Powercor Australia Ltd v Pacific Power [1999] VSC 110

2476. PCA alleges that six transactions were finalised on 28 November 1997 and contract Nos. 36 and 37 have and are being performed. These contracts were all part of a package.

2479. The 6 November transactions resulted from PCA's plan to secure a large volume of electricity for the future at prices then prevailing in the market. The plan was to seek to incorporate Meet the Market clauses so that if the market price dropped and retail customers called on the MTM clause on PCA, PCA would not be left with a stranded hedge. This plan was devised in mid 1997 and at a meeting on 1 August 1997 Messrs Duvall and Treacy and Dr Nelson met with Mr Murphy and raised the prospect of transacting commodity derivative contracts for a total 2,000 GWh of power over ten years. This is an enormous quantity of notional electricity.

2482. Prior to that meeting Mr Treacy faxed an agenda to Mr Murphy and the agenda contained the following item for discussion -

"Long Time Draw Down Product - this incorporates current terms and conditions we have negotiated for SECV/Cadia/BHP, into a single combination of items we can draw on. We would need to know the maximum volume load that PP could offer under this scenario."

2486. Terms were being finalised in relation to the three companies mentioned. The amount of notional electricity was large and the periods were lengthy.

2489. The object of the exercise was to ascertain a maximum volume load, and agree the terms and PCA would be entitled from time to time to transact a commodity derivative contract in relation to a portion of the energy load made available on common agreed terms.

2492. Discussion took place at the meeting in respect to the Long Term Draw Down Product.

2495. It will be necessary to return to this proposal hereafter.

2498. Disputed contract 38 can be dealt with separately because it is an off-peak collar transaction. At the meeting Dr Nelson gave a presentation how he wanted the collar contract to operate in respect to off-peak. This was a new arrangement as far as PCA was concerned.

2501. Mr Treacy prepared minutes of the meeting which he sent to Mr Murphy and Mr Murphy did not respond, suggesting they were wrong. It was noted in respect to the off-peak product that at the meeting Mr Murphy agreed to come back to PCA by the weekend of 8 August 1997 with cap/collar pricing. It was also indicated that he would look at extending the deal over five years to take into account long term contracts.

2504. On 11 August 1997 Mr Murphy, in a facsimile, referred to the off-peak collar negotiations and set out some terms with an indication that the offer was valid to the end of August 1997. He requested Mr Treacy to call to discuss.

2507. Negotiations continued between Mr Murphy and Mr Treacy and also Dr Nelson. On 2 October 1997 Dr Nelson spoke to Mr Murphy and certain prices were agreed with respect to the cap and floor prices for the collar. This was confirmed in a fax Mr Murphy sent to Dr Nelson on 8 October 1997 and the period of the proposed transaction was for 1 November 1997 to 30 October 1998. It was noted that 100 MWh was to be available at that stage. On 10 October 1997 the volume was increased to 200 MWh. There were further discussions concerning the cap and floor prices for later years. The offer was open to the end of October.

2510. On 28 October 1997 Mr Treacy referred to the collar product and raised the question with Mr Murphy that he was to look at the option of sculpturing the load and consideration was being given to a cap/floor pricing necessary for ten years for review by PP.

2513. On 13 November 1997 an important meeting took place between Messrs Murphy and Oates and Messrs Treacy and Daley. It will be necessary to refer to this conversation in some detail hereafter.

2516. Prior to the meeting, on 12 November, Mr Treacy sent a facsimile setting out matters that were to be discussed at the meeting and referred to the proposed collar contract. Attached was a proposal in relation to prices over a ten year period and noted it was necessary to discuss the sculpturing of the collar and the need to have a partnership exit clause. The reference to the latter was a form of termination clause open to either party.

2519. This was the first major collar-type contract but the parties had in order to see how it worked put in place a small test contract for 20 MWh for New South Wales which was contract 26. This transaction was agreed on 15 September 1997 to commence on 1 October 1997 for a period of one year.

2522. The proposed transaction was anticipated to commence on 1 January 1998.

2525. Further discussion took place as to the proposed collar with a NSW node and it was suggested that the start date be in July 1998.

2528. On the following day Mr Murphy sent a facsimile to Mr Treacy and in reference to the collar he noted that the prices in the fax of 12 November 1997 were okay for years 1998, '99 and '00 and that escalation for future years would be CPI minus one. He stated that the volume would be limited to 300 GWh pa for the collar until he had more time to review the position and the validity period, namely, the period during which the offer was open, was to the end of November 1997.

2531. On 28 November 1997 Mr Treacy sent a facsimile to PP in which he stated that PCA wished to contract that day and wrote -

"Contracts for draw down are as follows - Start Date Load SMP Period .......................................................................................... OFF PEAK-COLLAR 300 GWh NSW 3 years July 1998"

2535. Under that part appeared the pricing with respect to the collar for three years with a cap and floor price.

2538. Mr Treacy later that day spoke by telephone with Mr Murphy who confirmed acceptance. Shortly thereafter Mr Treacy raised a trade ticket in relation to the collar contract.

2541. On 23 December 1997 Mr Treacy in a facsimile sent to PP noted that PCA was waiting for confirmation and in the letter of Mr Trethewy of 13 January 1998 the transaction was given the contract No. 38. Although the details are set out he did not make reference to the prices but there is no dispute that the prices had already been agreed.

2544. On any view the essential terms were agreed.

2547. At no time did anybody from PP suggest prior to 10 June 19998 that there was no agreement with respect to this transaction.

2550. The language of the parties is one of agreement.

2555. Contract 38 did not have any terms concerning load shape, flex or MTM.

2558. Despite this PP submits that there was no agreement with respect to these alleged terms and further says there is uncertainty with respect to the alleged flex and MTM terms.

2564. It has never been PCA's case that the transaction contained terms relating to flex, load shape or MTM.

2567. It is pertinent to observe that the draft confirmation prepared by Mr Murphy on 18 June 1998 does not contain any flex or load shape provisions and the attachment indicates a flat load. Mr Murphy has included a Meet the Market clause but as he stated in evidence this was introduced by him and was not in the original agreement.

2570. Despite the conduct of both parties which leads to the conclusion that the transaction did not have terms relating to flex, load shape or MTM, it is submitted by PP in the proceeding that it is arguable such terms were discussed in the negotiations and therefore this leads to the conclusion that the parties were still in a state of negotiation. That is, the parties had not agreed to all the terms.

2573. The argument is based on the facsimile of 28 November 1997 in which Mr Treacy indicated that PCA was contracting in respect to contract 38, and concluded by providing -

"Products include all the details as stated in our Draw Down product forwarded to you previously. If you have any queries with any of the above please call me. Please confirm back the acceptance of the above."

2577. The evidence reveals that Mr Murphy did confirm those details. The argument that is put is that since the Draw Down Product referred to flex, load shape and MTM and since Mr Treacy did not communicate with PP as to which part of the Draw Down Product was applicable to the contract it follows that these terms arguably could be included in the transaction.

2580. This argument lacks commercial reality. The parties were dealing with a collar contract with a flat load shape.

2583. One has to consider the letter of 28 November 1997 in context and the letter itself referred to a number of different types of contracts. It is clear that not all provisions of the Draw Down Product would apply and only those which were applicable to the particular contract would apply. The fact was that this was an off-peak collar, and although there was a question of sculpturing the load shape it was not followed up. The load shape was to be flat. Mr Trethewy accepted that the shape was to be a flat load shape in the same way as contract 26. As I have said, the draft confirmation prepared by Mr Murphy in June reflects a flat load profile. There is no question of any flex arrangement applying and indeed there was never any suggestion that it would. All the actions of PP support this conclusion. So far as the argument that there was some doubt about whether it was peak and off-peak, it was off-peak and the only question is whether it was a New South Wales off-peak period or some other period. In my opinion it can clearly be inferred from the fact that it was a New South Wales reference node that the hours that would be used would be off-peak in New South Wales.

2586. PP further submits that at a stage of the negotiations there was talk about a partnership exit clause and indeed that is correct. It was under active consideration as at 12 November 1997 but no mention of it was made as at 28 November 1997, nor is there any reference in the Draw Down document to this term. In my opinion there is no evidence to suggest that this was still under negotiation on 28 November 1997. In my opinion, by 28 November 1997 it was no longer a term of the transaction.

2589. PP further submits that clause 3.5 of the Draw Down Product could arguably apply to the transaction being the MTM clause outlined in attachment C to the document. Because there is an argument as to what the MTM clause means it can be inferred from its absence from the agreement that this was to be further negotiated.

2592. Again, all the evidence is contrary to this submission. There was no suggestion that a MTM clause was to apply to this transaction.

2595. In my opinion, the evidence is clear that the parties did agree to all the terms of the transaction which subsequently was identified as contract 38, that the evidence does not support a conclusion that there were still terms to be negotiated, and subject to the question of authority I am satisfied that the parties agreed to the terms of the transaction which became contract No. 38. The Master Agreement provided for the intention of the parties subject to the holding back argument. There is no other evidence which rebuts the application of the Master Agreement.

2598. I am reinforced in that conclusion by the observation of Mr Trethewy in the conversation on 12 June 1998 in which he opined the view that it was his understanding that "everything had been agreed" in respect to contract 38.

2603. Contracts 39, 40 and 41 were three of the six alleged contracts made on 28 November 1997. The other three were 36 and 37 which are not disputed and which were transacted as part of a package, and contract 38 which was the unique off-peak collar transaction.

2606. It is appropriate and convenient to deal with these three contracts together as the dispute raises the same issues in respect to each and each have the common genesis in the Draw Down Product.

2609. As already stated, the genesis of the six contract package was a meeting of 1 August 1997. Prior to this meeting PCA had decided to put a proposition to PP to the effect that a large volume of electricity would be made available by PP to cover periods into the future with common terms and a facility be put in place whereby each individual deal could be transacted in respect of a proportion of the volume of energy made available quickly and without the need for further negotiation.

2612. By August 1997 PP and PCA had negotiated and concluded a number of contracts, the pattern of trading was well established in that offers would be made which would be open for a period of time, ie with a validity date, and the parties had entered into a Volume Rebate Agreement which gave PCA an incentive to source its financial contracts with PP. By August 1997 PCA was becoming a very important customer of PP. By reason of this pattern there were certain features of earlier contracts which were common to other contracts and which were implicitly accepted in negotiations.

2615. It is now necessary to trace through the Draw Down Product. It was floated as a proposition at a meeting on 1 August 1997 between Mr Murphy, Dr Nelson and Messrs Duvall and Treacy.

2618. Mr Treacy faxed minutes of that meeting to Mr Murphy on 6 August 1997 and requested him to review the issues raised. The minutes provided, inter alia -

"LONG TERM DRAW DOWN PRODUCT We discussed the opportunity for PCA to be provided a complete Draw Down product which would incorporate all the recent variations that have been used in the various L/T contract negotiations for SECV/BHP/CADIA. CT to provide a complete listing for which both parties are to review and add/delete where applicable. PP cannot provide incremental load until some of the current offers have been finalised. It is with the above in mind that we look for a product which carried all the above agreed characteristics but also include: Volume say 2,000 GWh pa Period Up to 10 years per deal Validity Open during the period under negotiation."

2622. It should be noted that the reference to the three organisations in the first paragraph is a reference to large proposed retail contracts which had been the subject of the negotiation for large hedge contracts. Both the SECV and BHP hedge contracts which were transacted within months of the 1 August were for long periods and involved substantial electricity.

2625. "L/T" means "long term" and "C.T." was a reference to Chris Treacy.

2628. As a result of that discussion PCA developed a Long Term Draw Down Product and the task of preparing this was left to Mr Daley.

2631. On 17 September 1997 Mr Daley sent a facsimile to Mr Murphy and attached was a document which was headed -

2635. It will be necessary to look at this document more closely later because of the allegations of mistake and misrepresentation which PP makes in relation to the product.

2638. For present purposes it is noted it set out the features of the Draw Down Product. The features included terms of proposed transactions, volume of energy and load shape, Meet the Market clause, and pricing and availability, ie period during which the offer was open.

2641. At a meeting held on 24 September 1997 between Mr Murphy and Dr Nelson and Mr Daley there was some discussion about the Draw Down Product.

2644. There is some dispute as to what took place at this meeting. Dr Nelson and Mr Daley gave evidence that Mr Trethewy was present.

2647. In his witness statement Mr Murphy made no mention of Mr Trethewy being present and although Mr Trethewy had no recollection of being at such a meeting he said that he must have been.

2650. According to the PCA witnesses Mr Daley referred to the Ten Year Draw Down Draft which he had sent to Mr Murphy a week earlier and commenced to take him through the features of the proposal in order to explain it but shortly after he commenced Mr Murphy asked him whether the document was the same as had been sent earlier and having been told that it was, Mr Murphy replied by stating that he had read it and he did not have any difficulties with the proposal. Mr Daley volunteered to go through the proposals but Mr Murphy stated it was unnecessary. Dr Nelson agreed with Mr Daley's version and I reject the version given by Mr Murphy that the meeting was left on the basis that Mr Daley would talk to Mr Murphy once he had had a chance to look at it more closely. According to Dr Nelson Mr Murphy indicated that the document appeared to be okay and there were no problems.

2653. On 3 October 1997 Mr Daley sent to Mr Murphy a facsimile referring to the meeting of 24 September and sought written confirmation that "the proposed Ten Year Draw Down Product is acceptable. Furthermore, could we pay a fee to hold the option open until the 30 November 1997."

2656. By a facsimile dated 8 October 1997 Mr Murphy responded and in reference to the Ten Year Draw Down Product wrote

"This product as described in Carl Daley's fax of 17 September 1997 can be made available until 30th November 1997, upon payment of an option premium of $100."

2660. The option fee in fact was not paid, but PP agreed the product was available until 30 November 1997.

2663. Further discussions took place at meetings held on 23 October and 13 November. On 12 November 1997 Mr Treacy sent a facsimile to Mr Murphy in anticipation of the meeting for the following day and attached to it was a revised version of the Draw Down Product which had been prepared by Mr Daley. There were a number of changes to the previous version.

"* Attached a Draft of the ten Year Draw Down product revised to take into account our previous discussion at our last meeting."

2670. A schedule of prices for a ten year period was attached covering New South Wales and Victoria peak, shoulder and off-peak and also indicating the peak and shoulder and off-peak volume limits. Also attached was a standard Meet the Market clause.

2673. The footnotes that had been inserted in the previous draft dated 17 September 1997 were omitted. The later product was a revised version. The footnotes in the earlier version are relevant to PP's counter-claim. The new draft contemplated a validity period to 31 December 1997. A discussion took place on 13 November 1997 and the only matter of contention related to the prices. There was general acceptance of the Draw Down Product proposal.

2676. Mr Treacy prepared minutes of the meeting and under the heading of Draw Down Product of Volume Available, he wrote -

"* Peak - from 1/1/98 to 30/6/98 1200 Gwh * Peak - from 1/7/98 for ten years 800 Gwh * O/P - potential up to 2,000 Gwh from 7/98 based upon agreement

on the O/P collar that was included in the draw down

product."

2680. He noted in the minutes in bold type that the Draw Down Product for the collar had the wrong dates and stated that the start date for the first year should be at a certain date and a certain price. He wrote - "please advise if okay". Mr Murphy confirmed the correction.

2683. Messrs Treacy and Daley said there was a meeting on 25 November 1997 at which Mr Murphy was present. I have already found that he was not present at that meeting.

2686. There was some discussion between Mr Murphy and Mr Treacy over the telephone on 27 November and it was left on the basis that PCA was considering its options as PP refused to extend the validity beyond 30 November for the Draw Down Product.

2689. I am satisfied on the evidence that on that day there was discussions between various members of PCA's staff including Mr Duvall, Mr Treacy and retail managers with respect to what PCA wished to contract.

2692. A decision was made by PCA to proceed and at approximately 2.30 p.m. on 28 November 1997 Mr Treacy sent a facsimile to Mr Murphy stating that PCA was to contract for the first three years and that it would later that day indicate the exact load for those years. Details were set out of the various types of contracts and it was noted that the transactions included all details in the Draw Down Product.

"If you have any queries with any of the above please call me. Please confirm back acceptance of the above."

2699. The language of the document clearly is that of contracting. Later that day Mr Treacy sent another facsimile in which the load for the period 2001 to 2007 was stated. The contracts were to terminate on 30 June 2007.

"Prices are based upon the previous with an escalation of CPI minus one. All other terms are stated in our Draw Down Product. We will organise a visit to Sydney next week to organise load profiles and finalise the finer points. As usual, it is great doing business with you."

2706. Before sending that facsimile Mr Treacy had a discussion with Mr Murphy and told him what he was proposing with the volumes for the later years and Mr Murphy said that was fine.

2709. Mr Murphy said that he responded that everything was okay but he had not checked it thoroughly. Nevertheless, thereafter at no point in time did he suggest that the details were incorrect or unacceptable.

2712. Mr Treacy completed one trade ticket in relation to the trades that were done that day and gave it to Mrs Sim.

2715. Included in the transactions concluded were transactions which subsequently became contract Nos. 36 and 37. They were to commence on 1 January 1998, and were confirmed in writing and performed.

2718. On 2 December 1997 Mr Treacy faxed an agenda to Mr Murphy in relation to a visit on 4 December and one of the issues to be covered was the contract status of - "contracts from 28/11/1997."

2721. In a facsimile dated 8 December 1997 Mr Treacy wrote to Mr Murphy stating the items that had to be actioned and wrote -

"* Outstanding contracts and their priorities are as follows - * 20MW collar Contract already started * Alcoa Starts 1.1.98 * Contracts from 28.11.97 Starts 1.1.98 * One way caps already started * BHP load Starts 9.2.98 * Visy/Air Liquide Starts 1.7.98 * Smorgon Starts 2001"

2725. Mr Treacy ended the facsimile by asking the question -

"If you have any changes to the above please advise."

2729. Mr Murphy did not respond to that facsimile suggesting that there were any errors in relation to the details. It is noted the reference is to "Outstanding contracts".

2732. Clearly PP was happy to do business because Mr Trethewy on instructions from Mr Murphy sent a facsimile on 8 December 1997 referring to another Ten Year Draw Down with details relating to prices, volume and validity to 31 December 1997.

"Please don't hesitate to call if you wish to discuss."

2739. On 23 December 1997 Mr Treacy sent the facsimile to Mr Murphy listing the outstanding contracts. He requested him to have the contract confirmations sent so they could be signed. On 13 January 1998 Mr Trethewy sent his facsimile which set out the contracts in question, namely, contracts 36 to 41 (inclusive).

2742. The details set out by Mr Trethewy in his facsimile covered the questions of peak, the reference node, the volume and the period and also in relation to contracts 40 and 41 the fact that the load profiles had already been sent. It is pertinent to note that contract 39 was to commence in July 1998 for three years and contracts 40 and 41 were to commence on 1 January 2001 and were for periods of six and a half years. After Mr Trethewy sent his facsimile of 13 January 1998 he forwarded draft confirmations to Mrs Sim in respect of contracts 39, 40 and 41. The draft confirmations for contracts 40 and 41 prepared by PP precisely state what was agreed between PCA and PP. It will be necessary to consider an alleged variation to contract 39 but the confirmation in relation to that contract reflects what the parties agreed. It is pertinent to observe in each draft confirmation that the trade date is given as 28 November 1997 and clauses relating to monthly flex, Meet the Market and price escalator are included.

2745. In March 1998 discussions took place concerning flex and the question of annual flex. The evidence establishes that the procedure for all flex mechanisms was agreed in March 1998. On 26 March 1998 PP confirmed its agreement to the flex rules and procedures.

2748. On 20 May 1998 Mr Treacy telephoned Mr Murphy and raised the possibility of varying some of the November contracts with respect to Meet the Market clause.

2751. This telephone call of 20 May is recorded. In that conversation Mr Treacy suggested that some of the contracts should be varied to exclude the Meet the Market clause. Mr Murphy responded -

"Okay, well, we'll have to look at that. That should be okay."

2755. Mr Treacy followed that conversation up with a facsimile in which he requested feedback on -

"* The contract starting 1.7.98 for Vic (800 GWh) a portion of the load we may want to change to a two or three year NO MtM with a MtM starting at the end of this period - can we discuss with you?"

2762. Discussions took place over the telephone and on 29 May Mr Murphy indicated that he was going to send a facsimile to Mr Treacy. On 29 May Mr Murphy sent a facsimile in which he said -

"I refer to your fax of 26 May 1998. Strictly speaking, the Meet the Market clauses of these contracts may only be invoked one month prior to each anniversary of contract commencement. However in this particular case, Pacific Power will allow the clause to be invoked at this time as a once off exception. Pacific Power's counter off is that the price in 98/99 be adjusted as per your fax of 26 May 1998 and that thereafter prices revert to those originally agreed to in the contract."

2766. The heading refers to contracts 39 and 40 but this is an error and it only relates to contract 39. It is also pertinent to note the language used in the facsimile is of contract.

2769. On 4 June 1998 Mr Treacy accepted the counter offer by facsimile.

2772. Again, there is a reference to two contracts but this is an error.

2775. I am satisfied on that evidence that there was a variation to contract 39.

2778. Mr Treacy sought a further variation to contracts 39 to 41 in relation to linking between various contracts. Mr Treacy prepared a document setting out the bases of the linking and attended a meeting with Mr Murphy on 11 June 1998 at which he handed over the document. There is no doubt that he did hand over the document. A copy was discovered by PP.

2781. Mr Treacy said that Mr Murphy expressed agreement to the proposal.

2784. At that meeting Mr Treacy handed to Mr Murphy a document prepared by Mrs Sim setting out the outstanding contracts as at 9 June.

2787. Mr Treacy gave evidence that he handed over the terms of the linking of contracts and Mr Murphy read it and said, that he was happy with the words that had been provided.

2790. Mr Murphy denied that he agreed to any variation of the alleged contracts 39 to 41 concerning linkage. He stated that Mr Treacy handed over the document on 9 June and he stated that he would leave it with Mr Murphy to consider.

2793. I do not accept Mr Treacy's evidence that Mr Murphy agreed with the alleged changes to the agreements. This is inconsistent with the conduct of Mr Murphy over that period. In particular by 11 June 1998 PP had indicated that it was not prepared to proceed with the transactions. Accordingly, I find that there was no agreement to vary contracts 39 to 41 in respect to linkage between contracts.

2796. Mr Murphy had on 10 June 1998 wrote to Mr Treacy and faxed the letter at noon on that day disputing that contracts had been made on 29 May and stated a number of reasons why there were no contracts and then finished by saying -

"Most of the above considerations also apply to the proposed contracts 38, 39, 40 and 41."

2800. I find it inconceivable that the following day at a meeting Mr Murphy would have agreed to the variation of contracts 39, 40 and 41 to link them as proposed in the document dated 9 June 1998. Further, at that point in time, namely, 10 June there was to be a meeting between Mr Duvall and Dr Lang in respect of the dispute between the parties.

2803. Finally, the drafts prepared by Mr Murphy on about 18 June 1998 make no reference to this linking proposal.

2808. PP submits that there was a lack of agreement in respect to a number of terms of the contracts and rely upon alleged uncertain terminology in respect to a number of clauses to argue that the parties were in a state of further negotiation.

2811. In considering the submissions it is important to bear in mind that on 28 November 1997 a package of six contracts was agreed.

2814. Contracts 36 and 37, two of them, commenced on 1 January 1998. The confirmations were signed and exchanged on or about 2 March 1998 and settlement was effected monthly thereafter.

2817. It was agreed on 28 November 1997 that each contract concluded that day was to contain the applicable terms in the Draw Down Product.

2820. Much has been made by PP's counsel in relation to these contracts that the terms which were agreed between the parties are vague and uncertain and accordingly one can infer that the parties were still in a state of negotiation.

2823. In relation to contract No. 39 it is submitted that the meet the market clause was so uncertain and ambiguous that one would conclude that the parties were still in a state of negotiation. The same argument was put in relation to contracts 40 and 41.

2826. However, it is noted that in contracts 36 and 37, attached to each confirmation was the standard meet the market clause. The inference is that the parties were content with its wording.

2829. Further, it is argued that the load shape was not agreed in respect to contracts 39 to 41 (inclusive) but the Draw Down Product contained a formula and the load shapes were prepared for contracts 36 and 37 in accordance with that formula and accepted by PP.

2832. The fact that contracts 36 and 37 transacted on the same day and as part of a package which have been performed by the parties provides cogent evidence that the parties had contracted and had agreed to the terms of the Draw Down Product. Some of the terms of contracts 36 and 37 are in similar terminology to the terms of contracts 39 to 41 (inclusive).

2835. PP contends that no agreement was reached in relation to price in contract 39 because there was no agreement that the price variation which was agreed for the 1998-1999 financial year would apply to the whole of the load.

2838. PP submits that the price variation only related to a portion of the total load, namely, 210 GWh of the annual volume which was 800 GWh. I do not accept that submission. With the facsimile of 26 May 1998 Mr Treacy included a pricing over ten years. When Mr Murphy responded on 29 May he stated that PP made a counter offer that the price in the year 1998/99 be adjusted as per the facsimile of 26 May 1998 and that thereafter "prices revert to those originally agreed to in the contract". In his response on 4 June 1998 it was noted that the pricing of loads for 1998-99 were in accordance with the offer made by Mr Murphy and that the pricing and conditions for year two onwards would remain the same.

2841. I am satisfied that the prices had been agreed for the whole period.

2844. The prices agreed were for the financial year 1998/99, peak $21 and shoulder $20, for the balance of the calendar year 1999, $26.69/MWh and for the year 2000 $28.94/MWh.

