Powercor Australia Ltd v Pacific Power [1999] VSC 110

Supreme Court of Victoria|1999-11-18|Before: Gillard J

The application of the Master Agreement establishes the parties intended to be bound. This conclusion is subject to the holding back argument.

Contract 38 is a collar contract and PCA alleges that it and contracts 39, 40 and 41 were all concluded on the one day, namely, 28 November 1997.

This group of alleged contracts all share a common genesis but it is appropriate to deal with contract 38 separately and then to deal with the other three contracts together. PCA alleges that the other contracts were varied in June 1998.

This alleged contract is a collar contract for the supply of off-peak notional electricity.

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.

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.

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."

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

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.

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

It will be necessary to return to this proposal hereafter.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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"

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

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.

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.

On any view the essential terms were agreed.

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

The language of the parties is one of agreement.

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

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.

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

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.

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.

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."

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.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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."

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.

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

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.

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

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.

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.

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.

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

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.

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.

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."

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."

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

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."

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.

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.

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."

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.

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.

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.

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.

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."

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."

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.

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.

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

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.

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."

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"

Mr Treacy ended the facsimile by asking the question -

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

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".

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."

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).

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.

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.

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.

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."

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?"

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."

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.

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

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

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

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.

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

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

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.

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.

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.

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."

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.

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

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.

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

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.

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

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.

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.

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.

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.

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).

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.

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.

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

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.

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.

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

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

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."

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).

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.

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.

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.

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.

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.

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.

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.

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.

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

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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."

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%".

I am satisfied that the parties agreed to those terms.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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

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

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.

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

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.

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.

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

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.

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.

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.

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:".

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.

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

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.

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.

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

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.

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.

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."

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.

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".

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.

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.

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

At a glance

Court

Decision date

Before

Source

Judgment (1252 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (41)