BP Australia Pty Limited v Nyran Pty Limited [2002] FCA 679 | Case summary

Federal Court of Australia|2002-05-28|Before: Nicholson J

REASONS FOR JUDGMENT 1 The applicant brings a motion seeking orders that the hearing of this proceeding be expedited and be set down on a date before 1 July 2002.

Background circumstances 2 As appears from the statement of claim, the applicant entered into a fuel supply agreement ("the FSA") with the respondent on or about 1 April 1998 whereby the applicant agreed to supply fuel to the respondent for a period of three years commencing on 2 April 1998. It is pleaded that pursuant to the FSA, clause 11 thereof, provided that the applicant would supply fuel to the respondent at specified prices. Clause 21 provided: "21. The Second Price Negotiation will be deemed to have concluded on the Second Year Anniversary and; 21.1 … 21.2 if new prices have not been agreed, then the prices specified in clause 11 will continue to apply; for the remainder of the Term." 3 It is then pleaded that in October 1999 the applicant and the respondent undertook negotiations in relation to the FSA. On or about 17 November 1999 it is pleaded that there was agreement reached between them to the effect that the respondent would take supply of fuel from the applicant and would not seek supply from an alternative source; the term of FSA would be extended from three years to seven years; and the respondent would pay a clean fuel quality premium ("CFQP") charged by the applicant upon the applicant's assurance that such CFQP would not exceed that paid by other customers of the applicant. The position in relation to the CFQP is not a matter of further concern for the purpose of these reasons. Around 14 December 1999 it is alleged that the applicant proposed the first draft of amendments to the FSA. 4 However, in May 2000 the same parties undertook further negotiations. It is alleged that in early May 2000 the respondent agreed with the applicant that: "(a) a price renegotiation take place each year during the month preceding the anniversary of the commencement of the FSA ("the price negotiation period"), with the aim of agreeing new prices for the fuel to be supplied pursuant to the FSA; (b) if new prices were agreed during the price negotiation period, those new prices would take effect for a period of twelve months commencing on the next anniversary of the commencement of the FSA ("the next twelve months"); (c) if new prices were not agreed the prices specified by BP during the price negotiations period would be the prices at which fuel would be supplied for the next twelve months subject to Gull's rights in subpar (d) (d) if new prices were not agreed during the price negotiation period, Gull was entitled (except in the case of a failure to agree new prices for the CFQP), within 7 days of the date on which the next twelve months commenced to give 90 days' notice in writing of the termination of the FSA and, the new prices specified by BP during the price negotiation period would apply to the fuel supplied pursuant to the FSA (e) the CFQP for motor spirit would be $0.0035 until the agreed Changeover Date (as defined) unless a "Suitable Regional Marker" was agreed by both parties prior to 30 June 2000 provided that any increases in prices be no greater than any increase to any other customer of BP in Western Australia." 5 The statement of claim also pleads that around the same date the applicant forwarded to the respondent written confirmation of agreed amendments to the FSA and further pleads that in early August 2000 the respondent orally reconfirmed its agreements to the terms discussed and agreed in early May 2000. On 29 November 2001 the applicant submitted a first draft of a Deed of Restatement and Variation ("the Deed") and restated fuel supply agreement ("the RFSA"). Following further negotiations and amendments it is pleaded that around February 2002 the applicant and respondent executed the final version of the Deed and the RFSA. The applicant alleges that upon the proper construction of these documents: (a) if new prices are not agreed during a price negotiation period then (except in the case of a failure to agree a new CFQP) Gull may, within 7 days of the date on which the next twelve months commenced give 90 days' notice in writing of termination of the RFSA; (b) if new prices are not agreed during a price negotiation period then the prices specified by BP during the price negotiation period will apply to the fuel to be supplied pursuant to the RFSA for the next twelve months. 6 It is further pleaded that if the Deed and the RFSA do not upon their proper construction reflect the above position relied on by the applicant then there was mutual mistake entitling the applicant to rectification to give effect to the common intention of the parties. 7 It is additionally pleaded that representations were made by the respondent to the applicant in trade or commerce to the effect of pars (a) and (b) immediately above and that such representations were future representations within the meaning of s 51A of the Trade Practices Act 1974 (Cth) ("the Act"). That allegation falls to be considered against a further pleaded allegation that by a letter dated 5 April 2002 ("the Letter") the respondent advised the applicant that the intention of the Deed and the RFSA, and its intention when negotiating and entering into those documents, was that if new prices were not agreed in the price negotiation period the prices for the next twelve months would not increase but remain at the prices charged for the preceding twelve months. It is alleged that if that was the respondent's intention then it engaged in conduct which is misleading or deceptive or is likely to mislead or deceive. 8 Then it is pleaded that new prices were not agreed between the applicant and the respondent in the price negotiation period preceding 2 April 2002. Accordingly, the applicant claims an entitlement to charge for fuel supplied to the respondent under the RFSA at the prices specified by the applicant in the letter dated 28 March 2002, liability for which is denied by the respondent. As a consequence of the alleged misleading or deceptive conduct the applicant claims to have suffered or be likely to suffer loss and damage and the RFSA is liable to be varied by order under s 87(2)(b) of the Act to ensure that it gives effect to the representations alleged. 9 Alternatively and finally, it is pleaded that if the applicant's construction of the Deed and the RFSA is not correct and the RFSA is not liable to be rectified or is not liable to be varied pursuant to s 87(2)(b) of the Act, then the agreement between the parties as to prices is void and there is no obligation upon it to supply fuel to the respondent under the RFSA. 10 In accordance with these pleadings in the statement of claim the application seeks declarations directed to the proper construction of the Deed and the RFSA and the entitlement of the applicant to charge the prices specified in its letter to the respondent dated 28 March 2002. It also seeks in the alternative orders for rectification of the RFSA, an order for variation of the RFSA or a declaration that the RFSA is void. Finally, damages and interest are sought.

