled to require Powerco to acquire such gas (referred to as “Additional Gas”) from it up to .75 PJ. This arrangement expires on 30 September 2006.
On 1 July 1998, Contact required Powerco to take Additional Gas. The effect was to require Powerco to replace gas which would otherwise have been acquired from NGCNZ with gas acquired from Contact.
With effect from May 1999, Powerco agreed to sell its retail business to NGCNZ. Powerco remains the owner of the Taranaki reticulation network. But it no longer has any need to acquire any gas. As part of this transaction, Powerco assigned to NGCNZ its rights under the April 1997 agreement. As part of the assignment process, NGCNZ was required to undertake the burdens of Powerco under that agreement. It is common ground that NGCNZ is, indeed, now in contract with Contact and on the terms contained in the original Contact/Powerco agreement of 30 April 1997.
NGCNZ denies that it is subject to any obligation to take Additional Gas under the April 1997 agreement. It has refused to do so. This resulted in Contact issuing proceedings for summary judgment. The proceedings were against both NGCNZ and Powerco. Powerco took little part in the proceedings except to invoke indemnity arrangements which it has with NGCNZ.
The summary judgment proceedings came to be heard before Master Thomson and in a judgment delivered on 10 March this year he dismissed the application. He also ordered a stay of the proceedings by reason of an arbitration clause in the April 1997 agreement.
Contact now appeals against the decision of Master Thomson.
The contractual provision principally in issue
The contractual provision principally in issue in these proceedings is clause 8 of the April 1997 agreement between Powerco and Contact. References to “Powerco” in that agreement are deemed to include references to its assigns. As well, as we have just noted, it is common ground that the arrangement as to the assignment by Powerco to NGCNZ of its rights under the April 1997 agreement have left NGCNZ in direct contract with Contact under the terms of this agreement.
On that basis, clause 8 of the April 1997 agreement can be read, for present purposes anyway, as if references to “Powerco” were replaced with references to “NGCNZ”. So read, the clause provides:-
The Parties agreed that Contact shall have the right but not the obligation to supply up to an additional 0.75 PJ of gas per year to [NZGCNZ] as long as [NGCNZ] is purchasing or would otherwise purchase such gas from other parties (excluding existing purchases at Hawera, Wanganui and Manaia sales gates and existing purchases for Pacific Energy, its successors or assigns) …
The following term shall apply to additional gas:
a)The Point(s) of Sale shall be [New Plymouth, Waitara, Okato, and Oakura delivery points] …
c)Where Contact notifies [NGCNZ] that it wishes to exercise its right to supply Additional Gas pursuant to this provision, [NGCNZL] shall be obliged to take such Additional Gas in priority to gas from a supplier other than Contact.
The conflicting positions adopted by the parties
NGCNZ says it is not liable under clause 8 to take Additional Gas for two broadly interconnected reasons:-
On the true interpretation of clause 8, only the purchases made (or needed to be made) by a retailer (such as Powerco) from a wholesaler (such as Contact or NGCNZ) trigger the obligation to take Additional Gas; and
NGCNZ is not, in any event, relevantly purchasing gas from any other party.
Contact, on the other hand, maintains that NGCNZ is, in fact, purchasing gas from parties other than Contact, namely the Crown, and possibly KGCL, and also from its associated company, Natural Gas Contracts Ltd, and that the clause should be construed in accordance with the ordinary meaning of the words used. If the clause is so construed, NGCNZ’s obligation to take Additional Gas has been triggered.
Arbitration provisions
The 30 April 1997 agreement contains a submission to arbitration. It is common ground that this submission to arbitration does not preclude the entry of summary judgment if that is appropriate. In other words, if there is no arguable defence to the claim, NGCNZ is not entitled to insist upon a stay of the proceedings, see Arbitration Act 1996, Article 8, First Schedule.
The Master’s judgment
The Master was of the opinion that the issues as to interpretation raised by NGCNZ pointed to the existence of genuinely arguable defences so as to make the case inappropriate for summary judgment. Because summary judgment was not appropriate he stayed the proceedings against both NGCNZ and Powerco.
