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  • Unreported Judgment

Baldwin v Icon Energy Ltd

 

[2015] QSC 12

Reported at [2016] 1 Qd R 397

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Baldwin & Anor v Icon Energy Ltd & Anor [2015] QSC 12

PARTIES:

RONALD WILLIAM BALDWIN

(first plaintiff)

SOUTHERN FAIRWAY INVESTMENTS PTY LTD
ACN 115 060 378

(second plaintiff)

v

ICON ENERGY LIMITED
ACN 058 454 569

(first defendant)

JAKABAR PTY LIMITED
ACN 058 454 765

(second defendant)

FILE NO/S:

SC No 3667 of 2014

DIVISION:

Trial Division

PROCEEDING:

Hearing

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

3 February 2015

DELIVERED AT:

Brisbane 

HEARING DATE:

16 September 2014

JUDGE:

Philip McMurdo J

ORDER:

The plaintiffs’ statement of claim should be struck out.

The defendants’ application is otherwise dismissed.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS  – MATTERS NOT GIVING RISE TO BINDING CONTRACT – VAGUENESS AND UNCERTAINTY – UNCERTAIN PROMISES – where the parties entered into a memorandum of understanding or deed to facilitate the development a gas supply agreement – where the parties agreed to use their “reasonable endeavours to negotiate” – where the defendants claimed the agreement to negotiate was uncertain and unenforceable 

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the parties entered into a memorandum of understanding or deed to facilitate the development a gas supply agreement

Uniform Civil Procedure Rules 1999 (Qld), r 171(1)(a), r 171(1)(e)

AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2010] 2 Qd R 101, considered

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, cited

Butt v M’Donald (1896) 7 QLJ 68, cited

Carr v Brisbane City Council [1956] St R Qd 402, considered

Channel Home Centers, Division of Grace Retail, Corporation v Grossman (1986) 795 F. 2d 291, discussed

Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, considered

Con Kallergis Pty Ltd v Calshonie Pty Ltd (1998) 14 BCL 201, considered

Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd and Ors (2014) 251 CLR 640; [2014] HCA 7, considered

Healey v Commonwealth Bank of Australia [1998] NSWCA 103, considered

Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494, considered

Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126, applied

Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, cited

Petromec Inc v Petroleo Brasileiro SA Petrobras [2005] EWCA Civ 891; [2006] 1 Lloyd’s Rep 121, cited

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, cited

Smith and Anor v Nylex Corporation Ltd (1994) 178 LSJS 216, considered

Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd (2010) 41 WAR 318, considered

Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd trading as “Uncle Ben’s of Australia” (1992) 27 NSWLR 326, considered

United Group Rail Services Ltd v Rail Corporation of New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177, considered

Walford v Miles [1992] 2 AC 128, considered

Whitlock v Brew (1968) 118 CLR 445, cited

COUNSEL:

S Couper QC, with A Nicholas for the first and second defendants

W Sofronoff QC, with DA Skennar for the first and second plaintiffs

SOLICITORS:

HopgoodGanim for the first and second defendants

Clayton Utz for the first and second plaintiffs

  1. The defendants apply to strike out the claim and statement of claim, arguing that the plaintiffs’ pleading discloses no reasonable cause of action or is otherwise an abuse of the process of the court.[1]  Alternatively they seek orders for the striking out of parts of the statement of claim, although what would then remain would not constitute any tenable claim. 
  1. There are two agreements which are the subject of this proceeding. One was a so-called Memorandum of Understanding (“MOU”), which was made between the plaintiff company and the defendants. The second defendant, which was a wholly-owned subsidiary of the first defendant, then held an interest in what was described as ATP 626P, from which it proposed to extract gas. The plaintiff company was interested in purchasing that gas. The MOU was not a contract which required any gas to be supplied and purchased. Rather, by the MOU, the plaintiff company and the defendants agreed to negotiate to the end of entering into such an agreement.
  1. The MOU was made on 12 June 2008. It provided that the parties would:

“use their reasonable endeavours to negotiate by 30 August 2008 (and in any event no later than 30 October 2008) a Gas Supply Agreement …”. 

No gas supply agreement was concluded.  The plaintiff company says that this was because the defendants, in breach of the MOU, did not negotiate as they had promised.  Consequently, it is claimed, the plaintiff company lost the opportunity of concluding a gas supply agreement, an opportunity which, it is pleaded, was worth $221 million.  The plaintiff company also claims that it incurred expenses associated with its performance of the MOU, for which it claims, again as damages for breach of the MOU, an amount of $750,000.

  1. The other contract is the one upon which the first plaintiff, Mr Baldwin, sues.  His contract was with the first defendant and was made on 1 May 2008.  He was appointed as an agent to introduce a buyer or buyers for the gas sourced from ATP 626P.  He was to receive a commission upon a conclusion of the contract with a buyer for the supply of gas.  In particular, he was to receive a percentage of the sale price of all the gas sold to a buyer introduced by him together with an option to purchase shares in the first defendant.  Mr Baldwin’s complaint is that the first defendant did not negotiate to bring about a gas sale agreement with the plaintiff company.  He pleads that there was an implied term of his contract by which the first defendant had to do so.  In effect, he says that his contract was breached by the same acts and omissions which are said to have been breaches of the MOU.  Mr Baldwin says that he thereby suffered losses which, he claims, amounted to $52.4 million. 
  1. As the arguments accepted, Mr Baldwin’s claim is in a practical sense dependent upon the merit of the plaintiff company’s claim.  If, as the defendants argue, the plaintiff company’s claim is unsustainable, so too is that of Mr Baldwin. 
  1. The defendants made essentially three arguments. The first is that a claim for damages for breach of the MOU is unsustainable, because the agreement to negotiate was uncertain and thereby unenforceable. The second is that the matters pleaded do not constitute an arguable case of a breach of the MOU, if it was enforceable. The third is that the plaintiff company’s claim for loss and damage is defective, in that the facts by which the alleged loss or losses were sustained are not pleaded. Instead the plaintiff company has pleaded merely a broad calculation of the damages which are claimed.
  1. Those first and second arguments are also made against Mr Baldwin.  Further, his claim is dependent upon the existence of an implied term of his contract that the first defendant would negotiate in good faith to bring about a gas supply agreement.  The defendants say that there was no such implied term.

The MOU

  1. The plaintiff company was then called Babcock & Brown Australia Infrastructure Proprietary Limited and was referred to in the MOU as “B&B”. The defendant companies were together referred to as “ICON”.
  1. The MOU was executed as a deed. It recited that:

“The parties have agreed to enter into this deed to facilitate the development of a gas supply agreement with gas sourced from the ATP 626P (the ‘Gas Supply Agreement’) on the basis of the principles contained in Schedule 2.”

  1. Under the heading “Purpose of MOU”, there were these terms:

“1.1Development of the Gas Supply Agreement

The parties have identified the need to enter into a deed to record the arrangement between them for the development of the Gas Supply Agreement.

