BETWEEN : WESTERN POWER CORPORATION (ABN 38 362 983 875)

SOUTHERN CROSS PIPELINES AUSTRALIA PTY LTD (ABN 64 084 521 997)

SOUTHERN CROSS PIPELINES (NPL) AUSTRALIA PTY LTD (ABN 99 085 991 948)

Interim contract for access to electricity system - Construction of terms - Possible ambiguity - Use of extrinsic material - Implied term of termination - Frustration of contract - Injunctions - Words and phrases "as applicable to" - No new principles

Commercial Arbitration Act 1985

Electricity Distribution Regulations 1997

Electricity Transmission Regulations 1996

Goldfields Gas Pipeline Agreement Act 1994

Third Defendants : Mr M J Cave (given leave to withdraw)

Acetylene Co of Great Britain v Canada Carbide Co (1922) 8 Ll L Rep 456

Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641

Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191

Bank Line Ltd v Arthur Capel & Co [1918] UKHL 1; [1919] AC 435

Barro Group Pty Ltd v Fraser [1985] VicRp 59; [1985] VR 577

Booker Industries Proprietary Limited v Wilson Parking (Qld) Proprietary Limited [1982] HCA 53; (1982) 149 CLR 600

Charter Reinsurance Co Ltd v Fagan [1997] AC 313

Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36; (1995-1996) 186 CLR 389

Commonwealth Aluminium Corporation Ltd v Attorney-General (Qld) [1976] Qd R 231

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497

Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] WLR 896

J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1989] EWCA Civ 6; [1990] 1 Lloyd's Rep 1

Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; (1997) AC 749

Metro Water Board v Dick Kerr & Co Ltd [1917] 2 KB 1

National Carriers v Panalpina (Northern) Ltd [1980] UKHL 8; [1981] AC 675

Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854

Permanent Building Society v Wheeler (1992) 10 WAR 109

Pyx Granite Co Ltd v Ministry of Housing and Local Government & Ors [1960] AC 260

Rv The Directors of the Great Western Railway Company [1888] 20 QB 410

Sankey v Whitlam (1978) 142 CLR 1

Scanlan's New Neon Ltd v Tooheys Ltd [1943] HCA 43; (1943) 67 CLR 169

South Australia v The Commonwealth [1962] HCA 10; (1962) 108 CLR 130

1 This is a claim about the construction of an interim agreement granting access, upon terms, to an electricity distribution system.

2 Specifically, this is a trial of preliminary issues of all issues arising on the pleadings except two particular matters.

3 Almost all of the evidence was in documentary form. Issues raised on the pleadings and excluded from consideration by the orders of Steytler J are, in summary, whether the open access regime conforms with the Competition Principles Agreement and whether the open access regime constitutes access on reasonable terms and conditions under the Goldfields Gas Pipeline Agreement 1994. Additionally, as will appear below, issues raised in par 13(b) of the second and further amended defence and counterclaim were adjourned for further hearing. One short witness was called on behalf of the plaintiff. There was a substantial objection to evidence on the principal basis that evidence of the parties' intentions was inadmissible to determine the proper construction of the Interim Access Agreement.

4 The parties adopted in this respect a convenient course. Senior counsel for the plaintiff tendered all the exhibits which were admitted provisionally. Senior counsel for the defendant, in the course of his opening, which was also in substance his closing, outlined the basis of his objection. I indicated that I would deal with the objection in the course of my judgment.

5 The plaintiff is a statutory authority established under the Electricity Corporation Act 1994. It is not part of the Public Service. It is the successor to the State Energy Commission of Western Australia.

6 The plaintiff has had several names during the relevant times. I will for ease refer to the plaintiff as meaning Western Power Corporation or any of its statutory predecessors.

7 On 2 February 1983, the plaintiff and Kalgoorlie Lake View Pty Ltd and Homestake Gold Ltd entered into an agreement known as the KMA Agreement. This was an agreement for electricity distribution.

8 In the early 1990s, two events of State and national significance occurred which have a bearing on the present matters in dispute. On 11 April 1995, Western Australia, along with the Commonwealth and other States and Territories, was a signatory to the Competition Principles Agreement. The purpose of that agreement was stated:

"AND WHEREAS the Parties intend to achieve and maintain consistent and complementary competition laws and policies which will apply to all business in Australia regardless of ownership."

4.(1) Each Party is free to determine its own agenda for the reform of public monopolies

(2) Before a Party introduces competition to a sector traditionally supplied by public monopoly it will remove from the public monopoly any responsibilities for industry regulation. The Party will re-locate industry regulation functions so as to prevent the former monopolist enjoying a regulatory advantage over its (existing and potential) rivals."

10 Earlier, on 23 April 1994, the State of Western Australia, Westminco Oil Pty Ltd, Normandy Pipelines Pty Ltd, BHP Minerals Pty Ltd, Western Mining Corporation Holdings Ltd, and Normandy Poseidon Ltd, entered into the Goldfields Gas Pipeline Agreement to transport natural gas from the north-west gasfields to the Goldfields and to use the gas for a variety of functions including electricity generation.

11 The Electricity Corporation Act became largely, though not entirely, operative from 1 January 1995.

12 From about January 1995, Normandy Power Pty Ltd (the defendant) wished to be granted access to the plaintiff's South-West Interconnection System under the provisions of the Goldfields Gas Pipeline Agreement.

13 On 2 October 1996, the plaintiff and the defendant entered into the agreement which is the subject of this action. It is entitled the "Interim Access Agreement" and the action turns on the proper construction of its terms and in particular cl 5 which is headed: "Transfer to general open access regime". This transfer was to occur when the open access regime was applicable to the defendant. If and when that event has occurred is the issue.

14 On 31 December 1996, Electricity Transmission Regulations 1996 were published in the "Western Australian Government Gazette".

15 On 1 July 1997 the Electricity Distribution Regulations 1997 were published in the "Western Australian Government Gazette". These two regulations, together with Schedules 5 and 6 of the Electricity Corporation Act and ministerial access orders made thereafter, provided an access regime for distribution of electricity.

16 Between 28 August 2000 and 6 October 2000 the parties met and negotiated in good faith with a view to concluding a permanent agreement. Whether they did so pursuant to cl 5.2 of the Interim Access Agreement is an issue. The defendant contends not.

17 At all events, agreement was unable to be reached. On 20 October 2000 the plaintiff notified the defendant that the Interim Access Agreement would terminate on 20 January 2001. The defendant disputed the plaintiff's right to terminate and the plaintiff commenced these proceedings for a declaration that the Interim Access Agreement has been validly terminated or is otherwise at an end with effect from 20 January 2001.

18 One unusual feature of the case is that the argument on behalf of the plaintiff proceeds on the basis that the defendant has a direct right of access to its distribution system while the defendant argues that it enjoys no such right.

19 The defendant denies the plaintiff's claim and counterclaims against both the plaintiff and the State. As against the plaintiff it seeks an injunction restraining it from terminating the Interim Access Agreement, pursuant to the notice pleaded, and ceasing to provide the defendant with access to portions of the plaintiff's system.

20 As against the State, it seeks a mandatory injunction requiring the State to ensure that the plaintiff does not terminate the Interim Access Agreement and does not cease to provide the defendant with access to portions of the plaintiff's system.

21 The defendant also joined the third defendants by counterclaim but seeks no order against them. They indicated that they do not wish to participate in the conduct of the trial and would submit to whatever determination the court may make, save as to costs. In these circumstances, I granted leave to counsel for the third defendants by counterclaim to withdraw.