The arguments, as presented to us, do not appear to be exactly those which were presented to the Master. Given this and also nature of the case generally, there is no point to be served in referring extensively to his judgment.
The fundamental issues as to NGCNZ’s liability
At first sight it might be thought that NGCNZ’s obligation to take additional gas is obvious. On the basis of its existing arrangements with the Crown and possibly with Natural Gas Contracts Ltd and KGCL, it “is purchasing gas” from parties other than Contact.
For that reason it is appropriate to address the appeal in terms of the reasons asserted by NGCNZ as to why it is not liable, namely:-
On the true interpretation of clause 8, only the purchases made (or needed to be made) by a retailer (such as Powerco) from a wholesaler (such as Contact or NGCNZ) trigger the obligation to take Additional Gas; and
NGCNZ is not, in any event, relevantly purchasing gas from any other party.
These contentions interlock and the underlying arguments deployed by Mr Miller, on behalf of NGCNZ, tended to be applicable to both. It is, however, nonetheless convenient to address each issue separately.
First argument: on the true interpretation of clause 8, only the purchases made (or needed to be made) by a retailer (such as Powerco) from a wholesaler (such as Contact or NGCNZ) trigger the obligation to take Additional Gas
Mr Miller, for NGCNZ, maintained that the April 1997 agreement left Powerco free to use its own gas. He said that this right was not confined to the use of gas which Powerco might, itself, produce. He maintained that if Powerco had been able to obtain gas as a wholesaler, then this was “its own gas” which it would have been free to use without triggering any obligation to take Additional Gas from Contact under clause 8 of the agreement. Broadly speaking, he maintained that clause 8 of the agreement was not intended to capture the case of a wholesaler in gas such as NGCNZ which acquires gas up-stream of the four delivery points in issue in the case.
This argument is untenable.
The words of clause 8 are of the most general nature. On the face of clause 8, NGCNZ’s obligation to purchase Additional Gas is triggered if it has a need to purchase gas on top of gas already being acquired from Contact or from existing purchases at the Hawera, Wanganui and Manaia sales gates and existing purchases on behalf of Pacific Energy.
Mr Miller’s argument can only prevail if clause 8 is interpreted as if it contained words which are simply not there. On his argument, there should be a general exclusion in relation to gas purchased or taken up-stream of the delivery points. But no principled basis was put to us for reading such words into clause 8. Indeed, those responsible for the drafting of the clause took pains to exclude certain existing purchase arrangements which appear to have been in place in April 1997. If Powerco had wished to reserve to itself the right to acquire gas up-stream of the delivery points without rendering itself subject to clause 8, we would have expected that this would have been expressly provided for.
In short, we see no reason at all why clause 8 should be read other than in its ordinary meaning.
Second argument: NGCNZ is not, in any event, relevantly purchasing gas from any other party
NGCNZ broadly takes the position that it has its own gas and that, therefore, it has no need to “purchase … such gas from other parties”. In his first affidavit, Mr Ron Sharp of NGCNZ said:-
In contrast to Powerco, NGCNZ has its own supply of gas. Indeed, NGCNZ has some 200 million dollars worth of Maui gas entitlements currently on its balance sheet. NCGNZ [sic] has no need to look to any other party to supply gas. Specifically, it does not need to purchase gas from any other party to supply its customers (including those customers who were formerly customers of Powerco).
In an affidavit filed in response to that, Mr Stephen Cross of Contact referred to publicly available documents associated with NGCNZ’s ability to obtain gas. In particular, he referred to NGCNZ’s annual report and a prospectus. From these documents Mr Cross was able to show:-
It is Natural Gas Contracts Ltd, a company associated with NGCNZ, which has “some 200 million dollars worth of Maui gas entitlements currently on its balance sheet”. The exact figure from the 1999 annual report is $194,174,000. This is pursuant to an agreement entered into on 6 July 1990 pursuant to which Natural Gas Contracts Ltd purchased from the Crown 262.5 PJ of Maui gas to be delivered in annual scheduled entitlements up to 2009 for a single advance payment. This gas is usually referred to as “Advance Paid Gas”.
