47 The judge stated that he found support for that conclusion in the fact that the actual amount of unmetered gas may never be known and may be incapable of precise determination. He considered that, unless the parties were to be taken as having accepted that VENCorp's determination of the amount of unmetered gas was determinative, VENCorp could never issue an effective statement of Reconciliation Amount.
48 His Honour added that his conclusion also derived support from the contrast between the express provisions of the MSO Rules for the amendment of Settlement Amounts in the case of error, and the absence from the DTA of provision for the revision of a statement of Reconciliation Amount in the case of error, and from what his Honour perceived to be the absence from the DTA of any provision for resolution of a dispute concerning the calculation of a Reconciliation Amount.
The appellant's argument
49 AGL accepts that the Legal & General test was the correct test but argues that his Honour erred in its application. AGL says that, as the test applies to the facts of this case, it is whether a calculation of Reconciliation Amount based upon an erroneous measurement of Factor D answers the contractual description of the Reconciliation Amount to be calculated and notified by VENCorp in accordance with the DTA and Connection Deed. In AGL's submission, the characteristics essential to answer that contractual description are not met in circumstances where VENCorp uses a figure for Factor D which does not reflect the actual volume of gas withdrawn by the Distributor for the Retailer under the DTA for the previous year. AGL contends that, since the figure for Factor D does not correspond to the contractual description of Factor D in either Schedule 8 to the DTA or Schedule 5 to the Connection Deed, it must follow that a calculation of Reconciliation Amount based on that figure does not accord with Schedule 8 to the DTA or Schedule 5 to the Connection Deed, and it is therefore not calculated by VENCorp "under" the Connection Deed.
The respondent's argument
50 SPI contends that the judge was correct both in principle and in the application of principle. It submits that the question of whether the erroneous calculation of Reconciliation Amount answers the contractual description of the "Reconciliation amount" fell to be determined according to whether the task of calculating the Reconciliation Amount was one which was entrusted to VENCorp. It says that it was and therefore that the determination was not reviewable for error, even error in fact or of mere mechanical calculation. According to SPI, AGL's argument amounts to saying that the determination of Factor D in the formula in Schedule 8 to the DTA and Schedule 5 to the Connection Deed was not part of the task entrusted by contract to VENCorp; and, as SPI would have it, such a proposition is plainly untenable, given that by clause 8.5 "the parties have agreed to abide VENCorp's determination of Factor D in the same way as they have agreed to abide its performance of the relatively simple calculation which the formula in the Schedules requires to be undertaken."
The relevant principles
51 I agree with the judge that the question of whether it is open to review an expert determination on the ground of error is in the first place to be decided according to whether the determination answers the contractual description of what the expert was required to determine. I also agree with the judge that the question of whether an error in determination deprives the determination of compliance with the contractual description of what the expert was required to determine is in the first place to be answered according to whether the error occurred in respect of a task which the contract entrusted to the expert. As Mason, P. explained in Holt v. Cox,[7] although mistake is not itself a ground for vitiation of a final and binding expert determination, a mistake may still be of such a nature that the resultant determination is beyond the realm of contractual contemplation - beyond anything which the parties may be supposed to have intended to be final and binding - and therefore susceptible to review.
52 The situation is analogous to that which faces a court in a cases of judicial review of administrative error. Just as an administrative decision maker has an area within which he or she may make mistakes without relevant consequence, so too an expert appointed under contract has an area within which the contract contemplates that he or she may make mistakes without relevant consequence. Similarly, just as there are some administrative mistakes which amount to jurisdictional error, and so expose a decision to judicial review, those appointed under contracts to make determinations may make errors which are beyond the area of tolerance which it is to be supposed the contract had in view.
53 Therein lies the distinction drawn in some of the authorities,[8] and observed by the judge in this case,[9] between an error in the exercise of a judgment, opinion or discretion entrusted to an expert,[10] and an error which involves objective facts or a mere mechanical or arithmetical exercise. Subject to the contract in question, it is easier to suppose that parties to a contract contemplate that an error of the former kind be beyond the realm of review than it is to think that they intend to be fixed with errors of objective fact or in processes of mechanical calculation.
54 As this case demonstrates, however, matters are likely to be more complex where error occurs in the course of an exercise which is partly comprised of discretion, judgment or opinion and partly constituted of objective fact or mechanical calculation. In some such cases, the overriding discretionary or judgmental character of the exercise may so inform each step in the determination as to put even those steps which are matters of objective fact or mere mechanical calculation beyond the scope of permissible review. In other instances it may appear that, despite the overall character of the exercise, the various steps in the determination are severable, according to whether they are essentially discretionary or judgmental or simply matters of objective fact or mechanical calculation, and that those steps which are of the latter kind are within the scope of permissible review. The question in each case is what the parties should be presumed to have intended, and that is to be determined objectively from the terms of the contract, bearing in mind the context in which it was created.
The judge's reasoning
55 In this case the judge's conclusion appears to me to be informed by two processes of reasoning. The first is apparent in his Honour's consideration of the processes involved in the determination of Factors X and Y and A, B, E and H and his conclusion that the determination of Factor D was in principle no different. The essence of it seems to be that, because the determination of some or all of those other factors involved a degree of judgment and opinion which put them beyond the scope of permissible review, the determination of Factor D should also be regarded as beyond the scope of permissible review.