22 There are a number of technical terms which are used in Acts, instruments, and the Interim Access Agreement. Those relevant to this judgment include:

"Distribution:

The 'distribution' network is the electrical network used to distribute electricity to customers. This distribution network emanates from the bulk supply points, called zone substations, which are part of the transmission network. The term 'Distribution' also refers to the whole business related to the distribution network.

Electricity:

Is the energy form that an electricity network transports.

Megawatt (MW):

Refers to one million watts. This is a unit of measure of the rate at which energy is being consumed or generated. For example a light globe at home may be 100 watts and therefore a megawatt of energy is enough to power 10,000 light globes each of 100 watts.

Transmission:

The 'transmission' network is the electrical network used to transport electricity from the main generators to the bulk supply points which connect to the distribution network. The term 'Transmission' also refers to the whole business related to the transmission network."

The Goldfields Gas Pipeline Agreement Act 1994

23 It is the case that the defendant is affected by the Goldfields Gas Pipeline Agreement Act 1994 or more specifically the agreement which is scheduled to it. The manner in which the defendant is affected has a major bearing on the issues under the Interim Access Agreement, so I propose to resolve this issue first.

24 The State submits that cl 18(3) of the agreement creates rights against the State but cl 18(4) creates rights against the plaintiff. This argument is supported by the plaintiff but denied by the defendant.

25 The Goldfields Gas Pipeline Agreement is set out as a schedule to the Goldfields Gas Pipeline Agreement Act 1994. The Act was assented to on 3 May 1994. Section 4 provides:

"(1) The Agreement is ratified.

(2) The implementation of the Agreement is authorized.

(3) Without limiting or otherwise affecting the application of the Government Agreements Act 1979 the Agreement operates and takes effect despite any other Act or law."

26 The agreement was entered into on 23 March 1994. The agreement recites that the State desires to promote economic development in the inland Pilbara, and Goldfields, regions of Western Australia by facilitating the availability of natural gas in these regions under arrangements that aim to reduce energy prices and assure reliability of energy supplies.

27 The agreement defines "associated development" inter alia as follows:

"'Associated development' means the development by a Third Party comprising

(a) ...

(b) the construction commissioning of lateral Pipelines from the Pipeline and electricity generation (including cogeneration) facilities that utilise gas transmitted through the pipeline, associated electrical transmission lines from such generation facilities and facilities for the direct use of gas."

28 Neither the plaintiff nor the defendant are parties to the agreement. However, the defendant is a third party in an associated development as will become apparent.

29 Clause 18 is the relevant clause. It is entitled "Electricity Generating Works" and provides relevantly:

"18(1) The State acknowledges that associated developments that have been notified to it by the individual Joint Venturers as planned by the individual Joint Venturers or their associates are an essential element to the individual Joint Venturers of the overall Pipeline project.

...

(3) The State shall ensure that the State Energy Commission, where such access is technically feasible and economically feasible, shall grant access for electricity transmission to any integrated system of power supply of the State Energy Commission (or portions thereof) for the purpose of enabling the supply of electricity from any associated development approved by the Minister under section 7(1) of the Electricity Act (or other generating facilities so approved by the Minister)

...

(b) to other consumers approved by the Minister in areas determined by the Minister.

(4) The terms and conditions of any access granted pursuant to sub-clause (3) shall be subject to arrangements to be agreed between the State Energy Commission and the person seeking access (but subject always to emergency powers of the State Energy Commission and such operation on technical requirements as are necessary for the safe and reliable operation of its electricity grid) or, failing agreement, such reasonable terms and conditions as shall be determined by arbitration between the persons seeking access and the State Energy Commission under the Commercial Arbitration Act. ..."

30 There are a number of relevant facts which are pleaded by the defendant and are admitted.

31 During 1995 and 1996, pursuant to the Goldfields Gas Pipeline Agreement, a pipeline between the North West and Eastern Goldfields regions of Western Australia was constructed and commissioned by a joint venture of which Normandy Pipelines Pty Ltd was a member.

32 On 16 February 1995, pursuant to the Goldfields Gas Pipeline Agreement and s 7(1) of the Electricity Act 1945, as modified by clause 18(2) of the Goldfields Gas Pipeline Agreement, the Minister approved the establishment and operation of an electricity generating station in the Kalgoorlie area consisting of up to four gas turbine generating units giving a total installed capacity of 150 MW, using gas from the pipeline, by a joint venture which included NP Kalgoorlie Pty Ltd, a wholly owned subsidiary of Normandy Mining Ltd.

33 Pursuant to the approval, between mid-1995 and October 1996, the Parkeston power station was built and commissioned in Kalgoorlie and, since October 1996, that power station has generated electricity using gas transported through the pipeline.

34 Pursuant to the term of the Goldfields Gas Pipeline Agreement:

(a) Kalgoorlie Consolidated Gold Mines Ltd ('KCGM') was and is an associate of a joint venturer for the purposes of the term pleaded in par 18(b) and, on 24 March 1994, was approved as such by the Minister and was thereby a consumer able to be supplied with electricity generated at Parkeston, and

(b) the Minister, on 27 September 1996, approved New Hampton Gold Mines NL ('New Hampton') as a consumer able to be supplied with electricity generated at Parkeston.

35 In early 1996, the Minister approved the construction by the defendant, a wholly owned subsidiary of Normandy Mining Ltd, of electricity transmission lines from Parkeston to certain nominated mining sites in the Eastern Goldfields region of Western Australia.

36 Pursuant to that approval, the defendant constructed electricity transmission lines from Parkeston to various mining sites in the Eastern Goldfields region.

37 The plaintiff argues that the provisions of cl 18 conferred rights upon the defendant which were always available to it. The defendant agrees that the agreement created rights in it but argues that those rights are rights only against the State and the Minister not directly against the plaintiff.

Interpretation of the Goldfields Gas Pipeline Act - clause 18

38 Having regard to the admitted facts, the obligation on the State under cl 18.3 is to ensure that the plaintiff (where such access is technically and economically feasible) grants access to its system by the defendant.

39 In the event that the plaintiff fails to grant access, the defendant can take action against the State to ensure the plaintiff's compliance with the obligation.

40 There is no issue that the plaintiff has granted access to the defendant voluntarily. In these circumstances, there is nothing for the State to do. It has no continuing obligation to ensure that which has already occurred.

41 The plaintiff by its reply, pleads that it is ready, willing and able to provide to the defendant access to portion of its system on reasonable terms and conditions, agree, or failing agreement determined by arbitration under the Commercial Arbitration Act 1985 as provided for in cl 18.4.

42 The Goldfields Gas Pipeline Agreement was executed and subsequently ratified at a time when the plaintiff was an agent of the Crown and was subject to significant ministerial direction. Although it is not a party to the Goldfields Gas Pipeline Agreement, on reflection, I consider that the provisions of the Goldfields Gas Pipeline Agreement Act s 4, and the terms of clause 18, nevertheless gives rights to the defendant as against the plaintiff.

43 The provisions of 18.3 having been fulfilled, the effect of 18.4 is to give the defendant two rights. The first is a right to reach agreement with the plaintiff on the terms and conditions for access. Access is given under the agreement. It is only the terms and conditions which are to be the subject to negotiation and agreement. The second right operates if agreement cannot be reached. Then the defendant has a right to proceed to arbitration under the Commercial Arbitration Act. In such event, the arbitrator shall determine the reasonable terms and conditions of access.

