1CB14 (pages 169-171) and 1CB17 (pages 191-193) and 1CB21 (pages 284-300)
2 The first document is at tab 14 of volume 1 of the court book (pages 169-172) (more easily referred to as 1CB14), comprising 'New South Wales Budget Paper No 2' from the 2009/2010 financial year. That document refers to an announcement made on 1 November 2008 by the Premier of NSW, of a new reform package called the "Energy Reform Strategy". It included:
The Premier announced a new reform package on 1 November 2008, which aims to enable private investment in new baseload generation capacity in New South Wales. The measures will see the Government withdrawing from electricity retailing along with transferring to the private sector power station development sites and the right to trade the output of publicly owned generators.
Under the Energy Reform Strategy, the private sector will assume the task and the associated risk and reward of trading wholesale electricity for the generators.
The NSW Government will continue to own and operate its power stations as well as the transmission and distribution lines, which represent the vast majority of electricity assets in New South Wales.
Taxpayers will exchange the risk and volatility of earnings from wholesale electricity trading for secure, predictable payments by the private sector (in return for the right to buy and sell wholesale electricity). The NSW Government will recover revenue for the trading rights, which is sufficient to cover the costs of electricity production and delivery over the term of the trading rights contract and may include an upfront component. In addition, taxpayers would receive an upfront payment for the retailers and development sites.
The strategy recognises that competition is the most effective means of ensuring adequate investment in power generation while continuing to deliver competitively priced electricity. The NSW Government has committed to extending price regulation up to 2013.
Further details on the Strategy can be obtained from The NSW Energy Reform Strategy - Defining an Industry Framework at www.nsw.gov.au/energy.
The Government intends to complete the transactions by the end of 2009, subject to financial market conditions.
3 The second document is at 1CB17 (pages 191-193), comprising 'New South Wales Budget Paper No 2' from the 2010/2011 financial year. It also refers to the "Energy Reform Strategy" in the following section:
In November 2008, the Government announced its Energy Reform Strategy. The Government's objectives are to:
• ensure NSW homes and businesses continue to be supplied with reliable electricity
• deliver a competitive retail and wholesale electricity market in NSW to increase the potential for the sector to respond dynamically and innovatively to market forces and opportunities
• create an industry and commercial framework to encourage private investment into the NSW electricity sector reducing the need for future public sector investment in retail and generation and
• place NSW in a stronger financial position by optimising the sale value of public assets, reducing the Government's exposure to electricity market risk, and reducing the State's public sector debt.
In September 2009, the Government issued a call for expressions of interest from interested parties to participate in the Government's energy reform transactions. In December 2009, in response to strong expressions of interest, the Government invited qualified parties to proceed to the transaction phase of the reform process. The data rooms for the sale of the retail businesses and gentrader contracts will be open on 1 July 2010.
These transactions include: the sale of the Government's electricity retailing businesses EnergyAustralia, Integral Energy and Country Energy, new generation development sites and the contracting out of the trading function of state owned generation businesses (commonly referred to as the gentrader model).
The Government expects to execute the electricity reform transactions in 2010.
4 The third document objected to is at 1CB21 (pages 284-300), comprising a letter from Credit Suisse (Australia) Limited dated 22 September 2010 outlining the 'Binding Bid Process' in respect of the NSW Energy Industry Reforms. It included the following (emphasis in original):
The NSW Government (the "Government") is pleased to invite you (the "Bidder") to submit an unconditional, legally binding bid ("Binding Bid" or "Bid") for the Assets being offered as part of the NSW Energy Industry Reforms (the "Reforms").
…
1. Overview of Binding Bid Process
The deadline for submission of Binding Bids is 1pm (Australian Eastern Daylight Time) on 1 November 2010 (the "Bid Deadline").
…
2. Evaluation Criteria
The Government, in evaluating the Binding Bids, will assess the ability of the Bidders to meet the Government's Reform objectives, through an assessment of their performance against the Evaluation Criteria set out below. All Binding Bids will be evaluated using these Evaluation Criteria, which feature both quantitative and qualitative aspects.
…
2.2 Further Evaluative Criteria
Each Bid that the Government determines meet [sic] the Mandatory Evaluation Criteria will then be assessed against the following Further Evaluation Criteria:
The Government's requirement is for the Bid price to be payable in cash on completion of the relevant Transaction.
The Bidder's submitted Bid price for each Asset will be evaluated against this requirement and adjusted for any conditions or other factors that have a direct value impact, for example:
• proposals to make GenTrader Capacity Charges or Purchase Price payments over time or other deferred consideration proposals;
• contingent or alternative consideration proposals;
• stamp duty arrangements (the Bid price should be expressed to be inclusive of NSW stamp duty);
• the costs to the State of accepting the consideration structure proposed by the Bidder; and
• unacceptably long completion periods that are tantamount to payment deferral structures.
…
3.2 Bid Submission Document - Information requirements
…
D) Principal terms of Bid
…
b) Price and payment structure
Bidders must provide a total purchase price offered for 100% of each Asset subject of the Bid, inclusive of NSW stamp duty estimated to be payable on the transaction, but exclusive of GST, other taxes, charges and duties (the actual payment of New South Wales stamp duty will be per the arrangements detailed in the Transaction Documentation for each Asset). In the case of GenTrader Bids, "price" refers to the upfront Capacity Charge. Prices should be set out per the Bid Price Table below. Under the Transaction Documents this price will be further apportioned to relevant components of the Asset.