2847. PP further submits that there was no agreement in respect of the Meet the Market clause. The evidence clearly establishes that the revised Draw Down Product of 12 November 1997 had attached to it the Meet the Market clause and the evidence shows that Mr Murphy agreed to all the terms but reserved the right to have PP's solicitors review the clause. I have already dealt with this argument. In my opinion there is no substance in it. All the evidence reveals that PP was prepared to accept the Meet the Market clause. This standard Meet the Market clause was copied into PP's computer system as a standard clause and was the clause in the two undisputed contracts 36 and 37. It was incorporated in the drafts of contracts 39, 40 and 41 which were prepared by PP and the draft prepared by Mr Murphy on 18 June 1998 contained the same clause.

2850. It is fanciful to submit that PP did not agree to the terms of that clause. I reject the argument.

2853. The next point made by PP was that there was no agreement with respect to the load shape.

2856. It is well established law and it was also accepted by Mr Murphy in evidence that parties can agree to a formula which will determine the parameters in which the load shape is to be sculptured. The Draw Down Product provided as follows in clauses 2.3 and 2.4 -

"2.3 Minimum annual peak load factor of 38%. 2.4 The load shape may be annually reviewed one month prior to 1 July of each year, insuring the contract volume remains unchanged and a minimum load factor is satisfied."

2860. Mr Murphy agreed to the wording of those terms on 13 November 1997. They were incorporated into the contracts made on 28 November 1997 (including the collar contract).

2863. Subsequently to this the load shape for contract No. 37 which is an undisputed contract was prepared by reference to peak hours only, was checked by Mr Murphy and was incorporated as part of the confirmation for that contract which was signed by Dr Lang. Mr Trethewy's evidence was that the load profile complied with the Draw Down Product and was acceptable to PP. He initialled the load profile for contract 37.

2866. PP accepted that the formula was applicable to the contracts, PCA prepared the load shapes for contracts 36 and 37 in accordance with the formula and PP accepted them. PP's conduct amply demonstrates that there was agreement with respect to the load shapes of the disputed contracts.

2869. The load shape for contract 39 was forwarded by PCA to PP on 17 December 1997 and it complied with the agreed load shape parameters. It was provided well prior to the commencement date of the contract. No complaint was made of it. Mr Murphy admitted that he did some calculations in relation to the load shapes in January and did not find any error.

2872. PP prepared a draft confirmation for contract 39 and attached to it the load profile supplied. I reject the argument that there was no agreement on the load shape.

2875. It is said that there was an absence of any express agreement as to load shape for the whole term of the contract. In my opinion the formula sets out the parameters and the load shape was to conform with that formula. I reject that argument also.

2878. Next PP submits that there was no agreement as to the hours for peak supply. The applicable reference node is Victoria and therefore the applicable hours were those standard hours in Victoria. Further, the load shape supplied in December 1997 makes it clear that the hours are Victorian.

2881. In my opinion it was clear that the parties intended those hours. I am not persuaded that there was any lack of agreement with respect to the peak period hours. They were Victorian.

2884. PP contends that the parties did not agree on the load shape review. Again we come back to the Draw Down Product. I have already set out clause 2.4. The parties did agree to the annual review. There were further discussions on 4 March 1998 and 19 March 1998 in which the flex rules and procedures were discussed and agreed in relation to annual flex and monthly flex.

2887. It is submitted by PP that the sending of the load shapes for the whole period was inconsistent with this term.

2890. That may or may not be so but I am satisfied that the parties agreed to a term concerning the load shape review.

2893. Finally, PP submits that the approach by PCA in June 1997 to vary the contract by linking did not result in any agreement. It was submitted that this showed the parties were still negotiating and hence there was no agreement in respect to contract No. 39.

2896. I accept the argument that PP did not agree to any variation to the transaction but PCA put the case on the basis that it was a variation. That does not, in my opinion, establish that the parties were still negotiating. I am satisfied that PCA sought to vary the agreement and I found that it failed. But that does not go to the question of whether or not there was an agreement to all the terms of the transaction. I reject the submission insofar as it seeks to establish that the parties were still negotiating.

2899. PP further submits that there was incompleteness and uncertainty with respect to Meet the Market clause, the question of peak hours and the variation relating to flex in March.

2902. These arguments are the same arguments that are put forward in relation to the question of lack of consensus. However, insofar as they seek to suggest uncertainty with respect to the terms of the Meet the Market clause and the flex rules and procedures I reject the argument that it shows the parties were still negotiating. The question of what those terms mean is a matter of construction to determine the common intention of the parties.

2905. In this regard I repeat what Sir Garfield Barwick said in the Upper Hunter County case supra.

2908. Subject to the holding off argument in respect to the question of intention and the issue of authority I find that the parties agreed to all the terms of the transaction which subsequently became contract 39. I also find that the alleged variation of the transaction in June 1998 concerning linkage has not been established.

2911. My decision is reinforced by the observations made by Mr Trethewy in the telephone conversation of 12 June 1998 in which he stated he understood that everything had been agreed.

2914. The attack by PP on contracts 40 and 41 can be dealt with together. PP attacks the lack of consensus on the same grounds as in contract 39 in relation to Meet the Market clause and the load shape. The submission raise the same arguments that were put in relation to contract 39 and for the same reasons I reject them.

2917. PP further submits that the term relating to Meet the Market was incomplete and uncertain and for the reasons that I have already stated in relation to contract 39 I reject the argument insofar as it concerns the question of agreement.

2920. In addition, in relation to contracts 40 and 41 PP contended that the term concerning price was also incomplete and uncertain. The submission in relation to the price relates to the term in the Draw Down Product concerning the Consumer Price Index and the question of GST.

2923. The argument proceeds on the basis that there is some doubt as to the operation of the terms and because of this doubt there is uncertainty which leads to the conclusion that there was further negotiation required before the parties were contractually bound.

2926. Under the heading "pricing" appears the following clauses -

"4.1 Contract prices as per attachment A. 4.2 Escalation of CPI minus 1% beyond the firm prices using the March quarter relative movement. If CPI is less than 1%, no price adjustment would occur. For the volume specified against the NSW node, the Sydney CPI index would apply whilst the Victorian volume would be indexed against the Melbourne CPI index. 3. Any component of the GST included in the CPI movement, but not incurred by Pacific Power would be excluded from the escalation."

2930. Attachment A set out the schedule of prices which were at a fixed sum for the years 1998, 1999 and 2000 but thereafter were to be escalated by "CPI minus 1%".

2933. I am satisfied that the parties agreed to those terms.

2936. The argument with respect to CPI is that there is uncertainty as to what the term means because there is a variety of groups relating to CPI for each capital city. This was asserted from the Bar table. There was no evidence in relation to this matter. It is said that I can take judicial notice of the fact. I accept that the court can take judicial notice of the fact that there are CPI indexes for the various States. However, I am not prepared to take judicial notice of any other fact.

2939. What the parties intended by that clause is a matter of construction of the agreement. One would be required to take into account the factual matrix concerning this aspect. The matter was not the subject of any evidence at trial.

2942. In my opinion the alleged uncertainty does not establish that the parties have not reached agreement. There may be a number of arguments as to its construction but in my view that does not negate the finding that the parties agreed to that term. Further, there is evidence of the use of a particular index in confirmation to contract No. 22 which was forwarded by Mr Trethewy to Mr Treacy on 18 August 1997 and to contract 34 where there was a particular index to be used in relation to that contract.

2945. I do not accept the argument that there is such a degree of uncertainty with respect to the term that the court should infer that the parties were still negotiating.

2948. PP then submitted that the clause relating to GST was so uncertain and so unworkable that it must follow that the parties had not agreed and further negotiation was required.

2951. The evidence revealed that with respect to the first draft of the Draw Down document it was accepted by the parties that the term relating to GST had to be re-drafted. It was not done. That may be so. But in the end that was the term that PP agreed to. It is then a question of determining as at the date, namely, 28 November 1997, what the parties intended by that clause. That again is a matter of construction. I do not draw the conclusion that the parties were still in a state of negotiation. They agreed to that term. What it means in the commercial context is a matter of construction of the agreement but does not preclude the finding that the parties had agreed to the term.

2954. Finally, PP attacks the March variation concerning the application of the flex rules but this also raises a question of construction of what the parties intended. The new flex rules and procedures in my opinion are not so uncertain or vague to lead to the conclusion that the parties were still in a state of negotiation. I reject the arguments.

2957. Subject to the submission concerning holding back in respect to the question of intention and the issue of authority it is my opinion that the parties agreed to the terms of the transaction in respect of contracts 40 and 41.

2960. In my opinion the parties did not agree to vary either contract as alleged in June 1998 with respect to the linkage of certain contracts.

2965. PCA contends that a package of contracts was concluded on 29 May 1998 and by agreement between the parties was divided into five separate contracts numbered 43 to 47 (inclusive).

2968. It is convenient to deal with these contracts as a group because it is PCA's case they were agreed as a package and divided up into separate contracts.

2971. On 2 December 1997 Mr Treacy faxed an agenda for a meeting and one of the items was pricing for a new Draw Down product for Vic/New South Wales from January 1998.

2974. At a meeting held on 4 December 1997 attended by Messrs Treacy and Daley and Messrs Murphy and Trethewy the issue concerning pricing for NSW and Vic for future transactions was discussed. Murphy agreed to provide pricing on an NSW Draw Down product including two-way peak and off-peak collar-type transactions. PP stated that a Victorian product and pricing were not available at that stage. At that moment in time PP was reconsidering its ability to provide a Victorian product after the interconnect problems of 25 and 26 November 1997.

2977. On 8 December 1997 Mr Trethewy sent a facsimile to Mr Treacy in which he offered a NSW off-peak collar and a ten year Draw Down proposal. He set out the essential terms and indicated that both offers were open to 31 December 1997. The tone of the facsimile shows a keen interest in PP to do business.

2980. The offer omitted prices for the Ten Year Draw Down and after further discussion the error was rectified.

2983. The offer was not accepted and on 20 January 1998 Mr Murphy made another offer by facsimile. Again all essential terms were set out.

2986. On 5 February 1998 a meeting took place between Messrs Treacy and Daley and Mr Murphy in which items were discussed concerning, inter alia, the proposed products. Mr Treacy raised the pricing and suggested revision. New figures were quoted and Mr Murphy was to respond. Mr Treacy also raised the topic of a Victorian product and wanted pricing for three years both peak and off-peak.

2989. Mr Murphy responded on 13 February with new offers in respect to two NSW products with a validity period open to 27 February 1998.

2992. Mr Treacy thought the prices were too high and on 18 February 1998 made a counter-offer and sought new prices with no MTM clauses and also raised the question of a Victorian product based on the same prices.

2995. It is clear from the reference to MTM that the parties had been negotiating on the basis that there would be an MTM clause applicable to this transaction. The later correspondence supports that. This is an important fact to bear in mind when considering the negotiations between the parties. It is clear from this evidence and previous evidence that the parties did proceed on an assumed basis in relation to a number of matters during negotiations.

2998. The offer made by Mr Treacy was that there would be no MTM clause for certain periods and sought lesser prices as a result.

3001. Mr Treacy followed this facsimile with one dated 25 February 1998 in which he indicated he needed some decisions on the products before the end of the week. He also raised some new items. He requested an extension to the validity period to 31 March 1998.

3004. Mr Murphy responded on 27 February with another counter-offer which included no MTM clause prices and a Victorian product up to "500 GWh pa max". He extended the validity period to 31 March 1998.

3007. Further discussions took place on 4 March 1998. Mr Treacy was seeking to obtain better prices. Further discussions took place over the telephone on 11 and 12 March; and on 13 March 1998 Mr Treacy received a facsimile from Mr Murphy offering prices based on a number of scenarios including no MTM and a MTM clauses. All offers were to be valid to 31 March.

3010. On 19 March 1998 a meeting took place between Mr Treacy and Messrs Murphy and Trethewy and on 23 March 1998 Mr Treacy sent a facsimile recording "the action items agreed to:".

3013. Mr Murphy did not suggest that the facsimile did not give effect to what had been agreed at the meeting. However, it is clear that at the meeting whilst certain matters had been agreed others had not.

3016. In his facsimile Mr Treacy requested an extension of the validity date until 30 April.

3019. On 24 March 1998 Mr Treacy telephoned Mr Murphy and asked him whether he had considered his facsimile of 23 March 1998 which he said he had, but not in detail. Mr Treacy was anxious to complete these transactions and telephoned Mr Murphy a number of times on 25 March 1998 to no effect. He spoke to Mr Trethewy. It was later indicated that Mr Murphy had faxed a response and on 26 March 1998 he received a facsimile from Mr Murphy.

3022. Mr Murphy set out prices in relation to the ten year NSW product and noted volumes were limited and also quoted a price for the financial year 1998. He noted that the annual and monthly flex discussions and procedures were agreed. He extended the validity period to 10 April 1998.

3025. Mr Murphy was away on leave from 27 March 1998 to 13 April 1998.

3028. After receiving the facsimile dated 26 March 1998 Mr Treacy telephoned Mr Trethewy and queried that the prices quoted did not include Victorian prices and Mr Trethewy said that it was unlikely they could do anything about the Victorian pricing. He said he would get back.

3031. Five minutes later he telephoned and stated that PP did not want to do the Victorian prices at reduced levels but the best he could do was to give the old prices for Victoria. He stated he could not change the previously quoted Victorian prices for 1998. Mr Treacy later spoke to Mr Trethewy and again raised questions concerning the Victorian pricing.

3034. On 30 March 1998 Mr Treacy sent a summary of the offers that PP had made with a validity period up to 10 April 1998. He referred to a number of faxes that had passed between the parties during the period 13 February 1998 to 26 March 1998.

"Please review and advise if you have any queries with any of the above."

3041. Attached was a summary of the current position with respect to both NSW and Victorian products. The NSW products were divided up into no MTM product for two or three years, annual MTM products, NSW off-peak collar and also Victorian no MTM and annual MTM products. Mr Treacy had told Mr Trethewy that he was sending this summary. Mr Treacy followed up the facsimile by seeking to talk to Mr Trethewy but was unable to do so until 6 April 1998.

3044. On 6 April 1998 Mr Treacy spoke to Mr Trethewy about the facsimile and was told that he had received it and it "looked alright".

3047. On 8 April 1998 Mr Treacy had a further conversation with Mr Trethewy and told him that PCA wanted to do business with PP and wanted to extend the validity date beyond 10 April which was a public holiday. Mr Treacy listed a number of proposed contracts. This telephone call was taped.

3050. Mr Trethewy asked if they were in accordance with PP's offer and Mr Treacy said "yes" and stated he would fax through the details. He also sought an extension of the validity period to 15 May and Mr Trethewy said he would look into it.

3053. On 8 April Mr Treacy sent a facsimile summarising the discussion and the offers made.

3056. On 9 April 1998 Mr Treacy telephoned Mr Trethewy and the latter indicated that he had seen the facsimile and "it's all okay".

3059. Mr Treacy raised the question of increasing the volume and requested an extension of the validity date to 15 May. Mr Trethewy agreed to the extension of the validity period but he was uncertain as to topping up the volume.

3062. Mr Treacy said that he would send profiles for the contracts and requested that the contracts be separate because they related to different periods. Mr Trethewy agreed.

3065. Mr Treacy then said - "I've done three individual trade tickets and left them here for Lena so she can just get the three contracts to them."

3068. Mr Trethewy replied - "That's alright. Okay, so I'll get those in due course."

3071. On 14 April Mr Treacy sent a facsimile and noted the items were agreed as -

"Extension of validity period by Pacific Power to PCA of all current offers from 10-4-98 to 15-5-98. Vic peak/shoulder timing to be 7.00 a.m. to 10.00 p.m."

3075. The reference to extending the current offers concern the offers summarised in the facsimile of 30 March 1998. In those offers there had been a partial Draw Down in respect of Victorian power by the three deals that were finalised on 8 April 1998.

3081. Having sent the facsimile Mr Treacy telephoned Mr Murphy in which he stated, inter alia, that he had written down what he was after in the facsimile that was forwarded that morning.

3084. The following day, in a conversation with Mr Murphy, the latter confirmed he had the facsimiles sent to Mr Trethewy but had not reviewed them. Mention was made of 500 GWh volume top up in the conversation. Later that day Mr Murphy telephoned to say that the 500 GWh top up would be fine.

3087. In conversations in late April Mr Murphy informed Mr Treacy that the Board of Pacific Power was concerned with risks involved in the Victorian market.

3090. On 29 April 1998 Messrs Treacy and Daley met with Mr Murphy. Mr Trethewy was also present. Further discussion took place in respect to the proposed deals. On 4 May 1998 Mr Treacy had a further discussion with Mr Murphy who agreed that the validity period was open until 15 May. Mr Treacy identified two issues hitherto not agreed, namely, that he wanted to extend the validity period to the end of May and indicated that he wished to increase the amount of power available in Victoria in excess of 500 GWh. Mr Murphy said he could not go beyond that volume. He stated he could not do it even for the following year. He said that he would look into the question in relation to contract periods which were ceasing. On 5 May in a telephone call Mr Murphy stated that he had not been able to see Dr Lang about matters that had been discussed which included increasing the load from 500 GWh for Victoria.

3093. On 5 May later that day in a telephone conversation the validity period was extended to the end of the month. On 6 May 1998 Mr Treacy sent a facsimile of the summary of offers then open from PP. Attached to it was a summary sheet and Mr Treacy requested Mr Murphy to confirm.

3096. It was noted that the validity period for all proposals was 31 May.

3099. At no stage did Mr Murphy disagree with the summary.

3102. In a further telephone conversation on 13 May Mr Treacy said that he assumed that the parties had to do some contracting at the end of May and Mr Murphy said he agreed. Mr Treacy also put a different range of prices to Mr Murphy.

3105. On 20 May 1998 in a telephone conversation Mr Treacy said that he wished to contract that day on Victorian and NSW loads and would fax the information. He then sent a facsimile to Mr Murphy which confirmed the matters discussed. He set out the issues and requested feedback on them. He did indicate the necessity to discuss matters promptly.

3108. Attached to that facsimile were details of new contract Draw Down which Mr Treacy described in his facsimile -

"* Attached find details of new contract Draw Down on the offers outstanding by PP. Pricing for 1998/1999 is as per our recent discussion."

The reference to recent discussion was to the telephone conversation earlier that day.

3113. The attachment set out the details with respect to what eventually became contracts 43-47 (inclusive).

3116. After sending the facsimile Mr Treacy spoke to Mr Murphy on the telephone. The latter said that he was still looking at the facsimile and Mr Treacy pointed out that he had forgotten to indicate the basis of a $2 adjustment to price and he was sending a note on that. He sent a facsimile which set out flex prices on what became disputed contracts 45 and 46. He then prepared the trade tickets in respect to these transactions.

3119. On the following day, 21 May 1998, in a telephone conversation with Mr Murphy the latter when asked about the feedback on Mr Treacy's facsimile said in respect to the contracts - "The details of the other contracts, yeah, that's fine." He then said - "Do you want us to draw that up or are you guys going to do that?" Mr Treacy said that PP could do that and he just wanted to make sure everything was okay to which Mr Murphy replied - "Yep, yep, okay. That's cool, so we'll write all that up."

3122. On 25 May 1998, in a telephone conversation Mr Murphy said that PP was not prepared to extend the validity period. This was in respect of a 150 GWh volume extension to 15 June. He said he would speak to Dr Lang who was in Melbourne and he said Lang wanted to review all of the prices. The discussion related to the balance of outstanding offers. Later Mr Murphy said they could not give any further extension and Mr Treacy said it would be necessary to consider what PCA were going to draw down that week.

3125. Early on 29 May 1998 Mr Treacy sent a facsimile (dated 28 May) to Mr Murphy which provided -

"Bob, Further to our discussion yesterday, I wish to advise that Powercor will pull the balance of the volume under our draw down product. The total draw down is as per the attached sheet and it would be preferable for us to have only four (4) contracts. The previous hedges pulled and the balance that we are drawing down today is per attached spreadsheet. All terms and conditions are as per our draw down facility. If you have any queries please call me."

3129. Attached to that facsimile are three pages which summarised the deals.

3132. It is the contention of PCA that the facsimile together with the attachments were an acceptance of the offers that had been made by PP. The reference in the facsimile to the draw down facility is a reference to the draw down terms in the November 1997 document. I am satisfied that the summary attached to the facsimile set out the minimum essential conditions for contracting the commodity derivative contracts and was the acceptance of the offers which PP had made.

3135. Mr Murphy at some point during that day became concerned about PP entering into transactions which may exceed PP's energy resources and after considering the correspondence mistakenly came to a view that the validity periods which had been extended had expired.

3138. On that day Mr Murphy sent a facsimile which reads -

"Chris, Re: 10 year prices I refer to your faxes of 20th May 1998 and 28th May 1998. There appears to be some confusion regarding the pricing and volumes in 98/99. - Pacific Power agreed to consider splitting 98/99 NSW pricing into a 98 component and a 99 component at different prices. - There was no agreement to consider splitting volumes into 98 and 99 components. - There was no agreement to consider any splitting of prices or volumes in Victoria into 98 and 99 components. - Pacific Power therefore declines Powercor's offers to buy in 98/99.

Furthermore, Pacific Power's offers to sell in years other than 98/99 at the

prices details in my fax of 27th February 1998, 12th March 1998 and 26th March

1998 expired on 10th April 1998. Pacific Power declines Powercor's recent

3147. There is some confusion as to whether Mr Murphy did or did not speak to Dr Lang before writing this letter. At first he said that he did not, but later said that he did speak to Dr Lang.

3153. He did say in evidence-in-chief that he did speak to Dr Lang after he had sent it. He admits that the facsimile was in error about splitting 98/99 prices in Victoria.

3156. A discussion took place between Mr Treacy and Mr Murphy and the latter agreed he had misread the former's facsimile. During the discussion on the telephone Mr Murphy was asked a question by Mr Treacy -

"So you're saying you will accept all of this now?" He said, "Yep". Mr Treacy then said - "Okay, what do I need to do to make sure I've had three heart attacks today already?" Mr Murphy said - 'I'll send you a fax.'"

3160. In that conversation he stated that there was "a bit of a panic attack upstairs" to explain what he had written.

3163. He admitted that that was untrue. He accepted responsibility for sending the facsimile of 29 May 1998.

3166. On the 29th Mr Murphy sent a facsimile in which he referred to the discussion that morning and stated - "Pacific Power agrees to the quantities and prices set out in your faxes of 20th May 1998, 28th May 1998 with the following exceptions:" and thereafter provided a number of exceptions.

3169. After receiving the facsimile Mr Treacy telephoned Mr Murphy and it was agreed that the quantities and prices for Victoria would remain and the prices were $21 and $20. When asked about the cause of the problems he said the board meeting suddenly imposed a change of policy but it was agreed between he and Mr Treacy that all had been sorted out.

3172. On 29 May 1998 very soon after receiving a facsimile and having the telephone call Mr Treacy sent a facsimile to Mr Murphy which read -

"Subject: Contract Status ... Bob, Thanks for your fax of this afternoon. This fax confirms the terms and conditions as outlined in your fax of today. We now have a contract. All the best and have a good weekend."

3176. I am satisfied that that facsimile was sent on 29 May 1998 and received by PP on that day.

3179. Mr Murphy did not respond to that facsimile. Mr Trethewy said that he saw it at about the time it was sent and he took no steps to respond to it either. It was sent on 29 May which was a Friday. Mr Murphy was in the office on the following Monday and until the lunchtime on Tuesday 2 June when he left for a conference in Adelaide and did not return until 9 June 1998.

3182. On Tuesday 2 June before Mr Murphy left he received a telephone call from Mr Treacy who requested his agreement that the deals done in the previous three or four weeks be put into three or four confirmation letters rather than eight and Mr Murphy agreed.

3185. Mr Murphy has given evidence that he did not see the facsimile from Mr Treacy of 29 May 1998 until Tuesday 9 June 1998 to explain why he did not reject the assertion "we now have a contract". I do not accept that evidence. There was no reason why he would not have seen the letter. It was on the correspondence file. No credible explanation has been given to explain why he would not have seen it prior to leaving work on 2 June. Further, the contents of the facsimile confirm what had been agreed on the telephone that day and there would be no reason for Mr Murphy to disagree.

3188. On 10 June Mr Murphy sent a facsimile to Mr Treacy.

3191. The facsimile has all the hallmarks of legal assistance but Mr Murphy said he wrote it without any legal assistance. In it Mr Murphy sought to answer the contention in Mr Treacy's facsimile of 29 May 1998 that the parties now had a contract. He lists the following reasons why there was no contract -

* The terms and the conditions of the proposed contracts have not in fact been agreed. * Further, that details so far agreed had not been approved by anyone in PP or PCA having legal capacity to do so. (Emphasis added.)

3195. He then concludes - "thus we do not yet have a contract, only a sound basis for further negotiation".

"Major items discussed but not yet agreed upon include: * Whether any market to market clause operates on any or all parts and if so how; * What limitations are to be imposed on the quantity profile; * Whether the profiles may be altered, and if so, in what manner. Other items mentioned during discussions but not yet agreed upon include: * Impact of GST; * Ceilings on the operation of the proposed contract, whether at Voll. or at some other level; * Effect of changes in the level of Voll.; * Impact of carbon or other taxes; * Force majeur provisions; * Transition to NEM. Most of the above considerations also apply to the proposed contracts 38, 39, 40 and 41." (Emphasis added.)

3202. The letter has all the indicia of a desperate attempt to avoid contracts on technical legal grounds.

3205. At a meeting held on 11 June 1998 in Sydney Mr Treacy produced a copy of that facsimile and made the point that he thought all the matters raised in it had been dealt with in the ISDA Master Agreement.

3208. Mr Treacy also produced a document setting out outstanding contracts as at 9 June 1998 prepared by PCA and handed a copy to Mr Murphy. It listed the disputed contracts.

