Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QCA 408

SUPREME COURT OF QUEENSLAND CITATION: Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QCA 408 PARTIES: CALLIDE COALFIELDS (SALES) PTY LTD ACN 082 543 986 (applicant/appellant) v CS ENERGY LIMITED ACN 078 848 745 (first respondent) CALLIDE POWER MANAGEMENT PTY LIMITED ACN 082 468 700 (second respondent) FILE NO/S: Appeal No 6477 of 2008 SC No 1625 of 2008 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 16 December 2008 DELIVERED AT: Brisbane HEARING DATE: 11 November 2008 JUDGES: Keane and Fraser JJA and Chesterman J Separate reasons for judgment of each member of the Court, each concurring as to the order made ORDER: Appeal dismissed with costs to be assessed on the standard basis CATCHWORDS: INTERPRETATION – GENERAL RULES OF CONSTRUCTION OF INSTRUMENTS – COMMERCIAL AND BUSINESS TRANSACTIONS – where the appellant entered into contracts to supply coal to the respondents – where contracts contained dispute resolution mechanisms which could be invoked by specific occurrences under other provisions in the contract – where the contract also provided for a 5 yearly review – where the parties were unable to agree to new contractual terms at a 5 yearly review – whether the failure to agree at the 5 yearly review invoked the contract’s dispute resolution mechanisms – meaning of the term review INTERPRETATION – GENERAL RULES OF CONSTRUCTION OF INSTRUMENTS – COMMERCIAL AND BUSINESS TRANSACTIONS – where the contract provided that one party can require the other party to negotiate the terms of the contract where the party giving -- 1 of 31 -- 2 notice established that it was affected by a change event – whether when a change event had been established, and the parties failed to successfully negotiate new terms, the disagreement invoked the dispute resolution mechanisms contained in the contract Apache Northwest Pty Ltd & Ors v Western Power Corporation (1998) 19 WAR 350, cited Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124, considered Didymi Corp v Atlantic Lines and Navigation Co Inc (The Didymi) [1988] 2 Lloyd’s Rep 108, cited Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35, cited Qld Power Trading Corp v Xstrata Qld Ltd & Ors [2005] QCA 477, cited Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205, cited Santos Ltd & Ors v Pipelines Authority of SA (1996) 66 SASR 38, cited Superior Overseas Development Corporation and Phillips Petroleum (UK) Co Ltd v British Gas Corporation [1982] Lloyd's Rep 262, cited Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165; [2004] HCA 52, cited Xstrata Queensland Ltd v Santos Ltd & Ors; Santos Ltd & Ors v Xstrata Queensland Ltd [2005] QSC 323, cited COUNSEL: S L Doyle SC, with P R Franco, for the appellant W Sofronoff QC SG, with D B O’Sullivan, for the respondents SOLICITORS: Minter Ellison for the appellant Freehills for the respondents [1] KEANE JA: I have had the advantage of reading the reasons for judgment prepared by Fraser JA. I agree with his Honour's reasons and with the orders proposed by his Honour. Because the reasons which lead to the conclusion that the appeal should be dismissed are significantly different from those of the learned primary judge, I wish to add a brief statement of the reasons which weighed particularly with me in diverging from the views of the learned primary judge. [2] Clauses 12.3 to 12.8 of the agreements appear in the context of a contract in which, absent an effective review mechanism, the intention of the parties evident in cl 12.1(b) to ensure that the terms of the agreement should be adjusted upon the occurrence of a change event to ensure conformity with the principles in cl 12.1(a) could be defeated by honest but self-interested recalcitrance on the part of the respondents. By virtue of cl 3.2(a)(iv) of each agreement, the respondents are empowered unilaterally to extend the duration of the agreements; if the parties fail to reach agreement on proposals by the respondents for an adjustment in changed circumstances, then, on the respondents' approach, the appellant would be left -- 2 of 31 -- 3 without any means of giving effect to the evident intention of cl 12.1(b) over the duration of the contract extended at the exclusive choice of the respondents. [3] The terms of cl 12.3 expressly require that the parties engage in a process of review with the objective of ensuring that the terms of each agreement are adjusted to ensure consistency with the principles in cl 12.1(a). Bearing in mind that the obvious possibility that the negotiation which cl 12.3 contemplates will not lead to agreement, it is hardly to be supposed that the parties contemplated that a failure of the negotiations could utterly defeat the objective of ensuring that a failure of the terms of the agreement should be adjusted so as to remain consistent with the principles in cl 12.1(a). [4] The circumstance that the agreements are long term supply agreements seems to me to support, rather than to undermine, this conclusion. On the contrary view, the appellant would be at the mercy of the respondents over the 20 years which the respondents could, at their sole election, require the agreements to be extended. That seems to me to be a most unlikely consequence of the language in which the parties have chosen to cast their bargain, and a much more unlikely conclusion than that the parties should be understood to have agreed to empower a third party to resolve a dispute as to whether and to what extent an adjustment is necessary. [5] I should also say that I respectfully disagree with the view below that, because some of the dispute resolution provisions of cl 13.2 may not be available to resolve a dispute because it is not justiciable, the other provisions are, ipso facto, rendered inoperative. Even if it be accepted that not all of the dispute resolution mechanisms contained in cl 13 are available to resolve a dispute contemplated by the provisions of cll 12.3 to 12.8 of each agreement, that is not a sound reason to conclude that all of the mechanisms are not available to achieve the adjustment which is the end to which these mechanisms are the means. Under cl 20.4 of each agreement, each party is obliged to "do … all things necessary … to give effect to … this Agreement." If the choice of dispute resolution mechanisms is reduced by the legal non-availability of one or more of those mechanisms, then cl 20.4 would operate to oblige each party to cooperate to facilitate the operation of such other mechanisms as are capable of operating in the circumstances. Having said that, I also associate myself with the view of Fraser JA that a dispute contemplated by cll 12.3 to 12.8 is justiciable. [6] FRASER JA: By two separate contracts each dated 11 May 1998, the appellant, acting on behalf of the owners of the Callide Coal Mine in central Queensland, contracted to supply coal to the first respondent (the owner and operator of the nearby Callide B Power Station) and to the second respondent (the manager of the nearby Callide C Power Station). [7] The contracts (which are known as the "Callide B Coal Supply Agreement" and the "Callide C Coal Supply Agreement") are in materially identical terms. I will refer principally to the Callide B Coal Supply Agreement. It is common ground that the Court’s construction of that contract will apply also to the Callide C Coal Supply Agreement. [8] These are long term agreements, having a prospective life of 30 years: each contract provides for an initial term of 10 years and four options in favour of the respondent buyers to extend the term for five years. -- 3 of 31 -- 4 [9] The contracts commenced upon their execution on 11 May 1998. The initial 10 year term of each contract will terminate on 14 August 2011 (10 years after the “Commercial Load Date of Unit 1”). In the event that the respondents exercise an option to extend the term, “the Parties must meet and negotiate all terms and conditions including price” (cl 3.2(a)(ii)). Failing agreement, the “Agreement will be extended on the same terms and conditions including price” as previously applied (cl 3.2(a)(iv)). [10] The contracts require the appellant to supply substantial quantities of coal. The Callide B Coal Supply Agreement, for example, provides for the supply of between 2.4 million and 2.8 million tonnes every year (cl 5.1), and there is provision for the supply of additional coal in cl 5.1A. As one would expect there are detailed provisions concerning matters such as quantities and rates of delivery (cl 5) and coal quality (cl 8). [11] The “Contract Price” is calculated in accordance with a formula expressed in cl 10.1, which specifies a “base price” and adjustments to it referable to changes in the Consumer Price Index. If that index is discontinued and if the parties are unable to agree on a replacement index, then a replacement index is to be determined by an expert (“CPI Index” definitions in sch 1, and sch 4). Clause 10.1 provides: "10. PRICE 10.1 Calculation of Contract Price The Contract Price: (a) in any Quarter is the Base Price escalated in accordance with the following formula: CP = BP [ 1 + 0.9 (CPIN - CPI BP ) ] (CPI BP ) Where: CP is the Contract Price in the Quarter current at the time of escalation in accordance with this Clause 10.1 BP is the Base Price at the Base Date. CPI BP is the CPI Index for the June quarter 1997 CPI N is the CPI Index for the lagging Quarter determined in accordance with Part B, Schedule 4; (b) for each Quarter will be calculated on 1 January, 1 April, 1 July and 1 October in each Calendar Year by reference to the CPI Index for the lagging Quarter determined in accordance with Part B, Schedule 4 and the Contract