BETWEEN : MIDLAND BRICK CO PTY LTD (ACN 008 674 244)

CMS GAS TRANSMISSION OF AUSTRALIA (ARBN 078 902 397)

Contract - Agreement for sale of gas - Construction of principal agreement and subsequent variation agreements - Admissibility of extrinsic evidence - Whether seller obliged to declare sales of gas to third parties - Turns on own facts

Defendants' counterclaim for declaratory relief allowed

First Defendant : Mr K J Martin QC & Mr M S Ferguson

Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549

Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104

Bamco Villa Pty Ltd v Moritedeen Pty Ltd [2001] VSC 192

British Waggon Co & The Parkgate Waggon Co v Lea & Co (1880) 5 QBD 149

Cehave NV v Bremer Handelsquesellschaft MbH; The Hansa Nord [1976] QB 44

CSS Investments Pty ltd v Lopiron Pty Ltd (1987) 16 FCR 15

Fratelli Sorrentino v Buerger [1915] 3 KB 367

Government Employees Superannuation Board v Martin (1997) 19 WAR 224

Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133

Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190

National Bank of Australasia Ltd v J Falkingham & Sons [1902] AC 585

Prenn v Simmonds [1971] 3 All ER 237

Stirling v Maitland [1864] EngR 752; [1861-73] All ER 358

Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507

1 HASLUCK J: The plaintiff, Midland Brick Company Pty Ltd, seeks a declaration concerning the proper construction of a Gas Sales Agreement. In addition, it seeks an order that the first defendant, CMS Gas Transmission of Australia, disclose in writing and declare the quantities of gas that have been sold to third parties.

2 The Gas Sales Agreement, known as the GSA, comprises various instruments and variations made between 1 February 1985 and 1 July 1996 pursuant to which Midland Brick was the buyer and a group of companies known as CTAS were the original sellers. The principal point of interpretation concerns amendments made to the agreement in 1996 allowing for the sale of gas to third parties.

3 When the Gas Sales Agreement was made in 1985 there were several, essentially identical agreements between Midland Brick as buyer and each of Chevron Asiatic Ltd, Texaco Oil Development Company, Ampolex (AOE) Ltd and Shell Development (Australia) Pty Ltd as proportionate sellers. The original sellers known as CTAS, were then the owners of a gas field in the Dongara gas area from which the gas was being produced.

4 In 1997, shortly after the 1996 amendments were made, the original sellers sold the Dongara gas field and assigned their interests in the individual proportionate Gas Sales Agreements with Midland Brick to the first defendant, CMS.

5 A year later, CMS sold the Dongara gas field to the second defendant, ARC Energy NL. However, the Gas Sales Agreement with Midland Brick was not assigned to ARC Energy but remained an agreement between the first defendant and Midland Brick. By an Agreement dated 1 July 1998, ARC Energy agreed to supply gas to the first defendant so that it could continue to supply gas to Midland Brick in compliance with the Gas Sales Agreement. I will call this the ARC/CMS Agreement.

6 The principal issue in these proceedings is whether the Gas Sales Agreement, on its proper construction, provides that the total quantity of gas which Midland Brick is required to buy is reduced by any sales of gas from the Dongara gas field made to third parties, other than Alcoa and SECWA, up to 8PJ. SECWA has now become the Gas Corporation and Electricity Corporation, but, for ease of reference I will continue to call it SECWA.

7 I pause to say that natural gas is normally valued and sold on the basis of its energy content which is expressed in joules. The prefix "PJ" stands for Peta Joule. Total contract quantities and field reserves are often expressed in PJ as each PJ represents a substantial amount of energy. Daily sales quantities are often expressed in Tera Joules per day, abbreviated to TJPD.

8 If there is a term of the kind contended for by Midland Brick as plaintiff concerning the sale of gas to third parties (which would have the effect of reducing the quantity Midland Brick is required to buy) then it will be necessary to go further and decide whether the term applies whenever gas is sold from the Dongara gas field, regardless of whether the gas is sold by the party who is the seller under the agreement with Midland Brick, namely, CMS as the first defendant, or by the separate owner of the gas field (now ARC Energy).

9 If the contentious term is held not to apply to gas sales by a separate owner of the gas field, a further issue arises - pursuant to a plea in the alternative advanced by the plaintiff - as to whether there were express or implied terms of the Gas Sales Agreement obliging the seller to remain the owner of the gas field and thus able to perform the agreement, especially the term providing for reduction of the purchaser's prescribed total quantity by up to 8PJ of third party sales.

10 It is apparent from the pleadings and from the way the issues were presented at trial that it is not in dispute that there have been sales of gas from the Dongara gas field to persons other than SECWA and Alcoa. The dispute is as to the contractual consequences, if any, as between Midland Brick and CMS of such sales.

11 As I indicated a moment ago, ARC Energy has agreed to supply gas to CMS on terms that were designed to enable CMS to fulfil the terms of the Gas Sales Agreement with Midland Brick. Accordingly, if the Gas Sales Agreement, properly construed, provides that third party gas sales by CMS reduce the quantity Midland Brick is required to buy, the plaintiff contends that ARC Energy (in addition to CMS) will effectively be bound by that result.

12 The counterclaim advanced by CMS raises a further issue for consideration as to whether the expression "Buyer's plant" in the Gas Sales Agreement includes a new kiln 10, commissioned by Midland Brick on the Whitemans Brick site, such as to impose on Midland Brick an obligation to buy gas for use in that kiln from the first defendant.

13 In summary, then, the issues raised in these proceedings depend essentially on the proper construction of the Gas Sales Agreement. The entire terms and conditions of the Gas Sales Agreement are written. This includes four variations to the principal agreement made over 11 years from 1985 to 1996. Various evidentiary issues therefore arise as to whether it is permissible to have regard to extrinsic or parol evidence in order to interpret the relevant documents.

14 The matters in issue are of commercial importance to the parties in that, as a consequence of various events including the implementation of the national competition policy, Midland Brick is in a position to obtain gas from other suppliers upon terms that are more favourable than the terms provided for by the Gas Sales Agreement. It will therefore suit Midland Brick if the quantity of gas it is obliged to take under the Gas Sales Agreement is reduced by sales made by the defendants to third parties. The smaller the total contract quantity taken by Midland Brick under the Gas Sales Agreement, the sooner the long running contract is brought to an end and the sooner that Midland Brick will have the opportunity of obtaining gas in a deregulated market in which the suppliers will compete for the right to supply Midland Brick.

15 On the other hand, the defendants contend for an interpretation that will maximise sales of gas to Midland Brick pursuant to the Gas Sales Agreement.

16 During 1947 and 1949, the Australian Motorists Petrol Company, known as Ampol, acquired leases covering much of the prospective petroleum and gas basins of onshore Western Australia. In 1951, Caltex agreed to join the search for petroleum and the company, Western Australian Petroleum Pty Ltd, known as WAPET, was subsequently incorporated in 1952 to operate the joint venture.

17 During 1956, the Caltex interest was split and transferred in equal proportions to Chevron Asiatic Ltd, and Texaco Oil Development Company and the Ampol interest became Ampolex (AOE) Ltd. Shell Development (Australia) Pty Ltd then joined the joint venture so that, collectively, these companies came to be known as the CTAS participating companies.

18 The establishment of WAPET resulted in a variety of pioneering exploration activities. WAPET was generally regarded as a representative of the CTAS joint venture in advancing the aims and objectives of the venture. Thus, in the proceedings before me, it was common ground that negotiations concerning the Gas Sales Agreement were conducted by officers of WAPET on behalf of CTAS, although the ultimate decision in respect of particular matters had to be made by each of the joint venturers. Further, as will become apparent in due course, the sale of gas was a sale effected by each of the joint venturers as to its proportionate share.

19 At all material times prior to 1 January 1997 the original sellers - Chevron, Texaco, Ampolex and Shell - were the owners of primary production licences numbers 1 and 2 granted pursuant to the Petroleum Act 1967 (WA) relating to sites in the Dongara area, certain wells and facilities within that area and the gas produced from the field as participants in the CTAS Joint Venture. The CTAS companies carried on the business of producing, selling and supplying gas from the Dongara area.

20 The Dongara gas field is one of a number of commercial gas fields which were located within what is known as the Perth basin. Other commercial gas fields within the Perth basin include Beharra Springs, Woodada, Mondarra and Yardarino. Drilling in the Dongara gas field was undertaken between 1966 to 1970. At the completion of the second drilling programme in 1970, sufficient gas reserves had been proven to allow construction of a 14 inch diameter pipeline to the Perth metropolitan area by West Australian Natural Gas Ltd. It became known as the WANG pipeline. Gas delivery commenced in October 1971 with six wells initially on stream.

21 The witness statement of Peter John Burgmann is directed to these matters. He is a qualified engineer and from February 1969 until February 1997 was employed by WAPET in a variety of positions in Western Australia. In 1978 he was assigned to WAPET's petroleum engineering group in Perth and his duties had an emphasis on the engineering activities related to the North Perth Basin, or NPB, that WAPET managed on behalf of the CTAS companies. The NPB fields comprised the Dongara, Mondarra and Yardarino fields in particular and a number of other, relatively minor fields.

22 In about 1980 Mr Burgmann was appointed as the pipeline superintendent on the WANG pipeline. The WANG pipeline comprises the piping, metering and gas compression facilities that allows the gas produced from the NPB fields to be transported into the Perth metropolitan area and as far south as the Alcoa alumina refinery at Pinjarra.

23 Mr Burgmann said that as at about 1980 some of the gas sales agreements were coming to the end of their initial terms and the NPB fields were nearing primary depletion, that is to say, the relevant reservoirs had produced about the quantity of gas that had been initially estimated as being likely to be produced with a high level of certainty (about 90 per cent) within a particular timeframe and at a particular deliverability. I will say more about deliverability later.

24 Because the NPB fields were approaching primary depletion, WAPET's task became to find the most efficient method of maximising the monetary return for the recovery of the balance of the gas remaining in the NPB fields. WAPET maintained active contact with all customers of the CTAS companies and Mr Burgmann was therefore acquainted with the senior officers of Midland Brick as a party taking gas from the Dongara field.

25 This brings me to the evidence of George Albert Cugley who was employed by Midland Brick for close to 30 years from October 1968 to March 1998. During this time, in the latter stages of his employment, Mr Cugley served as general manager/managing director of Midland Brick for approximately 18 years.

26 For many years Midland Brick has carried on the business of the manufacture and sale of clay bricks in the Swan Valley on the outskirts of the metropolitan region of Perth. Mr Cugley said in his witness statement that Midland Brick was the first user of natural gas in Western Australia. The pipeline from the Dongara gas field built by the CTAS companies came past Midland Brick's premises in Middle Swan. By written agreement dated 5 March 1971 CTAS agreed to supply gas to Midland Brick.

27 A copy of the 1971 agreement with Chevron was exhibited to Mr Cugley's statement and received in evidence. Corresponding agreements were made with Shell, Texaco and Ampolex. Midland Brick took gas from CTAS pursuant to the 1971 agreements until 1985. However, all Mr Cugley's dealings with CTAS, the owners of the Dongara gas field and the pipeline, were with WANG or with WAPET.

28 I note in passing that under the 1971 agreement the term "Delivery Point" is defined to mean the connection between the seller's facilities for the delivery and metering of gas under the agreement and the buyer's facilities for the receipt of such gas. It is said that the exact location of the connection is to be mutually agreed to between buyer and seller but in any event will be located at or adjacent to the buyer's plant located at Middle Swan (the Bassett Road works).

29 Before turning to the circumstances in which a new agreement was reached between the CTAS companies and Midland Brick for the supply of gas to Midland Brick, it will be useful to look at some expert evidence adduced at the trial which bears upon the special nature of gas production and the delivery of gas to consumers pursuant to commercial arrangements.

30 The plaintiff adduced evidence from Mr Mike Jones who is a petroleum engineering consultant. He has a degree in chemical engineering from the University of Texas and a lengthy experience in the technical and economic evaluation of various oil and gas projects throughout the world. The substance of his evidence is reflected in his report dated 12 February 2003.

31 It appears from the Jones report that natural gas is extracted from an underground reservoir by drilling bores into the reservoir, and flowing the gas to the surface through pipes installed in the bores. The gas flows naturally from the higher pressure found in the reservoir to the lower pressure at the surface. Upon the surface, the wells are connected by a system of pipelines and valves, which gather the gas to a common point, where the gas is measured, delivered and sold. Facilities on the surface are often needed to bring the gas to a marketable quality by the removal of water and other contaminants. A company transporting gas by a pipeline for the purposes of sale may receive and mingle gas from many sources before the gas is eventually sold.

32 The productive life of a gas field can be approximated on the basis of how much gas is estimated to be remaining in the reservoir, and the rate and conditions under which it will be produced. In simple terms, it is determined by dividing the estimated reserves volume by the proposed production or sales rate. For example, a field with 100PJ of reserves, and a production rate of 5PJ per year will have a productive life of 20 years. Likewise, at a lower production rate of 4PJ per year, the life would be 25 years. Thus, equipped with an approximation of sub-surface reserves based on drilling data, details of the producing system, and economic considerations, an estimate can be made of the total volume and daily rate of gas that can be sold.

33 Mr Jones said that it is often the case that economically recoverable reserves remain after the fulfilment of the initial commitment. This remaining volume is often referred to as "tail gas". While in the tail gas phase of production, the calculation of productive life becomes more complicated. However, essentially the productive life is the remaining time over which gas reserves can be economically recovered. When the field is in the tail gas phase, the capacity of the wells to deliver gas, or "deliverability", will normally decrease, as more and more gas is produced and the reservoir pressure declines.

34 There are steps that can be taken to improve the deliverability, and thereby increase the productive life of the field, provided the economic incentive is sufficient. "Workover" operations to this end include overhauling the equipment or the removal of water. Installation of compressors can also assist.

35 Mr Jones noted that estimates of deliverability under different conditions can be made through calculations; for example, as if one were calculating the theoretical deliverability through a larger kitchen tap, or bearing in mind the improvements that could be made by installing a pump, or the affect upon deliverability if the pressure in the mains decreased. He said that the Dongara field maximum deliverability could be determined from a combination of well tests and calculations, to determine the total deliverability from all available wells at the existing delivery pressure and reservoir pressure.

36 Future deliverabilities, according to Mr Jones, are estimated by calculations which are based on the relationship between remaining reserves and reservoir pressure. As more gas is produced, the reservoir pressure decreases, reducing the deliverability, until the final field depletion rate is reached.

37 It emerges from a consideration of the Jones' report and related evidence that contractual arrangements for the supply of gas, especially tail gas, have to take account of the fact that occasions may arise when the seller may have difficulty in supplying the required amounts of gas owing to the vagaries of the gas field and related economic conditions. Special conditions may have to be written into a contract to cover such matters.

38 The 1971 agreements were superseded on 1 February 1985 by new agreements entered into between each of the CTAS companies as seller and Midland Brick as the buyer of gas. Exhibit P2 at the trial was the Gas Sales Agreement dated 1 February 1985 between Texaco and Midland Brick. The recital referred to the fact that Texaco had a 2/7th proportionate share in the ownership of the production licences and had agreed to sell its proportionate share of gas from the Dongara area pursuant to the terms of the new agreement upon the expiration of the 1971 agreement. It was common ground that corresponding agreements in common form were made with the other CTAS companies.

