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  • Unreported Judgment

Queensland Power Trading Corporation v Origin Energy Mt Stuart BV

 

[2004] QSC 266

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

20 August 2004

DELIVERED AT:

Brisbane

HEARING DATE:

10 August 2004

JUDGE:

Muir J

ORDER:

1.Paragraphs 9(n), 22(c), 22(d), 23(a), 27(a) and 28 of the amended statement of claim be struck out.

2.The respondent have leave to file and serve a further amended statement of claim within fourteen days of today’s date.

3.The respondent pay the applicants’ costs of and incidental to the application to be assessed on the standard basis.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT –  PLEADING STATEMENT OF CLAIM –  where the applicants seek to have a number of paragraphs of the respondent’s amended statement of claim struck out pursuant to rule 171 of the UCPR

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS –  where the applicants and the respondent entered into an agreement –  whether clause 10.5 of the agreement provided for a right on the part of the applicant to information in respect of the matters the subject of clause 3 of the Agreement – principles of contractual construction.

Uniform Civil Procedure Rules, r 171

Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

Pacific Carriers Limited v BNP Paribas [2004] HCA 35 (5 August 2004)

COUNSEL:

D J S Jackson QC with L F Kelly for the applicant/first and second defendants

P A Keane QC with D A Kelly for the respondent/plaintiff 

SOLICITORS:

Mallesons Stephen Jaques for the applicant/first and second defendants

Blake Dawson Waldron for the respondent/plaintiff

 

Introduction

[1] The applicant/defendants apply, pursuant to r 171 of the Uniform Civil Procedure Rules, to strike out a number of paragraphs of the respondent/plaintiff’s amended statement of claim. That pleading alleges a breach by the applicants of obligations under clause 10.5 of a Power Purchase Agreement entered into between the respondent as “the Buyer” and AESMS Pty Limited as “the Seller” concerning the supply of fuel to the Mt Stuart power station.

[2] It is further alleged that the Agreement was varied and that AESMS Pty Limited transferred its right title and interest in and under the Agreement to the applicants. This matter is not controversial and nor is the fact that, in construing the Agreement, the expression “the Seller” should be understood as a reference to the applicants. For convenience, they will be referred to as “the Seller” and the plaintiff will be referred to as “the Buyer”.

[3] For present purposes, the critical issue is whether the information required to be supplied by the Seller to the Buyer under clause 10.5 extends beyond information in relation to actual reductions in delivered fuel costs and other actual costs and matters referred to in clause 10.4 and encompasses prospective costs and matters within the contemplation of clause 10.3. It is common ground that it was appropriate to decide this question of construction without recourse to extrinsic evidence.

Relevant provisions of the Power Purchase Agreement

[4] The Agreement relevantly provides:

 

9Capacity Charge

Buyer will pay to Seller in respect of each Month in each Contract Year during the Term a Monthly charge in respect of the Capacity of the Facility made available to Buyer (‘Capacity Charge’) determined in accordance with Schedule 6 provided that no Capacity Charge will be payable before the latest of the Commercial Operation Date and the date upon which the initial Front End Loaded Security is provided to Buyer in accordance with Clause 13.4.

 

10.1 Calculation of Energy Charges

Buyer shall, in respect of each Month in each Contract Year during the term, pay to Seller the Energy Charges for Contract Energy delivered to Buyer in that Month calculated and determined in accordance with Schedule 7.

 

10.3Seller to Procure Least Expensive Fuel

(a)Seller shall use all reasonable endeavours to procure the least expensive fuel (based on the price for fuel delivered to the Facility which shall include using natural gas or coal-bed methane as the primary source of fuel for the Facility if in all the circumstances it is economically feasible. The assessment of economic feasibility shall take into consideration any costs or penalties which are applicable or negotiated in respect of an early termination of any Fuel Service Contract. Without limiting the generality of the foregoing, Seller shall (if required in writing by Buyer) investigate any reasonable proposals which may result in a reduction in delivered fuel costs. The parties agree that it would not be reasonable for Buyer to require Seller to breach any Fuel Service Contract.

(b)Seller agrees that the evaluation of any proposal to use natural gas or coal-bed methane as a primary source of fuel for the [Facility] shall be carried out in consultation with Buyer.

 

10.4 Benefit of Reduction in Fuel costs Passed on to Buyer

If Seller uses natural gas or coal-bed methane as the primary source of fuel for the Facility and, as a result, obtains a reduction in its delivered fuel costs, the benefit of such reduction in delivered fuel costs, after all costs incurred by Seller associated with making any necessary modifications to enable the Facility to use such fuel and any increase in Seller’s operation and maintenance costs or any other relevant costs have been allowed for, shall be passed on to Buyer through a reduction in Energy Charges.”

 

10.5 Seller to Provide Information to Buyer

Seller shall supply to Buyer such information in relation to the reduction in Seller’s delivered fuel costs, the modifications to the Facility, the increase in Seller’s operation and maintenance costs or other costs and the reduction in the Energy Charges as Buyer shall reasonably require.”