5 The applicant objects to each of these three documents on the grounds of relevance.
6 Relevant evidence is defined in s 55(1) of the Evidence Act 1995 (Cth) as evidence which "if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding". Evidence that is not relevant is inadmissible: s 56(2).
7 The principal question in the proceeding is the correct characterisation of certain payments incurred by the applicant's subsidiary, Origin Energy Electricity Limited (OEEL), pursuant to two agreements OEEL entered into with Eraring Energy, one concerning the Eraring Power Station, the other concerning the Shoalhaven Power Station. Those agreements were called "Gentrader Agreements" and were entered into on 1 March 2011. Under those agreements OEEL came under an obligation to make various payments, including payments called 'capacity charges'.
8 Before entering into the "Gentrader Agreements" in respect of Eraring and Shoalhaven, the parties executed a Gentrader Transaction Implementation Deed (GTID) dated 14 December 2010. This stated in the Recitals:
A The State is implementing the Reforms to ensure there is timely investment in the electricity sector, thereby delivering efficient and reliable power to the businesses and homes of NSW.
B The Owner and the Gentrader are entering into the Transaction Documents in connection with the Reforms.
C This Deed sets out the arrangements for the Completion of the transactions underlying the Transaction Documents.
9 The word "Reforms", used in Recitals A and B, was defined in the GTID in the following way:
Reforms means the State's Energy Industry Reform Strategy, comprising:
(a) the proposed sale of the retail businesses (and brands) of EnergyAustralia, Integral Energy and Country Energy;
(b) the proposed sale of the capacity and electrical energy of the existing State-owned generators in the following four Gentrader Bundles:
(i) Eraring Bundle, comprising the Eraring and Shoalhaven power stations;
(ii) Delta West Bundle, comprising the Mt Piper and Wallerawang power stations;
(iii) Delta Coastal Bundle, comprising the Vales Point, Colongra and Munmorah power stations; and
(iv) Macquarie Generation Bundle, comprising the Bayswater and Liddell power stations; and
(c) the proposed sale of seven power station development sites currently owned by the State-owned energy businesses (with the Munmorah power station development site being sold as part of the Delta Coastal Gentrader Bundle).
10 The phrase "Transaction Documents", used in Recitals B and C, is defined in the GTID as including "Generation Trading Agreements" which includes the Gentrader agreements ultimately entered into on 1 March 2011.
11 The letter from Credit Suisse dated 22 September 2010 invited participants to bid for the assets and noted that consideration would be given to factors that have a direct value impact, for example "proposals to make GenTrader Capacity Charges or Purchase Price payments over time or other deferred consideration proposals". The letter preceded entry into the GTID and, of course, the Gentrader agreements.
12 The question of characterisation of the payments made by OEEL depends on all the relevant circumstances and not simply on a juristic classification of the contractual rights and obligations pursuant to which the payments were made. The question is what the payments were for and what advantage the applicant sought by the payments. It may be accepted that the question is not answered by reference to what advantage was sought by the State through its statutory corporations. The characterisation of what the applicant sought by the payments is to be undertaken from a practical and business point of view: Hallstroms Proprietary Limited v Federal Commissioner of Taxation (1946) 72 CLR 634 at 648 (Dixon J).
13 There are cases in which the question of what the payment was for can be determined solely by reference to the agreement which operated to create the obligation to pay. There are also cases where it is necessary to go outside the contractual rights and obligations acquired to find the true character of the outgoing - see: Federal Commissioner of Taxation v Star City Pty Ltd (2009) 175 FCR 39 at [23(b) and (c)], [25]-[36], [45], [67]-[69], [180].
14 The GTID and the two Gentrader agreements were executed against the background of the NSW Government's call for expressions of interest from parties potentially interested in participating in the NSW Government's energy reform transactions. It is to be inferred that OEEL was aware of the government strategy, and there is no reason to doubt it was aware of public statements made by the NSW Government in that regard.
15 The NSW Government's strategy and public announcements are at least capable of rationally affecting one or more facts in issue in the proceedings. Whilst the principal issue in the proceedings is the correct characterisation of the capacity charges, that question itself gives rise to a number of subsidiary issues. For example, the fact of the NSW Government's publicly expressed plans is at least of potential relevance to the characterisation of the advantage which OEEL was seeking by agreeing to enter into the contracts and to make the capacity charges.
16 It may also be that these documents, representing or containing facts known to the contracting, parties shed light on why particular contractual provisions were expressed in the way they were, or why agreements were structured in the way they were. The facts in issue are not confined to questions of construction of the contractual arrangements.
17 Further, evidence of surrounding circumstances is generally admissible to aid in the interpretation of a contract where those circumstances establish objective background facts known to both parties upon which the contract was negotiated or agreed and which are relevant to determining the meaning of words used in the contract in the case of ambiguity.
18 In a case such as the present, where parties were publicly invited to participate in a government strategy which resulted in contractual arrangements being reached, the documents which were publicly available might be relevant in assessing objectively why the parties and in particular the applicant behaved in the way they did, or what was objectively intended by the agreement reached. This, in turn, is capable of informing the principal issue in dispute, namely the proper characterisation of the 'capacity charge' and the character of the advantage sought by the applicant.
19 Whether the documents in fact provide significant insight into these matters and what weight to give to them when assessed together with all of the evidence is a matter for final submission and later determination.
20 I will admit the first three documents just mentioned.