Evidence 11 The applicant seeks to support its motion with an affidavit of the External Contracts Manager for its Western Australian operations ("the deponent"). 12 Because of the commercial sensitivity of the information in one sentence of the affidavit and some of the exhibits to it, orders were made that (1) the sentence beginning "For example" in par 17 of the deponent's affidavit together with (2) exhibits KB1 and KB2 be subject to a confidentiality order to the effect that no person shall disclose the contents of those to any party without the prior written consent of the parties (or their solicitors) or the prior leave of the Court save and except to its solicitors and counsel for the purposes of the conduct of the proceedings. Additionally, the Court has acceded to that portion of the motion for the applicant that requires the confidentiality of exhibits KB3, KB4 and KB5 to the same affidavit to be maintained pending further orders of the Court. 13 In her affidavit the deponent gives evidence in relation to the Deed and the RFSA and the negotiations leading to them as well as the dispute made apparent on the pleadings in the statement of claim in relation to the new prices at which the applicant intends to supply fuel to the respondent from 1 July 2002. She states, as the pleadings reflect, that the dispute between the parties distils to the following basic propositions. The applicant contends that the prices the respondent will be liable to pay for fuel supplied pursuant to the RFSA by the applicant to the respondent from 1 July 2002 until 2 April 2003 are the prices notified by the applicant to the respondent on 28 March 2002. The respondent asserts that the prices it should pay for fuel to be supplied to it from 1 July 2002 are the currently prevailing prices. 14 The affidavit then addresses matters upon which the deponent relies to contend that there is a need for expedition of the hearing of the claim. Those matters appear in pars 12 - 17 of the affidavit, which read: "(12) BP wishes to comply with its contractual obligations as determined by the Court and it seeks to have those obligations determined by the Court as a matter of urgency. So long as the question of the prices which BP is entitled to charge Gull from 1 July 2002 remains unresolved, there are potentially significant financial and economic consequences not only for the parties themselves but also for the market generally. Early determination of this dispute is important to a determination of the prices that will be charged, not only by BP to Gull but also to other market participants such as the OOCs and, of course, ultimately to consumers of fuel in Western Australia. (13) A number of potentially significant difficulties arise depending upon whether BP charges Gull the higher prices specified in its letter of 28 March 2002 from 1 July 2002 (confidential exhibit "KB4") and, if so, whether Gull pays those prices. (14) Questions will inevitably arise as to the retail prices which will be charged for so long as the current dispute remains unresolved, and as to the consequences for the market and for consumers. For instance, if Gull was to pay BP the currently prevailing prices (thereby potentially placing Gull immediately in breach of the RFSA) and not pass on to consumers any increase reflecting the new prices for which BP contends then, the longer the dispute remains unresolved the greater the likelihood that Gull will not have recouped sufficient revenue from the retail market to satisfy any liability to BP for damages if BP's interpretation of the RFSA is ultimately upheld. This may have the potential to threaten Gull's viability, which would not only have consequences for BP's ability to recover any damages to which it was entitled but would also impact upon consumers of fuel in Western Australia. (15) Alternatively, Gull might seek an injunction restraining BP from charging the higher prices. If it were to succeed in obtaining an injunction, I understand it would be obliged to give an undertaking as to damages. If Gull's interpretation of the RFSA was ultimately found to be incorrect, the damages for which Gull would be liable under the undertaking could amount to approximately A$34m. Now produced and shown to me and marked confidential exhibit "KB5" are details of the damage BP would suffer in those circumstances. (16) In addition to the matters outlined above, until the dispute with Gull is resolved BP is confronted with substantial commercial difficulties in its negotiations with all of the OOCs, which account for 4.6 billion litres of fuel sold in Western Australia per annum and 33 billion litres of fuel sold per annum elsewhere in Australia. These difficulties may also have significant ramifications for consumers and for the structure of the market and the operation of the market generally. (17) If BP charges Gull the currently prevailing price after 1 July 2002 and charges the OOCs the market price after 1 July 2002 then those circumstances could give rise to artificial anomalies in the structure of the market. [Confidential sentence omitted]. Changes in market share of the various participants in the market would likely occur. It is inevitable, in my view, that the pricing disadvantage of the OOCs would cause them to place commercial pressure on BP to reduce its prices to the OOCs thereby causing a substantial loss to BP if it has to sell below market price in order to maintain some equality among the market participants to which BP supplies."

