Callide Power Management P/L v Callide Coalfields

Judgment (161 paragraphs)

[1]

**[1] KEANE JA: Callide Coalfields (Sales) Pty Ltd ("CCS") supplies coal to Callide Power Management Pty Ltd ("CPM") under a contract made on 11 May 1998 ("the agreement"). During January and February 2007, CCS claimed that its obligation to deliver coal to CPM at the contracted rate was suspended by events of force majeure under the agreement. On 9 June 2007 CPM gave CCS notices calling upon it to deliver amounts of coal which would have the effect of catching up the shortfall for the calendar year 2007 which would otherwise have resulted from the earlier suspension of deliveries.

[2]

[2] CCS contended that it was not obliged to comply with these notices; and CPM responded by seeking a declaration that, in accordance with the proper construction of the agreement, CCS was bound to comply with the notices. The learned primary judge upheld CPM's construction of the agreement and declared that CCS was obliged to comply with the notice.

[3]

[3] CCS appeals against the decision of the learned primary judge, arguing that his Honour failed to appreciate that provisions of the agreement which permit CPM to vary the monthly rates of delivery did not permit a variation which would have the effect of obliging CCS to catch up on the amounts not delivered by reason of the events of force majeure earlier in the year.

[4]

[4] The resolution of the dispute between the parties turns on the proper construction of the agreement. It is, therefore, desirable first to set out the material terms of the agreement and the relevant factual circumstances in which the agreement operated. I will then set out the basis on which the learned primary judge determined the issue against CCS before discussing the arguments agitated on the appeal.**

[5]

**[5] The agreement is lengthy and complex. It is sufficient to set out the provisions material to the present dispute. The agreement imposes minimum and maximum delivery and acceptance obligations respectively on the parties in relation to the tonnage of coal to be bought and sold in any calendar year.

[6]

[6] As at June 2007, the agreed minimum was 2.6 million tonnes and the maximum was 3 million tonnes. The terms of cl 4 and cl 5.1 are material. They are relevantly as follows:**

[7]

The Seller must sell and deliver to the Buyer and the Buyer must purchase and take delivery from the Seller the Coal at the rate determined in accordance with this Agreement for the Contract Price and on the terms and conditions of this Agreement.

[8]

The Seller must deliver and the Buyer must accept delivery of not less than the Minimum Tonnage and not more than the Maximum Tonnage in any Calendar Year as follows:

[9]

(i) a Minimum Tonnage of 2.6 million Tonnes Equivalent of Coal; and

[10]

(ii) a Maximum Tonnage of 3 million Tonnes Equivalent of Coal,

[11]

per annum (and proportionally for any part of a Calendar Year)."

[12]

[7] In any calendar year, CPM may, upon giving CCS not less than three months' notice, require the further delivery of up to 250,000 tonnes (subject to a maximum of 600,000 tonnes over four years) at the price fixed by the agreement. Thus, the agreement provides:

[13]

(a) In any Calendar Year the Buyer may, by giving the Seller not less than three months' notice, nominate an amount of Coal of up to and including 250,000 Tonnes Equivalent ('Additional Tonnage') (provided that the amount of Additional Tonnage does not exceed 600,000 Tonnes Equivalent in any period of four Calendar Years) to be sold and delivered by the Seller to the Buyer and to be purchased and taken delivery of by the Buyer from the Seller in accordance with this Agreement together with the Buyer's nomination of:

[14]

(i) a period for the delivery of the Additional Tonnage; and

[15]

(ii) any change in the Monthly Rate in accordance with Clause 5.5.

[16]

(b) The price of the Additional Tonnage must be the Contract Price determined, at the time of the commencement of delivery of the Additional Tonnage, in accordance with Clause 10.1 and adjusted for variations in as received quality in accordance with Clause 10.3. The price for the Additional Tonnage must be adjusted not less than one month prior to the commencement of delivery of the Additional Tonnage if:

[17]

(i) the Seller can reasonably demonstrate to the Buyer's satisfaction that the Seller will incur additional costs in delivering the Additional Tonnage to the Buyer which will not be recovered by payment by the Buyer to the Seller of the Contract Price; or

[18]

(ii) the Buyer can reasonably demonstrate that the Seller will be able to take advantage of economies of scale of the incremental production represented by the Additional Tonnage.

[19]

(c) For the purposes of calculating the payment of the Contract Price due by the Buyer to the Seller for the Additional Tonnage, delivery of the Additional Tonnage in any Calendar Year is deemed not to commence until delivery of the Maximum Tonnage in any Calendar Year has been completed."

[20]

[8] CPM is obliged to give notice, which is not binding on it, of its estimate of its requirements for the quantity of coal and potential additional tonnage under cl 5.1A not less than five months prior to a given calendar year. The agreement provides relevantly:

[21]

The Buyer must give notice (which is not binding on the Buyer) to the Seller of its estimated requirements for:

[22]

(a) the quantity of Coal and the potential quantity of Additional Tonnage and ...

[23]

(b) the rate of delivery of Coal (the monthly components of which are referred to as the 'Monthly Rate'),

[24]

(d) not less than five months prior to the commencement of every Calendar Year after the Calendar Year in which the Effective Date falls.

[25]

The Coal must be delivered by the Seller at a Monthly Rate notified by the Buyer in the range of not less than that amount of Coal calculated in accordance with the following formula:

[26]

and not more than that amount of Coal calculated in accordance with the following formula:

[27]

unless otherwise provided for in this Agreement or agreed between the Parties."

