Comalco Aluminium Ltd v Howmet Resources Pty Ltd [1993] QSC 132

"\()~o'\1 ..:::.c '7ff_13~ rr /;;19 . ./ . _/ ' .'.)\. :>o .• f.l ~ .. "'1 State Reporting Bureau TRANSCRIPT OF PROCEEDINGS7 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND ' CIVIL JURISDICTION de JERSEY J Writ No 869 of 199£~ COMALCO ALUMINIUM LIMITED ACN 009 679 128 and HOWMET RESOURCES PTY LIMITED Writ No 1451 of 1992 COMALCO ALUMINIUM LIMITED ACN 009 679 127 and KAISER ALUMINA AUSTRALIA CORPORATION ACN 009 757 546 BRISBANE .. DATE 1 4 I 0 5 I 9 3 .. JUDGMENT 1 RE\1 tSED \-;QP!ES ;ss!_~f:D St.1.lc: :·:.~(1r:;ort;,;g Bvr'::au Date -di I ( lq -~ Plaintiff Defendant Plaintiff Defendant -- 1 of 86 -- 140593 gc (de Jersey J) HIS HONOUR: In each action there will be judgment for the defendant against the plaintiff with costs, including any reserved costs, to be taxed. I reserve liberty to the parties to m'ake further submissions with relation to costs should they wish. 10 I publish my reasons. 20 30 40 50 60 2 -- 2 of 86 -- ( \ IN THE SUPREME COURT OF QUEENSLAND Writ No. 869 of 1992 Before the Hon. Mr Justice de Jersey BETWEEN: AND: BETWEEN: AND: CATCHWORDS: COMALCO ALUMINIUM LIMITED ACN 009 679 127 HOWMET RESOURCES PTY LIMITED Plaintiff Defendant Writ No. 1451 of 1992 COMALCO ALUMINIUM LIMITED ACN 009 679 127 KAISER ALUMINA AUSTRALIA CORPORATION ACN 009 757 546 JUDGMENT - de JERSEY J. Delivered the 14th day of May, 1993 Plaintiff Defendant Construction of agreement - extrinsic evidence - alleged oral and implied terms - intention to be bound. Counsel: Solicitors: Charles Q.C., Scerri and Sheahan for Comalco Callinan Q.C. and Morris Q.C. for Howmet Ellicott Q.C., Bathurst Q.C. and Doyle for Kaiser Blake Dawson Waldron for Comalco Feez Rt.Ithning for Howmet Clayton Utz for Kaiser Hearing dates: Brisbane, Queensland: 30.11.92, 7,8.12.92, 9.2.93, 16,17.3.93 1-4.12.92, San Francisco, California: 11.12.92, 14-17.12.92 -- 3 of 86 -- I\ . ~~~\ ( ·. \ l .: / l IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: BETWEEN: AND: Introduction Writ No. 869 of 1992 COMALCO ALUMINIUM LIMITED ACN 009 679 127 HOWMET RESOURCES PTY LIMITED Plaintiff Defendant Writ No. 1451 of 1992 COMALCO ALUMINIUM LIMITED ACN 009 679 127 KAISER ALUMINA AUSTRALIA CORPORATION ACN 009 757 546 JUDGMENT - de JERSEY J. Delivered the 14th day of May, 1993 Plaintiff Defendant The two actions were heard together. The issue is the construction of agreements between the plaintiff ( "Comalco") and, respectively, Pechiney Compagnie de Produi ts Chimiques et Electrometallurgigues ("Pechiney") and the defendant Kaiser Alumina Australia Corporation ("Kaiser") (and another). Each agreement is expressed to have been made "as of" 31st July, 1964. The defendant Howmet Resources Pty Limited became a party to the Pechiney agreement, through a process of I -- 4 of 86 -- \ 2 substitution, in 1985. The agreements were amended from time to time over the years following 1964. Comalco was incorporated in 1956 to acquire and develop the huge bauxite deposit which had been discovered the year before at Weipa on the Cape York Peninsula. Most of the Weipa bauxite is refined, to produce alumina, at what is the world's largest such refinery at Gladstone. Queensland Alumina Ltd ( "QAL"), which was incorporated in 1963, constructed that refinery, and owns and operates it. The shareholders in QAL are Comalco ( 30.33%), Alcan South Pacific Ltd ( 21.39%), the defendant Howmet (20%), the defendant Kaiser (28.28%) and Kaiser Alumina and Chemical Corporation (the parent of the defendant Kaiser) which holds 1 "A" class ordinary share. QAL processes, or "tolls", the bauxite into alumina. Comalco (formerly Commonwealth Aluminium Corporation Ltd, and Commonwealth Aluminium Corporation Pty Limited) sells the Weipa bauxite to the participants in QAL. The agreements which I have to construe are the ones which provide for that. Comalco is, itself, in addition, one of those participants. Its parent company, Comalco Ltd, is owned as to 67% by CRA Ltd. It was formerly half owned by each of Kaiser and Consolidated Zinc Pty Ltd/CRA Ltd. The other participants in QAL - Alcan, Howmet and Kaiser - represent three of the largest producers of aluminium in the western world. Alcan South Pacific Ltd (previously Alcan Queensland Ltd) was incorporated in 1963, and is wholly owned by Alcan Aluminium Holdings Ltd. The defendant Howmet (previously. Howmet Resources Corporation) is a Delaware \ C\) 0 (j -- 5 of 86 -- • l p 3 corporation now wholly owned by the Pechiney interests: until April, 1992 they effectively owned 75% of Howmet. There are various Pechiney companies mentioned in the documentation, the principal being Pechiney (formerly Pechiney Ugine Kuhlmann) , owned as to 55.8% by the Republic of France. As to the third of these other participants, the defendant Kaiser, it also is a Delaware company, and is a wholly owned subsidiary of Kaiser Alumina and Chemical Corporation ( "KACC") . With CZ, and () subsequently CRA, KACC was a joint owner of Comalco from 1960 to 1982. () l/: ·(Further non-contentious detail of these and other relevant corporations is set out in the document marked "C" placed with the exhibits.) Each of the agreements which I have to construe is, at least apparently, in writing. I put it that way because, although there is in each case a comprehensive formally executed typescript, Comalco contends that those written documents do not exhaustively record the agreements between the parties, because other contractual material was agreed upon orally or should be implied. The terms of the written documents are broadly similar. Each is called a "bauxite supply agreement". It provides for the sale of bauxite by Comalco to the defendant for a period of 25 years. That period has now expired. Needless to say, each agreement contains elaborate provision as to quantity, grade and price in respect of that 25 year period. Each agreement also contemplates the possibility of further supply after that ·period. The defendants have given notice seeking \ -- 6 of 86 -- I L__ 4 further supply. The issue between the parties concerns determination of the price and grade of.any further bauxite to be supplied, and the period of further supply. Howmet and Kaiser contend that, because the parties have not been able to agree upon those matters, they may now be determined by arbitrators. Comalco disputes that, and claims, against each defendant, a declaration that the defendant is not entitled to refer to arbitration, in accordance with article 25 of the amended bauxite supply agreement, the determination of the grade and price and period of supply of such further bauxite, and an injunction to restrain any such reference to arbitration. Scope of Agreements I have:first to determine the scope of the bauxite supply agreements. The defendants contend that the written documents are exhaustive ·of the terms of the agreements. As I have said, Comalco contends that the written documents must be supplemented with terms orally agreed upon or to be implied. Plainly · I must first determine which position is the correct one. In this inquiry, the terms of the written agreements are at least a good starting point. To illuminate the issue further; I should now set out the cri ti'cal provisions of the written agreements (as amended). The provisions are similar, although not identical, so I will set them out fully in each case. 1 - > 0 0 0 I -- 7 of 86 -- c·) lJ L: 5 The provisions in the Comalco-Pechiney (Howmet) agreement are these: "Article 2. Term of Agreement and Future Agreement 2.1 This agreement shall continue until the end of a period of twenty-five years commencing on the first day of January next after the beginning of the first contract year. · 2.2 (a) If not later than twenty-four months prior to the end of the said period Pechiney gives Comalco notice that it desires to continue after the end of that period to purchase from Comalco for processing by the alumina plant an annual quantity of bauxite not exceeding the tonnage obtained by applying to Pechiney' s annual alumina commitment the certified bauxite-to- alumina ratio then last advised to Comalco pursuant to Article 8.1 plus ten per cent of the tonnage so obtained, then Comalco will under a separately negotiated agreement agree to sell and supply that bauxite to Pechiney for a period to be agreed ending not earlier than 31 December 2008 and being not more than twenty-five years and on terms and conditions similar to those herein contained except that thegrade and price of bauxite shall be determined in accordance with the provision of Schedule A. (b) For the purposes of this Article 2. 2 the term 'annual alumina commitment' shall mean the total quantity of alumina (being part of the 600,000 tons which the alumina plant is initially designed to produce peryear) which Pechiney shall have agreed totake from QAL in each year under the terms of an extension of the contract referred to in Recital C (including any extension of the rights of the other parties thereto to which Pechiney has become entitled)." The provision for arbitration is cl. 25.1: "25 .1 If at any time there is any dispute, question or difference of opinion between the parties hereto concerning or arising out of this agreement, or its construction, meaning, operation or effect, orconcerning the rights, duties or liabilities of either of the parties hereto then the parties shallforthwith confer in an endeavour to settle it, but if they fail to agree within twenty-one days after I -- 8 of 86 -- \ 6 first conferring or if either party refuses to confer then the dispute, question· or difference of op~n~on shall be referred to three arbitrators ·agreed by the parties, .. but in default of agreement to three .. arbitrators appointed by the President of the .International Chamber of Commerce and such reference shall be considered a submission to arbitration within the meaning of the Interdict Act 1867 of the State of Queensland (or any statutory modification or re-enactment thereof for the time being in force) and be subject to the provisions of that Act relating to arbitration. 11 Clauses 1 and 3 of Schedule A provide: 11 1. If Pechiney requires Comalco to sell it additional quantities of bauxite after termination of this agreement as set out in Article 2.2 then - (a) the grade of bauxite will be determined as set out in clause 3 of this Schedule; and (b) the price of bauxite including provisions (if appropriate) for its adjustment by way of · escalation, bonus and penalty and shortfall or otherwise will be negotiated having due regard for the basis of pricing used in this agreement and the extent to which that basis is still applicable and would operate fairly to Comalco and to Pechiney bearing in mind the general levels of wholesale prices and wages in Australia at that time, any difficulties foreseen in winning the additional bauxite, the quantity to be mined and the rate of extraction, the remoteness of areas from which it might be won and all ·.other relevant factors at the time. 3 . The base grade of bauxite shall be agreed on the basis of the best average grade of bauxite which Comalco can supply to meet the said ·additional quantities having due regard to the necessity for economic extraction, beneficiation and delivery, Comalco 1 s existing and prospective commitments to supply bauxite, and Comalco 1 s ob],.igations under the terms of its said Special Bauxite Mining Lease (as to which Comalco shall be entitled to act upon any ruling or interpretation of the Department of Mines of Queensland). I~ is understood that when the production capacity of the alumina plant is expanded more than one participant may require additional ·' 0 () 0 0 -- 9 of 86 -- () 7 quantities of bauxite for treatment by the plant consequent upon that expansion. In those circumstances, the total additional requirements of all those participants would be taken into account, it being the intention that the same base grade would be agreed with each of those participants." The corresponding provisions of the Comalco-Kaiser agreement, which are in very similar terms, are as follows: "Article 2. Term of Agreement and Future Agreement 2.1 This agreement shall continue until the end of a period of twenty-five years commencing on the first day of January next after the beginning of the first contract year. 2.2 (a) If not later than twenty-four months priorto the end of the said period Kaiser gives CAL notice that it desires to continue after the end of that period to purchase from CAL for processing by the Gladstone Plant an annual , quantity of bauxite not exceeding the tonnage obtained by applying to Kaiser's annual alumina commitment the certified bauxite-to-alumina ratio then last advised to CAL pursuant to Article 8.1 plus ten per cent of the tonnage so obtained, then CAL will under a separately negotiated agreement agree to sell and supply that bauxite to Kaiser for a period to be agreed ending not earlier than 31 December 2008 and being not more than 25 years and on terms and conditions similar to those herein contained except that the grade and price of bauxite shall be determined in accordance with the provisions of Schedule A. (b) For the purposes of this Article 2. 2 theterm 'annual alumina commitment' shall mean the total quantity of alumina (being part of the 609,600 Tonnes which the Initial Plant is· designed to produce peryear) which Kaiser shall have agreed totake from QAL in each year fo"r the purpose set out in Article ~~nder the terms of an extension of the contract referred to in Recital C (including any extension of the rights of the other parties · thereto to which Kaiser has become entitled)." -- 10 of 86 -- 8 The almost identical provision in relation arbitration, under this contract, is again cl. 25~1: "Article 25. Arbitration is .1 If . at any . time there is any dispute, question or difference· of opinion between the parties hereto or any of them concerning or arising out of this agreement, or its construction, meaning, operation or effect, or concerning the rights, duties or liabilities of any of the parties hereto then those parties shall forthwith confer in an endeavour to settle it, but if they fail to agree within twenty-one days. after first conferring or if any party refuses to confer then the dispute, question or difference of op1n1on shall be referred to three arbitrators agreed by the parties in difference, but in default of agreement to three arbitrators appointed by the-President of the International Chamber of Commerce and such _ reference shall· be considered a submission· to arbitration within the meaning of the Arbitration Act 1973 of the State of Queensland (or any statutory modification or re-enactment thereof .for the time being in force) and be subject to the provision of that Act relating . to arbitration.•• Clause 1 aqd 3 of Schedule A provide: 11 1. SCHEDULE A ADDITIONAL BAUXITE SUPPLY If Kaiser requires CAL to sell it additional quantities of bauxite after termination of this agreement as·. set out in Article 2. 2 then: (a) the grade of bauxite will be determined as set out in clause 3 of this Schedule; and (b) the price of bauxite including provisions (if appropriate) for its adjustment by way of escalation, bonus and penalty and shortfall or. otherwise will be negotiated having due regard for the basis of pricing used in this ~greement and the extent to which that basis is still applicable and would operate fairly to CAL and to Kaiser bearing in mind ·the general levels of wholesale prices and wages in Australia at that time, any difficulties foreseen in winning the additional bauxite; the quantity to be mined and the rate of " ' to 0 0 0 0 -- 11 of 86 -- ;g extraction, the remoteness of which it might be won and relevant factors at the time." areas from all other "3 . The base grade of bauxite shall be agreed on the basis of the best average grade of bauxite which CAL can supply to meet the said additional quanti ties having due regard to the necessity for economic extraction, beneficiation and delivery, CAL's existing and prospective commitments to supply bauxite, and CAL' s obligations under the terms of its said Special Bauxite Mining Lease (as· to which CAL shall be entitled to act upon any ruling or interpretation of the Department of Mines of Queensland)." Although I must logically first determine the scope of the agreement, and in doing that deal with Comalco's claims to (:, imply terms and introduce matters of alleged oral agreement, it is nevertheless appropriate and convenient first to consider the effect of those clauses, and particularly whether by themselves and without more they appear to impose on Comalco an enforceable obligati<m· to sell further bauxite, including the question whether price grade and term are () arbitrable in the absence of agreement. That is an appropriate course in light of the parol evidence rule, L, because on their face the agreements may be thought apparently to contain the whole of the agreements between the parties. In respect of further supply beyond the initial 25 year terms, are the written agreements enforceable, as Howmet and Kaiser contend, or do they give rise only to an obligation to negotiate in good faith (that being Comalco's position)? In considering that question, I will necessarily also in due course have to consider Comalco's contention that certain terms are ambiguous so that one should have recourse to extrinsic material to aid the process of construction. -- 12 of 86 -- 10 The extent of any obligation imposed by Article 2.2 Comalco's essential submission was that the machinery provided for the ascertainment of the terms of f~ture supply, that is, a "separately negotiated agreement", was apparently intended to be exclusive of the arbitration procedure under Article 25. The submission focused on those and similar words where they recur throughout the clauses. If arbitrators determined matters of grade and price, it was submitted, those matters would not have been "agreed". Furthermore, other provisions of the agreements (for example, articles 7.2, 16.3, 9.3, 18.3 and 5.4) suggest that article 25 was not intended to b apply of its own force . to · a failure to agree in every case 0 where the agreement called for negotiation and agreement. It was submitted that the words of article 25 were, in any case, not apt to cover a failure to agree on these particular matters; and then that the nature of the matters to be agreed, and the factors to be taken into account, rendered arbitration impracticable and left negotiation as the more appropriate procedure. According to Comalco's submission, the only obligation created by article 2. 