Allgas Energy Ltd v Santos Ltd & Ors [1999] QSC 140

) ) J J IN THE SUPREME COURT OF QUEENSLAND Brisbane No. 4008 of 1999 IN THE MATTER of the Rules of the Supreme Court of Queensland -and- IN THE MATTER of a Gas Supply Agreement dated 11 September 1995 BETWEEN SANTOS LIMITED ACN 007 550 923, DELHI PETROLEUM PTY LTD ACN 007 854 686, SANTOS PETROLEUM PTY LTD ACN 000 146 369, BORAL ENERGY RESOURCES LIMITED ACN 007 845 338, VAMGAS PTY LTD ACN 006 245 100, AUSTRALIAN HYDROCARBONS LIMITED ACN 010 850 487, OIL COMPANY OF AUSTRALIA LIMITED ACN 001 646331 -and- ALLGAS ENERGY LTD ACN 009 656 446 REASONS FOR JUDGMENT - CHESTERMAN J CATCHWORDS: -Counsel: Solicitors: Hearing Date: Judgment delivered 30 June 1999 CONTRACT - Construction and Interpretation - declaration of the meaning of "Delivery Points nominated by the Buyer". Mr H Fraser QC and Mr P O'Shea for the applicant Mr R Hanson QC and Mr R N Traves for the respondent (Santos Limited & Ors) Mr M R Bland for the respondent (Delhi Petroleum Pty Ltd) Mr P Ambrose for the respondent (Boral Energy Resources Limited & Ors) Minter Ellison for the applicant Allen, Allen and Hemsley for the respondent (Santos Limited & Ors) McCullough Robertson for the respondent (Delhi Petroleum Pty Ltd) Clayton Utz for the respondent (Boral Energy Resources Limited & Ors) 22 June 1999 -- 1 of 21 -- ) ) ) .' IN THE SUPREME COURT OF QUEENSLAND Brisbane No. 4008 of 1999 IN THE MATTER of the Rules of the Supreme Court of Queensland -and- IN THE MATTER of a Gas Supply Agreement dated 11 September 1995 BETWEEN SANTOS LIMITED ACN 007 550 923, DELID PETROLEUM PTY LTD ACN 007 854 686, SANTOS PETROLEUM PTY LTD ACN 000 146 369, BORAL ENERGY RESOURCES LIMITED ACN 007 845 338, VAMGAS PTY LTD ACN 006 245 100, AUSTRALIAN HYDROCARBONS LIMITED ACN 010 850 487, OIL COMPANY OF AUSTRALIA LIMITED ACN 001 646 331 -and- ALL GAS ENERGY LTD ACN 009 656 446 REASONS FOR JUDGMENT - CHESTERMAN J Judgment delivered 30 June 1999 The parties to the application were also parties to a Gas Supply Agreement ("the agreement") dated 11 September, 1995 by the. terms of which the applicant, Allgas Energy Ltd, was designated ''the Buyer" and the respondents were designated ''the Producers". I shall refer to the applicant in these reasons as ''the Buyer". The respondents "associated themselves in an unincorporated joint venture for the establishment of [an] ... arrangement ... -- 2 of 21 -- 2 for the ordered production and sharing of petroleum ...". They produce gas which is conveyed to Ballera in far south-'westem Queensland where it is treated and made into a form suitable for transport and consumption. Once treated, the gas produced by the respondents becomes an undifferentiated fluid. The respondents, who together own the gas produced and treated, severally sell a percentage of it to the Buyer. Presumably the percentages reflect the respective interests of the respondents in the joint venture. The agreement obliges the Buyer to take (and pay for) very large quantities of gas over a period of about fifteen years. The Buyer is bound to pay for ninety per cent of the quantity of gas specified in the agreement cwhether or not it actually takes that quantity. 2 For many years there has been a pipeline to allow gas to flow from Wallumbilla, near cRoma, to Brisbane. The Buyer has obtained gas from that pipeline for a long time. When the agreement was negotiated it was contemplated that another pipeline should be built to connect the respondents' treatment plant at Ballera to the existing gas collection facility at Wallumbilla. Whether the pipeline was built or not depended on, among other things, the volume of gas consumers would commit themselves to purchase. Although dated C 11 September, 1995 it was to commence on 1 July, 1997. The interval was to enable the respondents to ensure that the sales of gas would justify the cost of building and operating the C pipeline. The agreement made provision for its termination in the event that there was insufficient commitment. 3 Pursuant to the agreement the respondents agree to make gas available' at certain "Delivery Points" at which the Buyer takes delivery of gas in a manner specified by the agreement. At each Delive:ry Point there are (or are to be) measuring instruments to determine the quantity of gas taken by the Buyer. 4 Although the application was argued helpfully by counsel who appeared for all parties -- 3 of 21 -- ) ) ) J 5 ·,. 