The Buyer’s contentions

[5] Clause 10.5 is ancillary to both clauses 10.3 and 10.4 and therefore extends to proposed as well as actual reductions in costs. Clause 10.3 obliges the Seller to seek to make reductions in the delivered fuel price if proposals for reductions are economically feasible. Clause 10.4 prescribes the consequences of the Seller’s obtaining a reduction in its delivered fuel costs as a result of using natural gas or coal-bed methane as the primary source of fuel. Clause 10.5 casts on the Seller an obligation of disclosure ancillary to the Seller’s substantive obligations.

[6] The circumstance that clause 10.5 is not part of clause 10.4 suggests that it is not ancillary to clause 10.4 alone. Furthermore, the ancillary obligation of disclosure created by clause 10.5 is not expressed to operate only “for the purposes of clause 10.4” or “upon obtaining a reduction in the delivered price of fuel”. This omission is of significance to the question of construction.[1]

[7] The only express limitation on the operation of clause 10.5 is that the “information in relation to the reduction of Seller’s delivered fuel costs etc” is to be such as the “Buyer shall reasonably require”.

[8] Clause 10.5 should be understood as aiding the Buyer to monitor the performance by the Seller of its obligations under both clause 10.3 and clause 10.4. The information required to be disclosed by clause 10.5 is relevant to the evaluation of the economic feasibility of a proposal for the purposes of clause 10.3 and it is difficult to see how the process contemplated by clause 10.3(b) can occur sensibly as a consultative process unless the Buyer has the benefit of the disclosure contemplated by clause 10.5.

[9] Reasonable protection of the Buyer’s commercial interest in the performance by the Seller of its obligations under 10.3 suggests that clause 10.5 be understood as applying to both the reduction in its delivered fuel price contemplated under clause 10.3 or obtained under clause 10.4. If the Seller’s argument is correct, clause 10.5 affords no protection to the Buyer’s legitimate interests under clause 10.4 and that would flout business commonsense.[2]

The Seller’s contentions

[10] Clause 10.5 is obviously linked to clause 10.4. Each refers to the reduction in delivered fuel costs. Clause 10.4 refers to “an actual use and an actual reduction obtained”. Clause 10.5 is an evidence or information provision which ensures that the Buyer is put in a position to check the accuracy of “the figures, and, in particular, the amount of the benefit of the reduction in Energy Charges to which it has become entitled”. Clause 10.5 uses the expression “such information in relation to the reduction”. It does not refer to any possible reduction that may occur in the future.

[11] Clause 10.3(b) deals with the obligations of the parties to consult as to the investigation of any proposal. It would be odd if clause 10.5 created a parallel but more significant obligation to provide information, given that this could easily have been provided for in clause 10.3 itself.

Literal construction of clause 10.5

[12] The seller’s construction of clause 10.5 accords with its literal reading. Use of the definite article “the” in clause 10.5 before each of “reduction”, “modifications” and “increase” suggests that the matters itemised have been identified earlier in the Agreement and that the references are not to matters in prospect. Clause 10.4 makes mention of: “a reduction in its delivered fuel costs”, “any necessary modifications to enable the Facility to use such fuel”, “any increase in Seller’s operation and maintenance costs” and “a reduction in Energy Charges”. Those matters are mentioned again in clause 10.5 and in the same sequence. It is thus natural to infer that when each such matter is mentioned in clause 10.5, it relates back to its counterpart in clause 10.4.

[13] By way of contrast, only one of the matters, namely “delivered fuel costs” is specifically referred to in clause 10.3. On the face of it then, clause 10.5 appears to be an adjunct to clause 10.4 and, therefore, to be concerned with actual reductions, modifications and costs.

Considerations favouring the Seller’s construction

[14] Are there then any considerations which would serve to displace this prima facie construction? Clause 10.3, as was pointed out by Mr Keane QC, who appeared with Mr D Kelly for the respondent, imposes a substantial obligation on the Seller, compliance with which the Buyer will find difficult to police unless clause 10.5 applies to obligations under clause 10.3. Mr Jackson QC, who lead Mr L F Kelly for the applicant, sought to meet this point by relying on clause 10.3(b). That provision, however, is of limited scope. It applies only where there is a “proposal to use natural gas or coal-bed methane” and only to “the evaluation” of such a proposal. Its requirement is that “the evaluation of any” such proposal “be carried out in consultation” between Seller and Buyer. That obligation is hardly one which corresponds with the obligation imposed by clause 10.5. Not only is the obligation of a more general nature, but it applies only to a discrete part of the Seller’s obligations under clause 10.3(a).

[15] Referring to the observations in the joint reasons in Pacific Carriers Ltd v BNP Paribas,[3] that “Relevant to the meaning of the document was not only what it said, but also what it did not say”, it is argued for the Buyer that if clause 10.5 was intended to be restricted in its application, one would expect to see some express words of limitation contained in it. Alternatively, it is argued, it would have been more appropriate to make the contents of clause 10.5 part of clause 10.4. The force of these arguments, however, is greatly diminished if, as in my view is the case, clause 10.5 expresses its own role and limitations.