2 was to negotiate in good faith. On the other hand, Kaiser and Howmet submitt~d that the terms of article 25 are wide enough to cover a failure to agree on price grade and· term, and that once determined by arbitrators, those matters . should then be characterised as having been "agreed". In support of the contention that article 2. 2 imposes a contractual . obligation on. Comalco to sell the further bauxite, they emphasised the mandatory 0 0 -- 13 of 86 -- 11 language of the ·terms, and their detailed and precise provision, said to be inconsistent with their merely providing for future negotiation. Arbitration would be practicable, it was urged, notwithstanding the complexity of the matters to be determined. I have given no more than a very broad summary of the major submissions of the parties on this issue. I cover more matters of detail in what follows. Many features of these provisions have persuaded me that they do oblige Comalco to supply further bauxite after 25 years on terms susceptible of being arbitrated in the absence of agreement. I do not accept that, properly construed, the provisions impose merely an obligation to negotiate in good faith. Although the reference to "a separately negotiated agreement'', taken alone, would immediately cause one to doubt the certainty and () enforceability of the suggested obligation, the rest of the provisions makes it plain that the relevant terms of that "agreement", if not successfully negotiated, may be imposed through arbitration. The language of Article 2.2 It is useful to look at once at the language of article 2.2. Those particular words, "a separately negotiated agreement", occur in the longer passage, 11 Comalco will under a separately negotiated agreement agree. to sell and supply that bauxite 11 (my underlining) . The underlined words are words of promise or obligation. -- 14 of 86 -- 12 Comalco's obligation is triggered by the giving of notice not later than two years before the expiration of the 25 year term. The stipulation of a notice period is of course a common feature of enforceable contractual options. One wonders whether such a notice requirement would not have been overly rigorous had the parties intended that it signal no more.· than an obligation to negotiate, with Comalco thereupon assuming no enforceable obligation to supply. The clause goes on to . provide that the terms and Q conditions of supply be similar to those in the agreement "except that the grade and price of bauxite shall be 0determined in accordance with the provisions of Schedule A" (my underlining). The words "shall be determined" are, again, more suggestive of a contractual obligation (to sell) than an obligation merely to negotiate, as is the direction that they ' / be determined "in accordance with the provisions of Schedule A", which should therefore be seen as having a constraining 0 effect, and not, on the other hand, as going no further than setting out helpful advice to facilitate negotiation. The word "determined", which involves the notion of 0 deciding or resolving in an authoritative way (see the definitions in the then current edition of the Oxford English Dictionary) , is of course aptly descriptive of the decision of the parties themselves should they be able to agree (their consensus giving it that authoritative character), or to the determination of arbitrators. Assuming for the moment that the arbitration provision, article 25, is wide enough to cover this situat.:i,on, then one notes that should the parties be -- 15 of 86 -- 13 unable to "determine" price and grade by their own agreement, then arbitration could be regarded as a means of ensuring fulfilment of the direction that those matters ••shall be determined". The heading of article 2, "Term of Agreement and Future Agreement" is not inconsistent with a view that the parties contemplated an enforceable contractual option. Comalco submits that that "future agreement" could "only be the (--\ product of the negotiations referred to in article 2. 2". I (~) u u consider that that unduly focuses on the negotiation. The relevant obligation is to agree. As I will demonstrate, if the parties fail to resolve essential matters, there is an arbitration mechanism to rectify the situation. The language of Schedule A The language of Schedule A, also, is more consistent with an intention to create a contractual obligation to sell bauxite after 2 5 years, should that be required, than with providing merely a set of guidelines for negotiation. I note these references in particular: "If (the defendant) requires Comalco to sell it additional quanti ties ... ••; •• (a) the grade . . . will be determined as set out in cl. 3 ... "; 11 3. The base grade of bauxite shall be agreed ... " on a specified basis. While cl.· 1(b) of Schedule A does provide that "the price of bauxite will be negotiated" having due regard to certain matters, that must be read in the context of article 2. 2 (a) , which provides that the price "shall be determined 11 in accordance with Schedule A. -- 16 of 86 -- /.-:: 14 Clause 1(b) of Schedule A specifies a number of matters to be taken into account in the determination of price, if possible through negotiation: the basis of pricing used in the agreement, and the extent to which that is still applicable and would operate fairly to the parties,. bearing in mind general levels of wholesale prices and wages, difficulties foreseen in winning the additional bauxite, the quantity to be mined and rate of extraction, the remoteness of areas from which it might be won, and other relevant factors. While those are certainly broad standards, they are objectively ascertainable. The concept of fairness is one to which 0 arbitrators (and courts) are frequently subject (cf. The c=) Queensland Electricity Generat~ng Board v. New Hope Collieries Pty Ltd (1989) 1 Ll.aep. 205, 210), as of course is the concept of relevance. Preciseness That leads me to a further important consideration. In these provisions, the parties have apparently been very precise and specific.· The careful listing of those matters to be taken into account in ·the determination of price under cl. 1(b) of Schedule A is an example. Clause 3 of Schedule A lists, ·· in the sense of catalogues, the matters to be taken into account in determining base grade of bauxite: they are precisely set out. Similarly, article 2. 2 very particularly limits the annual quantity :of further bauxite, and for that purpose, sets out a definitionof "annual alumina commitment". As well, there is the prescription as to the "terms and conditions" of further supply, that they be similar to those 0 0 -- 17 of 86 -- 15 in the agreement save that grade and price be determined in accordance with Schedule A. Notwithstanding Comalco' s submission on this matter, I consider that this degree of preciseness would be rather unusual if the parties were merely intending to prescribe, as put in Howmet's submission, "an negotiation". It is more consistent agenda with a for wish further in the parties to ensure that the terms of the future supply, which (~ is to occur should notice be given, be clearly ascertainable by reference to a comprehensive and reasonably precise listing of the relevant objective criteria. (J Reservation as to departmental rulings Also significant is the preservation, in cl. 3 of Schedule A, of Comalco' s entitlement "to act upon any ruling or interpretation of the Department of Mines of Queensland" in relation to its obligations under its Special Bauxite Mining Lease. That is specified in the provision as to "base grade'',. If these provisions constituted no more than guidelines for (j negotiation between the parties, why make that specific reservation? It would be open to Comalco, in such negotiation, to adopt a position based upon such a ruling or interpretation. There is strong basis for the view that by that reservation, Comalco sought to protect itself against the possibility that arbitrators might otherwise take a· view of Comalco' s obligations under the lease which conflicted with. Departmental rulings or interpretations. -- 18 of 86 -- 16 Article 3.2 I now mention article 3. 2, which obliges Comalco to sell further bauxite to the defendants consequent upon expansion of production capacity of the Gladstone refinery. I set out the terms of that article, taken from the Comalco-Kaiser agreement, the terms of the other agreement being materially the same: "3.2 If the alumina production capacity of the Gladstone Plant is expapded and Kaiser agrees with · QAL to take from the Gladstone Plant a quantity of alumina additional to Kaiser's annual alumina commitment then if so requested by Kaiser CAL shall under a separately negotiated agreement agree to sell and deliver to Kaiser sufficient bauxite (in addition to the bauxite to be- supplied under this agreement) to enable the Gladstone Plant to ~-produce the said , additional quantity of alumina. The terms and conditions of the said agreement shall be similar to those herein contained except that the grade and price of -bauxite and the period of supply shall be · determined in accordance with the provisions of Schedule A. The provisions of this Article 3.3 shall not apply in relation to any expansion of the alumina production capacity of the Gladstone Plant to more than one million eight hundred thousand tons per_year." One notes that the provision deals with the terms and . ' ' ' 0 0 conditions, price and grade for further supply consequent upon c=) expansion, similarly to the provision in article 2.2 in relation to further supply after 25 years. Under-article 3.2, price, ·grade and P.eriod of supply are to be determined in accordance with Schedule A. Clause 2 of that schedule applies to that determination: "2. If Kaiser requires CAL to sell it additional quantities of bauxite consequent upon an expansion of the alumina production capacity of the Gladstone Plant as set out in Article 3. 3 then:. -- 19 of 86 -- 17 (a) the grade of bauxite will be determined as set out in clause 3 of this Schedule (b) for such part of the period of supply as is prior to the end of the period oftwenty-five years referred to in Article 2. 1 the price shall be determined as set out in this agreement and thereafter the price will be as negotiated on entering into the agreement for the supply of the additional bauxite on the basis set out in clause 1(b) of this Schedule; and (c) unless otherwise agreed the period of the agreement for the supply of the additionalbauxite shall be for a period to be nominated by Kaiser, being not less than fifteen years and not more than twenty-five years and commencing not earlier than two years after the date of the said agreement." Many of the matters to which I have already referred in relation to article 2.2 and ell. 1 and 3 of Schedule 'A apply also to these provisions. There is however a further point to be made. Article 3.2 obliges Comalco "under a separately negotiated agreement" to sell to the purchaser sufficient bauxite to enable the refinery to produce' a certain additional quantity of alumina. That additional quantity of alumina is the quantity upon which the purchaser and QAL (not Comalco) · will have agreed, in the context of expansion of the capacity of the refinery. The expansion of the refinery and the purchaser's related agreement with QAL to take additional alumina from the refinery, would presumably, in the ordinary case, precede the purchaser's request of Comalco to sell it sufficient additional bauxite to enable the plarit to produce the additional alumina already agreed upon. I note Comalco's contention that the steps would usually be carried out at the -- 20 of 86 -- 18 same time. But the agreement seems to contemplate the order I suggest: "If the· capacity is expanded and Kaiser agrees with QAL to take a quantity additional then if so requested by Kaiser CAL shall under a separately negotiated agreement agree to sell ... ". It would in that case be odd if Comalco could thwart the implementation of such an expansion, by declining to sell the bauxite when requested (on the basis that it was not contractually obliged to do so), or if the parties had not intended to set up a contractually en_forceable C I mechanism for the determination of matters such as price and grade should the parties in that case be unable to reach agreement on those matters. Scope of arbitration provision I turn now to the question whether the arbitration provision, article 25, is wide enough to encompass a reference to arbitration upon the parties' failure to agree on price, or grad~, or. any other matter requiring determination under article 2.2. For ease of reference, I again reproduce article 25. 1 : "25 .1 If at any time there is any dispute, question or difference of op1n1on between the parties hereto concerning or arising out of this agreement, or its construction, meaning, operation or effect, or concerning the rights, duties or liabilities of either of the parties hereto then the parties shall forthwith confer in an endeavour to settle it, but if they fail to agree within twenty-one days after first conferring or if either · party refuses to confer then the dispute, question or difference of op1n1on shall be referred to three arbitrators agreed by the parties, but in default of agreement to three arbitrators appointed. by the President of the International Chamber of Commerce and such reference sQ.all ~e considered . a submission to arbitration within the meaning of the Interdict Act 1867 of the State of Queensland (or any statutory 0 0 0 -- 21 of 86 -- ) 19 modification or re-enactment thereof for the time being in force) and be subject to the provisions of that Act relating to arbitration." The clause is widely drawn, referring as it does to "any dispute, question or difference of opinion between the parties concerning or arising out of this agreement, or its construction, meaning, operation or effect, or concerning the rights, duties or liabilities of either of the parties". There is no sanction for restricting the operation of a widely drawn arbitration clause: Attorney-General v. Barker Bros. Ltd (1976) 2 N.Z.L.R. 495, 502. In my view, a failure to agree on price or grade or term would fall within the provision. Comalco criticised the submissions of the other parties for adopting a strained construction of article 25 to ensure that the supposed obligation on Comalco to supply further bauxite · could b~ implemented. But to my mind, a failure to agree on matters (J essential to that obligation falls naturally within the scapi of article 25. Dispute In the first place, it could be considered as involving a "dispute" within the meaning of this particular agreement. While it is true that in May and Butcher Ltd v. · R. ( 1934) 2 K.B. 17, 22 it was said (per Viscount Dunedin) that a failure to agree is. "a very . different thing" from a dispute, the parties to this agreement have apparently proceeded on a contrary basis. That emerges from article 7.2, which concerns bonus and ~~nalty adjustment. The clause obliges the parties -- 22 of 86 -- 20 to confer, and then provides: "In the event that the parties do not agree either party may refer the dispute to arbitration 11 (my underlining). While there is, as submitted for Comal.co, no "immutable rule" that a word recurring in an agreement always bears the same meaning, there is .in my opinion no sufficient reason here to conclude that the parties did not intend their equating of "dispute" and failure to agree, in cl. 7. 