3 the court was burdened with a substantial number of voluminous affidavits. The application was brought pursuant to O. 64 r. IA of the Supreme Court Rules for the construction of some of the terms of the agreement. Such a large body of evidence as was produced is an embarrassment to an application of this kind and led to arguments about what material could be relied upon and for what purposes, as well as to objections about the form and content of some of the affidavits. The respondents opposed the relief sought. They submitted that the case is not suitable for judicial construction unless no recourse be had to extrinsic evidence. This submission was made despite the respondents having filed and read several lengthy affidavits. Moreover, it was submitted that there is substantial disagreement about the facts which are relevant to the construction of the agreement and that those facts would have to be determined at a trial before the court could embark upon the task of construction. It is pertinent to note that the respondents do not identify what facts relevant to the construction of the agreement are in dispute. I have formed an opinion on the question of construction referred to the court. In doing so I have very largely ignored the affidavits. The matters of extrinsic fact to which I have referred will be apparent from my reasons and do not extend beyond what was accepted by both the Buyer and the respondents to be uncontroversial. 6 The respondents' gas which is produced at Ballera is carried by pipe to a number of locations. The pipeline which connects Ballera to Wallumbilla is owned by Epic Energy Pty Ltd and was. referred to in argument as the "Epic pipeline". It was formerly owned by Tenneco Gas Australia Pty Ltd and is referred to in ~e agreement as the "Tenneco pipeline". I shall call it the Epic pipeline in these reasons. 7 There are at Wallumbilla facilities to enable gas to flow through and between a network of interconnecting pipelines. There are three major pipelines. One is the Epic -- 4 of 21 -- -, , 4 pipeline. Another is the Roma-Brisbane pipeline. The third runs north and east to Gladstone. It is owned and operated by a number of related companies which it is convenient to refer to simply as "Duke". 8 The interconnecting facilities at Wallumbilla are compendiously described as a hub which links the three pipelines. By means of those facilities gas is traded, swapped and moved. The facilities include-metering equipment which allows precise measurement and calculation of the quantities of gas moved from one pipe networkinto another. Someone who agrees to buy a quantity of gas and have it transported along a pipeline for delivery into a creticulation system and ultimate consumption is known as a "shipper". The pipeline owners, of course, charge for the use of their pipework for the transport of gas. c9 At the moment the Buyer takes delivery of gas from the respondents at points along the Roma-Brisbane pipeline. It wishes to take delivery of some of the gas it has contracted to buy at Wallumbilla, utilising the Duke facilities. Duke has come to terms with the Buyer and is prepared to allow its pipeline, connections and metering equipment to be used for that purpose. Ifnecessary a further interconnection could be built to allow gas to be taken from C the Epic pipeline and transferred to the Duke pipeline. This further connection would be utilised only by the Buyer and the quantity of gas diverted could be accurately measured. cSuch construction is unnecessary because the existing facilities are adequate to divert and measure gas from the Epic pipeline to the Duke pipeline to the account of the Buyer. - - - 10 The Buyer contends that the agreement allows it to take gas at Wallumbilla from the Epic pipeline. The respondents contend that the BlJ.yer may take gas only from points along the Roma-Brisbane pipeline. 11 Clause 6.1 of the agreement provides: "Agreement to sell and purchase Gas -- 5 of 21 -- ) ) ) 12 ," 5 Upon and subject to the terms and conditions of this agreement: (a) each of the [respondents] severally agrees to sell and to make available for delivery to the Buyer commencing on the Commencement Date at the Delivery Points nominated by the Buyer its Ownership Percentage of the Contract Quantity; and (b) the Buyer agrees to purchase and take delivery of the Contract Quantity at those Delivery Points." Clause 1 of the agreement contains a large number of defInitions. "Delivery Point" is defmed to mean: " ... the outlet flange of the fIrst valve downstream of the Metering Equipment in each Measuring Station listed in schedule 5 or any additional, replacement, or relocated Measuring Station connected to the Pipeline to the cost of the Buyer through which Gas transported through the Pipeline is measured as it is delivered to the Buyers' Facilities." The clause also contains a definition of "Pipeline". It means: "The gas transmission system from the [Ballera Gas Centre] to the Delivery Point comprising the [Epic] Pipeline and the Roma-Brisbane Pipeline and' ' includes all plant, equipment and apparatus associated with the use of. the pipeline". The Epic pipeline is also defined though, it will be remembered, it was called the "Tenneco pipeline" in the agreement. The "Roma-Brisbane pipeline" is defined to mean: " ... the natural gas pipeline ... which is constructed from near Wallumbilla to Brisbane and which is to be interconnected with the [Epic] pipeline." Schedule 5 to the agreement, referred to in the definition of delivery points, identifies eight locations all of which are between Wallumbilla and Brisbane. 