TODD PETROLEUM MINING CO LTD AND ANOR V NGC NZ LTD AND ANOR CA CA231/04

TODD PETROLEUM MINING CO LTD AND ANOR V NGC NZ LTD AND ANOR CA CA231/04 15 December 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA231/04BETWEEN TODD PETROLEUM MINING COMPANY LIMITED First Appellant AND NOVA GAS LIMITED Second Appellant AND NGC NEW ZEALAND LIMITED First Respondent AND SHELL (PETROLEUM MINING) COMPANY LIMITED Second Respondent Hearing: 9 December 2004 Court: Glazebrook, Randerson, Doogue JJ Counsel: J R F Fardell QC, J K Goodall and C Hall for Appellants J E Hodder and N Macfarlane for First Respondent J M Mallon for Second Respondent Judgment: 15 December 2004JUDGMENT OF THE COURT A The appeal is dismissed. B NGC is entitled to its costs. They are fixed in the sum of $4,000.00, together with NGC's reasonable disbursements which, in the event of dispute, are to be fixed by the Registrar.REASONS(Given by Doogue J)Introduction[1] Todd Petroleum Mining Co Ltd [Todd] and Nova Gas Ltd [Nova] appeal against the granting of an interlocutory injunction by the High Court at Wellington on 15 October 2004. The injunction restrains Todd from taking gas from the Kapuni Gas Field in excess of 50% of the maximum daily quantity of gas delivered from the field [MDQ]. The injunction was obtained by NGC New Zealand Ltd [NGC]. [2] Shell Petroleum Mining Company Limited [Shell] and Todd control the production from the field. It is common ground that, subject to what follows, NGC on the one hand and Shell and Todd on the other hand are each entitled to 50% of the MDQ. Part of the 50% interest of Shell and Todd goes in an untreated form to other users. The remainder of the gas from the field goes through a treatment plant operated by NGC. NGC, Shell and Todd onsell their different shares of the treated gas. A major purchaser from Todd is Nova. [3] The appeal is brought on the grounds that Justice Ronald Young in granting the injunction was wrong in that he gave undue weight to his view of the merits of the case, wrongly assessed the balance of convenience and wrongly assessed that overall justice lay with NGC. [4] NGC supports the judgment under appeal. Shell has taken no steps in the proceeding as it and NGC have reached a private accommodation.Background[5] For present purposes, it is unnecessary to go into great detail as to the background to the present proceeding and the injunction granted. The background isset out in some detail in the judgment under appeal. It is also to be found in judgments of the High Court in earlier litigation, which involved Todd, Shell and NGC and another company but not Nova. The first of those decisions is reported inShell Petroleum Mining Co Ltd v Kapuni Gas Contracts Ltd (1997) 7 TCLR 463. There is a supplementary judgment, unreported, between the same parties, CL5/94 Auckland Registry 26 May 1997 Barker J. [6] The relevant orders of the Court in the first of the 1997 judgments are as follows:21 The Kapuni Gas Contract is hereby varied under section 89(2)(a) of the Act to provide: 21.1 that, subject to paragraph 22 below, the balance of the Kapuni field from 1 April 1997 be divided equally between the plaintiffs and the defendants until such time as the field becomes uneconomic and the provisions of the Contract take over; 21.2 that contract quantities are to be determined in accordance with paragraph 8 above, with each party being entitled to an equal share of the agreed or arbitrated contract quantities; 21.3 that the defendants' share of the contract quantities be purchased from the plaintiffs under the Kapuni Gas Contract. 22 Declarations that: (a) subject to paragraph 22(b) below, each party must utilise its share of such annual quantities as are agreed or arbitrated. It would not be right to allow one party to store gas in the ground against the day when Maui gas became scarce and no acceptable alternative, such as Kupe, had come on stream; (b) plaintiffs are entitled to a period of three years from 1 April 1997, during which the plaintiffs will not be required to use all of their share of the annual quantities of gas; (c) plaintiffs are entitled to recover any of their entitlement not taken in accordance with paragraph 22(b) above during the life of the field.