1.2Basis of MOU

The parties agree that the basis of the MOU is to facilitate the entry into a Gas Supply Agreement for the supply of a volume of up to 300PJ of gas over a period of 15 years and other long-term commitments between the parties including that B&B will be a foundation customer of ICON.

1.3Negotiation of terms and conditions

The parties agree to use their reasonable endeavours to negotiate by 30 August 2008 (and in any event no later than 30 October 2008) a Gas Supply Agreement using the principles set out in Schedule 2 and including the following key factors:

(a)The term of the Gas Supply Agreement will be 15 years commencing when the relevant connecting pipeline has been constructed and commissioned and ICON delivers at least 5 PJ a year;

(b)The Gas Supply Agreement will provide for the supply of between 5 and 10 PJ of gas per year for a period of 15 years;

(c)ICON and B&B will have the options to sell and purchase further gas quantities as detailed in Schedule 2;

(d)The gas will conform to transportation pipeline quality gas specifications;

(e)ICON must first offer to B&B all gas produced by ICON from ATP 626P; and

(f)Supply priority will be incorporated in the gas supply agreement to reflect B&B as a foundation customer and as such B&B will have first priority of gas supply from ATP 626P (whether firm or otherwise).”

  1. Schedule 2 of the MOU was headed “Key Terms and Conditions for the Purchase of Gas from Icon Energy”. It set out a number of potential terms for a gas supply agreement which it prefaced with the statement “[t]he parties current intentions in relation to this arrangement are as follows …”.
  1. Those Schedule 2 terms related to the quantities of gas to be supplied, the commencement date of supply, the quantification of the gas price or prices and a specification of certain “conditions precedent”, one of which was the completion by B&B of a “conceptual pipeline study that verifies the commercial viability of the pipeline”. In that respect, cl 9 ii of Schedule 2 provided that:

“Should this study not verify the viability of the pipeline the parties agree to negotiate in good faith to amend the GSA such that the pipeline is viable.”

  1. Schedule 2 concluded as follows:

These terms and conditions are indicative only and are submitted as a means of encouraging discussion.  This is not an offer capable of acceptance and does not create or reflect any binding obligations between the parties or any of their respective affiliates or managed funds.  It is understood for the avoidance of doubt that this document does not obligate any party to enter into any further agreement.”

(emphasis added)

  1. Clause 2 of the MOU reads as follows:

“2. Exclusivity

The parties agree that:

(a)During the Exclusivity Period:

(i)ICON must not, and must ensure that its subsidiaries and Related Bodies Corporate and its and their respective directors, officers, employees, advisers and agents do not:

A.enter into any legally binding contract or other written agreement or understanding with any person in relation to a Competing Proposal;

B.directly or indirectly solicit, invite or initiate any enquiries, negotiations, proposals or discussions in relation to any Competing Proposal or communicate any intention to do so;

C.participate in any negotiations or discussions with any person other than B&B in relation to a Competing Proposal or which may reasonably be expected to lead to a Competing Proposal; or

D.provide any information to any person other than B&B for the purposes of enabling that party to make a Competing Proposal or otherwise in connection with a possible Competing Proposal,

(ii)ICON will provide B&B with all information and access to the ATP 626P as is reasonably requested by B&B to enable it to conduct due diligence.

(b)Each party must work in good faith, to progress the Gas Supply Agreement in the manner contemplated during the Exclusivity Period.

(c)Each party must ensure that no other person (including any Related Body Corporate) does anything that the party must not do under this document.”

  1. Schedule 1 to the MOU contained a number of so-called General Terms and Conditions. There was a definition of “Competing Proposal” as follows:

“‘Competing Proposal’ means a proposal that, if completed substantially on its terms, would:

  • require ICON to abandon, or otherwise fail to proceed with the Gas Supply Agreement;
  • prevent B&B or one of its Related Bodies Corporate from concluding with ICON the Gas Supply Agreement; or
  • limit or reduce the amount of gas originated from the ATP 626P that could be supplied under the Gas Supply Agreement.”
  1. Schedule 1 included these terms:

“2.No Joint Venture

The terms of the MOU do not give rise to any joint venture, partnership, franchisee-franchisor or principal-agent relationship.

  1. Legally Binding

4.1Obligations under the MOU

The parties acknowledge and agree that the MOU is legally binding until it expires, is terminated or is replaced by more detailed agreements which are expressed to replace it.  The parties acknowledge that the confidentiality provisions contained in clause 3 will survive the expiry or termination of this MOU and will terminate one (1) year from the date of this MOU.  The parties acknowledge and agree that Schedule 2 is not binding and does not amount to an offer capable of acceptance.

4.2No obligations regarding future agreements

It is not intended that the MOU, or the conduct of the parties, bind the parties to enter into any further agreements contemplated hereunder.

  1. Severance

If any provision of the MOU is construed as illegal or invalid or void, the legality or validity or enforceability of any other provision of the MOU will not be affected, and the illegal, invalid or void provision will be deemed to be deleted from the MOU to the same extent and effect as if it were never incorporated, but all other provisions of the MOU will continue in force unless the deletion of the provision would alter the commercial efficacy of the MOU.”

The pleaded obligations

  1. The plaintiffs rely upon cll 1.3 and 2(b) of the MOU as imposing obligations upon the parties to negotiate.  They plead that the effect of these clauses was to require the parties to:[2]

“(i)negotiate in a timely manner in order to permit a GSA [Gas Supply Agreement] to be negotiated within the Exclusivity Period;

(ii)insist only on terms to be included in the GSA that were consistent with Schedule 2 to the MOU; and

(iii)not hinder or prevent entry into a GSA between [the plaintiff company and the defendants].”

  1. They further plead that cll 1.3 and 2(b) required the defendants not to:[3]

“(i)enter into a legally binding contract or other written agreement or understanding with another person in relation to a Competing Proposal;

(ii)directly or indirectly solicit, invite or initiate enquiries, negotiations, proposals or discussions in relation to a Competing Proposal or communicate an intention to do so;

(iii)participate in negotiations or discussions with a person other than B&B in relation to a Competing Proposal or which may reasonably have been expected to lead to a Competing Proposal; and

(iv)provide information to a person other than B&B for the purposes of enabling that party to make a Competing Proposal or otherwise in connection with a possible Competing Proposal.”

That pleading corresponds with the terms of cl 2(a)(i), rather than cll 1.3 or 2(b). 