13 The Buyer contends that "a straight forward reading of clause 6.1, in the light of the defInitions of 'Delivery Point' and 'Pipeline' compels the conclusion that the Buyer has the right at any time to nominate additional delivery points, which can pe anywhere on the pipeline, including the Epic pipeline." The "Pipeline" as defined means the whole of the gas transmission system between Ballera and the delivery point from which the Buyer takes gas. It comprises both the Epic and Roma-Brisbane pipelines and all associated plant and -- 6 of 21 -- 6 equipment. The definition of delivery point leads to the conclusion that the Buyer may nominate an additional delivery point or points anywhere on the pipeline as defined and is not limited to the eight specified locations in schedule 5. 14 Support for this construction is sought in the definition of "measuring station" which is a term which appears in the definition of "Delivery Point". A measuring station is the "meters, gauges and other equipment installed at a Delivery Point by the ... Buyer ...". This is said to lend support to the view that the Buyer may nominate additional delivery points by, or perhaps after, installing the meters and gauges necessary to allow determination of the amount of gas taken at that delivery point. The definition of measuring station contemplates that delivery points additional to those specified in schedule 5 which, as at the date of the agreement were in existence and equipped with measuring stations, will be nominated. As part of that process of nomination a measuring station would be installed. 15 Further support for the Buyer's construction is sought in schedule 4 to the agreement which provides for the method of calculation of the price to be paid for gas. Clause S4.1 sets c c out a formula for the calculation of the price. One component of the formula is a factor C identified as PCn which represents the cost of transporting gas through the Epic pipeline. This factor is known as "additional pipeline charges" and is to be calculated in accordance with clause S4.4. This factor is itself the product of another complicated formula, one element in which is derived by dividing the total quantity of gas delivered to the Buyer at the "Tenneco Delivery Point (S)" by the total quantity of gas delivered by the respondents to, all buyers using the Epic pipeline. 16 Tenneco delivery points are defmed in schedule 4 to mean the points of interconnection of the Epic pipeline with the facilities of the respondents, or someone who received gas on behalf of the respondents. The Duke facilities at Wallumbilla fall within this c -- 7 of 21 -- ) ) ) J , ' 7 definition. 17 By its summons the Buyer seeks, in effect, a declaration that the words "delivery 18 19 points nominated by the Buyer" where they appear in clause 6.1 of the agreement include delivery points at any place [including WallumbillaJ on the Epic pipeline which it nominates, whether or not the respondents agree to the nomination. The particular dispute concerns the Buyer's right to nominate the Duke interconnection facility at Wallumbilla as a delivery point That facility contains outlet flanges downstream of metering equipment in a measuring station connected to the Pipeline, as defined. The respondents note that the Buyer "contends that it can unilaterally impose new delivery points and thereby contractually oblige the respondents to supply gas at those delivery points, both at any point along the entire pipeline system from Ballera to Brisbane, and at any time during the term of the agreement". The cause of this apparent outrage is not· immediately apparent The Buyer seeks only to take gas from one further delivery point where suitable facilities alr~ady exist and where delivery can occ~ without difficulty or cost to the . respondents. A more substantial obstacle for the Buyer is raised by the terms of clause 8.1 of the agreement It is headed "Supply" and provides: "8.1 Delivery rate and pressure The [respondents] shall make Gas available for delivery to the Buyer in accordance with this agreement on a continuous basis at the rate ... nominated by the Buyer under clause 7.3 at a pressure no greater than' the operating pressure of the Roma-Brisbane pipeline at the Delivery Point from time to time." 20 The matters of fact I have so far mentioned have been included in these reasons to explain the historical and commercial context in which the agreement is to operate. I have relied upon those facts to arrive at an understanding of how the agreement was to work. To -- 8 of 21 -- 8 that extent they are relevant to the construciton of the agreement but do not throw particular light on the critical question. It is necessary now to refer to some evidence extrinsic to the agreement which does bear upon the crucial point of construction. In the end I did not understand counsel for the Buyer to contest the admissibility of this evidence which is accepted by all parties to be accurate. It appears in the respondents' affidavits. Strictly speaking it does not go to establish the meaning of the agreement but to show that there is a conflict between clauses in the agreement which is not otherwise apparent. It is therefore admissible: see B & B Constructions (Aust) Pty Ltd v. Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 at 236,243. The parties agree that there is a conflict between contractual provisions which must be resolved. The conflict is only intelligible if one has regard to the extrinsic evidence. 21 The gas in the pipelines is under pressure. If it were not, it would not flow. The pressure varies along the length of the pipeline falling as one moves east away from the source where gaS is introduced into the pipeline. There is in addition a difference between the range , , c c of pressures found in the Epic pipeline and that found in the Roma-Brisbane pipeline. At C Ballera the pressure is about 15,000 kPa. It falls to about 10,000 kPa at the Wallumbilla hub from whence it is distributed into the Duke and Roma-Brisbane pipelines. By the time gas C is transferred to the head of the Roma-Brisbane pipeline the pressure has fallen to about 7,200 kPa. At Brisbane it is about 1,500 kPa. It is technically not possible (or at least not without very considerable cost) to supply gas to the Buyer from the Epic pipeline, including· the Duke facilities, "at a pressure no greater than th~ operating pressure of the Roma-Brisbane pipeline" . 22 The respondents argue that they promised to deliver, and the Buyer promised to accept, gas at the described pressure. They cannot do so at Walluri:lbilla or anywhere else -- 9 of 21 -- 9 along the Epic pipeline. Therefore they contend the agreement must be construed to limit the Buyer's delivery points to locations along the Roma-Brisbane pipeline. They point out that clause 7.3 requires the Buyer to give notice on a daily basis of the quantity of gas it wishes to receive and limits that quantity by reference to the amount of gas required to operate the Roma-Brisbane pipeline. Some of the gas is utilised to provide energy for the pumps which move the gas along the pipeline. The amount needed for that purpose is not available for delivery to the Buyer. The agreement contains no similar provision in respect of the Epic pipeline. ) 23 The respondents were required by clause 8.3 to give notice to the Buyer if they wished to carry out any work which may interrupt the delivery of gas. With a view to reducing ') ../ inconvenience, the respondents were to execute any work during a period when the forecast demand for gas in south-east Queensland was low. Gas is supplied to south-east Queensland from the Roma-Brisbane pipeline. Similarly, when reviewing the price to be charged for gas regard was to be had to alternative energy sources available to gas consumers in south-east. . ) Queensland. 24 These prOVlSlons lead the respondents to submit that the agreement clearly J contemplates the Buyer taking gas only from the Roma-Brisbane pipeline. 25 They further submit that the phrase in clause 8.1 " ... at a pressure no greater than the operating pressure of the Roma-Brisbane pipeline at the delivery point from time to time" may mean either: (a) the pressure applicable to the gas in the Roma-Brisbane pipeline as an abstracted number; or (b) at a pressure no greater than actually exists at the location in the Roma- Brisbane pipeline where the particular delivery point is located. -- 10 of 21 -- 10 26 The first possible meaning will produce a figure from the measurement of the gas pressure in the pipeline. That figure provides the maximum pressure at which gas may anywhere be delivered to the buyer. The second possible meaning is that the Buyer will accept gas at whatever pressure happens to exist at a delivery point in the Roma-Brisbane pipeline. Either construction presents difficulties for the Buyer. The second pre-supposes that it is to take gas only from the pipeline east ofWallumbilla. The first presents such a technical difficulty that the court would construe the contract as not to require the parties to perform it. 27 The respondents themselves opt for the second meaning. If it matters I would agree. There is no single "operating pressure" in the Roma-Brisbane pipeline. To designate such a pressure would be to impart uncertainty. It is more likely that the clause was to make it clear that the Buyer was to take the gas at the pressure actually occurring at the delivery point at the time of delivery. 