[7] Following the litigation in 1997 the parties to it entered into a settlement agreement dated 7 November 1997. The parties to the present litigation accept that this document controls their contractual rights. Clause 3 of that agreement provides the applicable terms for the sale and purchase of gas from the Kapuni field. The relevant provisions of that clause are as follows:3.5 For the purposes of Article V of the Kapuni Gas Contract, in respect of each Year commencing on or after 1 June 1996 during which Shared Gas is supplied: 3.5.1 the Adjusted Annual Contract Quantity ("AACQ") shall be 16 PJ; 3.5.2 the Maximum Daily Quantity ("MDQ") shall be equal to the field's deliverability from time to time; 3.5.3 Buyer shall take, or pay for if not taken, the quantity of gas set out in the schedule to this agreement. The cumulative quantity of Current Tranche Gas which must be taken or paid for if not taken shall not exceed 80 PJ. 3.6 Sellers and Buyers shall each be entitled to: 3.6.1 an equal share of the agreed AACQ set out in clause 3.5 above in each Year commencing on or after 1 April 1997 during which Shared Gas is supplied, in accordance with paragraphs 21 and 22 of the Judgment; 3.6.2 an equal share of the Shared Gas, subject to adjustment in accordance with clause 3.8.3 below. For the avoidance of doubt: (a) Gas sold and delivered to Buyer on or after 1 April 1997 and prior to 1 June 1997 shall be counted as part of Buyer's share of the Shared Gas (and shall be counted towards Buyer's cumulative take or pay obligation); and (b) Gas which was used by Sellers as fuel for the purposes of cycling Gas or transporting condensate, or supplied by Sellers to the Kiwi cogeneration plant, on or after 1 April 1997 and prior to 1 June 1997 shall be counted as part of Sellers' share of the Shared Gas. 3.7 Subject to clause 3.10, either Sellers or Buyer may take Gas in any Year in excess of their share of AACQ, provided that neither party may take in aggregate more than that party's share of the Shared Gas provided for in clause 3.6.2 (adjusted to take account of any Gas to which clause 3.8.3 applies). 3.8 If either Sellers or Buyer take less than their share of AACQ in any Year commencing on or after 1 June 1997 during which Shared Gas is supplied the following terms shall apply: 3.8.1 In the Years beginning 1 June 1997, 1 June 1998 and 1 June 1999 Sellers shall not be required to use all of their share of the AACQ. Sellers shall be entitled to take such Gas in any subsequent Year. Such Gas shall not be counted towards Sellers' share of AACQ in the Year in which it is taken, but shall be counted towards Sellers' share of the Shared Gas. 3.8.2 If Buyer has paid for but not taken such Gas in accordance with clause 3.5.3, Buyer shall be entitled to take such Gas without further payment in any subsequent Year. Such make up Gas shall not becounted towards Buyer's share of Gas in the Year in which it is taken, or towards any take or pay obligation of Buyer in that Year, but shall be counted towards Buyer's share of the Shared Gas; 3.8.3 If neither clause 3.8.1 nor clause 3.8.2 applies, the quantity of Gas not taken shall be shared equally between Sellers and Buyer on the terms applicable to Shared Gas set out in this agreement, with all necessary modifications. 3.9 Gas which is used by Sellers as fuel for the purpose of cycling Gas or transporting condensate shall be counted as part of Sellers' share of Gas referred to in clause 3.6 above. 3.10 The rate at which Gas is taken by either Sellers or Buyer shall not exceed 50% of MDQ in any Day, or 50% of the Maximum Hourly Quantity in any Hour, provided that if either party is taking Gas at a lesser rate, the other may use such surplus deliverability. 3.11 If any redetermination other than the redetermination provided for in clause 2.5 results in Original Recoverable Gas Reserves in excess of 850 PJ, the parties at the time of such redetermination will negotiate (or, failing agreement, refer to arbitration in accordance with Article XXII of the Kapuni Gas Contract) the applicable terms of sale and purchase of such excess (in particular, terms relating to quantity and price), in accordance with the Judgment.[8] What led to the present proceedings by NGC and the injunction is that Todd has been taking more than its 25% of the MDQ, being half of the 50% the Shell and Todd interests were entitled to as a result of the earlier litigation and the settlement agreement. We will discuss the merits of this later but Todd claims that it is entitled to do so under the provisions of cl 3.8.1 above. NGC says it is not by reason of cl 3.7 and cl 3.10 above. [9] Todd, in pursuing its objection to the injunction and this appeal, places reliance on the fact that prior to 1 May 2004 it and Shell had earlier taken more than 50% of the MDQ. This had happened in 2002 and 2003. NGC had complained about this but had taken no action. In 2002 the position was obscured to some extent because there was less production from the field. However, there can be no dispute that whatever Shell and Todd might have done prior to May 2004, it was in that month that Todd deliberately took more than 25% of the MDQ. That followed a split between Todd and Shell of their 50% interest from 1 May 2004. It was not until June 2004 that Todd first suggested to NGC it was entitled to more than 25% of the MDQ by virtue of its rights in respect of the stored or banked gas. NGCimmediately