[28]

[9] The effect of cl 5.4 is that CCS must deliver coal at a monthly rate which CPM may nominate between 216,667 tonnes and 300,000 tonnes. By virtue of cl 5.5, however, CPM may vary the monthly delivery rate - within the range set by cl 5.4 - by giving CCS three months' notice to that effect. This notice may be given during the relevant calendar year. The agreement provides relevantly:

[29]

The Buyer must give three months' notice (such notice not to be issued at intervals of less than three months) of any change in the Monthly Rate which will in any event be within the range specified in Clause 5.4.

[30]

Unless otherwise agreed, deliveries of Coal to the Buyer must in any month as far as is reasonably practicable be at substantially equal weekly rates.

[31]

Deliveries of Coal from the Seller must not exceed the rated capacity of the Callide B Coal Conveyor System as notified by the Buyer to the Seller from time to time. The Buyer must ensure that the capacity of the Callide B Coal Conveyor System is sufficient to allow the Seller to deliver Coal at the greater of the Monthly Rates referred to in Clause 5.4 within the delivery hours set out in Schedule 6.

[32]

The Seller must ensure that the Loadout Bin is available to load out generally on the days and during such hours in those days as are mutually agreed between the Seller and the Buyer, but not for a lesser period than the delivery hours set out in Schedule 6.

[33]

The Parties must act so as to eliminate excessive or needless stockpiling of Coal not required by the Buyer during major maintenance periods at the Power Station."

[34]

[10] The provisions of the agreement in relation to force majeure are contained in cl 14. It is in the following terms:

[35]

(a) is beyond the control of either the Coal Mine Owners or the Station Owners;

[36]

(b) causes or results in preventing or delaying the Seller or a Station Owner from performing any of its obligations under this Agreement; and

[37]

(c) could not or the effects of that event could not have been prevented, overcome or remedied by the exercise by the Coal Mine Owners or Station Owner prevented or delayed of a standard (which standard includes (but is not limited to) the expenditure of reasonable sums of money and the application of technology known to reasonable persons), of care and diligence consistent with that of a reasonable person under the circumstances,

[38]

(d) fire, lightning, explosion, flood, earthquake, storm, cyclone, action of the elements, act of God, natural disaster, radioactive contamination, toxic or dangerous chemical contamination or force of nature;

[39]

(e) riots, civil commotion, malicious damage, sabotage, act of a public enemy, war (declared or undeclared) or revolution;

[40]

(f) action or inaction by a court, government or authority (including denial, refusal or failure to grant any permit, authorisation, licence, approval or acknowledgement despite timely best endeavours to obtain the grant);

[41]

(g) strikes, lockouts, industrial or labour disputes or difficulties, work bans, blockages or picketing (unless arising from any act or omission on the part of the party claiming an Event of Force Majeure) ('Industrial Action') including, without limitation, any Industrial Action affecting directly or indirectly the Operator;

[42]

(i) breakdown or failure of any facilities, machinery or equipment;

[43]

(ii) unavailability of essential equipment, goods, supplies or services; or

[44]

caused by any one or more of the events set out in subparagraphs (d) to (g).

[45]

(i) abnormal breakdown of facilities, machinery or equipment which occurs despite the application of Good Operating Practice towards those facilities, machinery and equipment.

[46]

If either Party is affected by an Event of Force Majeure, then within two Business Days after the occurrence of the event it must give a notice to the other of the Event of Force Majeure and provide details of:

[47]

(b) the action that the affected Party has taken and proposes to take to remedy the situation;

[48]

(c) the affected Party's estimate of the time during which it will be unable to carry out the affected obligations due to the Event of Force Majeure;

[49]

(d) the affected Party's estimate of the costs it will incur to remedy the situation; and

[50]

(e) all insurance policies upon which the affected Party will be able to rely in making good damage caused by the Event of Force Majeure.

[51]

Following an Event of Force Majeure, the affected Party's obligations (including any obligation to pay money) under this Agreement will be suspended but:

[52]

(a) only to the extent and for so long as the period that such obligations are genuinely affected by the Event of Force Majeure;

[53]

(b) if the period of suspension continues without interruption for more than 180 days, the Party not affected by the Event of Force Majeure may by notice terminate that part of this Agreement that is affected by the Event of Force Majeure; and

[54]

(c) if the period of suspension continues without interruption for more than 365 days, either Party may by notice terminate that part of this Agreement that is affected by the Event of Force Majeure.

[55]

Despite Clause 14.3, the Party affected by the Event of Force Majeure will:

[56]

(a) use reasonable efforts (including the expenditure of reasonable sums of money) to mitigate the effect upon its performance of this Agreement and to fulfil its obligations under this Agreement (but without prejudice to either Parties' right to terminate this Agreement) but nothing in this Clause 14.4 obliges a Party to settle a strike, lockout, boycott or other industrial dispute;

[57]

(b) keep the other Parties informed (not less than fortnightly) of the steps being taken to mitigate the effect upon their performance of this Agreement, and an estimate of the continued duration of the delay;

[58]

(c) when the period for which its obligations are affected by an Event of Force Majeure ceases, recommence performance of all its affected obligations under this Agreement the subject of its original notice under this Clause; and

[59]

(d) upon recommencement of the performance of the affected obligations, not again invoke the provisions of this Clause in regard to the same Event of Force Majeure unless the further effect of that Event of Force Majeure could not reasonably have been foreseen.