3211. It is clear from the evidence that by the end of May 1998 PP had made offers in the futures market which if accepted by the offerees would have substantially exceeded its available volume of power and would have been contrary to the general trading policy of the Board of PP limiting commodity derivative transactions to of 85% of its total power.

3214. The negotiations which culminated in the facsimile from Mr Treacy on 29 May 1998 establish that by that date the parties had agreed to the terms of the transactions.

3219. Despite the negotiations and correspondence leading to that conclusion, PP submits that in relation to each of the contracts 43-47 there was a lack of agreement with respect to certain terms and further, that certain terms that were agreed were incomplete and so uncertain that further negotiation was required to conclude the transaction.

3222. PP submits that the parties did not agree on flex and load shape in respect of each of the contracts.

3225. The argument concerning flex is that the parties did not agree to the terms and conditions of the Draw Down facility of November 1997. In a facsimile dated 28 May 1998 from Mr Treacy to Mr Murphy, the former did state that all terms and conditions were per the Draw Down facility.

3228. The court must look at the commercial reality. The transaction was negotiated in a context. The parties negotiated on the basis that certain terms would be included without express reference. I reject the argument that the parties did not agree to the terms and conditions of the Draw Down facility. This the parties plainly contemplated was to form the basis of their trading. The product provided for flex.

3231. The same argument is put in relation to load shape. I reject the submission concerning the alleged uncertainty in relation to the term. The parameters were set out for the load shape in the Draw Down Product. It is said that the load shapes presented by Mr Treacy to Mr Murphy at the meeting on 11 June and attached to the e-mail dated 12 June 1998 were an ineffective nomination because they included in the calculation, the hours between 10.00 p.m. and 11.00 p.m.

3234. If there has been an ineffective nomination of the load shape then that can be corrected. It does not go to the question of contract or no contract or uncertainty.

3237. The load shape has to comply with the formula. It is submitted in relation to contracts 43, 44 and 47 that there was no agreement with respect to the hours being different in the States of Victoria and N.S.W. and it was unclear which hours applied.

3240. Contract 43 concerns two reference nodes, namely, Victoria and N.S.W. and the peak hours would be the standard peak hours for the particular State. The submission lacks commercial reality. In contract Nos. 44 and 47 the reference nodes are Victoria and N.S.W. respectively and the hours are the standard hours for each State.

3243. In respect of contract 44 PP further submits that there was a lack of agreement in relation to the Meet the Market clause.

3246. The submission concerning the MTM clause is based on whether the provisions of the November Draw Down Product apply and if so the argument based on uncertainty. For reasons already stated the provisions of the Draw DownProduct apply to the contract and for reasons already stated I reject the argument concerning the alleged uncertainty requiring further negotiation.

3249. In respect of contract 45 PP further submits that there was no agreement in respect to the price. PP submits that the price for the 1998/1999 financial year was $19 and not $17 for the first six months and $21 for the balance. There was some misunderstanding between Mr Treacy and Mr Murphy but on 29 May 1998 after Mr Murphy had sent a facsimile there was a telephone conversation between the two men and the price was ultimately agreed as the conversation and Mr Murphy's facsimile establish.

3252. In respect to contract number 46, PP submits there was no agreement as to price and the MTM clause. The argument on price is the same as that put in relation to contract 45. For the same reasons I find there was agreement on price.

3255. The Meet the Market clause argument is exactly the same as put in relation to the previous matters, namely, the question of the application of the draw down product and the alleged ambiguity in the clause and for the reasons I have already given I reject the argument.

3258. With respect to contract 47 PP further submits that clause 3.5 of the Draw Down Product could arguably apply to this contract and there was no agreement that this clause was to form part of contract 47.

3261. Contract 47 is a collar contract with a NSW node and there is no question of a Meet the Market clause in this contract. The evidence is clear in this respect. The argument that is put is that it could conceivably apply to the contract but there is uncertainty and hence it is said that the parties were still negotiating. The terms of the Draw Down Product which were incorporated into a transaction were those applicable to the nature of the transaction.

3264. This was a collar contract and there was no suggestion of a MTM clause in a collar contract. PCA never contended that contract 47 contained a MTM clause. I reject the argument.

3267. PP further contends that certain terms of each of the contracts 43 to 47 (inclusive) were incomplete and/or uncertain and hence it can be inferred that the parties were still in a state of negotiation because they had not finally agreed on the term and/or its wording.

3270. In contract 43, the term alleged to be incomplete or uncertain concerned the load shape, in contract 44 the terms were MTM and load shape, in contract 45 load shape, in contract 46 MTM and load shape and contract 47 load shape, alleged partnership exit clause and clause 3.5 of the Draw Down Product relating to the meet the market process outlined in the attachment.

3273. With respect to the question of the load shape term the argument in relation to contracts 43 to 46 (inclusive) is the same. It is concerned with the annual load shape review. The argument proceeds on the basis that the wording of the clause is uncertain and unworkable. In my opinion the common intention of the parties with respect to this term is a matter of construction. Its alleged ambiguity or uncertainty as to its operation does not lead me to the conclusion that it was necessary for the parties to further negotiate the term. The evidence shows that the parties agreed to the wording.

3276. In respect of the collar contract No. 47 there is no question of any annual load shape review and accordingly the submission has no application to that contract. It is submitted by PP that it is arguable that because Mr Treacy indicated that the terms of the Draw Down Product were to apply that it followed that it was arguable that the load shape was to apply to this contract. However, it is a collar contract. The parties knew what they were negotiating. It did not have to be said that it could not operate in respect of contract 47.

3279. The argument in relation to the MTM clause in contracts 44 and 46 is the same.

3282. The argument put is that there were some discussions in late 1997 concerning an agreed activation of the clause at agreed set times and also there was some consideration as to the mechanism by which the clause was to operate. It is submitted that in the absence of further discussions it should not be inferred that the parties abandoned these contemplated provisions. In my opinion the evidence clearly demonstrates that the parties did not continue with these matters. The discussions took place in 1997 but the negotiation of contracts 44 and 46 occurred in 1998. By May 1998 these matters were not applicable.

3285. Further it is submitted that Meet the Market clause in the Draw Down Product suffered from ambiguity and uncertainty. Again I repeat what I have said in relation to this argument. It is a question of construction. I am not persuaded that there is any ambiguity, uncertainty or doubt about its operation to infer that the parties were to continue to negotiate the terms of the clause. The parties agreed to the standard clause. Its operation is a matter of construction.

3288. With respect to contract 47, PP further submits that there is uncertainty as to whether or not a term concerning a partnership exit clause was to be included in the contract. PCA does not contend that there is such a term. PP's argument is based upon discussions had in November 1997 in which there was some discussion about the parties, namely, PP and PCA having a termination clause. It was agreed that there were some discussions had in November 1997 but thereafter the matter was not pursued. PP argues that in those circumstances the matter was still under consideration as late as May 1998. In my opinion the argument is fallacious and the evidence shows that it was not further discussed and there is no suggestion that it was ever to be a clause in contract 47.

3291. It is further submitted that clause 3.5 of the Draw Down Product which is concerned with the meet the market process could arguably have been incorporated in agreement No. 47. PCA does not contend that the contract contained such a clause. It was a collar contract. Clause 3.5 in my opinion had no application to it. This was implicitly understood by the parties.

3294. Subject to the question of intention to contract and the alleged lack of authority I am satisfied that the parties did agree to all terms concerning the transactions which ultimately became contracts 43 to 47 (inclusive).

3299. I am satisfied in respect of each of the 11 contracts that the parties did reach agreement on all terms of each transaction. I am satisfied that the terms agreed did not disclose in any way incompleteness or uncertainty which would lead to the conclusion that the parties intended to further negotiate.

3302. Whether there are any disputes between the parties as to the meaning and operation of terms hereafter will have to be a matter of dispute resolution if they cannot agree. They are issues of interpretation and for present purposes I am satisfied that the parties did agree to the terms of each transaction.

3307. PP submitted there was no concluded and binding contract in respect of each of the 11 disputed contracts because -

(i) It was the common intention of the parties that no binding contract would come into existence until the confirmation document was signed and exchanged;

(ii) That the parties had not reached agreement on the essential terms of each transaction and many of the terms were incomplete and/or uncertain;

(iii) That the parties had not reached the stage where they intended to be bound by their agreements.

3313. With respect to the first argument I have found that the Master Agreement set out the terms upon which the parties were to negotiate and provided for the time when a contract came into being. I found that a contract could be made orally and that the confirmation document was no more than the record of the contract previously made.

3316. With respect to the second submission I have found that the parties agreed to all terms of each transaction. I further found that the terms were not incomplete or uncertain to the point that the parties were still negotiating. I am satisfied they did reach a consensus. There was no question of further negotiation. In the normal course of things this is weighty evidence of an intention to be bound in the absence of any clear evidence that the parties were not to be bound until something was to happen.

3319. With respect to the third submission I have found that the parties agreed in the Master Agreement that they intended to be bound once they had agreed to the terms of the transaction.

3322. I accept that the pre-existing agreement with respect to intention would not preclude the parties from evincing an intention in a later transaction not to be bound after all the terms were agreed. However, in my opinion there would have to be clear, unequivocal evidence to rebut the clear command of the Master Agreement that once the parties had agreed to the terms of the transaction they intended to be bound.

3325. PP submits that the evidence establishes the parties did not intend to be bound in respect of the contracts made in November 1997. The submission focusses on the conduct of PCA. But any variation of the Master Agreement would have to be by agreement of the parties.

3328. If PCA was proposing to repudiate the agreements and hence was dragging its feet in signing and exchanging the confirmations this evidence does not establish a lack of intention to contract as at 28 November 1997. PP argues that PCA did not wish to sign the confirmation because it did not intend to contract and further argues that the evidence shows the parties were still negotiating. In my opinion if PCA was holding back because it did not wish to proceed then this would amount to a breach of contract. But it is not evidence of a lack of intention to be bound on 28 November 1997. This is a complete answer to this argument. It is not a question of PCA deciding not to proceed when it was contractually bound to do so. The question is whether it intended to be bound on 28 November 1997? The Master Agreement answers that question.

3331. Nevertheless, I will consider whether the evidence supports the submission.

3334. In regard to the group of contracts made in November 1997 PP relies on what can be described as the holding back argument. The contracts made in November 1997 had different starting dates. The Visy contract No. 33 was to commence on 1 July 1998, the Smorgon contract No. 35 was to start on 1 August 2001, contract Nos. 38 and 39 were to start on 1 July 1998 and contract Nos. 40 and 41 were to start on 1 January 2001.

3337. In contrast undisputed contract Nos. 36 and 37 were to start on 1 January 1998. The confirmations in relation to those two contracts were signed and exchanged on or about 2 March 1998, well after commencement of the contracts.

3340. Of those contracts which are disputed arising out of the November agreements, draft confirmations were prepared for contract 33, 39, 40 and 41. They were not signed. However, they were sent by PP to PCA.

3343. From time to time in the first five months of 1998 PCA provided details of outstanding contracts to PP and did raise the question of signing the confirmations.

3346. The purpose of the confirmation was to record the terms of the agreement between the parties, to avoid any dispute as to what they agreed upon, to attach where appropriate a load profile complying with the agreed parameters, and to enable settlement to take place.

3349. In addition, there is evidence that there were discussions between the parties in which it was noted that certain confirmations had to be completed promptly because of the start dates of the contracts. For example contract Nos. 36 and 37 were prioritised for confirmation in late 1997/early 1998 because the contract periods commenced on 1 January 1998.

3352. The evidence of dealings between the parties showed no real concern to hurry within either organisation to settle and sign confirmation documents in relation to the agreements made in November 1997 or in relation to many of the undisputed agreements.

3355. When PP were looking for reasons to deny the validity of those agreements in June 1998 one matter that was raised was that the confirmations had not been signed and exchanged suggesting that PCA was uncertain whether it wished to proceed.

3358. Discovery provided documents to PP which founded arguments that the parties did not intend to be bound and were still negotiating in relation to the November agreements because there were documents prepared by PCA for its own internal administration which stated that confirmations were to be held up and not finalised.

3361. This information only came to the knowledge of PP during the course of preparation for the case.

3364. It formed the basis of the argument that PCA did not intend to contract in relation to the November agreements and that the evidence of holding back supported the conclusion that PCA did not intend to be bound.

3367. This evidence has to be viewed in the light of the overall trading between the two parties and the terms of the Master Agreement.

3370. The overall trading had demonstrated that a substantial number of contracts had commenced before the confirmation document was signed and exchanged. Indeed, the majority of the undisputed 35 contracts had this feature.

3373. PP emboldened by the documentation within PCA which showed a reluctance to finalise the confirmations cross-examined a number of witnesses in respect to the documentation and in particular Mr Treacy, Mr Duvall and Mrs Sim.

3376. Their evidence was, to say the least, unsatisfactory. In the face of documentation which suggested holding back finalising the documentation the witnesses either knew nothing of the suggestion or could not explain the notation.

3379. Mr Downes QC stated a number of reasons why PCA was anxious not to finalise the November transactions. First, he said there were the declining pool prices and therefore there was some doubt about the financial viability of the transactions. Secondly, the disputed contracts were different to the undisputed contracts in that they involved longer periods and large quantities of notional electricity and hence the risk of entering into a hedge contract would be magnified. Thirdly, that Mr Treacy was trying to obtain better terms and hence prolonged the negotiations.

3382. Fourthly, PCA was reluctant to finalise the agreements because the negotiations with respect to some retail contracts were still continuing. PCA was anxious to avoid being left with a stranded hedge.

3385. There is a dispute as to the date when PP repudiated the contracts. In my opinion it repudiated the May 1998 contracts on 10 June 1998 and the November 1997 contracts on 26 June 1998.

3388. Mr Treacy, Mr Duvall, Mrs Sim and Dr Nelson were cross-examined about various documents which suggested that finalisation of the contracts be delayed from PCA's end. On 14 April 1998 Mr Treacy sent an e-mail to a number of people within PCA in which there is reference to delaying contracts until a certain review is completed. On 19 May 1998 there is a strategy meeting action sheet prepared by Mr Daley after a meeting which suggested PCA was trying to improve its position in relation to a number of retail agreements. Further, there is evidence of a folder on which is attached a tab which reads - "Outstanding, okay for PP to raise contract 28/5." Further, there is a document which came into existence on 26 May 1998 headed 'PP VIC CONTRACT RE NEGOTIATION'."

3394. On a copy of the Flex rules and Procedures dated 17 March 1998 Mrs Sim has written - "26/5 - wait for letter from Chris." On that same day Mrs Sim prepared a summary of contracts 39, 40 and 41 in which she has written in respect of 40 and 41 - "Chris to confirm before PP to raise contract." As against contract 39 she has written - "Hold back for Chris. Fax to follow."

3397. Contracts 39, 40 and 41 were made on 28 November 1997.

3400. Mrs Sim prepared a schedule of outstanding contracts as at 17 June 1998. In this document Mrs Sim recorded in respect of contracts 39, 40 and 41 that she was informed in April 1998 to hold back signing contracts due to terms/prices not finalised. With respect to contract 41 she noted that on the 8 May 1998, she was to ask Mr Treacy to view contracts before signing by PP. It appears that Mr Treacy told Mrs Sim to hold this contract back.

3403. It is submitted on the part of PP that the conduct of Mr Treacy and other officers of PCA demonstrate that from about the beginning of April 1998 to 28 May 1998 Mr Treacy had formed the opinion that PCA should not proceed with contracts 39, 40 and 41.

3406. In cross-examination Mr Treacy on a number of occasions stated he could not recall giving instructions to anyone prior to 28 May 1998 to hold back contracts or confirmations and denied saying to anyone that he wanted to confirm something in connection with contracts 40 and 41 before they were raised.

3409. I was not impressed by the way Messrs Treacy, Duvall, Daley and McGarry gave evidence in relation to the various instructions noted in the documents. They all showed uneasiness whilst being cross-examined. So did Mrs Sim. I found their denials of any knowledge of directive of holding back finalisation of documents implausible.

3412. With respect to Mr Duvall, he said that he saw the document prepared by Mrs Sim dated 17 June 1998, he thought that the references to holding back were errors and yet despite this he gave a copy of the document to two very senior members of the Board of the holding company Pacific Corp who were at that time in Melbourne and did not suggest any errors in the summary.

3415. I do not accept the evidence of Mr Treacy that he did not give instructions as to holding back the documents. For some reason the confirmation documents were to be delayed.

3418. A rejection of evidence does not establish any fact other than the rejection. On the other hand, a lie in court may be the basis for inferring a positive fact. However, the court must carefully weigh all the circumstances before reaching a positive finding because a witness may lie for a reason which is not related to the particiular issue and hence does not establish the particular relation fact.

3421. Mr Myers QC on behalf of PCA submitted that there were a number of reasons which would explain the documentation within PCA and which did not lead to the inference that PCA was of the view that it was still negotiating and did not intend to be bound. He referred to the fact that the events during the first five months of 1998 were no different to the previous conduct of the parties, that any delay in the preparation of confirmation documents was the fault of PP, that the reference to "wait for contract" on the trade ticket for Visy was written in 1997 between 13 November and 1 December 1997 and not in 1998, and that everything that was done was consistent with the PCA wishing to proceed. The hold back references in May 1998 was an aide memoire for Mrs Sim. At that time there were some discussions about linking and possible change of prices. Further, in the context that PCA was holding back for its own reasons was inconsistent with communications in early February 1998 and May 1998 when lists were provided by PCA as to outstanding contracts and requests being made by Mrs Sim to provide documentation. Finally, it is said that PCA was not concerned about signing the confirmation documents because the conduct of the parties had been based upon trust as the prior dealings showed and upon the ISDA documentation. The confirmations were no more and no less then a record of a pre-existing agreement. The dealings in relation to the undisputed 35 contracts supported the conclusion that the confirmation documents were to be prepared to enable settlement. That was a matter for the parties to address in their own time.

3424. Whilst I accept that there were any number of reasons which would explain the notations on the various documents nevertheless, as I put to Mr Myers QC, why did not the witnesses give one of the explanations he suggested? Yet they did not. Messrs Treacy and Duvall were evasive and prevaricated about the matter and Mrs Sim was distinctly uncomfortable in the witness box explaining the notations.

3427. As I have said I do not accept the evidence of Mr Treacy that he did not give any instructions, or that he was not holding on to documents, but having rejected the evidence I am not prepared to infer that the documents and decisions were held up because PCA considered it was not bound and was still negotiating. The conduct of PCA towards PP was to the contrary.

3430. PCA in final address prepared a chronology regarding the execution of non-disputed and disputed contracts from September 1997 to July 1998. I have closely considered the chronology and agree that the series of events rebut any suggestion that PCA was not prepared to proceed with the contracts made in November 1997 and considered itself not bound.

3433. In December 1997 PCA impressed upon PP's representatives the importance of finalising the documentation with respect to agreements about to commence on 1 January 1998. On 5 December agreement was reached upon prioritising documentation of outstanding contracts. The parties agreed to proceed first with documenting the contracts commencing on 1 January 1998. Mr Treacy sent a facsimile to Mr Murphy listing the outstanding contracts and their priorities and reference was made to the eight contracts made in November 1997.

3436. In a facsimile of 10 December 1997 Mrs Sim complained to Mr Trethewy about not receiving "signed contracts timely. Without prompt contract finalisation, settlement between our companies cannot be done promptly. Your prompt attention to this matter will be appreciated."

3439. This request did not prompt any greater expedition from PP. On 17 December 1997 Dr Nelson sent the load profiles for contracts, 36 37, 39 and 41. On 23 December 1997 Mr Treacy sent a facsimile listing the outstanding contracts which included the November contracts and noted in a comments column - "PP to raise contract". He noted the importance of actioning the ones commencing on 1 January 1998. On 13 January 1998 PCA forwarded the Smorgon load shape which was uploaded by PP into its computer system and on the same day Mr Trethewy sent his facsimile setting out the contract numbers. On 21 January 1998 Mrs Sim sent a facsimile to Mr Trethewy with amendments to the confirmations of contracts 34, 36, and 37.

3442. On 5 February 1998 Mrs Sim accompanied Mr Treacy to Sydney to meet Mr Trethewy for the purpose of having discussions about documentation of confirmations and to speed up the process. A list of outstanding contracts were provided to PP which included some of the November contracts.

3445. On 9 February 1998 Mrs Sim sent a facsimile to Mr Trethewy and observed - "If there is anything I can do to help you speed up your contract paperwork please let me know."

3448. On 18 February 1998 in another facsimile Mrs Sim pointed out in reference to contracts 36, 37, 34 and 31 - "I hope we can finalise these above contracts as soon as possible as all of them start on 1 January 1998 and settlement is coming up shortly".

3451. Queries were raised in May 1998 concerning finalisation of the documentation.

3454. The evidence demonstrates that PCA was expressing concern at the delays in PP preparing confirmations.

3457. Despite rejecting the evidence of Mr Treacy and the unsatisfactory evidence given I am not prepared to make a finding based upon their failure to explain the holding back of some documents that PCA did not intend to be bound by the transactions. There is a substantial body of evidence that supports the conclusion that within PCA it did consider that it was bound by the transactions. I refer to the trade ticket procedure and also the preparation, consideration and delivery of draft confirmations between the parties.

3460. In my opinion there are a number of factors which show that despite the leisurely pace with which the parties considered the confirmations the fact was that PCA intended to be bound by the transactions concluded in November 1997.

3463. First, the pattern of trading between the parties showed a leisurely attitude to finalising confirmations. In respect of most of the undisputed contracts, the confirmations came after performance commenced. Sometimes many weeks after the period had commenced.

3466. Secondly, the parties prior to 29 May 1998 had a very good relationship based on trust and fair dealing. This is exemplified by the "validity period" in relation to offers. As a matter of law, in the absence of any consideration paid to keep an offer open, PP could have ignored the validity period and withdrawn offers. But it did not do so. The fact was that the parties traded on a basis of mutual trust. Hence, there was never any disagreement with respect to any confirmation. There were queries about and errors in confirmations, but these were always resolved without difficulty.

3469. Thirdly, PP was responsible for preparing the confirmations. It in fact did prepare all confirmations save for the first one or two which were exchanged in late 1996/early 1997. At times PP was dragging its feet. Mrs Sim on occasions required Mr Trethewy to hasten the sending of the confirmation and did offer to assist.

3472. Fourthly, in the period March to the end of May 1998 PCA did seek to vary the terms of contracts with respect to the question of linking of contracts 40 and 41 and also varying terms. These attempts held back the finalisation of confirmations because PCA was seeking to vary the transactions. In my view they were not to be viewed as steps of negotiation nor any evidence of an intention not to be bound.

3475. Fifthly, the four hedge contracts and particularly 39, 40 and 41 did not rely upon any particular retail contract. The hedges were to support many retail contracts. It was not a question of holding back for a particular retail contract.

3478. Sixthly, the spot price was of little moment in my opinion to the decision made by PCA with respect to the transactions. The prices were fixed on the date of the transaction. The movement of prices during the first five months of 1998 was of little relevance to contracts covering long periods commencing well into the future. For example, contracts 35, 40 and 41 were to start in 2001.

3481. Seventhly, the evidence of PCA's internal administration showed that the trade tickets were filled out on the day the transaction was completed or very soon thereafter. The trade system ticket system was to record the transaction and provide the basis for the confirmation document and settlement. This evidence cogently supports the intention of PCA to be bound by the contracts when made.

3484. Eighthly, on many occasions between December 1997 and the end of May 1998 PCA raised the issue of completing the confirmation documents.

3487. Ninthly, the evidence establishes that Mrs Sim responded promptly to any queries raised concerning the confirmations and also referring errors back to Mr Trethewy.

3490. Finally, the evidence concerning contracts 39, 40 and 41 and their confirmations show that there were reasons for the delays which do not amount to an intention on PCA's part not to proceed or be bound. The confirmations were sent for consideration in mid March by Mr Trethewy to Mr Treacy. Thereafter queries were raised as to errors, it was necessary to check the details, in late March there was agreement with respect to flex rules and procedure and annual load shape reviews and in mid April 1998 PCA made a decision to hold up the confirmations because of a review of overall load shapes which was expected to take three weeks. On 29 April the question of linking contracts 39, 40 and 41 was raised. On 4 May Mr Trethewy forwarded to Mrs Sim the confirmation of contract 41 with amendments requested by Mrs Sim some two months previously. Mrs Sim the next day pointed out that there was an error in relation to the pricing. On 8 May in a discussion between Mrs Sim and Mr Trethewy she informed him that the confirmations were being held up and she gave evidence that she was waiting on a linking letter. By mid May Mr Murphy had confirmed that the procedure for linking was appropriate for contracts 40 and 41 and Mr Treacy stated he would get a letter to combine the contracts. On 20 May 1998 Mr Treacy raised the question of varying the price in contract 39. On 28 May Mrs Sim sent two facsimiles to Mr Trethewy stating that she was still waiting for the confirmations for Visy and Smorgon. There were further discussions between Messrs Treacy and Murphy as to contracts 39 and 40 at the end of May.

3493. The various comments made on the documentation within PCA in my view are explicable in relation to the events that were occurring at the time. I do not accept the submission that the evidence demonstrates that PCA was holding back finalising confirmations because it was still negotiating, that it did not think it was bound and did not intend to contract.

3496. None of the evidence leads to a conclusion that PCA was still negotiating or did not intend to be bound and insofar as there were further discussions concerning terms in relation to some of the contracts I am satisfied that what was being sought was a variation of contracts already concluded.

3499. Further, none of the evidence rebuts the presumption established by the Master Agreement that the parties intended to be bound when they agreed to the terms of the transaction. None of the evidence in relation to any transaction shows that the parties did not intend to be bound by their agreement to the terms.

3502. The list of outstanding contracts prepared by Mrs Sim on 17 June 1998 is a record prepared by her of her understanding of the position. I am satisfied, that in relation to some aspects that she was mistaken as to what the true position was. I do not accept that that document represents a considered position of PCA and amounts to evidence that PCA did not intend to be bound.