took issue with that and the present proceedings were commenced in August 2004. [10] A timetable has been agreed and fixed for the advancement of the early trial of the substantive issues between the parties.Judgment under appeal[11] Ronald Young J dealt with the application for the injunction in accordance with the principles spelt out by this Court in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129, 142. He looked at whether there was a serious question to be tried. Having found that there was, he looked at the balance of convenience. He then stepped back and considered where the interests of justice overall lay. [12] In assessing whether there was a serious question to be tried the Judge took the view that there was a high probability that NGC was correct in its approach to the interpretation of the settlement agreement and that Todd was in breach of the contractual relationship between the parties. [13] The Judge went on to consider the balance of convenience under the different subheadings advanced and relied upon by the parties. We traverse them briefly. [14] Both parties argued that because the other had potential alternative supplies that this was somehow relevant. The Judge regarded this as a neutral factor. [15] The second topic addressed was when did NGC know about Todd's use of more than 25% of the MDQ. We have already touched upon that. The Judge noted that in 2002-3 NGC objected to Todd and Shell together taking more than 50% saying it was outside the contractual arrangements. The Judge found that it was only in June 2004 that NGC became aware that Todd was in fact getting more than its 25% of MDQ, because NGC was then able to compare Shell's take with Todd's take. As a result, the Judge determined that there was no delay by NGC in bringing theproceedings. There was no acquiescence by NGC in anything that had been done. Todd had not told NGC it was taking gas in excess of 25%. [16] The next topic traversed by the Judge was that of new supply contracts. Todd had submitted that as NGC had continued to negotiate new contracts for the supply of gas this was inconsistent with its claims that it needed to ration gas supplies in case there was a shortfall of gas if Todd continued to access more than 25% of the MDQ. The Judge rejected the Todd submission that NGC did not need 50% of the MDQ to maintain its commercial relationships. He found that flew in the face of NGC's trading past. [17] The Judge went on to consider whether damages were an adequate remedy. He accepted the submissions for NGC that if it ultimately succeeded there would be considerable complexity to any damages assessment. He took the view that if Todd ultimately succeeded, while there could still be some difficulty of assessment, the position would be much more straightforward. He regarded this matter as favouring NGC. [18] In addressing the status quo and other matters the Judge took the view that the status quo was the position that pertained before Todd began deliberately taking more than 25% of the MDQ in May 2004. As already mentioned, the Judge found that NGC only found out obliquely that it was not receiving its 50% share of the MDQ. The Judge found Todd could only act unilaterally in this way because it happened to be, with Shell, one of the field producers, as well as a purchaser of gas. The Judge accordingly found that the status quo argument favoured NGC. [19] In standing back and considering overall justice, the Judge said this:[35] I consider the overall justice lies with NGC and the issue of an injunction. The strengths of the contractual interpretation issue is in my view clearly with NGC. I consider its interpretation of the parties arrangements is far more likely to be correct than Todds. This conclusion strongly favours the issue of an injunction. The other factors identified are either neutral or favour NGC. There is nothing in the additional factors which count against the strength of NGC's case or against the issue of an injunction. Todd has unilaterally altered the parties existing entitlements without notice to NGC. The status quo argument, as I have recorded, therefore favours in my view NGC. I cannot identify any irreparable or uncompensatable damage to Toddshould an injunction issue. I am therefore satisfied overall that an interim injunction should issue.Counsel's submissions[20] Without any disrespect to the careful and lengthy submissions we received from counsel, we do not intend to traverse them in detail. It is sufficient to identify the essential thrust of the submissions. [21] For Todd and Nova, Mr Fardell QC first took issue with the approach of the Judge and suggested that he had erred in law in the manner in which he had dealt with the strength of NGC's case. He later resiled, to some extent, from that position. [22] Mr Fardell went on to