2, to be generally applicable. Comalco drew attention to the provision in article 16.3 that, there being no· agreement, "the matter" be submitted to arbitration under article 25. It was submitted that the draftsman thereby revealed that he was "not concerned to use language with strict consistency of expression", because he had in article 7.2 spoken of failure to agree as a "dispute". While that point is open, I do not consider it excludes the .. , 0 view that the equating of failure to agree and dispute in Q article 7. 2. offers a reliable indication that these parties generally regarded the concepts as the same, in the relevant context of reference to arbitration. Difference of opinion Such a failure to agree also, in my view, involves a "difference of· opinion". It is well established that for the purposes of such provisions a failure to agree gives rise to a "difference": F & G Sykes (Wessex) Ltd v. Fine Fare Ltd (1967) 1 Ll. Rep. 53, 6 0; Attorney-General v. Barker Bras . , supra, p. ·· 502; Duncan' s Holdings Ltd v. Harris-Daishowa (Australia) Pty Ltd, unreported, New South Wales Court of Appeal, -----------------------~-----------'--- 0 -- 23 of 86 -- l_) 21 21st July, 1989 per Hope J.A. at p. 16. It is a short and appropriate step to take to conclude then that the "difference" arising from a failure to agree on price or grade involves a difference of opinion, that being,·simply enough, a difference of opinion as to what is the proper price or grade determined in accordance with Schedule A. Question Thirdly, a failure to agree on such matters also does give rise in my view to a "question" or point of contention between the parties, that being, for example, what is the proper grade or price determined in accordance with Schedule A. Arising out of "this agreement"? Comalco contended, however, that such a dispute, question or difference of opinion, if it arose, would not concern or arise out of 11 this agreement••, being the bauxite supply agreement, because the process of negotiation provided for by article 2. 2 relates to the sale of bauxite "after termination of this agreement 11 (Schedule A cl. 1). It was submitted, therefore, that such a difference would not concern or arise out of the bauxite supply agreement, but relate to a possible separate future agreement; it would not .concern the construction etc. of the bauxite supply agreement, for all that agreement calls for is negotiation which would have failed; and it would not concern the rights etc. of the parties, because the agreement accords no right to an agreement,.but merely contemplates negotiation. -- 24 of 86 -- 22 The submission is answered by my conclusion, earlier, that the bauxite supply agreement does create an obligation to negotiate in good faith: expressed not merely it obliges Comalco to supply further bauxite after 25 years if required to do so. Once one acknowledges that article 2.2, read with Schedule A, confers a right on the defendant to such further supply, there can be no argument but that any dispute, question or difference of opinion about the terms of that supply would concern or arise out of the bauxite supply agreement, or its operation or effect, or would concern the rights or liabilities of the parties to it. The obligation to confer: otiose? Comalco further contended that because article 2. 2 and Schedule A themselves contemplate negotiation about price and grade, the further requirement in article 25 that the parties 11 confer .in an endeavour to settle 11 the difference between them would be inappropriate, negotiation having already failed, and that that is an indication that article 25 was not intended to apply to a failure to agree under article 2.2. As it was put, 11 the parties cannot sensibly have intended that after failed negotiations they must continue to confer for another 21 days~·. The requirement that the parties confer prior to reference to arbitration is, plainly enough, intended to exhaust the prospect of settlement prior to arbitration. A dispute, question or difference of opinion may however have arisen. duri_ng the negotiations contemplated by article 2. 2 even though those negotiations have not irretrievably broken 0 0 0 -~·· -- 25 of 86 -- c ', CJ 23 down. There might, therefore, still be point in requiring the parties to confer before committing them to arbitration. The submission wrongly assumes, in my view, that negotiations will necessarily have failed completely, such that further conferring would be pointless. The significance of Articles 7.2, 16.3, 9.3, 18.3, 5.4 Comalco referred, as well, to other clauses - articles 7.2, 16.3, 9.3, 18.3 and 5.4 were examples - suggesting that article 25 was not intended to apply of its own force to failure to agree in every case where the agreement called for negotiation and agreement. I now consider each of those other clauses. Article 7.2 Article 7 concerns adjustment of the base price, by application of bonuses and penalties, depending on total chemical alumina content and the total silica content. Schedule A provides for a revision of the basis of that adjustment in certain circumstances. machinery by which that revision Article 7. 2 sets up the · ·· might be se-cured. The parties are to confer, and failing agreement, "either party may refer the dispute to arbitration ... ". It was submitted for Comalco that that provision "is mere surplusage if article 25 applies of its own force whenever there is a failure to · agree". However whereas article 25 operates to refer a dispute automatically to arbitration should the parties fail to -- 26 of 86 -- 24 resolve it for 21 days after conferring, article 7.2 gives the parties the right to refer a dispute about revision of the basis of the adjustment of the base price to arbitration, following conferring on the matter. Such a dispute does not automatically proceed to arbitration in the event of continuing disagreement. Article 7.2 should therefore be seen as making special, modified provision for arbitration in respect of the particular disputes to which it relates. Article 16.3 Comalco next referred to article 16. 3, which relates to sampling of ship loads. Article 16.1 requires that Comalco take a representative sample from each ship load. That is to be divided into four parts, one of which goes to an agent for analysis (article 10.1), one is retained by Comalco, and the other two are kept as reserve samples. Article 16.3 provides that the samples be obtained and kept "in accordance with procedures agreed by Comalco and the participants from time to time", and that "if six months prior to the then estimated date of commencement of the first contract year no such agreement has been reached the matter will be submitted for determination by arbitrators pursuant to article 25". It was necessary that the sampling procedure be agreed upon prior to commencement of the first contract year. The apparent purpose of article 16.3 is to ensure that, should the parties fail to· agree,··· a determination will be made in a timely way hence the automatic reference to arbitration should the parties not . have agreed six months· prior to the commencement of that contract year. This. article should 0 0 0 0 -- 27 of 86 -- 25 therefore be seen as making special provision for arbitration with respect to this matter, special provision being necessary to ensure that the matter be resolved at an appropriate time, that not being guaranteed otherwise by the ordinary operation of article 25. Articles 9.3. 18.3 Comalco then referred to two other articles which provide ( 1 means other than arbitration to resolve situations where parties fail to agree~ ( Article 9. 3 deals with the possibility that the Commonwealth Bureau of Census and Statistics may cease publishing an index: should the parties fail to agree upon an alternative, the Commonwealth Statistician or failing him the President of the Institute of Chartered Accountants may be asked to nominate one. Article 18.3 concerns analysis of samples, and provides that Comalco may in certain circumstances refer the analysis to an umpire. L .) / I regard those two provisions as illustrating simply that where the parties did not want arbitration to apply to a particular situation, they made special provision in relation to that situation. Article 5.4 Finally, Comalco referred in this regard to article 5.4, inserted by amendment made on 5th November,. 1981. That article concerns reimbursement of royal ties imposed by the Queensland Government. Should they be increased, .the parties -- 28 of 86 -- 26 are to confer "in the utmost good faith and good will" as to who should bear the increase, an<:"J. .. come to an agreement which is "fair and reasonable", taking account of certain specified factors. The article concludes by providing that those provisions are "solely an expression of good faith and not legally enforceable or (to be) made the subject of any arbitration 11 . . . . Comalco submitted that that concluding limitation "simply reflects a super-abundance of caution on the part of the C! defendants". The other, and to my mind more compelling; interpretation is that by including that limitation, the parties demonstrated their view that the broad arbitration provision, article 25, would otherwise apply in the event of a failure to agree. I therefore conclude that none of these clauses should be regarded as disturbing the prima facie application of the () widely drawn arbitration clause, article 25, to a situation of c=J failure to agree on price or grade or term under article 2.2 and Schedule A. 0 Range of relevant factors: practicability of arbitration It was further submitted for Comalco that the '•, multiplicity of interacting matters to be considered in negotiations under article 2. 2 provides a strong indication that arbitration was not intended. I referred to such matters when dealing with the significance of the preciseness of the agreement (pp. 14 and 15). Comalco submitted that negotiation "is the only viable mechanism for fixing the terms". -- 29 of 86 -- ( .' ~ 27 I do not accept that submission. The parties may_ well have foreseen that that very multiplicity of relevant factors may raise the distinct possibility of their being unable to reach agreement, and that arbitration should be available to cover that possibility. I have already referred to the objective quality of the listed factors, as enhancing the effectiveness of any such arbitration. It is interesting to compare these provisions with cl. 8. 7 of the contract before the Judicial Cornrni ttee in the New Hope Collieries case, dealing with the terms of supply of coal during a second five year period: "8. 7 The terms of supply of additional quantities beyond the initial five-year period (from the cornrnencemen t date to 31 December 1 9 81 ) . The new pricing structure to apply to such additional quantities shall reflect all the changes in costs to the company including economies resulting from the amortisation of capital items still in use, technological advances, and items of expenditure not repeated, including the restoration of any open cut workings for which special allowances have been made in the base price, as well as changes in costs resulting from changes in mining conditions, new mining plant, and the scale of operations. The Generating Board shall have the right to satisfy itself that the new pricing structure reasonably reflects all such factors." The Judicial Cornrni ttee did not baulk at the prospect of an arbitrator's determining the terms of · supply of subsequent periods. Sir Robin Cooke said this (p. 209), with relation to a contention that that provision was uncertain: "The words used by Lord Diplock in disposing of a somewhat similar question in Sudbrook Trading EstateLtd v. Eggleton, [1983] A.C. 444, at p. 476, apply mutatis mutandis to the instant agreement. Clause 8. 7 and all other provisions indicating that the agreem~nt was not confined to the first five yearswere obviously intended by both parties to have -- 30 of 86 -- 28 legal effect. What other. reason could there be for making such elaborate provisions; emphasising its long-term nature? At th,e present day, in cases where the parties have agreed on an arbitration or valuation clause in wide enough terms, the Courtsaccord full weight to their manifest intention to create continuing legal relations. Arguments invoking alleged uncertainty, or alleged · inadequacyin. the machinery available to the Courts for making contractual · rights effective, exert minimal attraction. Sudbrook is now the leading · English case in the field. The same tendency has been apparent elsewhere in the Commonwealth, as illustrated by Calvan Consolidated Oil and Gas Co. Ltd v. Manning, [1959] S.C.R. 253; Attorney-General v. Barker Bros Ltd [1976] 2 N.Z.L.R. 495; and Booker Industries Pty Ltd v. Wilson Parking (Old) Pty Ltd [1982] 56 A.L.J.R. 825. In accordance with the approach adopted in those cas~s, their Lordships have no doubt that here, by the a~reement, the parties undertook implied primary obligations to make reasonable endeavours to agree on the terms of supply beyond the initial five-yearperiod and, failing agreement and upon proper ·notice, to do everything reasonably necessary to procure the appointment of an arbitrator. 11 That approach is plainly also applicable here. Comalco focused in this context on one further' matter I that is, 11 the absence of any formulae or standard by reference 0 0 0 to which the period of future supply is to be set 11 , meaning, O it was contended, that arbitration would be impossible. What, it was asked, could be a 11 reasonable" term? The difficulty of determining a reasonable term would flow, it was said, into the determination of price and grade. Prior to amendment in 1981, the Comalco-Kaiser agreement provided in article 2. 2 for' · two additional five year fixed periods beyond the initial 25 years. I should record that the matter has been put before ·me on the basis that this point about the certainty and arbi trabili ty of the period of any -- 31 of 86 -- CJ (_) 29 future supply was taken only against Howrnet. (I should also mention that I have not found it necessary to deal in these reasons with Howmet's separate submissions about the significance of the amendment to that provision in 1981.) I will nevertheless make the following observations, equally applicable to the current form of either agreement. The period of further supply is "to be agreed ending not earlier than 31st December, 2008 and being not more than 25 years". That the parties chose to specify those outer limits is more consistent with a view on their part that a period was determinable (either by agreement or arbitration), than with its being simply left to negotiation. If only negotiation was contemplated, why impose any such limitation? The period is, then, to be at least 16 years, but may reach 25 years. If asked, a court would imply a criterion of reasonableness to the determination of the actual term by an arbitrator. See the observation of Sir Robin Cooke in New Hope Collieries, supra, p. 210, that it is ordinarily implicit in commercial agreements that the terms of proposed new arrangements like these be "fair and reasonable as between the parties", and that in determining them in the absence of agreement, an arbitrator will ordinarily have to aim at "obje_ctively fair and reasonable terms". See also F & G Sykes (Wessex) Ltd v. Fine Fare Ltd, supra, pp. 57,_60 and Foley v. Classigue Coaches Ltd (1934) 2 K.B. 1, 10 and 12. An arbitrator could determine a reasonable period within those lim~ts by reference to objective criteria (even though -- 32 of 86 -- 30 not listed in the agreement), such as the extent of the available supply of bauxite and the level of demand for that bauxite. No doubt he would also be influenced, in determining period, by what Comalco rightly contended is the interrelated factor of price, to be determined by reference to the objective considerations listed .in cl. 1(b) of Schedule A. Comalco relied on American Airlines Inc. v. Hope (1963) 1 Ll. Rep. 2 3 3, where insurance . cover was held not to extend to certain aircraft destroyed in Beirut because the parties had not agreed that the geographical cover include that area (the possibility of such agreement having not been exploited). Phi.llimore L.J. described the result (p. 242) as "quite obvious" (although Lord Denning M.R. considered the competing arguments "evenly balanced" - p·. 