The arguments

  1. The arguments differed as to the effect, if any, of Schedule 2. Consistently with their pleading, the plaintiffs argued that the negotiations were to be confined by the matters set out in cll 1-13 of Schedule 2, although the intended gas supply agreement could express those same matters “in more formal terms”.[4]  The plaintiffs emphasise the references to “the principles contained in Schedule 2” in recital C and in cl 1.3. 
  1. The defendants emphasise the concluding words of Schedule 2 that “these terms and conditions are indicative only and are submitted as a means of encouraging discussion …”. But the plaintiffs say that read in context that the MOU as a whole, and particularly with recital C and cl 1.3, these words did not have the effect for which the defendants contend. 
  1. The defendants’ submissions on this point are the more persuasive. The concluding words of Schedule 2 cannot be dismissed as the plaintiffs’ argument suggests. A provision that these terms and conditions were “indicative only and … submitted as a means of encouraging discussion” is quite inconsistent with an agreement by the parties that these terms and conditions, or more “formal” terms to the same effect, were effectively non-negotiable. In this respect, the parties chose to identify by cl 1.3 certain “key factors” as distinct from “the principles set out in Schedule 2”.  They seem to have agreed that their negotiations would be to the end of concluding an agreement which contained terms to the effect of those key factors.  But the parties’ identification of those “key factors” confirms the impression from the concluding words of Schedule 2 that the balance of Schedule 2 was to be able to be negotiated, in the sense of reaching an agreement to a different effect, rather than merely an exercise in legal drafting. 
  1. The rejection of the plaintiffs’ submissions about the effect of cll 1-13 of Schedule 2 does not determine the question of whether this agreement to negotiate was sufficiently certain.  The interpretation which I favour strengthens the defendants’ overall argument but it is not critical to it.  Even if those provisions were non-negotiable, still there was no indication in the MOU that the only terms of a gas supply agreement could be those which were in Schedule 2 (or terms of the same effect expressed differently).  Again, the MOU (purportedly) required a process of negotiation of the commercial substance of a gas supply agreement rather than one of mere drafting. 
  1. The MOU was not an agreement by which the parties were bound to enter into a gas supply agreement, to the effect of the Schedule 2 terms or otherwise.[5]  Nor was it an agreement for the supply of gas which was to stand unless some more “formal” or detailed terms were agreed.[6]  Instead, it was an agreement, or a purported agreement, to negotiate to the end of entering into a gas supply agreement.
  1. The defendants’ argument accepted that under Australian law, in some circumstances, there can be an enforceable contractual promise to negotiate to the end of making another contract. But they submit that this is not such a case because the MOU lacked sufficient certainty.
  1. The plaintiffs answered that the MOU was sufficiently certain: the subject matter of the negotiations was agreed in extensive terms and the content of the agreement to negotiate was defined by the well recognised expression “reasonable endeavours”. That submission as to the subject matter was not dependent upon the plaintiffs’ argument as to the non-negotiability of the Schedule 2 provisions.
  1. It can be said that the subject matter of the negotiations was clearly enough described: a proposed agreement for the supply of gas by the defendants to B&B from ATP 626P and with the key factors identified in cl 1.3.  But the question is whether the agreement to negotiate to that end imposed obligations which had a certain legal content, such that it could be assessed whether a party had failed to negotiate in accordance with the MOU. 
  1. The plaintiffs’ argument emphasised what was said about the term “reasonable endeavours” in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd and Ors,[7] a case in which there was a gas supply agreement.  It obliged the sellers to supply a certain daily quantity of gas and to use reasonable endeavours to make available a further quantity.  That latter obligation was on condition that the sellers were able to “take into account all relevant commercial, economic and operational matters”.  An explosion at a gas plant had brought about a temporary reduction in the supply of natural gas to the relevant market, leading to demand exceeding supply and the market price exceeding the price under the contract between the parties.  The question was whether the obligation to use reasonable endeavours to supply that further gas obliged the sellers to provide it under the contract price, when its own business interests favoured the supply of that gas to the market at the market price.  A majority in the High Court held that the sellers were not in breach for refusing to supply this further gas at the contract price. 
  1. The case turned upon the terms of that particular contract, and more particularly the way in which the parties had defined the content of the sellers’ obligation to use reasonable endeavours to make gas available for delivery. That case did not concern a contract such as the MOU, namely one which required or purported to require the use of reasonable endeavours to negotiate a concluded contract.
  1. The plaintiffs’ submissions nevertheless sought support from these passages in the joint judgment of the majority (French CJ, Hayne, Crennan and Kiefel JJ):[8]

“40Contractual obligations framed in terms of ‘reasonable endeavours’ or ‘best endeavours (or efforts)’ are familiar.  Argument proceeded on the basis that substantially similar obligations are imposed by either expression.  Such obligations are not uncommon in distribution agreements, intellectual property licences, mining and resources agreements and planning and construction contracts.  Such clauses are ordinarily inserted into commercial contracts between parties at arm’s length who have their own independent business interests.

41Three general observations can be made about obligations to use reasonable endeavours to achieve a contractual object.  First, an obligation expressed thus is not an absolute or unconditional obligation.  Secondly, the nature and extent of an obligation imposed in such terms is necessarily conditioned by what is reasonable in the circumstances, which can include circumstances that may affect an obligor’s business.  This was explained by Mason J in Hospital Products Ltd v United States Surgical Corporation, which concerned a sole distributor’s obligation to use ‘best efforts’ to promote the sale of a manufacturer’s products.  His Honour said:

‘The qualification [of reasonableness] itself is aimed at situations in which there would be a conflict between the obligation to use best efforts and the independent business interests of the distributor and has the object of resolving those conflicts by the standard of reasonableness ... It therefore involves a recognition that the interests of [the manufacturer] could not be paramount in every case and that in some cases the interests of the distributor would prevail.’

42As Sellers J observed of a corporate obligor in Terrell v Mabie Todd & Co Ltd, an obligation to use reasonable endeavours would not oblige the achievement of a contractual object ‘to the certain ruin of the Company or to the utter disregard of the interests of the shareholders’.  An obligor’s freedom to act in its own business interests, in matters to which the agreement relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use reasonable endeavours to achieve a contractual object.

43Thirdly, some contracts containing an obligation to use or make reasonable endeavours to achieve a contractual object contain their own internal standard of what is reasonable, by some express reference relevant to the business interests of an obligee.”

(footnotes omitted)

