Ensham Coal Sales P/L v Electric Power Development Co Ltd & Ors [2005] QSC 236

SUPREME COURT OF QUEENSLAND CITATION: Ensham Coal Sales P/L v Electric Power Development Co Ltd and Ors [2005] QSC 236 PARTIES: ENSHAM COAL SALES PTY LIMITED ABN 050 411 713 (plaintiff) v ELECTRIC POWER DEVELOPMENT CO LTD (first defendant/applicant) APOLLO RESOURCES PTY LTD ACN 003 671 707 (second defendant/respondent) LUCKY-GOLDSTAR INTERNATIONAL CORP (now known as LG INTERNATIONAL CORP) (third defendant) IDEMITSU KOSAN CO LTD (fourth defendant) EPDC OVERSEAS COAL CO LTD (now known as J-POWER RESOURCES CO LTD) (fifth defendant) BLIGH COAL LIMITED ACN 010 186 393 (sixth defendant) IDEMITSU QUEENSLAND PTY LIMITED ACN 010 236 272 (seventh defendant) EPDC (AUSTRALIA) PTY LTD ACN 002 307 682 (now known as J-POWER (AUSTRALIA) PTY LTD (eighth defendant) LG INTERNATIONAL (AUSTRALIA) PTY LIMITED ACN 002 806 831 (ninth defendant) FILE NO/S: BS 980 of 2005 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 30 August 2005 DELIVERED AT: Brisbane HEARING DATE: 1 August 2005 JUDGE: McMurdo J -- 1 of 12 -- 2 ORDERS: 1. Paragraphs 5 through 18 together with paragraphs (a) and (b) of the Prayer for Relief within the second defendant’s counterclaim will be struck out 2. The second defendant will be given leave to re- plead claims for that relief by an amended counterclaim to be filed and served within 30 days of this judgment 3. The second defendant will be ordered to pay the first defendant its costs of and incidental to the application filed on 4 July 2005 4. The first defendant’s application is otherwise dismissed CATCHWORDS: EQUITY – GENERAL PRINCIPLES – MISTAKE – EQUITABLE RELIEF IN CASE OF MISTAKE – RECTIFICATION – GENERALLY – where the plaintiff, first defendant and second defendant are parties to a contract for the supply of coal – where the plaintiff claims that the contract contains an implied term by which the first defendant is not to on-sell coal supplied under the contract – where the second defendant admits that case and then pleads by counterclaim that the first defendant is bound not to on- sell coal on the basis of a common intention so that the document should be rectified – where negotiations showed that the coal was to be used in the first defendant’s power stations – whether an inference of common intention may be drawn from the facts ESTOPPEL – ESTOPPEL BY CONVENTION – where the second defendant pleads by counterclaim that the first defendant is bound not to on-sell coal on the basis of an estoppel by convention – where the agreed or assumed state of facts which the first defendant is estopped from denying is in prospective terms – whether the first defendant is estopped PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – PLEADINGS – DEFENCE AND COUNTERCLAIM –– where pleaded rectification and estoppel cases disclosed no reasonable cause of action – whether defendant should be given leave to re-plead PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – SUMMARY JUDGMENT – whether defendant should have judgment where pleaded rectification and estoppel cases disclosed no reasonable cause of action Uniform Civil Procedure Rules 1999 (Qld), r 171, r 293 Australasian Performing Right Assn Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467, cited -- 2 of 12 -- 3 Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429, referred to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, cited Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) (1986) 160 CLR 226, cited Deputy Commissioner of Taxation v Salcedo [2005] QCA 227, discussed Elders Trustee and Executor Co v EG Reeves Pty Ltd (1988) 78 ALR 193, referred to Fowler v Fowler (1859) 4 De G & J 250; 45 ER 97, cited Hooker Town Developments Pty Ltd v Director of War Service Homes (1973) 47 ALJR 320, referred to Kennedy v Collings Construction Company Pty Ltd (1991) 7 BCL 25, referred to Joscelyne v Nissen [1970] 2 QB 86, cited Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, referred to Misner v Australian Capital Territory (2000) 110 LGERA 384; [2000] ACTSC 87, referred to MSW Property Pty Ltd v Law Mortgages Queensland Pty Ltd [2003] QCA 487, referred to NSW Medical Defence Union v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740, referred to Pukallus v Cameron (1982) 180 CLR 447, referred to COUNSEL: R J Webb SC with C A Wilkins for the first defendant/applicant A M Daubney SC with J Davies for the second