Admissibility of applicant's evidence 15 The respondent by motion seeks to have pars 12 - 17 of the deponent's affidavit struck out on the grounds that those paragraphs comprise inadmissible opinion, speculation, conclusions, argument and hypothesis. 16 As the consequence of submissions by the parties it was made apparent on behalf of the applicant that it put forward the pars 12 - 17 of the deponent's affidavit on the basis that they were her expert views. By agreement, therefore, she was called to be cross-examined on her affidavit.

Evidence of applicant's deponent 17 The deponent's duties relate to the applicant's Kwinana Refinery. They range from commercial aspects in relation to some specific contracts, including the respondent, and also to looking after the procurement team within the refinery. The main contracts which she supervisors are the respondent's contract and the "Edison Mission Contract" plus a variety of other minor contracts. Edison Mission is the main electricity supplier to the Refinery. That position has been held by her since 1 December 2001. 18 The deponent commenced employment with the applicant twelve years ago. Since then she has progressively held the following positions: · For the first five to six years of her career she was concerned with the technical aspects of the refinery process, utilising her qualifications from the United States as a Bachelor of Science in chemical engineering. · For about eighteen months she was in Melbourne in the supply group as a competitor analyst with responsibilities of understanding the regional supply demand balances and issues surrounding Australasia. That involved examination of the strategy and understanding of the market place within Australasia. · For about two years she was senior business development analyst involved in the capital commercial aspects of the refinery, looking at development strategies for it. · For a time she was technical team leader for the refinery, looking after the chemical process engineers, the team comprising about fifteen people. · Immediately prior to her present position she was the assurance manager with responsibilities relating to reorganisation of the Kwinana Refinery including the reduction of personnel and the management of health, safety and environmental aspects. She held this position for approximately eighteen months. 19 The deponent explained that the person responsible for the negotiations with other oil companies was, with the exception of her involvement in the supply contract of the respondent, located in Melbourne. The respondent was an exception because it had required a Western Australian representative of the applicant to deal with. She communicated on a regular basis with that person in Melbourne and was kept informed concerning the state of negotiation with other oil companies by that person. The Integrated Supply and Trading branch of the respondent operates out of Melbourne and negotiates all product contracts, product supply contracts and crude purchasing contracts, with the exception of the deponent's involvement with the respondent at Kwinana. 20 The consequence of this arrangement is that, while maintaining close networks and working relationships with her relevant counterpart in Melbourne with regards to the respondent, the deponent does not discuss terms with other oil companies. Consequently, she is reliant upon what she is told by personnel within the applicant based in Melbourne concerning the status of negotiation between it and other oil companies. 21 The deponent testified in cross-examination that she did not hold a degree in economic theory although she had done various courses in that subject. In this way she had undertaken a supply economics course and a financial decision-making course. As senior business development analyst she had been the refinery expert in terms of the economic analysis of projects. 22 The deponent testified the foundations of her knowledge in respect of each of the abovenamed paragraphs of her evidence were as follows: Re par (12): Her opinion as well as the company and the group of experts she had relied on within the team she has worked with who had argued and thought about hypotheses. The team included the business support manager, the business unit leader, the IST supply manager for the southern hemisphere and the applicant's product supply trader. She described it as "a combination of logic and … a combination of hypotheses that were developed with various opinions of my colleagues". In cross-examination she described this as "a combined team effort". Re par 14: Logic and knowledge and involvement by her with the applicant's strategy and followed testing of hypotheses with the abovementioned persons. She accepted that she had no knowledge of the respondent's pricing strategies other than the price at which the applicant could supply fuel to the respondent. Re par 15: She relied on logic, her experience, a document presented to her by the products supply manager for integrated supply and trading in the eastern hemisphere (a presently confidential exhibit in this application). Re par 16: Her experience in her present position and involvement in the network of people previously mentioned who were currently involved in and responsible for the negotiation with other oil companies. Re par 17: This was derived from a number of hypotheses and reference to the previously mentioned confidential exhibit and her knowledge of the respondent's current pricing structure. She had formed a view as to the most likely outcome of the negotiation with other oil companies from her working relationship with the person in Melbourne directly dealing with the other oil companies in terms of negotiations of new supply contracts for 1 July 2002.