  1. The plaintiffs emphasise that this judgment explained that a promise to use reasonable endeavours to achieve a contractual object is not inconsistent with the promisor having some regard for its own self-interest. From this they argued that an agreement to negotiate, by the use of reasonable endeavours to conclude a gas supply agreement, can be seen to have a legal content which is certain. Whether that is so is at the heart of the present case. The defendants argued that neither the agreement for the use of reasonable endeavours nor the express requirement for good faith supplied a necessary legal content to this agreement to negotiate.
  1. A case involving the content and certainty of a contract to negotiate is yet to reach the High Court. But in at least four intermediate Australian Courts of Appeal, the enforceability of such a contract, in some contexts, has been accepted.
  1. In the New South Wales Court of Appeal in 1991, there was the judgment of Kirby P (as he then was and with whom Waddell A-JA agreed) in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd,[9] which was the first Australian case to recognise that prospect of enforceability (although the contract there was held to be uncertain).  Then in New South Wales in the following year, in Trawl Industries Australia Pty Ltd v Effem Foods Pty Ltd trading as “Uncle Ben’s of Australia”,[10] Samuels JA questioned whether the recognition of an agreement to negotiate was consistent with the majority view of the High Court in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd[11] that an agreement to agree is incomplete and thereby unenforceable.  And in Healey v Commonwealth Bank of Australia,[12] Giles JA (with whom Mason P and Fitzgerald AJA agreed) said that it was not settled that the law recognised an agreement to negotiate in good faith.  His Honour noted that the dissenting reasoning of Handley JA, that such an agreement could not be enforceable, had support in the decision of the House of Lords in 1992 in Walford v Miles.[13]  But more recently, in United Group Rail Services Ltd v Rail Corporation of New South Wales,[14] the New South Wales Court of Appeal held that a promise to undertake “genuine and good faith negotiations” as part of a dispute resolution clause in a construction contract was certain and enforceable.  As I will discuss, the judgment of Allsop P (as he then was and with whom Ipp and Macfarlan JJA agreed) emphasised the importance of that promise to negotiate appearing in the context of an agreed dispute resolution procedure.  As Allsop P explained, that made it possible to identify a legal content in a promise to negotiate genuinely and in good faith. 
  1. In the Court of Appeal in Victoria, in Con Kallergis Pty Ltd v Calshonie Pty Ltd,[15] Hayne JA (as he then was and with whom Charles and Callaway JJA agreed), said that a contract to negotiate could have (again) sufficient certainty in the context of an agreed dispute resolution process and in particular, one which provided for arbitration.
  1. In Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd,[16] the Court of Appeal of Western Australia considered a contract which required the owner of land and a prospective purchaser to continue their negotiations towards a contract for its sale by “acting in good faith” over a defined period.  The court agreed with the trial judge that no breach of that obligation had been proved.  The judgments cited United Group Rail Services but did not advert to the fact that in that case, as Allsop P had emphasised, it was critical that the obligation to negotiate was within an agreed process to resolve disputes about an existing contract.  Strzelecki Holdings was not a case of that kind.  But this significant difference was not discussed, apparently because the respective arguments in Strzelecki Holdings agreed that the promise to negotiate in good faith was enforceable.[17]
  1. I should note also in a case before the Full Court of the Supreme Court of South Australia, Smith and Anor v Nylex Corporation Ltd,[18] a provision which required the agreed rates, in a contract for the carriage of goods, to be “negotiated” retrospectively so as to apply to services already provided under the contract, was “not the type of situation to which the opinion of the House of Lords [in Walford v Miles] was, or was intended to be, applicable”.  The present question was not otherwise discussed.
  1. In this court, Mansfield SPJ (as he then was) held in Carr v Brisbane City Council[19] that an agreement by the Council to negotiate an increase in a contractor’s rates under an existing contract was uncertain and thereby unenforceable.  His Honour said that:

“As the words clearly envisage further negotiations between the parties, they deprive the clause of the certainty required by law for it to constitute the basis of an enforceable agreement.”[20]

  1. But more recently in this court, Douglas J, in AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd,[21] upheld a promise to negotiate.  That promise was within the dispute resolution clause which was within a contract for a joint venture for an iron ore mine.  The parties agreed to use “all reasonable efforts in good faith to resolve any dispute which arises between them in connection with this Agreement …”.  They agreed on a certain procedure for meetings between the parties to the end of resolving such a dispute.  They also agreed that absent an agreement by that process, their dispute would be referred to an arbitrator.  It was there argued that the agreement to negotiate in good faith was illusory, in reliance upon Carr v Brisbane City Council and Walford v Miles.  Douglas J rejected that argument, observing that it was relevant that this clause was part of “the machinery to resolve disputes within an existing agreement”.[22]  His Honour wrote:[23]

“[25]In this agreement cl 12 is not properly characterised as an agreement to agree; it does not purport to impose an obligation to negotiate a further agreement with open terms.  It is an agreement about the process to adopt when the participants disagree.”

Douglas J referred to what was said by Longmore LJ in Petromec Inc v Petroleo Brasileiro SA Petrobras,[24] where a contract allowed a party to recover certain costs which it had incurred in the poor performance of the contract and required the parties to negotiate as to the amount of those costs.  Longmore LJ observed that the entitlement to be paid those costs was one which could be enforced by the court by itself fixing the amount.  In effect, the provision for the parties to negotiate that cost was in the nature of an agreed step to resolve a dispute about an existing contractual entitlement.  Longmore LJ there distinguished Walford v Miles by saying:[25]

“The main distinction between that case and this was that in that case there was no concluded agreement at all since everything was ‘subject to contract’ …”

As I will discuss, that reasoning and the reasoning of Douglas J is consistent with the subsequent decision of the New South Wales Court of Appeal in United Group Rail Services.

  1. Although the majority view in Coal Cliff Collieries supported the possibility, depending upon the terms of the contract, that a promise to negotiate could be enforceable, the conclusion in that case does not strongly support the plaintiffs’ case here.  In that case, the parties signed a heads of agreement about a proposed joint venture for a coal mine.  It contained this provision:

“This document will serve to record the terms and conditions subject to and upon which [the parties] agree to associate themselves in an unincorporated Joint Venture. … The parties will forthwith proceed in good faith to consult together upon the formulation of a more comprehensive and detailed Joint Venture Agreement (and any associated Agreements) which when approved and executed will take the place of these heads of agreement, but the action of the parties in so consulting and in negotiating on fresh or additional terms shall not in the meantime in any way prejudice the full and binding effect of what is now agreed.”

Kirby P discussed the inconsistency between the obiter dicta of Lord Wright in Hillas & Co Ltd v Arcos Ltd,[26] that there may be an enforceable agreement to negotiate, and a line of subsequent decisions in the English Court of Appeal in which that proposition had been rejected.  Kirby P wrote:[27]

“… I do not share the opinion of the English Court of Appeal that no promise to negotiate in good faith would ever be enforced by a court.  I reject the notion that such a contract is unknown to the law, whatever its term.  I agree with Lord Wright’s speech in Hillas that, provided there was consideration for the promise, in some circumstance a promise to negotiate in good faith will be enforceable, depending upon its precise term.  Likewise I agree with Pain J in Donwin that, so long as the promise is clear and part of an undoubted agreement between the parties, the courts will not adopt a general principle that relief for the breach of such promise must be withheld. … Nevertheless … I believe that the proper approach to be taken in each case depends upon the construction of the particular contract … In many contracts it will be plain that the promise to negotiate is intended to be a binding legal obligation to which the parties should then be held …”

But Kirby P disagreed with the trial judge that this was an example of an enforceable agreement to negotiate.  He wrote:[28]

“Finally, in many cases, the promise to negotiate in good faith will occur in the context of an ‘arrangement’ (to use a neutral term) which by its nature, purpose, context, other provisions or otherwise makes it clear that ‘the promise is too illusory or too vague and uncertain to be enforceable’. …

In the present case, with every respect to Clarke J, I am of the opinion that this contract should be so classified.  The review of the considerations which lead me to this conclusion has already been stated.  This was not a case where an external arbitrator was nominated to resolve outstanding differences.  There were many such differences at the time of the heads of agreement and a number remain even three years later when negotiations were finally broken off.  A court would be extremely ill-equipped to fill the remaining blank spaces and to resolve questions which three years of painful negotiation between the solicitors for the parties had failed to remove.  A court could not, in this case, appeal to objective standards or to its own experience - as it might in filling a blank space in a lease of domestic premises or a contract less complex and more familiar than one for a major mining development.  At stake are commercial decisions involving adjustments which would contemplate binding the parties for years and deciding issues that lie well beyond the expertise of a court.  How mining executives, attending to the interests of their corporation and its shareholders might act in negotiating such a complex transaction is quite unknowable.  Therefore, although I agree with Clarke J that some contracts to negotiate in good faith may be enforced by our law, this was not such a contract.”