3505. Finally, I refer to the conversation between Mr Trethewy and Mr Treacy on 12 June 1998. It is clear from that conversation that Mr Trethewy whose function it was within PP to prepare and finalise confirmation documents was of the opinion that all matters in relation to all the disputed contracts had been agreed and there were no problems. In other words he did not draw the inference from the events of the first five months of 1998 that PCA and PP were still negotiating or that PCA did not intend to be bound by the transactions.

3508. PP further submit that irrespective of the evidence relating to the alleged holding back there was other evidence which would lead to the conclusion that the parties did not intend to be bound by any of the disputed contracts.

3511. These submissions must be considered in the context of what the parties agreed to in the Master Agreement concerning intention, the finding that the parties agreed to be bound once all the terms of the transaction had been agreed, and that the confirmation was a record only of a pre-existing agreement. Further, the actions of both parties up to 29 May 1998 objectively manifested an intention to be bound by the November agreements.

3514. In considering this submission I put to one side the argument concerning authority. I will deal with this separately. Either the PP employees had the authority or they did not.

3517. PP submits that the period of this lengthy litigation demonstrates a lack of objective intention. It was also argued that neither party objectively could have intended to enter into contracts by facsimiles and telephone calls in circumstances where there were so many disputes as to whether the contracts were concluded and binding. This is an interesting and novel argument but I reject it. The length of the litigation can be explained on many grounds, none of which are relevant to the question of intention. I do not accept that the parties dealing in transactions of this type did not intend to enter into contracts by reason of the fact that they negotiated per telephone, at meetings and through the medium of facsimiles. It is said that the length and the complexity of negotiations show that the parties did not intend to be bound until a formal document was entered into.

3520. I do accept that the type and complexity of negotiations may lead to the conclusion that parties did not intend to be bound until they had formally recorded all the terms in a document. Each case must depend upon its own circumstances. Here the pattern of trading, the type of transaction involved and the terms of the Master Agreement all lead to the conclusion that the contract was concluded when the terms were agreed and the fact that they were lengthy negotiations involving complex matters does not in my view provide any evidence that the parties did not intend to be bound until all the terms were agreed in a formal document. The fact that the negotiations were over a long period also in my view does not show that the parties did not intend to be bound.

3523. The undeniable facts are that the parties used the verbiage of contracting not only in oral discussions but in writing, and facsimiles were sent by PCA confirming what had been agreed which were not questioned by PP. Mr Trethewy's letter of 13 January 1998 established that the parties had agreed and intended to be bound.

3526. Putting aside the terms of the Master Agreement and considering the totality of the evidence it is my opinion that the contracts made in November 1997 were intended by the parties to bind them in law and the parties are bound.

3529. None of the evidence established a variation of the Master Agreement with respect to the term concerning intention to be bound. The parties agreed as to when they intended to be bound in respect to each transaction. Their agreement must be upheld.

3532. It follows that each of the 11 disputed contracts was a contract concluded and binding in law.

3537. In its amended reply PCA pleaded that in the event the court found that the contracts were not concluded and binding until the letters of confirmation were signed and exchanged, PP was estopped from denying that the contracts were concluded and binding prior to the exchange of the signed confirmation.

3540. PCA relies upon the principles of equitable estoppel to establish this plea.

3543. Because of the finding I have made, that the contracts were binding when made and prior to the exchange of signed confirmation documents, it is strictly unnecessary for me to consider the plea.

3546. However, because of the prospects of the proceeding going on appeal I propose to briefly state my reasons with respect to the plea.

3549. The plea is found in paragraph s 6C, D and E of PCA's amended reply and defence to counterclaim.

3552. The court raised the adequacy of the pleading in its original form and on 1 June 1999 approximately halfway through the trial the plaintiff was granted leave to amend, inter alia, the pleading concerning estoppel.

3555. No complaint was made by PP to the adequacy of the pleading until the issue was raised during the course of final address.

3558. The plea is not a model of drafting and fails to properly allege each constituent element of estoppel. Further, the particulars provided not only in the pleading but in the further and better particulars only compound the uncertainty as to the way the estoppel is to be established.

3561. In paragraph 6C it is alleged that PP "well knew or ought to have known that PCA would enter into commitments with third parties and would act otherwise to its detriment on the faith of such contracts being concluded prior to the letters of confirmation being signed." (Emphasis added)

3564. The reference to "contracts" is a reference to the disputed contracts.

3567. It is noted that the allegation of the assumed state of affairs is that a contract came into being prior to a letter of confirmation being signed.

3570. Despite the terms of paragraph 6C, in paragraph 6D it is alleged, inter alia, that PCA acted to its detriment "by entering into agreements with third parties in reliance upon" and thereafter it is alleged reliance was based first, upon offers made and communicated, second, acceptances of offers made and communicated to PP and finally, upon the said contracts.

3573. When it was pointed out during final address that there was an inconsistency between paragraphs 6C and 6D, Mr Myers QC informed the court that the basis of the plea was that PCA entered into agreements with other parties in reliance upon "the existence of the said contracts" ie the 11 disputed agreements.

3576. The plea is not based upon offers made or the acceptance of offers made. The reliance is on the hedge contracts binding the parties before confirmation.

3579. It is also noted that PCA alleged it suffered detriment by refraining from entering into hedging agreements with other parties to support retail agreements between PCA and third parties in reliance upon the existence of the disputed hedge contracts.

3582. In general terms the primary purpose of estoppel is to prevent an injustice to a party which has proceeded on a certain basis as a result of an assumed state of affairs existing between the parties as a result of the other party withdrawing from the assumed state of affairs.

3585. As Brennan J said in Waltons Stores case [1988] HCA 7; (1988) 164 CLR 387 at 419 the fundamental purpose of estoppel is to provide "protection against the detriment which would flow from a party's change of position if the assumption (or expectation) that led to it were deserted".

3588. PCA relies upon the principles established in the Waltons Stores case and the decision of the New South Wales Court of Appeal in Austotel Pty Ltd v Franklins Self Serve Stores Pty Ltd (1989) 16 NSWLR 582.

3591. Waltons Stores is an important decision in the development of equitable estoppel in Australian law. It had the effect of changing the pre-existing law in three important ways. First, the court held that the requirement that the parties be in a pre-existing legal relationship was unnecessary; secondly, that the estoppel could be used as a cause of action; and finally, the determining criterion for the exercise of the jurisdiction is "unconscionability".

3594. Priestly JA in the Austotel Pty Ltd case, supra, summarised the modern statement of the principle when he said at p.610 -

"For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in the circumstances where departure from the assumption by the defendant will be unconscionable."

3598. PCA has the burden of establishing the constituent elements of the estoppel.

3601. The plea of estoppel relied upon by PCA raises the following four matters for consideration and determination by the court -

(i) At the time of each alleged hedge contract did PCA believe that the contract was binding without the execution and exchange of a confirmation document?

(ii) Did PP make a representation or do something or fail to do something, which created an assumption that a binding contract came into existence prior to the execution and exchange of the confirmation document?

3607. Any representation or any act or omission to act which leads to an assumed state of affairs must clearly and unequivocally result in the alleged assumed state of affairs. If the result is ambiguity or uncertainty or multiple states of affairs the estoppel fails. See Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 455-7and Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd (1972) AC 741 at 757.

3610. The assumed state of affairs may be founded upon a representation of fact or mixed fact and law and arguably purely on a legal state of affairs. I have already discussed this issue with respect to the plea by PP of estoppel by convention.

(iii) Did PCA rely thereafter on the assumed state of affairs and do or not do anything as a result?

3616. This is the reliance factor and PCA must demonstrate that it did rely upon the assumed state of affairs and that it was reasonable in all the circumstances to do so. Whether or not it was reasonable to do so will depend upon all the circumstances of the case including factors such as PCA's knowledge, bargaining position and the circumstances in which the alleged representation was made or assumed state of affairs arose.

3619. Evidence that PCA would have acted in much the same fashion irrespective of its state of belief is usually telling evidence that there was no reliance.

3622. It is important in considering the question of reliance to take into account the context in which a representation is made or an assumed state of affairs is created.

(iv) Would it be unconscionable to allow PP to deny the binding nature of the contract until the confirmation was executed and exchanged?

3628. This involves consideration of the detriment which would flow from the desertion from the assumed state of affairs and the conduct of PP. In Commonwealth v Clark [1994] VicRp 66; (1994) 2 VR 333 Ormiston J said at p.377 -

"I would concede that a reason for insisting upon proof of detriment is the need to ensure that detriment results from acts or inaction in reliance on the assumption and to exclude proof of detriment flowing merely from the breach of the promise or departure from the assumption. ....... In my opinion what is essential to the establishment of equitable estoppel is proof of acts or circumstances flowing from reliance on the alleged assumption by the party claiming an estoppel, which are likely to produce material detriment to that party if departure from the assumption is permitted."

"But the critical factor in each case is proof that the party relying on an estoppel has acted, or failed to act in reliance on the relevant assumption. Then, either with or without further evidence it should be possible to determine what detriment is likely to flow. Having assessed the potential detriment the question will remain whether it would be unconscionable to allow the other party to depart from the assumed state of affairs or promise or whether some other course should be adopted."

3636. On the question of proof his Honour stated that acts, facts and circumstances must be established from which it can be inferred -

"(1) Detriment to the party claiming estoppel is more likely than not to occur if the other party is permitted to depart from the assumption relied upon; and (2) That detriment of that kind will derive from the first party's proven acts or inaction in reliance on the assumption." See at p.380.

3640. The test as to unconscionability has been expressed differently by members of the High Court in Verwayen's case, but the judgments recognise the creation of an equity which arises by reason of the assumption of affairs and the reliance upon it to conduct one's own affairs. Deane J in Commonwealth v Verwayen (1990) 170 CLR 394 at 436 said that the equity created is "to preclude departure by the other party from the assumed state of affairs if departure would, in all the circumstances, be unconscionable." In other words what do the requirements of good conscience demand in all the circumstances?

"Ultimately however the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to service a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted."

3647. A fact relevant to this question is whether the other party intended or clearly knew that the other party would be induced by his conduct to act on the assumption.

3650. PCA called evidence that it relied upon the contracts made with PP as hedge contracts to support retail contracts for the distribution of electricity and also with respect to on-selling the commodity derivative transactions to others in the wholesale market.

3653. PCA prepared and presented its case to show not only that it relied on the hedge contracts but also on offers which had been made and were still on the table. Cross-examining counsel quickly established that the link between retail contracts and the offers could have been withdrawn. The reliance on offers was abandoned in final address. Hence much of the evidence is irrelevant.

3656. The hedge contracts relied upon by PCA can be divided into two broad categories, namely, the disputed contracts entered into in November 1997 which number six and the five disputed contracts entered into on 29 May 1998.

3659. I have found that PP unequivocally repudiated the agreements made on 29 May 1998 on 10 June 1998.

3662. PCA submit that the reality is that the May contracts were in fact transacted in three separate deals on 8 April, 20 May and 29 May. But the contracts were in fact concluded on 29 May 1999. The offers could have been withdrawn or varied or re-negotiated. In my opinion the question of estoppel with respect to the second category of contracts has to be considered during the period between 29 May to 10 June 1996.

3665. As a general proposition once a party is disabused of its state of belief then it could hardly be said that thereafter it relied upon any representation or assumed state of its affairs the deserting of which would be to its detriment and accordingly would be unable to prove that it was unconscionable for the other party to resile from that position thereafter.

3668. One of the difficulties facing PCA in the presentation of evidence in this case arose out of the pleading which asserted a reliance not only on completed contracts but also on offers that had been made. However, in presenting the case no distinction was drawn between offers made and contracts concluded. The evidence showed that in determining the retail price for the sales team to use, the offers made in respect of proposed hedge contracts were used.

3671. I have no doubt that within PCA's organisation it was confident that offers that had been made by PP would be accepted but nevertheless as a matter of law - and this was understood by PCA - the offers could have been withdrawn at any stage. Once PP had made it clear on 10 June 1998 it repudiated the contracts of 29 May 1998 PCA could not rely on those hedge contracts thereafter as hedges in respect of retail electricity contracts. If it did then it did so at its own risk.

3674. Of the 994 retail contracts alleged to have relied on the hedge contracts made on 29 May 1999, only 80 were retail contracts concluded in the 12 days' period.

3677. The evidence revealed that PCA established products from time to time with prices for specified periods. However, it is clear that the pricing model was based on hedge offers and contracts from a number of sources including PP and also other data. Some products were said to rely solely on PP's offers and hedges but doubts arose in cross-examination. Further, in attempting to establish the link in pricing between the product established and the particular hedge, it became apparent that PP's price for hedge offers and contracts was different to the retail price calculated by PCA raising doubts about the reliance on PP's contract.

3680. The evidence of reliance suffers from inconsistency between hedge prices and retail product prices, the fact that the pricing product was produced prior to the hedge contracts made 29 May, the fact that offers were being used and that other hedge offers and contracts were available from other counterparties which were also being used to establish the product price within PCA.

3683. I am not satisfied that during the 12 days' period PCA entered into retail contracts solely based on the PP hedge contracts made on 29 May. The evidence suggests that the products were produced prior to 29 May. More importantly, I am not persuaded by PCA that during this period it would have not traded in the retail market if it had known that the contract was not binding until confirmation. In my opinion PCA would have entered into the retail contracts in this period irrespective of whether it had hedge contracts with PP. During this period Mr McGarry admitted, retail prices were less than wholesale prices and it was difficult and competitive to do business in the retail market at this point in time.

3686. PCA failed in proving reliance and detriment in respect of the contracts made 29 May 1999 and accordingly failed to establish estoppel to preclude PP from asserting that no contract came into being until the confirmation document was signed and exchanged in respect to the contracts made on 29 May 1998.

3689. This brings me back to the first group of agreements. As I have already said, the witnesses called by PCA to prove this part of their case were given a task which was very difficult because a lot of the evidence showed PCA relied upon offers rather than concluded contracts.

3692. As a result, both of the main witnesses, being Messrs Telford and McGarry gave unsatisfactory evidence and were often placed in an impossible position to maintain that PCA had relied upon offers that could have been withdrawn in order to establish the actual product.

3695. The first question concerns PCA's belief that a contract was a binding one prior to the execution and exchange of the confirmation document. The relevant dates are 13 November 1997 in respect of hedge contract Nos. 33 and 35 and 28 November 1997 in respect of contract Nos. 38-41 (inclusive).

3698. In my opinion the evidence establishes that PCA did believe that the contract was binding once made and prior to exchange of the signed confirmation document.

3701. In support of this finding I refer to evidence that Mr Treacy in the correspondence in November 1997 uses the language of contract, he responded to offers from Mr Murphy prior to the validity date expiring and the trade ticket system established within PCA which recorded it had concluded the transaction. The trade ticket system was based upon the trade date which invariably corresponded to the date when Mr Treacy believed that he had contracted. Mrs Sim prepared schedules of contracts that were made in November on 3 December 1997. In addition, the conduct of the parties prior to 13 November 1997 with respect to contracts commencing prior to confirmations being exchanged and settlements taking place after performance had commenced, strongly supports the assumed state of affairs.

3704. In relation to the second question whether PP represented a fact or played some part in the establishment of the state of affairs, I am satisfied it did. The course of dealing between the parties prior to 13 November 1997 established that in respect to a large number of the 32 undisputed contracts, the contracts were commenced prior to the exchange of the confirmation documents.

3710. It is important in considering the issues of reliance, detriment and unconscionability to bear in mind the core business of PCA was to sell electricity to retail consumers. It competed for the big customers with other suppliers and the number of consumers who PCA could do business with, was increasing. On any view, during 1997 and 1998 competition between electricity suppliers was fierce and in order to contract with the big consumer it was necessary to offer very competitive terms. Its business was selling electricity.

3713. I did raise the question with PCA's Mr McGarry, what came first, the hedge or retail contract? The answer seemed to be that whilst it is preferable to finalise both types of contract simultaneously where the retail customer is a large customer, the commercial reality is that it is more important as the supplier of electricity to sign up the big consumer. Having said that a hedge contract is important to minimise a risk, especially in long term contracts but the fact is that there is only one potential large customer and many counter-parties available to transact hedge agreements. PCA's focus was on the retail business.

3716. The evidence relating to reliance, detriment and unconscionability was given on behalf of PCA by Messrs McGarry and Telford and in affidavit form by Andrew John Reid who exhibited three schedules. He was not cross-examined.

3719. Clearly much thought and preparation went into the presentation of evidence.

3722. Proof of estoppel requires an identification of a disputed hedge contract and reliance on that hedge contract to either conclude retail contracts for the supply of electricity or the on-sale of the subject matter or a hedge of portion of it in the exempt futures market to another wholesaler.

3725. The evidence was all in the camp of PCA. If there was a reliance it would not be difficult to produce evidence to support it. I agree with the submission of Mr Maloney on behalf of PP that the evidence was unsatisfactory, vague and unconvincing.

3728. Part of the problem was that PCA in establishing its retail product relied upon offers and pattern of trading as well as concluded contracts.

3731. PCA was confident that a hedge contract would be concluded based on offers made.

3734. But the reality was, offers could be withdrawn at any stage, varied or re-negotiated. Once a concession was made in final address that PCA's case rested on concluded contracts much of the evidence that had been called was of little value.

3737. The evidence led to the conclusion that PCA was concerned to sell electricity than wait for a concluded hedge contract. It traded in the main comforted by the fact that PP had made offers which PCA expected would end up as satisfactory hedge contracts. However, PP's contribution to the total hedge contract port folio of PCA was about 30%. This meant that PCA entered into commodity derivative contracts through other counter-parties. This is a factor of some importance when considering the question of reliance and detriment.

3740. Mr McGarry, who holds an economics degree majoring in econometrics, was employed by PCA as the principal pricing analyst reporting directly to Mr Duvall. His job was concerned primarily with the retail side of PCA's business and he supported a retail sales team of about 40 persons to whom he gave information concerning prices and volumes to enable them to sell the retail electricity.

3743. PCA held a formal strategy group meeting each Tuesday comprising Messrs Johnson, Telford, Daley, Treacy, Duvall and Dr Nelson. In addition, Mr McGarry held informal meetings with Mr Treacy and others concerning wholesale and retail prices.

3746. Mr McGarry prepared from information that he obtained from various sources the price analysis model and Mr Treacy was the major source of the wholesale price information that he used. This model was to provide information to the retail staff. In addition, Mr McGarry obtained information from the retail staff which he passed on to Mr Treacy.

3749. One of the purposes of the strategy meeting was to determine the prices that would be offered to customers.

3752. Mr McGarry during the material period established a product which set out the prices, volumes and any particular terms based upon a hedge contract. This would be made available to the retail staff. He would make up a file code if a new product was required. The necessity from time to time to establish a new product came about for a whole host of reasons, the main ones being that there has been a change in prices in the market place and the risk position of PCA may have changed.

3755. It was important to provide to the retail staff flexibility with respect to long term deals. Mr McGarry stated that in late 1997 customers were advised by the PCA retail sales team that it would be a good time to think about long term deals because of the prices at that stage.

3758. It was PCA's case that the November hedge contracts were used for retail sales and also for on-selling as hedge contracts. Mr Telford dealt with the on-selling.

3761. Mr McGarry gave evidence by reference to his products that he created from time to time. He would establish a product which would be then made available to the retail team. By way of example he created a product known as 711GP which was a product created in November 1997 (hence the 711) and was for generic pricing, hence the use of the letters "GP". This product had a four year span and the prices for peak, shoulder and off-peak were set out. He gave evidence that he would determine the prices by reference to offers and hedge contracts.

3764. His cross-examination revealed that many of his products were based upon offers that were made by PP and not concluded contracts. Further, it was demonstrated that his prices did not necessarily match the offers that had been made. Some of the retail products appear to have been based upon other hedge contracts.

3767. Schedule A1, which is Exhibit AR1 to the affidavit of Mr Reid, sets out 162 alleged retail contracts relied upon in respect of the 28 November contracts. The schedule reveals that of the 162 retail contracts only 25 retail contracts were actually concluded after 28 November and prior to 11 June 1997. Between 11 June and 27 June four more contracts were concluded so that a total of 29 contracts were concluded after 28 November 1997 and prior to the date of repudiation.

3770. Hedge contract 33 is alleged to have supported two retail transactions, namely, Visyboard and Air Liquide. The hedge contract involved a substantial volume of energy and approximately half the volume was to support the Air Liquide retail contract.

3773. With respect to the Visy portion the evidence showed that PCA negotiated an agreement with Visy and reached a point in March 1997 that they had an agreement in principle. At that stage PCA was in the early throes of negotiating the hedge contract with PP in relation to Visy. By October 1997 there was a dispute between PCA and Visy as to whether there was a binding contract, Visy asserting there was and PCA denying it. No final contract was entered into between Visy and PCA until early 1999. The evidence revealed that PCA was providing Visy with electricity and had been doing so from about March 1997 pursuant to a short term agreement.

3776. I reject the evidence of PCA that its retail contract with Visy relied upon the 13 November 1997 hedge contract with PP. By the time the retail contract was signed PP had repudiated the hedge agreements. PCA proceeded with the retail contract. The evidence leads to the conclusion that irrespective of whether there was a hedge or not a hedge contract PCA intended to enter into a retail contract with Visy. Further, even if PCA had not entered into a hedge contract with PP in my opinion it would have still proceeded with the transaction and if necessary would have obtained hedge support elsewhere. The fact was the Visy retail contract was not concluded until well after the hedge contract was repudiated on 26 June 1998.

3779. With respect to Air Liquide the evidence shows that as at 29 May 1997 the parties had negotiated a retail contract which was "subject to contract and board approval". The terms in that agreement in principle are identical to those contained in the ultimate contract which was signed in late December 1997, at least for the relevant period. In my opinion the evidence leads to the conclusion that irrespective of whether there had been a hedge contract with PP, PCA was determined to enter into a contract with Air Liquide to supply retail electricity.

3782. In the circumstances PCA has failed to prove reliance, detriment or lack of conscionability in PP refusing to be bound by contract No. 33 of 13 November 1997.

3785. The Smorgon retail contract was finally agreed between PCA on 21 November 1997. This was eight days after the hedge contract No. 35 was concluded.

3788. Prior to August 1997 PCA and Smorgon had been negotiating an agreement for some months and by mid August 1997 the parties had practically reached agreement. On 28 August 1997 Mr Treacy informed Mr Murphy that the PCA sales team believed that the contract would be resolved shortly.

3791. On 13 November Mr Treacy informed Mr Murphy that the Smorgon contract had been approved by the board and PCA wished to enter into the hedge contract.

3794. In my opinion, again, PCA fails to prove reliance and detriment in respect to this hedge contract. PCA was determined to obtain Smorgon's electricity contract. The reality is the retail contract came first, followed by the hedge.

3797. PCA submits, however, that the court should infer that between 14 November 1997 and 26 June 1998 if PCA had known that PP was not going to honour the hedge contracts until the confirmations were signed it lost the opportunity to enter into a hedge contract elsewhere bearing in mind that the hedge contract period was to commence on 1 August 2001. Reference is made to the fact that spot prices dropped during the period down to April 1998 at which time they commenced to rise again.

3800. I am not prepared to draw the inference that PCA would have attempted to support the retail contract by hedging elsewhere during that period on establishing reliance and detriment. There was no evidence from PCA that if it had been apprised of the refusal by PP to honour the contract, that it would have entered into a hedge contract during this period. Indeed, the evidence of falling prices and the fact that the first year of the hedge contract was not until 2001 in the absence of direct evidence from the party which has the burden of proof I would not be prepared to draw the inference that during that period it would have gone out and sought further hedge contracts if it had been told PP would not honour the hedge until the confirmation was signed. Further, there is no evidence from any source that it could not have gone out and hedged the contract after 26 June. Nor is there any evidence to suggest that if it had done so it would have suffered any detriment .

3803. On 28 November 1997 PCA entered into six contracts with PP. They are numbered 36-41 (inclusive). There is no dispute between the parties as to the hedge contracts numbered 36 and 37.

3806. The evidence clearly establishes that PP was aware that PCA was entering into the derivative contracts to hedge their risk in relation to the retail market.

3809. After completing the deal PCA prepared a summary setting out the long term contracts and the allocation of the customer loads against the PP November hedges. A report was prepared for the head office in Portland, Oregon to explain what had been done and to indicate the customers provided for in respect to the hedges.

3812. I am satisfied on the evidence that the pricing and volumes in the hedge contracts were used by Mr McGarry to prepare his products for use by the retail sales team.

3815. Mr Maloney on behalf of PP submits that many of the products created by Mr McGarry pre-date 28 November 1997, that Mr McGarry was unable to establish the link between the prices in his products and the prices in the hedge contracts and that there were inconsistencies in his evidence. He also highlighted that there were other hedge contracts entered into by PCA and some of the retail products relied upon by PCA were created based upon other hedge contracts.

3818. I am satisfied on the evidence that Mr McGarry did use the hedge products when he created his products for the retail sales team. However, in respect of a substantial number of those that were relied upon in evidence I am not prepared to conclude that there was the link established between the retail product and the hedge contract.

3821. I do have some difficulty understanding the evidence of Mr McGarry due to the fact that he does not draw a distinction between products that rely upon the November 1997 contracts and those made at the end of May 1998. It is clear from his cross-examination that some of the products created in March 1998 relied upon offers that were subsequently accepted by the contracts of late May. Further, there is evidence to support the conclusion that some of the products relied upon non-disputed contracts 36 and 37.

