CallidePower Management Pty Ltd v Callide Coalfields (Sales) Pty Ltd [2007] QSC 395

SUPREME COURT OF QUEENSLAND CITATION: CallidePower Management P/L v Callide Coalfields (Sales) P/L [2007] QSC 395 PARTIES: CALLIDE POWER MANAGEMENT PTY LTD ACN 082 468 700 (applicant) v CALLIDE COALFIELDS (SALES) PTY LTD ACN 082 543 986 (respondent) FILE NO/S: BS 8437 of 2007 DIVISION: Trial Division PROCEEDING: Originating application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 20 December 2007 DELIVERED AT: Brisbane HEARING DATE: 4 October 2007 JUDGE: Martin J ORDER: 1. Declare that upon the true construction of the agreement of 11 May 1998, and in the events that have occurred, the notifications given by the applicant to the respondent dated 9 June 2007 were valid notifications under the agreement and which bound the respondent to comply with their terms. 2. The respondent pay the applicant’s costs of and incidental to the application. CATCHWORDS: CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where applicant and respondent entered agreement for the supply of coal – where agreement contained a clause with respect to the supply of additional quantities of coal – where nominations made under contract and amended nominations later made – appropriate method for calculating total coal requirements under the contract – proper method of calculating costs of coal supplied – proper construction of the agreement Charter Reinsurance Co Ltd v Fagan [1997] AC 313, citrf Codelfa Construction Pty Ltd v State Rail Authority of New South Wales(1982) 149 CLR 337, applied Concut Pty Ltd v Worrell (2000) 176 ALR 693 -- 1 of 15 -- 2 Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, cited Décor Blinds Gold Coast Pty Ltd v Décor Blinds Australia Pty Ltd [2004] QSC 55, applied Investors’ Compensation Scheme Ltd v West Bromwich Building Society[1998] 1 WLR 896, cited Johnson v American Home Assurance Co (1998) 192 CLR 266, cited McCann v Switzerland Insurance Ltd(2000) 203 CLR 579, considered Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594, cited National Bank of Sharjah v Dellborg (unreported, Court of Appeal (Civil Division), England and Wales, Saville, Thorpe and Judge LLJ, No QBCMF 96/0431/B, 9 July 1997, cited Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 76 ALJR 436, cited Toll (FGCR) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, considered Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, citede COUNSEL: D B Fraser QC, with P W Telford, for the applicant R W Gotterson QC for the respondent SOLICITORS: BCI Duells Lawyers for the applicant Minter Ellison for the respondent [1] MARTIN J: Callide Power Management Pty Ltd (“CPM”) operates the Callide power plant situated near Biloela in Central Queensland. On 11 May 1998 CPM entered into a contract (“the agreement”) with Callide Coalfields (Sales) Pty Ltd (“CCS”) for CCS to supply and deliver to CPM commercial quantities of coal for use in CPM’s generating plant. Outline of operation of agreement [2] There is a minimum and a maximum tonnage of coal to be bought and sold in a calendar year. The minimum is 2.6 million tonnes and a maximum is 3 million tonnes. See cl. 5.1(b). [3] In any calendar year a further amount of additional tonnage (“additional tonnage”) of up to 250,000 tonnes can be required by CPM (subject to a maximum of 600,000 tonnes over four years). Therefore, in any one year the maximum CPM can purchase, subject to the four year limit, is 3.25 million tonnes. See cl. 5.1A. [4] CPM must give notice to CCS of its estimated requirements for the quantity of coal and the potential quantity of additional tonnage not less than five months prior to the commencement of the calendar year. That notice is not binding on CPM. See cl. 5.3. [5] CCS must deliver the coal at a monthly rate notified by CPM in a range of not less than 216,667 tonnes a month to not more than 300,000 tonnes a month. See cl. 5.4. -- 2 of 15 -- 3 [6] CPM can change the monthly rate by giving three months notice of the change which in any event shall be within the range referred to above. See cl. 5.5. [7] The obligations under the agreement of a party affected by an event of force majeure are suspended for the period of the event. See cl. 14.3. [8] If CCS is prevented by an event of force majeure from producing coal then, when the event ceases, CCS is not required to supply the quantity of coal it was unable to supply during that period. See cl. 14.6(a). Background [9] The agreement required that the parties provide certain notices to each other with respect to the amount of coal required and the amount delivered. Pursuant to those requirements, in July 2006, CPM provided CCS with the annual nominations for the delivery of coal for the 2007 calendar year. In September 2006 CPM provided CCS with an amended nomination for the months of January, February and March 2007. In March 2007 CPM provided CCS with an amended nomination which called for an increased supply for the months of June, July and August 2007. In June 2007 CPM provided CCS