39 For the moment, it will be sufficient to draw attention to certain features of the 1985 Gas Sales Agreement in general terms. I will undertake a more detailed consideration of the crucial provisions at a later stage. For the time being, I note that the "Dongara area" is defined to mean the area bordered red on designated maps or so much thereof as is from time to time the subject of the production licences entitling the seller to produce and deliver gas. Clause 2 confers upon the seller the right of complete autonomy and control in relation to drilling production and pipeline operations. Clause 3 refers to the seller's right and obligation to deliver gas to SECWA and Alcoa. These rights and obligations are to take precedence over the seller's commitments to Midland Brick as buyer, without liability on the part of the seller for any inability to meet such commitments as a result. Further, the seller has the right to sell gas to others and in such volumes as the seller thinks fit, subject only to the commitment to the buyer.

40 The term of the 1985 Gas Sales Agreement is described in cl 4 of the agreement. By cl 5 the seller agrees to sell and the buyer agrees to purchase a prescribed daily contract volume of gas from the Dongara area. If the buyer fails to accept delivery of the minimum annual take, and this is not caused by the seller's failure to deliver, the buyer shall pay the seller for the difference between the volume of gas taken and the minimum annual take for such year at a prescribed price. In other words, there is a "take or pay" element to the arrangements between the parties with the price being determined by later provisions of the agreement.

41 Clause 23 appears to reflect some of the special features of the gas contracts addressed by Mr Jones. Thus, it is agreed in that clause that if the seller is not able to determine with sufficient confidence to commit itself that the economically recoverable reserves of gas from the Dongara area, described in that clause as the "reserves", or deliverability thereof will be sufficient to meet the daily contract volume as well as the seller's commitments to SECWA and Alcoa, then, as soon as reasonably possible after reaching an opinion to that effect, the seller shall give the buyer notice of any anticipated insufficiency. The buyer is then obliged to advise the seller that it intends to terminate the agreement or intends to continue to purchase at the revised rates nominated by the seller which will then become the daily contract volume. By cl 23.3, if, in the seller's opinion, the reserves are insufficient for the seller to economically produce and deliver gas to the buyer, the seller may terminate the agreement upon 60 days notice to the buyer.

42 For ease of reference, I will henceforth call the group of contracts entered into by the CTAS companies as original sellers for the supply of gas to Midland Brick in 1985 the "1985 GSA".

43 Clause 7.1 of the 1985 GSA provided that the seller was to deliver the gas to the "delivery point" at which point title to the gas was to pass from seller to buyer. The term "delivery point" was defined to mean the last downstream valve between the seller's facilities for the delivery and metering of gas and facilities for receipt of such gas at the buyer's plant. The latter term was defined in this way:

"'Buyer's plant' means the existing brick manufacturing facility of Buyer and associated facilities located at Middle Swan (the Bassett Road works), together with any future additions to, modifications of, or replacement of such plant;"

44 As appears from my overview of the matters in issue, a question has arisen between the parties as to whether the term "Buyer's plant" embraces a structure known as Kiln 10 on what was formerly the Whitemans Brick site. It will therefore be useful at this stage to say a few words about that matter. I note at the outset that on the evidence before me the Whitemans Brick site was acquired in March 1985, that is to say, a month or so after the 1985 GSA was signed.

45 Mr Cugley gave evidence on behalf of Midland Brick in regard to this matter. He said in his witness statement (at par 43 and onwards) that Whitemans Brick and Midland Brick were competitors up until March 1985 when Midland Brick acquired Whitemans Brick. The Whitemans Brick factory was and still is located on the corner of Great Northern Highway and Middle Swan Road. The entrance to the Whitemans Brick factory has always been off Great Northern Highway. South of the Whitemans factory are the clay pits used by them. An aerial photograph was adduced in evidence as exhibit P16 to show the location.

46 The Midland Brickworks were set up in Bassett Road, Middle Swan. Bassett Road was a public road that separated the Whitemans Brickworks from the Midland Brickworks. Some time between March 1985 and 1989, after Midland Brick acquired Whitemans Brick, Midland Brick purchased Bassett Road and closed most of it. The Midland Brick entrance is off Bassett Road.

47 After the purchase, the Whitemans factory was run as a separate production facility. Midland Brick and Whitemans Brick had a different product range and used different technology. In that regard, Whitemans had one tunnel kiln which was quite new and Midland Brick had eight tunnel kilns of varying ages. Each of the Whitemans and Midland sites had and continue to have separate Environmental Protection Authority licences with differing licence conditions.

48 At the time of purchase in March 1985 gas was supplied to the Whitemans' factory by SECWA via SECWA's gas supply line and the Midland Brick factory was supplied by CTAS via the WANG pipeline.

49 In about 1989 Mr Cugley told Mr Stallings of WANG that Midland Brick wished to used consolidated gas for the Whitemans' facility and asked his consent to install a pipe from the WAPET sub-station on the Midland Brick far west corner through the Midland Brick property to supply the Whitemans kiln, a distance of approximately 1.2 km. This required separate metering facilities for each of the Whitemans site and the Midland Brick site.

50 According to Mr Cugley, construction of a new kiln known as Kiln 10 commenced at the Whitemans' factory in about early 1997 and that kiln was eventually completed and put to use. Mr Cugley said in his witness statement that on 2 March 1995 he had a conversation with Mr Burgmann and Kit Handyside of WAPET with a view to clarifying the interpretation of the term "Buyer's plant". This conversation and certain other evidentiary matters were relied upon by Midland Brick in support of a plea of estoppel. I will return to this aspect of the matter in due course, after I have reviewed the issues raised by the pleadings.

51 The 1985 GSA was subsequently amended by an agreement dated 29 August 1986. I will call this "the first GSA variation".

52 The recital of the first GSA variation refers to CTAS negotiations to sell Dongara tail gas to SECWA. "Dongara Tail Gas" is defined to mean the volume of gas which the seller is able to economically recover from the gas reserves in the Dongara area and deliver through the pipeline after first meeting the seller's commitment to Alcoa in effect at the date of the agreement. I will not dwell upon the provisions of the variation save to note in passing that under cl 4.1 of the 1985 GSA the first term of the agreement was to commence on the expiration of the 1971 Agreement and continue until expiration of SECWA's initial term which the seller anticipates will expire on or before 1 April 1987. Clause 2.1 of the first GSA variation amended the position concerning the second term and reads in part as follows:

"(a) The Second Term shall not commence unless Seller shall on or before 1st December 1986 have given to Buyer written notice to the effect that any agreement between Seller and SECWA does not preclude the sale and delivery of Dongara Tail Gas by Seller to Buyer under the Principal Agreement. The Seller will keep Buyer advised on the status of negotiations with SECWA; and

(b) The Second Term shall, subject to paragraphs (a) and (c) of this clause 2.1, commence upon the expiration of the First Term as set out in clause 4.1 of the 1985 Agreement and shall continue thereafter as follows:

(i) for an initial term of 10 years; and

(ii) thereafter for such further period, not exceeding 10 years, during which Seller has sufficient gas to meet all or a portion of the energy requirements for Buyer's plant."

53 I note in passing also that an amendment was made to the fourth line of cl 23.4 where the term "Dongara area" was changed to "the reserves". Clause 6 of the variation provided that except as varied, the 1985 GSA was to continue in full force and effect.

54 Mr Burgmann said in his witness statement at par 27 that the first GSA variation dealt with the sale of Dongara tail gas. At the time WAPET was negotiating on behalf of the CTAS companies to sell Dongara tail gas to SECWA because SECWA had a first right of refusal to all the Dongara tail gas.

55 He recalled that the first GSA variation provided that if the CTAS companies were not prohibited by an agreement with SECWA from selling Dongara tail gas to Midland Brick they would sell that gas to Midland Brick for an initial term of 10 years, being the term reflected in cl 2.1(b)(i) of the first GSA variation. It also provided that the GSA would continue for such further period, not exceeding 10 years, during which the CTAS companies had sufficient gas to meet all or a portion of the energy requirements for the Buyer's plant.

56 The 1985 GSA was further varied by an agreement dated 28 October 1986 which I will call "the second GSA variation". It made provision for the first term of the agreement to continue until 1 October 1987.

57 By an agreement dated 26 February 1987 further amendments were made to the 1985 GSA. I will call this "the third GSA variation".

58 According to Mr Cugley, soon after the third GSA variation was executed, Midland Brick received notice that the CTAS agreement with SECWA did not preclude the sale of the Dongara field gas to Midland Brick and the second term of the agreement then began. It follows from earlier discussion that the second term seemed likely to run through to 1997. I note in passing that the second term was eventually extended to 1 February 1998.

59 Christopher Bernard Handyside is a qualified engineer who worked in the oil and gas industry for over 25 years. From 1984 until 1986 he was employed by WAPET as a special projects engineer on the asset management of Dongara gas field and the WANG pipeline. From 1986 until 1991 he was employed on the north west shelf gas project but then rejoined WAPET as manager gas development and sales. His duties were to market and find customers for uncommitted natural gas reserves managed by WAPET.

60 Mr Handyside said in evidence (at par 13 and onwards) that after he rejoined WAPET in 1991, he became aware from reading various documents and from discussions with his colleagues that starting in the late 1980s and in early 1990 WAPET was investigating whether the gas reserves in the NPB fields were sufficient to continue to allow the CTAS companies to supply gas to customers by meeting obligations under supply contracts then in existence. He knew that doubts over the actual level of reserves had arisen because in the late 1980s or early in 1990 a couple of the wells had "watered out", that is to say, the wells had filled up with water. The back pressure of that water then prevented gas from coming up from the reservoir into the wells.

61 Another of the assets that WAPET managed and operated to his knowledge was an oil field at Thevenard Island off the coast of Western Australia. He knew that the Thevenard Island field was owned 90 per cent by the CTAS companies and 10 per cent by Western Mining Corporation or WMC. When oil was produced from the Thevenard field, associated gas was also produced. The associated gas had to be removed from the oil as part of processing the oil for sale in which respect WAPET had adopted the practice of "flaring" the associated gas. When it became apparent that government policy would change so as to forbid flaring (except where it was necessary to do so for safety reasons) WAPET had to find other methods to deal with the associated gas. The methods available were to re-inject the associated gas into the Thevenard Island oil reservoirs or into other reservoirs on the mainland, or to sell the associated gas to a consumer.

62 It was against this background that Mr Handyside, on behalf of WAPET, was minded to approach potential customers including Alcoa, Midland Brick and WMC. There were a number of technical and commercial issues that needed to be resolved before the associated gas could be transported to the mainland including the obtaining of permissions from various owners and a degree of uncertainty about the regularity of the flow.

63 It was also at about this time that WAPET was assessing the impact on reserves in the Dongara field that might result from the successful workover of particular wells as well as enhancements to its compression equipment. It appears from the evidence of Mr Burgmann (at par 59 and onwards) that these various considerations led to WAPET putting a plan to the CTAS companies that the Thevenard Island associated gas would be processed to meet pipeline quality requirements and then transported by pipeline to a metering station on the mainland adjacent to a gas treatment plant at the Tubridgi gas field. It would then flow into a pipeline manifold that was maintained by the operator of the Tubridgi gas field. From this manifold the Thevenard Island associated gas would then flow into a further pipeline that connected to the Dampier/Bunbury natural gas pipeline (or DBNGP) which was owned and operated by SECWA.

64 Mr Burgmann went on to say that, subject to resolution of various issues, the Thevenard Island associated gas would be transported in the DBNGP to a takeoff point adjacent to the NPB fields and then either injected into the WANG pipeline for transportation to a purchaser, or stored in depleted or partially depleted reservoirs in the Dongara area, such as the Mondarra field.

65 Mr Burgmann recalled that this plan required negotiations with a number of parties including the owner and operator of the Tubridgi gas field, SECWA and the intended purchaser of the Thevenard Island associated gas, Western Mining Corporation Ltd. It also involved negotiations with Midland Brick that led eventually to a fourth and rather substantial variation to the 1985 GSA which was effected by a formal document executed on 1 July 1996.

66 The terms of the fourth GSA variation dated 1 July 1996 give rise to the issues of interpretation the subject of these proceedings.

67 Mr Cugley said in his witness statement (at par 12 and onwards) that he was involved in discussions with WAPET and WANG from about 1980. WANG made a number of presentations to Midland Brick with regard to future gas availability from the Dongara field in the period 1980 to 1990. The gas field had a limited life and Midland Brick did not want to be forced to purchase gas from SECWA. Mr Cugley emphasised that his relations with those representing WAPET were always cordial and this picture was confirmed by Mr Burgmann and Mr Handyside on behalf of WAPET. It seems that this atmosphere of cordiality set the scene for some relaxation of the strict contractual position on both sides as each party examined and endeavoured to provide for its future requirements.

68 Mr Cugley said that by letter dated 17 August 1987, WANG wrote to him providing its latest estimate of deliverability from the Dongara field. Reference was made to the fact that production might be less due to an unpredictable reservoir. By letter dated 11 March 1988, WAPET advised him that an opportunity had presented itself to supply five billion cubic feet of gas to Alcoa and sought confirmation from him that this should not impair the delivery of gas to Midland Brick during the second term of the 1985 GSA as amended.

69 By letter dated 22 April 1988 Mr Cugley wrote to WANG consenting to the supply of the five billion cubic feet of gas to Alcoa providing WANG could come to an arrangement for transporting gas from the Woodada field. He noted that the supply of the additional Alcoa gas was likely to reduce the 10 year contract for supply of gas by 12 to 18 months.

70 According to Mr Cugley, by this time Consolidated Gas had purchased the Woodada gas field near Eneabba and Midland Brick had become a shareholder in Consolidated Gas. By letter dated 26 May 1988 WANG agreed to negotiate a transport agreement for the supply of Woodada gas to Midland Brick.

71 By letter dated 8 February 1990, Mr Cugley wrote to WANG requesting an update on its estimate of reserves in its Dongara field. WAPET responded to say that during 1993 its deliverability was projected to fall below Midland Brick's demand as well as the contract minimum annual take.

72 Mr Cugley said that as the Dongara gas field was running down, and having regard to WAPET's response at about this time, in order to maintain an adequate gas supply, he entered into an agreement with Consolidated Gas for the supply of gas although the arrangement was not to come into operation until 1994. By letter dated 8 November 1990 he advised WAPET that Midland Brick had entered into a Gas Supply Contract with Consolidated Gas for gas supplies to take over as the Dongara field production fell away. I will call this "the Midland/Consolidated Gas Contract".

73 An important feature of the Midland/Consolidated Gas Contract was that Midland Brick agreed to purchase 3.65TJ of gas per day, over 6 years, being a total volume of about 8PJ. This was a take or pay commitment in that even if Midland Brick did not take a minimum of 3.65TJPD it still had to pay Consolidated Gas for that amount of gas per day from 1 July 1994.