take issue with the Judge's approach to the merits of the contractual dispute. We will come back to that a little later. He addressed the balance of convenience. He argued, futilely and irrelevantly in our view, that because NGC might have access to some other gas source, it would not suffer the same harm as Todd, if it were unable to take more than 25% of the MDQ until trial. He submitted that in fact the amount of gas involved is minimal. He took issue with the Judge's assessment of the aspects of the balance of convenience not only in respect of the damages issue, but also, in particular, the status quo issue. He said that NGC's position could be met by damages if it succeeded. [23] Mr Fardell argued that the injunction had really been granted upon the basis that NGC was right in respect of the interpretation of the contract and that everything flowed from that. He submitted that in fact the status quo could be said to be the position in 2002 and 2003, when the Shell and Todd interests for short periods were taking more than 50% of the MDQ. He also submitted that, overall, the interests of justice did not support the injunction but the contrary. In particular, he argued that cl 3.8.1 of the contract, which we will turn to a little later, justified Todd drawing more than 25% of the MDQ at this time. He argued that Todd had a need for that gas now and, as NGC did not have the same need, NGC should be left to its remedy in damages, which he submitted were readily capable of assessment.[24] Mr Hodder answered each and every point raised by Mr Fardell. In particular, he took us through the contract and said that it could not bear the meaning urged upon us by Mr Fardell. He said that each of the Judge's findings in respect of the balance of convenience was sustainable. Although the volume of the gas taken by Todd over and above its 25% entitlement of MDQ might not be great, the manner in which it was taken had a pronounced affect on NGC. Todd was not entitled to rely upon the fact that NGC had access to other sources of gas to claim that NGC suffered no harm as a result of Todd taking gas that was part of NGC's entitlement. The status quo was clearly the position that had existed prior to Todd deliberately taking more than a 25% share of the MDQ in May 2004. While the Todd/Shell interests may have taken more than 50% of the MDQ for limited periods in 2002-3, that was not the status quo and NGC had objected to that course in any event. Overall justice in Mr Hodder's submission required the decision of the Court to be upheld.Discussion[25] The Judge was exercising a discretion. It is not suggested he failed to take into account any relevant consideration. What is suggested is that he was either plainly wrong or that he gave undue weight to what is said to be an irrelevant consideration, namely, the merits of the case. [26] Mr Fardell has been quite unable to persuade us that the Judge was plainly wrong. Nor is he able to persuade us that the Judge placed any undue weight on an irrelevant consideration. The merits of the case must always be a relevant consideration when overall justice is being considered. The Judge was clearly entitled to reach the conclusions that he did on the material before him. He exercised his discretion in accordance with the factors that he was required to consider. He balanced them in a way open to him. [27] In any event, we have to say that we would have reached the same conclusion as the Judge. Our reasoning might have been slightly different and our weighing of the factors slightly different, but the result inevitably would have been the same.[28] We need say little more about the balance of convenience. The Judge's assessment was justified. Todd's responses lack substance or relevance. For example, the suggestion that because NGC had access to other resources and Todd did not cannot help Todd. Again, it was not a clear case of damages being an adequate alternative to an injunction and, as the Judge found, that aspect favoured NGC. So did the status quo issue. Todd's deliberate change in conduct was in May of this year. NGC did not delay after that. It had not acquiesced in what had occurred in 2000-3. The Judge's other assessments were equally sustainable. [29] We cannot leave the case without saying something about the issue of contractual interpretation, which was at the centre of the argument before us. Much of Mr Fardell's argument was an endeavour to establish that the Judge put undue weight upon a wrong interpretation of the contract. We are satisfied the Judge did not do that and regarded the interpretation favoured by him as but one of the factors for consideration by him. Nevertheless, the argument on both sides necessarily traversed the fundamental issue of whether Todd was entitled to take more than 25% of the MDQ. We are unable