defendant/respondent SOLICITORS: McCullough Robertson as Town Agents for Baker & McKenzie for the first defendant/applicant TressCox for the second defendant/respondent [1] McMURDO J: The proceedings The plaintiff, the first defendant and the second defendant are the parties to a written contract for the supply of coal. The first defendant, which I will call EPDC, is a company which operates power stations in Japan. The plaintiff, which I will call ECS, is a company incorporated in Australia, which was established by the joint venturers in the Ensham Coal Mine in Queensland, to market the coal from that mine. The second defendant, which I will call “Apollo”, is another Australian company which is related to Idemitsu Queensland Pty Ltd, one of the joint venturers. [2] The contract recites that EPDC is “engaged in the generation of electric power and for such purpose wishes to secure a stable long term supply of fuel coal.” It provides for the sale by Apollo to EPDC, and the purchase by Apollo from ECS, of -- 3 of 12 -- 4 an amount of coal calculated according to its terms. The contract has an agreed life of 15 years, with provision for an extension. It specifies the required quality of the coal in terms which refer to EPDC’s proposed use of the coal in its power stations. [3] ECS and Apollo are in dispute with EPDC as to whether it is entitled to on-sell any coal supplied to it under this agreement. ECS claims that the agreement contains an implied term by which EPDC is not to sell any such coal, and it seeks a declaration to that effect. Apollo admits that case and then pleads, by counterclaim against EPDC and ECS, that EPDC is bound not to sell upon further and alternative bases. The first is that the contract document does not record the parties’ common intention that EPDC be precluded from on-selling coal, so that the contract document should be rectified. The second is that EPDC is bound not to on-sell by an estoppel by convention. The applications [4] EPDC applies for summary judgment against Apollo, in relation to the rectification and estoppel components of its counterclaim. Alternatively it applies to strike out those parts of the counterclaim pursuant to r 171. EPDC’s argument in each case relies solely upon the terms of Apollo’s pleading, read with the contract document and another document, a letter of intent which preceded the agreement, which is referred to in the counterclaim. Before going to the terms of the counterclaim, it is necessary to refer to the case brought by the plaintiff, ECS. The Plaintiff’s case [5] The Ensham Joint Venture was established in 1991 between the three companies which are now the sixth, seventh and ninth defendants to these proceedings. The sixth and seventh defendants, together with Apollo, have as their ultimate holding company, the fourth defendant, Idemitsu Kosan. The ninth defendant has as its ultimate holding company, the third defendant LG International Corp, a company incorporated in the Republic of Korea. [6] The fifth and eight defendants are subsidiaries of EPDC. In February 1997 the eighth defendant became a ten per cent holder in the Ensham Joint Venture. [7] The 1991 Joint Venture Agreement requires each joint venturer to sell its share of the Ensham coal to a marketing company, which is the plaintiff, ECS. It further provided that ECS would enter into marketing agreements, one for the marketing of the Ensham coal in Japan, the other for Korea. ECS was to appoint a nominee of Idemitsu as its exclusive agent for Japan, and a nominee of LG International as its exclusive agent for Korea. Each of those agents was to receive a commission as agreed between it and ECS. [8] In October 1992, ECS entered into marketing agreements with Idemitsu Kosan and LG International. In each case the agent was appointed the exclusive agent of ECS within the relevant country to develop sales of the Ensham coal, to negotiate contracts for the sale of coal and to provide certain other related services. Each agent was required to prepare annually, in consultation with ECS, a marketing program. Each of those agreements contained a clause 6 in these terms: -- 4 of 12 -- 5 “6 INDIRECT SALES 6.1 Each contract for sale of Coal (including each spot sale) entered into by ECS shall specify the end-user to whom the Coal is to be eventually sold. 6.2 ECS shall include a provision providing for similar disclosure in other marketing agreements it enters into