Price, calculated in accordance with -- 4 of 31 -- 5 this Clause 10.1, will apply to Coal delivered from the date of that calculation.” [12] Schedule 4 of the contract provides that the base price at the commencement of the contract is $21.945 per tonne, reducing to $17.86 from 14 August 2001 and to $16.53 from 31 December 2005 until the end of the initial term (14 August 2011). [13] Clause 12.2 of the contract provides that about five years after its commencement the parties are to participate in a review of the operations of the contract. The five yearly review took place between the latter half of 2006 and late 2007. During that review the appellant claimed that the two contracts (on a combined basis) had a “negative value” for the appellant’s parent company of at least $74 million. The appellant sought the respondents’ agreement to changes to the formula in cl 10.1 by way of a substantial increase in the base price and amendments to the provision for price escalation. In the parties’ final five yearly review meeting on 10 October 2007 the respondents rejected the appellant’s proposal. [14] On 30 November 2007 the appellant delivered to each respondent a "Notice of Referral of Dispute pursuant to clause 10.2(n)". The notice under the Callide B Coal Supply Agreement was in the following terms: "During the course of the Five Yearly Review required by clause 12, and consistently with clause 10.2(a), the parties to the Callide B Coal Supply Agreement (Agreement) have reviewed the method of calculating the Contract Price (including the method of calculating escalation) under the Agreement. In the course of the review, Callide Coalfields (Sales.) Pty Ltd has claimed that, in order to ensure consistency with the principles set out in clause 12. l(a), the method of calculating the Contract Price needs to be varied as follows: (a) Increase the Base Price by between 25% and. 30%; and (b) Introduce a new escalator being a quarterly adjustment for 100% of the change in the weighted average of the following published ABS price indices: (i) Producer Price Indexes: Materials used in Australia’s open cut coal mining industry (ABS Publication 6427); (ii) Labour Price Index: Wage price index of total hourly rates of pay, excluding bonuses for all occupations involved in private sector mining in Australia (AB5 Publication 63~5); and (iii) Consumer Price Index: (ABS Publication 6401). The weightings proposed for each of the above indices were: Labour (35%), Materials (45%) and CP-I (20%). -- 5 of 31 -- 6 These claims were made by letter addressed to you dated 4 October 2007. CS Energy Limited has not accepted these claims. The parties are in dispute regarding the method of calculating the Contract Price (including the method of calculating escalation). They are in dispute as to whether the method of calculation needs to be varied and, if so, as to what the variation should be. Accordingly pursuant to clause 10.2(n) of the Agreements, Callide Coalfields (Sales) Pty Ltd refers the dispute to determination by an Expert in accordance with clauses 13.3 to 13.6 (inclusive) of the Agreement ." [15] The appellant subsequently contended and the respondents denied that the respondents’ rejection of the appellant’s proposal during the five yearly review under cl 12.2 that the cl 10.1 pricing formula should be amended constituted either a dispute arising under cl 10.2(n) (as the appellant’s notice of referral claimed) or a dispute under cl 12.2 that fell to be determined under the general dispute resolution provision in cl 13.2. [16] This appeal concerns the proper construction of those provisions. The appellant contends for an expansive construction, based in part on uncontentious evidence that the contracts were made at a time when the future direction of the electricity industry was uncertain. The electricity industry in Queensland was then entering a newly competitive phase, following a restructuring on 1 July 1997 which anticipated the introduction of a “national electricity market” (known as the “NEM”). The impact of the NEM on operations such as the respondents’ was uncertain. An industry consultant (Mr Craven) deposed that when the contracts were negotiated and executed, the NEM was in its formative stages of development; that the electricity supply business was changing from a regulated, risk-free, cost-plus business to a risk-managed, price-driven business, known as the wholesale electricity market (NEM); that there was uncertainty in the industry as to how the deregulated electricity market would evolve; that it was unclear how participants in the NEM would behave over time in their bidding practices and what impacts that behaviour would have on participants’ commercial outcomes; and that as a result it was not certain what impact the introduction of the NEM would have on base load power stations such as the Callide Power Stations.1 [17] The appellant commenced proceedings in February 2008 for declarations to the effect that a dispute had arisen as to the method of calculating a contract price under each contract; that the dispute was a dispute within the meaning of, and had been validly referred to expert determination under, the dispute resolution provision in cl 10.2(n) of each contract; or, alternatively, that cl 13.2, applied to the dispute. 1 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [13]-[14]. -- 6 of 31 -- 7 The decision at first instance [18] The learned Chief Justice dismissed the appellant's application2 . The Chief Justice accepted that a dispute had arisen between the parties as to the method of calculating the contract price. That is not now in issue. What are in issue in this appeal are the appellant’s challenges to the Chief Justice’s conclusions that the dispute is not amenable to expert determination under cl 10.2(n) or cl 13.2 of the contract. Clause 10.2(n) [19] The appellant argues that cl 10.2(n) comprehends the dispute about proposed changes to the contractual method of calculating the price that arose during the five yearly review under cl 12.2. Clause 10.1 of the Callide B Coal Supply Agreement is set out above. Clause 10.2 goes on to provide: “10.2 Replacement of CPI Index as Escalator in Favour of EMI Escalation (a) The method of calculating the Contract Price in this Clause 10 (including the method of calculating escalation) is subject to the review provisions set out in Clause 12. (b) The Parties agree that the provisions set out in Clause 10.1 providing for the escalation of the Contract Price will apply up to and including the Effective Date and thereafter for so long as an EMI is undetermined, or during any period referred to in Clause 10.2(m) during which an EMI selected by the Parties in accordance with this Clause 10.2 becomes inappropriate. (c) The Parties agree that: (i) an EMI may be a more appropriate index for the escalation of the contract Price than CPI Index; and (ii) as at the date of this Agreement, an EMI does not exist. (d) The Parties acknowledge and agree that a possible EMI may be: (i) published by either Party or any person; and (ii) based on calculations made by either Party or any person. 2 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124. -- 7 of 31 -- 8 (e) The Parties acknowledge and agree that a possible EMI must: (i) reflect underlying long term trends in electricity prices; (ii) exclude taxes; and (iii) incorporate on a basis acceptable to the Parties any market movements or aberrations which occur and which cannot be taken as indicative over the Review Period of underlying long term trends in electricity prices. (f) Upon the execution of this Agreement, or as soon as practicable thereafter, the Parties may nominate a possible EMI, or a number of possible EMI’s [sic]. (g) The Review Period will commence upon the nomination referred to in Clause 10.2(f). (h) If more than one EMI is nominated under. Clause 10,2(f), then the Same Review Period will apply to all EMI’s so nominated. (i) Until the determination of an EMI, in accordance with Clause 10.2(k) the Parties may continue to nominate possible EMI’s and, despite Clause 10.2(k), Review Periods will commence in respect of each nominated possible EMI upon its nomination. (j) During the Review Period the Parties must examine the nominated EMI or EMI’s in order to ascertain whether the EMI or any of them meets the requirements set out in Clause 10.2(e). (k) If an EMI meets the requirements set out in Clause 10.2(e), the Parties: (i) must only determine that an EMI is acceptable if its application will result in the reasonable expectation that the net present value to the Seller, calculated in accordance with the methodology and assumptions exampled in Schedule 5 ('NPV7') 3 in respect of the Initial Term will be preserved over the balance of the Initial Term when applied to the Initial Term and will be preserved over 3 Schedule 5 includes calculations of net present value to the appellant of the Callide B Coal Supply Agreement. -- 8 of 31 -- 9 the balance of any Option Term exercised by the Buyer when applied to that Option Term as the case may be; and (ii) if NPV7 will not be so preserved, will examine: (A) the proportion of the Base Price to which EMI will apply and the proportion of the Base Price to which CPI Index will apply; and (B) changes to the Base Price (subject to reviews that may have occurred), so as to ensure that NPV7 will be preserved over the balance of the Term of this Agreement. (l) If the Parties agree the matters set out in Clause 10.2 (k), then: (i) from the next Quarter following that agreement: (A) any alterations to the Base Price; and (B) the extent to which CPI Index is replaced in the price formula in Clause 10.1, will