That reasoning could be thought to be particularly relevant to the present case where this court would be no more “equipped to fill the remaining blank spaces” remaining after negotiations had failed.  But with respect, it may be questioned whether the difficulties which his Honour there described were directly relevant to the question of whether the agreement to negotiate towards a fuller joint venture agreement had a legal content which made it enforceable.  It may be that such a content could be identified and applied without a court being able to express the terms of an agreement which would or might have followed from the agreed process of negotiation. 

  1. The law in England is according to Walford v Miles.  The leading speech was delivered by Lord Ackner who said:[29]

“While accepting that an agreement to agree is not an enforceable contract, the Court of Appeal appears to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavours and as the latter is enforceable, so is the former. This appears to me, with respect, to be an unsustainable proposition. The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined "in good faith." However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adverserial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. Mr. Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question - how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an ‘agreement?’ A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”

  1. In United Group Rail Services, Allsop P disagreed with Lord Ackner and substantially agreed with Kirby P.[30]  Referring to Lord Ackner’s speech, Allsop P said:[31]

“… An obligation to undertake discussions about a subject in an honest and genuine attempt to reach an identified result is not incomplete.  It may be referable to a standard concerned with conduct assessed by subjective standards, but that does not make the standard or compliance with the standard impossible of assessment. Honesty is such a standard: cf Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Twinsectra Ltd v Yardley [2002] 2 AC 164. Whether it is capable of assessment depends on whether there is a standard of behaviour that is capable of having legal content. Asserting its uncertainty does not answer the question. The assertion that each party has an unfettered right to have regard to any of its own interests on any basis begs the question as to what constraint the party may have imposed on itself by freely entering into a given contract. If what is required by the voluntarily assumed constraint is that a party negotiate honestly and genuinely with a view to resolution of a dispute with fidelity to the bargain, there is no inherent inconsistency with negotiation, so constrained. To say, as Lord Ackner did, that a party is entitled not to continue with, or withdraw from, negotiations at any time and for any reason assumes that there is no relevant constraint on the negotiation or the manner of its conduct by the bargain that has been freely entered into. Here, the restraint is a requirement to meet and engage in genuine and good faith negotiations. For the reasons expressed below that expression has, in the context of this contract, legal content.”

  1. Allsop P concluded that the agreement to negotiate in good faith in that contract had a sufficiently certain legal content, because of the meaning which was to be attributed to “good faith” in that contract.  The promise to negotiate was in the context of a dispute resolution regime within a contract for the construction of rolling stock.  Allsop P said that the clause required “the totality of likely disputes between the parties to be dealt with by [it]”.[32]  It was agreed that if a dispute or difference arose between the parties in respect of the contract, it was to be determined in accordance with that procedure.  That firstly required a party to give a notice which specified the dispute or difference and provided particulars of it and “the position which the party believes is correct”.  These were terms which required some types of disputes or differences to be submitted to expert determination.  In that event, the determination was to be final and binding unless a party gave a notice of appeal against it.  In the event of a notice of appeal being given or if the dispute was not of a kind which had to be submitted for expert determination, then the dispute or difference was to be determined by arbitration in the way which was there set out.  The first step which was required of the parties in that path to an arbitration was that of negotiation.  In that context, cl 35.11 provided that:

“… the dispute or difference is to be referred to a senior representative of each of the Principal and Contractor who must:

(c)meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and

(d)if they cannot resolve the dispute or difference within 14 days after the giving of the notice under clause 35.1 [the notice of dispute or difference] or 35.9 [the notice of the expert determination] (whichever is later), the matter at issue will be referred … for mediation.”

There was a term that if the senior representatives referred to under cl 35.11 could not resolve the dispute or difference or the matter was not settled at the mediation, then it was to be referred to arbitration. 

  1. The critical provision was therefore the agreement within cl 35.11(c) for the senior representative parties to meet and undertake genuine and good faith negotiations with a view for resolving a defined and particularised dispute or difference.  What was to be resolved, if possible, by negotiation was a dispute about their existing contractual relationship. 
  1. In that context, Allsop P interpreted the requirement for “genuine and good faith negotiations” as confining a party to a negotiating position which accorded with that party’s genuine belief about its relevant rights or obligations.  It thereby required a standard of honesty.  In that way, the performance by a party of its obligation to negotiate genuinely and in good faith could be assessed and the obligation thereby had a legal content which made it certain and enforceable. 
  1. In several places within his Honour’s judgment, Allsop P emphasised that the particular context of this agreement to negotiate was in the resolution of a dispute about an existing contractual relationship.  He distinguished that context from cases such Coal Cliff Collieries (or the present case).  Allsop P wrote:[33]

“It is unnecessary to express any opinion on the facts and the application of principle to the facts in Coal Cliff Collieries.  Suffice it to say that despite the views of such an experienced commercial judge as Clarke J (the trial judge in Coal Cliff Collieries) that the clause did not lack certainty, there is force in the conclusions of Kirby P, given the open-ended nature of the operation of the obligation in that case; although, given the sophistication of the parties and their clearly expressed views, one could view many of the matters referred to by Kirby P as affecting breach or proof of breach, rather than legal content of the contractual obligation.  It is also unnecessary to consider, in the abstract, a clause providing for good faith negotiations in bringing about a commercial agreement in the first instanceThe concern in the present case is the express mutual promises of the parties to undertake genuine and good faith negotiations to resolve disputes arising from performance of a fixed body of contractual rights and obligations.  The difference is of great importance.

(emphasis added)

  1. Allsop P then described the way in which that promise to negotiate was constrained by its particular context:[34]

“It is to be anticipated at the time of entry into the contract that disputes and differences that may arise will be anchored to a finite body of rights and obligations capable of ascertainment and resolution by the chosen arbitral process (or, indeed, if the parties chose, by the Court). The negotiations (being the course of treaty or discussion) with a view to resolving the dispute will be anticipated not to be open-ended about a myriad of commercial interests to be bargained for from a self-interested perspective (as in Coal Cliff Collieries). Rather, they will be anticipated to involve or comprise a discussion of rights, entitlements and obligations said by the parties to arise from a finite and fixed legal framework about acts or omissions that will be said to have happened or not happened. The aim of the negotiations will be anticipated to be to resolve a dispute about an existing bargain and its performance. Honest and genuine differences of opinion may attend the parties’ views of their rights and obligations. Such things as difficulties of proof and uncertainty as to fact or law may perfectly legitimately strike the parties differently. That accepted, honest business people who approach a dispute about an existing contract will often be able to settle it. This requires an honest and genuine attempt to resolve differences by discussion and, if thought to be reasonable and appropriate, by compromise, in the context of showing a faithfulness and fidelity to the existing bargain.”