56 The second line of reasoning is implicit in the judge's observation that the determination of Factor D was part of the task entrusted VENCorp under clause 16 of the Connection Deed. That suggests that his Honour regarded the overall judgmental character of the determination of the Reconciliation Amount as characterising each step of the determination as an exercise in judgment and so placing the ascertainment of Factor D beyond the scope of permissible review.
57 With respect, I take a different view. I do not agree that the determination of Factor D is to be equated with the determination of Factors X and Y, or even Factor A, B, E or H, and I do not agree that such judgmental character as may inhere in the overall determination of the Reconciliation Amount is sufficient to characterise the ascertainment of Factor D as judgmental.
The nature of the determination of Factor D
58 To begin with the nature of the exercise involved in the determination of Factor D, the thrust of the judge's reasoning is that the determination of Factor D is more than a merely mechanical task because it requires adjustments and conversion of units of volume into units of energy. But, as has been seen, Factor D is defined in Schedule 8 as being the volume of Gas withdrawn from the Transmission System by Distributor for Retailer under the Distribution Tariff Agreement at the Connection points for the previous calendar year. Other things being equal, the volume of gas withdrawn from the Transmission System by Distributor for Retailer under the Distribution Tariff Agreement will be capable of objective measurement and will be objectively measured by meters installed and maintained in accordance with Rule 4 of the MSO Rules.
59 Clause 8.5 of the DTA provides that the Distributor must give VENCorp notice of the volume of gas. It is implicit in that requirement that the volume of which the Distributor is to give notice is the volume measured in accordance with the metering rules prescribed in Rule 4.4 of the MSO Rules. That rule sets out comprehensive metering requirements for connection points on the transmission system and distribution delivery points at which gas is withdrawn by market customers. The key principle adopted in the rule is that there must be a metering installation at each connection point on the transmission system and each delivery point at which gas is withdrawn by a market participant and required to be measured for settlement purposes. Rule 4.4.26 provides that metering data must by used by VENCorp as the primary source of data for settlement purposes under the MSO Rules. The close interconnection between the MSO Rules, the DTA and the Connection Deed implies that metering data must also be used in the calculation of the Reconciliation Amount pursuant to the DTA.
60 Admittedly, it is possible that a meter may malfunction and hence that VENCorp may be required by Rule 4.24 to adopt substitute readings for a period not exceeding six months leading up to the date of discovery of the malfunction. The possibility of some such substitution suggests a degree of judgment, opinion or discretion entrusted to VENCorp. But I am unable to attribute to that possibility the significance which the judge considered it to have. It is not a judgment, opinion or discretion which falls to be exercised in the usual run of case and it did not fall to be exercised in this case. Here there was no meter malfunction. There was simply a failure to recognise the existence of an unmetered flow of gas out of the Transmission System by Distributor Retailer for AGL and, once it was recognised, the objective ascertainment of the volumes which had gone unmetered. I do not see why the parties should be taken to have intended to exclude error-based review in a case of that kind.
61 With respect, I also consider that the judge credited with undue importance the fact that the data made available to VENCorp from the meters is the quantity of gas passing through the meter, measured by volume in cubic metres or mass in kilograms, and that the quantity needs then to be standardised by corrections for pressure, temperature, and natural gas composition and multiplied by a heating value in order to produce the quantity of energy of the gas which is expressed in joules. While such post-meter computations may be seen to involve a degree of judgment, opinion or discretion, and for that reason, perhaps, to be within the area in which VENCorp is permitted to err, it remains that, ordinarily, the volume of gas withdrawn from the Transmission System by Distributor for Retailer is an objectively discernible quantity, in respect of the measurement of which there is no need or room for discretion, judgment or opinion, and hence I see no reason why that should be thought of as intended to lie beyond the scope of error-based review.
62 It will be recalled that a further part of the judge's reasoning about the nature of the ascertainment of Factor D rests upon acceptance of TXU's proposition that it is always possible that the actual amount of unmetered gas may never be known and may be incapable of precise determination. His Honour thought it followed from that possibility that, if the determination of the amount were susceptible to review for error, "it could never be said that VENCorp could ever issue an effective Reconciliation Amount". In turn he regarded that as providing "a demonstration of the reason for the parties agreeing to accept the determination of VENCorp as to the Reconciliation Amount".
63 But with respect, to say that the actual amount of unmetered gas may never be known and may be incapable of precise determination is to say no more than that it is possible that a volume of gas at one time thought to have been accurately measured will later be found to have been inaccurately measured. It does not follow that it is impossible for VENCorp to issue an effective determination of the Reconciliation Amount unless the volume of gas upon which it bases the ascertainment of Factor D is not reviewable for error. As with most things to be ascertained by measurement, what is accurate is never more accurate than what is for the time being believed to be accurate. Yet what is issued on the basis of it will be taken as accurate, and so therefore as effective and enforceable, unless and until some inaccuracy in measurement be shown.
64 Finally, on this aspect of the matter, it will be recalled that the judge treated as significant that disputes as to the calculation of the Reconciliation Amount were not included in Schedule 4 of the Connection Deed as one of the matters to be resolved in accordance with the dispute resolution procedures provided for in the deed. His Honour reasoned that :