pursuant to Clause 15.5 of the Joint Venture Agreement.” [9] That marketing regime changed when EPDC became a joint venturer (through its subsidiary) and a buyer of Ensham coal. The joint venture agreement was amended, effective on and from 1 April 1997, to provide for ECS’s appointment of Idemitsu Kosan (the fourth defendant) and EPDC Overseas Coal (the fifth defendant and a subsidiary of EPDC) as “Agents” in relation to coal sold to EPDC under the agreement which is in question in these proceedings. [10] The marketing agreement between ECS and Idemitsu Kosan was amended in February 1998, to exclude from its operation the sale of coal to EPDC pursuant to the subject agreement. At the same time, a further “marketing agreement” was entered into in relation to the coal supplied to EPDC. The “Agents” appointed under that agreement were EPDC Overseas Coal and Idemitsu Kosan. Their responsibilities were and are largely administrative. The fee payable to them is in total the same commission (two per cent on the invoiced FOB price of coal shipments) which was and is payable to Idemistu Kosan under its marketing agreement with ECS. Accordingly, one consequence of these 1998 agreements is that the Idemitsu interest earns half the commission on the sale of Ensham coal to EPDC as it does on the sale of the same coal at the same price to another buyer in Japan. [11] Of course, the 1998 agreements were made well after the subject contract. When this contract was made, ECS was subject to its marketing agreements for Japan and Korea which, in each case by clause 6, required it to “specify the end-user to whom the coal is to be eventually sold”. ECS pleads that this obligation was known to EPDC and Apollo, and is significant in determining the effect of the subject contract. ECS says that it breached clause 6 by making the subject contract if EPDC is not precluded from on-selling the Ensham coal, because the subject contract identifies no user other than EPDC. [12] ECS also pleads that the parties to the subject agreement would have known that all Ensham coal was to be sold through this regime of ECS and the exclusive agencies of Idemitsu Kosan and LG International. It further pleads that EPDC did not then carry on any business of trading coal and that its “main business activity” was the generation and transmission of electrical power. And it alleges that it was the practice “in the coal industry in Japan and Australia that the purchaser of coal under a long term coal sale contract purchased in the capacity of end user of coal to be supplied under that contract”. [13] In these circumstances, and certain others which are pleaded but which need not be described here, ECS alleges that in order to give business efficacy to this contract, a term must be implied that EPDC will not on-sell the Ensham coal. As EPDC has contended otherwise, and has allegedly entered into contracts to on-sell Ensham -- 5 of 12 -- 6 coal, ECS seeks a declaration that by that implied term, or more generally according to the proper interpretation of the contract, EPDC is not entitled to on-sell. [14] Alternatively, if upon its proper construction the contract permits EPDC to on-sell, ECS seeks declaratory relief as to its liability to pay commission. In the event of an on-sale to the Republic of Korea, it seeks a declaration that it is not required to pay commission to LG International under its marketing agreement. And in the event of any on-sale by EPDC, it seeks a declaration that it is not required to pay commission to Idemitsu Kosan or EPDC Overseas Coal pursuant to the 1998 agreement. Apollo’s rectification case [15] Under the heading “Implied Term” Apollo’s counterclaim expressly adopts the plaintiff’s pleaded case of an implied term. Then under the heading “Rectification” Apollo pleads within paragraphs 5 to 14B, the purported basis for rectification of the contract document so as to include a term that the coal is: “… to be taken and used by [EPDC] solely for the purpose [of the generation of electric power] and not for on-sale to any other person.” [16] Paragraphs 5 to 14B are as follows: “5. From in or about 1995 to on or about 12 March 1997, the Plaintiff, the First Defendant and the Second Defendant conducted negotiations in relation to the purchase by the First Defendant of coal suitable for the generation of electric power in coal-fired power stations owned by the First Defendant (‘the negotiations’). 