with an amended nomination which called for an increased supply for the months of September, October and November 2007. [10] During the months of January and February 2007 CCS notified CPM on four separate occasions of events which CCS alleged fell within the definition of force majeure in the agreement. The events in January and February 2007 resulted in CCS delivering to CPM less than the amount which had been nominated by CPM for that period. CCS disputes the validity of the notice given by CPM in June 2007. CCS said that, as the force majeure clause had relieved it of its obligation to deliver the “shortfall” caused by the force majeure events, it could not be required to deliver that amount in later months of that year through the mechanism of an increased nomination. [11] A table showing the nominations, as made, and the coal delivered is set out below: Column 1 Column 2 Column 3 Column 4 Column 5 Month (2007) Nominations as at 24/07/06 Nominations as at 22/09/06 Nominations as at 09/03/07 Nominations as at 09/06/07 Coal Actually Delivered Period of Alleged Force Majeure January 270,000 300,000 300,000 300,000 296,299 February 250,000 300,000 300,000 300,000 192,499 March 270,000 300,000 300,000 300,000 255,229 April 260,000 260,000 260,000 260,000 261,069 May 270,000 270,000 270,000 270,000 270,515 June 260,000 260,000 291,000 291,000 287,801 July 270,000 270,000 300,000 300,000 299,656 August 270,000 270,000 300,000 300,000 300,000 (nom) September 270,000 270,000 270,000 291,000 290,000 October 280,000 280,000 280,000 300,000 300,000 (nom) November 216,667 216,667 216,667 270,000 270,000 -- 3 of 15 -- 4 (nom) December 263,333 263,333 263,333 216,667 216,667 (nom) Total 3,150,000 3,260,000 3,351,000 3,398,667 3,239,735 The amount in Column 5 assumes delivery in accordance with the nomination for October-December. The amount of “undelivered” coal during the force majeure period was approximately 156,000 tonnes. The issue [12] CCS asserts that the agreement (particularly cl. 14.6) provides that CPM is limited in the amount of coal it can receive by: the original nomination, the effect of the force majeure event, and the monthly limits. In the circumstances, CCS says, CPM cannot subsequently amend its nominations for later periods in the same calendar year in a manner which would otherwise comply with the agreement. [13] CPM argues that for the purposes of calculating its total coal requirements for any calendar year, it is the volume of coal actually delivered which is important and not the amounts which it may previously have nominated. [14] The key to understanding why the parties are contesting this point is the cost of the coal. If CCS is right in its construction of the agreement then the “extra” coal sought by CPM can be charged at market rates rather than the lower rate set under the agreement. Conversely, if CPM is correct then it need only pay the lower rate. [15] CPM seeks to have the question resolved by its application for a declaration (as amended during the hearing) that: “… upon the true construction of the … agreement and in the events which have occurred [CPM] was entitled to, and has, on 9 June 2007, validly notified [CCS] as to the ‘Monthly Rate’ at which coal is required to be delivered to [CCS] pursuant to cl. 5.4 of the … agreement during September, October, November and December 2007.” Relevant clauses [16] The Callide Power Project Coal Supply Agreement is a complex document but for the purposes of this application the relevant clauses are: “4, SALE AND PURCHASE The Seller must sell and deliver to the Buyer and the Buyer must purchase and take delivery from the Seller the Coal at the rate determined in accordance with this Agreement for the Contract Price and on the terms and conditions of this Agreement. 5.1 Minimum and Maximum Tonnage Delivery The Seller must deliver and the Buyer must accept delivery of not less than the Minimum Tonnage and not more than the Maximum Tonnage in any Calendar Year as follows: (a) from the Effective Date to the Commercial Load Date of Unit 2: (i) a Minimum Tonnage of l. 3 million Tonnes Equivalent of Coal; and -- 4 of 15 -- 5 (ii) a Maximum Tonnage of l.5 million Tonnes Equivalent of Coal, per annum (and proportionally for any part of a Calendar Year), and (b) from the Commercial Load Date of Unit 2: (i) a Minimum Tonnage of 2.6 million Tonnes Equivalent of Coal and (ii) a Maximum Tonnage of 3 million Tonnes Equivalent of Coal per annum (and proportionally for any part of a Calendar Year). 5.1A Additional Coal (a) In any Calendar Year the Buyer may, by giving the Seller not less than three months' notice, nominate an amount of Coat of up to and including 250, 000 Tonnes Equivalent (‘Additional Tonnage’') (provided that the amount of Additional Tonnage does not exceed 600, 000 Tonnes Equivalent in any period of four Calendar Years) to be sold and delivered by the Seller to the Buyer and to be purchased and taken delivery of by the Buyer from the Seller in accordance with this Agreement together with the Buyer's nomination of (i) a period for the delivery of the Additional Tonnage; and (ii) any change in the Monthly Rate in accordance with Clause 5. 