44 The Commercial Arbitration Act provides by s 3(4) that its provisions shall apply to arbitrations provided for in any other act as if the other Act were an arbitration agreement.

45 The effect of the Goldfields Gas Pipeline Act s 4 is to bring the agreement under the Commercial Arbitration Act.

46 The Electricity Corporation Act 1994, except for s 90, s 91 and s 93 came into operation on 1 January 1995.

"An Act to establish a corporation with the function of supplying electricity, and with functions necessary for and related to that purpose, to make provision as to access to the corporation's transmission and distribution systems and as to new generation by the corporation, and for connected purposes."

48 The Electricity Corporation Act in many of its terms foreshadows in the area of electricity transmission and distribution what the State would later agree in the Competition Principles Agreement.

49 Specifically and relevant to this litigation, Part 6 provided for access, pricing and procurement. Part 6 covers s 89 to s 95.

50 The scheme of Part 6 was to provide for an orderly transition from the monopoly previously enjoyed by the plaintiff to competitors in power transmission and distribution. In simple terms the new regime would open up the plaintiff's infrastructure, especially its transmission and distribution facilities, to other power companies.

51 There was to be a progressive introduction of competition, hence the delay in s 90, s 91 and s 93 becoming operational. The operative provisions are in the schedules. Schedule 5 (under s 90) covers access to, and pricing for, electricity transmission capacity. Schedule 6 (under s 91) provides for access to, and pricing for, electricity distribution capacity.

52 Section 93 provides that the Minister, by order, is to prescribe the manner and timing of the progressive introduction of Western Power's obligations to make available access to spare capacity and new capacity on a non-discriminatory basis and on a first come first served basis to any existing or prospective user seeking access to either or both of those capacities, being transmission capacity (Schedule 5) and distribution capacity (Schedule 6).

53 The Government's plan is conveniently set out in a media release of 12 February 1996 (Ex 69A). This exhibit was admitted by consent. It is relevant to later arguments about the genesis and objective aim of the Interim Access Agreement so I shall set it out in full:

"MEDIA STATEMENT MINISTER FOR ENERGY

12/2/96

Cheaper electricity for Western Australia's major industries is closer to reality following the Government's decision to implement the third stage of its energy restructuring program.

Energy Minister Colin Barnett today released details on his plans to further deregulate the electricity industry at a major conference on infrastructure.

The Minister said the first stage of energy restructure involved the splitting of SECWA into Western Power and AlintaGas and introducing head-to-head competition between electricity and gas.

The second stage consisted of deregulating the gas industry, involving such moves as the desegregation of the NW Shelf gas contracts and providing access for both gas producers and consumers to the Dampier-to-Bunbury Natural Gas Pipeline.

Mr Barnett said that in order to maintain the competitive pressures within the energy sector, it was now appropriate to introduce the third stage, which was to provide access for large electricity producers and large electricity consumers to Western Power's high voltage electricity transmission and distribution systems.

'In future, large electricity consumers will be free to enter into contracts with either Western Power or private sector generators (for example, BP/Mission Energy's cogeneration project) to purchase electricity, which could then be supplied via Western Power's transmission and distribution systems,' he said.

'With the large number of private sector power generation projects currently under construction, such as those associated with the Gas-to-the-Goldfields pipeline, it has been necessary to implement a workable open access regime to ensure that electricity consumers are able to benefit from increased levels of competition.

'This, coupled with the need to provide companies and Western Power with a fair and competitive framework for negotiations, led to the third stage of reforms being introduced ahead of the original schedule.'

Under the new arrangements, open access will be provided to large electricity consumers on the following basis:

* January 1, 1997 - for all consumers taking supply directly from Western Power's high voltage transmission system (66kV or more);

* July 1, 1997 - for all consumers with an average load exceeding 10MW at a single point, as well as consumers who are approved under law to receive electricity from other than Western Power on another site (ie Normandy Power under the Goldfields Agreement Act). (My emphasis)

* July 1, 1998 - consumers in the Pilbara, Eastern Goldfields and non-interconnected areas with an average load exceeding 5MW at a single point; and -

* July 1, 1999 - all other consumers with an average load exceeding 5MW at a single point.

'These arrangements will lead to more than 20 of Western Power's largest existing customers being provided with open access by mid-1999,' Mr Barnett said.

'Deregulation of the power line system will provide a further boost to economic development by promoting investment opportunities and will ultimately lead to the supply of cheaper electricity - the key to the further processing of our vast mineral resources in WA.'

The Minister said consideration would also be given to extending open access to smaller energy users in the future."

54 The Minister also wrote to the defendant on 6 February 1996 (Ex 69 admitted by consent) as follows:

"Given the need to conclude negotiations between Normandy Power and Western Power on an interim agreement, I wish to confirm that as of 1 July 1997 open access will be provided to Western Power's distribution system for consumers with an average load exceeding 10MW at a single point, and consumers for whom supply from another site by that consumer, an associate of that consumer or a third party is to such extent approved under a State Agreement Act or approved before 1996 under the Electricity Act."

55 In due course s 90 and s 93 were proclaimed to come into operation on 1 January 1997.

56 Access to electricity transmission capacity was ordered to be made available from 1 January 1997.

57 An Electricity Distribution Access Order was made by the Minister on 1 July 1997 as follows:

"Access to electricity distribution capacity

2. (1) Under clause 2(1) of the Schedule 6 to the Act, the corporation is to make available access to an existing or prospective user seeking access for the transport of electricity if -

(a) the electricity to be transported is to be consumed by a single person at a single premises; and

(b) the amount of electricity to be so consumed -

(i) is at least 87 600 megawatt hours in any period of 12 consecutive months commencing on or after 1 July 1997;

(ii) is at least 43 800 megawatt hours in any period of 12 consecutive months commencing on or after 1 July 1998, where the electricity is to be transported by -

(iii) is at least 43 800 megawatt hours in any period of 12 consecutive months commencing on or after 1 July 1999.

(2) The access to be made available is to be only in respect of the electricity to be consumed by the single person at the single premises referred to in subclause (1).

Dated 25 June 1997

COLIN BARNETT, Minister for Energy"

58 The effect of this order has been progressively amended. From 1 November 1998 the rate was lowered so that the plaintiff is to make available access to an existing or prospective user seeking access if the electricity is to be consumed by a single person at a single premises on the following basis:

• At least 5MW per hour if the proposed access day is on or after 1 November 1998 but before 1 January 2000 or

• at least 1MW per hour if the proposed access day is on or after 1 January 2000.

59 Concurrently with the Distribution Order the Electricity Distribution Regulations 1997 came into effect on 1 July 1997.

60 The construction of the Interim Access Agreement, and in particular cl 5 is at the heart of the dispute between the parties.

61 The critical phrase is "the open access regime as it applies to NPPL."

Construction of the Interim Access Agreement

62 Each party argues for a construction of the agreement favourable to their position without reference to extrinsic material. Each party favours a different construction.

63 The plaintiff argues, as an alternative, that if the Interim Access Agreement is ambiguous or unclear, regard can be had to extrinsic material to determine the genesis and objective aim of the agreement. The defendant denies that such material can be used. Each parties relies upon the authority of Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-1982) 149 CLR 337 to support their stance on the admissibility of the evidence.

64 The plaintiff advances several arguments on the construction of the phrase. On the first argument it contends that a textual analysis of the phrase will show that the regime applies to the defendant from 1 July 1997. No reference to extrinsic material is required although regard may be had to background material to set the agreement in context. The agreement is unambiguous.