NGCNZ has “take or pay” gas contracts with the Crown whereby it has committed to purchase gas in annual contract quantities. NGCNZ and Natural Gas Contracts Ltd take approximately one unit of Advance Paid Gas for every two units purchased under the “take or pay” contract.
This affidavit provoked a response from NGCNZ, this time in the form of an affidavit from Mr James Seymour. He said :-
As Mr Cross states in his second affidavit, the Maui field and Kapuni field are owned by the respective mining companies. Those companies on-sell gas to the Crown and to KGCL respectively. NGCNZ has purchased gas entitlements:
5.1under a take or pay contract with the Crown for Maui gas, under which NGCNZ is obligated to pay for approximately 27 PJ of gas per annum;
5.2under a contract with KGCL under which NGCNZ is entitled to purchase approximately 70 PJ of gas over the next 10 to 15 years depending on how much Kapuni gas KGCL sells to Methanex and Petrochem.
6. With respect to Kapuni gas, NGCNZ was previously the purchaser of gas under the Kapuni Gas contract with the Kapuni Mining Companies. In March 1991, NGCNZ sold its rights and obligations under the Kapuni Gas contract to KGCL. At the same time it secured entitlements for NGCNZ for gas from Kapuni for all of KGCL’s gas entitlements less Kapuni gas sold by KGCL to Methanex and Petrochem. …
8. Both NGCNZ and Contact therefore purchase their Maui gas from the Crown for on-sale in the downstream markets. They do not compete in purchasing their Maui gas as the binding long term take or pay contracts were agreed long ago. They do, however, compete in finding downstream buyers for their Maui gas.
9. In paragraph 12 of Mr Cross’ second affidavit, he admits that the Crown on-sells from the Maui field under contracts to Methanex, NGC Group and Contact. As mentioned above, this is correct, except that the primary “NGC Group” contract with the Crown is actually between NGCNZ and the Crown.
10. It is correct that Natural Gas Contracts Ltd (“NGCL”), which is a wholly owned subsidiary of NGCNZ has paid the Crown for advance gas entitlements from the Maui field. These gas entitlements must be uplifted in conjunction with gas from the Crown/NGCNZ contract in the approximate ratio of 1:2 and therefore these entitlements form part of the total amount of gas which is on-sold by NGCNZ. (emphasis added)
Mr Miller’s argument was that the word “purchase” has shades of meaning. In particular, it may connote a contract to buy something or the completed transaction. He was able to cite a range of authorities which support that view. Broadly, he sought to say that the gas which NGCNZ supplies through the Taranaki reticulation network should be regarded as having been purchased when NZCNZ entered into its contractual arrangements with the Crown and KGCL.
If the Advance Paid Gas entitlements were held by NGCNZ then there might, in respect of that gas, be some technical force in Mr Miller’s argument. Even so, it is far from clear to us that an entitlement to Advance Paid Gas is the equivalent of gas so as to obviate the need for purchase. But Mr Miller’s argument as to this runs into a more fundamental problem. The gas entitlement to the Advance Paid Gas is held not by NGCNZ but rather by Natural Gas Contracts Ltd. NGCNZ’s ability to sell this gas to end-users depends upon it taking title to that gas from Natural Gas Contracts Ltd and this must involve a transaction in the nature of a purchase. There is no suggestion that NGCNZ is selling gas on behalf of Natural Gas Contracts Ltd or that Natural Gas Contracts Ltd is, itself, acting as a retailer in the Taranaki region.
We are of the view that Mr Miller’s argument that NGCNZ is not purchasing gas so as to trigger liability to take Additional Gas is unconvincing. We say this for the following reasons:-
What constitutes a “purchase” of gas for the purposes of clause 8 of the April 1997 agreement must be understood in the context of the gas industry and the way in which transactions in gas customarily take place. Subject to that gloss, the starting point for the interpretation of the clause must be the ordinary and natural meaning of the words used in it.