3824. PCA has the burden of proof. It had all the evidence in its camp. It should have placed evidence - if this was the situation - before the court which would show what retail contracts were linked back to PP's hedge contract. In a general way the evidence has been adduced to show that the hedge products were used as a basis for the retail product. I accept that. But on the other hand the bulk of the evidence shows that offers were used as a basis, non-disputed contracts 36 and 37 were also used, and that in respect of the retail products relied upon, there was real doubts about the pricing being linked back to the particular hedge contracts. In the few where one could see a linking the retail product preceded the hedge contracts.

3827. I am not persuaded on this evidence that any detriment would be suffered by PCA if PP was permitted to deny the existence of the contracts of late November 1997 until the exchange of signed confirmations. I am not persuaded that there is any link which would lead to a detriment being suffered. I accept that there is some evidence that the information was used in relation to some retail products but there are so many other factors which intrude into the equation which leaves the court in doubt.

3830. The same may be said about Mr Telford's exercise in relation to the on-selling of the hedge contracts. Again, no effort is made to draw a distinction between the November and May contracts. Indeed, the evidence establishes that most of the on-selling hedge contracts entered into by PCA were in relation to the May contracts. Again, the evidence is unsatisfactory and I would not be prepared to find that PCA would suffer any detriment in relation to these hedge contracts that it allegedly entered into if PP was entitled to deny the November hedge contracts until confirmation.

3833. I do not accept the submission of PCA that one can rely upon equitable estoppel in some general way. It is necessary to establish an equity and the relief that is granted is moulded to give effect to that equity. It is impossible to say in the way the evidence is before the court what equity PCA has established. Unless there is some link between retail contracts or wholesale contracts and particular hedge contracts then it is not possible to say what detriment PCA would suffer if PP is permitted to deny the binding nature of the November contracts until confirmation.

3836. It follows that PCA has failed to establish its plea of estoppel if the court had found that PP was not bound by the disputed contracts until the exchange of signed confirmations.

3841. The person who negotiated the 11 disputed contracts on behalf of PP was Mr Murphy. Mr Trethewy had some involvement in relation to a few of the contracts but in the final analysis it was Mr Murphy who finalised the deals. Anything that Mr Trethewy did was clearly subject to Mr Murphy's supervision.

3844. When he wrote his letter on 29 May 1998, in which he used a number of reasons for refusing to recognise any of the contracts made on 28 May 1998, nothing was said by Mr Murphy concerning the question of authority. Prior to this letter the parties through Messrs Treacy and Murphy had negotiated many contracts in an atmosphere of good faith, honesty and trust. This letter sent tremors through PCA. Despite its terms Mr Murphy was prepared to discuss matters on a friendly basis during the following days. However, on 10 June 1998 he sent another letter and his opening paragraph read -

"RE: Contract Status I refer to your fax of 29th May 1998. The terms and conditions of these proposed contracts have not in fact been agreed yet, nor have the details so far agreed between us been approved by anyone in Pacific Power or Powercor having the legal capacity to do so. Thus we do not yet have a contract, only a sound basis for further negotiation." (Emphasis added.)

3848. After setting out a number of reasons why there were no contracts he concluded the letter as follows -

"Most of the above considerations also apply to the proposed contracts 38, 39, 40 and 41."

3852. This was the first occasion on which PP had suggested that there was any lack of authority in Mr Murphy to transact dealings between the parties. Further, he raised the point that Mr Treacy on behalf of PCA did not have the "legal" capacity to approve.

3855. It is to be noted that he makes no mention of authority to agree. He stated, "authority to approve".

3858. PP in this proceeding has denied that Mr Murphy had any authority to transact the agreements that were made in November 1997 and May 1998. PCA disputes this contention and asserts that Mr Murphy did have the necessary authority, that in the alternative if he did not he was held out as having apparent authority and finally, he had actual or ostensible authority to communicate on behalf of PP offers and receive acceptances of offers made by PP.

3861. PP also contends that Mr Treacy did not have authority to conclude the 11 contracts on behalf of PCA. PCA asserts he did so and in the alternative relies upon the principle of ratification.

3864. Both parties had the necessary authority and power to enter into the 11 disputed contracts. There is no question of PCA and PP not having the authority. The issues come down to the authorities of the employees to bind the employer.

3869. The parties are corporate legal entities. PCA is a large company wholly owned by an American parent; PP is a statutory corporation established by Act of the New South Wales Parliament.

3872. The parties, being artificial legal entities, act through human agents. But not every employee and agent of a corporation has the authority to conclude contracts on behalf of the corporation and thereby bind it.

3875. This was known, understood and appreciated by the personnel of each party who were involved in negotiating the contracts between the parties from the very outset of their relationship. PCA and its employees and in particular Mr Treacy were aware at all relevant times of the general proposition that those who were employed by PP may have limits on their authority. Not only did Mr Treacy accept that that was so but within PCA's organisation there were limitations on the authority of its various employees.

3878. The statement of claim pleaded that certain personnel employed by PP including Mr Murphy had authority to perform telephone dealings on the part of PP and the same persons were authorised to confirm telephone dealings. PP admits this but pleads that the telephone dealing authorities were varied by correspondence between the parties and the exchange of trading authorities up to 11 September 1997. PP also contends that the 11 disputed contracts were not telephone dealings and hence the Telephone Dealing Supplement had no application.

3881. PP further alleged that Mr Murphy did not have authority to agree on behalf of and bind PP in respect of the disputed contracts.

3884. PCA's reply put in issue the question whether the written trading authorities relied on were actually provided to it by PP, alleged that Mr Murphy did have authority to contract and in the alternative pleaded that Mr Murphy had ostensible authority to bind PP. PCA also alleged that Mr Murphy had specific authority to approve and execute all contracts.

3887. By an amendment to the reply PCA alleged Messrs Murphy and Trethewy had actual or ostensible authority to make and communicate offers and accept offers on behalf of PP.

3890. It can be seen that whilst the question of authority was originally tied to the Telephone Dealing Supplement forming part of the Master Agreement, the issues are wider and raise questions which are not tied to the Master Agreement and the Telephone Dealing Supplement.

3893. In simple terms the real issues concern the authority of Messrs Murphy and Treacy to contract on behalf of, and bind their employer.

3896. The issue of authority has to be considered and determined as at 13 November 1997 being the date of the first disputed contract, and thereafter up to and including 4 June 1998.

3899. By 13 November 1997 the parties had executed the Master Agreement, varied it, signed the Telephone Dealing Supplement appendices, exchanged written trading authorities and importantly, had negotiated 29 contracts, most of which were negotiated by Messrs Murphy and Treacy.

3902. All these matters, including the pattern of the trading conduct, will have to be considered when deciding the authority of Messrs Murphy and Mr Treacy as at 13 November 1997 and thereafter.

3907. An agent is a person duly authorised to act on behalf of another. The authority of the agent may be actual or apparent (ostensible). It is important to distinguish between the two concepts.

3910. Actual authority is entrusted to an agent where a principal has clothed the agent with authority to perform some act on his behalf. Actual authority may also arise by implication. One may add to the category of actual authority, that conferred by subsequent ratification. That is, a person purports to act on behalf of another without actual authority and the other ratifies the acts subsequent to the performance with the result that authority is retrospectively conferred upon the agent back to the date of so acting.

3913. On the other hand, apparent authority (also known as ostensible authority) is established when a principal holds out the agent as having authority and the person dealing with the principal relies on that person's apparent authority. The foundation of apparent authority is estoppel.

3916. The law recognises that an authority given carries with it all powers which are necessary and usual to enable the agent to perform his authority to full effect. Sometimes the express authority carries with it all incidental powers justified by the usage of a trade. Sometimes the agent has additional incidental powers because of the type of authority entrusted to him. In addition, the law recognises implied authority in a particular class of agents. For example, a solicitor acting under a general retainer.

3919. PP is a statutory corporation. Its existence, powers and authorities are to be bound within the four corners of the statute which established it. In addition to the express powers and authority found in the Act there may be implied power and authority.

3922. In Northside Developments Pty Ltd v Registrar General [1990] HCA 32; (1990) 170 CLR 146 Brennan J at 171 said -

"A company, being a corporation, is a legal fiction. Its existence capacities and activities are only such as the law attributes to it. The acts and omissions attributed to a company are perforce the acts and omissions of natural persons. A company is bound by an act done when the person who does it purports thereby to bind the company and that person is authorised to do so or the doing of the act is subsequently ratified. ... Authority for the purpose is derived either directly from the constitution of the company or from some antecedent act typically, a resolution of the governing body which is itself binding on the company."

3926. Nevertheless authority may be established by a course of conduct.

3929. In PP's case its constitution is the Act.

3932. In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480, Diplock, LJ exhaustively considered the principles of law concerning agency and in particular apparent authority.

"It is necessary at the outset to distinguish between an 'actual' authority of an agent on the one hand, and an 'apparent' or 'ostensible' authority on the other. Actual authority and apparent authority are quite independent of one another. Generally they co-exist and coincide, but either may exist without the other and their respective scopes may be different. ....

An 'actual' authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent."

3939. In Heley-Hutchison v Brayhead Ltd (1968) 1 QB 549 at 583, Lord Denning, MR said -

"It is there shown that actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office." (Emphasis added.)

3943. If a document is signed which authorises an agent, it is to be construed like any other contractual document and the extent of his authority is to be determined by considering all the circumstances. It is a question of fact.

3946. The Privy Council said in Ashford Shire Council v Dependable Motors (1961) AC 336 at 349 -

"The extent of an agent's authority, if in doubt, must be determined by inference from the whole circumstances."

3950. Some contracts of agency contain an express limitation on the agent's authority. PP contends that is the case with Messrs Murphy and Trethewy. When this is the situation, it is necessary to distinguish between the relationships of principal and agent and principal and third parties. The questions of authority may be different in each case. In the first case the true limit of authority will be marked out by the express authority limitation or instructions given to the agent. In the second case, the true limit of the agent's power to bind the principal will be the apparent authority with which the agent is invested.

3953. But apparent authority is subject to knowledge in the contracting third party of the limitation on the agent's authority. If he knows, he cannot rely on the estoppel.

3956. Even though the principal has expressly authorised an agent to act in a prescribed way with a limitation on his authority, nevertheless the agent may be held out as having greater authority than is the fact. It is said in those circumstances he has apparent or ostensible authority which may exceed his actual authority. The modern statement of the law can be traced back to the judgment of Diplock, LJ in the Freeman v Lockyer case supra. The judgment has been quoted often and always with approval both in Australia and in England.

3959. See Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72 and Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146 at 159-60, 172 et seq and 198-9. See Healy-Hutchisons case, supra.

3962. In the Freeman v Lockyer case at p.503 Diplock, LJ said -

"An 'apparent' or 'ostensible' authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger."

3966. His Lordship stated that the representation operated as an estoppel and it was irrelevant whether the agent had actual authority to enter into the contract.

"The representation which creates 'apparent' authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons."

3973. His Lordship went on to underline the fact that in order to create an estoppel between the corporation and the contractor the representation as to authority which creates the apparent authority must be made by some person who has actual authority from the corporation to make such a representation.

3976. His Lordship went on to state what the commonest form of representation by a principal was, namely, by permitting the agent to act in the management or conduct of the principal's business.

3979. His Lordship then summarised the position as follows with respect to apparent authority the onus of which is upon the party alleging that the agent had ostensible authority -

(1) that a representation that the agent had authority to enter on behalf of the company into the contract of the kind sought to be enforced was made to the contractor;

(2) that such representation was made by a person or persons who had 'actual' authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and

(4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into the contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent."

3987. The reference to memorandum or articles of association in point (4) is to the constitution of the corporation. In the present case the reference is to the statute which created PP and which sets out its rights, duties and powers.

3990. It has been well established and for many years that if the contracting third party has notice that the agent is acting in violation of his authority then the rules concerning apparent authority have no operation. It is well established that a principal cannot by some secret limitation of an agent's apparent authority free himself from any liability under contracts made by the agent based on that authority, yet the rule has no operation where the contracting party has notice that the agent is acting contrary to his instructions. See Howard v Braithwaite 1 Ves and B 209, and Armagas Ltd v Mundogas S.A. [1985] UKHL 11; (1986) AC 717 at p.777 where Lord Keith said -

"Ostensible general authority can, however, never arise where the contractor knows that the agent's authority is limited so as to exclude entering into transactions of the type in question, and so cannot have relied on any contrary representation by the principal: Russo-Chines Bak v Li Yau Sam (1910) AC 174."

3994. Lord Keith also touched on common cases of ostensible authority. He said supra at p.777 -

"Ostensible general authority may also arise where the agent has had a course of dealing with a particular contractor and the principal has acquiesced in this course of dealing and honoured transactions arising out of it."

3998. PCA by amendment to its reply, has raised the question whether a person, even though that person cannot conclude a contract binding on his employer, can nevertheless have authority either actual or apparent to communicate an offer from his principal which may be accepted and also to accept an offer on behalf of his principal thereby bringing into existence a contract.

4001. I drew the attention of the parties to the English Court of Appeal decision of First Energy (UK) Ltd v Hungarian International Bank Ltd (1993) 2 Ll.L.R. 194 which is authority for the proposition that an agent may be authorised to communicate both offers and acceptances on behalf of his principal thereby bringing into existence a concluded and binding contract even though he does not have actual authority to contract.

4004. The leading judgment was delivered by Steyn, LJ.

4007. His Lordship commenced his judgment by again reminding the profession and the commercial world that the objective of the law of contract is that the reasonable expectations of honest men must be protected and not frustrated. In enforcing and construing contracts between commercial men the court should approach the task based on the premise of giving effect to what commercial men agree.

4010. The facts can be briefly summarised. The plaintiff specialised in the replacement of old-fashioned heating systems by a new form of space heating. In order to make the new systems financially attractive the plaintiff devised a scheme whereby it would install the heater and the owner would pay over a number of years. The plaintiff needed credit facilities and approached the defendant, the Hungarian International Bank Ltd. It is a merchant bank which specialised in commercial lending to trading companies and its head office was in London. It also had an office in Manchester and the plaintiff dealt through the Manchester office. The man at the bank who did the negotiations was Mr Jamison who was a senior manager and in charge of the Manchester office.

4013. Discussions took place and Mr Jamison told the plaintiff that he had no authority to sanction a loan facility and indeed Mr Jamison was not held out as having any authority to sanction any particular size facility.

4016. The defendant bank sent a facility letter to the plaintiff signed by its managing director and an assistant director. The letter set out in some detail the terms relating to the facility and the final paragraph provided that the letter did not constitute an offer but detailed the terms upon which the bank was prepared to consider making facilities available and invited the plaintiff to sign the terms if they were acceptable and to forward a cheque for £2,500. It was also stated that the signing by the defendant of one of the copies would only "then create a binding contract between us".

4019. The plaintiff signed the facility letter and deposited a cheque for £2,500 with the bank.

4022. Despite the fact that the facility letter did not come into force the parties nevertheless entered into a binding agreement in respect of some equipment to be installed. This involved a hire purchase arrangement and the bank proceeded with the transaction and it was performed.

4025. Further discussions took place about other supplies and installation of heating. The facility letter was not signed and yet the parties continued to do business with respect to hire purchase agreements for the installation of the heating. Having done that the senior management of the defendant decided they were no longer interested in the plaintiff's business. The plaintiff then issued proceedings against the bank.

4028. The trial judge found that a letter which was written on 2 August concerning the further hire purchase agreements was an offer which could be accepted. The trial judge then found that Mr Jamison had no ostensible authority to enter into the transaction but nevertheless held that he had the authority to communicate an offer by somebody within the bank who did have authority and once the offer was accepted then the defendant was bound.

4031. Having found that the trial judge was correct in construing the letter as an offer which was accepted Steyn LJ then considered the question of ostensible authority.

"In order for a plea of apparent authority to succeed it is necessary for First Energy to establish not only that HIB through its appropriate organs held out Mr Jamison as having such authority but also that First Energy relied on that fact in entering into the transaction. In context the letter was calculated to convey to First Energy that Mr Jamison had obtained the approval of the transaction at the appropriate level at head office. The evidence of Mr Croft was that he relied on that fact. That evidence was supported by the inherent probabilities. The judge found that the element of reliance was established."

4038. The issue on the appeal was whether the bank had held out Mr Jamison as its agent for the purpose of conveying the approval of the offer. His Lordship said -

"It is common ground that a plea of apparent authority can only be based on a holding out, or representation, as to authority of the agent by the principal sought to be held bound by the particular Act. Our law does not recognise in the context of apparent authority, the idea of a self-authorising agent ... Is it possible to narrow down the issue of simple authority which arises in the present case? A principal may clothe an agent with apparent authority in more than one way. The present case falls into a category which in Armagas Ltd v Mundogas S.A. was described by Lord Keith as follows: 'In the commonly encountered case the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question.' This type of apparent authority is often described as the usual authority of an agent. But it is important to remember that the idea of usual authority is used in two senses. First, it sometimes means that the agent had implied actual authority to perform acts necessarily incidental to the performance of the agency. Secondly, it sometimes means that the principal's conduct in clothing the agent with the trappings of authority was such as to induce a third party to rely on the existence of the agency. The issue in the present case is one of usual authority in the second sense."

4042. His Lordship stated the principle as to making a representation of fact at p.204 when he said -

"It seems to me that the law recognises that in modern commerce an agent who has no apparent authority to conclude a particular transaction may sometimes be clothed with apparent authority to make representations of fact. The level at which such apparent authority could be found to exist may vary and generalisation will be unhelpful."

4046. As the reasoning of Steyn, LJ demonstrates it is a question of looking at the particular person, the position that he is placed in and his conduct in that position to determine whether or not the principal has held out that he would have the necessary authority to make offers on behalf of a corporation and accept offers on behalf of a corporation.

"In agreement with the judge I have come to the conclusion, that on the particular facts of this case, that Mr Jamison's position as senior manager in Manchester was such that he was clothed with ostensible authority to communicate that head office approval had been given to the facility set out in the August 2 letter. Although his status was below that of a managing director or general manager, it was nevertheless considerable. And, in the circumstances of this case, the idea that First Energy should have checked with the managing director in London whether HIB had approved the transaction seems unreal. This factor is, of course, not decisive but is relevant to the ultimate decision."

[My emphasis]

4053. The other two members of the court delivered judgments agreeing with Steyn, LJ.

4056. Although the decision has been criticised - see Bowstead on Agency 16th Ed at p.372, each case must depend on its own facts. The decision represents a commercial common sense approach which avoids frustrating the doings of honest commercial men in circumstances where it can be inferred the employee is held out as having the authority to communicate an offer or accept an offer.

4059. Once PP raised lack of authority in Mr Murphy PCA has the burden of establishing authority. See Pole v Leask (1864) 33 LJ Ch 155 at p.162.

4062. It is now necessary to consider the facts concerning the authority of Mr Murphy.

4068. It is appropriate at this point to make a number of observations concerning Mr Murphy's position and his role in negotiating commodity contracts on behalf of PP.

* At all times Mr Murphy occupied a very senior position at PP. In March 1996 he held the position of Manager/Pricing and Strategy and from 1 April 1997 held the position of Manager/Energy and Marketing. He headed the Energy Marketing Group. Those persons who traded and were responsible for administration, in the Energy Marketing Group were answerable to Mr Murphy.

* The hierarchy at PP comprised the Board of Directors, the Chief Executive of PP who to all intents and purposes under the Act was PP, and immediately below him were a number of general managers one of whom was Dr Lang who held the position of General Manager/Development and since January 1998 the position of General Manager/Operations and Marketing. Immediately below Dr Lang's level were a number of managers one of whom was Mr Murphy.

On any view of the evidence Mr Murphy held a senior responsible position with PP, was answerable to Dr Lang but in his day to day activities made many important decisions without reference to Dr Lang.

* When Dr Lang was absent Mr Murphy occupied his position and physically his office. At that point it put him on the rung immediately below the Chief Executive Officer.

* Mr Murphy at all times had considerable knowledge of, and experience in, commodity derivative trading.

* At all relevant times he was familiar with the ISDA Master Agreement and its purpose. He served on a committee which considered its form for the Australian exempt futures trading in electricity prior to May 1996.

* At the first meeting on 13 August 1996 between PP and PCA to explore possibilities of doing business, Mr Murphy and Mr Petch who is also a manager, attended on behalf of PP and met with Messrs Treacy and Telford of PCA. At this first meeting PP's representatives indicated

that they wished the ISDA documentation to be entered into

between the parties and form the basis for future dealings.

* Thereafter Mr Murphy was the person who dealt with Mr Treacy in relation to most matters concerning their dealings from consideration of the ISDA documentation, exchange of authority mandates, questions of volume rebate agreement to negotiating commodity derivative contracts.

* He and Mr Treacy were the two persons who negotiated most of the 35 undisputed agreements which followed the pattern of negotiations, agreement and preparation, delivery, signing and exchanging confirmations. Often the contracts commenced prior to the exchange of the signed confirmation.

* He and Mr Treacy negotiated the 11 disputed agreements. Even though Mr Trethewy played some small part in the May contracts I am satisfied that Mr Murphy was the one who transacted and agreed the deal on behalf of PP.

* The reality of the trading relationship between PP and PCA is that Mr Murphy was PP and Mr Treacy was PCA when transacting and agreeing to the deals.

4093. This is the context in which Mr Murphy decided that PP would not proceed with the May contracts. When he and Dr Lang made the decision to send the letter of 10 June 1998 one of the grounds upon which PP denied the contracts was that Mr Murphy did not have the authority to approve the contracts.

4096. The words of Steyn LJ immediately come to mind. His Lordship in First Energy (UK) Ltd v Hungarian International Bank Ltd, supra, after referring to the philosophical theme that underpins the law of contract, namely, "the reasonable expectations of reasonable men must be protected" stated that the philosophy applied in an agency situation and made the following observations -

"If we were to accept the implications which the appellants have placed on the observation in the House of Lords in Armagas Ltd v Mundogas SA [1985] UKHL 11; (1986) 1 A.C. 717, our decision would in my view frustrate the reasonable expectations of the parties. Moreover, our decision would have to be based on an unreal premise as to the way in which commercial men transact business of the particular kind involved in this case." - at p.196. (Emphasis added.)

4100. His Lordship's words are apposite to the present matter.

4103. What authority Mr Murphy had as a senior employee of PP depended upon his contract of employment. What was he engaged to do? What was he authorised to do in the course of his employment? What was he permitted to do or what was he prohibited from doing?

4106. His contract of employment like any other contract can be varied not only by express agreement but by the conduct of the parties. No doubt it can be terminated and replaced by another contract again by express agreement or by the conduct of the parties. A contract of employment can be an ever-changing one as an employee is promoted or entrusted with different duties and responsibilities. Often the changes would take place without either party giving any thought to varying the contract. The fact is that by reason of the conduct of the parties an employee may be given greater and greater authority. In some circumstances the parties may enter into an entirely new agreement.

4109. The employee is authorised to perform his duties in the course of his employment. It is implied into the contract that he has all the necessary incidental powers to enable him to perform his task completely and in a satisfactory manner. Further, an employee appointed to a particular position in the absence of any prohibition has all the authority expected of a person in that position to enable him to carry out his duties.

4112. The relationship between the employer and employee may establish an implied authority to perform certain acts on behalf of the employer and which binds the employer.

4115. The question of implied authority was discussed by the Court of Appeal in Healy-Hutchinson v Brayhead Ltd, supra.

4118. In that case the chairman of a company acted as its defacto managing director. He was the chief executive who made the final decision on any matters concerning finance. He often committed the company to contract without the knowledge of the board and reported the matter afterwards. The board knew of and acquiesced in those actions.

4121. The chairman signed two documents on the company's paper, purporting to bind the company to indemnify a person against loss.

4124. The question arose as to whether he had authority to do so. The trial judge held that he had ostensible authority but no actual authority.

4127. On appeal the Court of Appeal held that he had actual authority.

"I agree of course, that Mr Richards had no actual express authority to enter into the two agreements ... But the question remains whether he had implied authority to do so. Now when one is considering whether he had implied authority, one asks first: from what is the implication to be drawn? The suggestion was made that his authority might be implied from the mere fact of his holding the office of director and Chairman of Brayhead at the relevant time. The judge dealt with that and held that, merely by virtue of his position as chairman he would not have the necessary authority to enter into these agreements. I agree with that: but the question as to implication does not stop there. I quote some words in this connection from Diplock LJ's judgment in Freeman and Lockyear v Buckhurst Park Properties(Mangal) Ltd. He says: 'An actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties.' I think therefore that it is legitimate to go on and consider over and above the powers he had as chairman, what the actual circumstances of the relationship between him and the board of directors may show." (Emphasis added.)

4134. His Lordship at p.487 referred to the fact that Mr Richards was allowed to deal with general financial and policy questions acting in the role of chief executive without having to consult the members of the board and the evidence shows "that Mr Richards with the consent and acquiescence of the board was allowed to act as chief executive and to make decisions relating to these financial questions." (Emphasis added.)

4137. His Lordship also referred to the fact that evidence of Mr Richards' dealing with a particular company was also relevant to the question of his implied authority.

"The judge held that Mr Richards had ostensible or apparent authority to make the contract, but I think his findings carry with it the necessary inference that he had also actual authority, such authority being implied from the circumstances that the board by their conduct over many months had acquiesced in his acting as their chief executive and committing Brayhead Ltd to contracts without the necessity of sanction from the board." (Emphasis added.)

4144. It follows that an employer may by his conduct extend the powers of an employee by implication. Clearly if an employee performs a task on behalf of his employer who acquiesces in what he does, endorses it and gives effect to what he did, the employer is thereby authorising him to carry out that task. If this is permitted over a period of time then the clear inference is that he has that power within his employment to carry out that task. Indeed, the employee may have been expressly forbidden at some point to perform the task in question but if thereafter the employer with knowledge adopts the transaction and gives effect to it then in the absence of any contrary evidence one would be confident in drawing the inference that the employee's contract of employment has been varied authorising him to perform similar type tasks.