5. (b) The price of the Additional Tonnage must be the Contract Price determined, at the time of the commencement of delivery of the Additional Tonnage, in accordance with Clause 10.1 and adjusted for variations in as received quality in accordance with Clause 10.3. The price for the Additional Tonnage must be adjusted not less than one month prior to the commencement of delivery of the Additional Tonnage if: (i) the Seller can reasonably demonstrate to the Buyer's satisfaction that the Seller will incur additional costs in delivering the Additional Tonnage to the Buyer which will not be recovered by payment by the Buyer to the Seller of the Contract Price; or (ii) the Buyer can reasonably demonstrate that the Seller will be able to take advantage of economies of scale of the incremental production represented by the Additional Tonnage. (c) For the purposes of calculating the payment of the Contract Price due by the Buyer to the Seller for the Additional Tonnage, delivery of the Additional Tonnage in any Calendar Year is deemed not to commence until delivery of the Maximum Tonnage in any Calendar Year has been completed. -- 5 of 15 -- 6 5.2 Commissioning Coal Despite Clause 5.1, during the period commencing 6 months prior to (a) the Effective Date; and (b) the Commercial Load Date of Unit 2, and, upon the Buyer giving three months notice of its requirements, the Seller must sell and deliver, in addition to the quantities of Coal set out in Clause 5.1, a sufficient quantity of Coal for the purposes of commissioning and testing Unit 1 and Unit 2, ('Commissioning Coal') as follows: (c) the price of the Commissioning Coal will be the Contract Price determined, at the commencement of delivery of' the Commissioning Coal, in accordance with Clause 10.1 and adjusted for variations in as received quality in accordance with Clause 10. 3; (d) the rate of delivery of Commissioning Coal must be agreed between the Parties six months prior to the Effective Date or the Commercial Load Date of Unit 2, as the case may be. Any variations to that rate of delivery must be agreed by the Parties by mutual cooperation during the period of delivery of Commissioning Coal and if the Parties fail to so agree, then Clauses 5.4 to 5.9 inclusive will apply to the delivery of Commissioning Coal; and (e) except as provided in this Clause 5.2, all provisions in this Agreement will apply to the supply and purchase of Commissioning Coal. 5.3 Buyer's Notice The Buyer must give notice (which is not binding on the Buyer) to the Seller of its estimated requirements for: (a) the quantity of Coal and the potential quantity of Additional Tonnage and, where necessary, of the Commissioning Coal; and (b) the rate of delivery of Coal (the monthly components of which are referred to as the 'Monthly Rate '), as follows: (c) not less than five months prior to the Effective Date for its estimated requirements from the Effective Date until the end of the Calendar Year in which the Effective Date falls; and (d) not less than five months prior to the commencement of every Calendar Year after the Calendar Year in which the Effective Date falls. 5.4 Monthly Rate The Coal must be delivered by the Seller at a Monthly Rate notified by the Buyer in the range of not less than that amount of Coal calculated in accordance with the following formula: Minimum Tonnage 12 -- 6 of 15 -- 7 and not more than that amount of Coal calculated in accordance with the following formula: Minimum Tonnage x 1.2 12 unless otherwise provided for in this Agreement or agreed between the Parties. 5.5 Changes in Monthly Rate The Buyer must give three months' notice (such notice not to be issued at intervals of less than three months) of any change in the Monthly Rate which will in any event be within the range specified in Clause 5. 4. 5.6 Weekly Rates Unless otherwise agreed, deliveries of Coal to the Buyer must in any month as far as is reasonably practicable be at substantially equal weekly rates. 5.7 Maximum Rate Deliveries of Coal from the Seller must not exceed the rated capacity of the Callide B Coal Conveyor System as notified by the Buyer to the Seller from time to time. The Buyer must ensure that the capacity of the Callide B Coal Conveyor System is sufficient to allow the Seller to deliver Coal at the greater of the Monthly Rates referred to in Clause 5. 4 within the delivery hours set out in Schedule 6. 5. 8 Loadout Bin Availability The Seller must ensure that the Loadout Bin is available to load out generally on the days and during such hours in those days as are mutually agreed between the Seller and the Buyer, but not for a lesser period than the delivery hours set out in Schedule 6. 5. 9 Maintenance Period Deliveries The Parties must act so as to eliminate excessive or needless stockpiling of Coal not required by the Buyer during major maintenance periods at the Power Station. 