Newcrest Mining Limited v Apache Northwest Pty Ltd

REASONS FOR JUDGMENT 1 This is an application by Newcrest Mining ("Newcrest") for preliminary discovery from the respondents under O 15A r 6 of the Federal Court Rules. 2 Newcrest moved on the affidavit of Mr Ronald Brown sworn on 17 September 2008. A further affidavit, sworn on 26 September 2008 by Mr Christopher Goddard, was also relied on. Apache Northwest Pty Ltd ("Apache") relied on an affidavit of Mr Murray Durham sworn on 26 September 2008 and Santos (BOL) Pty Ltd ("Santos") relied on an affidavit of Mr Andrew Freeman sworn on 26 September 2008. None of the deponents was required for cross-examination. 3 Before argument concluded the Court was advised that Newcrest had discontinued its application against Santos.

BACKGROUND 4 Newcrest operates the Telfer Gold Mine in the Northwest of Western Australia. Electrical power for the mine is provided by onsite generators. These generators are, for economic reasons, fuelled by natural gas. The gas is supplied pursuant to contractual arrangements between Newcrest and Apache as to 55% and Santos as to 45%. Under the contract Newcrest is entitled to receive certain agreed quantities of gas. Apache Energy Ltd ("Apache Energy") was appointed by Apache and Santos as their Sellers' Representative under the contract. The gas comes from the John Brookes gas field ("the Brookes field") which lies offshore in the Indian Ocean. The gas is processed on Varanus Island and then piped ashore and on to the mine. 5 On 3 June 2008 a catastrophic explosion occurred on Varanus Island which completely interrupted the supply of gas from the Brookes field and other surrounding fields including the Harriet field. Repair work commenced quickly and is continuing. Limited supplies of gas became available in early August but supplies are not expected to return to normal for some time yet. 6 Towards the end of June Apache's American parent company issued a media statement in which it said that it estimated that production to the level of 200 TJ/day would be restored by 15 August increasing to 350 TJ/day by December. The press release advised: "The East Spar J.V. [processing] facilities are located the greatest distance from the rupture and sustained less damage. Export pipelines and associated valves, two compressors, instrumentation and control facilities are being repaired to meet the timetable of restoring production by mid-August." 7 In a letter to Newcrest on 30 July 2008 Apache advised that it expected initial production volumes in early August to be of the order of 75-120 TJ/day "increasing to approximately 200 TJ/day by mid-August". That letter also contained a paragraph which read: "Until both the John Brookes and Harriet Fields resume pre-3 June 2008 production volumes we ask that you examine your base gas needs and consider nominating the only minimum volumes of gas that you absolutely require. Every terajoule of gas that exceeds your base requirements can be used by other customers to meet theirs. Within the constraints of our obligations under our contracts, our goal during the period of limited production is to deliver enough gas to our customers to fulfil their minimum required volume levels but we will need your cooperation to accomplish this. …" 8 There was no evidence as to whether or not the production levels expected by mid-August were or were not achieved. 9 On 2 August 2008 Santos wrote to Newcrest advising that: · It was expected that there would be a partial reinstatement of gas processing and deliveries from early August 2008. · Initially total gas production would be of the order of 75 to 120 TJ/ day. · By mid to late August production was expected to increase to 200 to 230 TJ/per day. · 200 to 230 TJ/day did not represent the full processing capacity on Varanus Island. · Santos would distribute its share of available gas to its customers "on the basis of a pro-rated share of firm gas delivery obligations." 10 Santos provided Newcrest, in tabular form, the quantities of gas it could expect to receive between 4 August and the end of the year. The figure rose progressively between 5 August and 30 September. It then fell back until 15 December when it rose slightly. At no point during this time period did the projected amount of gas to be made available to Newcrest reach the delivery obligation provided for in the contract. Santos advised that the step down from 1 October was due to "a change in Santos' contracted position and some additional contracted supply volume commences." Newcrest was advised that this additional contractual obligation would impact on all its customers on a pro-rata basis. The step up from 15 December was attributed to an expected full reinstatement of processing facilities on Varanus Island. 