28 The task of construing a commercial document was explained by Isaacs J inAustralian Guarantee Corporation Ltdv. Balding'(1930) 43 CLR 140 at 150-1: " ... it is distinctly stated that the substance of the agreement must be looked at as a whole. That is true of every agreement. But we have to come a little closer to the point here, which is, how far are we' to. depart from the literal sense of a particular clause, if read. by itself, when we find the effect of the literal sense of another clause, similarly segregated, inconsistent with the first? ... The parties cannot, by the insertion of any mere words, defeat the effect of the transaction as appearing from the whole of the agreement into which they have entered. If the words in one part of it point in one direction and the words in another part in another direction, you must look at the agreement as a whole and see what its substantial effect is. ... It is only by a study of the whole of the larlguage that the substance can be ascertained. ... If a later claUse cannot be reconciled with an earlier one creating an obligation, then if it altogether destroys the obligation it must ,be treated as void, but if it only qualifies the former the two are to be read together and effect given to the intention of the parties as disclosed by the instrument as a whole." 29 InAustralian Broadcasting Commission v. Australasian Performing Right Association Ltd (1973) 129 CLR 99, Gibbs J explained at 109: c c c c -- 11 of 21 -- ) ) ) ) 11 " ... if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate' ... Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument". 30 The parties agree that the words in clause 6.1 "point in one direction" and the words in clause 8.1 "point in another direction". The former clause together with the definition of delivery point suggests that the Buyer may take gas anywhere along both the Epic and the Roma-Brisbane pipelines. The latter clause suggests that gas can only be taken in accordance with the terms of the agreement along the Roma-Brisbane pipeline. The respondents seek to resolve the conflict by reading "Pipeline" where it appears in the definition of "delivery point" as meaning the "Roma-Brisbane pipeline". It is pointed out the deflnitions are expressly made subject to the context in which the defmed terms appear so that, if the context requires the terms will not be as deflned. 31 The Buyer submits that clause 6.1 should have primacy over clause 8.1. The former contains the pre-eminent obligations of delivery and acceptance and specifles how and where that is to occur. The topic of clause 8.1 is a subsidiary one. It is concerned with part of the mode of performance. The Buyer submits that clause 8.1 should be read as relating only to delivery which does in fact occur at points along the Roma-Brisbane pip~line. 32 I prefer the Buyer's construction. It appears to do less violence to the language of the contract. The respondents' solution requires a substantial departure from the meaning of terms which were the subject of careful and precis,e deflnition. "Pipeline", "Tenneco [now Epic] Pipeline" and "Roma-Brisbane Pipeline" were all distinctly deflned. They are not mere words. They represent very substantial engineering installations. To limit "Pipeline" in the deflnition of delivery point to one only of the pipe networks is to bring about a very big -- 12 of 21 -- 12 change to what the parties said they meant when they used particular terms in their agreement. 33 The Buyer's approach appears to be consistent with Isaacs J's advice that conflicts, if they cannot otherwise be resolved, are removed by ignoring an inconsistent subsidiary provision and allowing the terms which are of greater importance to the overall subject matter of the contract to prevail. 34 A third' reason is that the Buyer's construction rings in no real change to the agreement. No different meaning need be ascribed to defined terms. The operation of the agreement will be unaffected. Clause 8.1 and clause 7.3 will remain unaltered and apply to gas taken from any delivery point along the Roma-Brisbane pipeline. This construction leaves the curiosity that there will be no similar provision for gas taken from some other part of the , ' Pipeline bl.~t~;uch a result is preferable to rewriting a contractual definition. Moreover, no difficulty is identified in the Buyer's taking gas at Wallumbilla at the higher operating pressure found in that part of the system, so the curiosity has no deeper significance. 35 What I have said about there being no difficulty in delivering gas to the Buyer at ,.; :- Wallurribilla requires qualification. Senior counsel for the respondents distinctly informed the court that the Buyer could take gas at the Duke facilities without difficulty. In subsequent written submissions it was said the ", " ... concession was made in too broad terms. While it is correct to say that the supply of gas ... is technically possible, it is not correct to say that there are no technical difficulties in doing so. In so far as the concesssion conveyed otherwise, it was made without instructions ... and is withdrawn." Any problem that might arise from the dilution of the concession can be overcome by reference to the affidavit of Mr Millett which formed part of the respondents' affidavit material. It is clear from paragraph 4 that technical difficulties in removing gas will occur only if there is a significant variation between the pressure in the pipeline into which the gas c c c c -- 13 of 21 -- ) ) ) ) (, 13 is to be delivered and the pipeline (either Epic or Roma-Brisbane) from which it is to be taken. 