74 Mr Cugley also asked in his letter of 8 November 1990 that in view of WAPET not being able to meet all of its requirements in 1992/3 and 1993/4 that the under-utilised gas in 1990/91 and 1991/92 be deferred. In other words, he sought relief on behalf of Midland Brick from the take or pay obligations for the period of two years in question.

75 By letter dated 22 November 1990 WAPET advised that the CTAS companies were prepared to agree to his request for relief from the take or pay provisions contained in cl 5.4 of the 1985 GSA on the understanding that Midland Brick would continue to take CTAS gas during the term of the agreement in priority to any other source for use in the Midland Brick plant so long as the CTAS companies were able to economically deliver gas to the Midland Brick plant.

76 Mr Cugley said in his statement that these arrangements were confirmed orally. In effect, the CTAS companies via WAPET had agreed to waive Midland Brick's take or pay obligation and Midland Brick had agreed to waive exercise of its right under cl 23 of the 1985 GSA as varied to terminate the agreement on account of the seller's notification regarding insufficiency of reserves. This set the scene for the negotiations leading up to the fourth variation of the 1985 GSA effected by the agreement between the CTAS companies and Midland Brick executed by the parties on 1 July 1996.

77 Mr Handyside said in his witness statement (at par 38 and onwards) that shortly after he assumed responsibility for the WANG operations in 1991, he met with Mr Cugley of Midland Brick, being accompanied at the time by Mr Burgmann as the gas contracts manager for WAPET with a view to discussing the future requirements of the parties. Mr Cugley confirms in his statement (at par 29) that such a meeting was held in relation to Midland Brick phasing in gas from the Woodada field, the deliverability of gas from the Dongara field and a proposal by CTAS to supply gas to Alcoa. Both Mr Handyside and Mr Cugley seemed to agree that a letter from Midland Brick to WANG dated 4 March 1992 accurately reflected what was discussed at the meeting.

78 The letter in question refers to discussion as to how the parties could draw up a contract which would allow Midland Brick to utilise available gas from Dongara and phase in gas from the Woodada field. This would include adjustments under the Midland/Consolidated Gas Contract. The letter referred to the possibility of a stepped contract which allowed for the phasing in of Woodada gas as Dongara stepped down with a degree of flexibility. Midland Brick approved a requested supply of gas to Alcoa from the Dongara field on the basis that it could be interrupted if there were any risk of Midland Brick's requirement not being met. In other words, Midland Brick's requirement was to have precedence.

79 Mr Cugley went on to say in his statement that there were communications in late 1992 and early 1993 as to the possible extension of the 1985 GSA and the ability of the Dongara field to continue to supply Midland Brick's daily contract quantities of gas. In about November 1993 Mr Burgmann and Mr Handyside requested him to set out the history and background as to why Midland Brick had found it necessary to enter into the Midland Brick/Consolidated Gas Contract. Mr Cugley responded to the request with a letter to WAPET dated 23 December 1993 (the "23 December/Midland letter").

80 The 23 December/Midland letter said that a secure gas supply was absolutely essential to Midland Brick. In February 1990 WAPET had advised that the Dongara reserves had been revised downwards and deliverability would fall below the Midland Brick demand and Daily Contract Quantity during 1993. Midland Brick therefore moved to secure future supplies from the Woodada field and entered into the Midland Brick/Consolidated Gas Contract as a means of allowing Midland Brick to utilise the Dongara tail gas to the mutual benefit of WAPET and Midland Brick. The contract in question committed Midland Brick to take 3.65TJPD from Consolidated Gas from 1 July 1994 and gave Midland Brick the right to a further 5.5TJPD through to 1 July 2000. This would allow Midland Brick to draw increasing supplies to fill the gap as Dongara was unable to meet Midland Brick's Daily Contract Quantity.

81 The letter said further that, having regard to the changing gas supply scene, Midland Brick could not justify making a commitment to only purchase gas from WAPET. It had to consider supplies from other sources, even though, because of a long association, Midland Brick would regard WAPET as the preferred supplier. Thus, Midland Brick had informally agreed to waive its right to terminate when it seemed the seller was unable to meet the Midland Brick needs in exchange for WAPET waiving the take or pay provisions.

82 Reference was made in the letter to a proposal that Midland Brick release WAPET from its obligation to supply Midland Brick only from the Dongara field on the basis that Midland Brick commit to take an equivalent gas volume represented by the current Dongara tail gas volume, as certified by an independent auditor. This would amount to a gas volume target within the existing contract term dates and was acceptable to Midland Brick in principle. The letter concluded by referring to a need to review the price structure and invited WAPET to propose specific variations to the existing contract.

83 The response to the 23 December/Midland Brick letter is reflected in a letter dated 9 February 1994 from WANG to Midland Brick. The letter in question noted the proposal that a new contract quantity be enshrined in a new contract variation with the quantity to be determined by an independent audit of the Dongara field. It stated also that, in order to maintain an economically viable flow rate from the Dongara field, Midland Brick would not object to CTAS committing to another customer that part of Dongara tail gas which CTAS would otherwise have delivered and sold to Midland Brick if the contract with Consolidated Gas had not been let. Further, the letter reflected a belief that Dongara reserves and deliverability would enable the seller to meet Midland Brick's full requirements from 1 July 1994 to at least the end of 1996 and quite possibly well beyond that time. It was said that the reduction in gas delivery from CTAS to Midland Brick resulting from the 3.65TJ delivery from Consolidated Gas to Midland Brick, represented a very significant decrease in cash flow to the CTAS companies. It was for that reason that confirmation was sought that Midland Brick did not have any objection to CTAS committing gas to other customers. If customers could not be secured, then the volume would remain committed to Midland Brick.

84 This exchange marked the commencement of a protracted period of negotiations which were brought to an end eventually by the execution of the fourth GSA variation on 1 July 1996.

85 I indicated in earlier discussion that evidentiary issues arise as to what use, if any, can be made of parol evidence when the dispute between the parties principally concerns the proper interpretation of the agreement. Accordingly, at this stage, in referring to verbal and written exchanges between the parties during the negotiating period, I will confine myself to materials that assist an understanding as to the sequence in which certain events occurred, materials that assist an understanding of certain technical or descriptive terms, and materials that are relevant to certain subsidiary issues such as the respective pleas of estoppel. I proceed from the premise that a court may admit evidence of mutually known facts to identify the meaning of a descriptive term and of the genesis and aim of a transaction. What a court cannot do, however, is receive evidence from one party as to its intentions and construe the contract by reference to those intentions: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429.

86 I will return to the evidentiary issues and the legal principles bearing upon the same in due course. At this stage, I simply note in passing that there was no dispute between the parties as to the authenticity of any of the documents referred to in this judgment. Most of the documents formed part of agreed bundles of documents or were exhibited to witness statements. They were received in evidence on a provisional basis and subject to a reservation of my ruling as to which documents were properly admissible.

87 It will be apparent from the narrative to this point that there was a degree of uncertainty about the capacity of the CTAS companies as the original sellers to meet the demands of its customers subject, however, to an improvement in the position resulting from workovers on the Dongara gas field and the resolution of issues concerning gas taken from elsewhere such as the associated gas from Thevenard Island. The parties had in contemplation a proposal to fix or agree the volume of estimated gas to be taken by Midland Brick under the 1985 GSA as varied. The Midland/Consolidated Gas Contract seemed likely to have an adverse effect upon the position of the CTAS companies and the sellers were therefore interested in making provision for sales of gas to third parties.

88 It seems that both parties were keen for Midland Brick to remain as a buyer under the 1985 GSA, albeit at a lower flow rate, provided it was possible to determine or agree the volume of Dongara tail gas to be taken by Midland Brick, bearing in mind that gas from elsewhere was likely to be brought to and co-mingled with gas from that area. However, it seemed to the sellers that it would be necessary for there to be a release of a portion of Dongara reserves that would otherwise have been delivered and sold to Midland Brick so that accelerated sales could be made to third parties as a means of ameliorating the sellers' cash flow position.

89 By letter dated 26 August 1994, being a letter prepared by Mr Handyside, WANG purported to set out its understanding of the principles which would guide a drafting of a further variation to the 1985 GSA. The letter indicated that all CTAS gas delivered to Midland Brick would continue to be delivered on an "as able" basis. CTAS would seek the concurrence of Midland Brick to increasing the released quantity of gas from 3.331PJ to 8.0PJ, the latter figure being the volume available to Midland Brick pursuant to the Midland Brick/Consolidated Gas Contract. CTAS would be free to use the gas in question in the market to try and offset their reduction in cash flow commencing on 1 July 1994. Midland Brick would agree to take the energy equivalent of all remaining economically producible tail gas remaining in the Dongara field which amount was estimated to be 15.175PJ. Only released quantity gas actually used would be deducted from the contract quantity. The letter was accompanied by a two page memorandum headed "Confidential" which purported to set out the principles of a replacement or variation to the 1985 GSA.

90 There were further exchanges by letter between the parties referring to meetings at which the proposed principles were under discussion. By letter dated 28 October 1994, again prepared by Mr Handyside, WANG submitted a further restructured package of principles although many key features of the proposal remained the same including the notion that the contract quantity of gas to be taken by Midland Brick would be 15.175PJ of which 8.0PJ would be available for use by CTAS. By letter dated 1 November 1994 Mr Cugley on behalf of Midland Brick advised WANG that he agreed with the contents of the WANG letter dated 28 October 1994 and endorsed the principles contained therein as being a proper basis for development of a contract variation or new contract, whichever is more appropriate.

91 Mr Cugley described the sequence of events in his witness statement (at par 37 and onwards). He said that he and his colleague Mr Damian Dolin met with Mr Handyside on 29 August 1994 on which occasion reference was made to the WANG letter written three days earlier on 26 August 1994. Mr Handyside said words to the effect that CTAS was offering to provide a backup to the Consolidated Gas supply. CTAS was seeking to increase the amount of gas that Midland Brick would permit them to sell to other parties from 3.31PJ to 8.0PJ as this would help CTAS to maintain the viability of the field through earlier sales whilst Midland Brick was taking gas from Consolidated Gas for six years commencing 1994.

92 According to Mr Cugley, Mr Handyside went on to raise the question as to whether Midland Brick would agree to a figure of 15.175PJ for the remaining recoverable reserves of the Dongara field and said Midland Brick could look at their expert Watson's papers to confirm the figure. Mr Handyside said that any of the 8.0PJ sold to others would come off the 15.175PJ remaining in the Dongara field and from the quantity of gas that Midland Brick was obliged to take from CTAS.

93 Mr Cugley said in his witness statement that he responded to the effect that he would not be interested in using CTAS as a supplier of backup gas. Midland Brick would agree to the increase from 3.31PJ to 8.0PJ. It would not be necessary to look at Watson's report and Midland Brick would be willing to accept the proposed figure of 15.175PJ.

94 According to Mr Cugley, Mr Handyside telephoned him about these matters on 1 September 1994 on which occasion Mr Cugley made notes of the conversation. The matters under discussion were further addressed in Mr Cugley's letter of 29 September 1994 and WANG's letter of 28 October 1994 to which Mr Cugley indicated his agreement by his letter dated 1 November 1994.

95 This correspondence was followed from early 1995 onwards by negotiations for the drafting of amendments to the 1985 GSA. The negotiations were concluded by the execution of the fourth GSA variation dated 1 July 1996.

96 Before leaving this aspect of the matter, it will be useful to note that on Mr Cugley's evidence a meeting took place on 2 March 1995 for the purpose of discussing a draft of the proposed variation. Mr Cugley said in evidence that he made a handwritten note of what transpired. The note in question is dated 2 March 1995 and is said to have a particular relevance to the kiln issue. I will return to this issue later. However, I note in passing that Mr Burgmann said in his witness statement (at par 73) that he remembered attending a meeting with Mr Cugley of Midland Brick in company with at least one other person from WAPET. Having been shown the note dated 2 March 1995 he was unable to say whether it was a note of the meeting. However, he recalled that at a meeting Mr Cugley accepted the terms of what was then proposed in the exchanged draft for the fourth GSA variation as it stood in about March 1995.

97 Mr Burgmann went on in his statement to describe the sequence of events from March 1995 through to execution of the fourth GSA variation on 1 July 1996. I will put this evidence to one side for the time being.

98 Mr Handyside gave evidence concerning these matters also. In the main his evidence was directed to the sequence of events concerning the exchange of various drafts. However, specific objection was taken to par 75 to par 77 of his witness statement on the grounds that the draft document and related fax transmissions being referred to in that part of his statement could not be regarded as relevant on any view of the matter because they were communications between WAPET and the CTAS companies and could not be regarded as relevant and admissible to any of the issues before the Court even if a ruling was made which allowed in parol evidence in order to resolve issues of interpretation.

99 At the trial of the action I reserved my ruling in regard to this issue. However, having now had an opportunity to reflect upon the ground of admissibility proposed by the first defendant, I am of the view that these passages of the witness statement should be excluded. I am not persuaded that they are relevant to the issues before the Court.

100 It is against this background that I now turn to the provisions of the fourth GSA variation. The first defendant, for ease of reference, handed up a marked up version of the final form of the GSA agreement upon which the dates of the successive variations were marked in different colours, and this became MFID10. However, in describing the agreement, I will in fact draw upon the composite form of the document adduced by the plaintiff as exhibit P1 which was treated by both counsel as representing the final form of the GSA after execution of the agreement dated 1 July 1996 carrying into effect the fourth GSA variation.

101 The 1985 GSA after taking account of all variations and amendments made up to and including 1 July 1996 contains provisions to this effect. By cl 1.5 the agreement is said to contain the entire agreement between the parties and no prior stipulation, agreement or understanding by the parties or any of their representatives in respect of the subject matter of the agreement shall be of any effect. By cl 1.6 the failure of a party to exercise any right shall not be deemed a waiver by such party of its entitlement. Clause 2 expressly reserves to the seller certain rights including the right to process and the right of complete autonomy and control in relation to drilling production and pipeline operations.

102 Clause 3 contains certain matters of acknowledgement and agreement by the buyer. By cl 3(a), the seller has and shall have the right and obligation to deliver gas to SECWA and Alcoa pursuant to the relevant agreements which rights and obligations shall take precedence over the seller's commitments to Midland Brick as buyer without liability on the part of the seller for inability to meet such commitments as a result. By cl 3(b), in addition to the rights of the seller under the preceding provision, the seller has the right to sell gas to others and in such volumes as the seller thinks fit, subject only to its commitment to Midland Brick. By cl 3(c) gas delivered will be a proportion of the aggregate gas produced from the Dongara area and other areas and will be delivered in a single stream co-mingled with gas produced by others.

103 I pause to note that by cl 1.1 "Dongara area" means the area bordered red on maps in Schedule B or so much thereof as is from time to time the subject of the production licences entitling seller to produce and deliver gas.

104 Clause 3(b) is particularly important in the context of the present dispute. In that provision (in which respect I will now quote the exact words) it is acknowledged by Midland Brick and agreed that:

"(b) In addition to the rights of the Seller referred to in sub-clause 3(a), the Seller has the right to sell gas to others and in such volumes as the Seller thinks fit, subject only to the commitment to the Buyer hereunder;"

105 I pause to observe that the seller's right to sell to third parties is also addressed by cl 5.3 which I will come to in a moment. However, it is important to understand, from the outset, that the nature of the relationship between cl 3(b) and cl 5.3, being a matter which is affected by the definition of certain terms used in those provisions, lies at the heart of the dispute between the parties.

