Second issue: what must Yallourn pay?
24 The third limb of cl 1(g) of the schedule provides that, to constitute an additional termination event, "party Y" (in this case Yallourn) "refuses to make a payment to party X" (Enron) "based upon the conditions precedent in Section 2(a)(iii)".
25 Section 2(a)(iii) renders the obligation of each party under s 2(a)(i) "subject to" three categories of condition precedent. Thus, there is no enforceable obligation to make a transaction payment until the relevant conditions precedent are fulfilled. In the present circumstances, there being an event of default with respect to Enron which has both occurred and is continuing, Yallourn has no present obligation to make transaction payments. Clause 1(g) to the schedule does not vary this situation: rather, it provides that an additional termination event will arise where Yallourn refuses to make such payments "based upon" the conditions precedent or, it may be inferred, any one of them.
26 The payments to be made pursuant to s 2(a)(i) are "each payment … specified in each confirmation". The term "confirmation" is used because the document confirms "the terms and conditions of the transaction". It is said to supplement and form part of, and be subject to, the agreement. It identifies the commodity, the relevant dates and the price.
27 Whether interest is payable under the agreement will, as already noted, depend on s 2(e). The obligation to pay interest arises where a party "defaults in the performance of any payment obligation". The amount of the payment obligation is then referred to as "the overdue amount". The period over which interest is payable runs from "the original due date for payment" to the date of actual payment. However, where an obligation to make a payment has not crystallized, because an event of default has occurred, the terms of s 2(e) will not be engaged.
28 As already noted, cl 1(g) of the schedule does not change that position. Enron does not prevent an event of default continuing by making the payment envisaged under the second limb of cl 1(g). Accordingly, the precondition continues to operate. As the third limb expressly envisages, Yallourn may refuse to make a payment under s 2(a)(iii). However, if it does make such a payment, its obligation will be limited to the transaction payment, because there will be no interest payable on that amount.
29 An alternative way of reaching the same result is that the third limb of cl 1(g) is only triggered where Yallourn's refusal is "based on" a condition precedent in s 2(a)(iii), which only provides a condition precedent to the obligation incurred under s 2(a)(i). Thus, even if interest were payable, the obligation to pay interest having arisen under s 2(e), would not be subject to the identified conditions precedent.
30 The primary judge reached a different conclusion with respect to this question. In reaching a different view, his Honour noted Enron's concession that Yallourn was not obliged, under s 2(e) to pay interest. However, his Honour accepted Enron's submission that it was the same precondition which Yallourn might rely upon to resist a payment of principal which formed the basis for not paying interest. Accordingly, his Honour reasoned, the refusal to pay interest is "based upon" the condition precedent and the third limb of cl 1(g) "presupposes a request that a payment be made" and a refusal of that request for reasons which can be said to be based upon the condition precedent: [2005] NSWSC 56 at [34].
31 There are a number of difficulties with this approach, quite apart from the construction proposed at [27-[28] above. First, the presupposition of a request is apt to mislead. Its purpose is to allow a dialogue between the parties, so as to identify the reason for Yallourn's refusal. How one formulates the request and refusal may colour the analysis which, more properly, should be confined to the construction of the contract.
32 Secondly, and more importantly, this exercise distracts attention from the nature of the "payment" which Yallourn must decide whether or not to make. Section 2(a)(iii) provides a basis upon which Yallourn can refuse to make a payment under s 2(a)(i): the reason for not making a payment under s 2(e) is quite different, namely that there has been no default.
33 The next step in the logic is said to be that, because it was reliance upon the existence of the precondition which had prevented there being default, it is that precondition which has prevented an obligation to pay interest arising. However, it does not follow that reliance upon any particular link in a causal chain necessarily means that conduct is "based on" the existence of that link.
34 The idea that the legal concept of causation is not co-extensive with scientific or philosophical notions of causation, but is "tempered by the making of value judgments and the infusion of policy considerations" is well established in tort law, but need not be restricted to that area of discourse: see March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 516-517 (Mason CJ).
35 In Cosco Holdings Pty Ltd v Do (1997) 150 ALR 127 at 136-137, Northrop J explained the phrase "based on" in s 170DE of the Industrial Relations Act 1988 (Cth), as being " used as describing a connection between a subject matter, the reason for termination, and an object, the operation or requirements of the employer". The latter must "constitute the foundation upon which" the step of terminating employment is based.
36 Similar explanations may be found in relation to equivalent phrases such as "because of", "by reason of" and "on the ground of": see, eg, Purvis v New South Wales (2003) 217 CLR 92, at [7]-[8] (Gleeson CJ), [139]-[163] (McHugh and Kirby JJ) and [225], [231] and [234]-[236] (Gummow, Hayne and Heydon JJ). Further, as noted by French J in Jahazi v Minister for Immigration and Ethnic Affairs (1995) 61 FCR 293 at 299G, in relation to the connection between persecution and a relevant ground in the Refugees Convention:
"The question whether a particular causal connection between persecution and membership of a group attracts Convention protection will be resolved not merely by the logic of causality but as a matter of evaluation which has regard to the policy of the Convention."
37 In the present case, there is a factor, beyond the logic of causality, which should be taken into account, namely the fact that had Yallourn indeed been in default, it might have opted to make a payment of principal to avoid incurring interest. Further, had it been intended that party Y pay not only the amount due under s 2(a)(i) "but also an amount equivalent to interest which would have been payable, absent the condition precedent", it would have been easy for the drafter to make express provision to that effect. As will be noted below, such language is used in relation to post-termination date calculations. Absent such clear terminology, the extended causal argument should not prevail.
38 It follows that, in my view, the primary judge was wrong in the approach he took to this question and a declaration substantially to the effect of that proposed by Yallourn should be made.