65 Curiously, the defendant supports this approach, although it contends for a different construction.

66 The plaintiff then advances an alternative argument. If the agreement is ambiguous or inconsistent then, it says, recourse may be had to extrinsic material to understand the genesis of the agreement and its objective aims.

67 The plaintiff supports this argument by reference to Codelfa Constructions (supra).

68 This course is strongly opposed by the defendant who objects to the admissibility of most of the tendered documents. The defendant relies upon Codelfa Constructions (supra), among other cases, to support its position.

69 The plaintiff's next argument assumes that the Interim Access Agreement does not apply to the defendant. In this case the court should imply into the contract a term that the agreement may be brought to an end by reasonable notice on either side.

70 In this regard the plaintiff served a notice of termination on the defendant on 20 October 2000. The operative part reads:

"1. Western Power gives NPPL notice that at the expiration of three (3) months from the date on which this notice is served the IAA will terminate.

2. Western Power is willing to meet and negotiate with NPPL with a view to concluding a permanent agreement for NPPL's access to transmission and or distribution capacity in the Western Power system."

71 The defendant admits the fact that notice was given but disputes its validity. The defendant contends that a termination clause should not be implied in the Interim Access Agreement.

72 I do not however understand the defendant to contend that if a term is to be implied a period of three months is unreasonable.

73 Finally, the plaintiff argues that if none of its other arguments succeed the contract has been frustrated and therefore has come to an end.

74 This claim is also disputed. During the course of the hearing it appeared that further discoverable documents relevant to this claim have come to light. As a result, by consent, I ordered that the matters pleaded in the second further amended defence and counterclaim, par 13(b), should be tried separately before me at a later date, the matter remaining in the expedited list. I will decide in these proceedings whether, in the circumstances as presently known, the contract is capable of being frustrated. If I make that finding, the extent to which the plaintiff has caused or contributed to the agreement becoming frustrated will be the subject of a further hearing.

75 For the defendant's part, in addition to the above, it counterclaims for declarations and injunctions as against the plaintiff restraining it from terminating the Interim Access Agreement pursuant to the notice, and as against the State, a mandatory injunction requiring the State to ensure that the plaintiff does not terminate the Interim Access Agreement pursuant to the notice and does not cease to provide the defendant with access to the system. These declarations and injunctions are resisted by the plaintiff and the State.

76 These claims and counterclaims are the subject of detailed pleadings and have simply been summarised by me for the purposes of understanding the way the issues are dealt with in the judgment.

77 The Interim Access Agreement was executed by the parties on 2 October 1996.

78 To understand the terms of the Interim Access Agreement, some further history needs to be set out.

79 On 2 February 1983, the plaintiff entered into an agreement with Kalgoorlie Lake View Pty Ltd and Homestake Gold Ltd trading as Kalgoorlie Mining Associates. As the preamble to that agreement sets out, KMA requested the plaintiff to supply it with electricity at the Eastern Goldfields region. The plaintiff intended to construct a high voltage transmission line from Muja to Kalgoorlie and Boulder and a 33 kV subtransmission line to KMA's gold mining and treatment facility. In return for this service, KMA contracted to pay, in addition to energy and demand charges, line charges.

80 "Line charges" as defined were effectively a contribution to the capital costs of the Muja line. This agreement was subsequently varied in 1990 in ways not presently material. At the same time that the Interim Access agreement was executed, the plaintiff and KMA executed an agreement which provided, among other things that KMA would continue to pay line charges until 10 October 1999.

81 In order to understand the construction of cl 5 of the Interim Access Agreement, it is necessary to have regard to a number of other clauses in the agreement commencing with the recitals. The recitals provide:

A. NPPL has entered into an agreement to purchase electricity from the proposed Parkeston Power Station situated at Kalgoorlie in the State of Western Australia ('the power station') managed by Goldfields Power Pty Ltd ('GPPL') and requires access to WPC's electricity transmission and distribution systems ('the system') to reticulate that electricity pursuant to the provisions of the Goldfields Gas Pipeline Agreement Act 1994 ('the GGPA Act') to supply:

* Kaltails Mining Services Pty Ltd, at its Kaltails Treatment Plant at Kalgoorlie, Western Australia;

* Kalgoorlie Consolidated Gold Mines Pty Ltd ('KCGM'), at its Gidgi, Mt Percy, Mt Charlotte and Fimiston Operations located in the Kalgoorlie area Western Australia; and

* New Hampton Goldfields NL, at its Jubilee Gold Project at Kalgoorlie, Western Australia

(together 'NPPL's customers') which are associates under the GGPA Act.

B. The parties wish to record the extent, price and terms and conditions upon which WPC will allow NPPL access to its system to supply electricity to NPPL's customers, ('the interim access agreement') for the period between the commencement date and the commencement of an agreement for access between the parties under the general access regime pursuant to Part 6 of the Electricity Corporation Act, ('the interim access period')."

82 There were two conditions precedent, the second being by cl 1.1.2:

"KCGM having entered into a deed ('KMA Deed') in the form annexed to this agreement or in such other form as WPC and NPPL may agree."

83 In fact that deed was entered into simultaneously with the signing of the agreement. I interpose to note that there is an inconsistency between recital B and the subsequent cl 5. Recital B contemplates that there will be a transfer to the "general" (or in my interpretation "open") access regime whereas cl 5 postulates a circumstance where there may be no transfer at all. I apply the rule of construction in Ex parte Dawes; In re Moon [1886] 17 QBD 275 per Lord Esher MR at 286:

"Now there are three rules applicable to the construction of such an instrument. If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred."

84 I consider both recital B and cl 5 are clear in their terms. In consequence, I will act on a construction of the Interim Access Agreement conformably with cl 5 not recital B.

"2. ACCESS CHARGE

NPPL shall pay WPC a fixed fee of $500,000.00 per annum payable in instalments of $125,000 every three months in advance with the first payment on the date of permanent synchronisation of GPPL's first generator on the system, ('the commencement date'). It is understood that short periods of interconnected operation will be required to commission generators at the power station prior to permanent synchronisation. Should these periods extend beyond five days in total, then the Access Charge shall apply on a pro rata daily basis for any periods of interconnection beyond the five days.

3. ACCESS

3.1 On payment of the access charge:

3.1.1 NPPL shall be entitled to export power from the power station (comprising no more than 3 x 40MW gas turbines) via the WPC system extending from the Boulder Substation up to a level of 15MW for use at NPPL's customers' remote load locations in the Kalgoorlie area.

3.1.2 NPPL shall be entitled to access to WPC's system at Boulder Substation to purchase/deliver up to 35 MW of standby power or such lesser amount as may be set by equipment ratings.

3.2 The price and terms and conditions of access above the levels provided in Clause 3.1 or to other locations or customers shall be negotiated separately between the parties."

85 Clause 4 relates to the provisions of standby generation and is not now important.

"5. TRANSFER TO GENERAL OPEN ACCESS REGIME

5.1 Subject to the provisions of this Clause, this interim access agreement will terminate when NPPL concludes an access agreement under the provisions of the Act.

5.2 If, on or after 1 July 1997 or the later implementation date of the open access regime as it applies to NPPL, NPPL has not transferred to the open access regime, the parties shall meet and negotiate in good faith with a view to concluding a permanent agreement for access to the WPC system according to the provisions of the Act.

5.3 If the parties fail to reach agreement within one month, then either party can terminate the interim access agreement by issuing a termination notice giving three months notice."