106 Clause 4 deals with the term of the agreement. By cl 4.2B the second term of the agreement shall be deemed to have expired on 1 July 1994. The third term of the agreement shall be deemed to have commenced and shall continue from 1 July 1994 and the principal agreement shall terminate on 1 February 2008 or when the seller has delivered to the buyer a quantity of gas equal to the seller's proportionate share of the Total Contract Quantity, whichever occurs first.

107 The term "Total Contract Quantity" is defined to mean the Estimated Reserve minus the Declared Gas. The "Estimated Reserve" means 15.175PJ which was the estimated quantity of gas available to be delivered to the buyer from gas reserves in the Dongara area as at 1 July 1994, with the available well completions and equipment configuration schedule at that time. "Declared Gas" means Available Gas which has been sold and declared. I will come to the meaning of "Available Gas" later.

108 Clause 4.3 provides that seller and buyer shall each have the right to terminate the agreement pursuant to cl 12.4, 19, 20 and 23. The latter clause deals with economically recoverable reserves and reads as follows:

"23.1 Insufficiency of Reserves and Notification

It is acknowledged and agreed that the Seller is not able to determine with sufficient confidence to commit itself to the Buyer that the supply or deliverability of gas from any source available to the Seller will be sufficient to meet the Seller's Proportionate share of the Daily Contract Quantity as well as those quantities of gas required to be delivered to third parties in priority to the Buyer, under sub-clauses 3(a) and 3(b) of this Agreement. The Seller shall give the Buyer notice of any anticipated insufficiency of such supply or deliverability together with an estimate of the quantities of gas which, in Seller's opinion, can be economically supplied after first delivering to third parties the gas which the Seller is entitled to deliver to those third parties in priority to deliveries to the Buyer, under sub-clauses 3(a) and 3(b) of this Agreement. Such notice shall be given by the Seller to the Buyer no less than 12 months prior to the date when, in the Seller's reasonable opinion, such supply or delivery insufficiency is likely to occur.

23.2 [deleted]

23.3 Seller's Option

Notwithstanding anything to the contrary in this Agreement in the event the reserves are, in Seller's opinion, insufficient for Seller to economically produce and deliver gas to Buyer, Seller may terminate this agreement upon 60 days notice to Buyer.

23.4 Seller's Immunity

Buyer acknowledges that it shall have no right of action against Seller for damages or losses arising out of any representation by Seller of the volumes of gas which are or will be available from the reserves, any inadequacy or insufficiency of reserves as may occur from time to time or out of any termination pursuant to this clause or out of any reduction in the daily contract volume pursuant to this clause 23."

109 Clause 5 of the fourth GSA variation deals with "Volumes". Clause 5.1 deals with "Daily Contract Volume". It provides that subject to the other provisions of the agreement seller agrees to sell and deliver to buyer and buyer agrees to purchase and take from seller the seller's proportionate share of a daily contract volume of gas from the Dongara area. By cl 5.1(c) for each day during the third term of this agreement, the seller shall endeavour to supply its proportionate share of the Daily Contract Quantity. The buyer shall be obliged to take gas supplied by the seller at the rate as supplied. "Daily Contract Quantity" is defined to mean, for the period from 1 July 1994 to 1 July 2000, the daily requirements of the Buyer's plant less 3.65TJ and for the period beyond 1 July 2000, the daily requirements of the Buyer's plant.

110 The remaining provisions of cl 5 are important and I will set them out in their entirety as follows:

"5.2 Quantity

The total quantity of gas from the Dongara area or, at the Seller's sole discretion, from any other source, that the Seller shall endeavour to deliver to the Buyer, after first allowing for the gas supply requirements of Gas Corporation, Electricity Corporation and Alcoa, and which the Buyer shall be obliged to take during the third term shall not exceed the Seller's Proportionate share of the Total Contract Quantity.

5.3 Right to Sell to Third Parties

Notwithstanding the Seller's obligation to the Buyer, the Seller shall have the right from time to time during the third term to declare and sell the Seller's proportionate share of Available Gas with a heating value up to but not in excess of 8.0 PJ to third parties provided that if the Seller on any day cannot meet its obligations to deliver gas under this Agreement to the Buyer, then the Seller will suspend deliveries to purchasers of Declared Gas before it suspends deliveries to the Buyer.

5.4 Amount to be Delivered

The Seller shall give the Buyer written notice prior to 31 January of each year, commencing on 31 January 1996, of the Seller's Proportionate share of the quantity of Declared Gas for the prior year. Such quantity shall reduce the Seller's Proportionate share of the Contract Quantity accordingly.

The Seller will give the Buyer written advice ('Advice') of the Seller's estimate of the Seller's Proportionate share of the remaining Contract Quantity as at the end of March, June and September of each contract year. Such Advice shall be available before the last day of April, July and October respectively of each contract year.

5.5 Daily Demand Requirements for Third Term

The Buyer shall, during the third term of the Agreement, advise the Seller by the first day of December in each year of the Buyer's anticipated daily demand requirements for gas from the Seller for the following 12 month period commencing 1 January."

111 Let me now return to cl 5.3 which was thought by both parties to lie at the heart of the dispute. It provides that notwithstanding the seller's obligation to the buyer, the seller shall have the right from time to time during the third term to declare and sell the seller's proportionate share of Available Gas with a heating value up to but not in excess of 8.0PJ to third parties.

112 I pause there to remind myself that by the earlier provision clause 3(b) it is said that the seller has the right to sell gas to others and in such volumes as the seller thinks fit, subject only to the commitment to the buyer hereunder.

113 Clause 5.3 speaks of the sale of "Available Gas" up to but not in excess of 8.0PJ to third parties. The term "Available Gas" is defined in cl 1.1 as follows:

(i) from the Dongara area;

(ii) which is not Committed Gas;

(iii) which is available for sale to third parties; and

(iv) which is the difference between the Dongara area maximum deliverability (with the available well completions and equipment configuration schedule used in establishing the Estimated Reserve at 1 July 1994) and the sum of the Daily Contract Quantity and any Committed Gas quantity."

114 The term "Committed Gas" means gas from the Dongara area which is committed to Gas Corporation, Electricity Corporation and Alcoa.

115 Having absorbed and reflected upon the first part of cl 5.3 concerning the right to sell to third parties, one must then give consideration to the proviso. Against the background of an entitlement in the seller to declare and sell the seller's proportionate share of Available Gas up to but not in excess of 8.0PJ to third parties, the clause makes the right in question subject to the proviso that if the seller on any day cannot meet its obligations to deliver gas under this agreement to the buyer, then the seller will suspend deliveries to purchasers of Declared Gas before it suspends deliveries to the buyer.

116 As I noted in my overview, the principal issue in these proceedings, which arises essentially from a consideration of cl 3 and cl 5 of the GSA fourth variation, is whether the 1985 GSA, on its proper construction, provides that the total quantity of gas which Midland Brick is required to buy is reduced by any sales of gas from the Dongara gas field made to third parties, other than Alcoa and SECWA, up to 8.0PJ.

117 Midland Brick contends that the right to sell is accompanied by an obligation to declare and that sales of gas declared and sold to third parties go to reduce the estimated reserve of 15.175PJ.

118 The first defendant submits that the first part of cl 5.3 is in fact for the seller's benefit, not for the benefit of Midland Brick. The proviso to cl 5.3 has been inserted to protect the position of Midland Brick on a daily basis. Under cl 5.3 there is a very clear right given to the seller, but no obligation upon the seller to "declare and sell". A paramount right in the seller to sell to third parties is in fact earlier acknowledged in the 1985 GSA in the plain terms of cl 3(b). One must also take account of cl 23.1 which acknowledges the priority of the right under cl 3(b) for the seller to sell to third parties.

119 The first defendant submits that Midland Brick, in effect, advocates a construction of cl 5.3 of the 1985 GSA which makes it mandatory for the seller to declare, if the seller sells Available Gas to third parties. However, on this view, Midland Brick's advocated construction has the effect of essentially reversing a clear meaning of cl 5.3. It simply cannot stand with the clear words of the first part of cl 5.3 which, according to the first defendant, plainly confer a wholly discretionary right upon the seller.

120 I will henceforth refer to the 1985 GSA as varied, which means the 1985 GSA as varied by all variations up to and including the fourth variation, unless another meaning is indicated.

121 Having outlined the matters principally in issue, it now becomes necessary, before examining the pleadings, to turn to the final phase of the narrative, being a matter touched on at the outset in my overview.

122 Pursuant to an agreement in writing made in or about 1998 the first defendant CMS sold the production licences and facilities relating to sites in the Dongara area to the second defendant ARC. It was common ground at the hearing that this was done pursuant to a put and call option dated 5 March 1998.

123 Importantly, for present purposes, there was no assignment of the 1985 GSA and there was no assignment to ARC as the incoming operator of the Dongara field of the 1985 GSA as varied. However, as I mentioned in my overview, on 1 July 1998, in order to enable the CMS to meet its seller's obligations to Midland, CMS and ARC entered into the ARC/CMS Agreement, being document 11 in the plaintiff's trial bundle.

124 The recital refers to CMS having existing gas sales contracts with existing customers. It says that ARC has agreed to sell to CMS on the terms contained in the Agreement a quantity of gas from the Dongara Gas Field Area equivalent to the gas required to be delivered from time to time by CMS to the existing customers (a term which was defined to include Midland Brick). By cl 4 the term of the Agreement terminates upon the completion of the obligation of CMS to supply gas in accordance with the Existing Gas Sales Contracts.

125 Clause 5 addresses the delivery and receipt obligations and includes this provision:

"5.1 Subject to the terms of this Agreement, Producer agrees to deliver to CMS at the Delivery Point, and CMS agrees to receive at the Delivery Point, a quantity of Gas (measured in GJ) equal to the total quantity of gas (measured in GJ) that CMS is obliged to deliver from time to time to the Existing Customers under the Existing Gas Sales Contracts (plus a reasonable and proportional allowance for any Fuel Gas)."

126 The ARC/CMS Agreement contains also the following provisions:

6.1 Producer shall have the right to during the Term and the right to reserve and sell to third parties Gas from the Dongara Gas Field Area provided such sales do not prejudice the ability of Producer to fulfil its obligations under this agreement.

6.2 Producer acknowledges that CMS is entering into this agreement due to prior commitment to the Existing Customers for the sale and transportation of Gas, and hereby agrees that the commitments under this agreement shall take precedence over Producer's other agreements for the sale of Gas from the Dongara Gas Field Area.

6.3 This agreement does not prevent CMS from acquiring Gas from sources other than Producer for supply to parties other than the Existing Customers or to the extent that the Producer is unable to supply Gas.

7.1 Subject to the Producer delivering Gas to the Delivery Point in accordance with this agreement, CMS undertakes and agrees to perform its obligations to the Existing Customers under and in accordance with the terms and conditions of the Existing Gas Sales Contracts.

7.2 CMS shall not:

(a) waive or vary any of the terms of the Existing Gas Sales Contracts or take any remedial action against any Existing Customer, being a waiver, variation or remedial action that may have a material adverse effect on the Producer's ability to enjoy the rights and expectations created by this agreement; or

(b) terminate any of the Existing Gas Sales Contracts,

without the prior written consent of the Producer."

127 It is apparent from the narrative, and from the nature of these provisions, that there is no direct contractual relationship between Midland and ARC. However, ARC obviously has a vital interest in any issue concerning the proper construction of the 1985 GSA as varied. It is now the owner of the Dongara Gas Field which supplies the gas to CMS, which CMS in turn sells to Midland under the 1985 GSA as varied. At first glance, it seems that ARC is obliged to keep in step with CMS, for if it transpires, upon the proper interpretation of the 1985 GSA as varied that CMS is obliged to supply a certain amount of gas, then ARC will also be obliged to supply the amount in question.

128 It was therefore not surprising, at the trial of the action, that the second defendant ARC was generally supportive of the CMS contention that CMS had a paramount right to sell available gas to third parties (described by the defendants as a discretionary right to sell) without being obliged to make a declaration whenever a sale of Available Gas was made to a third party.

129 The absence of any contractual privity between Midland Brick and ARC gave rise to certain issues on the pleadings and as to the prayer for relief which I will come to later. It will be sufficient to say, for the time being, that, for the most part, ARC joined with and adopted the stance of CMS in regard to the matters in issue.

130 It is against this background that I must now turn to the pleaded issues.

131 The Midland Brick statement of claim begins by describing the nature of the 1985 GSA and the subsequent variations. Midland Brick goes on to say that by agreements dated 24 June 1997 (taking effect on 1 January 1997) each of the original sellers assigned the 1985 GSA and the subsequent variations to CMS. Midland Brick consented to such assignments and CMS agreed with Midland Brick to be bound by each and every term and condition contained in those agreements.

132 Midland Brick alleges that by the 1985 GSA as varied up to and including the 26 February 1987 variation, it was agreed that each of the original sellers would sell and supply certain proportions of a total quantity of tail gas from the Dongara area and the plaintiff would buy that gas over the period of a second term of 10 years commencing on 1 February 1988. In certain specified circumstances, Midland Brick would pay for certain quantities of gas that were not taken by Midland Brick.

133 It is further alleged by the plaintiff that the original sellers had the right to deliver gas to SECWA and Alcoa in precedence to the original sellers' commitments to sell and supply gas to Midland Brick. In addition, the original sellers could sell gas from the Dongara area to any third party (other than SECWA and Alcoa) only in the event that the original sellers estimated that the economically recoverable and deliverable gas reserves from the Dongara area exceeded the volumes of gas to be sold to Midland Brick, and only after the original sellers had made available to Midland Brick all data in their possession relating to their estimate of such reserves. However, the original sellers' obligations to Midland Brick to sell and supply gas took precedence over delivery of gas to any such third party.

134 Midland Brick says it was agreed also that if the economically recoverable reserves of gas from the Dongara area or the deliverability thereof, in the opinion of the original sellers, reasonably exercised, should prove insufficient to meet the daily contract volume to be supplied to Midland Brick, the original sellers were required to give notice in that respect to Midland Brick, which was then entitled to terminate the agreements. The original sellers were not liable to Midland Brick in damages if they were unable to supply gas to Midland Brick due to any inadequacy or insufficiency of reserves in the Dongara area.

135 Midland Brick alleges that when the 1 July 1996 variation was executed the reserves of gas in the Dongara area had been substantially depleted by earlier sales and the volume, economic recoverability and deliverability of the tail gas from the Dongara area were not capable of certain and precise determination. This fact was said to be known to the original sellers and to Midland Brick.

136 The plaintiff goes on to allege in par 10 of the claim that it was also known to the original sellers and Midland Brick (and was indeed the fact) that the second term of the 1985 GSA had commenced on 1 February 1988, the original sellers had notified Midland Brick in February 1990 of their expectation that the amount of deliverable gas would fall below Midland Brick's daily contract quantity during 1993. Midland Brick had in 1990 entered into a Gas Supply Contract with Consolidated Gas (in order to ensure security of gas supplies) under which Midland Brick was purchasing 3.65TJ per day of gas and had agreed to buy at least 8.0PJ of gas.