241). The decision seems to carry little significance for this case, because there was there no arbitration clause to which the parties might arguably have had recourse to overcome any incompleteness in the bargain as to geographical limits. Rather more helpful is Sykes v. Fine Fare, which concerned an agreement to sell broiler fowls. The number of fowls the subject of the agreement was within a particular range for the first year "and thereafter such other figure as may be agreed between the parties". The Court of Appeal affirmed that an arbitrator might if necessary determine that figure, applying a criterion of reasonableness. As submitted for Howrnet before me, "there is really no difference in substance between the determination of the volume to be supplied ·during a term of fixed duration, and the 0 0 0 0 -- 33 of 86 -- 31 determination of the duration of the term itself within fixed parameters". It is therefore my view that the period of any further supply could be the subject of arbitration, and that the parties intended that it be arbitrated should they fail to agree upon it. Are matters determined by arbitrators, matters of "agreement"? It is convenient to mention now Comalco.' s early contention that matters such as price, grade and term, if determined by arbitrators, would not have been.agreed, and any further supply would therefore not take place "under a separately negotiated agreement" but under terms imposed externally following failed negotiations and in the absence of agreement. Since, on my interpretation of their agreement, the parties have agreed to arbitration should they fail to resolve such matters themselves, then they may be taken to have agreed to the arbitrators' determination on those matters. As it was l_) put by Meagher J.A. in Harris-Daishowa (pp. 2-3), "the parties' agreement to the arbitration clause carries with it the consequence that any arbitrated price is, relevantly, an 'agreed price'." The efficacy of the agreements so construed: the case law Extensive submissions were made in relation to four cases to which I have already referred, Sykes v. Fine Fare, Attorney-General v. Barker Bros. Ltd, New Hope Collieries and Harris-Daishowa. There is no doubt that the approach of the -- 34 of 86 -- 32 courts in those cases assists in the resolution of this one, although not surprisingly, and as stressed by Comalco, they did not concern situations identical to this one. There is, nevertheless, in many material respects, a striking similarity. I will now indicate briefly the significance of those decisions for present purposes. Sykes v. Fine Fare The number of fowls to be sold was expressed to be within a particular range for the first year, and thereafter such other figure as may be agreed between the parties. The agreement was said to be incomplete, and not binding after the first year. The Court of Appeal held that a criterion of reasonableness regulated the determination of the number of fowls after the first year, to be applied, in the absence of agreement, by an arbitrator. The arbitration clause was wide, referring to "any difference" regarding, among other things, "the performance by either party of their obligations . . . or in relation to any matters incidental thereto". The approach of the Court of Appeal in that case is prima facie relevant to this one, but Comalco emphasised that court 1 s concern with the parties 1 having acted on the agreement at considerable expense (a matter raised with relation to Barker Bras and New Hope also), such that the court "ought to imply all reasonable terms so as to avoid any uncertainties" (per Lord Denning M.R. p. 57). As pointed out, however, by Howmet, the performance expected of these defendants· · under "the contemporaneous and interwoven 0 0 CJ -- 35 of 86 -- ( ( 33 commercial arrangements as referred to in the recitals to the bauxite supply agreement which, logically, express the parties • intentions and relations 11 really makes this case, in that respect, indistinguishable in principle from Sykes. Comalco also sought to distinguish Sykes on the basis that whereas Sykes concerned continuing· obligations in the course of a persisting contract, this case involves determining whether there are binding terms for the creation of a new and separate contract. The distinction drawn by Comalco is between 11 contracts calling for the review of terms, by agreement, during the contract 11 and 11 agreements to agree at the outset of a contract 11 , courts being more willing to support the certainty of the former, part-executed arrangements,· than the latter (cf. Mason and Gageler: 11 The Contract 11 , in Finn: Essays on Conl:ract p. 14). Obviously there is a fundamental distinction between an unenforceable 11 agreement to agree 11 , and the review of terms under a subsisting and partly executed agreement. Putting to one side my conclusion that this agreement does give the l) defendant a contractually enforceable option to extend the term of supply, one notes that the agreement obviously contemplated the possibility of supply continuing well into the next century. Acknowledging that possibility, why should one not regard the contract, by 1992, as sufficiently 11 part-executed 11 to warrant the court•s striving to uphold the certainty of terms regulating the contemplated extension? I do not consider that this provides a legitimate ground for distinguishing this case from Sykes. -- 36 of 86 -- / 34 _Sykes demonstrates that a sufficiently widely drawn arbitration provision may operate to determine a matter expressed to be left to the agreement of the parties, should they be unable to agree; and that its being left to their agreement does not prevent the court from implying a criterion of reasonableness. Attorney-General v. Barker Bros. 0 In this case, the terms and conditions of a renewed lease, following exercise of an option to renew, were to be "agreed". The lease contained an arbitration provision. The 0 question was-as to the enforceability of the option to renew. The New Zealand Court of Appeal said that it was enforceable. There was no "formula", or specification of objective factors, against which ·• the relevant terms ·should be determined. The court nevertheless held the option to be enforceable, because the task of an arbitrator could not be considered "impossible". As put by Richmond P. , which whom the other Judges agreed (p. 503): "The parties have provided no 1 stated formula 1 to guide the arbitrators in their task. I accept that it is- not . so easy in the . present case to adopt precisely the sa.me process of implication as was . adopted in Foley v. Classigue Coaches Ltd [ 1934] 2 K.B. 1 and F. & G. Sykes (Wessex) Ltd v. Fine FareLtd [ 1967] 1 Lloyd 1 s Rep. 53. I would, therefore, prefer to approach the problem somewhat differently. It seems to me.that once the court is"satisfied that the parties have provided, by means of an arbitration'clause, a machinery to settle terms and conditions of a renewed lease, then the court should give effect to that intention unless it can be seen that the lack of some stated formula or standard will render the task of the arbitrators impossible 0 0 -- 37 of 86 -- ('; 35 in practice. In my view, that is not the situationin the present case." In the present case, there is a "stated formula or standard", at least with respect to price and grade, and in my view implicitly with respect to term, so the reasoning applies here a fortiori. The case also supports the view that a widely drawn arbitration clause, like this one, should not be narrowly construed. New Hope Collieries New Hope agreed to supply coal for 15 years. After five ( years, the price was to be agreed in accordance with a provision of the contract (cl. 8.7) which specified_ the relevant criteria. There was a widely drawn arbitration clause. The Judicial Committee upheld the certainty and enforceability of the arrangement. Sir Robin Cooke' s observations are highly apposite here. Although I have () already set out part of what follows, the longer passage is illuminating. He referred to the contention that there was no l) more than an "agreement to agree", and continued (pp. 209-210): "Words used by Lord Diplock in disposing of a somewhat similar question in Sudbrook Trading Estate Ltd v. Eggleton, [1983] A.C. 444, at p. 476, apply mutatis mutandis to the instant agreement. Clause 8.7 and all the other provisions indicating that the agreement was not confined to the first five yearswere obviously intended by both parties to have legal effect. What other reason could there be for making such elaborate prov1s1ons, emphasising. its long-term nature? At the present day, in .caseswhere the parties have agreed. on an. arbitration· or valuation clause in wide enough terms, the Courts accord . full weight to their manifest intention to create continuing legal relations. Arguments invoking alleged uncertainty, or alleged inadequacy in the machinery available to the Courts for making -- 38 of 86 -- 36 contractual rights effective, exert minimal attraction. Sudbrook is now the leading English case in the field. The same tendency has been apparent elsewhere in the Commonwealth, as illustrated· by· Calvan Consolidated Oil and Gas eo. Ltd v. Manning, [1959] S.C.R. 253; Attorney-General v. Barker Bras Ltd [1976] 2 N.Z.L.R. 495; and Backer Industries Pty Ltd v. Wilson Parking (Old) Pty Ltd [1982] 56 A.L.J.R. 825. In accordance. with the approach ·adopted in those cases, their Lordships have no doubt that here, by the agreement, the parties undertook implied primary obligations to make reasonable endeavours to agree on the terms of supply beyond the initial five-year period and, failing agreement and upon proper notice, to do everything reasonably necessary to procure the appointment of an arbitrator. Further, it .is implicit in a commercial agreement of this kind that the terms of the new price structure are to be fair and reasonable · as between the parties. That is the criterion or standard by which the arbitrator is to be guided. If there are cases where the true meaning of the contract is that the arbitrator is to aim, not at objectively fair and reasonable terms, but merely at some result which appeals to him subjectively, they must be· rare inde~d, and the present is certainly not one of them. The statements of basic intention in the recitals and in cl. 9.1, together with the detailed pricing provisions for the first five years, supplement the ordinary implication of a fair and reasonable test. They: lay down b~oad guidelines as to the object to be achieved; and how the system has worked during the first five years is likely to provide the arbitrator with much help in determining what is fair and reasonable for_later periods." Harris-Daishowa In this case, the price for pulpwood chips was to be agreed upon (cl. 4 Schedule) , and there was a widely drawn arbitration clause (cl. 11 ) . The New South Wales Court of Appeal upheld the enforceability of the agreement. The provisions considered there are similar to those involved in this case.· Having referred to the three cases previously ·, mentio"ned by me, Hope J.A., with whom the other Judges agreed, said this (p. 19): 0 0 0 -- 39 of 86 -- () lJ 37 "Adopting this approach I see no reason why the task of the arbitrator should not be to determine what, at the relevant time, was a reasonable price for the supply of the chips by Duncan 1 s to Harris-Daishowa. As Maugham L .J. said in Foley v. Classigue Coaches Limited at 15: 1 Are we to assume that both parties were so· ignorant: of business that no dispute as to price could possibly arise? 1 In my opinion the parties to the present contract left the determination of any difference as to the variation of price to arbitration pursuant to clause 11 • I see no difficulty in the arbitrator determining what such a reasonable price would be. I do not know whether there is a market price for woodchips. If there is, that may, in the circumstances, be thereasonable price. However a reasonable price is not necessarily determined by the market price and the absence of a market price clearly does not preclude an arbitrator from determining what a reasonable price is. It follows that Duncan was correct in its claim that the provisions of clause 11 applied to a differenca arising as a result of a failure to agree upon a variation of price at an annual review as provided by clause 4 of the schedule. I would add that I [am] glad that I have been able to arrive at this conclusion, for to use language which has been adopted elsewhere in relation to similar situations, it would be deplorable if the Court were constrained to conclude that this commercial contract, which had been in force for quite a few years, must be brought to an end, or continued on a basis which its provisions show the parties did not contemplate." The passages which I have extracted from Barker Bras. , New Hope Collieries and Harris-Daishowa especially, amply demonstrate the tendency of the courts to imply a criterion of reasonableness into commercial arrangements where future agreement on certain matters is left to the parties, to give full operation to widely drawn arbitration clauses, including sanctioning the determination of those matters by arbitrators where the parties cannot agree, and to uphold the certainty and enforceability of commercial agreements even though important matters may be left for further agreement. -- 40 of 86 -- 38 Consideration of those and other cases reinforces my conclusion, drawn from the agreement itself, that Comalco did agree to further supply, if required, on terms as to grade, price and period to be agreed pursuant to article 2. 2 and Schedule A or failing agreement, determined by arbitrators pursuant to article 25. Article 2.2 was apparently intended to create contractual relations, not li~ited to an obligation to negotiate in good faith, but an obligation to supply further bauxite if required. No doubt the parties hoped to be able to agree on the relevant terms. The very wide terms of the arbitration provision, article 25, are however capable of applying to the dispute, question or difference of opinion involved in a defendant's failure to agree with Comalco as to grade, price or period of supply. There is no reason why, in light of article 2.2 and Schedule A and considerations of reasonableness, an arbitrator could not, eflectually determine those issues. The relevance of the extrinsic evi·dence I have based those conclusions solely on itself. Comalco contends, ·however, that the approach the construction of the agreement resorting to e~trinsic evidence, including if necessary, the agreement Court should more broadly, evidence of circumstances of the negotiations leading to the agreement, the nature of other contemporaneous agreements, and the state of knowledge of the parties concerning the extent and grade of bauxite reserves and other related matters. Much if not most ' ' 0 0 0 0 -- 41 of 86 -- () ( } (_) 39 of the evidence of those matters was admitted on a provisional basis only, subject to objections to admissibility. Extrinsic evidence is always admissible to place a contract in context: Prenn v. Simmonds (1971) 1 W.L.R. 1381, 1383-4 and Reardon Smith Line Ltd v. Hansen-Tangen (1976) 1 W.L.R. 989, 995, 996. That evidence is however limited, as expressed by Mason J. in Codelfa Construction Pt~ Ltd v. St~te Rail Authority of New South Wales (1981-2) 149 C.L.R. 337, 348 to "evidence (of) the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively of the 'aim' of the transaction", evidence of what is sometimes termed the "matrix of fact" in which the agreement was set. The evidence led by Comalco went far beyond those limitations. As the case was argued, Comalco really accepted however that to justify reception of that wider body of evidence, it must demonstrate that the agreement is "ambiguous or susceptible of more than one meaning". Those words are taken from what Mason J. said in Codelfa (p. 352): "The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning." Comalco urged a liberal a~proach to the question of ambiguity, referring to the observations of McHugh J.A. in Manufacturer's Insurance Ltd v. Withers (1988) 5 A.N.Z. Ins. Cas. 60-853, 75343 that "few if any English words are unambiguous or not susceptible of more than one meaning or have a plain meaning", and also the observation of Clarke J.A. -- 42 of 86 -- 40 in Trawl Industries of Australia Pty Ltd v. Effem Foods Pty Ltd (1992) 27 N.S.W.L.R. 326,· 358 that "in many, if not most, cases in which the court is seeking to construe a particular term or terms of a contract there will be sufficient uncertainty as to the meaning of the relevant terin as to enable the admission of evidence of surrounding circumstances". It is not clear that Mason J. necessarily meant "ambiguous" and "susceptible of more than one meaning" to be read disjunqtively. He had earlier in his judgment referred to Great Western Railway and Midland Railway v. Briston Corp. ( 1918) 87 L .J. Ch. 414, where it was said that "evidence of surrounding circumstances was· inadmissible except to resolve an ambiguity, that is, where the words are susceptible of more than one· meaning". In any event, nothing turns in this case on any difference between the meanings of the two concepts, if 0 0 there be any. What should be remembered is ·Lord Wilberforce' s 0 warning · in Schuler A. G.'