(emphasis added)

His Honour continued:[35]

“[72]… That the phrase ‘good faith’ contains the notion of fidelity (or faithfulness) to the bargain conforms with what other jurisdictions have seen as the core of the concept and with historical uses of the phrase: H K Lucke op cit at 161 and following. Most importantly, its strength lies in its closeness to the contractual jurisprudence of the common law (Secured Income Real Estate (Australia)) and the appreciation that the parties have expressly bound themselves to a good faith standard in seeking to resolve a dispute arising from an existing bargain about the resolution of which dispute they anticipate having different views. The parties have mutually agreed to bring an approach of genuineness and good faith to that process of seeking resolution of any such disagreement. That agreement carried with it, in ordinary language, a requirement to bring an honestly held and genuine belief about their mutual rights and obligations and about the controversy to the negotiations, and to negotiate by reference to such beliefs.

[73]These are not empty obligations; nor do they represent empty rhetoric. An honest and genuine approach to settling a contractual dispute, giving fidelity to the existing bargain, does constrain a party. The constraint arises from the bargain the parties have willingly entered into. It requires the honest and genuine assessment of rights and obligations and it requires that a party negotiate by reference to such. A party, for instance, may well not be entitled to threaten a future breach of contract in order to bargain for a lower settlement sum than it genuinely recognises as due. That would not, in all likelihood, reflect a fidelity to the bargain. … Nothing in c1 35.11 prevents a party, not under such a clear appreciation of its position, from vindicating its position by self-interested discussion as long as it is proceeding by reference to an honest and genuine assessment of its rights and obligations. …

[74]With respect to those who assert to the contrary, a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those pre-existing rights is not vague, illusory or uncertain. …

[76]… [T]here is, however, a constraint on the negotiation, though this constraint is not one to advance the interest of the other party. Rather, it is a (voluntarily assumed) requirement to take self-interested steps in negotiation by reference to the genuine and honest conception of the pre-existing bargain, including the rights and obligations therefrom and of the facts said to comprise the controversy. Within that constraint of those genuinely and honestly held beliefs as to the bargain, the required behaviour is genuine and good faith negotiations with a view to settlement or compromise.

[77]… The yardstick is honest and genuine negotiation, within the framework of fidelity to the bargain and the posited controversy. … Once one appreciates that the content of such a clause, in the framework existing legal obligations, includes fidelity to the existing bargain, including the clause itself, the constraint that a party has taken on by the voluntary and willing entry into the contract is that it is free to pursue its own interests in negotiation, but by reference the honest and genuine appreciation of the rights and entitlements arising out of the relationship and touching the controversy. …”

  1. In the present case, the agreement to negotiate has been qualified both by a standard of reasonableness (cl 1.3) and a standard of good faith (cl 2(b)).  The reasoning of Allsop P cannot be applied to “good faith” in this case, where what was to be negotiated was not a dispute about an existing set of facts and circumstances relevant to the content of a pre-existing contractual relationship.  There could be no element here of “fidelity to the existing bargain”. 
  1. However, the plaintiffs’ argument focuses upon the standard of reasonableness and does not seek to give any content, or at least distinct content, to the standard of good faith. The standard of reasonableness, obviously, has many legal applications for which it has an established content. But at least thus far, it does not have an established a content in the present context.
  1. In the passage from the speech of Lord Ackner in Walford v Miles which I have set out above, his Lordship referred to a judgment where “the Court of Appeal appear[ed] to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavours and [where it was reasoned that] as the latter is enforceable, so is the former”.  That was a reference to the judgment of the United States Court of Appeal, Third Circuit, in Channel Home Centers, Division of Grace Retail Corporation v Grossman.[36]  I agree that in that judgment, which cited US authorities to the same effect, “good faith” in this context was equated with “best efforts”.  That reasoning as to the meaning of “good faith” is not part of the law in this country and, in any case, it would not assist in the application of a standard of reasonableness
  1. In Strzelecki Holdings, as I have noted, an obligation to negotiate in good faith towards a contract for the sale of land was not the subject of any argument or consideration as to its enforceability, although the primary judge (Murray J) commented that the law in that respect was not “abundantly clear”.[37]  Nevertheless, the judgments considered the content of “good faith” in that contract.  Pullin JA (with whom Newnes JA agreed) said that it required honesty but not reasonableness.[38]  Pullin JA said that it was difficult to know what reasonableness would require in this context “unless the reference to reasonable standards of ‘conduct’ is a reference to conduct which permits the negotiations to proceed”.  He said that the express obligation that the parties “deal” with each other by negotiating did “not suggest that the content of an offer made in negotiations where the parties must deal with each other in good faith must pass some objective test of reasonableness to be assessed by the courts”.[39]  Murphy JA also discussed the content of “good faith” in that contract, concluding that it could be “characterised as a duty not to negotiate in bad faith”.[40]
  1. In the MOU, the terms “reasonable endeavours to negotiate” and “work in good faith to progress the gas supply agreement” would have to be, some way, read together. They would each have to be interpreted as prescribing a standard which was certain and thereby enforceable. Perhaps they should be understood as prescribing but one standard, rather than two standards (which would be a less likely intention). And if there was but one standard, what was it? Those ambiguities may be able to be resolved. But the question would remain whether either expression contained a certain content by which the term could be enforced.
  1. The essential difficulty identified by Lord Ackner remains: in an agreement of the present kind (as distinct from that in United Group Rail Services), how can a standard of reasonableness or good faith be measured and applied so as to give the promise a sufficiently certain content?  Unlike cases such as Electricity Generation Corporation v Woodside Energy Ltd, there is no existing contractual relationship to which that standard of reasonableness could be anchored.  A duty to carry on negotiations in good faith or reasonably in a context such as the present is, as Lord Ackner said, “repugnant to the adverserial position of the parties when involved in negotiations”.  Outside the constraints upon negotiations in cases such as United Group Rail Services, a standard of reasonableness is inconsistent with what Allsop P described as the nature of negotiation, which is that it is “an essentially self-interested commercial activity”.[41]  In other legal contexts (such as a common law duty of care) the standard of reasonableness defines the way in which a party’s duty to act in the interest of another is measured.  But in the context of negotiations “about a myriad of commercial interests to be bargained for from a self-interested perspective (as in Coal Cliff Collieries)”,[42] the standard is inapt and uncertain.
  1. In this case, the parties provided some framework for their negotiations by defining some matters which had to be within the agreement to be negotiated and by specifying the “indicative” terms and conditions of Schedule 2 to the MOU. However, this did not provide the necessary content to their agreement to negotiate. Those indicative terms were no more definitive of an enforceable legal obligation than were the terms of the heads of agreement in Coal Cliff Collieries
  1. In my view, neither the agreement to the reasonable endeavours within cl 1.3 or (if it be different) the agreement to work in good faith within cl 2(b) of the MOU had a sufficiently certain legal content.  Therefore, they are unenforceable.
  1. The plaintiffs also plead promises by the defendants in cl 2(a) of the MOU which proscribed dealings in relation to “a Competing Proposal”.  Clause 2(a) is different, in that it proscribed certain dealings rather than requiring a party to negotiate.  The defendants appear to accept that cl 2(a), at least if severable from the unenforceable provisions of the MOU, was a certain and enforceable provision.  In that respect, the plaintiffs cited what Lord Ackner went on to say in Walford v Miles about the difference between such a negative agreement, that is to say an agreement not to negotiate for a fixed period with a third party, and a positive agreement to negotiate.[43]  There was no argument as to whether cl 2(a) could be severed from the unenforceable provisions of the MOU.  The question in that respect would be whether it was the evident intention of the parties, having regard to the MOU as a whole, that an otherwise valid term should be enforceable.[44]  Because this point was not argued, it should not be determined here, at least adversely to the plaintiffs.  As already noted, the MOU contained a provision which might support a severance (cl 11) and the promises in cl 2(a) would not fail for the absence of consideration because the MOU was executed as a deed. 