4147. The course of dealing between employer and employee may establish that the employee's authority is being increased.

4150. In considering Mr Murphy's authority it is necessary to consider his contract of employment and in particular his relationship with his employer, what he was asked to do and did, and whether his employer acquiesced in what he did.

4153. This raises the question who was Mr Murphy's employer? Who in effect was PP? The answer to that has to be found in the Act which creates and governs PP.

4156. As stated PP was established by the Electricity (Pacific Power) Act 1950.

4159. By s.5 PP was established as a corporation and for the purposes of any Act is a statutory body representing the Crown.

4162. Section 5(3) provides -

"(3) Pacific Power has such functions as are conferred or imposed on

it by or under this or any other Act or law."

4166. The parties did not refer me to any other Act or law which was relevant to the functions of PP and accordingly the general principle applies, namely, that the express and implied rights, powers, duties and obligations of PP are to be found within the four corners of the statute which created it.

4169. One of the principal objectives of PP is "to be a successful business and to this end" to inter alia, "operate at least as efficiently as any comparable business". - See s.5A(1)(a).

4172. Three attributes of an efficient commodity derivative transaction business are expedition, finality and certainty. These are put in jeopardy if a senior employee who negotiates the trade is denied the authority to conclude the business.

4175. Section 5B established a Board of Directors which comprised the Chief Executive and at least three but not more than five part-time directors appointed by the government and another part-time director appointed on the recommendation of a committee. It is noted that all directors are part-time. This accords with the scheme of the Act leaving the management and conduct of the business to the Chief Executive who is also a board member. - See s.5F.

4178. Section 9 sets out the functions of PP which are the generation and supply of electricity, the provision of works to generate electricity, the supply of electricity to consumers, purchasing electricity and with the approval of the Minister, any other business arising out of its core activities.

4181. There is no dispute that PP had the power and authority to agree the 11 disputed contracts.

4184. Whilst the Board has the function of determining policy and strategic plans for PP it is clear from the Act that the Chief Executive manages and controls Pacific Power in accordance with the said policies and plans and subject to any directions of the Minister. It is noted that anything done by him or with his authority is taken to have been done by PP.

4190. This is made clear by s.5C which provides -

"(1) The affairs of Pacific Power are to be managed and controlled by the Chief Executive in accordance with the policies and strategic plans determined by the Board, but subject to any directions of the Minister.

(2) Any act, manner or thing done in the name of, or on behalf of, Pacific Power by, or with the authority of, the Chief Executive is taken to have been done by Pacific Power."

4196. Section 5G is concerned with delegation of functions. It is relied upon by PP. It is important to observe it is concerned with delegating functions and not authority.

"(1) Pacific Power may delegate to an authorised person any of its functions, other than this power of delegation.

(2) The delegate may sub-delegate to an authorised person any function delegated by Pacific Power if the delegate is authorised in writing to do so by Pacific Power."

4205. "Authorised person" means, inter alia, a member of staff of Pacific Power. See s.5G(3).

4208. PP relies on this section as being the only power given to PP to delegate authority. It submits the actual delegations which were made to employees preclude any contention that Mr Murphy had power to conclude the 11 contracts on behalf of PP. The delegations it is said were limited and given pursuant to this section.

4211. It will be necessary to come back to this argument.

4214. PP in its defence raised the lack of authority in Mr Murphy and accordingly has the evidentiary burden of establishing facts to support its contention. In the final analysis the ultimate burden rests on PCA to prove its contract with PP and since the issue of authority has been raised it involves PCA proving that Mr Murphy had actual authority to bind his employer.

4217. PCA also has the burden of establishing ostensible authority.

4220. However, in weighing up the evidence it is important to take into account that on the question of actual authority the focus is on the contractual relationship between Mr Murphy and PP and accordingly the bulk of the evidence is within the knowledge of PP. Accordingly, it behoves the court to closely scrutinise the evidence and secondly, in weighing the evidence to take into account that PCA has limited access to the evidence concerning the relationship between Mr Murphy and his employer.

4223. Whilst the issue is concerned with the relationship between PP and its employee, the trading between PCA and PP is relevant to the issue insofar as it bears upon the issue of Mr Murphy's actual authority. What he does within the course and scope of his employment provides some evidence of his actual authority.

4226. Mr Murphy is an employee. As such he is an agent but different to agents engaged to perform a specific task. The question of authority depends upon the contract between PP and Mr Murphy.

4229. In a long term employment the duties and authorities of an employee are likely to change and as a result work a variation to the contractual terms. In many cases this will not be documented, not adverted to and will come about because of the conduct of the parties. The task of the court is to determine from all the relevant circumstances what authority an employee had at a particular time to perform work on behalf of, and binding, the employer.

4235. Mr Murphy's employment with PP goes back to March 1980 when he commenced as a cadet engineer. When the New South Wales State electricity market commenced on 10 May 1996 his position was Manager/Pricing and Strategy and in April 1997 he was appointed to the position of Manager/Energy Marketing. His responsibilities were the same in both positions. He was in charge of a number of employees. He was directly answerable to Dr Lang.

4238. No evidence was placed before the court as to his terms of employment. No written contract was produced and somewhat vague evidence was given by Mr Murphy with respect to his duties based upon a document, evidently in his computer, described as "Position Description". I will return to this document later.

4241. Dr Lang gave no evidence with respect to the terms of the employment contract between Mr Murphy and PP.

4244. More importantly no Chief Executive was called to give evidence.

4247. There is no direct evidence of the terms of his employment. However, there is a substantial body of evidence of what he did in the course of his employment.

4250. It is appropriate at this stage to consider who is PP when it trades. It is a statutory body.

4253. In my opinion it is clear from the Act that the Chief Executive is PP. This conclusion is based upon s.5F.

4256. The Chief Executive manages and controls PP's affairs and anything done by him or with his authority is "taken to have been done by PP".

4259. It is clear in order for PP to perform its functions it requires human agents and the Chief Executive in accordance with his statutory obligation to manage and control PP has established a work force to carry out its business activities. There is a hierarchy of employees all of whom are ultimately responsible to him. By employing a person and requiring him to perform a task for PP the Chief Executive is authorising that person to do the task for and on behalf of PP. In so performing the task the employee is PP and he derives his authority from the Chief Executive. When performing the task on behalf of PP and within the scope of his authority he binds PP.

4262. The Chief Executive is to perform his management and control duties in accordance with the policies and strategic plans determined by the Board but there is no evidence of any policies and strategic plans of the Board which restrict the Chief Executive in the way he manages and controls PP and employs employees and requires them to carry out the functions of PP.

4265. The Chief Executive has the power to employ a person and authorise him expressly or impliedly to do any act, matter or thing on behalf of Pacific Power. When so authorised the act matter or thing "is taken to have been done by Pacific Power". See 5F(2) of the Act.

4268. In the absence of any contractual document between PP and Mr Murphy as to his duties and authorities it is necessary to consider all the circumstances to ascertain what his actual authority was.

4271. As a general proposition and in the absence of any prohibition, an employee who is placed in a certain position to perform duties on behalf of his employer has all the authority in order to properly carry out his duties and all implied and incidental powers in order for him to effectively perform his task.

4274. According to Dr Lang, from the beginning of March 1996 onwards Mr Murphy was to act as a market trader in the electricity contracts market which was to come into operation in May 1996 and to provide for future hedging of quantities of electricity. Dr Lang said

"His credentials for that position, in addition to his academic qualifications and career path with Pacific Power and its predecessors were enhanced by the fact that, to my knowledge, he had participated in working groups which developed the market rules and hammered out the policies and procedures to apply in the hedging market including use of the standard form ISDA documentation."

4278. Mr Murphy was the manager in charge of market trading dealing with hedge contracts and he had a number of employees who were answerable to him.

4281. By placing Mr Murphy in charge of the department the Chief Executive authorised him to do all things that were necessary to conduct that part of PP's business which was dealing in commodity derivative contracts over the counter in the exempt futures market.

4284. Since April 1996 PP has entered into many over the counter commodity derivative contracts and it was the main part of Mr Murphy's duties to negotiate and agree the transactions on behalf of PP. Unless expressly provided it would be implied from his position, his duties and the nature of the transactions which require expedition, finality and certainty, to agree to contract on behalf of PP.

4287. The evidence from PP as to Mr Murphy's duties and the terms of his employment is indeed sparse.

4290. Mr Murphy gave evidence that his duties were set out in a "Position Description" document which was prepared on 26 March 1997 by which time he had been trading on behalf of PP with the authority of the Chief Executive in commodity derivative contracts for a period of approximately nine months.

4293. By that time PP had entered into 14 contracts with PCA, a majority of which were negotiated between Mr Murphy and Mr Treacy. The trading followed a pattern of negotiation, agreement and subsequently an exchange of signed confirmation. This was in accordance with the Master Agreement procedure. Mr Murphy determined the prices and terms and made the agreement. He was not authorised to sign the confirmation and did not do so except when acting in Dr Lang's office. Often the performance of the contract commenced before the confirmation was signed. At no stage prior to 26 March 1997 was Mr Murphy's authority questioned within PP nor is there any evidence that what he did in the course of his employment, being the subject of question or criticism. The evidence demonstrates that his employer acquiesced in what he did.

4296. The fountainhead of all authority in PP is the Chief Executive. He is responsible for employing the work force which carries out the functions of PP. Mr Murphy was employed in the senior position of manager of market trading and up to 13 November 1997 negotiated commodity derivative contracts with PCA and other counter parties which subsequently became the subject of confirmation documents under the Master Agreement. In performing his tasks he was clearly doing so with the authority of the Chief Executive. Further, the commodity derivative contracts that he negotiated were for periods greater than one month. Any possible restriction on PP's ability to trade in commodity derivative contracts confined to a certain period did not apply in 1997. There is some suggestion in a Board resolution in 1996 that there may have been a restriction.

4299. The evidence revealed not only in relation to the undisputed contracts but also the disputed contracts that Mr Murphy made decisions about price, volume, period and terms of each derivative contract, did not have to and did not consult Dr Lang in respect to these important issues and was the one who made offers and accepted counter-offers.

4302. Dr Lang played no role in these matters. On the few occasions Mr Murphy consulted Dr Lang, Mr Murphy raised the query and sought advice. A decision would be made but it can be fairly said that Dr Lang did not in any way supervise Mr Murphy's work.

4305. Once the agreement was reached Mr Murphy either prepared the confirmation document himself or instructed Mr Trethewy to do so. Again, no input from Dr Lang. Having prepared the confirmation document it was sent to the other counter party, including PCA for consideration and finalisation. Once the parties agreed that the document confirmed the contract reached between them Mr Murphy took the confirmation to Dr Lang to have it executed. I accept the evidence of Mr Murphy that Dr Lang did not check anything in detail, did not ask to look at any documents and left it up to Mr Murphy to ensure that the confirmation properly recorded the agreement.

4308. In my opinion the evidence overwhelmingly leads to the conclusion that within his department Mr Murphy was supreme and made all decisions in relation to the particular transactions he was negotiating. He expressed his offers in the language of contract and he received acceptances of offers made by him.

4311. He clearly took it upon himself to perform his duties without concerning Dr Lang or the Chief Executive. On any view the Chief Executive and Dr Lang acquiesced in what Mr Murphy was doing.

4314. Mr Ross Bunyon was Chief Executive up to 30 June 1996 and Mr Peter Graham occupied that position until 26 February 1999. Neither was called as a witness. No explanation was given for their absence from the witness box.

4317. The inference is that neither could give evidence to assist PP's case.

4320. The inference which is open from the evidence and which is reinforced by the failure to call the Chief Executive Officer is that by 13 November 1997 Mr Murphy was authorised by PP to do all matters, acts and things on behalf of PP to effectively perform that part of its business which was involved with transacting commodity derivative contracts. Many of the contracts that he agreed to were in excess of one month.

4323. Because of the nature of the transactions, the circumstances, and the fact that at no stage did a Chief Executive Officer or Dr Lang prohibit Mr Murphy from what he was doing, the inference is that as at 13 November 1997 he had the authority within his employment to contract hedge contracts in excess of one month thereby binding PP.

4326. PP submitted that Mr Murphy did not have authority to conclude contracts exceeding one month on behalf of PP thereby binding it and referred to evidence relating to Board policies, written delegations of authority and the job "Position Description" document.

4329. These facts must be considered in the light of the events which occurred up to 13 November 1997 and thereafter up to 29 May 1998 and with reference to the ISDA documentation.

4332. All the evidence leads to the conclusion that Mr Murphy was permitted to do everything with respect to negotiating and transacting the contracts on behalf of PP and he did this with the knowledge and apparent authority of the Chief Executive. The latter clearly acquiesced in what he did.

4335. PP submits that by reason of s.5G of the Act that PP could not authorise any member of staff to contract on behalf of PP unless PP delegated the authority to that person.

4338. I reject that argument. Section 5G is concerned with PP delegating to any authorised person "any of its functions".

4341. Section 9 sets out the main functions of PP. There is no dispute that as part of its functions PP could enter into commodity derivative contracts on the exempt futures market. The Chief Executive manages and controls the business. He is PP for the purpose of conducting that function and he authorises employees to carry out that business for PP.

4344. If PP decided to delegate that function it would be necessary to delegate the function in accordance with the Act. But this is not the same as the Chief Executive authorising staff to perform the function. There is no question of delegation in those circumstances.

4347. Clearly, it is a matter for the Chief Executive in managing and controlling PP's affairs to determine and authorise who should have the necessary authority to carry out the function.

4350. Section 5G is concerned with delegating a function, not a question of authorising a person to carry out a function.

4353. PP submitted that the court should take into account the definition of "function" in s.8A but that definition only applies to that division.

4356. "Function" in my opinion in s.5G bears its ordinary meaning, namely, the special kind of activity which PP is empowered to perform.

4359. I agree with the submission of Mr Myers QC that it was unnecessary for the Board of PP to become involved in any decision concerning the commodity derivative trading and that it was not necessary under the terms of the Act for the Board to authorise any person to carry out that part of PP's business. The Chief Executive clearly has power under s.5F once it is accepted that PP is entitled to engage in such business, for him to manage and control how that business was to be carried out by PP.

4362. In other words, the Chief Executive, by reason of his statutory position, was the person who could make all decisions concerning the trading of PP in this new area. Nevertheless, as things happened the Board became involved and it is unnecessary for me to decide whether or not s.5C(1) did empower the Board to pass certain resolutions concerning the trading.

4365. The fact was that it did. The question is what effect, if any, did the Board's actions, the delegations and sub-delegations and the job specification have upon the terms of Mr Murphy's contract of employment by 13 November 1997?

4368. I reiterate what I have already said that because of the nature of his contract of employment Mr Murphy's terms of employment would vary as further duties were entrusted to him and by reason of the conduct of the Chief Executive and/or Dr Lang in acquiescing in what he did thereby approving his actions.

4371. In considering the evidence it is also necessary to take into account the context in which PP commenced trading in this area and in particular the fact that it made a decision at an early stage that all its commodity derivative transactions should be governed by the ISDA Master Agreement.

4374. In considering this evidence it is important to bear in mind that there is no direct evidence from PP that Mr Murphy was prohibited from entering into commodity derivative contracts with PCA.

4377. The Exempt Futures Market commenced on 3 May 1996. It was in anticipation of PP trading in derivative contracts that the issue of authority arose. It arose in the context of the ISDA documentation because it is clear that PP intended that any trading would be performed subject to the documentation.

4380. Under the ISDA Master Agreement there is a difference between contracting and recording the agreement in a document, that is the confirmation. These are two discrete steps. Agreement followed by confirmation. Different personnel could be involved in the two steps.

4383. On 18 April 1996 Mr Bunyon, the Chief Executive, and Dr Lang signed a report to the PP Board. It was titled - "Electricity Sales Contracts for Non-Vested Quantities."

4386. The report discussed the question of entering into what was described as contracts for differences which are a commodity derivative contract. It was recommended to the Board and resolved by the Board "that the Chief Executive or in his absence the General Manager/Development be authorised to negotiate and execute contracts with the parameters described herein".

4389. The reference to "parameters described herein" covered the types of contracts involved which included an ISDA-type contract, contract durations which could be anything up to five years, contract size and price.

4392. It is noted in the report to the Board the following -

"The market is expected to be extremely competitive, and it is also expected the contract negotiations will be undertaken frequently in order to manage daily changes in market position. It is therefore essential that PP be able to respond to contract proposals in a timely fashion." (Emphasis added.)

4396. The report is stating the obvious, namely, that in negotiating commodity derivative contracts in a volatile market it is absolutely essential that contracts be concluded quickly and with finality and certainty.

4399. On the same day, 18 April 1996, the two men also signed a report which was described as - "ELECTRICITY TRADING POLICY".

4402. Unlike the first report this was concerned with what was described as short term contract sales and purchases. It was noted that PP in order to reduce its risk in supplying electricity might wish to purchase short term contracts and also to sell short term contracts. It is noted that all generators and retailers in New South Wales were to use the ISDA Master Agreement.

"Opportunities for sales or requirements for purchases of short term contracts will arise at very short notice."

4409. The Board on 24 April 1996 also resolved that -

"The Chief Executive or in his absence the General Manager/Development be authorised to approve of and execute short term contract sales and purchases as described herein, and be authorised to delegate such authority to appropriate senior officers." (Emphasis added.)

4413. It is clear from the report and the resolution that the purpose of the resolution was to enable PP to take advantage promptly of opportunities for sales and purchases at very short notice in respect to short term type transactions. The authority related to short term deals. It did not purport to deal with long term deals.

4416. Dr Lang was the General Manager/Development at the time.

4419. The question is whether either of these two resolutions in any way prohibited Mr Murphy from entering into the types of contracts that he did on 13 November 1997 and 29 May 1998?

4422. In my opinion neither resolution did so. The first resolution empowered the Chief Executive and the General Manager to "negotiate and execute contracts". The second resolution authorised the two men to "approve of and execute short term contract sales and purchases and the authority to delegate that authority to a senior officer".

4425. There is a distinction between negotiating and executing, and approving and executing.

4428. In the context of the ISDA documentation the approval of and execution of a contract is the confirmation step.

4431. But there is nothing in either of the two resolutions which prohibits Mr Murphy from entering into the types of agreement that he did on behalf of PP in November 1997 and May 1998.

4434. What the second resolution did was to authorise Dr Lang in the absence of the Chief Executive to approve short term contracts.

4437. Side by side with these resolutions was the power in the Chief Executive pursuant to s.5F of the Act in conducting the affairs of PP to authorise any officer within PP to do an act on behalf of PP and having given the authority such act would as a result of s.5F(2) the Act, be done by PP.

4440. On 3 May 1996 Dr Lang signed a sub-delegation which gave -

"authority to approve of and execute on behalf of Pacific Power short term contract sales and purchases for operation in the New South Wales electricity market in respect of the output of Eraring Power Station." (Emphasis added.)

4444. One of the persons authorised was Mr Murphy.

4447. It is noted that the authority is "to approve of and execute ... short term contract sales and purchases" and is confined to the NSW electricity market.

4450. It says nothing about authority to make an agreement but is concerned with approval and execution. Further, it is confined to short term contracts which were for one month. This sub-delegation did not prohibit him from performing his duties which involved trading in hedge contracts which exceeded one month. That is what the Chief Executive required him to do in the course of his employment.

4453. After representatives of PP and PCA met on 13 August 1996 negotiations took place between the parties concerning the contents and execution of the ISDA Master Agreement. Before it was executed the parties entered into a contract which was a two-way swap for a substantial supply of electricity for a period of one year on 4 November 1996 and the confirmation document was signed and exchanged on or about 8 November 1996. The contract commenced on 1 January 1997.

4456. The contract was negotiated between Messrs Murphy and Treacy and there was no question of any authority being raised. The confirmation was signed by Dr Lang.

4459. The parties did raise however during the course of negotiations concerning the Master Agreement the question of authority of employees to negotiate agreements and execute confirmation documents.

4462. The schedule to the Master Agreement which was at the time the subject of negotiation between the parties contained a term which stated -

"For the purposes of s.4(a)(i) and (ii) of this agreement, each party agrees to deliver the following documents, as applicable:

(a) ...

(b) Other documents to be delivered are: a list of authorised signatories for the party and evidence satisfactory in form and substance to the other party of the authority of the authorised signatories of the party to execute this Agreement and any Confirmation on behalf of the party."

(Emphasis added.)

4469. The Master Agreement when executed contained the same term. In my opinion it obliges both parties to forward a list of authorised persons who have the authority to execute the agreement which was the ISDA Master Agreement and any confirmation document. The clause makes no mention of authority to contract.

4472. When considering the evidence relating to exchanging authority documents in November/December 1996 it is necessary to bear in mind this provision in the Schedule and also the Telephone Dealing Supplement which set out authorised persons.

4475. Discussions took place concerning questions of authority. On 21 November 1996 at a meeting between Messrs Treacy and Murphy, the topic of authorised signatories was raised and also the completion of the telephone appendices to the Telephone Dealing Supplement was discussed.

4478. On 27 November 1996 Mr Treacy sent to Mr Murphy a document under cover of a facsimile in which Mr Treacy wrote -

"As requested last week we now provide details of the persons who can enter into contracts for energy trading. The original will be forwarded by post. Would you also provide reciprocal information?"

4482. It will be necessary to return to this mandate when considering the authority of Mr Treacy.

4485. On or about the same day Mr Murphy forwarded to Mr Treacy under cover of a facsimile what he described as trading authorities "delegated by the board of Pacific Power to the Chief Executive and the General Manager/Development together with sub-delegations."

4488. What he sent was a photostat of the two board resolutions of 3 May 1996 which authorised the Chief Executive or in his absence the General Manager/Development to negotiate and execute contracts and authority to approve of and execute short term contracts and authority to delegate. He also sent the sub-delegation authority signed by Dr Lang on 3 May 1996.

4491. The first resolution passed on 24 April 1996 authorised the Chief Executive or in his absence the General Manager "to negotiate and execute contracts within the parameters described herein."

4494. As I have said, this was an unnecessary conferring of authority because the Chief Executive had the authority to conduct PP's business. But the important thing to notice is that the Chief Executive is to negotiate and execute contracts. Of course, he never did. He had a staff to carry out the PP's business. The other resolution was concerned with approval of and executing short term contract sales and the right to delegate authority. That was the authority which was sub-delegated to a number of persons, including Mr Murphy. A distinction is drawn within PP between negotiating and executing, and approving and executing. It was the latter which was sub-delegated. On the other hand the Chief Executive did not negotiate and execute contracts. This was left to Mr Murphy. That is what Mr Murphy did.

4497. A conversation took place on 28 November 1996 between Messrs Treacy and Murphy in which questions of doing deals and what short term meant were discussed. There is some dispute about this conversation but it is unnecessary for me to resolve it because on 28 November 1996 Mr Murphy sent a facsimile to Mr Treacy in which he stated that only the Chief Executive and General Manager had authority to sign deals of any kind in Victoria and that the reference to short term in New South Wales was defined "in Pacific Power's trading policy as being one month or less."

4500. At the end of November Mr Telford sent to Mr Murphy a draft of the Telephone Dealing Supplements completed by the parties for consideration. These Telephone Dealing Supplements which were subsequently executed set out who had the authority to do deals over the telephone.

4503. Some time on or after 2 December 1996 Mr Murphy had a conversation with Mr Telford in which Mr Telford raised the question of the Board of PP placing limits on the authorities of traders and requested how that should be dealt with in the Telephone Dealing Supplement. Mr Murphy said there was no real scope in the document to do that but one should proceed on the basis that the mandate document covered the situation.

4506. There is some dispute concerning this conversation. However, I am satisfied that some discussion was had along these lines. By a facsimile dated 9 December Mr Treacy requested from Mr Murphy an update on the current status of - "persons authorised to sign contracts for Vic on behalf of Pacific Power".

4509. It was in those circumstances that the Master Agreement was executed by the parties.

4512. A query was raised by PCA as to the restriction in relation to the sub-delegation and on 31 December 1996 Dr Lang executed another sub-delegation which removed the limitation to the New South Wales market.

4515. On 15 August 1997 Dr Lang executed another sub-delegation in the same terms as that of 31 December 1996 but added the name of Mr Trethewy.

4518. On 2 October 1997 the then Chief Executive, Peter Graham, executed a sub-delegation but I am satisfied on the evidence that the sub-delegation related to trading on the Sydney Futures Exchange and is not relevant to the present issue.

4521. PP submits that the sub-delegations make it clear that Mr Murphy did not have the authority to enter into the 11 disputed contracts because the periods involved were all in excess of one month.

4524. As against that evidence there is the substantial body of evidence of what Mr Murphy did in the course of his employment and within the scope of his authority as a general manager. That evidence leads to the conclusion that he did have actual authority to enter into contracts extending beyond one month.

4527. The sub-delegations of 3 May 1996, 31 December 1996 and 15 August 1997 gave authority to Mr Murphy and others to "approve of and execute on behalf of Pacific Power short term contract sales and purchases".

4530. The authority extended to "purchases" as well as "sales" and was granted in accordance with the report to the Board dated 18 April 1996. The authority is to be read in the context of that report. The authority was given to enable short term contract sales and purchases to be transacted quickly. The authority was granted to respond to that need. The authority was confined to short term. It says nothing about contracting let alone contracting long term deals.

4533. The later authorities follow on from the 3 May 1996 one.

4536. In my opinion the delegated written authority does not restrict Mr Murphy's authority which is entrusted to him by virtue of his office and duties within PP to conclude long term contracts on behalf of PP.

4539. The wording of the delegations do not say so nor do the duties which he was obliged to perform demonstrate any restriction on his authority.

4542. I am reinforced in that conclusion by the terms of the Master Agreement. This was the charter regulating the trading of the parties. PP executed the agreement. By so doing the Chief Executive authorised the staff at PP to transact business in accordance with the Master Agreement.