87 Clauses 6 to 12 deal with various technical matters.

88 Clause 13 deals with default and termination. In the case of a financial default, the default period is not less than 14 days and in the case of a non-financial default, such period as is reasonable in the circumstances but in any event not less than 30 days.

"the open access regime as it applies to NPPL"

89 This is the critical phrase within the clause. The question is whether the open access regime applies to the defendant. If it did, or at any event now does, then it would seem that the plaintiff is entitled to terminate the agreement under cl 5.3.

Construction of the contract without regard to extrinsic material

90 For the purposes of dealing with the plaintiff's argument, I will not have regard to the extrinsic facts which the plaintiff had provisionally admitted in evidence.

91 I do have regard to certain background information known to the parties.

92 As admitted on the pleadings, at the time of entry into the Interim Access Agreement and the KMA Deed, both the plaintiff and defendant knew the State intended to introduce the statutory open access regime under the Electricity Corporation Act 1994 schedules and regulations to which I have referred. The parties knew the timetable of 1 January 1997 and 1 July 1997. This knowledge was acquired at least from exhibits 69 and 69A to which I have already made reference.

93 The announced intention of the Government was that with effect from 1 July 1997 the statutory open access regime would apply to all consumers with an average load exceeding 10MW at a single point, and consumers approved under law to receive electricity from suppliers other than the plaintiff at another site (in particular customers supplied by the defendant under the Goldfields Gas Pipeline Act).

94 This is because in respect of loads the subject of the Interim Access Agreement, the defendant had rights under the Goldfields Gas Pipeline Agreement to access the system on reasonable terms and conditions to supply electricity to meet those loads.

95 In addition to the facts admitted in the pleadings and exhibits 69 and 69A, there was a background briefing paper admitted by consent as attached to the media statement (Ex 70A).

* Private sector investment in power generation infrastructure is already evidenced by developments such as BHP's Pilbara energy Project, the Ord Hydro Project, Normandy's Parkeston Power Station (formerly referred to as Mt Ferrum), Mission/BP Co-generation Project and Western Mining Corporation's power developments at a number of sites.

* In cases where private electricity generation requires access to Western Power's transmission and distribution systems, difficulties are being encountered at present because there are no published rules or charges.

* This is particularly evident in the case of companies such as BHP Minerals in the Pilbara and Normandy Power in the Goldfields (who are negotiating under Agreement Acts), where they have encountered difficulties in trying to plan and operate in an interim environment. The difficulties faced by these companies highlight the need to establish a fair and competitive framework to provide open access to Western Power's transmission and distribution system.

* Unless a workable open access regime is developed and implemented, the state is unlikely to be in a position to be able to facilitate further private sector investment in electricity generation and competition across the energy sector."

97 The open access program timetable described in the briefing paper also specifically had regard to the defendant:

"* In recognition of the need to reinforce the competitive pressures within the energy sector, the government has brought forward its plans to provide open access to Western Power's high voltage electricity transmission and distribution systems.

• The provision of open access to Western Power's high voltage transmission system by 1 January 1997 (some six months earlier than originally envisaged) for all consumers taking supply directly from Western Power's 66kV and above, system.

• Open access to Western Power's distribution system will be provided in a series of stages:

(i) 1 July 1997 - All consumers with an average load exceeding 10 MW at a single point, and consumers who are approved under law to receive electricity from other than Western Power on another site; (eg Normandy Power under the Goldfields Agreement Act).

(ii) 1 July 1998 - Consumers in the Pilbara, Eastern Goldfields and non-interconnected areas with an average load exceeding 5 MW at a single point.

(iii) 1 July 1999 - All other consumers with an average load exceeding 5MW at a single point.

(iv) Post July 1999 - Further stages of access to be determined.

* It should be noted that the open access process does not affect the existing rights of any party for access to Western Power's transmission or distribution system."

98 It may be thought that these words are unexceptional and mean what they say. The plaintiff asked me to have resort to dictionary meanings of "as" and "applicable" contrasting the latter with the antonym "inapplicable".

99 I have not found it necessary to do so. The words are ordinary English words in common use.

100 They take their sense from their surroundings in the Interim Access Agreement.

101 The applicable dictionary definitions of "applicable" in any event is as follows: "to have a bearing or reference; be pertinent." ("Macquarie Dictionary").

103 The focus of attention is not on "as it applies" but " to NPPL". In its context that expression cannot relate to "NPPL" solely as a legal entity but the functions of the defendant in power distribution as set out in the preamble.

104 In simple terms, the point of difference between the parties is this: Does the open access regime become applicable when it applies to some of the defendant's functions (the plaintiff's case) or only when it applies to all of the defendant's functions (the defendant's case)?

105 Once any of the terms of the open access regime were or are applicable to the defendant, in combination with its rights under the Goldfields Gas Pipeline Agreement, the defendant could transfer over to a permanent agreement.

106 The triggering event in cl 5(2) will have then occurred.

107 I take from the words of the Interim Access Agreement the following intentions of the parties.

• The Interim Access Agreement was intended to be a bridging agreement between the commencement of the Parkeston Power Station and the open access regime foreshadowed by the Minister and not then in existence. This I glean from the use of the word "interim" in the title, and recital B.

• The parties intended that the agreement should terminate when an access agreement under the provisions of the Electricity Corporation Act was concluded.

• The permanent agreement was to be preceded by good faith negotiations.

• If those negotiations were unsuccessful, the interim access agreement would terminate by a three month termination notice.

108 The only question is not so much what "as applicable to" means in the context, but whether the circumstances and facts are such that by 20 August 2000 the open access regime applied to the defendant, that being the date of the invitation to negotiate.

109 I should say a word about the expression "open access regime." Recital B uses the words "general access regime". Clause 5.2 uses "open access regime". I find the two expressions are used interchangeably and both are intended to refer and should be construed as referring to the Electricity Corporation Act schedule 6 and associated orders and regulations.

The open access regime was applicable to the defendant from 1 July 1997

110 I find that the open access regime has been applicable to the defendant since 1 July 1997. I reach that finding by alternative reasoning.

111 The Electricity Distribution Access Order came into effect on 1 July 1997 for existing and prospective users.

113 The open access regime, not surprisingly was in respect of spare and new capacity. This is clear from schedule 6.

114 If the defendant wished to avail itself of areas to spare or new capacity it would have to compete on a non-discriminatory first come first served basis.

115 By virtue of the Electricity Distribution Access Order if it wanted access, it would have to satisfy the conditions of the order to transport 10MW electricity to be consumed by a single person at a single premises in the Goldfields' branch of the South-West Interconnected System.

116 The open access regime therefore applied to the defendant, and no doubt to others. The fact that as at 1 July 1997 the defendant may not have desired access under the terms of the order because its consumers did not fit the profile of 10MW consumers is immaterial. Also immaterial is the fact that the defendant required approval for new consumers.

117 The open access regime nevertheless applies to the defendant and so the provisions of cl 5 are triggered.

118 The Electricity Distribution Access Order required the plaintiff to provide access to new and prospective customers who fulfilled the conditions of the order. The order did not prevent the plaintiff from entering into an access agreement with the defendant for loads less than those specified in the order. After 1 July 1997 the Electricity Distribution Regulations controlled the manner and form of the making of agreements.

119 However, the Electricity Distribution Regulations did not apply to existing agreements. These are defined in the regulations relevantly.

"'existing agreement' means an agreement, contract, understanding or arrangement under which Western Power provides access to electricity distribution capacity which -

120 Regulation 53 presumes rights under an existing agreement and expressly provided that the terms and conditions on which the plaintiff provides access to electricity distribution capacity the subject of an existing agreement are set out in that existing agreement.