· v. Wickman Machine Tool Sales Ltd (1974) A.C. 235, 261 that "ambiguity in this context is not to be equated with difficulty of construction, even difficulty to a point where judicial opinion as to meaning has differed". He described that as "elementary law". Comalco ·offered the following five suggested ambiguities in the bauxite ·· supply agreement, as being sufficient to warrant the reception of that wider body of extrinsic evidence to aid the process of cdnstruction: " ( i) is .the agreement a binding . agreement for only 25 years, or is it a bi!lding agreement for 25 years and such longer time as a notice given under Article 2.2 may stipulate? 0 -- 43 of 86 -- () 41 (ii) is the agreement a binding agreement to supply beyond 25 years bauxite at such grade and price as may be agreed, or in default of agreement as the arbitrators may determine having· regard to Schedule A, or is it a binding agreement to supply bauxite for only 25 years? (iii) does the arbitration clause apply to a failureto negotiate a new agreement, to operate after the first agreement has concluded? (iv) (v) does the arbitration clause give the arbitrators a right to construct a new agreement, in relation to price, grade and period and terms of supply of bauxite, tooperate after the first agreement has concluded? is a failure to dispute, question under Article 25?" agree under Article 2.2 a or difference of opinion Those questions are the ultimate questions the court must answer in determining the proper construction of the agreement. Comalco does not suggest that particular, critical· words or phrases are ambiguous or susceptible of m9re than one meaning. The admission of extrinsic evidence could obviously not be justified merely to assist in answering what may b~ difficult questions of construction. Such questions are not to be equated with ambiguities. Otherwise, in the face of suggested difficulty of construction, if not true ambiguity, extrinsic evidence would always be admissible. In Codelfa, Mason J. said that evid.ence of surrounding circumstances was not admissible "to contradict the language of the contract where it has a plainmeaning" (p. 352). In my opinion, the words used in this agreement are unambiguous. The language is not, in terms of what Gibbs J. said in Australian Broadcasting Commission v. Australian Performing Right Association Ltd (1973) 129 C.L.R. 99, 109, "open to two -- 44 of 86 -- 42 constructions". What is possible here, and therefore necessary, is to adopt what Stephen J. described· in the same case ( p. 11 5) , as "an uncritical rendering of the meaning of the text". My view is that the true meaning of the bauxite supply agreement may be determined from the agreement itself, without one's having recourse to extrinsic evidence; and that that being so, that extrinsic evidence going beyond the limited "matrix of fact" category is simply inadmissible to aid the 0 process of .construction. I should record that Kaiser and Howrnet included, as part 0 of that "matrix", the related agreements, the Participants Agreement, the Initial Tolling Contract, and the Expansion Agreement. There is strong reason for thinking. that these, and the Bauxite Supply agreements, "should be viewed as one comprehensive and coherent arrangement" . The point is validly taken, but it is simply not part of. the background to () which I have needed to have recourse in construing the bauxite supply agreement. It is however accurate to say that the agreements, vi~wed together, constitute the framework of a commercial association which, as Howmet submitted, "was not intended to terminate after 25 years, but was clearly intended to be capable of operating well.beyond 25 years, particularly in the event of the Gladstone Plant being expanded." The extrinsic evidence: findings of fact on "surrounding circumstances" pleaded by Comalco Because of the way the case was . conducted., I will nevertheless indicate my findings on the evidence led with () -- 45 of 86 -- () 43 relation to the surrounding circumstances pleaded by Comalco. The pleadings against the defendants were in the s·ame terms: "The provisions of the amended BSA are to be construed in the light of the surrounding circumstances prevailing at the time of the making of the original agreement, namely: (a) the extent, location and grades of the reserves of bauxite available for sale after the termination of the amended agreement ('new bauxite') were unknown; (b) the difficulties which would be encountered in mining new bauxite after the termination of the amended agreement were unknown; (c) the costs of mining new bauxite were unknown; (d) the quantity of new bauxite which wduld be required by (the purchaser) was unknown; (e) the rate of extraction of new bauxite required by (the purchaser) was unknown; (f) the general levels of wholesale prices andwages in Australia which would prevail after the termination of the amended agreement wereunknown; (g) the factors relevant to the fairness· of the price of new bauxite were unknown." (a) Bauxite reserves By the time of the execution of the bauxite supply agreements, Comalco knew that it had reserves of bauxite available at Weipa from which it would be able to supply well beyond the 25 year terms of those agreements. The.purchasers shared that view. As to Comalco's own knowledge, the contemporaneous reports and other documents are compelling: ex. 15, June, 1961, a report describing the reserves as "probably the largest single world deposit of economic grade bauxite"(p. 1), -- 46 of 86 -- 44 and a statement that "close drilling of 73 square miles" had "proved more than 500 million tons of economic grade bauxite" (p. 21), with scout drilling elsewhere suggesting an ultimate tonnage "well in excess of 2,000 million tons"(p. 21); ex. ··17, a letter dated 19th March, 1963 from Comalco (by Mr Hibberd, its managing director) to the Minister for Mines, asserting that because of the size of the Weipa deposit, "there could be no possible question of the Queensland plant ever being short of bauxite"; ex. 13, · a note 0 from Mr Christie, referring to one sixth of the reserves as amounting to· some 200 million tons, and Comalco's having 0 "proved over 400 tons of commercially attractive bauxite"; a I Comalco' report ex. 16, dated September, 1963, speaking again of Weipa as "one of the largest single deposits of bauxite in the world 11 ( p . 8); the Comalco report ex. 11 1 dated 12th November, 1963, confirming close drilling of 73 square miles as confirming the presence of 51 8 million tons (last 0 page); ex. 3, Mr Christie's letter of 31st January, 1964 to the Minister for Mines asserting that the deposits were "a very valuable Queensland asset far beyond their immediate use in feeding the Gladstone alumina plant". There were many other documents as well. Before me, Mr Blarney gave characteristically frank evidence · that the resources would satisfy any foreseeable demand· for 50 years or more (p. 155 1. 54). Mr Christie agreed (with reference to ex. 1 7 ) that there 11 could be no possible question of the Queensland plant ever being short of bauxite"(p. ·237 1. 30), and that there was "eno"ugh bauxite, if 0 -- 47 of 86 -- 45 mined carefully and blended properly, to satisfy expansions and other purposes" ( p. 248 1. 4 5 ) . He agreed that. from November, 1963, there was ample tonnage proven for a period well in excess of 25 years (p. 283 1. 45). Mr Robinson described it as an extremely large, a huge resource (p. 424). As to Kaiser, as half-owner of Comalco it was aware of the Comalco data (para. 50 first affidavit of G. Trefethen ex. 39), and Mr Trefethen agreed, when cross-examined, that he ( believed the Weipa deposit was the largest in the world, with proved reserves of approximately 516 million tons, but probable reserves of the order of at least another billion tons ( p . 6 6 6 ) • As to Pechiney, M. Jacomet swore in his affidavit (para. 59 ex. 41) of being assured by Comalco representatives that the Weipa deposit could supply the QAL project indefinitely. He said in his oral evidence (p. 362 11. 1-15) ( ; that he believed that there were 600 million tons of proved "-.___j reserves, and (as I calculate it) some 900,000 million tons probable reserve. (_ __ ) In short, all parties believed the reserves were immense. Comalco, for its part, knew of a proved reserve of at least 516 million tons. The location and grade of that were known. Howmet has demonstrated through its submi-ssions (notwithstanding Comalco's criticism) that that reserve alone would have allowed Comalco to commit itself to supply for a considerably longer period than 25 years, but . the probable additional reserves were, they all believed, much more extensive than that. The Howmet submission, though rather -- 48 of 86 -- 46 broad, has helped me to that reference to "a considerably longer period than 25 years", which is of course also supported directly by the evidence of Mr Blarney and M. Jacomet to which I have referred. So while it is true to say that the full extent of the reserves was "unknown", as is pleaded, what was known should not have dissuaded Comalco from committing itself to supply for a period substantially in excess of 25 years. Comalco's evidence and submissions unduly focused on the extent of reserves actually proved by close drilling: I have no doubt, and find on the evidence, that all parties believed that the actual reserves were highly likely to be much more extensive than that, and ample to justify a commitment to supply well beyond 25 years. (b) Difficulties in mining after 1992 For Pechiney, M. Jacomet said in his affidavit (paras. 62, 63 ex. 41) that the parties did not in 1963 have detailed knowledge of any supposed "difficulties in mining the bauxite" or .the costs of doing so. For Kaiser, Mr Trefethen said, in para. 56 of his first affidavit (ex. 39), that in 1964 the parties "clearly did not have any detailed knowledge in 1964 . . . of post-1992 factors", including the "difficulties which would be encountered in mining bauxite" (para. 55). While there are expressions of concern within the Comalco documents about selling "very long term" (by Mr Hibberd to Mr Atherton, vol. 8 p. 203), and about the increased costs of mining awar from the central Evans Landing area, I am satisfied that in 1964, neither Comalco nor either of the 0 0- 0 -- 49 of 86 -- 47 purchasers was particularly anxious about the possible difficulties in mining after 1992, such that it would likely have affected their willingness to make a conditional commitment to supply after that period. Indeed, accepting that the 516 million ton proved reserve would have been sufficient to ensure supply for substantially longer than 25 years, Comalco's appreciation that that could be mined easily, to which I turn now, assumes great significance. The report ex. 11 dated 12th November, 1963 said (p. 1) that the ore was "loose and friable and easily mined by conventional earth-moving equipment". Mr Christie adopted that report (p. 241 11. 15-35). There is also ex. 19, also adopted by Mr Christie (p. 241 11. 38-52), describing the mining operation as "relatively simple". As to the increased cost of mining away from:the central area, Androom and Pera Head were separated from the Weipa area ~"· by rivers, but M. Jacomet knew that (p. 361 11. 16-20), and so must Comalco have known it, so that that feature could not have given rise to any "unknown" difficulty in terms of the pleading. (c) Unknown mining costs The evidence is sketchy, but one may accept that in 1964, it would be very difficult to foresee with precision likely mining costs post-1992. There was, however, no evidence of any specific factor relevant to the cost of mining after 1992 not known to Comalco in 1964, or that the purchasers were of the view in_ 1964 that Comalco had not fully costed the mining of bauxite to the extent of the proved reserves. -- 50 of 86 -- 48 (d) Unknown quantity required Under article 2. 2. of -the bauxite· supply agreement the maximum quantity of further bauxite which Comalco could be required to sell to· either purchaser is specifically identified. (e) Unknown rate of extraction Although the precise rate could not be predicted in 1964, article 12.3 of the bauxite supply agreement limits the r-' maximum quantity which Comalco could be obliged to supply in each calendar month. Knowing the maximum further quantity which could be required under article 2. 2, Comalco could in c~ 1964 have made calculations as to the maximum rate of extraction which would have been required . . ) (f) Levels of wholesale prices and wages Obviously the level of these prices and wages after 1992 could not have been known in 1964. 0 (g) Factors relevant to fairness Likewise factors relevant to fairness of price after 1992 ;~ could not have been predicted with assurance in 1964. Conclusions Comalco relied on those "surrounding circumstances" in support of a construction of the agreement which would leave the possibility of further supply after 25 years dependent solely upon further agreement, with there being no facility for determination by arbitration of matters on which the parties may- not be able to agree. If it be permissible to -- 51 of 86 -- C) 49 take account of such matters - and in my view one should not, the true construction of the agreement being clear from its own terms then they do not collectively warrant the conclusion that Comalco would have been unlikely to commit itself to supply beyond 25 years. Insofar as some of the specified matters could not have been known with precision in 1964, they are listed in cl. 1(b) of Schedule A to the agreement as matters to be taken into account in the determination of price for further bauxite required under article 2.2. The parties must be taken to have foreseen the potential relevance of those matters, and to have listed them in Schedule A as a guide for their own negotiations and then as a constraint in any arbitration. If I had been in doubt whether, on the true construction of the agreement, Comalco was committing itself to possible supply beyond 25 years, these factors would not have swayed me (_) against construing the agreement in that way. Extrinsic Evidence: draft agreements with Kaiser l) In its statement of claim against Kaiser (para. 7), Comalco included an additional extrinsic circumstance alleged to be relevant to the construction of the agreement; that is, "that the draft . . . agreements prepared by (Kaiser) and dated 20th August, 1963 and 26th August, 1963 each expressly provided for arbitration of the bauxite price in the future in the event of a failure of (Comalco) and (Kaiser) to agree on the price, and the parties agreed to omit any such provision from the original agreement". -- 52 of 86 -- 50 In my view, this evidence is inadmissible to aid the construction of the agreement, for the reasons I have already expressed. On my view of that evidence, the drafts should in any case be regarded as entirely internal Kaiser documents. Copies are exhibits to Mr McCarthy's second affidavit (ex. 45).· There is no acceptable evidence that they were ever provided to Comalco, Alcan or Pechiney. Even were the agreement ambiguous, the drafts would not therefore be () admissible to aid construction because they were not "known to both parties" (Codelfa p. 352). 