4545. As I have already held, the procedure under the Master Agreement involved agreement, whether oral or in writing, followed by the recording of the agreement in a written confirmation which was to be executed by the parties.

4548. In my opinion there is a difference between negotiating on the one hand and approving and executing the contracts on the other hand under the Master Agreement.

4551. The sub-delegation does not concern negotiating a contract but approving and executing a contract. In my opinion this refers to the procedure after agreement has been reached.

4554. The whole procedure of trading in commodity derivative contracts is based upon speed, finality and certainty. It is of the utmost importance that the person who does the trade has the authority to conclude the transaction. This was known and appreciated by both parties.

4557. Once PP executed the Master Agreement which was thereafter to regulate the transactions and import terms into the transaction, PP, through the Chief Executive, authorised the officers to trade accordingly.

4560. Mr Murphy was entrusted to trade. He did so. He agreed to the contracts.

4563. In my opinion his terms of employment authorised him to agree to the transactions and no prohibition was placed upon him in negotiating and concluding a binding agreement in accordance with the Master Agreement.

4566. The exchange of delegations between both parties in December 1996 and January 1997 was in accordance with the obligations under the Master Agreement. The schedule to the Master Agreement made it clear that the authorities were to relate to executing the Master Agreement and any confirmation pursuant to it - see clause 4(a)(ii).

4569. The issue is whether as at 13 November 1997, 28 November 1997 and 29 May 1998 Mr Murphy was authorised by his employer to conclude the commodity derivative contracts which he did on behalf of PP and bind it?

4572. I am satisfied on the whole of the evidence that the terms of his employment gave him the authority to make contracts on behalf of PP and none of the material relied upon by PP shows that he did not have the authority which one would expect he had by reason of his position, the duties he performed and what he did.

4575. What he did was done with the knowledge and acquiescence of the Chief Executive and Dr Lang.

4578. My conclusion is reinforced by the terms of the Telephone Dealing Supplement.

4581. I have already held that the Supplement only relates to transactions done over the telephone. PP agreed that the type of transactions covered by the Supplement were transactions involving the NSW and Vic electricity market.

4584. There is no restriction on Mr Murphy who is authorised, in the document as to the period of the transaction or the volume of electricity.

4587. The Supplement contemplates the transaction being finalised, followed by a method of confirming the transaction. The failure to confirm did not in any way negate or vary the transaction. The Supplement and the Appendices prevailed over any inconsistency in the Master Agreement.

4590. PP executed the appendix and the employee who was permitted to enter into the transaction covered - "anyone who answers when one of the above telephone numbers or dedicated lines rings, OR" and thereafter appeared three names, including Mr Murphy. The appendix goes on to set out who was authorised to confirm the transaction and again one of those was Mr Murphy.

4593. The significance of the appendix is that there is no limitation placed upon the authority of any employee who answered a particular phone number or Mr Murphy in entering into a transaction, whatever length of time it may be or for any amount of electricity. No limit was placed on Mr Murphy's authority.

4596. In considering the terms of Mr Murphy's employment it is relevant to take into account the fact that the Chief Executive Officer permitted Mr Murphy to enter into any transaction of any length and size over the telephone.

4599. The trading policies of PP were reviewed by the Board on 24 April 1998 and on 7 May 1998 and it adopted the policy much in line with what it had done in April 1996. I note the reference in the report to long term and short term contracts but again the emphasis is on approval as distinct from entering into the contract. But in any event the report is contrary to what in fact happened in relation to the trading and confuses the difference between contracting and recording by confirmation.

4602. Nothing in that report in any way contradicts what I have found were the terms of Mr Murphy's contract.

4605. PP also relied upon a number of other matters which it was submitted showed that it was not part of his duties to agree a binding contract.

4608. The first matter concerns Mr Murphy's "Position Description". He stated in evidence-in-chief that it was prepared on 26 March 1997 but the computer print-out shows that the document was created in August 1993 and last revised on 26 March 1997. Who actually prepared the document and what its status was, was not addressed in evidence.

4611. One of the roles of his position was described as -

"? Negotiate the sale of electricity hedging contracts for the output of Pacific Power's generating port folio, in order to earn income for Pacific Power and to reduce the variability of the income stream. Sales should meet Pacific Power's budget insofar as possible, and must be in accordance with Pacific Power's trading policy."

4615. There is a heading - "Accountability" and underneath that is another heading - "Independent Decisions".

4618. Underneath those headings are three dot points which state that he can make independent decisions for prices and quantities for short term contracts and daily prices for the operation of PP's generating port folio.

4621. Then appears a heading - "Decisions Referred for Approval".

"? Prices and quantities for long term contracts are recommended by the position and approved by either the Chief Executive or General Manager/Development. Contracts are prepared by the position and executed by either the Chief Executive or General Manager Development. Income from long term contracts is approximately $200m p.a."

4628. This document is dated 26 March 1997 and although one is not surprised that prices and quantities should be approved the fact was that Mr Murphy never sought any approval for prices and quantities. The evidence clearly demonstrated that he did not, and that he made the decisions. No question arose as to whether or not he should have sought the approval with respect to prices and quantities. Mr Murphy took it upon himself to do so and it is clear by the conduct of the parties that what he did was accepted by the Chief Executive and Dr Lang.

4631. There is nothing in the Position Document which constitutes a term in Mr Murphy's contract of employment restricting his authority to contract on behalf of PP. Indeed, he is authorised to negotiate the sale of electricity hedging contracts and the only requirement placed upon him was that he was to obtain approval for prices and quantities. He was not required to seek approval in relation to any other terms of such a contract. All the evidence shows that Dr Lang and the Chief Executive acquiesced in him setting the prices and quantities, agreeing terms not seeking approval and transacting the business in accordance with the Master Agreement.

4634. PP rely upon the job analysis of Mr Trethewy and the same observations can be made. There is nothing in that document which in any way affects Mr Murphy's contract of employment.

4637. PP relied upon a report dated 4 September 1997 prepared by Mr Trethewy and signed by Dr Lang which was placed before the Board at a meeting on 18 September 1997 in which there is a reference to the earlier delegations concerning approval. There is nothing in that report which in any way provides evidence of any restriction in the contract of employment of Mr Murphy in relation to contracting on behalf of PP.

4640. Another matter relied upon by PP concerning the nature of Mr Murphy's contract of employment and his authority concerns an incident which occurred in May 1997.

4643. The parties were discussing a hedge contract and the question arose as to whether PP was prepared to transact an off-peak deal at prices suggested by Mr Treacy. On 16 May 1997 Mr Murphy informed Mr Treacy that PP was not prepared to do the business, a discussion occurred about certain volumes and Mr Murphy indicated that PP would be prepared to transact at that volume. Subsequently, Mr Murphy told Mr Treacy that PP was not prepared to do the deal and withdrew the offer. This caused some consternation to PCA as the offer which Mr Murphy was prepared to make had a validity period and the offer was withdrawn before the validity period expired. Mr Murphy told Dr Lang that Mr Cornelius of PCA was unhappy that the offer had been withdrawn before the validity period had expired. Dr Lang said he would speak to him. Dr Lang stated that he spoke to Mr Graham the Chief Executive about the problem and Mr Graham said the deal could proceed subject to two provisions, one of which was that Dr Lang was to remind PCA that Mr Murphy did not have "the authority to bind PP in long term deals". Dr Lang spoke to Mr Cornelius. Mr Cornelius said that PCA had a problem because it had locked in retail customers, Dr Lang alleged he said -

"I appreciate your position. However, we are not legally bound to proceed with these arrangements because Mr Murphy doesn't have the authority to bind Pacific Power. However, I am prepared to do a deal on this occasion but only subject to provisos."

4647. He went on to say that he emphasised to Mr Cornelius that PCA had to understand the approval processes and they were - "that only the Chief Executive and I have the authority to execute long term contracts and Mr Murphy does not". He said he repeated what Mr Graham had said.

4650. Dr Lang said that Mr Cornelius asked him how they were to avoid the problem happening again and Dr Lang said - "In the future we will clarify our expiry dates but you have to understand our approval processes". He alleged Mr Cornelius asked him - "Does that mean that you have to approve expiry dates in the future?" Dr Lang alleged he said - "Yes, if you want a firm option open for a specific date, then that's an option that will require my authority and execution".

4653. I have some difficulty with the last piece of evidence. The evidence of trading between Messrs Treacy and Murphy shows that Mr Murphy made the decisions as to validity periods and according to Dr Lang was authorised to withdraw the one he did in May 1997. Both before and after 19 May 1997 Mr Murphy made decisions without recourse to Dr Lang. Later on one occasion Mr Murphy agreed to a legal option ie. one where a fee was to be paid, without recourse to Dr Lang. The contract term was in excess of one month. The evidence before and after the alleged statement by Dr Lang contradicts the necessity for him to have said what he alleges he said. I do not accept that part of his evidence.

4656. In considering this evidence it is necessary to bear in mind the Master Agreement procedure. This involved a binding contract followed by a confirmation. The evidence shows that Dr Lang and the Chief Executive were the ones who were to sign the confirmations. That is the approval process.

4659. The alleged conversation concerns "authority to execute long term contracts". The phrase is ambiguous. In the light of the Master Agreement it means the confirmation process and not authority to contract.

4662. This evidence has to be compared with the job description of Mr Murphy dated 26 March 1997 which did not limit him in the way as stated by Dr Lang and the Master Agreement procedure which does not limit Mr Murphy's authority. Further, the real issue in question in May 1997 did not concern Mr Murphy's authority to do anything but concerned the withdrawal of an offer before the end of the validity period.

4665. The evidence both pre and post this incident demonstrated a trading relationship based upon good faith and trust. Validity periods were always stated by PP and were often extended. Even though on one view PP was not legally bound to not withdraw the offers the fact is that in practice it never did.

4668. However, in any event I am not prepared to accept the versions of Mr Murphy or Dr Lang insofar as either says the question of Mr Murphy's authority to actually agree was discussed either within PP or between PP and PCA.

4671. Dr Lang was cross-examined at some length on this alleged conversation and the circumstances concerning the issues.

4674. I reject the evidence for a number of reasons. First, because of the way Mr Murphy and Dr Lang prepared their evidence, much of which was reconstructed based upon documents. There is no document or note which addresses the issue of authority being raised or discussed.

4677. Secondly, I was not impressed by the demeanour of either witness when cross-examined on the matters. The evidence was far from persuasive. Thirdly, Dr Lang is a meticulous note taker but no mention is made of the issue authority in his diary notes. Fourthly, the real issue between the parties was the withdrawal of an offer. Dr Lang said Mr Murphy had the right to do this. Clearly he had the authority to fix validity periods. He had in the past and the later evidence showed he did thereafter. The real point of contention was whether as between PCA and PP an offer could be withdrawn prior to the expiration of the validity period. Dr Lang's diary noted - "In future will clarify expiry dates and processes". The topic did not involve authority to contract.

4680. The evidence pre and post 19 May 1997 shows that Mr Murphy traded in the same way.

4683. Finally, the alleged conversation involving Mr Graham was not included in Dr Lang's witness statement. No credible explanation was given for its omission.

4686. Mr Cornelius was not called as a witness and accordingly there is no direct evidence denying what Dr Lang alleged was said in the conversation. Dr Lang's notes do not refer to the question at all. There is no correspondence that supports Dr Lang. I accept Mr Treacy's evidence that Mr Murphy did not raise the topic with him. The clear focus was on withdrawing the offer and whether PP should be allowed to do so.

4689. Whilst Mr Treacy did not have any memory of any authority question being raised despite references in documentation thereafter, I am satisfied that the issue was in relation to withdrawing the offer. The authorisation matter raised in documents related to Mr Trethewy and the question of his authorisation.

4692. I do not accept the versions of Dr Lang or Mr Murphy in which they say that they raised with Messrs Cornelius and Treacy the authority of Mr Murphy.

4695. PP places weight on the fact that Mr Cornelius was not called as a witness. No explanation was given for his absence although it is noted he now resides overseas. The failure to call a witness does not supply evidence. I do not accept the evidence of Dr Lang or Mr Murphy insofar as they state the question of Mr Murphy's authority to contract was raised.

4698. I find that Mr Murphy had the authority to transact and agree the 11 disputed contracts and by doing so had the authority to bind his employer PP.

4703. If I am wrong on the question of actual authority, PCA contends that PP held out Mr Murphy as having ostensible authority to contract and bind PP.

4706. In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, supra, Diplock LJ at pp.505-06 summarised the four conditions that had to be fulfilled in order to establish apparent authority.

4709. The first condition concerned the representation that the agent had authority to enter into the contract. His Lordship said at p.506 -

"In each of the relevant cases the representation relied upon as creating the 'apparent' authority of the agent was by conduct in permitting the agent to act in the management and conduct of part of the business of the company."

4713. The second condition concerns the question of the person who had actual authority making the representation.

4716. One goes back to s.5F of the Act. As I have said the fountainhead of power is in the Chief Executive.

4719. The next step is the Master Agreement. The parties agree that it will be a charter for their negotiations. It provides for agreement, written or oral, and the recording of the agreement by confirmation. The parties discuss authority. Documents are exchanged relating to approval. The Telephone Dealing Supplement appendices are signed. No limit is placed on Mr Murphy in the latter document.

4722. It must be inferred that all those steps were with the authority of the Chief Executive.

4725. Mr Murphy was occupying a very senior management position. It was his duty to negotiate the commodity derivative contracts. He did so. He transacted a number of dealings on behalf of PP which subsequently were recorded in confirmations, signed and exchanged. The parties settled on the contracts each month.

4728. Whilst from time to time Mr Murphy stated that he had to think about a proposition, or had to refer it elsewhere, the fact was that in most cases he transacted the business without reference to anybody and did not suggest that he was required to do so.

4731. The confirmations were executed by Dr Lang and on occasions by Mr Murphy.

4734. I am satisfied that PP did hold out Mr Murphy as having the authority to conclude the 11 disputed contracts and that the representation that he had such authority was made by or on behalf of the Chief Executive by placing Mr Murphy in the position he was consequent upon the Master Agreement being executed.

4737. I am satisfied that PCA was induced by such a representation to enter into each contract. In other words, PCA did rely upon Mr Murphy having the necessary authority to transact the business and that there was nothing in the constitution of PP which precluded it from entering into such contracts.

4740. PP submits that PCA fails to prove apparent authority by reason of the fact that PCA was aware that he had limited authority.

4746. The starting point is the Master Agreement and the sub-delegations which were exchanged. Under the Master Agreement there is a two step procedure, contract and recording. The sub-delegations addressed the second point. Further, the Telephone Dealing Supplement gave unlimited authority. I do not accept the submission that the sub-delegations limited Mr Murphy's authority to contract. They were concerned with approval and execution of the confirmation. I have already rejected the evidence of Dr Lang and Mr Murphy concerning the May 1997 incident insofar as they state the topic was raised that Mr Murphy did not have the necessary authority. But in any event the subsequent events up to 13 November 1997 have to be considered and they show that in this period he was held out as having the necessary authority. I have closely considered all the evidence and the documentation but I am not persuaded that the evidence shows that PCA was made aware that Mr Murphy could not enter into a contract greater than one month. The Master Agreement is to the contrary.

4749. PCA also rely upon the option agreement concerning Alcoa/SECV In this contract an option fee was paid. And then followed a letter from Dr Lang. Mr Murphy made the agreement without reference to anybody. He did not for one minute indicate to Mr Treacy that he was not authorised to make the option agreement. The agreement was greater than one month. I accept Mr Treacy's evidence in relation to the conversations with Mr Murphy. The documentary evidence reveals that on 27 August 1997 Mr Murphy made an offer in the form of an option in relation to what was a very large contract and on the same day Mr Treacy accepted the offer and said he would forward a cheque for payment of the option fee. I accept the evidence of Mr Treacy that he did not request any letter from PP in relation to this matter. Further the letter written by Dr Lang on 28 August 1997 is an acknowledgment of an agreement already made.

4752. Mr Murphy alleges that on 28 August 1997 a telephone conversation took place between he and Mr Treacy wherein Mr Treacy is alleged to have raised the question of the authority of Mr Murphy to agree. It is said that Mr Treacy requested a letter from Dr Lang because of the alleged lack of authority. Mr Treacy denies this conversation. Mr Murphy was cross-examined on this matter. In my view he has reconstructed what he thinks happened.

4755. This is the only letter in which Dr Lang has acknowledged the acceptance of an offer despite all the other contracts entered into between the parties. This was the first of the very large contracts and I do not accept the evidence of either Mr Murphy or Dr Lang that this was written because of the concern about authority.

4758. I do not accept that in the context of the Master Agreement which provided for agreement followed by confirmation and the trading between the parties and the wording of the sub-delegations which were handed over in any way lead to knowledge within PCA that Mr Murphy was not authorised to conclude the disputed contracts.

4761. In my opinion PCA has established ostensible authority that PP held out Mr Murphy as having and PP is estopped from denying that he had the authority to contract the 11 disputed contracts.

Authority to communicate offers and acceptances

4766. The case of First Energy (UK) Ltd v Hungarian International Bank Ltd, supra, is an example of a party to a contract being bound by an employee having the authority to communicate offers and accept offers.

4769. The Master Agreement provided for agreement once the terms had been agreed. Confirmation was the recording of the agreement. In my opinion Mr Murphy had actual authority to communicate offers and acceptances. His job description in March 1997 authorised him to negotiate hedge contracts and required him to seek approval in relation to prices and quantities. The evidence shows that he did not seek such approval. Despite his failure to do so agreements were transacted and confirmations signed by Dr Lang. The senior personnel whose job was to supervise Mr Murphy acquiesced in what he did. That is Dr Lang and through him the Chief Executive. That is an inference that is clearly open. The Chief Executive was not called to give evidence.

4772. PP executed the Master Agreement. Accordingly, trade was to be done in accordance with its terms. Mr Murphy made offers. He was authorised to do so. He was authorised to accept counter-offers. Once these steps were put in place then a contract came into being. That is what happened.

4775. Further, in my opinion PCA has established ostensible authority to make and accept offers. Mr Murphy was held out as such. Offers and acceptances were made and contracts came into being.

4778. If I am wrong in relation to actual authority to contract and ostensible authority to contract then in my opinion there was actual and ostensible authority to accept offers made and to make offers. A contract came into being when the terms were agreed.

4783. PP in its defence contends that Mr Treacy did not have authority to bind PCA in relation to the 11 disputed contracts.

4786. According to the particulars to paragraph 6D of the amended defence, PP relies upon two letters dated 1 August 1997 and 18 November 1997 and alleges that Chris Treacy was authorised to enter into energy trades with PP having a term of up to five years but no longer.

4789. As the case proceeded the investigation by PP widened to probing the evidence as to what Pacificorp, the parent of PCA had authorised PCA to do and in particular what Mr Duvall was permitted to do.

4792. Time was spent at trial demanding discovery of all types of documents relating to Pacificorp's directions, instructions and authorities concerning PCA, the trading policy of PCA, and Mr Duvall's position to authorise a transaction in excess of five years.

4795. In Smith v Littlewood's Organisation Ltd [1987] UKHL 3; (1987) AC 241 at 280 Lord Gough of Chieveley described the judicial function when he said -

"The judicial function can, I believe, be epitomised as an educated reflex to facts."

4799. He finished his judgment by stating what the courts seek to achieve which was "practical justice founded upon legal principle".

4802. My immediate reaction to the defence that Mr Treacy was not authorised by PCA to contract the 11 disputed contracts was that it had no substance.

4805. Let me explain why. First, the parties had over a period of some 18 months negotiated contracts, signed confirmations, performed contracts and had traded in an atmosphere of mutual trust and good faith. The expectation of both parties was to transact business to their mutual benefit. To suggest after nearly two years of trading that Mr Treacy was not authorised by his employer to conclude the 11 disputed contracts flies in the face of the commercial reality and the reasonable expectations of Messrs Murphy and Treacy. Secondly, at no stage prior to the letter of 10 June 1998 did PP ever raise the question of the authority of Mr Treacy. The tone of the letter of 10 June is one of finding excuses to renege on agreements. Thirdly, if the boot was on the other foot and PP was seeking to enforce the contracts against PCA any defence of lack of authority would be met with a fairly strongly case of apparent authority on the part of PCA holding out Mr Treacy as having the necessary authority.

4808. The issue is whether at 13 November 1997 and following Mr Treacy had the authority and all the evidence of trading and negotiating up to that point would strongly support an argument that he was held out as having apparent authority.

4811. Fourthly, it was clear from 10 June 1998 onwards that PCA wished to affirm the contracts which PP repudiated. That was PCA's decision. It accepted that Mr Treacy had authority.

4814. This is very obvious from a telephone conversation had between Mr Treacy and Mr Trethewy on 12 June 1998. I also refer to the facsimile of Mr Treacy to Mr Murphy dated 15 June 1998.

4817. The writ was issued on 21 August 1998. It seeks specific performance of the 11 disputed contracts.

4820. On any view there is a very strong case of ratification even if Mr Treacy did not have the authority to contract on behalf of PCA.

4823. At the very outset of this trial I did raise with Mr Downes this defence and whether it had any merit, especially bearing in mind the fact that PCA had pleaded ratification.

4826. Having heard all the evidence and considered the submissions, my initial educated reflex to the facts remains the same. The defence has no merit.

4829. Let me now refer to matters of legal principle.

4832. First, the issue is whether Mr Treacy had the authority to conclude the disputed contracts on the part of PCA.

4835. Secondly, that issue has to be considered as at the relevant dates, namely, 13 November 1997, 28 November 1997 and 29 May 1998.

4838. Thirdly, the question of Mr Treacy's authority to bind his employer depends upon his contract of employment. As I have already stated in relation to the question of Mr Murphy's authority, contracts of employment are continually in a state of flux due to the fact that employees are from time to time requested to perform different duties and the employer accepts and adopts what the employee has done and acquiesces in the performance. These changes work a variation to the contract of employment and result in an employee obtaining more and more authority.

4841. Another important aspect is that Mr Treacy negotiated the agreements dealt with by Mr Murphy and was the one who informed PP of the acceptance of offers. He was the one who signed the facsimiles. He was the face of PCA. But the facts were that he attended meetings presided over by Mr Duvall, questions of offers being accepted were discussed with Mr Duvall and decisions were made by Mr Duvall in consultation with Mr Treacy. Mr Treacy in turn informed PP of the decision. The fact was that Mr Duvall made the decisions and authorised Mr Treacy to conclude the deals. Mr Treacy did so.

4844. Mr Duvall occupied an important and senior position with PCA. He was the one who ultimately gave the authority to Mr Treacy to proceed.

4847. PP roamed over many documents, demanded that PCA discover and produce more documents and cross-examined at length witnesses of PCA, in particular Mr Duvall in respect to trading policy and authority. At times the real issue got lost in the theories and speculations. Mr Downes QC spent much time trying to show that Pacificorp, the parent body of PCA, was controlling PCA and PCA was not permitted to enter into particular types of contracts because of the trading policies of Pacificorp.

4850. But that was not the issue that was pleaded. It was accepted by PP that PCA could enter into the disputed contracts. The issue as pleaded was whether Mr Treacy had the authority to conclude the contract, thereby binding PCA. PP contended he had no authority to conclude contracts for a period in excess of five years.

4853. Turning to contracts 33 and 35, these had been negotiated between the parties over a long period of time. No question was raised within PCA that Mr Treacy was not permitted to negotiate contracts of the length, price and quantities in respect to these two contracts.

4856. Mr Duvall who is employed by the parent company, Pacificorp, was sent to Australia and on 14 July 1997 took up his position as manager of energy trading. He replaced Mr David Cornelius. He was sent to Australia to set up PCA as a commodity trader. Mr Duvall managed the trading floor and was the person in charge.

4859. Each Tuesday there was a strategy meeting which involved a number of persons, including Mr Treacy. Mr Duvall chaired those meetings, discussions took place as to trading strategies and pricing, and discussions were had and decisions made with respect to contracting.

4862. Mr Treacy was not on a frolic of his own when negotiating the deals with Mr Murphy in 1997 and whatever he did was done with the authority of Mr Duvall.

4865. The fact was that Mr Treacy was the man entrusted by PCA to transact the deals. His deals were done with the knowledge of Mr Duvall. Mr Duvall authorised him to go ahead with the deals. The deals were done. On any view, Mr Treacy had authority to bind PCA. Trade tickets were completed and lodged with administration very soon after contracts 33 and 35 were agreed. This was part of the system within PCA. No query was raised that Mr Treacy was not authorised to transact the deals. He completed the transactions, recorded them as concluded and reported to Mr Duvall. Senior management acquiesced in what he did.

4868. There is no evidence that any senior executive said that Mr Treacy did not have authority. The clear implication is that he was authorised to do what he did when he did it. What he did was done with the knowledge of the senior personnel of PCA who acquiesced in what he did. The nature of his employment and what he did is powerful evidence of his authority in the absence of any evidence of prohibition.

4871. The point is made by PP that he was only permitted to agree to contracts of five years or less.

4874. It will be necessary to consider the mandates which were sent by PCA to PP insofar as they bear upon this question, but in the end it is a matter of the contract between PCA and Mr Treacy.

4877. I am satisfied that he had the necessary authority to transact the contracts number 33 and 35.

4880. This brings me to the contracts made on 28 November 1997. First of all, contracts 38 and 39 were for periods less than five years.

4886. One thing is very clear and that is that the decision to proceed with these November contracts was made by Mr Duvall.

4889. I accept his evidence that after Mr Murphy said he could not extend the offer beyond the end of November 1997 that a meeting took place involving Messrs Treacy, Daley and Duvall. After considering various matters a decision was made to proceed. I accept the evidence of Mr Duvall that he telephoned Mr Sickels, Vice President of Pacificorp at his home to discuss what was proposed and after some discussion Mr Sickels agreed that PCA should proceed.