36 The Buyer relied upon an affidavit ofMr McCaul who is the general manager for the 37 Duke company which operates the Duke pipeline. There was no objection to any part of Mr McCaul's affidavit. Paragraphs 9-16 establish that gas is presently being transferred from the Epic pipeline into the Duke pipeline utilising Duke's facilities without the slightest fear of calamity. The facilities are presently being used for the very purpose for which the Buyer wishes to use them. If the Buyer is permitted by the contract to nominate the Duke facilities as a delivery point it will simply become one more customer taking gas from the Epic pipeline and transporting it along the Duke network. The provisions of schedule 4 which I have described lend considerable support to the Buyer's construction. The calculation of the price depends in part upon a formula which expressly recognises that gas may be taken by the Buyer from the Epic pipeline, including at Wallumbilla. 38 The respondents' point that the agreement seems to emphasise factors specific to south-east Queensland, the region supplied from the Roma-Brisbane pipeline, is outweighed by the consideration that the agreement was to endure for sixteen years and was to allow gas to be supplied from Ballera via the new pipeline. It is not lightly to be supposed that the opportunities which might arise for the Buyer to do business at different locations or with different customers should be limited by a construction of the agreeme:nt which restricts the Buyer to accepting delivery of gas where it had in the past and that no change to its means of distributing gas could be accommodated anywhere ,else for the whole period of the contract. 39 Some further submissions should be noted. The respondents, Boral Energy Resources Limited and Oil Company of Australia Limited, argue in addition to the matters I have discussed that "pipeline" where it appears in the definition of delivery point means the entire -- 14 of 21 -- 14 system of gaS transmission from Ballera to Brisbane. The argument proceeds that the Buyer may nominate a delivery point and a measuring station connected to the system of gas transmission. That "system" exists only ''where both the Epic and Roma-Brisbane pipelines are involved in the transportation of the gas. This can only be on the Roma-Brisbane pipeline, the gas having already passed through Epic." 40 I frnd this construction unconvincing. Delivery points can be connected to the pipeline which is defined to mean the whole of the distribution link from Ballera to Brisbane. The whole of that pipeline cannot literally be a delivery point which is a logical consequence of the argument. Delivery points must be at locations along the pipeline; There is no warrant for restricting their location to one part only of the pipeline. 41 The respondents raise another point. It is that the power to nominate delivery points, found in clause 6.1, must be exercised prior to the commencement date. This is said to arise from the plain words of clause 6.1(a) and the reference to "those delivery points" in clause 6'. 1(b). It is said that the Buyer's construction means that it could nominate further delivery points "in circumstances where both parties weli knew at the time of the execution of the agreement that the [respondents] did not ownthe pipes and could not by [themselves] ensure delivery atany point nominated". It is pointed out that schedule 7 to the agreement requires the metering equipment necessary at a delivery point to be calibrated within fifteen days of the commencement date, which "specifically contemplates that all delivery points will be .. , operating by the commencement date ...". It is also urged that if the agreement intended that the Buyer could nominate further delivery points one would find in the agreement terms addressing: • how much lead time would elapse between nomination and the respondents' obligation to deliver gas at the new point; ,> , c c c c -- 15 of 21 -- ) ) ) ) " ---~ -----.-----------------.~----------- 15 • steps to be taken in determining the accuracy of measuring equipment at the new points; • who should bear any increase in cost involved in securing the agreement of the pipeline owner to the installation of the delivery point; • the eventuality that the owner would not agree to a new point; • technical difficulties in connection with the deliyery at a new point. 