take effect for calculating the Contract Price; and (ii) the combination of CPI Index (if any) and EMI will be collectively referred to as the ‘EMI’ for the purposes of the balance of these provisions (except Clause 10.2(o)). (m) If in the Parties’ opinion, the implemented EMI consistently fails to satisfy the criteria set out in Clause 10.2(e) or operates in a manner unsatisfactory to the Parties, whether or not it has operated satisfactorily in the past: (A) the Parties must determine the date from which that EMI is no longer to operate (’De- selection Date’); and (B) the implemented EMI will be replaced with the escalation referred to in Clause 10. I with effect from the De-selection Date and, unless the Parties otherwise agree, the Base Price applying immediately prior to -- 9 of 31 -- 10 the determination made by the Parties under this Clause 10.2(m), adjusted to negate the effect of any review of the Base Price carried out in accordance with Clause 10.2(k)(ii)(B). (ii) Either Party may re-instigate the process set out in this Clause 10.2(f) to (m) by again nominating an EMI (other than the EMI referred to in this Clause 10.2(m)) in accordance with Clause 10.2(f). (n) Any dispute or matter between the Parties as to any matter set out in this Clause 10.2 must be referred to determination by an Expert in accordance with Clauses 13.3 to 1.3.6 inclusive. The Parties acknowledge and agree that Clauses 13.1 and 13.2 will not apply, and will be of no force or effect in relation to such a dispute or matter. (o) After the determination of an EMI, any Party can continue to examine a possible EMI or EMI’s (’Further EMI’) in which event: (i) if following a Review Period in respect of the Further EMI a Party can demonstrate that the Further EMI meets the requirements of Clause 10.2(e), then that Party can propose to the other Party that the current EMI be replaced by the Further EMI; and (ii) if the other Party agrees, then Clauses 10.2(k), 10.2(l), 10.2(m), 10.2(n) and this Clause 10.2(o) will apply to the replacement of the current EMI by the Further EMI; and (iii) if the other Party does not agree, the existing EMI will continue to apply." [20] The “EMI” is defined in schedule 1 to mean “the electricity market based index that reasonably reflects the underlying long term trend in electricity prices and which is to be determined in accordance with Clause 10.2”. No EMI has been determined. [21] The Chief Justice rejected the appellant's argument that cl 10.2(n) applied to the dispute described in the appellant’s notice of referral:4 "[52] It is true that cl 10.2(a) speaks of 'the method of calculating the Contract Price in this Clause 10 (including the method of calculating escalation)'. But every other provision in cl 10.2 deals with the EMI. I consider the apparent purpose of cl 4 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [52]-[54]. -- 10 of 31 -- 11 10.2(a) is not to broaden the 'matters' to which cl 10.2 applies, beyond the EMI concept, but to confirm that the EMI issue, which concerns 'the method of calculating the Contract Price in this Clause 10 (including the method of calculating escalation)' is 'subject to the review provisions set out in cl 12'. [53] I take that to mean, simply, that the adoption or imposition and subsequent maintenance of an EMI under cl 10.2, does not absolve the parties from the obligation to engage in the five yearly review under cl 12.2, or the 'change events' process under cl 12.3. [54] The reason why the parties included para (n) in cl 10.2 was to ensure that the issues which may result in disputes under that provision, for example whether a proposed EMI meets the criteria specified in (e) and (k), would as necessary be determined by an expert. Those issues would be quintessentially appropriate for expert determination, whereas they would be quite inappropriate for determination by a court in particular. The parties would therefore have been concerned to ensure that those issues, if they arose, would not fall within the compass of the general dispute resolution provision cl 13, especially with its default provision, involving curial determination." [22] The appellant contends that, in terms of cl 10.2(n), the "matter set out in this cl 10.2" relevantly includes, with reference to cl 10.2(a): "(a) The method of calculating the Contract Price (including the method of calculating escalation); or (b) alternatively, 'the method of calculating the Contract Price (including the method of calculating escalation) . . . subject to the review provisions set out in Clause 12'." [23] The appellant then argues that, whichever alternative is adopted, the dispute that arose in the course of the five yearly review fell within cl 10.2(n). [24] The argument distorts the meaning of cl 10.2(a), which expresses the parties' agreement that the provisions for calculation of the price, including escalation, are subject to the review provisions set out in cl 12. The appellant could not and does not dispute that agreement. On a literal construction of these provisions the agreement expressed in cl 10.2(a) is not capable of giving rise to any "dispute or matter between the parties" within the meaning of cl 10.2(n). [25] Clauses 10.2(b)–(m) establish a process to facilitate the substitution of an EMI for the price escalator in cl 10.1. In that context, cl 10.2(n) appears to relate only to disputes that arise during that process. So much is also implicit in cl 10.2(o). Although, as the appellant submits, cl 10.2(k)(ii)(B) and consequential provisions contemplate possible changes to the base price, those provisions regulate aspects of -- 11 of 31 -- 12 the EMI review process. The dispute in this case did not arise during any such process: no EMI was determined so that cl 10.2(b) had no application and no “Review Period” commenced under cl 10.2(g). [26] Those textual indications that cl 10.2(n) is limited to disputes relating to the substitution of EMI as the price escalator might be overlooked if the context or aim of cl 10.2(n) supported a broader construction. The appellant argues for an expansive reading of the clause on the ground that the escalator and the base price are interdependent. In another context the appellant also points to the objective unlikelihood that the parties would have made these long term contracts at a dynamic time in the industry without provision for revision of the base price where changing circumstances required it. [27] Those arguments would have force if cl 10.2(n) stood alone, but they are answered by the presence of the provisions for broader contractual review in cl 12. For reasons which I discuss below, I consider that cl 13, in its application to relevant disputes arising under cll 12.3–12.8, fulfils the parties’ commercial objective of providing for adjustments to cl 10.1 in response to changes in circumstances. There is no justification for departing from the literal meaning of cl 10.2(n): it serves the more limited purpose stated in paragraph [53] of the Chief Justice's reasons. [28] The appellant has not demonstrated any error in the Chief Justice’s conclusion that the dispute was not a "dispute or matter" in terms of cl 10.2(n). Clauses 12 and 13 [29] The remaining question is whether the dispute that arose during the five yearly review under cl 12.2 falls within the general provision for external dispute resolution in cl 13. [30] In addition to the five yearly review in cl 12.2, cll 12.3–12.8 provide for review at any time in response to specified changes in circumstances (“change events”). The appellant does not contend that it invoked these provisions in this case, but cll 12.3– 12.8 influence my construction of cl 12.2 in much the same way as they influence my construction of cl 10.2(n). [31] Clauses 12 and 13 relevantly provide: "12. REVIEW OF AGREEMENT 12.1 Principles (a) Each Party acknowledges and agrees: (i) subject to Clause 12.1 (a)(ii), the Coal Mine Owners and the Buyer have an expectation of benefiting under this Agreement; (ii) subject to Clause 12. l(a)(iii), each Party supports the process of review set out in this Clause 12 to ensure both the Coal Mine -- 12 of 31 -- 13 Owners and the Buyer remain competitive in relation to their respective industries; and (iii) during the Initial Term, the competitive position of the Power Station relative to other power stations operating in the Power Station’s industry in Queensland as at the Effective Date should be restored, having regard to the viability of the Coal Mine Owners’ mine in its industry. (b) Each Party agrees that circumstances may change during the Term of this Agreement which may require the terms of this Agreement to be reviewed to ensure those terms remain consistent with the principles set out in Clause 12.1(a). 12.2 Five Yearly Review Meeting During this Agreement, the Parties must: (a) convene a meeting of the Parties within 30 days of the fifth anniversary of the Commercial Load Date for Unit 1; (b) at that meeting, review the consistency of the operation of this Agreement against the principles set out in Clause 12. l(a); (c) within 14 days of that meeting, exchange all data which the Parties hold which is relevant to reviewing the consistency of the operation of this Agreement against the principles set out in Clause 12. l(a); and (d) use their best endeavours to review the consistency of the operation of this Agreement against the principles set out in Clause 12.1(a) within 90 days of that meeting. 