121 As at 1 July 1997 the defendant, for reasons earlier expressed, had the rights under the Goldfields Gas Pipeline Agreement as against the plaintiff.

122 The Electricity Distribution Regulations formed part of the open access regime.

123 The combination of those regulations and the Goldfields Gas Pipeline Agreement applied to the defendant.

124 The defendant had the right to negotiate terms and conditions for access directly with the plaintiff regardless of consumption at a single source. Access was ensured. If terms and conditions could not be negotiated, the defendant had the right to have them determined by commercial arbitration.

125 The defendant did not have to comply with the various steps for access under the Electricity Distribution Regulations because it already had access. If the defendant wanted access to spare and new capacity for single person consumers of 10MW on single premises it would compete on a non-discriminatory first come first served basis (Schedule 6). There is commercial sense in this.

126 To say that the defendant already had rights under the Goldfields Gas Pipeline Agreement and that the Electricity Distribution Regulations offered nothing new and consequently did not apply to the defendant, mistakes the effect of reg 53. There were many matters unknown before publication of the regulations including the fetters, if any, which might be placed on access. Furthermore, the defendant needed to know the terms of the regulations if it wished to enlarge its access: reg 8(2).

127 I conclude by this process of reasoning that on 1 July 1997 the open access regime applied to the defendant.

128 By either basis of reasoning the open access regime was applicable to the defendant on 1 July 1997.

The open access regime was applicable to the defendant from 1 January 2000

129 This conclusion is independent of the earlier conclusion. By 1 January 2000 at the latest, the open access regime applied to the defendant.

130 In order to trigger access under Schedule 6 from 1 January 2000, the amount of electricity consumed by a single person at a single premises was reduced to 1 MW. This is the effect of the Electricity Distribution Access Amendment Order, 23 December 1997.

131 The schedule to the Interim Access Agreement lists the customers of the defendant. The bulk of the power is delivered to three sites, each of which fit the definition of a single person at a single site consuming more than 1 MW. They are Chaffers Mine - 1MW; Gidgi Plant - 3.8 MW and Jubilee Plant - 3.2 MW.

132 This part of the open access regime then relevantly applied to the defendant because it was applicable to some, indeed, a good part of the defendant's operations. The defendant argues that the order must apply to all of the defendant's operations but I am unable to construe the agreement to give it that effect. The Interim Access Agreement must be looked at in the light of the surrounding circumstances which include the fact that access by the terms of the agreement itself had already been given to the defendant for the lesser loads. There was no reason to suppose, when the parties came to conclude a permanent agreement, that those loads would be left out. The construction contended for by the defendant makes little commercial sense.

133 More relevantly, once the open access regime applied to some of the defendant's loads, then it was made known to the parties the extent to which the open access regime would be applicable to the negotiations foreshadowed in cl 5.2.

134 The defendant could then select whether and to what extent it wished to come under the open access regime and whether and to what extent it wished to pursue its rights of users under the Goldfields Gas Pipeline Agreement.

135 I further find that, for the reasons expressed, as a matter of law and fact, from 1 January 2000 the open access regime applied to the defendant.

Construction of the Interim Access Agreement: Use of extrinsic material

136 My consideration now proceeds on the basis that there is an ambiguity in the words of the contract so that it is necessary to have resort to extrinsic material. In the light of my conclusions, without regard to extrinsic material, it is, strictly speaking, unnecessary for me to do so. However, this aspect formed a major part of the plaintiff's case and I should deal with it. The ambiguity is in the expression "to NPPL".

Use of extrinsic evidence: relevant legal principles

137 As I have mentioned previously, both parties encouraged me to apply the principles in Codelfa Constructions asserting that by application of those principles the evidence either was, or was not, admissible.

138 The primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied: Australian Broadcasting Commission v Australasian Performing Rights Association [1973] HCA 36; (1973) 129 CLR 99.

139 From that it follows that the search is for the intention of the parties as embodied in the words they have used: Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd [1999] WASC 218; (1999) 21 WAR 425.

140 The court will not rewrite the contract for the parties.

141 With that in mind the principles can be shortly stated:

"The true rule is that evidence of surrounding circumstances is inadmissible in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties ... : " Codelfa (supra) per Mason J at 352.

142 There has been an evolution of the principle since 1983 (it in turn having evolved from earlier cases) so that it is probably true to say that courts today take a more relaxed view as to the admissibility of evidence as to genesis and objective aim than at the time of Codelfa Constructions: see Investors Compensation Scheme Ltd v West Bromich Building Society [1997] UKHL 28; [1998] 1 WLR 896 per Lord Hoffman at 912 - 913; Acorn Consolidated, supra.

144 The statement of principle does not greatly aid in predicting the result in a particular case because each must depend on its unique circumstances.

145 The plaintiff's third further amended statement of claim by par 8AA and 8AB pleads that the genesis of the Interim Access Agreement was the need to agree terms of access to the plaintiff's system by the defendant to supply the customers at a time when there was uncertainty as to whether the terms of the statutory open access regime would conform with the rights of the defendant under the Goldfields Gas Pipeline Agreement and pleads further that the aim of the Interim Access Agreement was to provide for terms of access to the system for the plaintiff (sic) [defendant] to supply the customers until such time as the term of the statutory open access regime were known.

146 Particulars are given by reference to five letters between the parties from March to May 1996.

147 In evidence the plaintiff has gone well beyond the particulars. A specific objection is taken on this point, I over-rule this objection. The plaintiff's case has been clear to the defendant since the compilation of the trial bundle pursuant to the order of Murray J. No claim of prejudice is made and senior counsel for the defendants dealt with the extra documents he thought merited special attention.

148 The pleading of genesis and aim is an attempt to bring the plaintiff within the term expressed by Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1385, he, in turn, appropriating the phrase from Cardozo J in Utica City National Bank v Gunn (1918) 118 NE 607.

149 In the present case I consider that evidence which sets out the factual matrix whereby the agreement came to be made and its objective aim is relevant and admissible.

150 That is not to say, however, that all the plaintiff's provisional exhibits are admissible. It is, in part, a matter of degree, but many of the provisional exhibits seem to be direct evidence of negotiations and subjective intention, not genesis and aim even taking a liberal view of these headings.

151 The search is for the meaning of the contract and the intention of the parties as expressed by the agreement. Where evidence goes beyond the background circumstances or objective aim and strays into the expressed intention of the parties, I think that evidence must be rejected.

152 I shall indicate which exhibits I have relied upon and their purpose. In respect of such exhibits I over-rule the objection.

153 Counsel for the plaintiff referred to portions only of the exhibits as having relevance. I have concentrated on those portions.

154 I regard correspondence between the parties prior to the media statement of 6 February 1996 with the accompanying briefing statement as being too remote from the Interim Access Agreement to have sufficient bearing on its genesis or its aims. The correspondence sets out, somewhat tortuously, the first steps and negotiating positions but the material prior to February 1996 is too ambiguous to form a reliable guide to genesis and aim of an agreement concluded in October 1996 against the background of the Ministerial media statement which spelled out the State's proposed course.

155 The documents provisionally accepted as exhibits 7, 8, 12, 13, 15, 16, 18, 19, 19A, 20, 21, 22, 23, 24, 25, 25A, 26, 27, 33, 35, 39A, 40, 41, 42, 43, 44, 45, 46, 48C, 50, 53, 53A, 60A, 64 and 65 are rejected. Exhibits 46, 48C, 53A are at this stage rejected only so far as their tender is supported on genesis and aim. Their relevance to frustration is dealt with later.

