Supreme Court New South Wales

• Medium Neutral Citation: Centennial Mandalong v Delta Electricity [2013] NSWSC 1505
• Hearing dates: 17/09/2013
• Decision date: 17 October 2013
• Jurisdiction: Equity Division - Commercial List
• Before: McDougall J

Decision

Plaintiff entitled to first declaration sought. Stand over for further consideration of second declaration sought. Reserve costs.

• Catchwords: CONTRACTS - interpretation - where coal supply agreement provides for apportionment of charges attributable to coal sold - where government levies charges on carbon emissions associated with coal production - whether charges levied for carbon emissions attributable to coal sold - meaning of words "attributable to"; "attributibility"; "attribute" - whether causal connection between charges levied for carbon emissions during coal production and the subsequent sale of coal.
• Legislation Cited: Clean Energy Act 2011 (Cth); Clean Energy (Unit Shortfall Charge - General) Act 2011 (Cth); National Greenhouse and Energy Reporting Act 2007 (Cth); Repatriation Act 1920 (Cth); Veterans' Entitlements Act 1986 (Cth)
• Cases Cited: AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd (2010) 15 BPR 28, 199; Central Asbestos Co Ltd v Dodd [1973] AC 5; Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; Repatriation Commission v Law (1980) 31 ALR 140; Roncevich v Repatriation Commission (2005) 222 CLR 115
• Category: Principal judgment
• Parties: Centennial Mandalong Pty Limited (Plaintiff); Delta Electricity (Defendant)
• Representation: Counsel: AC Archibald QC / J Williams; NC Hutley SC / JA Watson; Solicitors: Herbert Smith Freehills (Plaintiff); Jones Day (Defendant)
• File Number(s): 2012/384031

Judgment

1 HIS HONOUR: The plaintiff (Centennial) operates the Mandalong coal mine in the Lake Macquarie district of New South Wales. The defendant (Delta) operates the Vales Point power station. Mandalong sells coal from its Mandalong mine to Delta, on the terms of a contract made on 12 April 2002. Centennial's obligations are affected by, and it will have to pay carbon costs under, the Clean Energy Act 2011 (Cth) and related legislation. The question for decision is whether, having regard to the relevant terms of the contract, Centennial can pass some part of those costs onto Delta.

The mining operations at Mandalong

2 Coal is formed from biomass materials that, over time, have become trapped underground and subjected to high temperatures and pressures. The process of "coalification" (an unpleasant but useful word) produces not only coal but also gaseous materials known generically as "seam gases". Seam gases are trapped in pockets, or pores, within both the coal and the rock strata that surround or enclose the coal.

3 When coal is mined, one consequence is that the pressure that retains the seam gases in situ may be released. When that happens, the seam gases travel out of the pockets where they are trapped, and may find their way into the atmosphere.

4 The major seam gas produced by the Mandalong mine is methane. Methane, a hydrocarbon compound, is a "carbon dioxide equivalent greenhouse gas" for the purposes of the Clean Energy Act.

5 The mining works at the Mandalong mine include the following operations:

(1) a vertical shaft has been sunk from the surface to the coal seam, and the shaft was capped by an air extraction fan at ground level.

(2) A "drift", or sloping tunnel, has been constructed from the surface to the coal seam, to allow workers and equipment to travel down to the seam.

(3) Roadways have been mined in the coal seam itself to allow workers and equipment to move around the mine, and to enable coal to be mined and removed by a conveyor system.

(4) The roadways were and are constructed in such a way as to demarcate long rectangular blocks, or panels, of coal.

(5) The panels are mined by the process of longwall mining. Essentially, a mining machine, which is able to support the material above it, starts at one end of a panel and cuts its way through to near the other end. The coal that is cut out by this process is removed by a conveyor system.

(6) As the machine travels through the panel, it ceases to support the area behind it, and the overlying strata collapse into the void.

(7) When the machine comes to a pre-determined point near the far end of the panel, it stops, so as to keep that end sealed off.

(8) The machine is disassembled and taken out, so that it can be reassembled and used to mine another panel.

(9) The mined out area, known as a "goaf," is then sealed off at the other end (the end from which mining operations started). This is done to trap gases within the goaf.

(10) The process is then repeated at the next panel.

6 The process of development and mining is continuous. That is to say, as a panel is being mined, further roads are being cut into the seam (this process of itself producing coal which can be sold) to define panels for future mining and to enable the movement of workers and machinery through the mine.