137 It is said further in par 10 of the claim that as a result of the contract with Consolidated Gas, Midland Brick had been and was only purchasing gas from the original sellers to the extent that Midland Brick's requirements exceeded 3.65TJ per day. The original sellers had estimated that the economically recoverable quantity of tail gas in the Dongara area, estimated by reference to the schedule of well completions and equipment configuration as at 1 July 1994 was 15.175PJ (after allowing for gas sales to the Gas Corporation and Alcoa) and the plaintiff had accepted that estimate.

138 It is in this context that Midland Brick went on to plead that there had been a further agreement as pleaded in par 10A, namely, that prior to the execution of the 1 July 1996 variation (or fourth variation) the contractual terms had been further varied such that the original sellers had agreed to waive and abandon the take or pay provisions and Midland Brick had agreed to continue to take gas from the sellers and not exercise or retain its rights of termination of the agreements. This variation was allegedly made in writing and consisted of Midland Brick's letter dated 8 November 1990 to the original sellers' agent and the latter's reply dated 22 November 1990.

139 Midland Brick alleges in par 10(h) of its claim that as a consequence of the matters I have just referred to it was the common objective of Midland Brick and the original sellers to release up to 8PJ of gas from the buying and selling obligations under the 1985 GSA and subsequent variations to enable the original sellers to sell up to such quantity to third persons in order to restore their cash flow from the Dongara area and to enable Midland Brick to reduce its gas purchases from the original sellers by up to an amount equal to that which Midland Brick had agreed to buy from Consolidated Gas.

140 I pause to observe that Midland Brick provided particulars bearing upon the allegation that the original sellers and Midland Brick had knowledge of these matters. These particulars refer to various letters and exchanges between the parties and were the subject of a good deal of evidence.

141 Midland Brick pleads in par 12 of the claim that on the proper construction of the 1985 GSA as varied, having regard to the matters pleaded in pars 9, 10 and 11 and as binding on the first defendant, there were terms, in effect, that:

"(a) subject to the terms pleaded below, the first defendant would sell and supply, and the plaintiff would buy and take, a maximum quantity of 15.175PJ of gas

(b) the first defendant would have the right to sell gas from the Dongara area to third parties on a daily basis in an amount per day by which the Dongara area maximum deliverability exceeded the sum of the daily requirements of the plaintiff and the daily requirements of gas committed to Gas Corporation, Electricity Corporation and Alcoa, up to a total quantity of 8JPJ

(c) all such gas from the Dongara area sold and delivered to third parties by the first defendant or its successor in title to the licences and other property pleaded in paragraph 4(a) would be declared by the first defendant and would be deducted from and would reduce the total quantity of gas to be bought by the plaintiff as pleaded in sub-paragraph (a)

(d) the first defendant would give the plaintiff written notice prior to 31 January of each year of the quantity of such declared gas for the prior year."

142 Midland Brick pleads in par 13 that the first defendant sold the production licences and facilities at the Dongara field to the second defendant with effect from 1 July 1998. It pleads in par 14 that pursuant to a related agreement the second defendant agreed to supply gas to the first defendant on terms to enable the first defendant to supply that gas to Midland Brick in fulfilment of the terms of the 1985 GSA.

143 It is alleged in par 15 of the claim that since 1 July 1998 the second defendant, to the knowledge of the first defendant, has sold and delivered gas from the Dongara area to third parties in quantities which exceeded the aggregate of the daily requirements of Midland Brick, SECWA and Alcoa and, in breach of the term pleaded in par 12(d) of the claim, the first defendant has failed and refused to give to Midland Brick written notice of the quantities of the gas that has been sold.

144 It is said further in par 16 that the first defendant wrongfully denies that the quantities of gas sold to third parties must be deducted from and reduce the total quantity of gas which Midland Brick is obliged to buy and take under the 1985 GSA.

145 Midland Brick alleges in par 17 that the second defendant is bound by the construction of the 1985 GSA as varied pleaded in par 12 of the claim.

146 I digress briefly to say that the assertion in par 17 that the second defendant is "bound" by the construction of the 1985 GSA contended for by Midland Brick has important implications with respect to the prayer for relief, which I will come to later. I note in passing at this stage that, in the absence of any privity of contract between Midland Brick and ARC, the latter cannot be said to be under any binding obligation to Midland Brick which has been breached. The plea in par 17 of the claim appears to be directed to the question of whether ARC is bound by the provisions of the ARC/CMS Agreement to supply gas to CMS in a manner corresponding to the obligations imposed upon CMS by the 1985 GSA as varied.

147 I note in passing, by way of a further digression, that this plea appears to give rise to a justiciable issue as to the meaning and effect of the ARC/CMS Agreement, notwithstanding the absence of contractual privity between Midland Brick and ARC, for CMS and ARC are both parties to the present proceedings, both will be affected by the outcome, and both were in a position to answer the plaintiff's plea with a plea to the contrary, if that were the stance they wished to adopt.

148 Finally, Midland Brick alleges in par 18, as a plea in the alternative, that on the proper construction of the 1985 GSA there were terms that all gas from the Dongara area sold to third parties would be declared by the seller and serve to reduce the total quantity of gas to be bought by Midland Brick (par 18(a)); the first defendant promised that it would remain the owner of the relevant licences and facilities for the life of the agreement (par 18(b)); the first defendant would do all such things as were necessary on its part to enable Midland Brick to have the benefit of the 1985 GSA as varied or, alternatively, terms to that effect were implied by law in order to give the 1985 GSA business efficacy (18(c)).

149 It is alleged further by Midland Brick that the first defendant breached the terms pleaded in par 18(b) and par 18(c) in that it sold the licences and facilities without simultaneous assignment to the purchaser of the 1985 GSA and thereby prevented Midland Brick from having the benefit of the terms pleaded in par 18(a).

150 The plaintiff says that by reason of these matters it has suffered loss and damages being loss of the opportunity to have the total quantity of gas purchased under the 1985 GSA reduced by up to 8PJ and to purchase replacement gas elsewhere at a cheaper price than that payable under the agreement.

151 I digress briefly to say that an order was made prior to the trial of the action for the issue of damages to be tried separately. Accordingly, there is no need for the time being to say anything further about that aspect of the matter. For present purposes, the relief principally sought by the plaintiff was a declaration in terms of par 12 and par 17 of the claim.

152 The plaintiff also sought in par (d) of the prayer for relief a declaration which was framed originally in these terms:

"(d) a declaration that the quantities of gas from the Dongara area which have been sold and delivered since 1 July 1998, up to 8PJ, must be deducted from and reduce the total quantity of gas which the plaintiff is obliged to buy and take under the agreement pleaded in paragraph 5 as varied as pleaded above"

153 However, at the end of the trial, having regard to discussion that had taken place during the course of the trial and in closing addresses, counsel for the plaintiff applied to amend par (d) of the prayer for relief and to substitute the following:

"(i) a declaration that the quantities of gas described in sub-paragraph (ii), which have been sold and delivered by the first defendant or the second defendant since 1 July 1994 to third parties other than Electricity Corporation, Gas Corporation and Alcoa, must be declared under the agreement and deducted from the total quantity of gas which the plaintiff is otherwise obliged to buy and take delivery of under the agreement;

(ii) all quantities of gas produced from the Dongara area, including stored gas removed from the Dongara area, sold and delivered to third parties each day, within the daily limit expressed in paragraph (iv) of Available Gas, up to a maximum total quantity of 8PJ."

154 Because the application to amend came late, having heard from the parties and allowed them an opportunity to make written submissions, I reserved my decision as to whether the application to amend should be allowed. I will return to this aspect of the matter later.

155 In essence, the defendants submitted that the application for leave to amend should not be allowed as it was made on the last day of the trial during the course of counsel for the plaintiff's closing address, and was therefore prejudicial. It was said to be unacceptably unclear in its terminology and potential effect. Further, there was an issue as to the proposed amended declaration (d) being discordant with the declaration sought under the existing prayer for relief in pars (a), (b) and (g). The proposed amendments were said to considerably expand the relief formally sought by Midland Brick.

156 The defendants therefore submitted that the application to amend should not be dealt with until after the Court had delivered its reasons for decision upon the core issues of construction. Depending upon the outcome, the parties could then, if necessary (if Midland Brick was successful) evaluate the reasons for decision and proceed to formulate the terms of any appropriate declarations or orders at that stage.

157 Counsel for Midland Brick sought to counter these objections by submitting that, from the outset, Midland Brick's case had raised the proper construction of the subject agreement. The application for leave to amend was raised late in the trial, admittedly, but the amendment essentially served to bring the relief claimed into conformity with the pleaded case on construction. Thus, there was no prejudice in real terms as no new pleaded issue was brought into play.

158 Importantly, at par 1.9 of his written submissions dated 24 April 2003 (filed after the trial) counsel for the plaintiff accepted that the temporal reference in the proposed amendment to prayer for relief (d) should read "since 1 July 1997" not "since 1 July 1994" in that 1 July 1997 was after the date on which the first defendant became the seller. Accordingly, I will henceforth proceed upon the basis that 1 July 1997 is the operative date, if the amendment be allowed. I note that this concession appears to remove a number of objections raised by the defendants in their written submissions, especially those directed to the difficulty of calculating quantities before 1 July 1997.

159 It is not necessary to traverse the entire list of admissions and denials in the first defendant's statement of defence. In essence, the first defendant either denies or does not admit the principal contentions of Midland Brick and denies that the 1985 GSA as varied should be interpreted in the manner contended for by the plaintiff.

160 The first defendant admits that the 1985 GSA was varied by further written agreements being those of 29 August 1986, 28 October 1986, 26 February 1987 and 1 July 1996 and by letters dated 8 December 1988 and 26 June 1996 but denies the alleged variation pleaded in par 10A of the claim pursuant to letters dated 8 and 22 November 1990. I note in passing that the first defendant was supported by the second defendant as to this issue.

161 In par 10A, of the first defendant's statement of defence it is said that at the time the fourth variation was executed on 1 July 1996 it was the fact as the original sellers and Midland Brick knew that during the period 1991 to 1993 the original sellers had conducted workovers and other work on the wells and facilities that had the potential to increase the reserves of gas available in the Dongara area. From about April 1993 the original sellers had access to substantial additional reserves of gas, that is to say, the Thevenard Island gas, and the original sellers were using and would continue to use depleted gas reservoirs in the Dongara area for the purpose of storing gas from external areas such as Thevenard Island.

162 The first defendant admits par 12(a) of the claim subject to certain qualifications but denies par 12(b) of the claim and refers specifically to cl 3(b) and cl 23.1 of the 1985 GSA. In par 13(c) of the defence the first defendant says this in response to par 12(c) of the claim:

"(i) denies that the effect of any agreement between it and the plaintiff was that all gas from the Dongara area sold and delivered by the first defendant to third parties would be declared by the first defendant and be deducted from and would reduce the total quantity of gas to be bought by the plaintiff;

(ii) denies that the effect of any agreement between it and the plaintiff was that any sales of gas from the Dongara area by a successor in title of the first defendant were relevant to any agreement between the first defendant and the plaintiff;

(iii) admits that if the first defendant sold gas from the Dongara area to third parties and declared such gas, then the volume of such gas would be deducted from and would reduce the total quantity of gas the plaintiff was obliged to take from the first defendant;

(iv) otherwise denies each and every allegation; and

..."

163 The first defendant says further in par 14 of the defence that on the proper construction of the 1985 GSA as varied there were terms, in effect, that subject only to its obligations to supply gas to Midland Brick, the first defendant could sell gas from the Dongara area to third parties. Moreover, notwithstanding its obligations to supply gas to Midland Brick, the first defendant had the right but not the obligation to sell gas from the Dongara area to third parties and declare such gas sold. If it did sell and declare, the volume of gas from the Dongara area sold to third parties and declared would be deducted from and would reduce the total quantity of gas to be bought by Midland Brick.

164 The first defendant admits in par 15 that it sold the Dongara Gas Field to ARC with effect from 1 July 1998. In par 16 it admits the plea in par 14 of the statement of claim that ARC agreed to supply gas to the first defendant on terms to enable the first defendant to supply that gas to Midland Brick under and to fulfil the terms of the 1985 GSA as varied.

165 The first defendant admits in par 17 that the second defendant ARC to the knowledge of the first defendant has sold and delivered gas from the Dongara area to third parties in quantities which exceeded the aggregate of the daily requirements of Midland Brick, SECWA and Alcoa but denies any breach of the agreement as to the making of declarations or giving written notice of quantities sold to third parties. The first defendant says that such sales were not required to be declared pursuant to any agreement with Midland Brick. It denies that the first defendant was required to give written notice to Midland Brick of the quantities of gas from the Dongara area which had been sold by ARC to third parties.

166 As to the alternative plea in par 18 of the claim, namely, that all gas from the Dongara area sold to third parties would be declared and deducted from the total quantity of gas to be bought by Midland Brick and the first defendant would remain the owner of the Dongara Gas Field, the first defendant relies upon the facts and matters set out in par 19B of the defence in addition to its earlier plea.

167 The first defendant says in par 19B that on or before 26 February 1998, Midland Brick knew that the first and second defendants were discussing the possible sale and purchase of the first defendant's interests in the Dongara licences without simultaneous assignment of the 1985 GSA as varied. In or about late February or early March 1998, Midland Brick executed a confidentiality agreement in relation to the possible sale and purchase of the licences and by which Midland Brick expressly consented to the release by the first defendant to the second defendant of information concerning the 1985 GSA as varied and all information relating to the same. By letter dated 15 April 1998 the first defendant advised Midland Brick of the sale of the licences and that the second defendant would sell to the first defendant sufficient quantities of gas to enable the first defendant to fulfil its obligations under the 1985 GSA as varied. Further, as from July 1998, Midland Brick has without objection accepted deliveries of gas with the knowledge that such gas was supplied by the second defendant to the first defendant for the purpose of the first defendant fulfilling its obligations accordingly.

168 The first defendant says further in par 19C that in reliance upon such conduct of Midland Brick the first defendant completed the sale of the licences to the second defendant, without seeking to assign to the second defendant the 1985 GSA as varied and since 1 July 1998 accepted gas from the second defendant and then transported the same to Midland Brick in fulfilment of its obligations under the 1985 GSA as varied. The first defendant pleads that by reason of these facts and matters Midland Brick is, in any event, estopped from asserting that the sale of the licences is a breach of the 1985 GSA as varied. The first defendant admits that it sold the licences without the simultaneous assignment to the purchaser of the 1985 GSA and admits that the seller of gas under the agreement ceased to hold the licences. I will henceforth refer to this as "the first defendant's estoppel plea".

169 The first defendant also relies upon the facts and matters set out in its defence in support of a counterclaim concerning the Kiln 10 or Buyer's plant issue.

170 The first defendant says that for the period from 1 July 1994 to 1 July 2000, Midland Brick was obliged to take gas from the Dongara area at a rate equal to the daily requirements of the Buyer's plant, less 3.65TJ. For the period after 1 July 2000 it was obliged to take gas at a rate equal to the daily requirements of the Buyer's plant.