12.3 Change Events (a) A ‘Change Event’ is a change in circumstances which has, or will have, a material effect on the competitiveness of either the Coal Mine Owners or the Buyer (in the reasonable opinion of a Party) in relation to the industry in which it operates, and includes, without limitation: -- 13 of 31 -- 14 (i) the Commercial Load Date of Unit 2 occurring more than 18 months after the Effective Date; (ii) if the Buyer reasonably demonstrates, by the elimination of other relevant factors, that there is a change in coal prices being paid by other power stations. The Parties acknowledge that the Buyer must reasonably demonstrate, by the elimination of other relevant factors, that there is a material adverse change in the competitive position of the Power Station which is due to changes in coal prices being paid by other power stations, before the Parties will be obliged to review this Agreement against the principle set out in Clause 12.1(a)(iii). (iii) major changes to working conditions within the coal mining industry, including, without limitation, advances in technology which were not foreseen at the date of this Agreement; (iv) as demonstrated (by the Seller) increase in the long term (being at least five years) trend in electricity price occurring during the whole or any part of any period when an EMI is not operative; and (v) a change in governmental policy, or a change in a law or regulation, relating to environmental standards and compliance with those standards. (b) If at any time after the date of execution of this Agreement there occurs, or either Party considers there may occur, a Change Event, then: (i) a Party (the 'Notifying Party') may notify the other (the 'Receiving Party') in writing promptly when that Change Event becomes known to the Notifying Party that it is the Notifying Party’s intention to initiate a review -- 14 of 31 -- 15 of this Agreement which may lead to an Adjustment; (ii) if it wishes to proceed with a review of this Agreement, the Notifying Party must, as soon as practicable in all the circumstances, submit a formal notice of a Change Event (the 'Change Event Notice') to the Receiving Party, which will include: (A) all data which the Notifying Party holds which is relevant both to the Change Event including detailed information regarding the nature, extent and quantum of the cost and revenue impacts of the Change Event and to calculating those costs and revenue impacts as they relate to all of the options and alternatives identified by the Notifying Party available to accommodate or mitigate the Change Event; and (B) options and alternatives identified by the Notifying Party and the Notifying Party’s recommended option, and a Change Event will be deemed to have occurred; (iii) As soon as possible after a Notifying Party becomes aware that an estimate of the financial effect is likely to be incorrect, the Notifying Party must amend that estimate and give copies of the amended estimate and the estimate it amends to the Receiving Party. (iv) The onus is upon the Notifying Party to establish the impact of the Change Event. (v) The Parties must use their best endeavours to review and to attempt to agree an Adjustment generally in -- 15 of 31 -- 16 accordance with the principles set out in Clause 12.1. 12.4 Receiving Party’s Notice Not Accepting Options (a) If a Receiving Party notifies the Notifying Party that it does not accept any of the options proposed or financial effects estimated in the Change Event Notice, then it may propose alternative options for the Notifying Party’s consideration. (b) The Notifying Party must respond within 10 Business Days of its receipt of any response from the Receiving Party pursuant to Clause 12.4(a). 12.5 Convene Meeting of Parties The Change Event Notice issued pursuant to Clause 12.3(b)(ii) must specify a time (being at least 30 days but less than 45 days after the date of receipt of the Change Event Notice) and a place in Brisbane at which a meeting will be held and attended by a senior officer of the Notifying Party (who must be named in the Change of Event Notice) and a senior officer of the Receiving Party. 12.6 Receiving Party’s Senior Officer Within 7 days of receipt of the Change Event Notice, the Receiving Party must give the Notifying Party written notice of the name of a representative of the Receiving Party who must be its senior officer for the purpose of attending the proposed meeting specified under Clause 12.5. 12.7 Review of Options (a) The senior officers must attend the meeting specified under Clause 12.5 and must review the options set out in the Change Event Notice and the detailed information included in the Change Event Notice. (b) The senior officers must, as soon as practicable, attempt to: (i) agree an option or determine an appropriate course of action; and -- 16 of 31 -- 17 (ii) agree on the nature and quantum of the financial effect of the Change Event. 12.8 Mitigation The Parties must have regard to the desirability to preclude the occurrence of, or to mitigate any adverse consequences flowing from or contributing to, any Change Event. 13. DISPUTE RESOLUTION 13.1 Scope Unless otherwise expressly agreed to the contrary in this Agreement, this Clause 13 applies to all disputes between the Parties under this Agreement. 13.2 Chief Executive Resolution The Parties agree that any dispute, on relevant matters arising out of this Agreement, to be referred to the dispute resolution procedure set out in this Clause 13 must be referred to a nominated senior executive (or, in the case of the Seller, a nominated senior executive of the Shell Coal group) of the Parties’ Relevant Holding Companies for resolution. Failing such resolution within 10 Business Days of that referral, the relevant dispute must be referred, by those chief executives, for final determination by: (a) an Expert; or (b) arbitration; or (c) a court of competent jurisdiction, in accordance with this Clause 13 and as selected by those chief executives. In default of such a selection the dispute will be referred to a court of competent jurisdiction for final determination. …." Summary of the primary judge’s conclusions [32] The Chief Justice concluded that the dispute was not, in terms of cl 13.2, a dispute "in relation to matters arising out of this Agreement" because the process of review -- 17 of 31 -- 18 under cl 12.2 did not extend to obliging the parties to agree to vary their contract should that be necessary to restore consistency with the cl 12.1(1) principles.5 [33] The Chief Justice considered that this conclusion flowed from the text of cl 12.2, which used the word "review" in the sense of "survey" rather than survey "with a view to correction . . .";6 that the text did not go beyond obliging the parties to use their best endeavours to review the consistency of the agreement with the cl 12.1 principles;7 and that this conclusion derived support from the fact that even the more detailed provisions of cl 12.3 did not require a contractual variation where that was necessary to achieve consistency with the cl 12.1(a) principles.8 [34] The Chief Justice considered that the appellant faced the additional obstacle that (as the appellant conceded at first instance) the dispute was non-justiciable: because cl 13.2 did not discriminate between those disputes which might be referred to an expert and those which might be referred to an arbitrator or a court, and because it provided for the default position that a dispute would be referred to a court for final determination, a non-justiciable dispute did not fall within the scope of cl 13.2.9 Although a court could be asked to compel a party to participate properly in the review process under cl 12.2, a party could not insist upon the expert determination of a new contract price in circumstances where there was no binding contractual obligation to agree to one. 10 The commercial aim of the transaction [35] The respondents do not cavil with the appellant’s submission that these contracts should be given a commercially sensible construction. In that respect, the appellant argues that, contrary to the Chief Justice's conclusion, cl 12.2, or cl 12.1(b) applying in the context of cl 12.2, obliges the parties to agree upon a variation should that be necessary in order to restore consistency with the principles expressed in cl 12.1(a). It argues that this construction is consistent with the language of those provisions and that it is required to give commercial efficacy to the contract. The respondents present the obverse propositions, that the text is opposed to the appellant’s construction and that it is an uncommercial construction to give a third party expert the power to amend every single clause in the contracts that could provide for the supply of coal for another 20 years in amounts running to several billion dollars. [36] As the Chief Justice observed, the Court’s role is not to engage in “impermissible speculation as to the parties’ particular expectations, without regard to the contractual charter upon which they have actually agreed”. 11 Rather, the task is to determine what reasonable people in the parties' positions would have understood the contract to mean having regard to the text and the purpose or object of the transaction the contract embodies.12 5 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [73]. 6 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [60]. 7 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [61]. 8 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [66]. 9 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [55]. 10 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [57]-[58]. 