Ground 2 of notice of appeal - parties' assumed understanding as to effect of charges on increase in the price of bulk electricity
44Ground 2 is addressed to the reasoning set out in [74] and [75] of his Honour's first judgment.
45At [74], his Honour rejected a submission made for Centennial that Delta was or is in a position to increase the charges for electricity that it sold in the national electricity market and hence that there was a prospect that the carbon charges could be passed on to its customers.
46His Honour nevertheless went on to express the opinion that the parties must have recognised that "there were some factors, including government charges, that would be likely to bring about an increase in the price of bulk electricity" ([74]). His Honour referred to government charges that affected all electricity producers, or all of a particular kind or in a particular area, as an example of charges that would be likely to flow through to price. At [75], his Honour said:
... Centennial had no way, apart from the contract, of passing on increases in government charges, whereas (as I think the parties should be taken to have understood) there was at least some prospect that the prices that Delta achieved for its electricity would reflect, among other things, the burden of government charges that affected the whole, or a substantial part, of the electricity generators who sold their output into the national electricity market. (my emphasis)
47His Honour had earlier (at [70]-[72]) made a number of observations as to what the parties had, or might be presumed to have, sought to achieve for their respective commercial purposes under the Coal Supply Agreement. His Honour inferred (at [73]), among other things, that Centennial was not prepared to accept all the risk of additional government charges and that Delta had agreed to bear at least some of that risk. No complaint is made as to those observations, which broadly attribute to one or other of the parties, or both as the case may be, a wish to achieve that which it can be seen from the concluded agreement they had objectively achieved.
48Complaint is made, however, as to his Honour's reasoning in [74] and [75], to the extent that those paragraphs record findings of fact. Delta contends: (a) that there was no admissible evidence or other textual basis to support an inference that the intent of clause 12.3(c)(3) was to produce a mechanism by which to pass on to Delta government charges that Centennial could not otherwise recoup under the contract but which Delta had some prospect of so doing from its customers; and (b) that the matters in these paragraphs are not relevant to the proper construction or application of clause 12.3(c)(3).
49As to contention (a) above, not surprisingly in the absence of any claim for rectification or the like to which that evidence would have been admissible, Delta points to the absence of evidence before his Honour as to the pre-contractual negotiations leading up to the Coal Supply Agreement. Further, Delta notes, in relation to the prospect that the prices Delta achieved for its electricity would reflect the burden of government charges affecting electricity generators who sold their output into the national electricity market, that the clause is not limited to charges levied at the Commonwealth level.
50It is submitted by Delta that were the parties to have intended clause 12.3(c)(3) to operate so as to pass on government charges that could be recouped by it in such a fashion, there would have been no need for clause 12.5, which provides for a review of the Contract CPI Price Component Per Tonne taking into account, among other things, the time weighted average electricity price. It was suggested that there would be a risk of double counting if electricity pricing were to be taken into account both under clause 12.3 and under clause 12.5. It was, however, accepted by Delta that the possibility of double counting would equally apply had the carbon charges been unambiguously caught by clause 12.3(c)(3). Little, therefore, can be drawn from the possibility that, if the clause were to apply to the carbon charges in the present case, there might be an unintended double counting, i.e., that the impact of government charges on electricity pricing might be taken into account in two stages of the pricing provisions under the Coal Supply Agreement.
51There is some textual support for the proposition that the parties must have appreciated that coal pricing could have an effect in some way on ultimate electricity pricing, by reference to the fact that national electricity pricing was included as a factor in the price review formula in clause 12.5. That said, I am not persuaded that there is anything in the text of the Coal Supply Agreement that would support a finding that the parties' common intention was that Delta should assume liability for any or all government charges that Centennial could not otherwise recoup but which Delta might be able to pass on to its customers.