to accept Mr Fardell's argument that the Judge was wrong in preferring the view that Todd had no right to take more than 25% of the MDQ. [30] The argument turned on the provisions of cl 3 set out in [7] above. As is apparent from the orders of the Court in 1997, set out in [6] above, the intention of the judgment was that NGC on the one hand and Todd/Shell on the other should each have 50% of the MDQ. The Court did not regard it as appropriate that there should be any storing or banking of entitlement. The intention was that the entitlement should be used. However, there was one exception to that basic principle, which did enable Todd/Shell to bank or store part of their entitlement in respect of the years beginning 1 June 1997, 1998 and 1999. [31] Until June 2004 it appears to have been accepted that the gas not then used could not be taken in any subsequent year if it resulted in Todd/Shell receiving more than their share of the MDQ. However, Todd now argues that by virtue of the provisions of cl 3.8.1 of the settlement agreement, it is entitled to take its banked gas for the years in question in any subsequent year. It says that such gas falls outsidethe requirements of cl 3.10, which otherwise limits the entitlement of Todd/Shell to 50% of MDQ, and does not fall within cl 3.7, which is expressly subject to cl 3.10. To reach that position, Todd has to argue, as it does, that cl 3.8 is not subject to cl 3.10. It also has to argue, as it does, that the gas that it is entitled to under cl 3.8.1 is not gas in excess of its share of AACQ, is not part of the shared gas and does not fall under cl 3.8.7. At the heart of its argument is the proposition that it could not be expected to wait until NGC had exhausted its rights under the settlement agreement for it to be entitled to draw upon its stored or banked gas. It says that the right to take such gas in any subsequent year makes that clear. [32] We do not accept Mr Fardell's submissions on the interpretation of the relevant clauses. The stored or banked gas falling within cl 3.8.1 is not counted towards Todd's share of the AACQ in the year but is counted towards Todd's share of the shared gas. It must be gas that comes within the provisions of cl 3.7 and cl 3.10. As it is not part of the AACQ, it is gas in excess of Todd's share of the AACQ. As a result, under cl 3.7 Todd is not entitled to more than 25% of the MDQ as cl 3.10 applies. In any event, regardless of how the matter is approached, it must be gas that falls within cl 3.10. That clause applies to all gas from the field, as does cl 3.7, subject to its own wording. The banked or stored gas for the 1997-9 years does not fall into a special category for the purposes of either cl 3.7 or cl 3.10. There is nothing in cl 3.8 that excepts its provisions from either cl 3.7 or cl 3.10. There is nothing in cl 3.7 or cl 3.10 that makes them subject to cl 3.8.1. Thus Todd is limited to its 25% of MDQ. [33] None of the material relied upon by Todd suggests that there was any intention by the parties to adopt a meaning contrary to the clear wording of the contract (and even if there were the clear wording of the contract would prevail). There is nothing to support the proposition that a party with rights to stored or banked gas is entitled to withdraw it out of the share of the gas of other parties. That would make nonsense of the earlier decisions of the High Court and of the contract. We therefore prefer and accept Mr Hodder's succinct and logical oral submissions in respect of the meaning of the clauses. In particular, he was right to draw a distinction between the entitlement of the parties to a share of the gas and theirability under the settlement agreement to obtain access to their share. It is the latter which governs how much gas each party may draw at any one time.[34] In summary, there is nothing in the settlement agreement that entitles Todd to draw its stored or banked gas for the 1997-9 years from or in priority to NGC's entitlement to 50% of the MDQ. [35] When the contract is clear on its face, it would be unconscionable for the Court to lend itself to Todd taking more than its contractual entitlement until the substantive proceeding is heard. If, contrary to our view and that of the Judge, Todd succeed in the substantive proceeding, it will be able to be compensated in damages. However, until it does so succeed, there is no justification for this Court to set aside an injunction properly granted.Result[36] The appeal is dismissed.Costs[37] NGC is entitled to its costs. They are fixed in the sum of $4,000.00, together with NGC's reasonable disbursements which, in the event of dispute, are to be fixed by the Registrar.Solicitors: Russell McVeagh, Wellington for Appellants Chapman Tripp, Wellington for First Respondent Bell Gully, Wellington for Second Respondent