11 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [70] 12 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; [2004] HCA 35; Toll (FGCT) P/L v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]; [2004] HCA 52. -- 18 of 31 -- 19 [37] In this contract the parties have chosen to express the object of cl 12 by stating the relevant guiding principles in cl 12.1(a) and their agreement in cl 12.1(b) concerning the effect to be given to those principles. The appellant emphasises the unequivocal expression in cl 12.1(b) of the parties' agreement that changes in circumstances during the term of the contract may "require the terms of this Agreement to be reviewed to ensure those terms remain consistent with the principles. . .". Whilst I would affirm the Chief Justice’s conclusion that the word “review” is used elsewhere in the contract as connoting only a “survey”,13 the context compels the conclusion that in cl 12.1(b) “review” comprehends adjustments of the contractual terms. That is the most obvious way, if not the only way, in which terms which have become inconsistent with the relevant principles may be made to be consistent with them. [38] The respondents argue that cl 12.1 does not itself explicitly oblige the parties to adjust the contractual terms even where that is necessary to give effect to the cl 12.1(a) principles. So much may be accepted, but cl 12.1(b), read in the context in which it appears (including the statement in cl 12.1(a)(ii) of the parties' support for the "process of review set out in this clause 12 to ensure both the Coal Mine Owners and the Buyer remain competitive in relation to their respective industries. . ."), nevertheless conveys the parties’ aim of establishing a process under which the parties may become bound by contractual adjustments where that is necessary to give effect to the cl 12.1(a) principles. It is a most unlikely construction of this long term contract, made at a time of significant uncertainty about the future direction of the electricity industry, that although the parties agreed in cl 12.1 that changes in circumstances might “require” the terms to be reviewed to “ensure” consistency with their agreed underlying principles, they stopped short of binding themselves to the contractual adjustments necessary to achieve that desired result. [39] It does not follow, however, that cl 12.2 (or cl 10.2(n)) forms part of the contractual mechanism by which the contemplated contractual adjustments are to be effected. Rather, I have concluded that cll 12.3–12.8 (and, in the event of a dispute under that “change event” process, cl 13) exclusively fulfil this aspect of the contractual object expressed in cl 12.1. Clauses 12.3–12.8 [40] The provision in cll 12.3–12.8 of a “change event” process, the effect of which is in issue between the parties, has an important bearing upon my rejection of the appellant’s claim that the dispute that arose during the five yearly review under cl 12.2 is amenable to expert determination under cl 13. Whereas cl 12.2 provides only for a review of the consistency of the contract’s operation (rather than its terms) with the cl 12.1(a) principles and contains no provision for any contractual negotiation, cll 12.3–12. 8 contain express provisions to that effect. [41] Most significantly, cl 12.3 both provides for a review of “this Agreement” (in cll 12.3(a)(ii), 12.3(b)(i) and (ii)) and contemplates (in cll 12.3(b)(i) and (v)) that the contractual review might result in an “Adjustment”. Those references in cl 12.3 to a 13 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [60], referring to the contrast in cl 3.2(c) between “review” and “negotiate”. (Clause 3.2(c) is set out later in these reasons.) -- 19 of 31 -- 20 review of "this Agreement" mirror the phrase in cl 12.1(b) "the terms of this Agreement to be reviewed". Thus cl 12.3 uses the word "review" in the same sense in which it is used in cl 12.1(b), as meaning "the act of looking over something (again), with a view to correction or improvement" (of the contract), 14 rather than in the sense merely of “survey”. The word "Adjustment” is defined in Schedule 1 to mean "an adjustment to the agreement". That is a particularly apt description of the process contemplated in cl 12.1(b) of adapting the contractual terms to restore them to their initial state of consistency with the principles expressed in cl 12.1(a): reference to dictionaries confirms that one of the principal meanings of the word “adjustment” is “the act of adjusting: act of adaptation to a given purpose";15 “the process of adjusting; setting right, regulating, arranging, settling, harmonising, or properly disposing.”16 [42] There are other indications in cl 12.3 that the “change event” review provides the exclusive mechanism for implementing so much of the agreement expressed in cl 12.1 as contemplates that adjustments to the contracts must be made where that is necessary to give effect to the cl 12.1(a) principles. In that respect, cl 12.3(a) operates in the event that there is "change in circumstances", a phrase which mirrors the phrase in cl 12.1(b) "circumstances may change"; and cl 12.3(a) operates where the change in circumstances "has, or will have, a material effect on the competitiveness of either Coal Mine Owners or the Buyer . . . in relation to the industry in which it operates . . .", a phrase which similarly mirrors the expression in cl 12.1(a)(ii) "to ensure both the Coal Mine Owners and the Buyer remain competitive in relation to their respective industries . . . ". [43] Clause 12.3(a)(ii) is also significant in this context. It limits to the circumstances described in it the occasions upon which adjustments are required where the claimed “change event” is a change in coal prices paid for coal consumed in other power stations. Because the obligation in this provision to “review” the contractual terms arises only where the buyer first demonstrates the existence of the change of circumstances (a material adverse change in the power station’s competitive position due to an adverse change in coal prices) I find it impossible to accept that this review is limited to a mere “survey” of the contract. The fact that this clause requires a contractual adjustment in the specified circumstances strongly suggests that, contrary to the respondents’ submission, the same is true where any other “change event” is reviewed under cll 12.3–12.8. [44] That is consistent also with the detailed mechanism in those provisions. Before an obligation to "review this Agreement" arises under cl 12.3, there must be a "change event", meaning a change in circumstances which has or will have a material effect on the competitiveness of either the coal mine owners or the buyer in relation to the industry in which it operates. Furthermore, cl 12.3(a) specifies another objective criterion: the opinion of the relevant party that the change of circumstances has or will have the specified effect must be a "reasonable opinion”. 14 First Oxford English Dictionary definition of "review", quoted in Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [61]. 15 Macquarie Dictionary, 3rd ed., which includes in the definition of “adjust” “to fit, as one thing to another, make correspondent or conformable; adapt; accommodate: to adjust to a standard”. 16 Oxford English Dictionary, which includes in the definition of “adjust” “to arrange, compose, settle, harmonise (things that are or may be contradictory, differences, discrepancies, accounts)”. -- 20 of 31 -- 21 [45] Then cl 12.3(b)(i) obliges any party who wishes subsequently to give a "change event notice" under cl 12.3(b)(ii) first to notify the other party in writing promptly when the relevant "change event" becomes known to the notifying party of that party's intention to initiate the proposed review. If the “Notifying Party” wishes to proceed cl 12.3(b)(ii) obliges it "as soon as practicable in all the circumstances" to submit a formal "change event notice". Importantly, the notice must include all data held by the notifying party that is relevant to the suggested "change event" and the change event notice must identify the "options and alternatives . . . available to accommodate or mitigate the "change event"". This, and the provision for the party receiving the notice (the "Receiving Party") to propose alternative options (cl 12.4), are aptly designed to assist in the definition of any dispute, including as to any adjustment of the contractual terms sought by the parties. [46] The requirement in cll 12.5 and cl 12.6 that the parties’ representatives who must attend the meeting described in cl 12.7 must be "senior officers" is also consistent with the view that this “change event” process may oblige the parties to negotiate appropriate adjustments of the contractual terms. [47] The respondents argue that the phrase in cl 12.3(b)(i) "which may lead to an Adjustment" and the parties’ obligation imposed by cl 12.3(b)(v) to use their best endeavours “to attempt to agree an Adjustment” show that even the detailed provisions of cl 12.3 (and thus, by implication, the more general provisions of cl 12.2) do not impose any obligation to agree upon an adjustment to the contract where the cl 12.1(a) principles require it. But these indications that an adjustment is not inevitable simply reflect the context in which those provisions appear: when the “Notifying Party” gives the “Change Event Notice” under cl 12.3(b)(i) and when the parties embark on the cl 12.7 meeting foreshadowed in cl 12.3(b)(v) there can be no assurance that they will agree upon any adjustment. [48] Clause 21 also obliges the parties to endeavour to agree upon contractual adjustments to cater for reasonably unforeseeable circumstances and stops short of expressly obliging the parties to reach agreement. 