Admissibility of challenged paragraphs 23 Admission of the challenged paragraphs is sought in reliance on s 79 of the Evidence Act 1995 (Cth) which reads: "If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge." The description "the opinion rule" is a reference to the provisions of s 76(1) which reads: "76(1)Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed." 24 It is apparent from a plain reading of s 79 that for evidence of opinion to be admitted in accordance with the exception in s 79 it must be established: (a) that the deponent has "specialised knowledge"; (b) that specialised knowledge is based on the person's training, study or experience; and (c) the opinion is "wholly or substantially" based on that specialised knowledge. 25 The operation of s 79 is to be understood in its statutory context. I have more fully examined those matters in Daniel v Western Australia (2000) 178 ALR 542. It is sufficient here to say that the effect of s 79 is to be understood in the context of s 60. That latter sections provides that the exclusionary hearsay rule in s 59 does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of the fact intended to be asserted by the representation. The section itself does not provide for the admission of the evidence. Rather, it is admitted under s 56, which provides for the admission of relevant evidence. Relevance, defined by s 55(1) exists where the evidence could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue. The consequence is that evidence of views of others, even though hearsay, may be admitted for the purpose of establishing the factual basis upon which an expert holds the expert opinions expressed by him or her: see Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 621. 26 Furthermore, that effect of s 60 in relation to the operation of s 79 is made in the context of the existence of the provisions in s 135 and 136 of the Evidence Act. The former provides that the Court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might: (a) be unfairly prejudicial to a party; or (b) be misleading or confusing; or (c) cause or result in undue waste of time. Section 136 permits the Court to limit the use to be made of evidence if there is a danger that a particular use of it might: (a) be unfairly prejudicial to a party; or (b) be misleading or confusing. 27 Turning to the evidence of the deponent it is apparent that her knowledge relevant to pars 12-17 is not based on her training or study. Its foundation rests in her experience. 28 The first observation to be made about that experience is that it has been varied over the course of her twelve year employment with the applicant. In particular, it has only in a limited portion of her time with the applicant involved her in areas of experience germane to the contents of pars 12-17 of her affidavit. Further, it is the fact that she had only held her current position since December last year. Additionally, that position is confined in relation to dealings with oil companies to the case of the respondent. 29 So far as the deponent has knowledge of the position in relation to other oil companies, it derives from her participation in communications with her colleague or colleagues in Melbourne. The principal responsibility for dealing with those companies rests with those persons. To the extent that she gives evidence of the position in relation to other oil companies it is in the nature of evidence which by operation of s 60 and s 56 becomes admissible for testing the foundations of her own knowledge. However, it falls for consideration in the application of s 135 and s 136 because it is apparent she is not herself possessed of the knowledge in that respect from her own experience alone. That would be relevant to consideration of the probative value of her evidence and to issues of prejudice to the respondent in being able to examine the foundations of the opinions. 30 There is then the question whether in those circumstances the deponent has "specialised knowledge"; that is, "knowledge" based on her experience, which knowledge is in her case "specialised". In my opinion the experience which the applicant has had has not given rise to "specialised knowledge" in relation to the issues raised in pars 12-17 save as they lie within the limited matters therein relating to the respondent. It seems to me to be impractical to seek to separate the limited reference in pars 12-17 to the respondent from the more general propositions there asserted. 31 It is apparent that the opinion which the deponent seeks to express in pars 12-17 is not "wholly or substantially" based on her experience alone. It is derivative from the "combined team effort" and dependent substantially on the views of those involved in negotiations with other oil companies. In the context of the Act, as has been said, I regard that as not properly falling within her own "specialised knowledge".

Conclusion 32 For these reasons I consider that the objection to the admission of pars 12-17 should be allowed. 33 It should be appreciated that this ruling in no way constitutes a reflection on the experience or actual specialised knowledge of the deponent. The ruling is confined only to an assessment of whether her experience and specialised knowledge therefrom qualifies in meeting the statutory tests for admission of opinion evidence in respect of the issues raised in pars 12- 17 of her affidavit. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Counsel for the Applicant: Mr RM Smith SC; Mr PR Whitford

Counsel for the Respondent: Mr J Gilmour QC; Mr M Goldblatt

Evidence Act 1995(Cth)ss 55(1), 56, 59, 60, 76(1), 79, 135, 136

Trade Practices Act 1974(Cth)s 51A, 87(2)(b)

BP Australia Pty Limited v Nyran Pty Limited

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