[60]

Where it has validly issued a notice under Clause 14.2 a Party will not be deemed to be in default of its obligations under this Agreement to the extent that a failure or delay in the observance or performance of those obligations by that Party is caused by the relevant Event of Force Majeure specified in such a notice.

[61]

(a) If an Event of Force Majeure causes or results in the Callide Coalfields losing production or being prevented from producing, then, when the period for which a Seller's obligations are affected by the Event of Force Majeure ceases, the Seller will not be required to supply the quantity of coal the Seller was unable to supply during that period and any reduction or deferment of supply of Coal caused by or resulting from the Event of Force Majeure may be made by the Seller on the basis of a pro rata adjustment between the delivery requirements of the Buyer and the delivery requirements of any other of the Seller's or Coal Mine Owners' customers;

[62]

(b) If an Event of Force Majeure causes or results in the Power Station losing production or being prevented from producing then, when the period for which a Buyer's obligations are affected by the Event of Force Majeure ceases, the Buyer will not be required to take delivery of the quantity of coal the Buyer was unable to take delivery of during that period."

[63]

**[11] On 24 July 2006 CPM notified CCS pursuant to cl 5.3 of its estimated requirements for the 2007 calendar year of 3 million tonnes of coal and 150,000 tonnes of additional tonnage at an overall monthly rate which included 270,000 tonnes for January, 250,000 tonnes for February, and 270,000 tonnes for March.

[64]

[12] On 22 September 2006 CPM notified CCS pursuant to cl 5.5 of a change in the monthly rate of deliveries for January to March 2007 which would bring the delivery for each month to 300,000 tonnes.

[65]

[13] As a result of the events for which CCS declared force majeure in January, February and March 2007, there was a total shortfall in deliveries of 155,973 tonnes.

[66]

[14] On 9 March 2007 CPM gave notice pursuant to cl 5.5 increasing the monthly delivery rate for June by 40,000 tonnes and for each of July and August 2007 by an additional 30,000 tonnes over that notified for each of these months in July 2006.

[67]

[15] On 9 June 2007 CPM gave a further notice pursuant to cl 5.5 increasing the monthly delivery rate for each of September, October and November 2007 by an additional 30,000, 20,000 and 20,000 tonnes respectively, and 33,333 tonnes additional tonnage for November 2007.

[68]

[16] The 9 June notice given under cl 5.5 provided:**

[69]

"Callide Power Management Pty Limited ('CPM') provides Callide Coalfields (Sales) Pty Ltd ('CCS') with notice under Clause 5.5 of the Callide Power Project Coal Supply Agreement dated 11 May 1998 ('Agreement') of a change in monthly rate for the months of

[70]

10 September 2007 to 9 December 2007, which is more than three months from the issue of this notice. The delivery rates for these months is:

[71]

for November 2007: 270,000 tonnes (inclusive of 33,333 tonnes of additional coal under a 5.1A Notice)

[72]

Our position refuting the force majeure notices issued, by Anglo earlier in 2007 remain. All our rights are reserved with regard to those notices, including any harm suffered resultant from those notices.

[73]

This notice is issued consistent, and in conjunction with a clause 5.1A Notice."

[74]

[17] The 9 June notice given under cl 5.1A was, so far as is relevant, in the following terms:

[75]

CPM nominates an amount of Additional Tonnage in the sum of 250,000 Tonnes Equivalent to be available for sale and delivery;
CPM nominates as the period for delivery of the Additional Tonnage to be the period commencing in November 2007 and ending in December 2007 following the delivery of the Maximum Tonnage for the 2007 Calendar Year, and being a

[76]

period which commences more than 3 months after the date of delivery of this notice to you; and

[77]

· 270,000 in the month of November 2007 in total in accordance with the applicable clause 5.5 notice (which is inclusive of 33,333 tonnes of Additional Tonnage), and

[78]

· 216,667 in month of December 2007, being the balance of the Additional Tonnage."

[79]

[18] The monthly rate which had been nominated by CPM in its cl 5.3 notice of 24 July 2006 for December 2007 was 263,333 tonnes.

[80]

[19] On behalf of CCS, it was submitted to the learned primary judge that CPM's rights under cl 5.5 and cl 5.1A of the agreement to increase the maximum monthly rate of delivery were subject to cl 14.6(a). His Honour rejected this submission for the following reasons:

[81]

"The problem which I see with the argument advanced for CCS is twofold. First, the clear practical intention of the agreement is to place an upper and lower limit on the amount of coal actually delivered by CCS to CPM. There is, as I have noted above, the possibility of increasing the tonnage in one year by up to 250,000 tonnes but that increase is, according to CCS, still to be factored in according to the requirements (as they see them) of cl. 14.6(a). The second point is that the basis of CCS's arguments is that the nomination made by CPM in the year preceding the year under consideration is, in some way, a controlling nomination.

[82]

The agreement makes it clear that a nomination may be amended and no complaint was made when the nominations were amended by CPM on 9 March 2007. CCS argued that it was only when the June amendment was made that it became obvious (to it) that cl. 14.6(a) would be offended.

[83]

Clause 5.3 of the agreement requires CPM to give notice to CCS of its estimated requirements not less than five months prior to the commencement of the calendar year for which the coal is required. It is specifically provided that such notice is not binding on CPM. It could not be, as cl. 5.5 allows CPM to change the monthly rate upon the giving of three months notice.

