A majority of the High Court has dismissed an appeal and allowed a cross-appeal against the decision of the Western Australian Court of Appeal relating to a supplementary gas supply contract between two joint venture participants. Following a fire and the shut down of a major gas plant in WA, Verve (the trading name of Electricity Generation Corp) entered into a short-term contract to obtain gas from Woodside Energy Ltd and others (referred to in the judgments as ‘the Sellers’) in order to meet its other contractual and statutory obligations, albeit at a much higher price than the long-term contract which Verve also had with the Sellers. The Court of Appeal held that the Sellers breached their obligation to make ‘reasonable endeavours’ to continue to supply gas, but also held that although the short-term contract was the result of economic duress, it could not be undone, and Verve could not make out a claim for unjust enrichment for economic duress.
The majority (French CJ, Hayne, Crennan and Kiefel J) held that the Sellers were not in breach. The obligation to use reasonable endeavours is not absolute or unconditional obligation, but rather is ‘necessarily conditioned by what is reasonable in the circumstances’, among them circumstances that may affect an obligee’s business. Contracts may include their own internal standard of reasonableness, which in this instance included an express entitlement for the Sellers to take into account ‘relevant commercial, economic and operational matters’. Accepting the Sellers’ construction of that clause, the majority held that the Sellers were not obliged to supply supplemental gas to Verve. Because the majority accepted the Sellers’ construction, there was no need to rule on the question of whether Verve had a right to restitution of money paid under the short term agreements. Gageler J, in dissent, would have preferred Verve’s construction of the clause, and held that the Sellers’ desire to maximise their profits by withholding gas was not relevant to determining whether they were ‘able’ to do so, as the clause required.
|High Court Judgment|| HCA 7||5 March 2014|
|Result||Appeal dismissed; cross-appeal allowed|
|High Court Documents||Woodside Energy Ltd|
|Full Court Hearing|| HCATrans 300||4 December 2013|
|Special Leave Hearing|| HCATrans 224||12 September 2013|
|Appeal from WASCA|| WASCA 36||20 February 2013|
|Trial Judgment, WASC
|| WASC 268||30 September 2011|