171 The first defendant says further that Kiln 10 is an addition to or replacement of part of the brick manufacturing facility and associated facilities owned and operated by Midland Brick at Middle Swan with the result that Midland Brick is obliged to purchase the gas required for the operation of Kiln 10 from the first defendant but has failed to do so in breach of the 1985 GSA as varied.

172 The first defendant counterclaims for a declaration that Kiln 10 falls within the definition of Buyer's plant and that the plaintiff is obliged to purchase the gas required for its operation from the first defendant.

173 An order is also sought that Midland Brick disclose in writing the quantity of gas used in the operation of Kiln 10 from the date on which it was commissioned to the present date. An order is also sought for specific performance of Midland Brick's alleged obligations and damages in lieu of or in addition to such an order.

174 The second defendant in par 3 of its statement of defence asserts the primacy of the 1 July 1996 variation but otherwise appears to accept that the 1985 GSA governed the relationship between the original sellers and Midland Brick. Again, I will not traverse the range of admissions and denials save to note that, in effect, the Midland Brick claim and proposed interpretation of the 1985 GSA as varied is denied. As I indicated in earlier discussion, the stance of the second defendant with respect to the proper construction of the Gas Sales Agreement between Midland Brick and CMS essentially conforms to the stance adopted by CMS on the pleadings and at the trial.

175 There is a degree of ambiguity in par 12 of the second defendant's defence and I will therefore set out the relevant passage in its entirety:

"12. Paragraph 14 of the amended statement of claim is admitted save that the second defendant agreed to supply gas to the first defendant on terms to enable the first defendant to supply that gas to the plaintiff under and to fulfil the terms of the GSA."

176 I pause to remind myself that in par 14 of the claim Midland Brick asserted that pursuant to the ARC/CMS Agreement, the second defendant (ARC) agreed to supply gas to CMS on terms that would enable CMS to supply that gas to Midland Brick under and to fulfil the Agreements that I have called, for ease of reference, the 1985 GSA as varied. When par 12 of the second defendant's defence is viewed in context the second defendant appears to admit the central assertion made by Midland Brick in par 14 that ARC agreed to supply gas to CMS so that the latter could meet its obligations to Midland Brick. Having regard to the meaning the second defendant gives to the term "GSA" earlier in its defence, I conclude that it reserved its position only as to what documents or events constitute the GSA.

177 To my mind, the admission I have just described is important, for, as I noted in earlier discussion, the plaintiff's plea in par 14 of its claim sets the scene for a contention in par 17 of the claim that the second defendant is bound by the construction of the 1985 GSA as varied contended for by the plaintiff concerning sales to third parties; that is, not bound by an obligation to the plaintiff (due to a lack of privity between the parties) but bound by an obligation to CMS pursuant to the ARC/CMS Agreement upon the basis that the definition of the obligations under that Agreement mirrors the proper construction and obligations under the 1985 GSA as varied concerning sales to third parties. If the obligations in that regard under the two Agreements did not correspond one would have expected to see that point made in this portion of the second defendant's defence.

178 The second defendant accepts in par 13 of its defence that sales have been made to third parties and that no such sales have been declared or been the subject of notice given to Midland Brick as to the quantities of gas sold but denies that this amounts to a breach of the agreement.

179 The second defendant says in par 15 that it is not a party to the 1985 GSA and, on its proper construction, gas sold by the second defendant cannot affect the rights and obligations of the parties to the 1985 GSA as varied or reduce the total quantity of gas which Midland Brick is obliged to buy from the first defendant under the 1985 GSA. The second defendant says that as to the proper construction of the 1985 GSA as varied under cl 5.3 the seller has the right but not the obligation to declare gas sold to third parties.

180 As to par 18 of the claim, the second defendant denies that a term of the kind alleged by the claim is necessary, reasonable or obvious in order to give business efficacy to the 1985 GSA as varied. The second defendant denies that there is an express or implied term of the 1985 GSA as varied requiring simultaneous assignment of the 1985 GSA to a purchaser of the Dongara licences and facilities.

181 The second defendant denies that the plaintiff has suffered loss and damage for loss of opportunity and denies that the plaintiff is entitled to the relief claimed or to any relief. The plaintiff's defence to the first defendant's counterclaim effects a joinder of issues between the parties.

182 It will be useful at this stage to look at some legal principles bearing upon the issues raised by the pleadings.

183 The primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. 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 more harmonious one with another. If the words used are unambiguous the Court must give effect to them, notwithstanding that the result may appear unreasonable, and notwithstanding that it may be suspected that the parties intended something different. The Court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109.

184 However, if the language is open to two constructions, an interpretation will be preferred which will avoid consequences which appear to be capricious or unreasonable. Documents should generally be construed so as to give effect to commercial purposes rather than relying upon an excessively narrow or artificially restricted construction: Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd [2000] HCA 20; (2000) 170 ALR 579 at par 24.

185 Where the parties have recorded terms of their contract in a document, the so-called parol evidence rule excludes the use of evidence of extrinsic terms which subtract from, add to, vary or contradict the language of a written instrument. A clause stating that the document contains the entire agreement does not, unless expressly stated, operate to exclude extrinsic evidence of implied terms. Evidence of a variation made by a further contract is always admissible.

186 There are also certain special rules defining the limited circumstances in which evidence may be admitted where the language of a document is in dispute. Broadly described, extrinsic evidence is admissible if the text in dispute is ambiguous or if the evidence is of objective background, not merely of subjective intention: Cheshire & Fifoot: "Law of Contract" (8th Aust ed) par 10.4 to par 10.11.

187 The classic exposition of the law concerning extrinsic evidence is that of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352:

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification."

188 I note in passing that Mason J went on to deal with evidence concerning the implication of a term found to exist by the Court of Appeal as a consequence of findings made by the arbitrator based on circumstances surrounding the making of the contract. He was of the view, having regard to the principles he had enunciated, that it was legitimate to look to evidentiary materials bearing on the issue of implication of a term. The discussions which generated the arbitrator's findings were not negotiations about the terms of the contract. Had the discussions been of that kind then recourse to them would have been prohibited for the purpose of interpreting the contract by reference to the parties' actual intentions as expressed before entering into the contract. Instead the evidence revealed a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon for the simple reason that it was a matter of common assumption.

189 I note that in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289 Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ observed at par 9 of their joint judgment that the difficulty in the case before them concerned the phrase that "the Trustees may have regard to additional costs and expenses." This gave rise to an ambiguity which required the application of settled principles of construction. In that regard it was appropriate, having regard to what Mason J had said in Codelfa (supra), to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

190 Before leaving that case, I must note the observations made by Kirby J at par 72 in the course of his dissenting judgment that in the case of a complex lease one would normally expect that the written agreement would contain all of the provisions essential to govern the relationship between the parties. Especially would this be so where, as in the case before him, the parties were severally advised by highly competent and experienced solicitors and where they took what appeared to have been an inordinate amount of time both to secure enabling legislation and to reduce the terms of their informal agreement to a written document in the form of a deed.

191 The decided cases also indicate that extrinsic evidence is admissible to explain the technical subject matter of a contract, so that the Court has an adequate understanding of the nature and subject nature of the contract in question: L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235 at 261; Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR 350 at 362; Maroubra Pty Ltd v Murchison Queen Pty Ltd [2002] WASC 98 at par 64.

192 I pause to observe that the decided cases therefore strongly suggest that in the circumstances of the present case extrinsic evidence is admissible as to objective background and to assist in understanding and identifying the meaning of various technical concepts such as gas reservoirs, the estimation of reserves, deliverability, and a descriptive term such as "the Dongara area maximum deliverability". I will return to the rules concerning the admissibility of extrinsic evidence later, bearing in mind that in the circumstances of the present case my first task must be to determine whether the 1985 GSA as varied can be construed effectively without resort to extrinsic evidence in the manner allowed for by the settled principles.

193 It emerges from my review of the pleadings that both plaintiff and first defendant have raised issues of estoppel. It will therefore be useful to look briefly at the relevant principles in that regard.

194 In Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, Mason CJ and Wilson J noted that for many years there was a reluctance to allow promissory estoppel to become a vehicle for the positive enforcement of a representation by a party that he would do something in the future. It was thought to be a defensive equity. Generally speaking, they said, a plaintiff cannot enforce a voluntary promise because the promisee may be expected to appreciate that, to render it binding, it must form part of a binding contract. They went on to accept, however, that in some circumstances promissory estoppel may extend to the enforcement of a right not previously in existence when the defendant has encouraged in the plaintiff a belief that it will be granted and has acquiesced in action taken by the plaintiff in that belief. What gave rise to the need for the court to intervene was the defendant's unconscionable attempt to go back on the assumptions which were the foundation of their dealings.

195 Mason CJ and Wilson J, espousing the majority view, summarised their reasoning in this way at 404:

"One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it': per Dixon J in Grundt (1937) 59 CLR at 675; see also Thompson (1933) 49 CLR at 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption."

196 It is apparent from this passage and the reasoning of other members of the High Court in Waltons' case (supra) that the purpose of the doctrine of estoppel is to preclude parties relying on strict rights where to do so would be unconscionable. It is also apparent from later decisions of the High Court in Commonwealth v Verwayen (1990) 170 CLR 394 and Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 that the assumption being referred to in this line of reasoning may be one as to a legal as well as to a factual state of affairs. In other words, a representation as to the effect of a legal agreement or the adequacy of arrangements made between the parties can give rise to an estoppel.

197 Against this background I must now turn to the issues raised by the pleadings.

198 I proceed from the premise that the Court should attempt in the first instance to determine each issue as pleaded by reference to the terms of the 1985 GSA as varied. I am not satisfied that the variation contended for in par 10A of the claim was of any force or effect, for the letters relied on by the plaintiff can only be regarded as part of the negotiations. It follows that when I refer to the 1985 GSA as varied I am referred to the variation agreements and documents previously described, being the agreements and documents set out in par 6(a) and (b) of the claim. Both defendants admitted this portion of the claim.

199 In order to resolve each issue by reference to the terms of the 1985 GSA as varied I must give proper weight to cl 1.5 which provides that the agreement contains the entire agreement between the parties and no prior stipulation, agreement or understanding by the parties or any of their representatives in respect of the subject matter of this agreement shall be of any effect.

200 However, it emerges from my review of the decided cases that it is permissible to have regard to extrinsic evidence in order to understand the objective background and the nature of certain technical or descriptive terms. I therefore consider that I am entitled to take account of the evidence described in earlier parts of this judgment concerning deliverability and the manner in which gas is generally measured in a commercial context. Further, I am entitled to take account of evidence concerning the term "Estimated Reserve" as it appears in the 1985 GSA including the constituent elements of that term such as the meaning of the term "PJ", the meaning of "gas reserves in the Dongara area" and the meaning of "Dongara Tail Gas".

201 In examining the provisions of the 1985 GSA, having regard to the evidence bearing upon the meaning of certain technical terms, it is necessary to identify the essential subject matter of the agreement before turning to the way in which the respective rights and obligations of the parties are dealt with by the surrounding provisions.

202 Clause 5.1 is clearly of significance in that regard. It is dealing with an obligation on the part of the seller to sell and deliver a daily contract volume of gas from the Dongara area. Midland Brick as buyer agrees to purchase and take such gas. However, I am of the view that an emphasis must be given to cl 5.2 whereby the total quantity of gas that the seller shall endeavour to deliver to the buyer is specified after first allowing for the gas supply requirements of SECWA and Alcoa.

203 I note in passing that in that clause reference is made to "The total quantity of gas from the Dongara area or, at the Seller's sole discretion, from any other source...". This appears to allow for the use of gas obtained from other sources. It is clear from this and related provisions that as a consequence of the fourth GSA variation of 1 July 1996 the subject matter of the contract had become an agreed total contract quantity which was to be sold and taken, albeit subject to various safeguards on both sides designed to address the special features of a gas sales contract and a degree of uncertainty inherent in the concept of deliverability.

204 I remind myself that the term "Total Contract Quantity" is defined to mean the Estimated Reserve minus the Declared Gas. The term "Estimated Reserve" means 15.175PJ which was the estimated quantity of gas available to be delivered to the buyer from gas reserves in the Dongara area as at 1 July 1994, with the available well completions and equipment configuration schedule at that time. I pause to observe in passing that to my mind it is significant that the concept of an estimated quantity of gas available to be delivered to the buyer is reflected in this definition.

205 As I seek to understand the elements of the definition of "Estimated Reserve" I must keep in mind that the provisions of the contract allow for a reduction of the contract quantity. Thus, cl 5.4 provides that the quantity the subject of a prescribed notice at the beginning of a year shall reduce the seller's proportionate share of the contract quantity accordingly. This suggests that the estimated reserve of 15.175PJ represents not a fixed agreed quantity but a maximum amount that is to be supplied. Clause 5.2 provides that the total quantity of gas that the seller shall endeavour to deliver after first allowing for the requirements of SECWA and Alcoa shall "not exceed" the seller's proportionate share of the total contract quantity. This reinforces the notion that what is being spoken of is not a fixed amount but a specified maximum.

206 I am conscious from the evidence before me that prior to 1996 there had been exchanges between the parties in relation to the volume of remaining gas in the Dongara field and from the outset it was open to Midland Brick as buyer to terminate the agreement and seek a supply of gas from other quarters if its requirements could not be met. The effect of the fourth GSA variation was to determine an estimated reserve which was capable of being reduced in the event of sales being made to third parties. This is reflected in the language of the 1985 GSA as varied up to and including the 1996 variation.

207 Within the framework, I have described, I must now turn to those provisions concerning the sale of gas to third parties and to the crucial issue reflected in par 12(c) of the statement of claim and pars 14 and 17 of the respective statements of defence as to whether gas sold to third parties had to be declared. For ease of reference, I will call this the "sales to third parties issue". I remind myself that on the plaintiff's case the right to sell to third parties was carefully defined by cl 5.3 and related provisions as a right to "declare and sell" so that declared sales would be deducted from and thereby reduce the total quantity of gas to be bought by Midland Brick. On the defendants' case, the sellers had the right but not the obligation to sell to third parties and declare such gas sold.

208 In dealing with the sales to third parties issue, the starting point is cl 3(b) which provides that the seller has the right to sell gas to others and in such volumes as the seller thinks fit, subject only to the commitment to the buyer hereunder. To my mind, the reference to a commitment to the buyer strongly suggests that, to this point, the right to sell gas to others is subject to constraints and cannot be regarded as being in the nature of a discretionary right, being the term or concept contended for by the defendants.

209 The nature of the commitment to the buyer is defined principally by cl 5 concerning the quantity of gas to be sold and the obligations to supply and take upon a daily basis. This clause includes also the crucial cl 5.3 concerning the right to sell to third parties. Accordingly, it strikes me that, to this point, the reference in cl 3(b) to a right to sell to others "subject only to the commitment to the buyer" necessarily brings into play the more specific formulation of the respective rights of the parties in regard to that matter reflected in cl 5.3. It is necessary also to take account of the buyer's entitlement under and by virtue of cl 23.1 to bring the contract to an end if the supply of gas cannot be maintained.