0I should also record that in my view there was no evidence to establish the pleaded claim that "the parties agreed to omit any such provision from the original agreement". There is no evidence of such agreement: there is no evidence even of any discussion between the parties about the draft, let alone agreement. () Scope of agreement: implied terms I turn now to the issue of implied terms. Comalco alleges, against each defendant, that the agreement was partly implied, insofar as it provided that the agreement should continue .. for 25 years "and no further", subject only to the possibility of an agreed extension. See para. 7(a) of the statement of claim against Howmet and para. 6(a) of the statement of claim against Kaiser. In each statement of claim, Comalco alleges that such implication is necessary to give business efficacy to the agreement, and in light of the parties' common awareness of the matters also pleaded as (j -- 53 of 86 -- 51 surrounding extrinsic circumstances relevant to the construction of the agreement. I have already expressed certain findings in relation to those matters. The Pechiney "other purposes" contract Before turning to the question ·whether the conditions for implication of a term have been satisfied, I mention an additional circumstance relied on against Howmet for the implication of the term. That other circumstance is pleaded as follows: "(e) at the time they were making the original agreement, Pechiney and Comalco were alsonegotiating and making a contract in respect of the supply of bauxite required by Pechiney for use otherwise than at the QAL refinery ('other purposes bauxite'). Pechiney and Comalco agreed and entered into a contract for the supply of other purposes bauxite; in that contract they provided .for prices to be agreed in respect of the supply of other purposes bauxite after 31 December 1992 and. they stipulated a formula for fixing the price in the event that they were unable to agree; they did not include in the 1964 BSA any formula or similar provision to apply in the event that they failed to agree on price or grade." Pechiney's "other purposes" contract, made on (_j 30th September, 1964, provided for a price to the end of 1992, thereafter to be agreed or determined according to a particular arithmetical type formula (article 13). As to the only element in the formula offering scope for possible difference of view - Comalco' s cost of production per ton - there was provision for review of Comalco' s claimed cost by auditors, appointed if necessary by the President of the Institute of Chartered Accountants. That form of review, more akin to an expert determination than an arbi tral award, is -- 54 of 86 -- 52 appropriate to a situation where such a precise formula applies, . by contrast with the more generally cast set of considerations in Schedule A to the bauxite supply agreements in relation to which arbitration might be considered more appropriate. Pechiney's other purposes contract was for a purpose different from the purpose of the Gladstone contracts. It is difficult to see why its particular configuration should assume significance to the determination of _the scope of the bauxite supply agreement, even· though the two contracts were broadly related. But the other purposes contract should in any event be Q seen as a case in which the parties adopted a different formula, and a consequently different dispute resolution mechanism. The two agreements, although entered into relativ~ly cqntemporaneously, being separated only by some six weeks, are distinct contracts in which the parties dealt with a similar problem in different ways: each, it should be noted j however, proyided a mechanism for the resolution· . of outstanding issues .in the event that the parties could not :0 agree. Whether conditions for implication of term satisfied The exacting criteria for the implication of terms were set out in B.P. Refinery (Western Port) Pty Ltd v. Hastings Shire Cduncil (1977) 52 A.L.J.R. 20, 26: "Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought _fit to express. In their view, for a term to be implied, the following conditions (which may -- 55 of 86 -- () 53 overlap) must be satisfied: ( 1) It must be reasonable and equitable; ( 2) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) It must be so obvious that, 'it goes without saying' ; ( 4) It must be capable of clear expression; ( 5) It must not contradict any express term of the contract." That test has been adopted in Codelfa, p. 347, Secured Income Real Estate (Australia) Ltd v. St. Martins Investments Pty Ltd (1979) 144 C.L.R. 596, 605 and other cases. As to those conditions, Comalco has not in my view established that such a limitation would be reasonable and equitable, or that it would be necessary to give business () efficacy to the contract, or so obvious that it "goes without saying", or not contradictory of express terms. There is no particular evidence from which I would conclude that it would be reasonable and equitable to exclude any obligation on Comalco to supply after 25 years. On the () other hand, I would be at least concerned that such an implication would work unfairly to Howrnet and Kaiser, bearing in mind the long term nature of the project, their commitment (_) to the Gladstone plant, and the underlying assumption that the bauxite for Gladstone would come from Weipa. It is plainly not necessary to make the implication to give the contract "business efficacy": the contract is effective without it, obliging Comalco to supply beyond 25 years on terms to be agreed or if necessary arbitrated. The need for such a limitation is certainly not so obvious that it "goes without saying". Finally, the implication of such a limitation would on my interpretation contradict the express terms of the -- 56 of 86 -- 54. contract, article 2.2 obliging Comalco to supply after 25 years if required to do ~o. For these reasons, Comq.lco has not established a basis for the implication of the limitation for which it contended. Before turning to the. allegedly oral terms, it is convenient for me to deal with two other contentions advanced by ~omalco, first, that in making their amended agreements, the parties 11 did not intend to enter into legal relations in respect of the period afte.r the termination of the amended 0 agreement 11 (para. 9 (a) statement of claim against Howmet, para. 8(a) statement of claim against Kaiser); and second, that the amended agreements are uncertain, and therefore impose no obligation on Comalco to supply after 25 years, the uncertainties relating to grade, price, period of supply and other terms (para. 13 statement of claim against Howmet, para. 12 statement of claim against Kaiser). Intention to enter into legal relations after 25 years It is· well settled that, by contrast with social and domestic arrangements, parties · to a written commercial agreement are presumed to intend to be bound by it in a legal sense: Rose and Frank Co. v. J. R. Cromptdn Bras. Ltd ( 1925) A.C. 445, Edwards v. Skyways Ltd (1964) 1 W.L.R. 349, 355, Bangue Brussels Lambert S.A. v. Australian National Industries Ltd (1989) 21 N.S.W.L.R. 502, 521. There is no doubt that the bauxite supply agreements are binding legal agreements. No one has suggested otherwise. That question, if live, would have fallen to be determined objectively:" Gissing v. Gissing (1971) A.C. 886, 906. Here 0 0 0 -- 57 of 86 -- (~) ! 55 there would be the presumption arising from the execution of the written document, and as well, the parties' having acted on the agreement for 25 years. But as I have said, the issue is not i'live". These are clearly binding legal agreements, so that the parties are taken to have intended to contract in their terms. One therefore proceeds on the basis that the parties intended to be bound by whatever those agreements, on their true construction, provide. Comalco confuses the question of the construction of an admitted contract, with the question whether a binding contract arose. As submitted by Howmet, Comalco seeks "to break up a written agreement into its several provisions,· and, whilst acknowledging (at least impliedly) that some of those provisions were intended by the parties to be binding, to contend that other provisions were not so intended". There is no justification for that approach. If one construes article 2. 2 as imposing on Comalco an obligation to sell bauxite if required after 25 years, then Comalco should not .be permitted to lead evidence in an attempt to prove that it did not intend to be bound by those terms. That is consistent with Air Great Lakes Pty Ltd v. K.S. Easter Pty Ltd (1985) 2 N.S.W.L.R. 309, where the issue was the preliminary question whether or not there was a concluded contract, not its construction. Comalco also relied on Kleinwort Benson Ltd v. Malaysia Mining Corporation Berhad (1989) 1 W.L.R. 379 as supporting the view that a court might look to negotiations tq.determine "whether a particular term of an admittedly contractual -- 58 of 86 -- 56 document was intended to take effect as a contractual promise". There was however no admission that the subject provision of the "letter of comfort" in that case was of contractual effect. Kleinwort is expressly limited to the situation, common with· "letters of comfort", where the words used are not promissory. Where, as here, the words used are promissory, the· Edward v. Skyways approach applies, there being in commercial cases a prima facie presumption of intention to create legal relations. In an endeavour to dispel the presumption of intention arising from the executed written agreement itself, Comalco Q referred as well to the contrast between these agreements and the Pechiney "other purposes" contract and the Kaiser drafts of 20th ··and 26th August, 1963, the Oakland discussions in Septembe_r and October, 1963, the pleaded "surrounding circumstanc~s••, and evidence of the subjective intent of the parties, especially Kaiser • s failure to respond to the 0 assertion of non-arbitrability in Melbourne in March, 1964 (a matter to which I return in detail with respect to the alleged oral terJns ) . In my view it would not be proper to have 0 recourse to any of that evidence for the reasons I have already expressed. This allegation was not made out. Uncertainty The bauxite supply agreements would be void for uncertainty only if price and grade and period of supply could not be the subject of arbitration failing . agreement between the parties. For reasons already expressed, those matters may -- 59 of 86 -- 57 be arbitrated in the absence of agreement. The agreements should therefore not be condemned as uncertain. I add a reference to what Lord Wilberforce said in Cudgen Rutile (No. 2) Pty Ltd v. Chalk (1975) A.C. 520, 536, to the effect that in modern times courts are "readier" to find enforceable obligations, "even though apparent certainty may be lacking as regards some terms such as the price, provided that some means or standard by which that term can be fixed r; can be found". ( \ _) Oral terms I set out Cornalco' s pleading against Howrnet with respect to oral terms: " it was constituted by conversations between representatives of Pechiney and Cornalco during 1963. The conversations took place in Oakland, California U.S.A. during the period 23 September 1963 to 5 October 1963. The parties to the conversations were Messrs. R.C. Atherton, P.W. Robinson, D.J. Hibberd, S. Christie, T.R. Blarney and J.M. Rodd (representing Cornalco) and Messrs. A. Jacornet, M. Veyrier and M. Gaudin (representing Pechiney). The material substance of the conversations was that: (a) the Cornalco representatives said that Cornalco was prepared to accept an obligation to sell bauxite to Pechiney for use at the proposed alumina refinery at Gladstone, Queensland ("the QAL refinery") for a maximum period of 25 years; (b) the Cornalco representatives said that · Cornalco could not and would not commit as to the bauxite price beyond 25 years and that the bauxite price thereafter would have to be settled at the time; (c) the Comalco representatives said that Comalco could and would only cornrni t as to price and grade for 25 years for bauxite for use at the QAL refinery and that after 25 years, the price arid grade would have to be reopened for negotiation". -- 60 of 86 -- 58 The amended bauxite supply ~greement is alleged to provide, partly by way of. oral term, that it continue for 25 years "and. no further" (that . also being a matter for alleged implication). The case, plead,ed against Kaiser is similar. . In respect of the Oakland meetings, Kaiser was allegedly represented by Messrs Trefethen, MpCarthy, Hobbs, Fratus and Sproul, and the pleaded substance of the conversations is the same as for Howmet. The case pleaded against Kaiser does however contain (J this important addition: there were conversations in Melbourne from 23rd to 26th March, 1964, between Messrs Blarney and Christie representing Comalco, and Messrs Woodman and Price representing Kaiser, at which: "the Comalco representatives said that Comalco had always said that twenty-five (25) years was the longest ·period for which they · could commit on grade and price, that this had been agreed at the Oakland meetings in September and October 1963, and that arbitration on these matters, more especially grade,could not be accepted." · There are two significant background matters to which I should refer at the outset. Entire contract The first is that during negotiations, all parties were proceeding on the. basis that formal written contracts would be produced, that they would embody all of the agreed terms, and that the parties would not until then be bound. Mr Blarney said that he set out to draft a complete agreement ( p. 142 1. 58); everything that was to govern the relationship between the parties was set out in the written documents ( p. 143 1.. 8) ; . he intended . to draw up a complete . 0 0 () -- 61 of 86 -- ( ~\ / CJ 59 contract as far as the supply of bauxite was concerned (p. 144 1. 23); and the parties proceeded on the basis that, in the end, there had to be an entire legal agreement in writing (p. 153 1. 5). Mr McCarthy, of Kaiser, said ·that they "took care in drafting the contracts to fully and accurately record the entire agreement" (para. 18.5 first affidavit ex. 40). I accept all of that evidence. Parole evidence rule The second of these matters is the parole evidence rule. The weight to be given to the "conclusivity" of the written agreement obviously depends on its terms and ap~arent completeness: cf. Nemeth v. Bayswater Road Pty Ltd ( 1988) 2 Qd.R. 406, 414; Hoyts Pty Ltd v. Spencer (1919) 27 C.L.R. 133, 143. The bauxite supply agreement does appear to be comprehensive and complete. In addition, Comalco relies, for its oral addition, on matters said during negotiations, in the ( case of Oakland ten months before the execution of the \.__/ agreement, and in the case of Melbourne four and a half months before - the time gap is therefore not insubstantial; all parties negotiated on the basis that they were not bound unless and until they signed a written agreement; Mr Blarney attempted to incorporate into the written agreement-everything which had been agreed (p. 143 11. 3-10), and believed he had succeeded in doing that (p. _144 11. 10-30). Further, the bauxite supply agreement is obviously a complex document. It forms part of an intricate and interdependent arrangement with -- 62 of 86 -- 60 other Gladstone contracts. The agreement was to govern the parties' relationship for many complex technical and commercial years, . and involved many matters. As a · commercial document, the agreement appears comprehensively to cover ·those matters. · It seems · unlikely that the parties would have omitted an important feature. Their. financiers . would have expected the lot to be written down and signed (affidavit of Mr McCarthy ex. 40 para. 18.8). In light of all those matters, taken together, the presumption of completeness of this written agreement would seem to be strong. Notwithstanding these matters, carefully to the evidence of what however, one should look occurred at Oak land and Melbourne to determine whether there was an orally agreed term as alleged. Oakland meetings Comalco pleads an oral term, and for that relies on the substance of the conversations in Oakland. What is pleaded is limited to assertions by the Comalco representatives: that Comalco would supply bauxite for the Gladstone refinery for a maximum of 25 years; that Comalco would not commit as to price beyond 25 years and· that price thereafter would have to be settled at the time; and that after 25 years, price and grade would have to be reopened for negotiation. Comalco does not plead the precise means by which · those assertions took on contractual status~ The case against the· respective defendants is somewhat different, arid I will therefore consider each separately. 0 0 0 0 -- 63 of 86 -- '· 61 1. Howmet Comalco' s position against Howmet, as most recently set down in submissions before me (para. 190 Comalco's submission}, ·is that "the issue of whether Comalco would be committed to supply after 25 years was resolved at Oakland in September, October, 1963 and was never sought ·to be reopened by Pechiney". The most reliable information about what occurred at the Oakland meetings is set out in Mr Blarney's notes, exs. TB2 and TB3 to his affidavit ex. 1. While Mr Blarney conceded that () they were necessarily incomplete, and contained some "editorial comment", no witness suggested that the notes.were inaccurate, and I was impressed by Mr Trefethen' s acceptance of Mr Blarney as a good reporter (p. 901}. Pechiney was first represented at a meeting on 30th September, 1963. Looking at ex. TB3 to Mr Blarney's () affidavit as from that meeting, one sees some evidence going ( . \.___j to the assertions pleaded by Comalco. At p. 3, for example, Mr Trefethen is recorded as saying "that Comalco was only in a position to offer a firm arrangement on bauxite for 25 years"; and on p. 4, that Comalco "could only commit as to price and grade for 25 years and that after 25 years, the price and grade would have to be reopened for negotiation". Apart from that, there are other indications that at this stage, the parties were contemplating a relationship longer than for 2 5 years . At p. 1 4, for example, Mr Hibberd of Comalco is recorded as explaining that "Comalco was willing to supply bauxite . for Gladstone indefinitely" (my underlining), \ -- 64 of 86 -- 62 although price and grade could be fixed for only 25 years. At p. 1 6, there is reference to Pechiney' s wanting "some assurance as to the. method of fixing bauxite grade after the 25th year in the event of expansion", and .that Comalco was to prepare a response on that matter. At p. 20, Mr Trefethen is recorded as suggesting to Pechiney that price after 25 years would be negotiated, and if not agreed, fixed on a certain basis. There is no basis for concluding that at these meetings it was ·"resolved" between Comalco and Pechiney that Comalco would not. be committed to supply beyond 25 years. Those notes, the best evidence of what occurred, do not support such a conclusion. Plainly the parties were merely in a state of negotiation. If anything, ~hey were contemplating the possibility of supply beyond 25 years, with Comalco however emphasising that.price and grade applicable at that time could not be. fixed in 1963. There was certainly no express suggestion that price and grade after 25 years would not be arbitrable (compare transcript pp. 151, 166, 167). Further, as Comalco appreciated, M. Jacomet was not in a position to bind Pechiney, even tentatively. The Oakland conversations provide no basis for a conclusion that an oral term (whether limiting supply, or excluding arbitration) was then agreed between Comalco and Pechiney, or then "resolved" between them even in a tentative way, to be held in some state of "suspension" thereaft·er pending incorporation into the otherwise written agreement executed in.August, 1964. -----· --- ,. 