4892. Mr Treacy was then instructed to accept the offers which was done.

4895. In my opinion the evidence establishes beyond doubt that Mr Duvall made the decision, he instructed Mr Treacy to communicate the acceptance and in those circumstances I am satisfied that Mr Treacy was authorised to communicate the acceptances of the offers and these acceptances constituted the contracts.

4898. In my opinion Messrs Duvall and Treacy had the authority to bind PCA with respect to these contracts.

4901. Turning to the contracts made on 29 May 1998, contracts 43, 44, 45 and 47 are for five year periods. They fall outside the defence.

4904. If Mr Treacy's authority was limited to five year contracts then these were within his authority.

4907. The only contract which was in excess of five years is contract 46.

4910. Again, the question as at 29 May 1998 was whether the contract of employment between PCA and Mr Treacy authorised him to make the contract? The most cogent evidence of this, is what he did in the course of his employment which was accepted by his employer without demur. Two substantial contracts for long periods were the Alcoa and the BHP contracts which were in excess of five years. They were transacted in 1997. Confirmations were signed. No issue arose within PCA that Mr Treacy did not have the authority to transact the business.

4913. The obvious reason for this was because Mr Treacy consulted with Mr Duvall and decisions were made to proceed. The fact was that negotiations took place, contracts were agreed, confirmations were signed and exchanged and within PCA no question was raised as to Mr Treacy having the authority to do what he did. PP did not raise any issue.

4916. He had clear express authority to enter into contracts in excess of five years. This is clear from the events leading up to 29 May 1998 and I am satisfied that as at that date, namely, 29 May, he had the necessary actual authority to enter into the agreements and bind his employer.

4919. PP's case depends to a large degree on PCA's mandates which were executed by Mr Spalding the Chief Executive and handed over to PP. These documents were exchanged in compliance with the obligations under the Master Agreement to provide the necessary authorities.

4922. The first mandate which was signed and forwarded to PP was dated 15 November 1996 and was provided to comply with the provisions of the proposed Master Agreement.

4925. It was signed by Mr Spalding who was Chairman and Chief Executive Officer. It provided that "energy trading transactions" were defined as all transactions of "up to five years" and certain persons were authorised to enter into energy trades with PP and they included Mr David Cornelius who was Manager Energy Trading, and Mr Treacy who was described as Manager Energy Purchasing (NSW). The document went on to provide that certain persons were authorised to "complete and sign a documentation confirming energy trades". The four persons named included Mr Cornelius and three very senior executives of PCA. It was noted that the same person could not undertake an energy trade and also confirm it.

4928. The mandate responds to the Master Agreement documentation in that it recognises a difference between concluding an agreement and signing the documentation concerning the agreement.

4931. A similar document was executed on 1 August 1997 to remove Mr Cornelius and replace him with Mr Greg Duvall who was described as - "Assistant Vice President - Energy Trading". Mr Duvall was authorised to enter into energy trades and was also authorised to sign a confirmation. A similar document was executed on 18 November 1997 to add two further persons to the trading team.

4934. PP submits that these documents are of no effect because there is no evidence that Mr Spalding had express actual authority to execute these mandates.

4937. I must say I am surprised by this submission because if that is so then there are no written authorities which could possibly in any way provide an argument that Mr Treacy's authority was limited. However, I reject the submission. It lacks reality. The presumption of regularity would be sufficient to found the authority. Further, Mr Spalding occupied the very senior position of Chairman and Chief Executive Officer of PCA. The issue was not raised during the trial.

4940. The real issue does not depend upon mandates passing between PP and PCA as to authority but what the agreement was between Mr Treacy and PCA. It is said that the mandates show that Mr Duvall's authority was limited and accordingly he could not give any permission to Mr Treacy to bind PCA. I have already found that Mr Duvall sought permission of Mr Sickels and the November agreements were made after discussion with a senior person with Pacificorp.

4943. Mr Treacy's authority depended upon his contract of employment and the facts show that PCA through various senior personnel required Mr Treacy to contract on behalf of PCA and PCA adopted what he did. I am satisfied that these mandates which passed between the parties did not mean that within PCA Mr Treacy lacked the necessary authority to convey an acceptance on behalf of PCA of PP's offers and thereby bind PCA or contract on its behalf. What was done by Mr Treacy was done with the knowledge of the senior executives of PCA and in my view there can be no question that he had the necessary authority.

4946. PP also submitted that there were documents within PCA's possession which raise considerable doubts about the authority of either Mr Duvall or Mr Treacy to enter into the disputed contracts. These documents arguably raised an issue whether PCA could enter into the contracts in question. This was not the issue pleaded.

4949. Reference was made to internal documents of PCA, guidelines from Pacificorp, memoranda from employees at Pacificorp, resolutions of the Board of Pacificorp and a directive from Pacificorp which imposed a limit of US$1M daily earnings at risk for Australian electricity trading. In addition, statements made in reports prepared by two firms of accountants, Arthur Andersen and Deloittes, were relied upon to found an argument that PCA's authority and hence its trader's authority were limited. In considering these statements it must not be overlooked that they are hearsay and do not bind unless adopted by PCA or represent a statement made by a PCA employee authorised to make it. The fact was that the statements in the various reports were the work of employees of the accountants.

4952. Mr Duvall was cross-examined at length to suggest that PCA was not authorised to enter into the disputed contracts and reference was made to these various documents. The starting point was a document called an Energy Trading Risk Management Policy which was drafted for reference to PCA's Board in early 1997 but I am satisfied on the evidence that the document was never adopted by the Board.

4955. Mr Downes QC sought to prove that the Energy Trading Risk Management Policy was in fact the trading policy of PCA and that this clearly showed that the company was not able to undertake hedge transactions in excess of five years and hence there was a limit on the traders entering into long term contracts. He referred to many other documents which tended to support this inference and he also relied on draft reports prepared by Arthur Andersen and Deloittes, accountants engaged to report on PCA's trading system. He also emphasised the fact that the disputed contracts involved large sums of money with substantial risks and therefore there had to be a limit.

4958. I have closely considered the documents and the arguments but I am not prepared to draw the conclusion that they show that nobody within PCA could enter into contracts in excess of five years. Much of what Mr Downes sought to prove is speculation and hypothetical.

4961. I accept the evidence of Mr Duvall which is to the effect that PCA did have the necessary authority to enter into contracts in excess of five years and it must follow that if Mr Treacy is requested to finalise a deal, that he had the necessary authority to do so.

4964. The fact was that the commercial reality was that PCA decided to enter into these contracts and Mr Treacy was the man who was employed to finalise the deal and clearly had the authority to do so.

4969. If I am wrong in respect to the finding that Mr Treacy had the necessary authority to enter into the 11 disputed contracts and thereby bind PCA, in my opinion the evidence is clear that PCA ratified any lack of authority.

4972. The evidence shows that from early June 1998 PCA was evincing the intention to proceed with the contracts. When Mr Murphy raised doubts about PP completing the contracts all the endeavours of PCA was to ensure that the contracts were enforced. This was so after the letter of 10 June which repudiated the May contracts and the letter of 26 June which made it clear that PP repudiated the 11 disputed contracts. The writ was issued on 21 August 1998 and I have no doubt by that date PCA had ratified any lack of authority.

4975. It has been the law for many, many years that under certain conditions a contract which at the time was entered into on behalf of a principal by an agent who lacked authority may, by the subsequent conduct of the principal, be ratified by him and the contract is treated as if the principal had previously authorised it.

4978. The authority is conferred retrospectively and the contract is considered to have been authorised at the date when the unauthorised agent concluded it on behalf of his principal.

4981. In order to constitute ratification it must be evidenced by clear adoptive acts or by acquiescence equivalent to clear adoptive acts. It may be implied from conduct. To constitute ratification there must be full knowledge of the circumstances by the principal and an unequivocal adoption after knowledge.

4984. By instituting a proceeding to enforce the contract that is evidence of an unequivocal adoptive act.

4987. By PCA instituting the present proceeding it was ratifying the actions of Mr Treacy and in accordance with the principle of ratification had the retrospective effect of giving authority to Mr Treacy at the time when he concluded each of the disputed contracts.

4990. In my opinion PCA had by the 30 June 1998 evinced an intention to proceed with the disputed contracts and at that moment ratified any lack of authority in Mr Treacy if there had been.

4993. Mr Downes QC submits that if the other party to the contract informs the unauthorised party that it is not proceeding with the contract prior to the act of ratification, the act of ratification is of no effect. To put it another way, if the offer is withdrawn before the act of contracting is ratified then the ratification can have no effect upon the lack of authority to make the alleged contract.

4996. In the present case the contracts had been concluded by 4 June 1998 at the latest and PP raised the question of no-one in PCA having authority in its letter of 10 June 1998.

4999. PP repudiated the agreements by 19 June 1998.

5002. Mr Downes QC submits the contracts were terminated prior to ratification and therefore the act of ratification was of no effect.

5005. There is a long standing authority standing in the way of the argument of Mr Downes QC.

5008. In Bolton Partners v Lambert (1889) 41 Ch.D 295, an offer to purchase was made by the defendant to X who was the agent of the plaintiffs but who was not authorised to make any contract of sale. The offer was accepted by X on behalf of the plaintiffs and then the defendant withdrew his offer. After the offer had been withdrawn the plaintiffs ratified the acceptance of the offer by X and brought a proceeding for specific performance.

5011. Kekewich J at first instance said at p.301 -

"The doctrine of ratification is this, that when a principal on whose behalf a contract has been made, although it may be made in the first instance without his authority, adopts it and ratifies it, then, whether the contract is one which is for his benefit and which he is enforcing, or which is sought to be enforced against him, the ratification is referred to the date of the original contract, and the contract becomes as from its inception as binding on him as if he had been originally a party."

His Lordship held that the plaintiffs were entitled to a decree of specific performance.

"The rule as to ratification by a principal of acts done by an assumed agent is that the ratification is thrown back to the date of the act done, and that the agent is put in the same position as if he had had authority to do the act at the time the act was done by him."

"I think the proper view is that the acceptance by X did constitute a contract, subject to its being shown that X had authority to bind the company. If that were not shown there would be no contract on the part of the company, but when and as soon as authority was given to X to bind the company the authority was thrown back to the time when the act was done by X and prevented the defendant withdrawing his offer because it was then no longer an offer but a binding contract."

Lord Justices Lindley and Lopes in separate judgments came to the same conclusion.

5025. The decision of Bolton Partners v Lambert has not escaped criticism. Mr Downes QC submitted that in the light of the criticism this court should decline to follow it. Of course it is not binding on me but nevertheless represents the considered opinions of four eminent judges.

5028. Lord Lindley in delivering the advice of the Privy Council in Fleming v Bank of New Zealand (1900) AC 577 at 587 said this -

"The above view of the case renders it unnecessary to consider any question of ratification or to dwell on the decision of Bolton Partners v Lambert and its application of the facts of this case. The decision referred to presents difficulties: and their Lordships reserve their liberty to reconsider it if on some future occasion it should become necessary to do so." (Emphasis added.)

5032. Lord Lindley was one of the judges in the Court of Appeal decision.

5035. It is important to note what his Lordship said. Its application to the facts in the Privy Council decision could have raised difficulties. He is not saying it is wrong.

5038. In Davison v Vickeries' Motors Ltd (in liq) [1925] HCA 47; (1925) 37 CLR 1, Isaacs J who dissented traced the history of Bolton Partners v Lambert and its consideration by various courts and after referring to the Privy Council decision, supra, said this at p.16 -

"In my opinion those observations, especially from one of the authors of the decision, shakes it severely, and leaves the case entirely open for any superior court of the Empire subject to the revision of the Privy Council to consider the matter for itself. I cannot think it is required of this court at all events that it should blindly follow any decision of an English Court of Appeal that it believes to be wrong and more particularly a decision that the Privy Council itself has seriously doubted."

5042. If I may say so with respect the Privy Council did not doubt the decision but stated that the decision could have presented difficulties in respect to the facts of that case.

5045. His Honour then referred to the history subsequent to 1900 and concludes that it should not be followed.

"It is also unnecessary, in this case, for me to decide whether the case of Bolton Partners v Lambert is good law or not; for in that case the would be agent did clearly purport to act for the company in accepting the offer, and the ratification did relate back to the date of the unauthorised contract."

The case has been referred to and considered in NM Superannuation Pty Ltd v Hughes (1991) 27 NSWLR 26 and on appeal see (1992) 29 NSWLR 653.

5054. In considering Bolton Partners v Lambert it is important to determine what the Court of Appeal held. What was the ratio decidendi in its narrow sense, namely, what did it decide on the facts?

5057. The facts demonstrate that both parties to the contract knew that the agent was purporting to act on behalf of a company. The contract was concluded. Later, the purchaser withdrew the offer before ratification. There was no question of any rights intervening or any prejudice suffered if the retrospective effect of the principle of ratification applied.

5063. The learned judges in the Court of Appeal recognised that the rule as to ratification was subject to exceptions. See Cotton LJ at p.307 and also Lindley LJ at p.309 who said -

"I see no reason to take this case out of the application of the general principle as to ratification."

5067. Difficulties will arise with respect to ratification if the interests of others are affected by the retrospective application of the doctrine.

5070. It is well established that the time within which ratification can take place must be a reasonable time and that the principle does not apply if ratification prejudices the interests of third persons.

5073. There are a number of examples found in the cases which establish these propositions.

5076. The problem with the case of Bolton Partners v Lambert arises if one seeks a principle of law of general application, with the result that the retrospective effect causes prejudice.

5079. The question arises where the application of the principle would prejudice the interests of others. Would it be unjust in the circumstances to apply the principle?

5082. Mr Downes QC was unable to refer to any matter which showed that the application of the decision in the present case prejudiced the rights of either PP or others or caused an injustice.

5085. The facts of the present matter are indistinguishable from the facts in Bolton Partners v Lambert. There is no question of any prejudice to the rights of others if the principle of ratification applies.

5088. In my opinion the principle does apply which means that once PCA ratified the acts of any of its employees who did not have authority at the relevant time to contract on its behalf, the ratification operated retrospectively and at the relevant time the particular employee had the necessary authority.

5091. PP submitted that ratification must take place within a reasonable time and ratification can never take place after the time when the contract commences. See Managers of Metropolitan Asylum Board v Kingham (1890) 6 TLR 217. In that case Fry LJ said that ratification cannot take place after the time of commencement of the contract. That is a wide proposition and one that could work an injustice. I decline to follow it. So did Parker J in Bedford Insurance Co Ltd v Institutio De Resseguros Do Brasil (1985) QB 966.

5094. PP refers to contract 33 and contracts 43 - 47 which commenced on 1 July 1998. I do not accept that ratification cannot take place after the contract commences. Ratification operates retrospectively.

5097. But in any event I am satisfied on the facts that it was made quite clear to PP prior to 1 July 1998 that PCA wished to proceed with the contracts made. That is ratification occurred before the contracts commenced.

5100. It was submitted also that there must be clear communication of ratification and I accept that as a general proposition. In my opinion there was clear communication of an intention to be bound by the end of June 1998. Further, it must be pointed out that the issue then raised by PP did not raise the question of no authority to conclude a contract but only raised the question of approval by somebody in PCA as to details already agreed and in a general vague way the suggestion was that the same point was made in relation to contracts 38 - 41. The letter of 19 June 1998 only referred to Mr Murphy's lack of authority. In my opinion the facsimile of 15 June 1998 from Mr Treacy to Mr Murphy made it quite clear that PCA wished to proceed with the contracts.

5103. In my opinion the principle of ratification applies in the present proceeding and if Mr Treacy or indeed Mr Duvall did not have the necessary authority to enter into the contracts made in November 1997 and May 1998 thereby binding PCA I find that at the latest by 30 June 1998 PCA had ratified the actions of the employees of PCA, the principle applied and accordingly lack of authority was retrospectively rectified.

5108. PP contends that in respect of some of the disputed contracts the term which required that the load shape be not less than a certain percentage was expressed in a way which was mistaken.

5111. PP pleads as a defence that at the time the parties entered into contracts numbered 39 - 41 (inclusive), namely, 28 November 1997 and contracts numbered 43 - 46 (inclusive), namely, 29 May 1998 ("relevant contracts"), the parties either were labouring under a common mistake or in the alternative it was labouring under a mistake and as a result the written contracts did not accord with the true agreement made between the parties.

5114. PP has pleaded mistake also in relation to contracts numbered 33, 35 and 47 but in final address did not contend that the terms of those contracts were affected by any mistake concerning the obligation of the load shape to meet a certain minimum.

5117. PP claims rescission of the relevant contracts but in final address confined that relief to contracts numbered 41, 43 - 46 (inclusive).

5120. In its counterclaim it claims rectification in respect of each of the relevant contracts.

5123. PP alleges that there was a mistake in each of the relevant contracts in the term concerning the obligation of the load shape to meet a minimum percentage of the load.

5126. It was a term of each of the relevant contracts that the load factor was to be -

5130. Each of the disputed contracts involves a notional volume of electricity over the period of the contract.

5133. As the price is fixed for each half hour it is necessary that the volume of notional energy to be supplied at that moment in time is also specified.

5136. If the supply every half hour is the same throughout the supply period, then the load is described as a flat load, that is, 100% load factor.

5139. However, the load may change during the peak period, ie 7.00 a.m. to 11.00 p.m. in Victoria, so that the volume every half hour may be different. In the normal course of events the demands during the peak hours for actual electricity do change.

5142. Hence it was agreed between the parties that the actual load shape could be sculptured by PCA so that the specified volume during the period of supply would vary from half hour to half hour. However, PCA was not left to its own devices. The parties agreed to a formula. It was agreed that the particular load shape had to meet a certain minimum percentage of the whole. This was expressed, as I have stated, by the formula which prescribed -

5146. There is no dispute between the parties as to how the load factor is to be calculated in accordance with the agreed minimum factor.

5149. In relation to a flat load Dr Nelson gave evidence that if it was flat and the total volume for the year was 200Gwh both peak and off-peak then a flat load would translate to 200Gwh over the year, divided by the number of hours 8,760. This produces a constant energy volume of 22.83 Mgw per hour. In the case of such a contract, in every hour the energy demand (22.83 Mgwh) is applied to the contract and the floating price is calculated by reference to the prevailing pool price. The difference between the spot price and the final price will result in a payment from one party to the other.

5152. One compares the flat load with the requirement that the minimum load factor be agreed at, say, not less than 50%. That was a term of the first undisputed contract entered into between the parties in November 1996. PCA sculptured, ie prepared the load shape to meet the agreed load factor.

5155. The actual load shape comprises attachment 16 to Dr Nelson's witness statement.

5158. Part 3 of the load shape is concerned with the notional quantity of electricity supplied during the week days. A reference to the document shows that for the first six hours of the day the notional quantity is 4.5MWh and the price is fixed at $19.70/MWh and then for the period from 6.00 a.m. through to 5.00 p.m. the quantity is 22MWh at a price which varies from $19.70 through to $45.30.

5161. The notional quantity and fixed price are fixed for each half hour of the year. It is then necessary to determine whether the load as sculptured by PCA met the requirement that the minimum load factor was to be not less than 50%.

5164. In order to determine this an agreed formula was used to do the calculation.

The notional volume for the year, ie 186GWh is multiplied by 1,000 to convert to MWh and this figure is divided by 24 hours by 365 days by the maximum demand.

5171. By looking at the load shape as set out in the attachment to confirmation No. 1 one can readily see what was the maximum demand at any point in time.

5174. Taking the example of 186GWh the calculation is as follows -

186 x 1,000 = 0.419655 24 x 365 x 50.596MW (the maximum demand) In other words it translates at 41.96%.

5178. PP alleges that the term included in the relevant documents did not express the true agreement between the parties which should have been -

5182. It is noted that there are two words added to the term of each relevant contract, namely, "annual peak". It is the word "peak" which makes a substantial difference to the load because if the requirement is based upon "peak" this means that the formula is only concerned with peak hours instead of all hours.

5185. There is a substantial difference to the calculation depending on whether all hours are used or only peak hours are used.

5188. It is the contention of PP that "peak" in the term refers to peak volume and not peak hours and therefore there is no difference between the two terms but if this is wrong then there is a difference. In my opinion "peak" means "peak hours".

5191. PCA denies that there was any mistake. It says that in the negotiations from beginning to end the term was always "minimum annual peak load factor of 38%". It says there was no mistake.

5194. Although PP pleaded that it was entitled to rescind the relevant contracts for common mistake, it did not seek to establish the case for rescission based on common mistake and in final address confined the relief for common mistake to rectification and sought in respect of unilateral mistake, rescission and in the alternative, rectification.

5199. In a claim for relief based upon common mistake, the party seeking the relief has the burden of establishing the following -

(i) That the parties had agreed to a term prior to recording it in writing;

(ii) that the parties in stating the term in the written version mistakenly expressed their true common intention;

(iii) that during the time after the term was agreed until the recording of it, it was the continuing intention of the parties that the term was as agreed;

(iv) that if rectified as claimed the written contract would give effect to the common intention of the parties.

5205. The burden of proof is on the party who alleges mistake and the standard is high. It has been described as "strong irrefragable evidence" as early as 1784 - see Countess of Shelburne v Earl of Inchiquin [1784] EngR 38; (1784) 1 Bro. C.C. 338 at 341 per Lord Thurlow and in 1939 as a "high degree of conviction" - per Greene MR in Crane v Heggeman-Harris Co (1939) 4 All E.R. 68 at 71.

5208. In some cases the mistake is obvious. It can be traced with confidence from the negotiated agreed term to the error in the written document. These cases present little difficulty.

5211. But in cases such as the present where there is a real dispute between the parties as to the alleged mistake, the standard of proof must remain high. There are many good reasons for this high standard.

5214. First, in some cases - and this is an example - it is alleged by one party that there has been a mistake made by the party. The evidence often comes down to one person stating what his intention and state of mind was. In the absence of any other evidence the court is faced with a person stating that he was labouring under a mistake. Evidence, easy to assert, nearly impossible to disprove and very difficult to test.

5217. Secondly, a party is bound by the terms of the contract made whether he read them or understood them. This is a general proposition subject to some exceptions but it is a very important starting point when considering the issue. See Watkins v Rymill (1884) 10 QBD 178. Sometimes a party may misunderstand a term, may not appreciate what it means but it is important that contracts solemnly and bona fide entered into should be enforced. Often parties do not read or read carefully the contract or misunderstand the language. Nevertheless the party has agreed and the other party relies on the apparent agreement. It would be indeed mischievous and destructive of certainty in dealings if a party could assert mistake to avoid an obligation without being put to strict proof.

5220. Thirdly, in construing a contract, the objective of the court is to determine the meaning according to the common intention of the parties. This is an objective test. The intentions, hopes, aspirations and understandings of the parties are not relevant to the exercise.

5223. Fourthly, a contracting party may misunderstand what the contract means, but it is important that a contract is upheld giving effect to the common intention of the parties determined on an objective basis. To do otherwise creates uncertainty in contracting which is detrimental to the expectations of contracting parties, the administration of law and certainty.

5226. PP's defence and claim for rectification is based upon Mr Murphy's evidence.

5229. The evidence is mainly based upon his state of mind and understanding with respect to the term. As I have stated PCA denies any mistake. Accordingly, PP carries a very heavy burden of persuading the court that a mistake has been made in the recording of the agreement between the parties.

5232. The relevant date for contracts 39 - 41 is 28 November 1997 and for contracts 43 - 46, 29 May 1998. They were the dates when the contracts were made.

5235. At the time when the contracts were made on 28 November 1997 two other contracts were agreed, confirmations were signed and exchanged and performance commenced on 1 January 1998. These are contracts 36 and 37 and each contained the term that the load factor was to meet the requirement - "minimum annual peak load factor of 38%".

5238. The load profiles which were attached to the confirmations and which had been prepared by PCA met that requirement.

5241. Mr Murphy checked the load profiles of these contracts when they were sent to PP in January 1998. He did the calculations to determine whether the load shapes met the requirement and thought they did. If in fact the load shape had to meet the requirement of a minimum load factor of 38% then clearly they did not. Mr Murphy did not ascertain any error in making the calculations. With hindsight he admitted he may have been careless. Another factor of some importance is that at no stage has any complaint been made concerning the alleged mistake to PCA and further, Mr Murphy did not appreciate, so he said, the difference between the two phrases until about October 1998 when in the course of preparing the documents for discovery and himself to give evidence, he appreciated the difference between the two terms.

5244. Given those facts the burden resting upon PP of proving mistake justifying relief becomes heavier.

5247. The term in its original form had been discussed in early 1997. In negotiations in May 1997 Mr Murphy in relation to long term pricing indicated a minimum load factor of 38% in each year.

5250. The same term was used in further negotiations in June, July and August 1997.

5253. At the end of June 1997 Mr Treacy commenced negotiations for a hedge contract in relation to a possible retail contract PCA was interested in for the company New Crest at Cadia in central New South Wales. Discussions took place and one component of the proposal was the 38% minimum load factor requirement.

5256. In late August 1997 Mr Treacy indicated to PP that it was unlikely that PCA would proceed with the Cadia proposal.

5259. Despite the fact that the Cadia matter was put on hold, PCA was anxious to use the proposal as a basis for further negotiations.

5262. The summary of the proposal prepared by PCA on 15 July 1997 and sent to PP did refer to "a minimum load factor of 38%".

5265. On 28 August 1997 Mr Treacy sent to Mr Murphy a copy of this proposal and wrote -

"We now wish to use this as a basis of a draw down product with the load details advised by 30/3/98. Please advise which aspects of the proposal are causing a concern to you."

5269. It is noted that the proposal was to be used as a basis of the product.

5272. Mr Daley within PCA prepared a document entitled "Ten Year Draw Down".