210 It is important to understand also that the parties, by their agreement in cl 5.3, have allowed to the seller not the right to sell gas generally but the right to sell Available Gas. The definition of that term has the effect also of circumscribing the scope of the seller's right and links it to certain entitlements of and commitments to Midland Brick as buyer. To my mind, this strongly suggests that the right from time to time during the third term to declare and sell available gas with a value up to but not in excess of 8.0PJ to third parties should be interpreted so as to treat the notion of "declare and sell" as a composite term. A declaration is a means of keeping a record of what has been sold.

211 There are certain other features of the contract that lend support to the notion that within the framework of this particular contract the words "declare and sell" should be viewed as a composite term. Clause 1.1 includes a definition of "Declared Gas" which means "Available gas which has been sold and declared". It is apparent from the proviso to cl 5.3 that the creation of this special category is a mechanism whereby protection can be afforded to Midland Brick if the seller cannot fulfil its obligations to supply gas owing to the special features or vagaries of the gas supply business. It appears to be consistent with the requirements of the contract that, in this case, the language governing the right to sell to third parties should be specially tailored to create a right to declare and sell, or, putting it another way, the so-called right to sell can only be exercised if the sale is accompanied by a declaration.

212 Let me test this line of reasoning by proceeding further.

213 I accept that cl 5.3 does not appear to impose an obligation to sell. However, if the right to sell is exercised, then this carries with it consequences for the amount of gas to be supplied to and taken by the buyer under the contract. The parties clearly did not intend that the exercise of the right could be divorced from the specified contractual consequences. The sale of Available Gas to third parties without recognition of the consequential effect on total quantity under the contract would arguably not be the exercise of a contractual right at all. It could be regarded simply as the transaction of business with a third party. It is apparent, however, that sales to third parties must be viewed within the context of this particular contract, considered as a whole. Thus, sales to third parties of Available Gas benefit Midland Brick by reducing the total quantity of gas it must buy from the seller.

214 The term "Available Gas" clearly encompasses the entirety of gas from the Dongara gas field that is available for sale to third parties. Further, par (iv) of the definition of Available Gas singles out a daily limit which is defined by reference to deliverability according to the 1994 criteria.

215 The deliverability the subject of Available Gas, and hence cl 5.3, is so much of the actual deliverability, in the Dongara field, on any particular day which is above Midland Brick's demands and Alcoa's and SECWA's demands, up to the maximum deliverability calculated by reference to the 1994 wells and equipment. That portion of deliverable gas, on any particular day, is Available Gas, and it is that portion which, when sold (in the sense of sold and delivered) to third parties, produces the consequences that the sale will reduce Midland Brick's contract quantity.

216 The volume of deliverable gas (if any), on any particular day above the portion of Available Gas, is the daily amount which can be sold without reduction from Midland Brick's contract quantity. There is no prohibition on its sale, and cl 3(b), as I indicated a moment ago, expressly makes it clear that such sales to third parties are permissible. The sale of such additional gas is not conditioned by the consequence that the volume of gas so sold will reduce Midland Brick's quantity.

217 Put shortly, the definition of Available Gas appears to establish a hierarchy of deliverable gas. First, there is deliverable gas for SECWA and Alcoa. Second, there is deliverable gas for Midland Brick. Third, there is a portion of gas, up to the daily deliverability established by reference to the 1994 criteria, which is available for sale to third parties. It is that portion which, when sold, reduces the total contract quantity. Fourth, there may be additional deliverable gas, above that 1994 limit.

218 Moreover, par (i) to par (iii) of the definition of Available Gas make clear that the gas described in par (iv) is part of the total gas available for sale from the Dongara area at any particular time. That is to say, Available Gas is so much of the total gas available for sale as falls within par (iv). The first sales of deliverable gas to third parties necessarily fall within that definition, given the hierarchy which the contract establishes.

219 The evident purpose of using the 1994 deliverability criteria in par (iv) is to link the possible rate of reduction of the estimated reserve of 15.175PJ to the same criteria as those which led to the adoption of that total quantity. The effect is that any faster rate of sales to third parties, which results from additional deliverability because of gas or well improvements, benefits the seller without reducing Midland Brick's total contract quantity. However, accessing or using that additional deliverability necessarily involves first accessing or using the deliverability up to the limit established by reference to the 1994 criteria. Additional deliverability has no sense or meaning otherwise.

220 A consideration of the provisions of the 1985 GSA suggests that on the proper construction of the agreement, the total contract quantity which Midland Brick must buy is reduced, by up to 8.0PJ, by sales of gas from the Dongara gas field which are made to third parties, other than SECWA and Alcoa. This reinforces my view that the consequential effect of sales to third parties plays a part in determining the nature of the right.

221 In summary, then, as to the sales to third parties issue, I consider that the interpretation of the 1985 GSA contended for by Midland Brick is to be preferred. The defendants have sought to characterise the sellers' entitlements under the 1985 GSA as varied as a right to sell or otherwise as a discretionary right to sell. However, I am of the view that in this case, as often happens, the general term "right" to describe a specific legal entitlement must be used with care. In the absence of a corresponding duty, and in the context of a contract providing for the disposition of an agreed quantity of gas, a more rigorous jurisprudential analysis would suggest that the entitlement vested in the seller is in the nature of a power, that is, a power of sale to third parties conditioned by carefully crafted and strict terms that were designed to protect Midland Brick including the requirement that sales to third parties be accompanied by declarations. The entitlement allowed to the seller is a limited power to "declare and sell".

222 I consider that a finding to this effect can be made by referring only to the words of the instrument in which the contract is embodied, with the result that I need not give further consideration to the rules defining the limited circumstances in which evidence may be admitted where the language of a document is in dispute. For the reasons I have given, I am satisfied that the words "declare and sell" in cl 5.3 should be regarded as a composite term which both defines the power to sell to third parties and conditions the manner in which the power is to be exercised, for the declarations accompanying sale have a consequential effect upon related rights and duties.

223 In my view, having regard to the pleas reflected in par 12 of the statement of claim, I am satisfied that on the proper construction of the 1985 GSA as varied CMS contracted to sell and Midland Brick to buy a maximum quantity of 15.175 PJ of gas. CMS would have the right to sell gas to third parties on a daily basis in an amount per day by which the Dongara area maximum deliverability exceeded the sum of the daily requirements of gas committed to SECWA and Alcoa up to a total quantity of 8 PJ. All such gas sold to third parties by CMS would be declared by CMS and would be deducted from and reduce the total quantity of gas to be bought by the plaintiff. Further, CMS would give Midland Brick written notice prior to 31 January of each year of the quantity of such declared gas for the prior year.

224 I pause to say that the observations I have just made represent my conclusion on the central point of interpretation raised by the pleading, that is to say, the nature of the so-called right to sell to third parties. These observations reflect the plea in par 12 of the statement of claim save that, for the time being, I have omitted the reference in sub-paragraph (c) to such a conclusion being applicable to the first defendant's "successor in title" as it seems to me that the formulation of a view concerning that aspect of the matter must await further discussion concerning the position of the second defendant.

225 I am conscious also that there is a controversy between the parties as to the manner in which any ruling upon the central point of interpretation should be translated into forms of relief. I noted in earlier discussion that the trial was fought on the basis that any claims for relief by way of damages were to be deferred. Thus, the plaintiff pressed principally for declaratory relief in terms that would represent an endorsement of the pleaded case in par 12 of the claim (that is, the first defendant or its successor in title was obliged to account to Midland Brick for sales to third parties via the declare and sell mechanism) and the pleaded case in par 17 (that is, the second defendant as the first defendant's successor in title is bound by the construction pleaded in par 12).

226 For the reasons previously given while commenting upon the pleadings and the lack of contractual privity between Midland Brick and the second defendant, I have foreshadowed my reluctance to make declarations in the manner sought by Midland Brick, notwithstanding my ruling in favour of that party upon the central point of interpretation. My reluctance has been underlined by the plaintiff's strongly opposed application to amend par (d) at a late stage of the trial by putting up another proposed form of declaration which bears upon the central point of interpretation but appears to be more fully considered and more exactly expressed than the form of declaratory relief originally proposed. The written submissions of the plaintiff delivered after the trial suggest that declaratory relief in this form is entirely consistent with the declaratory relief sought in sub-paragraphs (a) and (b) of the prayer of relief.

227 Against this background, I am of the view that I should make rulings upon the central point of interpretation and the other pleaded issues with a view to determining whether the plaintiff is entitled to declaratory relief in the form reflected in par (d) of the prayer of relief. I will then hear from the parties as to whether further declarations or orders are required in order to give proper effect to the rulings. I proceed from the premise that the courts will generally not make a declaration on a theoretical question, or one in which no dispute exists or which is hypothetical. Further, in some circumstances, a declaration might not be made if the parties are not agreed as to its consequences: Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286.

228 I indicated in earlier discussion that at the trial of the action I reserved my decision as to whether the declaration contended for by Midland Brick in par (d) of its prayer for relief should be allowed. It is true that this application to amend came late in the day. However, to my mind, the declaration in its amended form (as further amended to make 1 July 1997 the operative date) represents essentially a distillation of what was inherent in the declaration sought at the commencement of the trial. I am not persuaded by the submissions put before me by the parties that any specific prejudice will flow from the amendment being allowed, especially in circumstances where I have come to the view that the dispute between the parties can be resolved essentially by interpretation of the agreement and without reference to extrinsic evidence.

229 Accordingly, as between Midland Brick and CMS I consider that Midland Brick is entitled to a declaration that all quantities of gas produced from the Dongara area (including stored gas) up to a maximum total quantity of 8.0PJ which have been sold by the first defendant since 1 July 1997 to third parties other than SECWA and Alcoa must be declared under the agreement and deducted from the total quantity of gas which Midland Brick is otherwise obliged to buy and take delivery of under the agreement.

230 I noted a short time ago that although the statement of claim contains allegations of breach of contract referable to the defendants' alleged improper interpretation of the 1985 GSA, the trial was fought upon the basis that, for the time being, the declaratory relief was the form of relief principally sought by Midland Brick. The assessment of damages, if any, was put to one side. Accordingly, as I have indicated, I will hear from the parties as to whether any further orders are required.

231 My ruling upon the central point of interpretation brings me now to the position of the second defendant and the question of whether a declaration of the kind proposed in par (d) should be made having regard to the position of the second defendant.

232 I pointed out in the course of my overview that if the 1985 GSA as varied, properly construed, provides that third party gas sales by the first defendant reduce the quantity Midland Brick is required to buy, Midland Brick contends that the second defendant, ARC Energy (in addition to the first defendant) will effectively be bound by that result.

233 In other words, on the plaintiff's case, if there is a term of the kind contended for by Midland Brick concerning the sale of gas to third parties (which would have the effect of reducing the quantity Midland Brick is required to buy) then it becomes necessary to go further and decide whether the term applies whenever gas is sold from the Dongara gas field, regardless of whether the gas is sold by the party who is the seller under the agreement with Midland Brick, or by the separate owner of the gas field (now ARC Energy).

234 I noted in my review of the pleadings that this facet of the plaintiff's claim appears in par 17 of the statement of claim in which it is asserted (by reference to earlier paragraphs of the claim) that pursuant to the ARC/CMS Agreement ARC agreed to supply gas to CMS on terms to enable CMS to supply gas to Midland Brick in fulfilment of its obligations under the 1985 GSA as varied; that ARC is bound by the construction pleaded in par 12 of the claim, being the construction I have just approved, namely, that Available Gas sold and delivered to third parties would be declared and deducted from the total quantity of gas to be bought by Midland Brick. For ease of reference, I will henceforth call this the plaintiff's par 12 construction.

235 I observed also in my review of the pleadings that, in my view, the issue raised by par 17 was not whether ARC was bound to supply gas to Midland Brick in that manner but whether the effect of the ARC/CMS Agreement was to require ARC to supply gas to CMS in a manner sufficient to enable CMS to comply with the 1985 GSA as varied. My review of the pleadings suggested that ARC did not dispute this proposition (although it was open to it to do so) but, rather, it sought to avert the practical consequences of such a plea being upheld by supporting CMS in its attempt to rebut the plaintiff's par 12 construction.

236 I pause to say that even if I be wrong in my analysis of the pleadings in regard to this aspect of the matter, nonetheless I am of the view that cl 5.1 of the ARC/CMS Agreement, which formed part of the evidentiary materials before me, and which I described in earlier discussion, has the effect of obliging ARC to supply gas to CMS so that the latter company can in turn supply gas to Midland Brick in the manner prescribed by the 1985 GSA as varied upon its proper construction. I say this because cl 5.1 of the ARC/CMS Agreement is explicit. CMS is obliged to deliver from time to time to the Existing Customers under the Existing Gas Sales Contracts. Related clauses of the ARC/CMS Agreement make it clear that CMS is not in a position to waive its entitlements or otherwise to take unilateral action which might adversely affect ARC.

237 This conclusion reinforces the conclusion that the obligations of ARC under the ARC/CMS Agreement were intended to be coincidental with the obligations of CMS under the 1985 GSA as varied.

238 To my mind, it is immaterial that a disputed point of construction may have arisen, such as the issue arising under the plaintiff's par 12 construction. In the absence of special provisions in that regard, one must simply assume that the obligation imposed upon ARC by cl 5.1 of the ARC/CMS Agreement was to enable CMS to perform the 1985 GSA as varied in accordance with its proper construction as agreed by all the interested parties or as determined by a court of law.

239 I recognise that the lack of privity between Midland Brick and ARC precludes Midland Brick from obtaining an order for specific performance or enforcing a claim for damages against ARC, but in the circumstances of the present case there appears to be a basis upon which Midland Brick can obtain declaratory relief affecting ARC. ARC is a party to the action. There is evidence before the Court that it will be directly affected by the outcome of Midland Brick's claim against CMS. Its interest in the subject matter of the proceedings means that any ruling as to the effect of the ARC/CMS Agreement cannot be regarded as hypothetical or advisory. The issue raised by par 17 of the statement of claim reflects a justiciable dispute between the plaintiff and the second defendant.

240 It follows from everything I have said that, in my view, having regard to the position of the second defendant, it is permissible and appropriate that a declaration be made in terms of par (d) of the prayer for relief in its amended form to the intent that a declaration in that form will be binding upon both defendants. Further, I consider that, broadly described, the plaintiff is entitled to a declaration binding upon both defendants in terms of par 17 of the statement of claim. However, as to that, for the reasons I have given previously, I will hear further from the parties as to the precise wording of such a declaration.

241 The plaintiff pleaded in par 16 of its claim that CMS wrongfully denies that the quantities of gas from the Dongara area which have been sold and delivered to third parties since 1 July 1998 must be deducted from and reduce the total quantity of gas which the plaintiff is obliged to buy and take under those Agreements.

242 The law recognises two forms of conduct as constituting breach of contract: failing to perform, and manifesting unwillingness or inability to perform. A breach amounting to a repudiation will occur when a party evinces an intention to fulfil it only in a manner substantially inconsistent with his obligations: Cheshire and Fifoot's: Law of Contract (8th Aust ed) par 21.10 to par 21.12. The persistent maintenance by one of the parties to a contract of an untenable construction of it on a matter of essential substance should be regarded as inconsistent with a continuing intention to observe the contractual obligations: Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144.