[84]

CCS points to cl. 14.6(a) as having the effect that it cannot be required to supply the coal which was not able to be delivered during a force majeure event if to do so would take it above the nomination made by CPM in the preceding year. I do not accept that. Although Mr Gotterson QC abandoned the notion of deeming which had been advanced by his client in earlier correspondence the thrust of CCS's case is either that CPM is bound by a nomination which the agreement specifically provides does not bind it or CPM is deemed to have received coal which it did not, in fact, receive.

[85]

The effect of cl. 14.6(a) does not deny to CPM the ability granted to it elsewhere in the agreement to change its nominations so that it can receive coal up to the maximum amount allowed under the contract per month subject, of course, to the maximum allowed per year.

[86]

Clause 14.6(a) works to protect CCS from the situation which arises when a force majeure event ceases. Clause 14.3(c) provides that:

[87]

'... the Party affected by the Event of Force Majeure will:

[88]

[89]

Without cl. 14.6(a) it would be open to argument that CPM could use cl. [14.4(c)] to require CCS to perform its affected obligations, that is, to deliver the shortfall in coal. The damage that that could cause to a producer like CCS is obvious. CCS is only required to provide a maximum of 300,000 tonnes a month to CPM. If it is assumed that, due to a natural disaster of some kind, CCS could not deliver any coal in a six month period then, without cl. 14.6(a) CPM could demand that CCS 'catch up' by doubling its production in the balance of the calendar year. It could be argued by CPM that the force majeure provisions which require CCS to 'recommence performance of its affected obligations' meant that the monthly limit did not apply. A requirement to double production or even to increase it substantially would be inconsistent with the agreement's regime of a stream of production between minimum and maximum levels.

[90]

Similarly, cl. 14.6(b) protects CPM from the provisions of cl. [14.4(c)] in that CPM is not required to pay for coal which it could not use during a force majeure event. In other words, although CPM may have nominated a particular amount for a month it is not bound to take all or part of it if force majeure events dictate a different outcome.

[91]

The amended nomination of June 2007 was consistent with the terms of the agreement - it did not seek delivery of coal in excess of 300,000 tonnes a month and it did not result in delivery of coal for the entire year in excess of 3,250,000 tonnes."[1] (emphasis in original)

[92]

**[20] It is submitted to this Court by Mr Gotterson QC, who appeared on behalf of CCS, that the learned primary judge failed to appreciate the critical significance of the provision, in cl 14.6(a) of the agreement, that "the Seller will not be required to supply the quantity of coal the Seller was unable to supply during that period", ie the period of lost production resulting from the events of force majeure.

[93]

Mr Gotterson argues that the reasons of the learned primary judge fail to recognise that cl 14.6(a) must have an operation upon CCS' obligations over and above the suspensory effect of cl 14.3.

[94]

[21] Mr Gotterson also points out that the shortfall in coal delivered in January, February and March 2007 was less by 155,973 tonnes than the then current nominated monthly rates. The effect of the 9 June 2007 notices was that the notified monthly rates for delivery for the 2007 calendar year contemplated delivery of 3,147,667 tonnes, which, together with the Additional Tonnage of 250,000 tonnes, would make a total of 3,397,667 tonnes. Mr Gotterson submitted that this "requirement" exceeded that which might be made upon CCS. It is also contended that the conclusion reached by the learned primary judge is unreasonable and "unbusinesslike",[2] in that it proceeds upon a construction of the agreement which is to be avoided if that can be done having regard to the language in which the parties have expressed their bargain.

[95]

[22] Mr Fraser QC, who appeared with Mr Telford of Counsel on behalf of CPM, disputes the suggestion that the interpretation of the agreement favoured by the learned primary judge is unreasonable or "unbusinesslike". More to the point, it submits that the interpretation for which CCS contends is not, and cannot be, supported by the language of the agreement understood in its commercial context.

[96]

[23] Mr Fraser points out that Mr Gotterson's calculation of a required tonnage of 3,397,667 tonnes for the calendar year 2007 proceeds on the assumption that the amount of coal not delivered because of the events of force majeure is taken to have been "delivered" for the purposes of the agreement whereas the language of cl 14.6(a) does not purport to have that effect. Mr Fraser also argues that CCS' obligations in relation to delivery were altered by the notices of 9 June 2007, and these obligations were not affected by the events of force majeure which occurred earlier in the year.**

[97]

[24] In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, the High Court said:

[98]

"The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction."[3]

[99]

**[25] It is not suggested on behalf of CCS that evidence of surrounding circumstances is apt to alter the effect of the language of the material clauses of the agreement considered as a whole. Rather, CCS has sought to argue that cl 14.6(a) must be understood in its context as modifying the operation of the general provision in

[100]

cl 14.4(c) that when the period of force majeure ceases, the party affected by the force majeure will "recommence performance of all its affected obligations under this Agreement ..." It is said that cl 14.6(a), as the specific provision, must be given full effect.

[101]

[26] One may accept that cl 14.6(a) is intended to modify the operation of cl 14.3 in relation to the effect of an event of force majeure upon CCS' obligations in relation to delivery. In this regard, cl 14.6(a) serves to relieve CCS of its obligations in relation to delivery which were current during the period of the events of force majeure.