14. FORCE MAJEURE 14.1 Definition 'Event of Force Majeure' means an event that: (a) is beyond the control of either the Coal Mine Owners or the Station Owners; (b) causes or results in preventing or delaying the Seller or a Station Owner from performing any of its obligations under this Agreement," and (c) could not or the effects of that event could not have been prevented, overcome or remedied by the exercise by the Coal Mine Owners or Station owner prevented or delayed of a standard (which standard includes (but is not limited to) the expenditure of reasonable sums of money and the -- 7 of 15 -- 8 application of technology known to reasonable persons) of care and diligence consistent with that of a reasonable person under the circumstances, and includes (but is not limited to): (d) fire, lightning, explosion, flood earthquake, storm, cyclone, action of the elements, act of God, natural disaster, radioactive contamination, toxic or dangerous chemical contamination or force of nature; (e) riots, civil commotion, malicious damage, sabotage, act of a public enemy, war or undeclared) or revolution; (f) action or inaction by a court, government or authority (including denial, refusal or failure to grant any permit, authorisation, licence, approval or despite timely best endeavours to obtain the grant); (g) strikes, lockouts, industrial or labour disputes or difficulties, work bans, blockages or picketing (unless arising from any act or omission on the part of party claiming an Event of Force Majeure) ('Industrial Action') including, without limitation, any Industrial Action affecting directly or indirectly the Operator," (h) any of (i) breakdown or failure of any facilities, machinery or equipment; (ii) unavailability of essential equipment, goods, supplies or services; or (iii) mine collapses caused by any one or more of the events set out in subparagraphs (d) to (g). (i) abnormal breakdown of facilities, machinery or equipment which occurs despite the application of Good Operating Practice towards those facilities, machinery and equipment. 14.2 Notice of Force Majeure Event If either Party is affected by an Event of Force Majeure, then within two Business Days after the occurrence of the event it must give notice to the other of the Event of Force Majeure and provide details of: (a) the obligations affected; (b) the action that the affected Party has taken and proposes to take to remedy the situation; (c) the affected Party's estimate of the time during which it will be unable to carry out the affected obligations due to the Event of Force Majeure; (d) the affected Party's estimate of the costs it will incur to remedy the situation; and (e) all insurance policies upon which the affected Party will be able to rely in making good damage caused by the Event of Force Majeure. 14.3 Suspension of Obligations -- 8 of 15 -- 9 Following an Event of Force Majeure, the affected Party's obligations (including any obligation to pay money) under this Agreement will be suspended but: (a) only to the extent and for so long as the period that such obligations are genuinely affected by the Event of Force Majeure; (b) if the period of suspension continues without interruption for more than 180 days, the Party not affected by the Event of Force Majeure may by notice terminate that part of this Agreement that is affected by the Event of Force Majeure; and (c) if the period of suspension continues without interruption for more than 365 days, either Party may by notice terminate that part of this Agreement that is affected by the Event of Force Majeure. 14.4 Affected Party's Obligations Despite Clause 14. 3, the Party affected by the Event of Force Majeure will: (a) use reasonable efforts (including the expenditure of reasonable sums of money) to mitigate the effect upon its performance of this Agreement and to fulfil its obligations under this Agreement (but without prejudice to either Parties' right to terminate this Agreement) but nothing in this Clause 14.4 obliges a Party to settle a strike, lockout, boycott or other industrial dispute; (b) keep the other Parties informed (not less than fortnightly) of the steps being taken to mitigate the effect upon their performance of this Agreement, and an estimate of the continued duration of the delay," (c) when the period for which its obligations are affected by an Event of Force Majeure ceases, recommence performance of all its affected obligations under this Agreement the subject of its original notice under this Clause; and (d) upon the recommencement of the performance of the affected obligations, not again invoke the provisions of this Clause in regard to the same Event of Force Majeure unless the further effect of that Event of Force Majeure could not reasonably have been foreseen. 14.5 No Default Where it has validly issued a notice under Clause 14.2 a Party will not be deemed to be in default of its obligations under this Agreement to the extent that a failure or delay in the observance or performance of those obligations by that Party is caused by the relevant Event of Force Majeure specified in such a notice. 