The gas is delivered at the exit points relevant to this case within a matter of hours of being in the ground off the Taranaki coast in the Maui gas field. So situated in the gas field, it plainly does not belong to NGCNZ. At some point, NGCNZ obtains the right to that gas. It is clear enough that it does so in return for payment to either or both of the Crown and Natural Gas Contracts Ltd. We are unable to see how this acquisition of the gas could have been otherwise than by way of purchase. Similar considerations apply in relation to Kapuni gas if such gas is relevant to this case. NGCNZ has been content, in its affidavits, to describe the acquisition arrangements at a reasonably high level of generality. It has not produced the actual contracts and sought to show, by reference to those contracts, that its acquisition of the gas in issue is not by way of purchase.
When NGCNZ draws down gas from the Crown against its take or pay obligations or receives Advance Paid Gas from Natural Gas Contract Ltd it is “purchasing … such gas” in the sense in which those words are used both generally and by participants in the gas industry. Indeed, NGCNZ’s own documents generated both prior to, and as part of, this litigation show that this is so. These transactions are described as involving the purchase of gas, for instance in NGCNZ’s annual report and in the prospectus. Similar language is used in the affidavits which originated with NGCNZ. For instance, it will be recalled that Mr Seymour said, in paragraph 8 of his affidavit:-
Both NGCNZ and Contact therefore purchase their Maui gas from the Crown for on-sale in the downstream markets.
Mr Miller, NGCNZ’s own counsel, was not able to avoid the use of similar language in his own submissions to us. So we are satisfied that the words “is purchasing” both in their natural and ordinary meaning and in a gas industry context, comprehend what is happening as between the Crown and Natural Gas Contracts Ltd, on the one hand, and NGCNZ, on the other.
The same is true of the arrangements between NGCNZ and KGCL. In Mr Seymour’s own affidavit, in paragraph 5.2, he referred to these arrangements as involving an entitlement for NGCNZ:-
to purchase approximately 70 PJ of gas over the next 10 to 15 years depending on how much Kapuni gas KGCL sells to Methanex and Petrochem.
It is common ground that Contact acquires gas in very much the same way as NGCNZ. Clause 9.2 of the April 1997 agreement contains a provision for Powerco to make certain requests and for “Contact [to] request its seller to make best endeavours as a reasonable and prudent operator to comply with Powerco’s request”. If Contact has a “seller”, this pre-supposes that Contact is, in respect of that gas, a “purchaser”. So, in this respect, the agreement as a whole supports the view that Contact, acting as a wholesaler in the gas industry and acquiring gas in broadly the same way as NGCNZ, is a purchaser of that gas.
There is a take or pay component in the April 1997 agreement between Contact and Powerco. The agreement as a whole, is drafted on the assumption that the taking by Powerco (and now NGCNZ) of gas under the take or pay arrangement involves a continuous process of purchasing that gas as and when it is delivered. In this respect, it is sufficient to refer to clause 5.1 of the agreement which shows that gas taken under all components of the contract, including the take or pay component, is regarded as being sold on a monthly basis. Presumably those who drafted the agreement would, therefore, have regarded gas purchased by NGCNZ from the Crown under take or pay arrangements as being continuously purchased.
So NGCNZ’s argument is inconsistent with the natural and ordinary commercial meaning of the words employed in clause 8. Such natural and ordinary meaning of the words is consistent with the context in which they are used in the agreement. Indeed, to the perhaps limited extent to which the April 1997 agreement provides its own dictionary, it supports the view that NGCNZ, in its manner of acquiring gas, is, indeed, purchasing that gas.
Some other considerations
In deference to the wide-ranging argument which we heard, it is only right that we should address some of the considerations, extrinsic to the words of the contract, which were referred to us.
We deal first with some of the authorities which were cited to us.