52There can be no doubt that clause 12.3(c)(3) was intended to operate so as to permit adjustment of the coal price to take into account government charges, provided they were relevantly attributable to what I will refer to as the "Delta coal", i.e., the particular coal supplied to Delta under the Coal Sale Agreement. While it would no doubt have made commercial sense for Centennial to seek to pass on any such charges that it could not otherwise recoup, it would equally have made commercial sense for Delta to resist adjustments that would increase the price payable to it for the Delta coal. Therefore, the matter that his Honour considered the parties should be taken to have understood as part of the commercial context to their argument, i.e., that there might be government charges imposed on Centennial that Delta might be able to pass onto its customers and for which provision was not otherwise made in agreement, does not assist in the construction of the clause.
53Centennial only faintly suggests otherwise. It accepts that commercial context in this regard has only slight weight but argues that the utility in the reference to the prospect of an increased burden on Delta being able to be recouped from its downstream customers is that this supports the clause not being a given a narrow construction. The fact that the clause was addressing future charges that would presumably not have been foreseen at the time, since otherwise one might expect them to be expressly dealt with in the contract, supports the proposition that the clause should not be narrowly construed. However, for the reason set out in [52] above, no weight can be placed on whether or not Delta might commercially have been able to pass on to its customers price increases referable to the carbon charges.
54The force of Delta's submissions in relation to this ground of appeal, in my opinion, would be to the extent that his Honour found the purpose of clause 12.3(c)(3) by hypothesising its object, i.e., the capacity to pass on charges. Delta maintains that his Honour's conclusion in this regard was the product of impermissible reasoning. However, as I explain below, that is not what his Honour did when referring to the commercial context of the agreement.
55That said, I do not read [74] and [75] of his Honour's reasons as conveying a finding that the common intention of the parties was for this clause to have such an operation. His Honour, as noted, had expressly rejected the submission by Centennial that Delta was in a position to increase electricity prices. The observation at [75] seems to be no more than by way of background. I do not read it as leading to his Honour's ultimate conclusion, which Delta challenges, namely the conclusion that the charges were relevantly attributable to the Delta coal because they were rationally related to the production, or the cost of production of that coal.
56As to contention (b) above, it was not suggested by Delta that reference to the commercial context of the Coal Supply Agreement as a whole was impermissible in confirming the meaning of "attributable to" in clause 12.3(c)(3). Rather, Delta contends that his Honour erred in embarking on a purposive enquiry in respect of clause 12.3(c)(3) itself.
57Delta emphasises that this is but one clause in a carefully drafted contract. Delta contends that the only commercial purpose that can be discerned from the contract is that it was for the sale of coal and that there was no material to enable a conclusion to be drawn by his Honour as to the commercial purpose of this one clause in isolation. Whether the commercial purpose of the contract would necessarily be so broadly stated, in circumstances where the purpose might more narrowly be described, say, as for the sale of coal the bulk of which was to be produced from the Mandalong Mine, is a moot point. I accept the proposition that its purpose could not be confined to one referable to who was to bear liability for government charges that affected the cost of production of the coal supplied.
58The force of Delta's submissions in relation to this ground of appeal, in my opinion, would be to the extent that his Honour found the purpose of clause 12.3(c)(3) by hypothesising its object, i.e., the capacity to pass on charges. Delta maintains that his Honour's conclusion in this regard was the product of impermissible reasoning. However, I do not read his Honour's reasons as involving a circular process of reasoning as submitted by Delta.
59The concession by Delta, in effect, that reference by his Honour to the commercial context of the contract as a whole was not impermissible when construing the relevant clause is well-founded. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447, the majority of the High Court (French CJ, Hayne, Crennan and Kiefel JJ) said at [35], 454-455:
[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" [Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 350, citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience" [Zhu v Treasurer of New South Wales [2004] HCA 56 at [82]; (2004) 218 CLR 530 at 559]. (footnotes omitted).
60As I read his Honour's reasons, it is clear that what his Honour was doing was construing the particular clause, in the context of the whole of the agreement, by reference to the surrounding circumstances known to the parties at the time, something recognised in Electricity v Woodside as appropriate to be taken into account in construing a commercial contract. No error is revealed in that approach. The criticism of his Honour's reasoning made by Delta in ground 2(b) is not made good.