[102]

[27] The fatal difficulty with this argument is that CCS' obligations in relation to the total quantity of coal which it was obliged to deliver during the calendar year 2007, and the monthly rates at which that quantity was to be delivered, were not immutably fixed for that year as they were prior to the events of force majeure. CCS' obligations as to delivery were amenable to modification by notice under cl 5.1A and cl 5.5. CPM might, by giving notice under these provisions, vary CCS' obligations so that those obligations are no longer the obligations "affected" by force majeure under the Agreement.

[103]

[28] In my respectful opinion, the evident intent of cl 14.6(a) is to relieve CCS of its obligation to deliver the amount of coal affected by force majeure which it would otherwise have been obliged to deliver by virtue of earlier notices under cl 5.5 and cl 5.1A current at the commencement of the force majeure period. But cl 14.6(a) has nothing to say to the June 2007 exercise of the power, conferred on CPM by

[104]

cl 5.5 and cl 5.1A of the agreement, to "reset" the amount of coal required to be delivered by replacing the previous notices with new ones. CPM, in giving its June notices, did not exceed the limits of the powers so conferred on it to fix the maximum delivery obligations of CCS for that calendar year.

[105]

[29] The terms of the agreement do not contain any indication at all that the powers of variation conferred on CPM by cl 5.5 and cl 5.1A are not exercisable after an event of force majeure has ceased to have effect. There is nothing in the language of

[106]

cl 14.6(a) or the other provisions of the agreement which might give support to the view that cl 14.6(a) in some way controls or confines the powers of variation of CCS' obligations as to delivery conferred on CPM by cl 5.5 and cl 5.1A. Nor do the provisions of cl 14 deem the obligations suspended by the operation of cl 14.3 to have been performed as if the quantities of coal, not delivered by reason of the events of force majeure, had been delivered.

[107]

[30] I should also say that, to the extent that the argument advanced by CCS depends on an implication of some limitation on CPM's powers under cl 5.1A and cl 5.5, the existence of the express provisions of cl 5.7 in relation to maximum delivery rates is distinctly inimical to the implication of some broader limitation.[4]

[108]

[31] The construction for which CCS contends is not necessary to give the agreement business efficacy. The agreement does not leave CCS with an open-ended delivery obligation. Its terms provide expressly for the limits on CCS' delivery obligations, both in terms of total annual tonnage and monthly rate of delivery. There is nothing "unbusinesslike" about holding CCS to these obligations.**

[109]

**[32] In my respectful opinion, the learned primary judge was right to conclude that CCS was not required by CPM's notices of 9 June 2007 to deliver any more coal for the year 2007 than the agreement contemplated that CPM might legitimately require. CCS' challenge to the validity of the notices must fail.

[110]

[33] The decision of the learned primary judge was correct.

[111]

[35] CCS must pay CPM's costs of and incidental to the appeal to be assessed on the standard basis.

[112]

[36] This appeal concerns the construction of cl 14.6(a) of a coal sales contract entered into on 11 May 1998 between the appellant and the respondent for the supply by the appellant to the respondent of coal for use in a power generation plant at Biloela. Clause 14.6(a) provides:**

[113]

(a) If an Event of Force Majeure causes or results in the Callide Coalfields losing production or being prevented from producing, then, when the period for which a Seller's obligations are affected by the Event of Force Majeure ceases, the Seller will not be required to supply the quantity of coal the Seller was unable to supply during that period and any reduction or deferment of supply of Coal caused by or resulting from the Event of Force Majeure may be made by the Seller on the basis of a pro rata adjustment between the delivery requirements of the Buyer and the delivery requirements of any other of the Seller's or Coal Mine Owners' customers;" (emphasis added)

[114]

**[37] The words emphasised above are central to the appellant's argument and, for convenience, will be referred to as "the emphasised words".

[115]

[38] Clause 5.1 of the Contract provides that the appellant must deliver, and the respondent must accept delivery of, not less than a Minimum Tonnage of

[116]

2.6 million tonnes Equivalent of Coal per annum and a Maximum of 3 Million Tonnes Equivalent of Coal per annum. In any calendar year the respondent has the right to require that the appellant supply up to an additional 250,000 Tonnes Equivalent of Coal (the "Additional Tonnage"), provided that the Additional Tonnage does not exceed 600,000 Tonnes Equivalent in any period of four calendar years by giving the respondent not less than three months notice. When giving the notice, the respondent is required to notify to the appellant the period for the delivery of the Additional Tonnage and any change in the "Monthly Rate" in accordance with cl 5.5.[5]

[117]

[39] Under cl 5.3 the respondent is required to give a notice to the appellant, not less than five months prior to the commencement of every calendar year, of its estimated requirements for the quantity of coal, the potential quantity of Additional Tonnage and of the rate at which it requires the coal to be delivered. The notice is expressly stated to be "non-binding". The "monthly components" of that rate of delivery are defined as the Monthly Rate. Clause 5.5 requires the respondent to give three months notice of any change in the Monthly Rate. Any changed rate must remain within the range of not less than 216,667 tonnes and not more than 300,000 tonnes per month specified in cl 5.4. Clause 5.6 provides that unless otherwise agreed, deliveries of coal in any month must be, as far as is reasonably practicable, "at substantially equal weekly rates".

[118]

[40] On 24 July 2006 the respondent notified the appellant that its estimated requirements of coal for the year 2007 calendar year were 3 million tonnes, together with an Expected Additional Tonnage of 150,000 tonnes. The Monthly Rate was also notified. On 22 September 2006 the respondent notified the appellant of a change in the Monthly Rate for January, February and March 2007 of an additional 30,000, 50,000 and 30,000 tonnes respectively.