0 0 0 -- 65 of 86 -- ( (__) I ' \ __ j 63 2. Kaiser Comalco formulated its case against Kaiser in this way (para. 191 submission): "Comalco made its position clear and Kaiser did not return to the issue." What I have said already applies largely to Kaiser as well. To recapitulate, there was nothing in the Oakland discussions which limited Comalco' s obligation to supply to 25 years. Comalco was clearly making the point that price and grade could be fixed only for that ·period. But it did not disavow arbitration in respect of those aspects thereafter, and in terms, contemplated supply "indefinitely" and the "renegotiation" of those features after the first fixed period. The parties were merely negotiating. Further, on the basis of the evidence of Mr Blarney and Mr McCarthy, I find that the focus of the discussions at Oakland was on Pechiney and Alcan, not Kaiser (compare transcript p. 529 Mr McCarthy; p. 192 Mr Blarney). Mr Blarney said that he thought that the question of the Kaiser agreement had been "put on ice" ( p. 192 1. 20) until contracts were settled with Pechiney and Alcan. That is not to say that Kaiser's interests did not arise at the Oakland meetings. But their being rather in the background renders the suggestion of a resolution on these points even more shadowy. Significantly, p. 28 df Mr Blarney's notes TB3 records Mr McCarthy as saying that "it was fully understood that nothing done with Alcan and Pechiney in any way decided anything as between Comalco and KA". -- 66 of 86 -- 64 Returning to Comalco' s formulation against Kaiser, the only "position" which Comalco made clear, as I view the evidence, is that it was not prepared, in 1963, to commit to price and grade after 25 years. It did in fact contemplate supply beyond that ·period, as Mr Hibberd' s use ·of the word "indefinitely" indicates, other matters apart. There is no basis for a conclusion against Kaiser that it then reached a position of consensus with Comalco excluding an obligation to supply after, 2S years, or even some tentative form of agreement which _was "carried through" in some way to become part of the agreement executed in August, 1964. Neither is there any basis for concluding against Kaiser that there was then any sort of .agreement, even tentative, to exclude arbitration after 25 years. Melbourne meeting As will be recalled, Comalco made an additional allegation against Kaiser, as part of the basis for the oral term, based on the Melbourne meetings from 23rd to 26th March, (~- .) \_ ___ / CJ 0 1964 between Messrs Blarney and Christie for Comalco, and ~ Messrs Price and Woodman for Kaiser. Neither of Kaiser's representatives had authority to negotiate on its behalf (p. 198 1. 36, Mr McCarthy's first affidavit ex. 40 para. 13, second affidavit ex. 45 para. 8; p. 489; Mr Trefethen's first affidavit ex. 39 para. 35). As to Comalco' s representatives, Mr Christie was an operations man, and not one· of the policy makers. (p. 278 1. 30), and Mr Blarney had no power to negotiate ( p. 137 1. 25) . Mr Blarney's notes·, ex. TB6 to ex. 2 ( p. 1 ) suggest that the ·---·· ___ ..... __ _ -- 67 of 86 -- >' /-,_ (_) ( ) _/ 65 parties were concerned with refining different draft contracts. Remaining with those notes, one sees on p. 2 under "Term" the statement: "As agreed in Oakland, the initial period was fixed at 25 years". It could not fairly be said that such agreement was reached at Oakland, and that statement should be read as no more than a "shorthand" account of what was then tentatively contemplated. The note continues: "The K.A.C.C. draft of ·20 March provided for extensions of five or ten years, at the participants' option, with grade and price to be agreed or failing agreement to be determined by arbitration. The Comalco representatives said that Comalco had always said that twenty five years was the longest period for which they could commit on grade and price, and that arbitration on thesematters, more especially on grade, could not be accepted. This had been made clear in Oakland and in Comalco's view had been accepted." It is not correct to say that in Oakland it was "made clear" that arbitration on price and grade after 25 years was not to be available. As I have said already, that was not even suggested. Certainly, in addition, such a position (that is, that arbitration would not be available) was not then accepted by the other parties, and they gave no indication from which Comalco could reasonably have inferred that they were accepting such a position. In a memorandum dated 30th March, 1964 to Mr McCarthy, Mr Price, referring to the meeting, said of the Comalco draft: "Their agreement provides that in the event of an expansion or a continuation past 25 years, the parties will negotiate the price and grade. We would like to provide that · if the parties cannot agree, this will be a matter for arbitration. They resisted this strongly ..• In any event, Blarney and Christie refused to compromise this point and I do -- 68 of 86 -- 66 not think they . had authority to do so even had they felt it would be desirable.•• Mr Blarney 1 s notes continued, after the passage earlier extracted: 11 Neither of the K.A.C.C. representatives had been _present at any· of the Oakland talks, nor had they seen the notes prepared of those talks and, the:r:efore, wished to refer back to McCarthy. They said that their understanding had been that the bauxite cont:r:acts should be on all fours with the expansion agreement which now had a thirty five year limit. 11 These points should then ·be made. At Melbourne, the Comalco representatives wrongly asserted that it had been agreed at\Oakland that arbitration after 25 years would not be available. For reasons already advanced, that was simply not the _case. The Kaiser representatives who received that assertion had no authority to negotiate on Kaiser 1 s behalf. They said nothing then to the effect that they agreed with that .representation of the position emerg;ing from Oakland (p. 198 :,... 55). They wished to refer back to Mr McCarthy. Mr Price in fact did that, and it seems likely that Mr McCarthy then told Mr Trefethen of the thrust of Mr Price's memorandum (p. 908 1. 23 top. 909 1. 3; p. 919 1. 18). I accept the evidence of Mr Trefethen that he telephoned Sir Val Duncan and that they agreed 11 that a difference of opinion on price and grade 11 (p. 907 1. 7) would be subject to arbitration, in relation to supply after 1992, 11 along with anything·else we had disagreed on" (p. 925 1. 16). His oral evidence on this matter begins at p. 905 and runs for many pages. There is also para. 45 of his first affidavit (ex. 39). ·There was extensive challenge to the credibility of ' , 0 0 () -- 69 of 86 -- '· ( i ~- 67 much of that evidence from Mr Trefethen, especially his claim to have spoken to Sir Val Duncan on the matter after the Melbourne meetings . He claimed a good recollection of the relevant conversations. I considered Mr Trefethen to be a particularly credible witness. I carefully observed him, during sustained cross-examination about his contact wifh ~ir Val Duncan on this point and in relation to other matters. I accept his evidence as credible and reliable. In assessing his oral evidence I have been extremely conscious that his evidence of these conversations was ·not supported by references in ·the written material. Comalco described the recollection, almost 30 years old, as inherently unreliable~ The recollection may however have bee~ revived or refreshed somewhat by Mr Trefethen's review of documents dealing with closely related issues. Comalco also suggested that his memory was in some cases shown to be faulty, and described him as 11 a Kaiser inan through and through 11 • During cross-examination, he was subjected to an allegation of recent invention. Against that background, I have obviously been careful in my assessment of his evidence, but have reached the firm view that I should accept it. There is evidence that about this time, there were firm expressions of view within Comalco against making arbitration available in relation to supply after 25 years (cf. Mr Hibberd's letter to Mr Atherton of 6th April, 1964 vol. 14 p. 172 and Mr Atherton's response of 13th April, 1964 vol. 14 p. 241). Those observations amount, however, at most, to -- 70 of 86 -- 68 expressions of personal view within Comalco. There is no evidence of the communication of _those views to . the other parties in those terms. Such evidence is in my view inadmissible in the attempt to prove the oral terms. Evidence directed to that, to be admissible, must go to. the objective expression of the parties' intentions, not "in house" views such as these . . Comalco has contended as. follows, with respect to this claimed agreement to exclude arbitration in relation to supply c=) after 2.5 years: "(a) the relevant term was agreed at Oakland in 'September-October 1964; (b)· ·Kaiser did not seek to re-open the matter until Messrs. Price and Woodman sought to do so in Melbourne in March 1964; ' (c)' at that time, Comalco refused to alter its position from that which had been agreed in Oakland; · · (d) that position remained unchanged; (e) Kaiser knew, when it. executed the BSA in August1964, that it was Comalco' s express intention not to be committed as to price and grade beyond. 1992, and not to be bound to supply at a grade ·and price to be arbitrated." (a) is not made out. As to (b), Messrs Price and Woodman apparently raised the question of arbitration in response to the Co~alco draft, not in any belief that that question had previously been agreed upon adversely to Kaise~ so that in the interests of their company it should be reopened. (e) finds no evidentiary support. Comalco made submissions on the basis of Jones v. Dunkel (1959) 10~ C.L.R. 298, 312 as to Kaiser's f~ilure to call, as a witness, Mr Price, who on the evidence lives in the San 0 0 0 -- 71 of 86 -- '' 69 Francisco area. Where the substance of the Melbourne meetings is reflected in the documentary material, then, even though other participants were called as witnesses, it is difficult to know what Mr Price could have added, and I am not prepared to infer, from his not having been called, that he would not· have helped Kaiser's case. Cornalco's contention has been that Kaiser should be taken to have agreed to the exclusion of arbitration of price and grade, asserted in Melbourne, because Kaiser signed the bauxite supply agreement without reverting to Cornalco to ) challenge what Messrs Christie and Blarney had said in that regard. On the evidence I accept, Mr Trefethen did challenge that assertion, in his conversations with Sir Val 'nuncan, who confirmed for his part that arbitration would be available (consistently, on my construction, with the agree~ent later executed). Cornalco asserts, however, that Sir Val Duncan' s (J knowledge that Kaiser did not accept that assertion in Melbourne, should not be attributed to Cornalco. ( ) Sir Val Duncan was then a director of Cornalco (vol. 1 8 '.c_/ p. 156). I accept Mr Trefethen's evidence that he and Sir Val Duncan, as representatives of the joint owners of Cornalco, effectively exercised ultimate joint authority over it, making decisions and speaking on its behalf (para. 14 Mr Trefethen's first affidavit ex. 39). There is a~ple evidence that Sir Val Duncan together with Mr Trefethen gave directions to Mr Hibberd, the managing director of Cornalco, and other Cornalco employees and that on behalf of Cornalco, Sir Val Duncan nego"tiated the terms of supply of bauxite to Kaiser -- 72 of 86 -- 70 (p. 447). ·.The evidence of ·Mr Trefethen indicated that when he spoke to Sir Val Duncan about this particular question, he (Mr Trefethen) plainly considered that he was speaking to Sir Val in his (Sir Val' s) capacity as representing Comalco. See, for example, p. 923 1. 15, p. 925 11. 18-25, p. 926 11. 7-12, p. 942 1. 14. On my view of the evidence, Sir Val Duncan was the person who naturally represented Comalco in any relevant inquiry made by Mr Trefethen on behalf of Kaiser, as to the terms of supply by Comalco to Kaiser. At the least, Sir Val Duncan received the relevant knowledge (that Kaiser did not accept the Melbourne assertion about non-arbi trabili ty) in his dual capacity as a director of RTZ and of Comalco, and his knowledge in the latter. capacity should be imputed to Comalco: it was Sir Val Duncan's responsibility to take up the matter then with Mr Hibberd in Melbourne (p~ 942 1. 14). Conclusion· The facts alleged by Comalco as founding its claim to oral terms are not established. I refer again to my initial observation· on the intention that the written record exhaustively state the parties' agreement, and as to the parole evidence rule. In circumstances like these, it is obviously difficult to sustain a claim to add an oral term to such a comprehensive written agreement, which would prima facie be thought to· have superseded all previous oral arra~gements: cf. Day Ford Pty Ltd v. Sciacca (1990) 2 Qd.R. 209, 214. . ' 0 0 0 -- 73 of 86 -- ·' 71 The evidence led for Comalco established no consensus on the relevant matters. Comalco representatives made assertions, but even if the response be regarded as one of silence, that did not elevate those assertions during • negotiations to contractual status, where they were followed by the execution of a comprehensive written instrument. In any case, as I have pointed out, the response was not one of silence. At Oakland, Pechiney and Kaiser responded by (~) indicating their own particular negotiating positions; following Melbourne, Kaiser through Mr Trefethen responded to C:J the Christie/Blamey assertion in h~s conversations with Sir Val Duncan, whose knowledge of that challenge should be imputed to Comalco. Further, it is very important to acknowledge that all parties proceeded in the expectation that formal written agreements would be executed, that they would set out the () agreements exhaustively, and that the parties would not be bound until execution. Agreements apparently fitting that description were executed. Comalco has not established to my ( ) ~/ satisfaction on the balance of probabilities that thoie agreements should be augmented with either orally agreed or implied additional provisions. (I will add what is no doubt obvious and accepted. In what I have said above about Oakland and Melbourne, I have referred only to a very small part of the enormous · bulk of oral and documentary evidence put before me. I have nevertheless endeavoured to consider the evidence more widely, especially that referred to in the written submissions.) -- 74 of 86 -- 72 The Codelfa exception Comalco .submitted that certain of the evidence of negotiations was relevant in light of the exception to the admission of evidence of actual intention, formulated by Mason J. in Codelfa (pp. 352-3) in these terms: "There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper toreceive, evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point ofplacing on the words of the contract a meaning which ~he parties have united in rejecting? It is ·possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances. See Heimann v. TheCommonwealth (1938)· 38 · ·s.R. (N.S.W.) 691, at p. 695. 