11 On 6 August 2008 Newcrest issued a press release in which it announced that partial gas supplies from Varanus Island had begun, supplies were flowing to the Telfer Mine and that Telfer's "remaining requirements" were expected to be supplied by Apache around mid-August. As a result Newcrest had terminated some of its interim gas supply arrangements with other suppliers. 12 On 30 August 2008 Apache Energy advised Newcrest that its allocations were forecast to be: · 1 - 15 September: 21.5-22.2 TJ/day · 16 - 30 September: 19.5-20.4 TJ/day · 1 - 31 October: 16.8-17.5 TJ/day. 13 On 1 September 2008 Newcrest asked Apache Energy to provide it with the reasons for the anticipated reductions in supply from 16 September onwards. A week later Apache Energy advised Newcrest that the allocation "reflects the supply obligations we have, including existing commitments, contracts that expire and contracts that pre-date the FM event that had a scheduled nomination in place for firm deliveries." No attempt was made to provide Newcrest with a detailed explanation of the kind which Santos had supplied on 2 August. Although these e-mail exchanges were "signed" by an employee of Apache Energy they were not stated to be replies by Apache Energy in its capacity as the Sellers' Representative. 14 On 9 September 2008 Newcrest wrote to the two suppliers. The letter was addressed c/- Apache Energy. The evidence suggests that the letter was not forwarded to Santos. It advised that Newcrest did not understand the basis on which the sellers were allocating gas supply to customers who had entitlement to gas from the Brookes field. In particular it drew attention to the proposed step down commencing on 1 October 2008. It then asked a series of questions. They included a request that the sellers provide information in writing as to: "(c) the basis on which the Sellers are currently allocating gas to its (sic) customers, including Newcrest; (d) the reason why the Sellers are proposing to reduce the volume of gas available to Newcrest during the period between 1 October 2008 and December 2008, including the basis on which the Sellers propose to allocate gas as between its customers during that period; and (e) the contractual basis on which the Sellers have adopted or proposed to adopt, the allocations referred to in paragraphs (c) and (d) above." 15 A response was requested by 12 September 2008. No response had been received by 16 September 2008 when Newcrest wrote again to the Sellers. Again the letter was addressed to Apache Energy. It drew attention to the proposed reduction in supply between 1 October and 15 December 2008 and asked for the production of documents relating to the allocation of gas in the period between 3 June 2008 and the end of the year to be provided by the following day. 16 On 17 September 2008 Apache responded to Newcrest's letters of 9 and 16 September. It did so on Apache Energy letterhead. It answered questions (c) to (e) as follows: · As to question (c): "Response: As we advised you in our correspondence of 3 August 2008, Apache has been allocating gas to its customers, including Newcrest, as follows: Based on our analysis and communications with you over the past several weeks, we have determined to make allocations to all customers receiving gas from Varanus Island equitability in accordance with the principles described below. Without any way prejudicing our right to adjust or reconsider these allocations, your allocation for gas day … This is based on the lesser of: 1. your daily gas nomination before the forced majeure occurred (reduced proportionately by the amount of gas not available during the forced majeure); 2. the maximum amount you can take and consume in your operations without reselling the gas (provided that this does not prevent customers who were Gas Retailers on 3 June 2008 from making retail gas sales); or 3. the volume you have told us you need. If you are unable actually to use the above volume in your operations, please notify us of that so that we can reallocate it to other customers who will be able to use the gas in their operations. …" [I interpolate here that the evidence suggests that Newcrest had not earlier received the 3 August 2008 correspondence]. · As to question (d): "Response: As we advised you on 8 September 2008, the allocation reflects the supply obligations we have, including existing commitments, contracts that expire and contracts that pre-date the FM event that had a scheduled nomination in place for firm deliveries. We have provided you with a projected allocation through 31 October 2008. We have not provided one to you yet for November or December." · As to question (e): "Response: The Force Majeure provisions in clause 17 of the Contract."