17 That is unsurprising. But cll 12.3–12.8, read with cl 12.1(b), make it clear that the “change event” review process may involve one party claiming that an adjustment must be made to give effect to the cl 12.1(a) principles and the other party declining to accede to that claim. Such a state of affairs would constitute a “dispute between the parties “under this Agreement” in terms of cl 13.1 and a “dispute, on relevant matters arising out of this Agreement” in terms of cl 13.2.18 If the parties are unable to reach an agreement at the meeting required by cl 12.7 which wholly resolves the dispute reflected in the “Notifying Party’s” change event notice and the “Receiving Party’s” notice under cl 12.4, then the next step will be referral of the dispute under cl 13. In such a case, the "final determination" of the dispute required by cl 13.2 may include an adjustment of the contractual terms to give effect to the parties’ agreement expressed in cl 12.1. 17 Clause 21 provides: “The Seller and the Buyer recognise that circumstances may arise which could not have been reasonably foreseen at the time this Agreement was entered into. The Parties agree that they will use their best endeavours to resolve any such problems due to any such unforeseeable circumstances including continuation of any force majeure condition in the spirit of mutual understanding and collaboration.” 18 See Santos Ltd & Ors v Pipelines Authority of SA (1996) 66 SASR 38, a case concerning similar contractual provisions in which the authorities are discussed by Debelle J at 44. -- 21 of 31 -- 22 [49] In that way cll 12.3–12.8 and cl 13 provide the mechanism contemplated by cl 12.1 as being necessary to give effect to the parties’ commercial aim of providing for the adjustment of the contractual terms where that is necessary to cater for changing circumstances during the life of this long term contract. As I have indicated, this conclusion bears significantly upon my view that no similar mechanism is provided by cl 12.2. Before I discuss the meaning of that provision I will refer to some other points agitated by the parties. Is the dispute justiciable? [50] I would reject the respondents’ argument that because the dispute claimed to arise under cl 12 is not justiciable cl 13 should not be construed as comprehending the dispute. [51] The appellant challenges the Chief Justice's conclusion that a dispute whether the contract should be varied to give effect to the cl 12.1(a) principles is not justiciable. In an alternative contention, the appellant contends that if such a dispute is non-justiciable it nevertheless remains a dispute arising under cl 12 with the consequence that the parties are obliged to refer it to an expert for determination under cl 13. [52] If a particular dispute arising under cl 12 is not justiciable the parties’ agreement in cl 13.2 that the dispute might be resolved by a court will miscarry. The appellant conceded in oral argument that it would also follow that the dispute could not be referred to arbitration under the Commercial Arbitration Act 1990 (Qld).19 Similarly, the provision for curial adjudication in default of any selection by the chief executives of an expert or arbitrator will also miscarry in such a case. [53] The appellant argues that efficacy should be given to cl 13.2 by construing it as obliging the parties’ chief executives to cause the nominated chief executives to select expert determination as the mode of dispute resolution of a dispute where, as the respondents contend is the case for this dispute, the alternatives (litigation or arbitration) are incapable of producing the final determination contemplated by cl 13.2. The appellant calls in aid cl 20.4, which provides that each party “must do or cause to be done all things necessary or desirable to give effect to, and must refrain from doing anything that would hinder performance of, this Agreement.” The respondents reject this view. They argue that the appellant’s construction is irreconcilable with cl 13 because it would set at nought the unfettered choice provided by cl 13.2 to select one of three specified modes of dispute resolution and it would also render ineffective the “default reference” to court. [54] The intention of cl 13, expressed in cl 13.1, is that subject to any expressed agreement to the contrary “all disputes” under the contract are amenable to dispute resolution. I consider that dominant effect should be given to that provision and particularly also to the clear expression in cl 12.1 of the parties’ intention that necessary adjustments should be made to ensure that the contractual terms remain consistent with the fundamental principles expressed in that clause. The references in cl 13 to determination by a court or arbitrator are aspects of the machinery 19 See Apache Northwest Pty Ltd & Ors v Western Power Corporation (1998) 19 WAR 350 at 368, cited by McMurdo J in Xstrata Queensland Ltd v Santos Ltd & Ors; Santos Ltd & Ors v Xstrata Queensland Ltd [2005] QSC 323 at [21]. -- 22 of 31 -- 23 provided to give effect to that basic agreement. That machinery should be seen as subsidiary to the underlying commercial object of the transaction to provide for appropriate adjustments of the contractual terms to cater for significant changes during the course of this long term contract. 20 [55] I would not attribute to reasonable contracting parties in these parties’ positions an intention that the agreement expressed in cl 12.1 and following provisions should fail merely because a particular dispute under cl 12 involves an issue that, whilst capable of resolution by expert determination under cl 13, is not capable of resolution by a court or arbitrator. In such a case, I consider that the parties would be obliged to cause the chief executives to refer the dispute for expert determination because that would be the only means capable of producing the final determination contemplated by cl 13. [56] That analysis assumes that the dispute between the parties whether cl 10.1 should be adjusted in the way proposed by the appellant, or other disputes generated in the review processes under cl 12, may not be amenable to judicial resolution. At first instance the appellant conceded as much, but it now argues (without objection) that any such dispute is justiciable. It argues that the principles expressed in cl 12.1(a) provide objective criteria against which any proposal under cl 12.2 or cl 12.3 may be measured and that it should also be implied that fairness and reasonableness constitute another objective criterion. The respondents reply that cl 12 does not provide "precise and objective" criteria that would enable a court to answer the question whether the parties are obliged to agree upon the amendment to cl 10.1 proposed by the appellant or other contractual variations. [57] Under these contractual provisions, the dispute is not at large. It is implicit in cl 12.1 that the contractual terms were initially consistent with cl 12.1(a) and that the task is to undo inconsistency with the stated principles created by subsequent changes in circumstances. In the view I take, that is a reference to changes of the character described in cl 12.3, which introduces the additional objective criteria I mentioned earlier. It also goes without saying that the principles expressed in cl 12.1(a) are to be applied fairly and reasonably. (That conclusion reflects my construction of this form of contract so that other decisions are of limited assistance, but I note that similar conclusions have been reached in decisions upon price adjustment provisions in comparable long term agreements.21 ) [58] Authorities upon broadly comparable contractual provisions support the appellant’s contention that a pricing dispute of the character in issue here is capable of judicial resolution.22 In my opinion this form of contract supplies the necessary objective 20 Cf Didymi Corp v Atlantic Lines and Navigation Co Inc (The Didymi) [1988] 2 Lloyd’s Rep 108 at 113-115 per Bingham LJ (applying Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 at 478 per Lord Diplock and at 483 per Lord Fraser) and at 118-119 per Nourse and Dillon LJJ. 21 See Xstrata Queensland Ltd v Santos Ltd & Ors; Santos Ltd & Ors v Xstrata Queensland Ltd [2005] QSC 323 at [37]; Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205 at 210. 22 Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd’s Rep 205 at 210; Apache Northwest Pty Ltd v Western Power Corporation (1998) 19 WAR 357-8; Xstrata Queensland Ltd v Santos Ltd & Ors; Santos Ltd & Ors v Xstrata Queensland Ltd [2005] QSC 323 at [32]; Qld Power Trading Corp v Xstrata Qld Ltd & Ors [2005] QCA 477 at [16]; The appellant cited authority for the further proposition that the same principle applies where the dispute concerns other -- 23 of 31 -- 24 criteria for a judicial decision that finally determines a dispute whether the pricing formula should be adjusted in a particular manner. Clause 3 [59] The respondents argue that cl 3 of the contract suggests that it is unlikely that the parties intended cll 12 and 13 to have the effect that the contract might be altered otherwise than by their agreement. I do not accept that view. Clause 3 provides: "3. TERM 3.1 Term Subject to Clause 3.2, this Agreement commences on the Effective Date and terminates on the last day of the Term, unless terminated earlier in accordance with this Agreement. 