156 Exhibits 74, 79, 83 and 86 are the letters particularised in the statement of claim par 8AA. I consider each is relevant and admissible for the purpose of proving genesis and aim.

157 Exhibits 79A, 80 and 89A are relevant and admissible as tending to show that the aim of the agreement was to provide interim access until the terms of the open access regime was made known to the parties.

158 Exhibit 81 does not sufficiently go to aim. It is merely a comment to 81A and is rejected.

159 I consider both portions highlighted by the plaintiff on exhibit 93 are relevant and admissible.

160 Exhibit 93A is a draft and does not further understanding of the genesis or aim of the executed agreement and tender is rejected.

161 In exhibit 97 the plaintiff relies on the defendant's note to conditions precedent. This does not add to understanding of the genesis and aim as it bears on the phrase under consideration and is rejected.

162 Exhibits 98, 98A and 104 show negotiations which do not sufficiently bear on genesis and aim and are rejected.

163 Exhibit 137 consists of notes of a meeting at the Office of Energy on 18 July 1996. These are relevant and admissible to the objective aim of the Interim Access Agreement.

164 Exhibits 138 and 139 relate to a submission to the defendant and are relevant and admissible to the genesis and objective aim of the Interim Access Agreement.

165 It is not necessary for me to set out the substance of each document which I have considered in searching for the genesis and objective aim of the Interim Access Agreement. From the extrinsic material it is obvious that everyone, the plaintiff, the defendant and the Minister, proceeded on the basis that the defendant continued to enjoy rights of access under the Goldfields Gas Pipeline Agreement, whatever the terms of an open access regime. The genesis of the Interim Access Agreement was the need to provide temporary access by the defendant to the plaintiff's distribution system until the open access regime had crystallised.

166 The aim of cl 5 was to provide a procedure for transfer, or possible non-transfer, to the open access regime once that regime was made known to the defendant so that it could make appropriate commercial decisions.

167 With the use of extrinsic material, I would construe "as it applies to NPPL" as referring to applicability to the entity rather than its functions. Part of the open access regime was the Electricity Transmission Regulations in force from 1 January 1997. That part of the regime did not apply to NPPL because it was connected to the distribution system. The open access regime applied to NPPL from 1 July 1997 when the Electricity Distribution Regulations came into effect.

168 I find that the plaintiff has made good its plea as to genesis and aim in the statement of claim par 8AA and par 8AB.

169 Finally, I take into account the stated intention of the Minister, the terms of the Competition Principles Agreement, the Goldfields Gas Pipeline Agreement Act 1994 and the Electricity Corporation Act 1994. Where there are competing constructions of the Interim Access Agreement, I favour a beneficial interpretation which would allow access to the South-West Interconnected System by the defendant as soon as possible. The construction of the Interim Access Agreement contended for by the plaintiff achieves this goal.

Implied term for termination on reasonable notice

170 This contention by the plaintiff proceeds on the basis that, contrary to what I have found as to the construction of the agreement and its applicability to the defendant, the interim agreement continued in force until 20 October 2000 and, unless terminated, will continue into the future.

171 In that event, the plaintiff argues, there should be implied into the Interim Access Agreement a term entitling either party to terminate on reasonable notice. The plaintiff argues that if such a term is implied the notice it has given can be viewed as pursuant to such a term.

172 The defendant in substance contends that such a term should not be implied for a number of reasons. As a matter of law, there is no warrant to imply such a term. In the circumstances of this contract it would make nonsense to imply such a term. If the open access regime does not apply to the defendant, the implication of such a term would have the effect of negating its access to the plaintiff's system.

173 I take the principles applicable from the judgment of McHugh J in Crawford Fitting v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 443:

".. whether a commercial agreement for an indefinite period may be terminated, the answer depends upon whether the agreement contains an implied term to that effect. ... The existence of the term is a matter of construction. But the question of construction does not depend only upon a textual examination of the words or writings of the parties. It also involves consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed."

174 There is conflicting authority whether there is a presumption for or against perpetuity: Llanelly Railway & Dock Co v London & North Western Railway Co (1875) LR 7 HL 550; cf Martin Baker Aircraft Co Ld v Canadian Flight Equipment Ld [1955] 2 QB 556; In re Spenborough Urban District Councils Agreement [1968] Ch 139.

175 I adopt with respect the conclusion expressed by McHugh J at 444:

"In principle, the better view would seem to be that, although there is a presumption against implying a term that an agreement is terminable, ordinarily the nature of a commercial agreement will lead to the conclusion that the parties must have intended it to be terminable on notice."

176 This view is supported by reference to Australian Blue Metal v Hughes [1963] AC 74 per Lord Devlin at 98.

177 One way to approach the issue is to regard the implied term as part of an unexpressed agreement. This is sometimes tested by asking what the answer would have been at the time of the contract if someone had turned the attention of the parties to this question: "Do you intend that this contract should go to perpetuity or indefinitely?"

Can a term for reasonable notice be implied into the Interim Access Agreement

178 The starting point is in the title of the agreement: Interim Access Agreement.

179 "Interim" is an adjective meaning temporary or provisional. In context it qualifies the access agreement not access so it should be read as "interim agreement for access", not an "agreement for interim access".

180 This interpretation is confirmed by cl 5.1 and especially cl 5.2 and the use of the phrase "permanent agreement for access".

181 So the agreement itself was, in the intention of the parties, of a temporary or provisional nature not expected to last for perpetuity. This alone is sufficient to imply a term of termination on reasonable notice.

182 Furthermore, it is not necessary that the Interim Access Agreement last indefinitely without possibility of termination because, as I have found, the defendant has rights of access independent of the Interim Access Agreement under the Goldfields Gas Pipeline Agreement. The implication of a termination clause makes commercial sense because in the event that access by way of the open access regime is delayed, or its terms substantially different from the parties expectation, it allows each party to walk away and negotiate afresh. Implication of a term does not prejudice the defendant.

183 In this context it has to be remembered that the time for implication of the term into the contract is the time at which the contract was executed.

184 There are further facts leading to the conclusion that the parties intended the contract may be terminable.

185 From 10 October 1999, the obligation to pay line charges ended. As Mr Dyer's evidence subsequent to the event has noted, this effects a significant change in the relationship and considerable diminution in Western Power's revenue, however, that revenue might be characterised. The fact that the line charges were to an extent repayment of capital does not mean that the plaintiff could never levy a charge for line charges in the future. This fact was known to both parties in 1996.

186 I find the case for implication of a term of reasonable notice of termination compelling.

187 In all the circumstances I imply a term of reasonable notice into the agreement.

188 The term of three months is in excess of the minimum periods of default notices within the agreement. It is the period specified in cl 5.3 should negotiations fail.

189 The parties did try to negotiate in good faith but were unable to reach an agreement. The defendant does not really contend that the term of notice of three months (as opposed to the implication of any term of notice) is inadequate.

190 I find that the term of three months notice is, in the circumstances, reasonable notice.

191 The consequence is that the Interim Access Agreement came to an end on 20 January 2001.

192 The plaintiff's next argument is that the contract has come to an end by reason of frustration.

193 Once again, to resolve this issue, each party relies upon Codelfa Constructions, one to assert that frustration has occurred, the other not.