Construction of clause 10.5

[16] Contractual construction involves ascertaining the objective intention of the parties from the language of the contract,[4] or slightly differently expressed, determining what a reasonable person in the position of the parties would have understood the words of the contract to mean.[5]

[17] Clause 10.5, as has been observed already, has a plainly discernible linguistic connection with clause 10.4. It also has an obvious drafting connection.

[18] The information to which the Buyer is entitled under clause 10.5 is required by the Buyer to enable it to verify whether the Seller has made appropriate reductions in Energy Charges in consequence of the matters identified in clause 10.4.  Consequently, clause 10.5 is a provision of a kind which one would expect to accompany a provision such as clause 10.4 in a competently drawn commercial agreement. Moreover, the language of clause 10.5 is appropriate to the role of enabling the Buyer to verify reductions in Energy Charges.

[19] There is no such obvious link between the language of clause 10.5 and that of clause 10.3. The central obligations imposed on the Seller by clause 10.3 are to use reasonable endeavours to procure the least expensive fuel “if in all the circumstances it is economically feasible” and, if required by the Buyer, to investigate proposals “which may result in a reduction in delivered fuel costs”. Specific mention is made in clause 10.3 of only one matter to be taken into account in assessing economic feasibility and it is far from obvious that clause 10.5, if it had application to clause 10.3, would require the provision of information in relation to that matter.

[20] Clause 10.5 does not have the appearance of a disclosure provision in respect of the Seller’s obligations under clause 10.3(a). Such a provision would require the Seller to provide specified information with regard to:

1. Its endeavours (if any) to procure the least expensive fuel;

2. The nature and extent of any investigations conducted by it; and

3. The matters taken into account in assessing or relevant to the assessment of economic feasibility.

[21] Clause 10.5, if it applied to clause 10.3, would not require the giving of information in relation to the matter mentioned in (a). It may require the giving of information in relation to some matters within the scope of (b) and (c) but its language is not well suited to the fulfilment of this role. And, as remarked upon earlier, the continued use of the definite article suggests that the references in the clause are not to matters in prospect.

[22] Nor does it appear to me that if clause 10.5 did not relate to prospective matters under clause 10.3 there would be an obvious and inexplicable omission from the Agreement. Although clause 10.3 is not confined to a prospective conversion to natural gas or coal-bed methane, the parties appear to have regarded those fuels as the only realistic alternatives to the existing fuel (kerosene and distillate). Natural gas and coal-bed methane are: specifically mentioned in clause 10.3(b); the only fuels in respect of which the evaluation of a proposal must be carried out in consultation between Seller and Buyer [6] and the only fuels the use of which triggers the application of clause 10.4.

[23] If the Buyer, at any time, considers the use of those fuels worth investigating, it is open to it to put a proposal to the Seller. The evaluation of the proposal is required to be carried out in consultation between Seller and Buyer. For there to be any real or effective consultation, the Buyer would need to be in possession of the facts necessary for a proper evaluation. The Buyer may thus have regarded it as unnecessary to spell out disclosure obligations. Furthermore, an obligation to supply information concerning actual reductions and increases in costs is an obvious enough one to impose in the circumstances, but the imposition of an obligation to supply information in relation to increases or reductions which may be projected, contingent, or even non existent or not contemplated is not so obvious.

Conclusion

[24] For those reasons, I conclude that the language of clause 10.5 is inapt to cover predicted or prospective costs and modifications and that clause 10.5 does not operate in respect of the Seller’s obligations under clause 10.3. Paragraphs 9(n), 22(c), 22(d), 23(a), 27(a) and 28 of the Amended Statement of Claim are dependent for their validity on acceptance of the Buyer’s construction of clause 10.5. Consequently, they should be struck out and leave to replead should be given.

[25] Another, more minor, challenge to the pleading was made without prior notice and I do not propose to deal with it. The plaintiff can address it when considering how it ought re-plead.

[26] The orders I propose making are that:

1. Paragraphs 9(n), 22(c), 22(d), 23(a), 27(a) and 28 of the amended statement of claim be struck out.

2. The respondent have leave to file and serve a further amended statement of claim within fourteen days of today’s date.

3. The respondent pay the applicants’ costs of and incidental to the application to be assessed on the standard basis.

Footnotes

[1] See Pacific Carriers Limited v BNP Paribas [2004] HCA 35 (5 August 2004) at [25].

[2] Cf Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201.

[3] [2004] HCA 35 paragraph 25.

[4] Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109.

[5] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35.

[6] Clause 10.3(b).

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Editorial Notes

  • Published Case Name:

    Qld Power Trading Corp v Origin Energy Mt Stuart BV

  • Shortened Case Name:

    Queensland Power Trading Corporation v Origin Energy Mt Stuart BV

  • MNC:

    [2004] QSC 266

  • Court:

    QSC

  • Judge(s):

    Muir J

  • Date:

    20 Aug 2004

Litigation History

No Litigation History

Appeal Status

No Status