3.2 Option Terms (a) This Agreement may be extended at the Buyer’s option (which option is exercisable at the Buyer’s sole and absolute discretion) beyond the Initial Term for up to four successive Option Terms, as follows: (i) not less than 30 days prior to: (A) 30 months prior to the expiry of the Initial Term; or (B) 18 months prior to the expiry of any Option Term, as the case may be, the Buyer must give a notice to the Seller setting out the Buyer’s intention to enter into the negotiations contemplated by this Clause 3.2(a); and (ii) (A) 30 months prior to the expiry of the Initial Term; or (B) 18 months prior to the expiry of any Option Term, as the case may be, the Parties must meet and negotiate all terms and conditions including price, subject to the price review procedures set out in Clause 12; and terms: Hawthorn Football Club Ltd v Harding [1988] VR 49. It is not necessary to consider that hypothetical question. -- 24 of 31 -- 25 (iii) the Parties must conclude those negotiations by that date which is 24 months prior to the expiry of the Initial Term or by that date which is 12 months prior to the expiry of any Option Term, as the case may be; and (iv) if the Parties fail to agree on all the terms and conditions including price by the dates referred to in Clause 3.2(a)(iii), and the Buyer exercises in its sole and absolute discretion its option to extend this Agreement, this Agreement will be extended on the same terms and conditions including the price, applying at the conclusion of the previous Initial Term or Option Term as the case may be; and (v) the Buyer must give a notice to the Seller within 30 days of the dates referred to in Clause 3.2(a)(iii): (A) confirming the Buyer’s extension of the Term on the terms and conditions, including price, resolved in the negotiations referred to in Clause 3.2(a)(iii); or (B) confirming the Buyer’s extension of the Term on the same terms or conditions, including price, applying at the conclusion of the previous Initial Term or Option Term as the case may be; or (C) notifying that the Buyer will not extend the Term in accordance with this Clause 3.2. (b) If this Agreement is extended in accordance with this Clause 3.2, then this Agreement continues and terminates on the last day of the next Option Term, which is deemed to commence on the day after the Initial Term or previous Option Term expired. (c) If this Agreement is extended by an Option Term the Parties must, during the course of the negotiations referred to in Clause 3.2(a), and in any event not later than one month prior to the dates referred to in Clause 3.2(a)(iii), review the Coal Reserves and the Coal Resources and update and restate Schedule 3 of this Agreement. The Seller must, at the time of the -- 25 of 31 -- 26 review referred to in this Clause 3.2(c), provide to the Buyer sufficient information and data to confirm and verify the Coal Reserves and the Coal Resources as updated and restated in accordance with this Clause 3.2(c) from time to time.” [60] The phrase in cl 3.2(a)(ii) "subject to the price review procedures set out in cl 12" suggests that the review procedures may result in changes to the terms upon which the contract is renewed. Clause 3 is by no means inconsistent with the view that cll 12 and 13 were intended to ameliorate what would otherwise be the effect of the contract, namely that the contract might, at the option of the buyer, extend for 30 years upon terms and conditions, including price, fundamental assumptions for which have been falsified by changes in circumstances occurring after the commencement of the contract. Other provisions for contractual variations [61] The Chief Justice observed23 that the parties may not have wished to command contractual variation, save in the particular situations expressly covered in relation to the expert determination of EMI issues under cl 10.2 and the substitution of a new index for CPI (sch 4 Pt B(1)).24 The Chief Justice’s focus was of course upon the bearing these provisions had upon the construction of cl 12.2; but looking at cl 10.2 more generally, it does not seem particularly surprising that the parties agreed that an expert should determine the technical issues arising under that clause whilst contemplating that a court or arbitrator might instead determine potentially more significant disputes arising under cl 12 in response to changing circumstances that have falsified a basis of the parties’ bargain. Nor would I draw any negative implication about the scope of cl 12 from sch 4 Pt B(1), which contains a common kind of contractual provision designed to avoid the gap that would occur if publication of the CPI identified in the pricing formula is discontinued. [62] I would here adopt Donaldson LJ’s nautical analogy:25 "In my judgment, cl 7 is an ultimate safety net. To adopt an analogy which is perhaps appropriate to North Sea gas, the parties contemplated that in most foreseeable economic conditions the course of the joint venture would be dictated by the automatic price revision mechanisms contained in cll. 4, 5 and 6 (the agreed price autopilot). But the parties realized that over a period of 25 years economic storms could arise of such severity that the price autopilot would not be able to keep the venture on course. Clause 7 provides for a manual override if this occurs and the venture goes so far off 23 Callide Coalfields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [67]. 24 Part B (1) of schedule 4 , to which I referred earlier, defines the “CPI Index” referred to in schedule 1 (which is an element of the pricing formula in cl 10.1) and provides that if that index is discontinued and the parties are unable to agree on the replacement index then “the index most closely serving the same function as certified by an actuary appointed by the President for the time being of the Law Society of Queensland whose certification will be final and binding on the Parties and that actuary will be deemed to act as an expert and not as an arbitrator and his certificate will be final and binding on the Parties.” 25 Superior Overseas Development Corporation and Phillips Petroleum (UK) Co Ltd v British Gas Corporation [1982] Lloyd's Rep 262 at 269. -- 26 of 31 -- 27 course as to cause one of the parties to suffer substantial economic hardship. The experts then take over, correct the course and, if appropriate, revise the settings on the price autopilot." [63] In this form of contract, cll 12.3–12.8 and, if a dispute arises under those provisions, cl 13.2, provide the “ultimate safety net”. [64] The respondents argue that the terms of cl 10.2 support a negative implication that cl 12 does not comprehend disputes whether the contractual terms should be adjusted. Their argument emphasises the provisions (notably in cll 10.2(f),(j)–(m)) that oblige the parties to negotiate, within defined parameters, about a replacement escalator in the pricing formula and the provision (cl 10.2(n)) which expressly provides that a dispute about that and any related change to the Base Price may be referred to an expert for determination. [65] This does not justify the suggested negative implication in relation to the “change event” review provisions: I have already identified those provisions of cll 12.1, 12.3–12.8 and cl 13 which serve purposes analogous to those of the provisions of cl 10.2 upon which the respondents rely. The respondents’ argument has substance, however, in relation to the central issue in this appeal, which concerns a dispute arising during the five yearly review under cl 12.2, the brevity and generality of which present marked contrasts with the detailed provisions for the reviews under cll 10.2 and 12.3–12.8. Schedule 2, cl 13 [66] Clause 1.2 of the contract provides that it “will be interpreted in accordance with the rules set out in Schedule 2.” Clause 13 of schedule 2 provides: “This Agreement must not be varied, waived, discharged or released whether at law or in equity except with the prior consent in writing of the Parties.” [67] The respondents argue that this interpretative provision has the effect that cl 12 should not be construed as comprehending contractual variations being imposed upon a party without its agreement. I readily accept that one would naturally expect the parties to make it clear if they intend to agree that they will be bound by future adjustments to the contractual terms being imposed upon them. For the reasons I have given I consider that the parties have made that clear in cl 13 in its application to a dispute arising during the “change event” review under cll 12.3–12.8. The contract itself (in provisions such as cl 10.2(n), cl 13, and paragraph (1) of schedule 4) then constitutes the parties’ “prior consent in writing” to the contractual adjustments imposed by the operation of those provisions. This interpretative provision is plainly not intended to prevent the application of those provisions according to their terms. Clause 12.2 [68] I turn now to the remaining arguments concerning the meaning of the provision directly in issue, cl 12.2. [69] I have foreshadowed my conclusion that the text of cl 12.2 suggests that it, unlike cll 12.3–12.8, does not comprehend review of the contractual terms themselves. -- 27 of 31 -- 28 Whereas a review of the contract (as required by cll 12.3–12.8) may involve a review of the contract’s operation in order to compare the results of that operation with the cl 12.1(a) principles, the converse is not true. Whilst a review of the operation of the contract (as required by cl 12.2) against the cl 12.1(a) principles should provide the parties with information with reference to which the parties might decide whether change to the contractual terms is required to ensure that the contractual terms remain consistent with the cl 12.1(a) principles, cll 12.2(b) and (d) do not require the parties to consider that next step. [70] Furthermore, it is clear that the “review” at the first discussion mandated by cl 12.2(b) does not comprehend an obligation to negotiate adjustments of the contractual terms: at that point the parties will not have had the benefit