We note that in Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 NZLR 189 at 203 Hardie Boys J said, in relation to a non-literal interpretation of a contract which had found favour in the High Court:-
With respect, what the Judge appears to have done is allow the background to create the uncertainty of meaning and then use it again to resolve that uncertainty in a manner which is, in my view at least, contrary to the plain meaning of the words. Such an approach is not in accordance with the authorities. The factual background of a transaction is certainly relevant in determining which of two possible meanings should be given to a word or an expression. For the Court's duty is to give effect to the contractual intention, and if the words used do not make that clear then it is permissible, indeed necessary, to ascertain their objective, in the expectation that in its light the intended meaning will be revealed. …
Where however the contractual intention is clear from the words used then the Court must give effect to it. It is not permissible to inquire into preliminary or background matters in order to find a different meaning; that would amount to the Court holding that the parties really meant something different from what they chose to say. …
There is another aspect too. It is not to be assumed that the parties will have intended an unreasonable result. If the plain and ordinary meaning of their words will lead to such a result, the Court is entitled to seek another meaning that will not do so; for it is that other meaning that is the more likely to represent the parties' intention. …
Because I see no ambiguity or uncertainty in the contracts themselves, the issue, it seems to me, resolves itself to this: does the apparent meaning lead to such an unreasonable result that the parties could not have intended it?
This approach is consistent with that of the Privy Council in Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391 at 394-395:-
The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the Court, when construing a document, to search for an ambiguity. Nor should rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail.
The approach of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115, was referred to and adopted by this court in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74. Of the principles stated by Lord Hoffmann, points 4 and 5 warrant repetition:-
(4)The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. …
(5)The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.
These principles do not assist NGCNZ.
The April 1997 contract must be interpreted by reference to the circumstances in existence at the time it was entered into, and, in particular, the circumstances which were relevant to Contact and Powerco. Since there is no evidence to suggest that Powerco had any ambitions to acquire gas entitlements up-stream of the delivery points in issue in this case, there is no reason to suppose that Powerco would have been troubled by clause 8 being drafted in language so general as to allow the obligation to take Additional Gas to be triggered by up-stream purchases. To the extent to which Powerco did have existing arrangements which it wished to protect, these were specifically provided for in clause 8. So, accepting that the contract is not a good fit for NGCNZ with its up-stream gas entitlements (and, indeed, perhaps more importantly, its commitments), this consideration can hardly be significant in terms of the interpretation of the April 1997 contract.
Much was made in the High Court and, to a lesser extent, in this Court of certain negotiations which took place between Contact and NGCNZ in the February 1999-May 1999 period. It was intended, initially, that there would be a fresh arrangement entered into between Contact and NGCNZ replacing the April 1997 agreement. It is clear enough that Contact recognised, during this period, possible difficulties as to how clause 8 would operate if NGCNZ simply took over the agreement as assignee. Indeed, as this litigation has shown, difficulties have arisen. We do not see, however, how these negotiations can be relevant to the meaning of clause 8. They took place around two years after the April 1997 agreement was entered into and NGCNZ was, of course, not a party to the April 1997 agreement.
Relief
The contract contemplates that specific performance is available in the event of breach. Specific performance is, indeed, the primary remedy sought by Contact.
There would be major difficulties if Contact’s only relief is by way of damages. Assuming that NGCNZ can be taken to have repudiated the contract and that Contact accepts that repudiation, damages could be assessed on a once and for all basis. But a great many contingencies would have to be allowed for in that assessment. In issue would be the valuation of future cash flows dependent upon the gas which would have been taken by NGCNZ at the four delivery points until 30 September 2006, with inherent uncertainties as to the quantity of Additional Gas involved, the prices at which it would be taken (given the adjustment provisions in the April 1997 agreement), and the appropriate discount rate to be applied to future cash flows. It is inherently improbable that whoever fixes damages (either the court or an arbitrator) would get it exactly right. So it is very probable that Contact would be either under or over-compensated.
If Contact does not accept the repudiation (perhaps because it is not prepared to accept the risk of such an assessment exercise) then there is at least the theoretical prospect of a series of claims being advanced perhaps on an annual basis between now and the year 2006.
As Mr Wilson QC observed, the damages option is unattractive as against :
An order for specific performance [which] ensures that Contact receives exactly what it is entitled to under the contract; no more and no less.