[119]

[41] In January and February 2007 the appellant notified the respondent on four occasions of events which the appellant alleged came within the definition of Force Majeure in cl 14.1 of the Contract.

[120]

[42] The coal delivered by the appellant in January, February and March 2007 fell short of the applicable Monthly Rates by a total of 155,973 tonnes.

[121]

[43] On 9 March 2007 and 9 June 2007 the respondent gave notice to the appellant of a change of Monthly Rates for periods in calendar year 2007 which, in accordance with cl 5.5, were not within three months of the giving of the notices. The respondent also nominated an Additional Tonnage of 250,000 tonnes for the 2007 calendar year. If binding on the appellant, the notifications made on 9 March 2007 and 9 June 2007 would require the appellant to deliver in calendar year 2007 a total of 3,240,735 tonnes of coal, just 9,265 tonnes less than the total of the Maximum Tonnage of 3,000,000 tonnes and the Additional Tonnage of 250,000 tonnes. The appellant makes no complaint about the notice of 9 March 2007. It contends however that the notices given on 9 June 2007 were invalid for the reasons about to be identified.

[122]

[44] Mr Gotterson QC, who appears for the appellant, submits that the emphasised words mean that the respondent is unable to demand of the appellant that it deliver after the expiration of an Event of Force Majeure any coal unable to be delivered in consequence of such an event. It is submitted also that the appellant was being required to supply the quantity of coal it was unable to supply during the existence of a Force Majeure Event where, as was the case, monthly rates were increased so that the appellant was required to deliver more than that quantity of coal which exceeded the total of the Maximum and Additional Tonnages less the quantity of coal unable to be delivered as a result of an Event or Events of Force Majeure.

[123]

[45] The appellant's argument proceeds as follows. Clause 14.6(a) modifies the operation of the general provision in cl 14.4(c) as to the resumption of obligations to supply coal. Given that the parties deliberately agreed to provide for such a specific modification, they should be seen as intending cl 14.6(a) to be comprehensive in its effect. That excludes an interpretation which leaves it open for the appellant to be required, indirectly, to deliver a quantity of coal which it could not be required to be delivered by direct means. An interpretation of cl 14.6(a) which fails to give it an operation which precludes both direct and indirect requirements to supply coal, to which the clause applies, would be to fail to give a commercial contract a businesslike interpretation.[6]

[124]

[46] Mr Fraser QC, who led Mr Telford for the respondent, submitted that the appellant's approach gave cl 14.6(a) a construction which was not harmonious with other provisions of the Contract and which "overarched" provisions such as those entitling the respondent to give notice requiring Additional Tonnage or to change the Monthly Rate. It is submitted that when regard is had to the emphasised words, it is apparent that the relief provided by the clause is limited to the obligation to deliver during a Force Majeure Event. Reliance is placed on the words "supply the quantity of coal [it] was unable to supply during that period..." and it is submitted that the coal which the appellant was required to supply consequent upon the notices dated 9 July 2007 was not coal which the appellant was "unable to supply" during a Force Majeure Event. It is further submitted that no Force Majeure Event restricted the respondent's contractual right to amend its nominations of quantities of coal to be delivered during the months of September to November 2007.

[125]

[47] The relevant provisions of the Contract are set out in the reasons of Keane JA and there is no point in repeating them.

[126]

[48] Where there is an Event of Force Majeure, the affected party must give the other the notice required by cl 14.2. The notice must contain or be accompanied by details of the action the affected party has taken and proposes to take to remedy the situation. Under cl 14.3, following an Event of Force Majeure, the affected party's obligations are suspended but "only to the extent and for so long as the period that such obligations are genuinely affected by the Event of Force Majeure." Clause 14.4 relevantly provides:**

[127]

"Despite Clause 14.3, the Party affected by the Event of Force Majeure will:

[128]

(a) use reasonable efforts (including the expenditure of reasonable sums of money) to mitigate the effect upon its performance of this Agreement and to fulfil its obligations under this Agreement...

[129]

[130]

**[49] It is apparent from the foregoing that the role of cl 14 is to prevent a party unable to perform its obligations by an Event of Force Majeure from being in breach of contract. That result is achieved by the suspension of the affected party's obligations. The suspension though is strictly limited to the period during which the "obligations are genuinely affected by the Event of Force Majeure" and the affected party remains obliged to use reasonable efforts to mitigate "the effect upon its performance" and 'to fulfil its obligations" under the Contract.

[131]

[50] The appellant's construction places undue emphasis on the emphasised words and, in my view, thereby fails to consider cl 14.6(a) as part of cl 14 and of the whole Contract. As Gibbs J explained in Australian Broadcasting Commission v Australasian Performing Right Association Limited:[7]**

[132]

"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention to the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another."

[133]

**[51] The provisions of cl 14.3 and cl 14.4 are not suggestive of any intention that the incidence of an Event of Force Majeure will operate to deprive the non-affected party of any rights under the Contract except those rights which are necessarily affected by the suspension of the affected party's obligations under cl 14.3, and then only for the duration of such suspension. A construction of cl 14 which interfered with the respondent's entitlement to be supplied with the Maximum Tonnage and any Additional Tonnage in any calendar year merely because an Event of Force Majeure had resulted in an undersupply during part of that year would be inconsistent with the thrust of cl 14.3 and cl 14.4. That is not to say that an Event of Force Majeure would not entitle the appellant to deliver less than the total of the Maximum Tonnage and any Additional Tonnage in a calendar year if such total could not be delivered without the appellant having to exceed the Monthly Rate.