6. In the course of the negotiations, the Plaintiff, the First Defendant and the Second Defendant executed a Letter of Intent (the ‘Letter of Intent’) on or about 24 April 1996. 7. The Letter of intent, inter alia, provided that it was to be the basis of a written (or formal) coal supply contract of 15 years duration to be concluded between the Plaintiff, the First Defendant and the Second Defendant. 8. The Letter of Intent further recorded that the coal proposed to be purchased under the written (or formal) contract was to be used in the First Defendant’s power stations including the First Defendant’s Tachibanawan Power Station. Particulars Paragraph 3.2 of the Letter of Intent 9. During the negotiations, the First Defendant sought to ensure that the written (or formal) contract proposed to be entered into contained specific provisions in relation to the quality and specifications of the coal to be supplied so that any coal supplied would be suitable for use by the First -- 6 of 12 -- 7 Defendant in its power stations and in particular in the First Defendant’s Tachibanawan Power Station. Particulars The best particulars that the Second Defendant can presently supply is the Letter of Intent and that the quality and specifications of the coal were discussed at various meetings including the following meetings: (a) In the offices of the First Defendant in Tokyo on or about 11 October 1996 at a meeting attended by Tadashi Nakayama, Kuniyasu Fukushima, Hitoshi Murayama and Mr Kusano (representing the First Defendant), Max Smith and Allan Dawson (representing the Plaintiff) and Nobumasa Fujiwara, Hiromi Wakahara, Kunihiko Shibata and Noriyasu Yamamoto (representing the Second Defendant). (b) In the offices of the First Defendant in Tokyo on or about 30 October 1996 at a meeting attended by Tadashi Nakayama, Kuniyasu Fukushima, Hitoshi Murayama, Masanori Hinoki, Tsuyoshi Kurisu and Mr Kusano (representing the First Defendant), Max Smith and Allan Dawson (representing the Plaintiff) and Nobumasa Fujiwara, Hiromi Wakahara, Kunihiko Shibata and Noriyasu Yamamoto (representing the Second Defendant). (c) In the offices of the First Defendant in Tokyo on or about 18 November 1996 at a meeting attended by, inter alia, Tadashi Nakayama, Kuniyasu Fukushima, Hitoshi Murayama,, Tsuyoshi Kurisu and Mr Kusano (representing the First Defendant), Max Smith and Allan Dawson (representing the Plaintiff) and Nobumasa Fujiwara, Kunihiko Shibata and Noriyasu Yamamoto (representing the Second Defendant). 10. At all times during the negotiations the First Defendant could not carry on the business of trading coal by virtue of the enactment of the Japanese Parliament referred to in paragraph 3 hereof, that is the ‘Electric Power Development Promotion Law’. 11. As a result of the negotiations and on the basis of the matters pleaded in paragraph 10, on or about 12 March 1997, the Plaintiff, the First Defendant and the Second Defendant entered into a coal sales agreement of 15 years duration (the ‘LTCS Agreement’). 12. The LTCS Agreement acknowledged that the First Defendant was engaged in the generation of electric power -- 7 of 12 -- 8 and that the First Defendant was entering into the LTCS Agreement so as to secure a stable long term supply of fuel coal for the power stations that it operated. Particulars Recital E of the LTCS Agreement 13. The LTCS Agreement further made specific provisions with respect to the quality and specifications of the coal to be delivered so that it was suitable for the First Defendant’s power stations. Particulars Clause 5 of the LTCS Agreement 14. As a result of the matters set out In the premises pleaded in paragraphs 5 – 13 hereof, it was the common intention of the parties at the time of the entry into the LTCS Agreement that the coal supplied under the agreement was to be solely used by the First Defendant in its thermal power stations and, as a result, the coal supplied under the LTCS Agreement was not to be on-sold by the First Defendant. 