42 The respondent, Delhi Petroleum Pty Ltd ("Delhi"), in separate submissions took 43 44 much the same point as that identified in the second dot above. The Buyer's reply is that the definition of delivery point specifically refers to "additional, replacement or relocated measuring stations" and that if the right to nominate additional stations had to be exercised prior to 1 July, 1997 the agreement would have said so. In my opinion the absence of any such temporal limitation suggests the right to nominate was to exist throughout the duration of the contract. That duration, fifteen years, with the likelihood that circumstances involving both Buyer and respondents might change is a reason for thinking the contract imported flexibility by allowing the Buyer to nominate additional. delivery points to accommodate changes to the identity or location of its customers. "Commencement date" where it appears in clause 6.1 is necessary because it affects the respondents' obligation to make gas available for delivery and the Buyer's obligation to take it. The structure of the clause does not suggest that the nomination of a delivery point is controlled in any way by the commencement date. Likewise the reference to "those delivery points" is a reference to such points as defip.ed which, of course, includes additional points. 45 I am unconvinced by the argument that the Buyer's construction means that it may nominate a further delivery point in circumstances where the respondents do not own the -- 16 of 21 -- 16 pipes and could not themselves ensure delivery at the new nominated point. Any additional replacement or relocated measuring station must be connected to the pipeline at the cost of the Buyer. The delivery point includes a measuring station which must be installed by a pipeline owner or the Buyer. It is only when there is in existence a delivery point that the respondents will be obliged to make gas available for delivery at that point. Before the obligation can arise the Buyer must have made arrangements with the pipeline owner to use an existing facility or to construct a new one. Ifhe does not do so the nomination will not be of a delivery point as defIned. It can be ignored by the respondents. This consideration really overcomes the other problems, listed in paragraph 41, which the respondent submits should have been addressed in the agreement. 46 The complaint that the agreement does not make provision for matters that one would expect to be addressed if the Buyer had the right to nominate additional delivery points lacks substance for another reason. Extrinsic evidence would be admissible to show that the agreement should not be construed to permit the Buyer to nominate additional delivery points . " I c c becauSe such a nomination would be unworkable or cause difficulties in the performance of C the agreement because of the absence of some or other of the matters put forward. No such evidence was adduced. The fact that the agreement might have, but did not, include cprovisions relevant to the consequences of a nomination of a further delivery point does not require the word "additional" where it appears in the defInition of "delivery point" to be ignored. 47 Delhi submits that the Buyer's construction <;>f the agreement, pursuant to which it may nominate further delivery points after the commencement date, produces a substantial inconsistency between the defInition of delivery point and schedule 7 to the agreement. The problem arises because a delivery point must include "metering equipment" as defIned. -- 17 of 21 -- ) ) ) ) 17 Clause 1.4 of schedule 7 requires all such equipment to be calibrated within fifteen days of the commencement date. It is, of course, impossible to comply with the time limit in respect of delivery points nominated after the commencement date. 48 The' consequence of Delhi's submission is that all metering equipment required for 49 delivery points must have been installed on or before 15 June, 1997. This appears a most unlikely construction. A consequence would be that any metering equipment which broke down could not be replaced because "metering equipment" within a "delivery point" must have been installed before the commencment date. Any equipment installed after that date would not satisfy the definition. It is a lot to expect that over the contract period of fifteen years there. will be no occasion on which metering equipment will need to be replaced. If by a series of human errors andlor accidents of nature the eight delivery points identified in schedule 5 were to become unserviceable due to breakdowns in metering equipment that could not be replaced the result will be that the Buyer cannot take, delivery of any gas but will remain obliged to pay for ninety per cent of the contract quantity. A construction which has such consequences is, to put it mildly, unreasonable, and the court should strive, if possible, to avoid it. An alternative construction is available. 