11 As I understand the contention, it is that if the agreement appears to contemp~ate arbitration of price and ,. ·' 0 0 grade after 25 years, then that construction should be rejected, because during the negotiations the parties "united 0 in rejecting" that as a possible position between them. The short answer is that regardless of how far this exception may in law apply,. there is in this case no evidence which I accept that the parties relevc:ntly concurred or united in anything beyond the execution of the bauxite supply agreement in its final form. With respect to the Oakland meetings, for example, Comalco' s representatives did not even assert that arbitration·. would not be available after 25 years, quite apart -- 75 of 86 -- ,' .) ) 73 from the question of any consensus on that position. All that happened was that Comalco raised certain possibilities, which did not find their way into the ultimate agreement. That agreement is the only true expression of the extent of concurrence between the parties. Comalco did however rely in this aspect on a progression of draft agreements and related documents. They were drafts of Pechiney' s "other purposes" contract dated 28th September, 1963, 3rd October, 1963 and 4th October, 1963; a document dated 3rd October, 1963 styled "Summary of Proposed Contract for Supply of Bauxite for QAL Plant"; a revised . agenda of 1st October, 1963; and draft agreements variously dated 20th August, 1963, 26th August, 1963, 4th September, 1963, 7th January, 1964, 6th April, 1964, 17th April, 1964, 27th May, 1964 and 8th June, 1964. Comalco submitted that a review of those drafts established "that the parties expressly refused to include a provision, proposed by Kaiser, to the effect that there would be arbitration as to grade and price in the event of a failure to agree upon a new agreement". L) The drafts do not establish that suggested position. In some cases, there is no evidence that the draft was even communicated to any other party (for example, drafts of 20th August, 1963, 26th August, 1963 and 4th September, 1963), or as to the authorship of the draft (4th September, 1963). It is not clear precisely how Comalco seeks to establish its proposition. In the case of the drafts where separate provision for arbitration of price and grade was made (20th August, 26th August, 4th September), there is no -- 76 of 86 -- ;::: 74 evidence that the drafts were considered by any other party. On one view, all that occurred through those documents was that an arbitration provision originally divided into two sub-provisions, one dealing with. price and grade and the other dealing with other disputes, became merged into one broader arbitration provision. Reference to these drafts does not establish any factual basis for application of the so-called Codelfa exception, either with ·respect to the implication of terms or as an aid to the construction ·of the agreement. Indeed, there is no basis in my view on which these draft agreements are admissible in evidence. Also, as put rhetorically in the Kaiser submission, "why would parties bother to sign a final BSA if, when ft comes to deciding what it means, resort is to be made to ·the minutiae of their dealings, including extracting what are perceived to be helpful parts of various drafts which passed between them (and even to some which did not pass between them at all)?" Comalco relied on The "Karen Oltmann" ( 1976) 2 Ll.Rep. ,, u 0 708 and other cases as entitling the court to receive () extrinsic evidence to aid · construction if demonstrated that "the parties have negotiated ·on the agreed basis that the words bear· only one of two possible meanings". I need not analyse these cases ·here. It suffices ·for me to say that there is no evidence from which I conclude that the parties joined, in their negotiation, to exclude arbitration after 25 years, or exclude an obligation in Comalco to supply after 25 years if·required to do so. -- 77 of 86 -- ') 0 (_) 75 Other extrinsic circumstances The evidence raised a number of other extrinsic circumstances upon which the parties relied in various ways. I deal with those matters now. The collection is diverse, but it is convenient for me to deal with them in this way rather than with reference to particular topics. Kaiser's other purposes contract Kaiser 1 s other purposes contract is letter dated 21st September, 1964, ex. in 55. the ,It form of ·a does not contain an arbitration clause, or other mechanism for dealing with any failure to agree on price . after 25 years. Comalco relied on its proximity in time to the Kaiser bauxite, supply agreement, which was executed in August, 1964, and as illustrating that Kaiser did not regard a provision for arbitration of price and grade after· 25 years as necessary. It would be urged that this reflects on other circumstances which might arguably suggest that Kaiser did regard as important the inclusion of the provision for arbitration after 25 years. I do however accept Mr Trefethen 1 s explanation on this matter, which was, in essence, that the formulation of the bauxite supply agreements, involving many interested parties and a host of complicated prqvisions, was treated differently from the preparation of the other purposes contract between · Comalco and Kaiser. The former, he pointed out, "required tremendous financing and involved the scrutiny··· of a lot of bankers and lawyers and a lot of different participants it got into a very definitive contract, and -- 78 of 86 -- . . 76 it was obvious that we should have an arbitration clause". The other purposes contract, on the other hand, was "a simpler thing-" betwejan Kaiser and Comalco, as its letter form at once suggests. See pp. 979-982 .. Quite apart from the question of the permissibility of construing· the bauxite supply agreement with reference to the other purposes contract, I consider there is, therefore, on the evidence, ground for distinguishing the approach of the parties to the two contracts, and that one should on that 0 ground alone not be used to aid the construction of the other. "High grading" 0 There was evidence bearing on the question whether, by· ceding to an arbitrator determination of grade after 25 years, Comalco would undesirably countenance the risk that he might, •.. by his determination, compel Comalco to "high grade" the mining - providing higher quality bauxite in a short term, leaving the mine with uneconomic low grades of bauxite; by achieving an appropriate "mix" of grades, the miner, acting prudently, would ordinarily avoid that result. There was emphasis, in the cross-examination of Mr Trefethen in particuiar, on the danger involved should a miner lose that degree of ·control over his own "mine plan". Comalco asserts (para. 226 submissions) that "a major reason for Comalco 1 s opposition to.~rbitration on grade was that arbitration would take control of the mine plan away from Comalco and put it in the hands of arbitrators". .. Although Comalco pleaded quite· specifically the ~'surrounding circumstances" which it contended should be taken 0 0 -- 79 of 86 -- ) (_/ . ' 77 into account in interpreting the agreement, and with respect to the implication of terms, this was not among them.· The issue gained momentum during the cross-examination of Mr Trefethen. Kaiser and Howmet objected to the evidence as irrelevant on the pleadings. I allowed the cross-examination to continue, but now consider that it should not have, because of the absence of an appropriate pleading. Howmet makes the point that to be conceivably relevant as a surrounding circumstance, the question must have been within the contemplation of the parties during the negotiations preceding the execution of the agreement. Yet the contention was not put to M. Jacomet in cross-examination, and he was the only witness who could have given evidence as to the state of Pechiney's knowledge at that time. Because the issue was not pleaded, Pechiney was not alerted to the desirability o£ . questioning Messrs Blarney, Christie or Robinson as to whether that factor influenced them. I therefore do now accept that both Howmet and Kaiser were prejudiced because of the.way the issue was rather belatedly raised in the absence of proper pleading. But to the limited extent to which it did. emerge in the evidence, my view adopted. the issue was not established to the point where in it could operate against the construction I have What follows is of course subject to the view that one should not have resort to such circumstances anyway, the agreement not being ambiguous. Comalco did not establish that the factor influenced the negotiations in any way. It is not mentioned in Mr Blarney 1 s extensive notes. If, as Comalco -- 80 of 86 -- . . 78 claims, it was · 11 a major reason for Comalco 1 s opposition to arbitration on grade 11 , then it is obviously significant that it is not mentioned. in the affidavits or evidence in chief of Com~lco 1 s witnesses, or in the statement of claim. A sufficient answer to the perceived risk did to my mind emerge anyway through the cross-examination of Mr Trefethen. An.arbitrator could be expected to act responsibly in relation to such a matter. Although he may be a layman, he could be appropriately 11 educated 11 by expert mining engineers as to these risks (p. 836 11. 16-23), and he would be obliged by cl. 3 of Schedule A to the agreement to take into account 11 the 0 necessity for economic extraction, beneficiation and delivery, Comalco 1 s existing and· prospective commitments to supply bauxite,· and C,omalco 1 s obligation under the terms of its ••• Special Bauxite Mining Lease 11 • It is quite possible that Comalco, in the give and take of commercial negotiation, .took the view that those provisions, taken with the prospect of Q properly informing an arbitrator of the nature of the possible problem, left it sufficiently protected against this risk. Negotiating position: Coma1co and Pechiney In his affidavit (ex. 41 para. 8) M. Jacomet referred to Pechiney 1 s Gove deposits of bauxite, which he asserted had 11 given Pechiney a bargaining position in relation to Weipa bauxite 11 • Howmet 1 s case is not however that Pechiney was in a superior bargaining position to Comalco, so that, as a result, Comalco. could not effectively_ 11 dictate terms 11 • As the matter was put to ·me, Howmet is content to leave the case on the basis that 11 neither party was in .such a position of_ commercial () -- 81 of 86 -- .'t• ) 79 disadvantage that it had to accept terms dictated by the other". That is an accurate assessment. In fact, Comalco was anxious to have Kaiser and Pechiney, in order to achieve "economies of scale" through the creation of a larger plant. See the evidence of Mr · Blarney at p. 138 11. 1-30, p. 150 1. 56, Mr Christie p. 217 1. 37 to p. 218 1. 8, Mr Robinson p. 434 1. 12 to p. 435 1. 13. Pechiney was not in a strong bargaining position (cf. Mr Trefethen's evidence at p. 698), having regard to Gove, but that should be weighed against Comalco 1 s interest in having Pechiney as a participant. Absence of an "entire agreement" clause There was an implicit suggestion in some of the questioning that the weight 6f assertions that the parties set out to have an exhaustive written agreement is diminished by ) the fact that they did not include an "entire agreement" clause. Mr McCarthy agreed under cross-examination that he did not "bother" to insist on such a clause: p. 635 1. 6 to p. 636 1. 11. I do not regard that as detracting from the strength of that other body of evidence. There is no evidence that such clauses were usual in such situations in 1963 and 1964. It is also possibly significant that the parties came from a number of diverse legal systems. Evidence of subsequent conduct: the affidavit of J.D. Miller Kaiser led Mr Miller 1 s oral evidence, and ·relied on his affidavit ex. 94, as evidence of subsequent conduct of the parties, relevant to the issues whether article 2. 2 of the -- 82 of 86 -- 80 bauxite supply agreement was intended to give rise to an enforceable obligation to supply bauxite if required after 2 5 years, · and as to whether arbitration could apply. That· conduct related to three matters, the fourth expansion of the Gladstone plant, the purchase by QAL of custom designed ships to carry bauxite, and Comalco' s contention that it had the exclusive right to supply .bauxite to the Gladstone plant. Kaiser sought to draw ··this significance from the evidence, that Kaiser would not have countenanced the substanti~l extra financial commitment- flowing from those matters if not assured of an enforceable commitment by Comalco to supply if required () ·after 25 years. Kaiser relied . on this evidence, to which Comalco objected, onl_y in ·the event_ that the agreements were considered ambiguous. . . Since I have not taken that view, I need not consider the evidence, on which Comalco did not rely, any·- further. However, even had I · considered the agreement 0 ambiguous, ·so that resort could· be had to extrinsic evidence, my view of the authorities would have precluded recourse to this evidence .. of events subsequent to the agreement. 0 In two decisions, the Full Court '.has drawn the distinction between the- admission of such evidence as bearing on the question whetller or not- a contract was formed, which may be permitted, and the use of such evidence to aid in the construction of an agreement, which is prohibited. The first is Winks v. W.H. Heck & Sons Pty Ltd (1986) 1 Qd.R. 226, 233, 238, _Thomas.J. distinguishing between "proof of a term and the meaning of ·a term". The second is Australian Energy Ltd v. -- 83 of 86 -- 81 Lennard Oil N.L. (1986) 2 Qd.R. 216, 237 where Thomas J. repeated that distinction. I am bound by those decisions, which conform with the law in England ( L. Schuler A. G. v. Wickman Machine Tool Sales Ltd (1974) A.C. 235) and the more recent observations in the High Court (The Administration of Papua and New Guinea v. Daera Guba (1973) 130 C.L.R. 353, 446). As to the earlier High Court decisions, evidence · of subsequent conduct was considered in Howard Smith & Co. Ltd v. Varawa (1907) 5 C.L.R. 68, but to determine whether a contract had been agreed (p. 78). In White v. Australian and ·New -· Zealand Theatres Ltd (1943) 67 C.L.R. 266, evidence of ! ~' subsequent conduct was apparently used to aid construction. There are two relevant New South Wales Court of Appeal decisions. In Australian Broadcasting Corporation v. 14th Commonwealth Games Ltd ( 1988) 18 ·N. S. W. L. R. 5 40, evidence of subsequent events was referred to, but the issue was whether there was a concluded agreement. The question whether ·•·· such evidence might be used to aid construction arose in Hide and Skin Trading Pty Ltd v. Oceanic Meat Traders Ltd ( 1990) 20 N. S. W .L. R. 310, the majority, relying on White, holding that it could, with Kirby P. leaving the matter open, while suggesting (p. 315) that the present High Court authority appeared to be "against the use of post contract conduct in aid of the construction of a written contract". I consider that I should follow the two decisions of the Full Court, which would lead to the exclusion of the evidence. In these particular circumstances, I need not analyse the evidence of.Mr Miller any further. -- 84 of 86 -- 82 Generally In the course of these reasons, I have not expressed rulings on admissibility with respect to all of the particular pieces of evidence (oral and affidavit) where objection was taken and the question of admissibility reserved. Because of the numerous pieces of evidence which fall into that category, I have considered it would be wasteful for me to approach the matter in that way, it being sufficient that I give the broader indications which I have given in the course of this judgment. But if any party perceives that a particular ruling which I have not given should be given, because for example it (I may become important in any appeal, then I would be grateful if the parties would revert to me for that purpose. I should also record that I have obviously not in these. reasons dealt with every contention made in the submissions or raised by the evidence. I have not found it necessary to do so. Indeed, I have referred only minimally, in these reasons, c=) to the evidence including the documents. The parties may be assured, however, that I have taken all of those .. contentions in to account . If, again, however, any party feels that a () particular ruling on some other point raised before me but not mentioned here should be set down, especially with respect to any possible appeal, then the parties should revert to me. Submissions were made to me with respect to the particular issue of the credibility of the witnesses. Differences between the witnesses on particular questions did not overall assume great significance in the case. In the few instances where they have, I have indicated the evidence I -- 85 of 86 -- 83 preferred. It has not been necessary for me otherwise to indicate more specifically my views on the competing credibility of the witnesses. The case has not largely depended on the evidence of the witnesses. I will not leave the case without congratulating the parties on the efficient way in which they presented it, and Counsel on the high quality of the comprehensive and extremely useful written submissions. Judgment The appropriate result consequent upon my findings is that I should not make the declarations and injunctions sought. There were no counter-claims. In each action, therefore, there will be judgment for the defendant against the plaintiff with costs including any reserved costs to be taxed. I make that costs ruling without having heard oral submissions which take account of the judgment. That order would seem to flow naturally from the dismissal from the actions. I do however reserve liberty to the parties to make further submissions with respect to costs should they wish, acknowledging especially that the matter of reserved costs was not dealt with particularly. -- 86 of 86 --