The alleged breaches of the MOU

  1. In paragraph 17A of the amended statement of claim, the plaintiffs plead breaches of cll 1.3 and 2(b).  In paragraph 17A(a), they allege that the defendants failed to negotiate “in a timely manner” in a way which is said to be pleaded in parts of paragraph 17 of the statement of claim.  In paragraph 17A(b), they allege that there were breaches of cll 1.3 and 2(b) by the defendants insisting on certain terms to be included which were inconsistent with Schedule 2 of the MOU.  On my interpretation of Schedule 2, that complaint could not be made. 
  1. In paragraph 17A(c), the plaintiffs plead that the defendants engaged in conduct which, if it occurred, breached the negative obligations in cl 2(a) of the MOU.  In that respect, the pleading refers to conduct which is set out in paragraphs 17(aa) and 19 of the statement of claim.  Paragraph 17(aa) alleges that after receiving draft contracts from the plaintiff company, “the defendants considered the draft agreements in comparison with proposals from Queensland Gas and Stanwell Corporation Limited”, the particulars being described as a certain email.  In paragraph 19, the plaintiffs allege that during the Exclusivity Period, representatives of the defendants had discussions with third parties with a view to reaching agreement with them for the supply of gas from ATP 626P. 
  1. The arguments went to the evidence, such as it presently exists, of those discussions. It is sufficient to say that it is far from demonstrated that the alleged breaches of cl 2(a) were so clearly devoid of a factual basis as to warrant, on that basis, those allegations being struck out under r 171(1)(a) or (e).
  1. The plaintiffs also plead that the matters in paragraphs 17(aa) and 19 involved breaches of the positive obligations in (the unenforceable) cll 1.3 and 2(b).[45]

The alleged damage

  1. In paragraph 18A, the plaintiffs allege that “had the defendants used reasonable endeavours to negotiate by 30 August 2008 (or in any event no later than 30 October 2008) a [gas supply agreement] using the principles set out in Schedule 2 to the MOU or worked in good faith to progress the [gas supply agreement], there was a substantial prospect that [the parties] would have entered into a [gas supply agreement] on terms materially similar to those in [B&B’s drafts]”. Clause 21 alleges that “[a]s a result of the breach of the MOU”, the plaintiff company suffered loss and damage.
  1. There is no distinct claim for damages for breach of only the Exclusivity Provisions in cl 2(a).  It is not alleged that had the defendants not dealt with other parties or considered other proposals, the plaintiff company would have had a prospect, or an enhanced prospect, of reaching an agreement on the terms which it had proposed.  Therefore, it is not possible to strike out those parts of the statement of claim which rely upon the unenforceable cl 1.3 and 2(a) so as to leave a distinctly pleaded claim for damages for a breach or breaches of cl 2(a).
  1. The principal claim by the plaintiff company is for the lost opportunity to conclude an agreement upon its terms.  That appears from the recently added paragraph 18A which, as noted above, alleges that had the defendants negotiated as required, there was a substantial prospect of an agreement on terms materially similar to those which the plaintiff company had proposed by the submission of drafts.  Presumably then, it is those drafts to which the plaintiff would have the court consider in assessing the value of what it lost.  However, cl 21(c) alleges that “as a result of the breach of the MOU”, the plaintiff company “lost the opportunity to enter into a Gas Supply Agreement with Icon for a period of at least 15 years and to earn profits from the sale of gas supplied pursuant to that agreement to third parties”, without limiting that to a lost opportunity to conclude an agreement according to those drafts.  That is but one matter which is left unclear by the way in which the alleged loss and damage is pleaded. 
  1. Paragraph 21(e) provides these further particulars of that lost opportunity and its value:

“In terms of quantification of the loss and damage under subparagraph (c) the value of the lost opportunity is estimated by B&B to be in the sum of $221,000,000 on a net present value basis taking into account the following:

(i)applying a discount rate of 8.65%;

(ii)the gas supply period being 15 years;

(iii)the pipeline being constructed at a cost of $69,440,000 with a debt level of 75%;

(iv)the pipeline having a capacity of 20PJ/per annum;

(v)the base price of $3.15/GJ being paid for the gas subject to escalation as provided for under the MOU with a maximum market price (Wallumbilla) being achieved of $11.45/GJ; and

(vi)ATP 626P producing up to 20PJ per annum ramping up from 3PJ in year 1, 5PJ in year 2, 10PJ in year 3 to 20PJ in year 5 and thereafter for the balance of the 15 year period.”