of the information exchange required by cl 12.2(c). The appellant’s argument accepts this but the appellant contends that whereas “review” in cl 12.2(b) means only “the process of looking at the agreements with a view to their correction”, in cl 12.2(d) it means “correcting the agreements, if such correction is required”. I reject that argument. In this lengthy, detailed contract which was obviously drawn with skilled legal and technical assistance, it is a strong thing to read such very different meanings into identical expression in two sub-clauses in one short clause. It is much more likely that the phrase "review the consistency of the operation of this Agreement" bears the same meaning in each provision. It focuses on a comparison between the manner in which the contract has operated and the principles expressed in cl 12.1(a), but it does not contemplate any consequential adjustment of the contractual terms. [71] That provides an internally consistent construction of cl 12.2. The parties might reasonably have contemplated holding a meeting for the purpose there expressed before they became obliged by cl 12.2(c) to exchange all of the relevant data so that they might confine the issues to be reviewed under cl 12.2(d) and thus limit the extent of the data to be exchanged. The second review, as specified in cl 12.2(d) would then occur with the benefit of each party having possession of data held by the other party relevant to the topic. [72] Perhaps in recognition of these difficulties, the oral argument for the appellant instead emphasises cl 12.1(b). The appellant argues that where the comparison under cl 12.2 reveals a departure from the cl 12.1(a) principles, cl 12.1(b) obliges the parties to adjust the contractual terms to bring them back into alignment with the relevant principles. I think the better view of cl 12.1(b) is that, when it is viewed in the context of cl 12 as a whole, it points to cll 12.3–12.8 as the exclusive process by which the changes in circumstances mentioned in cl 12.1(b) are to be accommodated by the negotiation of adjustments of the contractual terms. [73] The contrast between the departure in cl 12.2 from the language of cl 12.1(b) on the one hand and the reflection in cll 12.3–12.8 of the language of cl 12.1(b) on the other hand reveals that cll 12.3–12.8 do, but cl 12.2 does not, oblige the parties to negotiate adjustment of the contractual terms where there is inconsistency with the cl 12.1(a) principles. The many textual matters in cl 12.3 to which I have referred as indicating that it is part of a contractual mechanism designed to give effect to that aspect of the agreement expressed in cl 12.1(b) have no counterparts in cl 12.2. There is, for example, nothing in cl 12.2 to suggest that its operation might lead to an adjustment of the contractual terms: contrast cll 12.3(b)(i) and (v). -- 28 of 31 -- 29 [74] The appellant argues that the reference in cl 12.3(b)(i) to the possibility of an adjustment to the contract is explicable because cl 12.3 concerns an ad hoc event which is claimed to justify an adjustment to the contract, but that no such reference was apposite in cl 12.2, which requires a five yearly review whether or not any adjustment to the contract has become necessary. The appellant argues also that the reference to a possible adjustment of the contract in cl 12.3(b)(v) does not support the negative implication that no similar adjustment might arise under cl 12.2: it argues that the purpose of including the former provision is to ensure that the parties take into account all of the cl 12.1(a) principles rather than merely the principle in cl 12.1(a)(ii) to which the “Change Event” definition in cl 12.3 is mainly directed. [75] These are ingenious arguments but I cannot accept them. That the language of the contract reveals this marked contrast between cl 12.2 (which does not in terms provide for a review of the contractual terms or that the review might lead to an adjustment of those terms) and cl 12.3 (which does include such provisions) suggests instead that cll 12.3–12.8 contain the exclusive mechanism for giving effect to so much of cl 12.1(b) as contemplates adjustments of the contractual terms. [76] Another difficulty with the appellant’s argument is that cl 12.1(b) – upon which the appellant focuses – implies that adjustments of the contractual terms may be imposed on the parties only where there is a change in circumstances. Whilst that supports the appellant’s argument that cll 12.3–12.8 (which operate only where there is a “change in circumstances”) comprehends adjustment of the contractual terms, it correspondingly detracts from the appellant’s argument that cl 12.2 (which operates without reference to any such criterion) comprehends any similar obligation. [77] A submission made on behalf of the appellant at the first instance and substantially repeated in this Court is that it departs from commercial common sense to conclude that the parties were obliged by cl 12.2 to look at the contractual terms to determine whether they were consistent with the cl 12.1(a) principles but were not obliged to do anything if inconsistency was identified. As to that, the Chief Justice observed26 : "The submission is answered by the range of considerations telling the other way. In summary, there is the language of cl 12.2 and the fact that it does not express an obligation to negotiate and vary. There is the contrast between that language, and the much more precise prescription in cl 12.3, which goes to the point of expressing the possibility of an adjustment, while stopping short of ordaining it. Also, there is the consideration that the word 'review' may be read uniformly, as involving a general survey, in the course of an ordinary, natural construction of the agreements. Further, the text of the agreements indicates a conscious distinction between a 'review' on the one hand, and negotiation or 'adjustment' on the other, the latter term being defined in sch 1 as 'an adjustment to this Agreement'. Finally, there is the existence of possible explanations why these parties may have seen the necessity for review in that sense." 26 Callide Coal Fields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [60]. -- 29 of 31 -- 30 [78] The Chief Justice identified a possible purpose of cl 12.2 as being the parties' desire to keep track of their respective economic performances in a context where that was especially important so that the commercial arrangement between them would not be put at risk; and that the parties may have seen the review process in cl 12.2 (in the "survey" sense) as possibly being useful and informing the process under cl 10.2 or the "change event" process under cl 12.3. 27 [79] The appellant challenges that view, contending that cl 12.2, at the very least, provides the occasion and mechanism for the five yearly review and requires the parties to use their best endeavours to review the operation of the contract against the stated principles. But that does not imply that cl 12.2 requires the parties to negotiate variations to accommodate any revealed inconsistency between the contractual terms and the cl 12.1(a) principles. The appellant's argument that cl 12.1(b) requires that further step to be taken fails to accord sufficient weight to the circumstance that this aspect of the agreement in cl 12.1(b) is implemented in cll 12.3–12.8 by provisions that closely mirror those of cl 12.1(b). [80] In these circumstances, the undoubted fact that cl 12.2 does not itself give full effect to all aspects of the agreement expressed in cl 12.1 is an insufficient basis for adopting the non-literal construction of cl 12.2 required by the appellant’s argument. The Chief Justice’s construction of cl 12.2 does give effect to aspects of the commercial object expressed in cl 12.1. The five yearly review may have considerable significance to the parties in the resolution of operational issues, many of which might of course arise under a contractual relationship of this complexity and length. Clause 12.2 also provides for an exchange of information at about the mid-point of the initial term which might assist each party in determining whether it is appropriate thereafter to invoke the “change event” procedure; and in some cases that complex procedure might be avoided by agreements facilitated by that exchange of information. [81] Nor can I accept the appellant's further argument that the generality of expression in cl 12.2 is explicable on the footing that it is intended to facilitate a revision of the contractual terms of broader scope than the ad hoc review provided by cll 12.3–12.8. The marked contrast between the detailed and prescriptive provisions for the reviews under cll 10.2 and 12.3–12.8 on the one hand and the brevity and generality of cl 12.2 on the other hand instead supports the respondent’s contention that a dispute arising under cl 12.2 may not lead to any adjustment of the contractual terms. Summary [82] The dispute that arose during the five yearly review under cl 12.2 is not a dispute or matter between the parties “as to any matter set out in this Clause 10.2” in terms of cl 10.2(n) or a dispute “under this Agreement” or “arising out of this Agreement” in terms of cll 13.1 and 13.2. The appellant was therefore not entitled to the declarations it sought. Disposition 27 Callide Coal Fields (Sales) P/L v CS Energy Ltd & Anor [2008] QSC 124 at [67]. -- 30 of 31 -- 31 [83] I would dismiss the appeal with costs to be assessed on the standard basis. [84] CHESTERMAN J: I agree that the appeal should be dismissed for the reasons given by Fraser JA. I also agree with the reasons given by Keane JA. -- 31 of 31 --