14A. The LTCS Agreement was signed by the parties in the belief that it contained a term expressing and giving effect to the common intention referred to in paragraph 14, but the LTCS Agreement did not, in fact, contain such an express term. 14B. In the premises, the LTCS Agreement was drawn up and signed under a mutual mistake of fact. [17] Apollo does not plead an antecedent agreement containing the term in question, and nor need it do so: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, 350. What must be proved is that the written contract does not embody the common intention of the parties, and the omitted ingredient must be capable of proof “in clear and precise terms”: Pukallus v Cameron (1982) 180 CLR 447, 452; MSW Property Pty Ltd v Law Mortgages Queensland Pty Ltd [2003] QCA 487 at [21]. In Joscelyne v Nissen [1970] 2 QB 86, it was said that it was also necessary to prove that the common intention of the parties, not recorded in the document, had been evidenced by “some outward expression of accord”.1 That element was argued to be unnecessary in an article by L Bromley QC entitled “Rectification in Equity” (1971) 87 LQR 532, and his criticism has been expressly endorsed in several Australian cases: Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429; NSW Medical Defence Union v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 at 750-752; Misner v Australian Capital Territory (2000) 110 LGERA 384; [2000] ACTSC 87. However there is also a considerable body of authority to the effect that the parties’ intentions cannot remain undisclosed, so that whilst the parties need not have disclosed their intentions to each other, the intentions must have been manifested in their words or conduct: Australasian Performing Right Assn Ltd v Austarama Television Pty Ltd 1 At 98 -- 8 of 12 -- 9 [1972] 2 NSWLR 467 at 473; Hooker Town Developments Pty Ltd v Director of War Service Homes (1973) 47 ALJR 320 at 323-4; Bishopgate Insurance at 431; Elders Trustee and Executor Co v EG Reeves Pty Ltd (1988) 78 ALR 193 at 253- 254; Kennedy v Collings Construction Company Pty Ltd (1991) 7 BCL 25 at 35 (Giles J, Supreme Court of NSW); and see also Meagher, Gummow & Lehane’s Equity Doctrines and Remedies (4 th Edition) at [26-035]. [18] The submissions for EPDC accept, for the purposes of this application at least, that the parties need not have had communicated to each other their alleged common intention. Nor was it submitted that the case was defective in the absence of a plea that there had been some manifestation of that intention. The challenge to the pleading, and in turn the application for summary judgment upon this part of the case, is on the basis that the alleged common intention for the inclusion of this term could not be inferred from the facts which are pleaded. [19] Paragraphs 6 to 8 refer to a Letter of Intent which was signed by the parties some 11 months prior to the contract. As Apollo pleads, that letter records that the intention of EPDC was to use the coal in its power stations. But at least taken alone, this does not indicate an intention that EPDC should be precluded from on-selling any coal. [20] In paragraph 9 Apollo pleads that during the negotiations for this contract, EPDC sought to ensure that the contract would require that the coal to be supplied was of a quality and specification suitable for its power stations. Again, that seems to say nothing as to whether it was to be precluded from on-selling. [21] Paragraph 10 alleges that by an enactment of the Japanese Parliament, EPDC “could not carry on the business of trading coal”. The content of that law is a factual matter, of which there is no evidence for this application. EPDC pleads what it says is the relevant part of that Japanese law, and according to that plea, it would appear that occasional on-sales of coal would not be unlawful, if made incidentally to the conduct of EPDC’s business of power generation and supply. For present purposes however, it must be assumed that the Japanese law is as pleaded by Apollo. If so, the restraint upon carrying on a business of trading in coal would not necessarily preclude any on-sale. But assuming that it did, it would not be a compelling circumstance for inferring that the parties intended their contract to contain the same provision. [22] As Apollo then pleads, the contract itself contains terms which demonstrated that the purpose of EPDC’s acquisition of coal would be for use in its power stations. [23] It is from those facts (in paragraphs 5 to 13) that Apollo pleads (in paragaph 14) that in the premises of those matters, the parties had a common intention that “the coal supplied under the agreement was to be solely used by [EPDC] in its thermal power stations and, as a result, the coal supplied ... was not to be on-sold by [EPDC]”. From those facts, it could be inferred that the