  1. The defendants argue that the matters in (i) through (vi) are merely assumptions, and are devoid of any allegation of a material fact. As I read them, (ii) and (v) are allegations about the terms of a gas supply agreement which would or might have resulted, (iii), (iv) and (vi) are allegations of likely circumstances had an agreement been made and performed and (i) is simply a component of a calculation which the plaintiff company has adopted for the purpose of its purported valuation.
  1. It cannot be thought that this series of particulars adequately informs the defendants of the case which they would be required to meet if this pleading stands. There is no disclosure of the amount of revenue which the plaintiff company would have derived, let alone the material facts relevant to that allegation. Nor is there any indication of the likely costs which would have been incurred in deriving that revenue, other than the cost of the gas itself and of the pipeline. The costs of that pipeline would have to be particularised as would the suggestion (within (iii)) of the cost of financing that construction. The pleading does not reveal the extent to which the valuation of this opportunity has been affected, if at all, by the contingency that no agreement may have been reached. Rather, the pleading gives the impression that it has the unstated premise that a gas supply agreement must have ensued from the due performance of the MOU. It also appears that the purported valuation of the lost opportunity makes no allowance for the possibility that due performance by both sides of the MOU would have yielded a gas supply agreement but one which was significantly less favourable to the plaintiff company than that upon which this claim is premised. 
  1. In my view, the alleged loss and damage is so defectively pleaded in paragraphs 21(c) and (e) as to warrant those allegations being struck out, even absent the other problems with the plaintiffs’ case to which I have referred.
  1. To summarise my conclusions in respect of the case pleaded by the plaintiff company:
  1. the promises within cll 1.3 and 2(b) of the MOU are uncertain and unenforceable;
  1. the promises within cl 2(a) of the MOU, taken alone, are enforceable and it is at least sufficiently arguable that they are severable from the unenforceable terms;
  1. therefore, it is open to the plaintiff company to plead, if it can, a claim for damages for a breach or breaches of the terms in cl 2(a);
  1. because there is no distinct claim for damages for a breach or breaches of the terms in cl 2(a), there is no distinct part of the plaintiff company’s pleading which can be shielded from the striking out of those parts which rely upon cll 1.3 and 2(b);
  1. in any case, the claim for loss and damage within cl 21(e) is so deficiently pleaded that it should be struck out.

Mr Baldwin’s case

  1. I turn then to the claim by Mr Baldwin.  As earlier noted, his claim is effectively dependent upon the merits of the second plaintiff’s claim.  He alleges that the defendants breached cll 1.3, 2(a) and 2(b) of the MOU.  He pleads that this conduct, in turn, breached his contract with the first defendant.  This is because, he pleads, his contract contained implied terms that (first) the first defendant would do all things necessary to enable him to have the benefit of his contract and (secondly) that if he introduced a suitable party, the first defendant “would negotiate in good faith to bring about a Gas Sale Agreement within the terms of the Agency Agreement”. 
  1. Given my conclusions about the limited effect of the MOU, the case which is pleaded by him must be struck out.
  1. The defendants further argued that there was no basis for the implication of the terms which Mr Baldwin pleads.  Certainly the second of those terms must fail because of my conclusions about the MOU.  The first of those implied terms is implied in every contract:  Butt v M’Donald;[46] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [47] and Peters (WA) Ltd v Petersville Ltd.[48]  But the question would then be what constituted the benefit of Mr Baldwin’s contract.  That implied duty is different from a duty on one party to act so as to enhance the commercial value to the other party of the contract, as I said, with the agreement of Jerrard JA, in Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd.[49]

Conclusion and orders

  1. It follows that the statement of claim in its entirety should be struck out. The defendants also sought an order that the claim be struck out. As should appear from these reasons, at present there remains a possibility that the plaintiff company could plead a case which is not so obviously deficient in law or fact that it would be struck out. In particular, it is yet to be seen whether the plaintiff company could plead an arguable case of damages for breach of cl 2(a).  In turn, the prospect of Mr Baldwin pleading an arguable case based upon effectively the same conduct of the defendants cannot be fairly assessed.  Therefore, the claim will not be struck out.
  1. I was asked to order that the plaintiffs not be permitted to re-plead their case. That would effectively put paid to any cause of action which either might have consistently with these Reasons. I will not make that order.
  1. It will be ordered that the amended statement of claim compiled on 30 June 2014 be struck out. I will hear the parties as to further orders limiting the time for any amended pleading and in relation to costs.

Footnotes

[1] Uniform Civil Procedure Rules 1999 (Qld) rr 171(1)(a), 171(1)(e).

[2] Paragraph 15B of the amended statement of claim.

[3] Paragraph 15B(b) of the amended statement of claim.

[4] Plaintiffs’ written submissions, paragraph 24.

[5] Clause 4.2 of the General Conditions.

[6] Clause 4.1 of the General Conditions.

[7] (2014) 251 CLR 640; [2014] HCA 7.

[8] (2014) 251 CLR 640 at 658-660.

[9] (1991) 24 NSWLR 1.

[10] (1992) 27 NSWLR 326.

[11] (1982) 149 CLR 600 at 604.

[12] [1998] NSWCA 103.

[13] [1992] 2 AC 128.

[14] (2009) 74 NSWLR 618; [2009] NSWCA 177.

[15] (1998) 14 BCL 201.

[16] (2010) 41 WAR 318.

[17] As noted by Pullin JA at [35] and Murphy JA at [82].

[18] (1994) 178 LSJS 216; BC 9404829.

[19] [1956] St R Qd 402.

[20] [1956] St R Qd 402 at 411.

[21] [2010] 2 Qd R 101.

[22] [2010] 2 Qd R 101 at 111 [23].

[23] [2010] 2 Qd R 101 at 112.

[24] [2005] EWCA Civ 891; [2006] 1 Lloyd’s Rep 121, 153-154 [120]-[121], cited by Douglas J in AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2010] 2 Qd R 101 at [24].

[25] [2005] EWCA Civ 891 at [120].

[26] [1932] All ER Rep 494 at 505-507.

[27] (1991) 24 NSWLR 1 at 26-27.

[28] (1991) 24 NSWLR 1 at 27.

[29] [1992] 2 AC 128 at 138.

[30] (2009) 74 NSWLR 618 at 635 [63].

[31] (2009) 74 NSWLR 618 at 636 [65].

[32] (2009) 74 NSWLR 618 at 622 [3].

[33] (2009) 74 NSWLR 618 at 637 [69].

[34] (2009) 74 NSWLR 618 at 637 [70].

[35] (2009) 74 NSWLR 618 at 638-640.

[36] (1986) 795 F. 2 d 291.

[37] (2010) 41 WAR 318 at 331 [35].

[38] (2010) 41 WAR 318 at 334-339 especially at [50]-[51].

[39] (2010) 41 WAR 318 at 339 [62].

[40] (2010) 41 WAR 318 at 350 [98].

[41] (2009) 74 NSWLR 618 at 637 [71].

[42] (2009) 74 NSWLR 618 at 637 [70].

[43] (1992) 2 AC 128 at 139.

[44] See Whitlock v Brew (1968) 118 CLR 445 and the other cases cited in this respect in United Group Rail Services (2009) 74 NSWLR 618 at 642 [90].

[45] Amended statement of claim, paragraph 17A(d).

[46] (1896) 7 QLJ 68 at 70-71 per Griffith CJ.

[47] (1979) 144 CLR 596 at 607 per Mason J (with whom Gibbs, Stephen and Aickin JJ agreed at 599, 615).

[48] (2001) 205 CLR 126 at 142.

[49] [2006] QCA 126 at [51] and Jerrard JA at [24].

Close

Editorial Notes

  • Published Case Name:

    Baldwin & Anor v Icon Energy Ltd & Anor

  • Shortened Case Name:

    Baldwin v Icon Energy Ltd

  • Reported Citation:

    [2016] 1 Qd R 397

  • MNC:

    [2015] QSC 12

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    03 Feb 2015

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status