243 It is apparent from the evidence and from the way in which the case was fought at trial that CMS has consistently maintained an interpretation of the 1985 GSA as varied which is directly opposed to the plaintiff's par 12 construction concerning the sale of gas to third parties, being the construction I upheld in earlier discussion. It follows from the principles I have just set out that, in my view, the first defendant is in breach of the 1985 GSA as varied as alleged in par 16 of the claim. I noted in earlier discussion that any issue as to damages is to be deferred and I will hear further from the parties as to the precise form of any order of the kind described in par (c) of the prayer of relief concerning the disclosure and declaration of quantities sold.

244 It is against this background that I return to the issue I put to one side, namely, whether the 1985 GSA as varied was intended to apply to the sellers in their capacity as owners of the Dongara field and to their successors in title. To my mind, there are various indications that the Agreement should be interpreted in that manner. Clause 1.9 states that a reference to the buyer and seller will include, in each case, a reference to their permitted successors and assigns. By cl 18.1 the Agreement may be assigned subject to consent which shall not be unreasonably withheld. By cl 18.3 the obligations are to be binding upon the permitted successors and assigns. There are many provisions including cl 2 and cl 3 which necessarily and implicitly assume that the seller is the owner of the gas field and the producer of gas from it.

245 These considerations lead inevitably to the conclusion that the plaintiff's par 12 construction is intended to apply whenever gas is sold from the Dongara Gas Field, regardless of whether the gas is sold by the party who is the seller/promisor under the agreement with the plaintiff or by a later owner of the gas field such as the second defendant. This not only reinforces my earlier conclusion that there is a basis upon which the plaintiff is entitled to obtain the proposed declaratory relief against the second defendant but it leads also to a conclusion in favour of the plaintiff in regard to its alternative plea in pars 18 to 20 of the statement of claim which I feel obliged to deal with for the sake of completeness.

246 The relevant paragraphs in the statement of claim read as follows:

"18. In the alternative to paragraph 12(c) and (d) above, there were terms, on the proper construction of the agreements pleaded in paragraph 5 as varied from 1 July 1996, in effect that:

(a) all gas from the Dongara area sold and delivered to third parties by the seller would be declared by the seller and would be deducted from and would reduce the total quantity of gas to be bought by the plaintiff as pleaded in paragraph 12(a);

(b) the first defendant promised that the seller of gas, under the agreement was, and would remain for the life of the agreement, the owner of the licences and facilities pleaded in paragraph 4(a);

(c) the first defendant would do all such things as were necessary on its part to enable the plaintiff to have the benefit of the agreements pleaded in paragraph 5 as varied from 1 July 1996, including the benefit of the term pleaded in subparagraph (a) above; the term pleaded in this sub-paragraph, alternatively, being implied by law and to give the agreement business efficacy.

19. The first defendant breached the terms pleaded in paragraph 18(b) and (c) above, in that the first defendant, respectively:

(a) sold the licences and facilities pleaded in paragraph 4(a), as is pleaded in paragraph 13, without simultaneous assignment to the purchaser of the agreements pleaded in paragraph 5 as varied from 1 July 1996, such that the seller of gas under the agreements pleaded in paragraph 5 as varied from 1 July 1996, ceased to hold the licences and facilities; and

(b) by the conduct pleaded in sub-paragraph (a), prevented the plaintiff from having the benefit of the term pleaded in paragraph 18(a) above.

20. By reason of the matters pleaded in paragraph 19, to plaintiff has suffered loss and damages, being loss of the opportunity to:

(a) have the total quantity of gas purchased under the agreements pleaded in paragraph 5 as varied from 1 July 1996, reduced by up to 8PJ;

(b) purchase replacement gas elsewhere at a cheaper price than that payable under the agreement.

Particulars of damage will be rendered separately."

247 I have expressed the view in earlier discussion that on the proper construction of the 1985 GSA as varied, third party gas sales (up to 8PJ) from the Dongara Gas Field, whether made by a party who is the seller to the plaintiff or by a separate and subsequent owner of the field such as ARC reduce the plaintiff's Total Contract Quantity. However, if I be wrong in that view, so that the only sales which reduce the Total Contract Quantity are those made by the party who is the seller to the plaintiff, then I am of the view, having regard to my finding that the subject matter of the contract was a maximum quantity of 15.175PJ which was open to reduction in the manner allowed for by the contract, that it was a term of the Agreement that the seller would remain the owner of the field and thus retain the capacity to ensure that the contract was performed.

248 This latter view proceeds from the principle that if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied agreement that he shall do nothing of his own motion to put an end to that state of circumstances under which alone the arrangement can be operative: Stirling v Maitland [1864] EngR 752; (1864) 122 ER 1043 at 1047; CSS Investments Pty Ltd v Lapiron Pty Ltd (1987) 76 ALR 463 at 479.

249 This is consistent with the general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract: Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596. It is also consistent with those decided cases which it has been held that in certain circumstances there is an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract: Gregory v MAB Pty Ltd (1989) 1 WAR 19. In the present case the implied obligation can be regarded as inherent in the contract and I therefore do not find it necessary to characterise it as an implied term in the sense of that which must be implied in order to give business efficacy to the contract.

250 In the present case, as I have previously concluded, CMS used its best endeavours to ensure that ARC as the incoming owner of the field was bound to ensure the continuity of supply and the possibility of reduction in the quantity of gas to be taken by Midland Brick by entering into a contract containing coincidental obligations. If, however, it transpires that such a finding cannot be sustained then, in my view, prima facie, the plaintiff is entitled to relief against CMS for breach of contract pursuant to the alternative plea reflected in pars 18 to 20 of the statement of claim, for it is an undisputed fact that the obligations under the 1986 GSA were not assigned to ARC.

251 I say prima facie advisedly, for I am conscious that in regard to this issue I am required to take account of the first defendant's estoppel plea. Put shortly, as I indicated in my review of the pleadings, the first defendant says in par 19B of its defence that on or before 26 February 1998 the plaintiff knew that the first and second defendants were discussing the sale and purchase of the Dongara Field without simultaneous assignment of the 1986 GSA as varied. Reference is made to the plaintiff's execution of a confidentiality agreement in relation to the possible sale and to the fact that as from July 1998 the plaintiff has without protest accepted deliveries of gas from the second defendant for the purpose of the first defendant fulfilling its obligations under the 1985 GSA as varied.

252 To my mind, the plaintiff's actions cannot be characterised as a representation by conduct that the plaintiff had no objection to and would not seek relief in respect of the arrangements being entered into in the event of the arrangements proving insufficient to secure the plaintiff's entitlements under the 1985 GSA as varied. Further, and in any event, the plaintiff cannot be said to have acted unconscionably in departing from an assumption (if any) created by the relevant events. Both parties acted on the assumption that the arrangements reflected in the ARC/CMS Agreement would probably be sufficient to satisfy the plaintiff. In due course there was a disagreement between the parties not because the plaintiff had acted unconscionably in regard to the arrangements made but essentially because there was a strong difference of opinion as to the meaning and effect of the relevant agreements, especially concerning the plaintiff's par 12 construction.

253 It follows, then, that I am not persuaded that the first defendant's estoppel plea is a sufficient answer to the prima facie conclusion I expressed previously and I therefore affirm my finding in regard to the plaintiff's alternative plea in pars 18 to 21 that, on this view of the matter, the first defendant was in breach of the contract as alleged. Again, it is not necessary for me to quantify the loss, if any, flowing from the breach.

254 I must now turn to the first defendant's counterclaim.

The first defendant's counterclaim/The kiln issue

255 The counterclaim advanced by the first defendant raises the question of whether the expression "Buyer's Plant" in the 1985 GSA includes a new Kiln 10 commissioned by Midland Brick on the Whitemans Brick site, such as to impose on Midland Brick an obligation to buy gas for use in that kiln from CMS.

256 I mentioned in earlier discussion that in cl 1.1 of the Agreement the term "Buyer's Plant" is defined in this way:

" 'Buyer's Plant' means the existing brick manufacturing facility of Buyer and associated facilities located at Middle Swan (the Bassett Road works), together with any future additions to, modifications of, or replacement of such plant;"

257 CMS pleaded at par 22 of its counterclaim that there were terms in the Agreement whereby for the period from 1 July 1994 to 1 July 2000 Midland Brick was obliged to take gas from the Dongara area at a rate equal to the daily requirements of the buyer's plant, less 3.65 TJ; for the period after 1 July 2000 Midland Brick was obliged to take gas from the Dongara area at a rate equal to the daily requirements of the buyer's plant.

258 The CMS case was that in or about 1998 Midland Brick commissioned Kiln 10 for use in its clay brick manufacturing operations such kiln being situated on the former Whitemans land, that is to say, on land owned by Midland Brick immediately adjacent to Midland Brick's manufacturing facility and associated facilities. This was an addition to or replacement of part of the brick manufacturing facility and associated facilities and Midland Brick was therefore allegedly obliged to purchase the gas required for the operation of Kiln 10 from CMS.

259 CMS contended that Midland Brick had failed to purchase the gas required for the operation of Kiln 10 from CMS and was therefore in breach of its contractual obligations. CMS sought declaratory relief to give effect to the case contended for and specific performance of Midland Brick's alleged obligations to purchase gas required for the operation of Kiln 10 from CMS.

260 Again, my understanding is, having regard to the way the trial was fought, that the question of damages, if any, arising from Midland Brick's alleged breach of contract was to be deferred.

261 By its amended defence to the counterclaim Midland Brick contended that the kiln designated Kiln 10, situated on the former Whiteman Bricks' site, was not and never was part of Midland Brick's facilities located at Middle Swan, being Midland Brick's Bassett Road works (to use the language of the contract) and therefore did not fall within the relevant definition. Midland Brick admitted that it has not purchased gas required for the operation of Kiln 10 from CMS and denied any liability to do so.

262 Midland Brick pleaded further and in the alternative that there was an agreed assumption between Midland Brick and the original sellers, that the agreements, as varied from 1 July 1996, would not cover the requisition or supply of any gas which Midland Brick might in the future require in relation to the former Whiteman Bricks' site, in reliance upon which Midland Brick entered into the agreements as varied from 1 July 1996. As to the creation of the relevant assumption, reliance was placed upon a letter from the original seller's agent dated 26 August 1994 and a conversation between Mr Cugley on behalf of Midland Brick and Mr Burgmann and Mr Handyside on behalf of the original sellers on 2 March 1995. Reference was made also to a conversation between Mr Cugley and Mr Burgmann on 22 May 1996. Midland Brick contended that CMS was consequently estopped from asserting the matters in the counterclaim.

263 Midland Brick's case was that the definition in question was in the original Agreement dated 1 February 1985 and was not changed thereafter. In March 1985, after the 1985 GSA was made, Midland Brick acquired the brick making operations of Whiteman Bricks. That business was and still is separated from Midland Brick's Bassett Road works by Bassett Road. Midland Brick acknowledged that some years after the purchase, it purchased the land comprising Bassett Road and closed most of it. However, that did not alter the reach of the definition of buyer's plant because that definition depended essentially, in relation to site, as to what was the plant "existing" in 1985 when the Gas Sales Agreement was made. In other words, the definition was referring essentially to the plant at the Bassett Road works, not to a newly acquired site, whether nearby or not. The new Kiln 10 was not an addition to the plant at Bassett Road works or site, it was a new installation at the Whiteman Bricks' site. There was nothing in the definition to suggest the parties contemplated that it would extend to new plant constructed on another site as a result of the acquisition of a competitor's business.

264 To my mind, the definition is referring essentially to a brick manufacturing operation being conducted by Midland Brick on or in the immediate vicinity of the facilities located at Middle Swan as at 1985 and any future additions to the same. I am not persuaded that the definition should be read down to exclude the acquisition of neighbouring facilities or extensions to the same. At the end of the day, the crucial question is whether the disputed kiln can be regarded as forming part of a cohesive brick manufacturing operation being conducted by Midland Brick at Middle Swan in the vicinity of the plant which was in existence in the vicinity of Bassett Road in 1985.

265 Accordingly, in my view, Kiln 10 does fall within the ambit of the definition. I am therefore satisfied that CMS is entitled to obtain declaratory relief and an order for specific performance pursuant to the prayer for relief reflected in its counterclaim.

266 I am not persuaded that CMS is estopped from obtaining such relief upon the basis contended for by Midland Brick in par 5 of its statement of defence to counterclaim. The letter and conversations relied upon preceded the execution of the 1996 variation and occurred in the context of ongoing negotiations. It was not open to the parties to treat what was said during the course of the negotiations as determining the nature of their rights because both sides were aware that a formal agreement was to be executed, as eventually happened. In my view, having regard to the principles referred to in Waltons' case (supra) and the related cases I mentioned in earlier discussion, a party could not assume that statements made in the course of the negotiations would have a binding effect. Whatever was said was subsumed within the formal agreement eventually entered into by the parties. This is borne out by cl 1.5 which provides that the Agreement contains the entire agreement between the parties and no prior stipulation, agreement or understanding by the parties or any of their representatives in respect to the subject matter of the agreement shall be of any effect.

267 For these reasons, then, I consider that CMS is entitled to the relief it seeks in respect of the Kiln 10 issue and is not estopped from obtaining such relief upon the basis contended for by Midland Brick.

268 I will grant leave to the plaintiff to amend par (d) of its prayer for relief in the manner reflected in its hand up minute dated 31 March 2003. I am persuaded that the par 12 construction of the 1985 GSA as varied contended for by the plaintiff represents the proper construction of the Agreement. I am therefore minded to allow to the plaintiff declaratory relief of the kind envisaged by pars (a) and (b) of the prayer for relief in the plaintiff's claim. However, bearing in mind that the declaration sought in the amended par (d) of the prayer for relief appears to represent a more fully considered version of the declaratory relief sought by the plaintiff, for the time being I will make a declaration in terms of par (d) only. I will hear from the parties as to whether any further declarations or orders are sought in order to carry into effect the rulings reflected in the judgment.

269 As to the first defendant's counterclaim I am satisfied that the first defendant is entitled to a declaration in terms of par 25 of the counterclaim. Again, I will hear from the parties as to whether any further declarations or orders are required in order to carry into effect the rules contained in this part of the judgment.

270 It follows, then, that, for the time being declarations will be made as follows:

(a) a declaration that the quantities of gas described in sub-paragraph (ii), which have been sold and delivered by the first defendant or the second defendant since 1 July 1997 to third parties other than Electricity Corporation, Gas Corporation and Alcoa, must be declared under the relevant agreement, that is to say, the 1986 GSA as varied, and deducted from the total quantity of gas which the plaintiff is otherwise obliged to buy and take delivery of under the agreement;

(b) all quantities of gas produced from the Dongara area, including stored gas removed from the Dongara area, sold and delivered to third parties each day, within the daily limit expressed in paragraph (iv) of the Available Gas, up to a maximum total quantity of 8PJ.

A declaration that Kiln 10 is in addition to or replacement of part of the brick manufacturing facility and associated facilities located at Middle Swan (the Bassett Road works) and the plaintiff is obliged to purchase the gas required for the operation of Kiln 10 from the first defendant.