14.5 No Obligation to Perform (a) If an Event of Force Majeure causes or results in the Callide Coalfields losing production or being prevented from producing, then, when the period for which a Seller's -- 9 of 15 -- 10 obligations are affected by the Event of Force Majeure ceases, the Seller will not be required to supply the quantity of coal the Seller was unable to supply during that period and any reduction or deferment of supply of Coal caused by or resulting from the Event of Force Majeure may be made by the Seller on the basis of a pro rata adjustment between the delivery requirements of the Buyer and the delivery requirements of any other of the Seller's or Coal Mine Owners' customers; (b) If an Event of Force Majeure causes or results in the Power Station losing production or being prevented from producing then, when the period for which a Buyer's obligations are affected by the Event of Force Majeure ceases, the Buyer will not be required to take delivery of the quantity of coal the Buyer was unable to take delivery of during that period. SCHEDULE 1 DEFINITIONS ‘Coal’ means coal supplied by the Seller prepared and processed to meet the quality requirements contained in Clause 8 ‘Monthly Rate’ is the rate of delivery of Coal in each month determined under Clause 5.” The June 2007 notice from CPM [17] In June 2007 CPM provided CCS with two notices. The first was under cl. 5.5. It provided: “Callide Power Management Pty Limited (“CPM”) provides Callide Coalfields (Sales) Pty Ltd (“CCS”) with notice under clause 5.5 of the Callide Power Project Coal Supply Agreement dated 11 May 1998 (“Agreement) of a change in monthly rate for the months of 10 September 2007 to 9 December 2007, which is more than three months from the issue of this notice. The delivery rate for these months is: 1. For 10 September 2007 to 30 September 2007: 300,000 tonnes per month pro rata. 2. For October 2007: 300,000 tonnes 3. For November 2007: 270,000 tonnes (inclusive of 33,333 tonnes of additional coal under a 5.1A notice). Our position refuting the force majeure notice as issued: by Anglo earlier in 2007 remains. All our rights are reserved with regard to those notices, including any harm suffered resultant from those notices. This issue is issued consistent, and in conjunction with a clause 5.1A notice.” [18] The cl. 5.1A notice referred to in the notice set out above was, so far as is relevant, as follows: -- 10 of 15 -- 11 “CPM notifies CCS that: 1. CPM nominates an amount of additional tonnage in the sum of the 250,000 tonnes equivalent to be available for sale and delivery; 2. CPM nominates as the period for delivery of the additional tonnage to be the period commencing in November 2007 and ending in December 2007 following the delivery of the maximum tonnage for the 2007 calendar year, and being a period which commences more than three months after the date of delivery of this notice to you; and 3. The monthly rate of delivery will be: . 270,000 in the month of November 2007 in total in accordance with the applicable clause 5.5 notice (which is inclusive of 33,333 tonnes of additional tonnage, and . 216,667 in the month of December 2007, being the balance of the additional tonnage.” Principles relating to the construction of commercial contracts. [19] Modern authority on the appropriate tests to be applied when considering the meaning of a commercial document commences with the decision of the High Court of Australia in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales1. Since then, there has been further consideration given, both in Australia and elsewhere, to the extent to which ambiguities in agreements may be resolved by reference to the “background” of the relevant document. In particular, there has been much discussion of the 5 point scheme for contractual interpretation advanced by Lord Hoffman in Investors’ Compensation Scheme Ltd v West Bromwich Building Society.2 Whatever the merits of the distinctions drawn between the rules set out in Codelfa and those referred to in the Investors’ Compensation Scheme case, courts in Australia are to follow the principles in Codelfa.3 [20] In this case perhaps the most useful principles to bear in mind are that the construction of commercial arrangements is to be based upon the presumption that parties do not intend their contracts to achieve unreasonable results, and the idea that a commonsense approach is to be taken to commercial contracts. For example, as Gleeson CJ said in McCann v Switzerland Insurance Ltd: “A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.”4 [21] Of similar import were the words of the High Court in Toll (FGCR) Pty Ltd v Alphapharm Pty Ltd where the Court said: “…The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood 1 (1982) 149 CLR 337 2 [1998] 1 WLR 896 at 912-913 3 See Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 76 ALJR 436 at [39]. 