[134]

[52] The cap on the tonnage able to be required by the respondent, coupled with the Monthly Rate mechanism, protects the appellants from significant commercial disadvantage should an Event of Force Majeure occur. If the parties had contemplated that the advent of an Event of Force Majeure would limit the respondent's rights in respect of Maximum and Additional Tonnages, it would be expected that such intention would be made clear in the Contract. After all, it is clauses 4, 5.1, 5.1A, 5.4, 5.5, 5.6 and 5.7 which create the fundamental obligations of the parties concerning the supply and acceptance of coal.

[135]

[53] It is significant that cl 14.3 refers to obligations being "suspended" and that cl 14.4 requires that on the cessation of an Event of Force Majeure the affected party must "recommence performance of all its affected obligations". It is understandable that, in the light of these requirements, it was felt necessary to include the emphasised words in cl 14.6(a). In their absence, it may have been arguable that the appellant had an obligation to make up any shortfall in coal deliveries during the period of an Event of Force Majeure once it had expired.

[136]

[54] It is to that shortfall that the words "the quantity of coal the Seller was unable to supply during that period" refer. It is of significance that the emphasised words are prefaced by "when the period for which a Seller's obligations are affected by the Event of Force Majeure ceases". Those introductory words assist in showing that the limitation inherent in the emphasised words is one which relates to a failure to supply in the expired Force Majeure period and which does not relate to periods of supply after the expiration of that period. Any coal required to be supplied as a result of notices given by the respondent pursuant to cl 5.1A and/or cl 5.5 in respect of periods after the Events of Force Majeure do not meet the description of "a quantity of coal the [appellant] was unable to supply during" an Event of Force Majeure.

[137]

[55] For the above reasons I would dismiss the appeal with costs.

[138]

[56] MACKENZIE AJA: The issue in this appeal is the proper construction of a contract between the appellant ("CCS") and the respondent ("CPM") for the supply of coal by CCS for use in CPM's power station. In January and February 2007, notices were given by CCS under cl 14.2 that Events of Force Majeure, as defined in cl 14.1 of the contract had occurred. Following such an event, cl 14.3 provides that the affected party's obligations under the agreement are suspended but only to the extent and for so long as the period for such obligations is genuinely affected by the Event of Force Majeure.

[139]

[57] Clause 14.4 then provides, inter alia, that despite cl 14.3, the party affected by an Event of Force Majeure must use reasonable efforts to mitigate the effect upon its performance of the agreement and to fulfil its obligations under the agreement

[140]

(cl 14.4(a)). When the period for which its obligations are affected by an Event of Force Majeure ceases, the affected party must recommence performance of all of its affected obligations under the contract.

[141]

[58] Where a party has validly issued a notice that it is affected by an Event of Force Majeure it will not be deemed to be in default of its obligations under the agreement to the extent that a failure or delay in observance or performance of those obligations by it is caused by the relevant Event of Force Majeure specified in the notice (cl 14.5). Clause 14.6 relevantly provides that if an Event of Force Majeure causes or results in CCS losing production or being prevented from producing, then, when the period for which its obligations are affected by an Event of Force Majeure ceases, it will not be required to supply the quantity of coal it was unable to supply during that period.

[142]

[59] The proceedings in which judgment was delivered in the Trial Division from which this appeal is brought arose in the following circumstances. There are by virtue of cl 4, mutual obligations on CCS to sell and deliver and CPM to purchase and take delivery of coal at the rate determined in accordance with the agreement for the contract price and on the terms and conditions of the agreement (cl 4). Clause 5.1 provides for delivery and accepting delivery of not less than the Minimum Tonnage and not more than the Maximum Tonnage in any calendar year. The minimum was 2.6 million tonnes equivalent of coal and the maximum was the

[143]

3 million tonnes of coal per annum, and proportionally for any part of the calendar year. The term "Tonnes Equivalent" relates to the specified energy output of the coal; I will simply refer to the quantities as tonnes for convenience.

[144]

[60] Clause 5.1A provided for CPM to give CCS notice requiring further deliveries ("Additional Tonnage"). Relevantly for present purposes, in any calendar year up to 250,000 tonnes of additional tonnage could be required on not less than three months notice. Under cl 5.3, not less than five months prior to the commencement of every calendar year, CPM was required to give a non-binding notice of estimated requirements for the quantity of coal, the potential quantity of additional tonnage and the rate of delivery of coal, the monthly components of which are referred to as the Monthly Rate. Clause 5.4 requires coal to be delivered at the Monthly Rate calculated in accordance with a formula. The range which CPM could nominate as the Monthly Rate was from 216,666 (recurring) tonnes to 300,000 tonnes. However, cl 5.5 permitted CPM, on giving three months notice to change the Monthly Rate within that range.