parties each intended the coal was to be used in EPDC’s power stations and would not be on-sold. But in itself, that intention would not found this claim for rectification. What Apollo must establish is that the parties not only intended that the coal would be used in that way, but that they intended their contract to preclude EPDC from on-selling. It is not until paragraph 14A that Apollo pleads that the parties had this state of mind. It there pleads that the contract document was signed by the parties in the belief that it contained “a term expressing and giving effect to the common intention referred to -- 9 of 12 -- 10 in paragraph 14”. Could the matters pleaded within paragraphs 5 to 13 support an inference of that intention? [24] EPDC submits that that question, even in the context of this summary application, should be approached upon the basis that rectification will be granted only upon the most clear and strong evidence: Fowler v Fowler (1859) 4 De G & J 250; 45 ER 97, 103; Maralinga Pty Ltd v Major Enterprises at 349; Pukallus v Cameron at 457. That proposition is of less significance in the present context, where the applicant says that the pleaded facts could not support an inference of this common intention. EPDC also relies upon the judgment of Williams JA in Deputy Commissioner of Taxation v Salcedo [2005] QCA 227, arguing that it is not necessary for it to show, under r 293, that the Apollo case is so untenable that it could not possibly succeed. This application is made under r 293 and alternatively under r 171. Rather than arguing that any of the factual allegations in paragraphs 5 to 13 have no prospect of being established, the applicant says that there is no real prospect of the necessary common intention being inferred from those facts. The present question, either under r 171 or r 293, is whether an inference could be drawn. [25] In my view the inference is not open from those facts alone. There is nothing pleaded as to why the on-sale of coal would have any consequence for the other parties to the contract. There is nothing pleaded as to why, for example, Apollo would have wanted, let alone insisted upon, the term which is now alleged. Nor is there pleaded any fact from which it could be inferred that EPDC was intending to impose this restraint upon itself. Of course, a party’s intention might be proved by evidence of some words or conduct constituting an admission of that intention, and as I have discussed, such a manifestation of an intention might be a necessary element of a rectification case. But there is nothing alleged to that effect. In my conclusion the present pleading of the rectification case discloses no reasonable cause of action and ought to be struck out under r 171. [26] The question then is whether Apollo should be given leave to re-plead or whether EPDC should have judgment upon this part of the counterclaim. There are other facts which Apollo would wish to plead in support of this claim, as its counsel indicated in the course of argument. In particular it would wish to rely upon the matters pleaded by ECS, and adopted by it, relating to the claim that this term should be implied. Of course, the implication of the term and the rectification of the contract document to include it are different things. They involve different states of mind: rectification requires the proof of an actual intention to include the term and a belief that it had been included, whereas the implication of the term comes from a presumption that the parties would have agreed upon the term had they turned their minds to it: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 346. Accordingly evidence of a party’s subjective intention is inadmissible upon the implied term case but necessary upon the rectification case. Nevertheless, some of what is pleaded in support of the implied term case would be relevant in support of the rectification case. In particular, the ECS pleading refers to facts which make it likely that at least ECS had a commercial purpose for having EPDC restrained from on-selling. And it also indicates some likelihood that Apollo as a subsidiary of Idemitsu Kosan had a like purpose. In addition, there are matters there pleaded to the effect that EPDC must have known of those circumstances. Now EPDC does not itself plead a rectification case. But for present purposes, that does not compel the conclusion that it lacked the specific intention