4 (2000) 203 CLR 579 at [22] -- 11 of 15 -- 12 them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”5 [22] The need to arrive at an interpretation which is both practical and commercially sensible has been frequently emphasised by the courts.6 [23] There is not, of course, any general power to reach a conclusion which is thought to be reasonable by the court if the words in question are clear and can only have one meaning. In those cases the court must give effect to that interpretation.7 [24] A convenient collection of the applicable principles appears in Décor Blinds Gold Coast Pty Ltd v Décor Blinds Australia Pty Ltd:8 “The following principles apply to the construction of a contract in a commercial context: (1) the court’s primary task is to construe the words used by the parties in the contract;9 (2) the common intention of the parties is to be found in the words used in the contract;10 (3) the court will give effect to the plain meaning of words which are unambiguous no matter how capricious, unreasonable, inconvenient or unjust the result; 11 (4) the more unreasonable the result, the more unlikely that the construction which gives rise to that result is correct unless an intention to achieve that result is abundantly clear;12 (5) few words have a plain meaning and are unambiguous or not susceptible of more than one meaning. Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means;13 (6) if the words have more than one possible meaning, then the construction will be preferred which is not capricious, unreasonable, inconvenient or unjust;14 (7) the contract should be looked at as a whole to elucidate the meaning of each clause: the contract must, if possible, be 5 (2004) 219 CLR 165 at [40] 6 See, for example, Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 708-9, Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437, Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594 at 609. 7 See Johnson v American Home Assurance Co (1998) 192 CLR 266 at 272, Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 388. 8 [2004] QSC 55 (24 March 2004) at [26]. 9 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109. 10 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra); Taylor v Johnson (1983) 151 CLR 422 at 428-430. 11 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra); Bacchus Marsh Concentrated Milk Co Ltd (In Liquidation) v Joseph Nathan & Co Ltd (supra) at 444. 12 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251. 13 Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cases 60-853 at 75,343. 14 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109. -- 12 of 15 -- 13 construed so that each clause is consistent in meaning with the whole of the contract;15 (8) commercial contracts should be construed so as to make commercial sense of them – a conclusion that reflects business common sense is to be preferred to one that flouts it;16 (9) it is necessary to construe a document against the background in which it was made to determine what the words in the document mean – the meaning of words cannot be divorced from their context;17 (10) the meaning given may not necessarily be the most obvious or grammatically correct;18 (11) the purpose of a provision is part of the context in which the meaning of words is to be ascertained. A construction is preferred which gives effect to the commercial purpose of the contract;19 (12) a commercial contract should be construed fairly and broadly whether or not the contract was drawn with assistance of lawyers.20” Construction of the agreement [25] Mr Gotterson QC, for CCS, argued that CPM, having nominated figures for a period which was later affected by a force majeure event, cannot thereafter adjust monthly rates in a way which would have the effect of forcing CCS to “deliver coal which under clause 14.6 … it doesn’t have to make up at the end of the force majeure period.” [26] In a clarification of the submissions made at the hearing on 4 October, Mr Gotterson QC later submitted the following: CPM may increase the monthly rates for months subsequent to a force majeure event (capped at the maximum monthly rate of 300,000 tonnes), but subject to the following limitation (“the limitation”). The limitation is that CPM may not increase monthly rates so as to require delivery of coal which it could not deliver as a consequence of force majeure. The limitation comes about as a result of the effect of cl. 14.6(a). If CPM originally nominated the minimum tonnage of 2.6 million tonnes, yet in the first three months CCS could not deliver 300,000 tonnes by reason of an event of force majeure (that is 100,000 tonnes per month), CPM could increase its nominations by 400,000 tonnes because 15 ibid. 16 Geroff & Ors v CAPD Enterprises Pty Ltd & Ors (supra) at [36]; Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201; Groves v BMW Finance Ltd [2001] QCA 16 at [19], [54]. 17 Arbuthnott v Fagan (unreported) 30 July 1993 Court of Appeal as quoted in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115; Royal Botanic Gardens and Domain Trust v South Sydney City Council (supra) at [10]. 18 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109. 