[145]

[61] Pursuant to the contractual provisions referred to above, the estimated requirements for the 2007 calendar year were notified on 24 July 2006 as being 3 million tonnes and 150,000 tonnes of additional tonnage. Then on 22 September 2006, CPM gave a notification that the Monthly Rates for January, February, and March 2007 were to be 300,000 tonnes. However, because of Events of Force Majeure, deliveries made were 155,973 tonnes less than provided for. By notices in March and June 2007, changes of Monthly Rates and nominations of the maximum amount of additional tonnage were notified. These had the effect of requiring delivery of about the total amount of coal that could be required to be delivered under the contract, notwithstanding the shortfall in deliveries in January to March of that year.

[146]

[62] That is central to CCS's submissions on appeal. It had been submitted in the Trial Division that CPM's right to increase the Monthly Rates and to require additional tonnage had to be read as being subject to cl 14.6 which, it was said, absolved CCS of the obligation to supply the quantity of coal unable to be supplied during the period when the Events of Force Majeure were operative. This argument was rejected by the learned trial judge who held that the nomination of 9 June 2007 neither sought delivery in excess of 300,000 tonnes nor resulted in delivery of more than 3,250,000 tonnes in that calendar year. It was therefore consistent with the agreement.

[147]

[63] The appellant defined the issue in the appeal as being whether or not, in June 2007, the respondent was legally entitled to change Monthly Rates under cl 5.1 and

[148]

cl 5.1A so as to require the appellant to effect delivery of more than the quantity derived by reducing the Maximum Tonnage plus the maximum quantity of Additional Tonnage allowed by the contract, by the quantity unable to be delivered because of an Event of Force Majeure. It was submitted that the operation of cl 14(6)(a) meant that the respondent was not legally entitled to do so. If so, the notification of 9 June 2007 was invalid. It was submitted that cl 14(6)(a) complemented cl 14(3); cl 14(3) suspended the applicant's obligation during the currency of the Event of Force Majeure and cl 14(6)(a) applied prospectively after an Event of Force Majeure had ceased to affect the seller.

[149]

[64] The principles applicable to interpreting commercial contracts are not controversial in this appeal. The objective is to endeavour to ascertain the intention of the parties from the words of the contract, considered in the context of the purpose and object of the transaction (Australian Broadcasting Commission v Australian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]). What is controversial is the result that application of those principles produces in this instance.

[150]

[65] In my conclusion, the application of those principles leads to the following result. The obligation under the notification given by the respondent in 2006 was to supply 1.1 million tonnes of coal during the months of January to March 2007. Because of Events of Force Majeure, the appellant fell short of that quantity by 155,973 tonnes. Clause 14.6 excused it, when the period of Force Majeure ceased, from the obligation to deliver that quantity of coal. There was no obligation to make up that amount merely because there had been a shortfall in production. Clause 14.4(c) required the appellant, once the period when operations were affected by Force Majeure ceased, to recommence all of its affected obligations under the agreement. Clause 14.5 declared that a party whose operations are affected by an Event of Force Majeure is not deemed to be in default of its obligations under the agreement to the extent that observance or performance of the obligations was caused by an Event of Force Majeure. It is therefore not in breach of contract if it fails to supply the quantity provided for under the contract attributable to the period when an Event of Force Majeure was operative.

[151]

[66] Once that period ceases, the obligation on the appellant is to recommence performance of all of its affected obligations under the contract. In my view, provided the quantities subsequently required to be supplied under the mechanisms in the contract for determining how much coal is to be supplied did not result in the tonnage required exceeding the Maximum Tonnage and the maximum quantity of Additional Tonnage allowed under the contract, nor the monthly rate allowable under the contract, it was permissible for the buyer to give a notice of the kind and effect given by CPM.

[152]

[67] The effect of the provisions referred to is that CPM was able to vary the quantities to be supplied in October to December 2007 to the quantities notified on 9 June 2008. The total of the tonnage and the additional tonnage did not exceed the sum of the Maximum Tonnage and the maximum Additional Tonnage. Nor did the quantity in individual months exceed the monthly rate allowed.

[153]

[68] Viewed in this way, there was no departure from the terms of the contract. Nor did the outcome produce an unbusinesslike result (McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22]). The mathematics that underpins the applicant's case requires the coal unable to be delivered because of an Event of Force Majeure to be treated as having been delivered. In my view, that is not the proper understanding of the contract. There is nothing incongruous in construing the contract as allowing the co-existence of an exemption of CCS from civil liability and from the obligation to deliver the quantity of coal it was otherwise obliged to deliver during the currency of the Event of Force Majeure, with a right on the part of CPM to exercise a provision for adjustment within the limitations in the contract as to annual and monthly quantities, of what was to be delivered in subsequent months.

[154]

[69] In my opinion, the appeal should be dismissed with costs on the standard basis.**

[155]

[1] CallidePower Management P/L v Callide Coalfields (Sales) P/L [2007] QSC 395 at [28] - [36].

[156]

[2] Cf McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22].

[157]

[3] [2004] HCA 52; (2004) 219 CLR 165 at [40].

[158]

[4] Cf Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153 at 157 - 158; Adelaide Corporation v Jennings Industries Limited [1985] HCA 7; (1985) 156 CLR 274 at 281 - 282, 289.

[159]

[5] Clause 5.1A. "Tonnes Equivalent means that quantity of coal with an as received Gross Specific Energy of 19GJ". Schedule 1 of the Contract.

[160]

[6] See McCann v Switzerland Insurance Ltd [2000] HCA 65; (2000) 203 CLR 579 per Gleeson CJ at [22]

[161]

[7] [1973] HCA 36; (1973) 129 CLR 99 at 109

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Cases Cited (6)