which Apollo -- 10 of 12 -- 11 alleges that each of the parties had. There may be other reasons why, at least to this point, ECS’s claim does not include that rectification case. [27] At the moment I am unable to exclude the prospect that the re-pleading of the rectification case would not disclose some reasonable cause of action, and specifically facts from which the alleged common intention could be inferred. I do not see a “high degree of certainty”2 that an attempt to re-plead the rectification case would be futile. Apollo should be given leave to re-plead, and subject to any further submission, an appropriate time for that would be 30 days. The application for judgment on this part of the claim should be dismissed. If the further pleading is susceptible to attack EPDC can make a fresh application for judgment. Apollo’s estoppel case [28] The estoppel case is pleaded in these terms: “16. Further or in the alternative the Second Defendant repeats and relies on paragraphs 5 to 15 hereof and says that the conduct of the negotiations between the Plaintiff, the First Defendant and the Second Defendant and the entry by the Second Defendant into the LTCS Agreement was on the basis that it was agreed or assumed by the Plaintiff, the First Defendant and the Second Defendant that the coal to be supplied under the LTCS Agreement was to be solely acquired by the First Defendant for use in its power stations. Particulars (a) The matters pleaded in paragraphs 5 and 15 hereof including Recital E of the LTCS Agreement. (b) Clauses 3.1, 5 and 14 of the LTCS Agreement. 17. In or about late 2004 the First Defendant asserted that it had an unfettered right to deal with the coal acquired by it under the LTCS Agreement. 18. In the premises, an estoppel by convention arises such as to prevent the First Defendant from resiling from the agreement or assumption referred to in paragraph 16 and the First Defendant is thereby estopped from dealing with the coal supplied under the LTCS Agreement other than as an end user of that coal and, as a result, the First Defendant is unable to on-sell any coal purchased by it under the LTCS Agreement. [29] An estoppel by convention is a form of estoppel founded on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) (1986) 160 CLR 226 at 244. Apollo pleads that there 2 Agar v Hyde (2000) 201 CLR 552, 576 -- 11 of 12 -- 12 was an agreement or assumption that the coal to be supplied under this contract was to be “solely acquired by [EPDC] for use in its power stations”. This is an alternative case to its implied term and rectification claims. It is upon the basis that the parties have not agreed that EPDC will be restrained from on-selling. But in that event, what is the agreed or assumed state of facts which EPDC is estopped from denying? At present the pleading articulates that matter in prospective terms, i.e. an agreement or assumption as to what was to occur in the course of the agreement. This is why it is difficult to see how the estoppel case as pleaded could succeed should each of the other parties to the counterclaim be unsuccessful. If the parties each assumed that EPDC would not on-sell, but did not include or intend to include a restraint upon on-selling in their contract, how could EPDC be estopped? [30] In any event, the estoppel case at present relies upon the same matters pleaded for the rectification case to which Apollo wishes to be added by amendment. In my conclusion, the present estoppel pleading discloses no reasonable cause of action and it should also be struck out under r 171. Although it is difficult to see how this claim could be re-pleaded as a genuine alternative to a re-pleaded rectification case, the better course is to give Apollo at least one more opportunity to plead it. Conclusions [31] It will be ordered that paragraphs 5 through 18 together with paragraphs (a) and (b) of the Prayer for Relief within the second defendant’s counterclaim will be struck out. The second defendant will be given leave to re-plead claims for that relief by an amended counterclaim to be filed and served within 30 days of this judgment. Subject to any further submission, the second defendant will be ordered to pay the first defendant its costs of and incidental to the application filed on 4 July 2005 together with its costs thrown away by any amendment to the counterclaim. The first defendant’s application is otherwise dismissed. -- 12 of 12 --