19 Arbuthnott v Fagan (supra); Royal Botanic Gardens and Domain Trust v South Sydney City Council (supra) at [10]. 20 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109-110. -- 13 of 15 -- 14 it had that tonnage “to play with” under the original nomination, up to the maximum tonnage. [27] Further examples of that nature were considered in Mr Gotterson QC’s submissions and the basis of his argument returned always to the effect of the “original nomination” made by CPM. [28] The problem which I see with the argument advanced for CCS is twofold. First, the clear practical intention of the agreement is to place an upper and lower limit on the amount of coal actually delivered by CCS to CPM. There is, as I have noted above, the possibility of increasing the tonnage in one year by up to 250,000 tonnes but that increase is, according to CCS, still to be factored in according to the requirements (as they see them) of cl. 14.6(a). The second point is that the basis of CCS’s arguments is that the nomination made by CPM in the year preceding the year under consideration is, in some way, a controlling nomination. [29] The agreement makes it clear that a nomination may be amended and no complaint was made when the nominations were amended by CPM on 9 March 2007. CCS argued that it was only when the June amendment was made that it became obvious (to it) that cl. 14.6(a) would be offended. [30] Clause 5.3 of the agreement requires CPM to give notice to CCS of its estimated requirements not less than five months prior to the commencement of the calendar year for which the coal is required. It is specifically provided that such notice is not binding on CPM. It could not be, as cl. 5.5 allows CPM to change the monthly rate upon the giving of three months notice. [31] CCS points to cl. 14.6(a) as having the effect that it cannot be required to supply the coal which was not able to be delivered during a force majeure event if to do so would take it above the nomination made by CPM in the preceding year. I do not accept that. Although Mr Gotterson QC abandoned the notion of deeming which had been advanced by his client in earlier correspondence the thrust of CCS’s case is either that CPM is bound by a nomination which the agreement specifically provides does not bind it or CPM is deemed to have received coal which it did not, in fact, receive. [32] The effect of cl. 14.6(a) does not deny to CPM the ability granted to it elsewhere in the agreement to change its nominations so that it can receive coal up to the maximum amount allowed under the contract per month subject, of course, to the maximum allowed per year. [33] Clause 14.6(a) works to protect CCS from the situation which arises when a force majeure event ceases. Clause 14.3(c) provides that: “the Party affected by the Event of Force Majeure will: … (c) when the period for which its obligations are affected by an Event of Force Majeure ceases, recommence performance of all its affected obligations under this Agreement the subject of its original notice under this Clause.” [34] Without cl. 14.6(a) it would be open to argument that CPM could use cl. 14.3(c) to require CCS to perform its affected obligations, that is, to deliver the shortfall in coal. The damage that that could cause to a producer like CCS is obvious. CCS is -- 14 of 15 -- 15 only required to provide a maximum of 300,000 tonnes a month to CPM. If it is assumed that, due to a natural disaster of some kind, CCS could not deliver any coal in a six month period then, without cl. 14.6(a) CPM could demand that CCS “catch up” by doubling its production in the balance of the calendar year. It could be argued by CPM that the force majeure provisions which require CCS to “recommence performance of its affected obligations” meant that the monthly limit did not apply. A requirement to double production or even to increase it substantially would be inconsistent with the agreement’s regime of a stream of production between minimum and maximum levels. [35] Similarly, cl. 14.6(b) protects CPM from the provisions of cl. 14.3(c) in that CPM is not required to pay for coal which it could not use during a force majeure event. In other words, although CPM may have nominated a particular amount for a month it is not bound to take all or part of it if force majeure events dictate a different outcome. [36] The amended nomination of June 2007 was consistent with the terms of the agreement – it did not seek delivery of coal in excess of 300,000 tonnes a month and it did not result in delivery of coal for the entire year in excess of 3,250,000 tonnes. [37] I make the following declaration: Upon the true construction of the agreement of 11 May 1998, and in the events that have occurred, the notifications given by the applicant to the respondent dated 9 June 2007 were valid notifications under the agreement and which bound the respondent to comply with their terms. [38] The respondent is to pay the applicant’s costs of and incidental to the application. -- 15 of 15 --