194 The venerable authority of Krell v Henry [1903] 2 KB 740 arising from the cancelled coronation of Edward VII due to appendicitis, sets out the principles. Vaughan-Williams LJ traces the doctrine of the frustration from Roman law before concluding at 751:

"In each case one must ask oneself, first, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If all these questions are answered in the affirmative ... I think both parties are discharged from further performance of the contract."

195 The doctrine of frustration was discussed and revisited to a degree by the House of Lords in Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3; [1956] AC 696.

196 The test set out in Davis Contractors was considered by Stephen J in Brisbane City Council v Group Projects Pty Ltd [1979] HCA 54; (1979) 145 CLR 143 from 160 where he ultimately applied a test close to that favoured by Lord Reid and Lord Radcliffe.

197 In Codelfa, Mason J agreed with this approach and stated the relevant passage from Lord Radcliffe in Davis Contractors at 729 as follows:

"... Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract ... It was not this that I promised to do."

"... a contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken. ..."

The application of the principles to the facts

198 The plaintiff's argument proceeds on the assumption that it has failed to make good any of its earlier arguments so that the position from 10 October 1999 and continuing is that the open access regime is not applicable to the defendant and there is no implied term of reasonable notice. As I have already held to the contrary, there is in one sense no reason for me to deal with this issue. However, because the question whether the plaintiff caused or contributed to the non-applicability of the open access regime as pleaded in par 13(b) of the second further amended defence and counterclaim remains to be determined in further proceedings, I should indicate whether in my judgment the circumstances are capable of amounting to frustration.

199 The plaintiff points to the fact that from 10 October 1999, Western Power is bound to provide access under the Interim Access Agreement but is no longer entitled to receive the line charges under the KMA Deed, these being the greater part of the income of the plaintiff under the agreement.

200 I do not consider the plaintiff's argument can succeed, whatever test or variation of the doctrine of frustration is applied to the particular facts.

201 If the three step test propounded by Vaughan-Williams LJ in Krell v Henry is used, the foundation of the contract was the need to provide access to the defendant for an undetermined period until the introduction of the open access regime as applicable to the defendant.

202 Secondly, the performance of the contract has not been prevented. I accept that this test is subject to a variation in later cases, especially Davis Contracting, that prevention may mean performance under radically different circumstances.

203 In the end, it is a matter of judgment and degree as to whether the circumstances are sufficiently different from the original circumstances as to justify discharge of each party's obligations.

204 This judgment remains whether the epithet "radical" or some other epithet is used.

205 In this case I have limited evidence as to the line charges and their effect on the Interim Access Agreement. I have read exhibit 1, the agreement between the plaintiff and KMA in 1983. I have Mr Dyer's evidence of the change of income from 1999.

206 The plaintiff tendered a series of documents on the line charges which were provisionally received and are subject to objection. They are exhibits 46, 48C, 53, 74 and 97.

207 Exhibit 46 is a letter from the plaintiff to the defendant dated 7 September 1995. Exhibit 48C is a faxed copy of that letter with an annotation in the margin next to reference to line charges. Exhibit 53 is a letter from the Minister to the defendant. Exhibit 74 is a letter from the plaintiff to the defendant stating conditions precedent both of which were incorporated into the access agreement. This exhibit does not add anything. Exhibit 97 is a letter from the defendant to the plaintiff dated 28 May 1996.

208 Extrinsic evidence, of necessity, is required when the court is dealing with a claim for frustration due to external circumstances. I hold they are admissible for the purpose of deciding the plaintiff's case on frustration.

209 The evidence in these exhibits does not satisfactorily explain the radically different effect on the contract without line charges. At most they confirm the parties' understanding that the permanent contract would be concluded by 10 October 1999.

210 The third question is whether the failure of the open access regime to be applicable to the defendant by 10 October 1999 was in the contemplation of the parties at the time of execution of the contract.

211 While the parties' understanding may have been that the most likely date was 1 July 1997 or shortly after, and the further understanding that it would apply to the defendant before 10 October 1999, I cannot find an intention on the evidence that each party considered the Interim Access Agreement would, effectively end on 10 October 1999. This is a finding which must be made if the plaintiff's argument is to be made good.

212 Indeed the reasons which compel me to construe an implied term of the termination with reasonable notice impel me from a conclusion that the contract would be frustrated after 10 October 1999.

213 I do not consider the Interim Access Agreement has been frustrated.

214 I should, however, shortly deal with an argument advanced by the defendant as to why I should not find the contract has been frustrated.

215 The fact that the plaintiff was an instrumentality of the State and subject to directions from the Minister misses the point though it may have a relevance to the adjourned consideration of par 13(b) of the defence. The enquiry is as to the parties' intentions in 1996.

216 The plaintiff was a body corporate though it was also an agent of the Crown at that time.

217 The focus of attention must be on the plaintiff's intentions and understandings not what it might or might not be directed to do, nor on what the Minister might or might not independently decide to do with respect to the open access regime.

The defendants counterclaim for declarations and injunctions

218 In view of my finding in favour of the plaintiff, the defendant's counterclaim for declarations fails.

219 There remains extant however, portion of the claims for injunction as follows:

"B. Against the plaintiff, an injunction restraining the plaintiff ... ceasing to provide the defendant with access to portions of the plaintiff's system.

C. Against the State, a mandatory injunction requiring the State to ensure that the plaintiff ... does not cease to provide the Defendant with access to portions of the plaintiff's system."

220 On the construction of the Goldfields Gas Pipeline Agreement, I have found that the defendant is entitled to access to portion of the plaintiff's system and that access has been ensured by the State.

221 Significantly, in the context of an argument for an injunction, it is the plaintiff and the State who both argue that the defendant has indeed acquired those rights. It is only the defendant who has put a contrary view, arguing that the Goldfields Gas Pipeline Agreement does not give it direct right to access.

222 The next significant fact is that by its further amended reply and defence to counterclaim the plaintiff, by par 27, pleads that it is ready, willing and able to provide the defendant access to portions of its system under the open access regime or the Goldfields Gas Pipeline Agreement.

223 The State in its re-amended defence to counterclaim notes the plaintiff's indication as expressed above and says, correctly in my view, that this constitutes a fulfilment of the State's obligations under the Goldfields Gas Pipeline Agreement.

224 Finally it is significant that the plaintiff did not exercise any rights following termination but instead sought a declaration of validity from this Court.

225 In the light of these circumstances, it is unsurprising that the defendant called no evidence of any apprehended unlawful action on the part of the plaintiff or the State.

226 Furthermore, there is no evidence that if the plaintiff were to fail in its application for a declaration, it would do anything other than respect and obey the decision of this Court, subject of course to its legitimate rights of appeal.

227 In the end, all that senior counsel for the defendant could point to is certain paragraphs in the defence to counterclaim denying the defendant's construction of certain parts of the Goldfields Gas Pipeline Agreement. This is a plainly insufficient base to ground an injunction.

228 Even if my judgment about the plaintiff's claim for a declaration is wrong, the most the defendant would be entitled to is a declaration in its favour.

229 In the exercise of discretion, I would not grant the injunctions.

230 To the extent that I am able to do so on a trial of preliminary issues, I find the Interim Access Agreement entered into between Western Power Corporation (then Electricity Corporation) and Normandy Power Pty Ltd on 2 October 1996 has been validly terminated or is otherwise at an end with effect from 20 January 2001.

2. The defendant's claims for declaration and injunction are dismissed as against the plaintiff and the second defendant by counterclaim;

3. There be no orders for or against the third defendants by counterclaim.