50 Clause 1.4 of schedule 7 has to be read in context. Clause 1.1 provides that metering equipment shall be categorised according to quantities. The performance of metering equipment varies depending upon which of the four categories it falls within. Clause 1.2 provides that all metering equipment shall satisfy or,exceed the requirements for its respective category. Clause 1.3 provides that the metering equipment shall continuo~ly record specified data. Clause 1.4 provides that the Buyer and the respondents shall furnish certification of accuracy and calibration of the metering equipment within fifteen days of the commencement -- 18 of 21 -- 18 date. Clause 1.5 provides that the overall accuracy of the metering equipment must comply with the requirements set forth from time to time in regulations made pursuant to the Gas Act 1965. Clause 1.6 provides that the Buyer and the respondents may inspect any aspect of metering equipment at any time. Equipment in categories 2, 3 and 4 is validated at monthly intervals. For category 1 the period is three monthly. 51 Schedule 7 contains a detailed and comprehensive protocol to ensure that gas delivered and taken is accurately recorded. Clause 1.4 is a small part of the protocol. It has relevance to equipment in place prior to the commencement date. Metering equipment installed subsequent to the commencement date must comply with the performance parameters set out in appendix 1 and be validated at the specified intervals. The parties have agreed that such equipment is sufficient for the purpose of measuring gas delivered pursuant to the agreement. Clause 1.4 must be understood as referring only to equipment in place prior to the commencement in respect of the eight locations identified in schedule 5. It does not contain a prohibition upon the nomination of further delivery points. c c 52 The last point taken by the respondents is that the places at which the Buyer wishes C to take gas at Wallumbilla will not satisfy the definition of "delivery point". Those places are the existing interconnection facility operated by Duke or the additional interconnection C between the Epic pipeline and Duke pipeline which the Buyer will construct if it cannot use the Duke facility. The complaint is that there are no Buyer's facilities at those places, so there can be no "Delivery Point". What is intended is that the Buyer will take delivery of gas at Wallumbilla and ship it through the Duke pipeline ~o points where it removes the gas either into tankers or a reticulation system for ultimate delivery to its customers. 53 This submission involves a misreading of the definition of "Delivery Points". The last part of the definition refers to the measurement of gas transported through the pipeline "as it -- 19 of 21 -- 19 is delivered to the Buyer's facilities". Those facilities are in turn defined to mean: "Any facilities constructed or to be constructed by the Buyer at the Delivery Point which are suitable in all respects for receiving the Gas to be transported through the Pipeline, and in addition, the facilities for the continuous consumption of Gas after it has been received at the Delivery Point". The respondents complain that the applicant does not have "in place facilities for the continuous consumption of gas after it ha~ been received at the take-off point. All that the evidence goes to establish is that gas will be transported through the Duke ... pipeline". The take-off points are the places I have mentioned in Wallumbilla. The Buyer's facilities do not ) necessarily have to include an apparatus which will consume gas continuously in the sense of burning it. What is required.is that there be something into which the gas which is to be ) delivered can flow and be removed from the pipeline. The Duke pipeline fits that description. 54 The respondents foreshadow an action to rectify the agreement to give effect to the "concurrent intention of the parties that the delivery points at which the Buyer may take gas are limited to the Roma-Brisbane pipeline". They opposed the court construing the agreement because of this adumbrated claim. It was, however, necessary to construe it. Had the ) respondents' construction been adopted there would have been no need for a rectification suit. I have given the agreement a meaning. If this construction is not that which the parties -) actually intended the respondents can commence an action and endeavour to persuade the court that the agreement should be altered. There is presently no claim for such relief and the affidavit material is an insufficient basis for embarking on such a course. There has been no disclosure of documents and no testing of evidence by cross-examination. 55 I will make a declaration that the words "Delivery Points nominated by the Buyer" where they appear in clause 6.1 of the gas supply agreement dated 11 September, 1995 to which the applicant and the respondents were parties, include delivery points at any place, -- 20 of 21 -- \ 20 including Wallumbilla, on the Epic energy pipeline where such delivery points otherwise meet the terms of the definition found in the agreement. ~.,... . c c c c -- 21 of 21 --