Mr Miller, for NGCNZ, pointed to a number of practical difficulties which he contended made the granting of a decree for specific performance inappropriate. Our preliminary view of these objections is that they were not well based on the evidence and, indeed, on the evidence which we have seen, we do not believe that there would be practical difficulties requiring supervision by the court if a decree for specific performance was granted.
Mr Miller, in his submissions, sought to explain the lack of evidence as to practical difficulties with specific performance on the basis that NGCNZ had merely responded, in its evidence, to the proposals as to specific performance made by Contact, some of which are now accepted to be inappropriate.
A second concern advanced by Mr Miller was that the grant of a decree for specific performance would result in an unbalanced commercial position as between Contact and NGCNZ. He said that the result would be that Contact would be able to resort to the court over what might be genuinely disputed issues associated with the operation of the contract and reinforce in a heavy-handed way, its own contentions with the threat of contempt of court sanctions.
Again, we rather think that this complaint was overstated. We think it unlikely that the High Court would allow Contact to employ heavy-handed contempt of court enforcement procedures to resolve genuinely arguable points of interpretation as to the ongoing relationship between NGCNZ and Contact.
We have, nonetheless, decided to remit to the High Court the issue whether specific performance should be granted; this to be determined as part of the existing summary judgment proceedings. It will, of course, be for Contact to determine whether it continues to seek specific performance. The parties shall have leave to file further affidavits.
There are two reasons for adopting this course.
Remitting the case to the High Court will avoid the possibility of NGCNZ having been prejudiced by reason of the way the case against it was pleaded and what may have been its failure to put all material evidence as to impracticality before the court. So if NGCNZ wishes to continue to contend that it is reasonably arguable that specific performance ought not to be granted, it will have an opportunity to buttress such arguments with evidence.
There is also a broader consideration. We have now decided that Contact is entitled to put Additional Gas to NGCNZ. Contact and NGCNZ are both substantial New Zealand companies and should be able to deal with the resulting commercial situation in a sensible and practical way. Unless NGCNZ acts inappropriately vis-à-vis its commercial obligations as we have found them to be, it may be that there is no real need for a decree for specific performance.
The stay
As between Contact and NGCNZ, all issues relating to the April 1997 agreement which remain in dispute following the determination of this appeal and any further consideration in the High Court of Contact’s application for specific performance, must be determined by way of arbitration. Mr Wilson QC accepted that.
We think that the same must also be true in relation to Contact’s claim against Powerco even though Powerco has not, itself, sought a stay. Powerco’s role in this litigation is limited, to say the least. If it has any liability to Contact, it is entitled to a complete indemnity from NGCNZ. So to allow Contact to continue to litigate against Powerco in the High Court might (and probably would) have the practical effect of compelling NGCNZ to participate in those proceedings given that indemnity. This would, indeed, be to permit the tail to wag the dog. It would also be plainly inconsistent with the policy exemplified by the Arbitration Act 1996 that genuinely disputed arguments which are subject to a submission to arbitration must be resolved by way of arbitration.
To permit Contact to pursue litigation in the High Court, which, in substance, is against NGCNZ but via Powerco as, in effect, a conduit, would amount to an abuse of process. In those circumstances, we are of the view that, apart from the question whether specific performance should be granted (which is remitted to the High Court for re-determination) and, of course, the declaration which we have, ourselves, made, the proceedings must be stayed.
Disposition
So the appeal is allowed to this extent. There will be a declaration that NGCNZ, by reason of its purchases of gas from the Crown, KGCL and Natural Gas Contracts Ltd, is subject to the obligation to take Additional Gas under clause 8 of the agreement of April 1997. We reserve leave to apply to this court in the event that there is any dispute as to the precise form of the declaration. Further, the issue whether specific performance ought to be granted is remitted to the High Court for determination. All parties will have leave to file further evidence. There will be an order in relation to the costs of the appeal in favour of Contact against NGCNZ in the sum of $5,000 together with disbursements to be fixed by the Registrar. Contact is entitled to costs against NGCNZ in the High Court. The quantum of these costs is to be fixed by the High Court.
Solicitors
Buddle Findlay, Wellington for Appellant
Chapman Tripp Sheffield Young, Wellington for First Respondent
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