7 Coal produced from the mine, known as "run of mine" coal, and sold to Delta is transported by an underground conveyor system to a delivery point where Delta takes possession of it. The conveyor system runs through an adjacent mine, the Cooranbong mine, which is operated by Centennial or a related company. The Cooranbong mine no longer produces coal. It is used only to the extent that the conveyor system in it helps to convey run of mine coal from the Mandalong mine to Delta at the agreed delivery point.

The release of methane

8 The mining operations that I have summarised lead to the release of methane in various ways. First, the act of drilling through the overlying rock strata and into the coal seam will enable trapped gas to be freed. This is facilitated once the drift is constructed and there is a path for the circulation of air through the mine.

9 Secondly, the process of mining to construct the roads will release methane.

10 Thirdly, the process of longwall mining will release methane.

11 Fourthly, run of mine coal that is conveyed from the mine to the delivery point will release methane.

12 Fifthly, methane will collect in the goafs as they are sealed off, and bleed out over time.

13 Sixthly, when mined coal is stockpiled above ground, it will release methane.

14 Methane is explosively combustible at concentrations between 5 and 15% by volume with air. It is thus essential to manage the mining operations to ensure that the concentrations of methane within the mine are well below the 5% threshold. In fact, where electrical equipment or lines are used, there is a statutory maximum level of 1.25% methane concentration.

15 One of the ways in which the concentration of methane is reduced is the process of "pre-draining". As its name suggests, that process removes some methane before the mining of coal starts. Pre-draining requires the construction of long horizontal boreholes into the coal seam at the same time as the roadways are being mined. The boreholes are connected to pipes, to which negative pressure (suction) is applied at the outer end. Methane is removed by those means.

16 Once longwall mining operations are under way, and where goafs have been created and sealed off, pre-drained methane may be pumped into the sealed goafs. The objective is to raise the concentration of methane within the goafs to well above the 15% level.

17 Even though the goafs are sealed, it is possible for methane to move through the rock strata enclosing the goafs. Typically, those strata will have cracks, or pores, through which the gas can move. There will also be some residual leakage from the goafs into the adjacent roadways.

18 Methane removed from the mine either by the process of air circulation and extraction (para [8] above) or by the process of pre-draining (para [15] above) is captured and measured, and then released into the atmosphere. In very general terms, those measurements will capture almost all the methane emissions produced by the Mandalong mine. Smaller emissions produced by the Cooranbong mine (which is used as part of the process of conveying coal from Centennial to Delta) is measured in a similar way. Methane emitted by coal stockpiled at the Mandalong mine is measured by a statutory formula.

19 The coal sold by Centennial to Delta from the Mandalong Mine does not come from the stockpiles. It comes directly from the coalface, via the underground conveyor system that I have described.

The carbon pricing scheme

20 The Clean Energy Act came into force on 2 April 2012. Together with its cognate legislation, the Clean Energy (Unit Shortfall Charge - General) Act 2011 (Cth) and the National Greenhouse and Energy Reporting Act 2011 (Cth), it establishes a carbon pricing and trading scheme. The scheme commenced on 1 July 2012.

21 The first three years of the scheme (that is to say, FY13, FY14 and FY15) are "fixed charge years". In those years, carbon units are issued to liable entities at a fixed price. For subsequent years (if the legislative scheme remains in place), the prices will be market-determined.

22 In brief outline, the "carbon dioxide equivalent greenhouse gas" emissions of a "liable entity" from a "facility" are calculated. There is no doubt that methane is a carbon dioxide equivalent greenhouse gas. Nor is there any doubt that Centennial is a "liable entity", nor that the Mandalong mine is a "facility".

23 Once the liable entity's "emissions number", calculated by reference to the carbon dioxide equivalent gas emissions of its operations, is ascertained, the entity's "unit shortfall" is calculated. That shortfall is the difference between the emissions number and the number of "eligible emissions units" held by the liable entity. Eligible emissions units are those issued to the liable entity by the Clean Energy Regulator on behalf of the Commonwealth.

24 Where there is a unit shortfall, the liable entity may purchase carbon units either from the Regulator or in the secondary market. Those units may then be surrendered to meet the shortfall. Alternatively, the liable entity may pay a "unit shortfall charge". For the first three, fixed price, years of the scheme, that charge is 130% of the equivalent fixed cost of carbon units for that year multiplied by the number of the shortfall. For subsequent financial years, the percentage will be 200%, and the price will be set by a market mechanism.

25 The evident purposes of the legislation include:

(1) persuading liable entities to acquire carbon units in the market rather than to pay the unit shortfall charge; and

(2) ultimately, persuading liable entities to reduce their need to buy units, and their shortfalls, by reducing their emissions.

The coal supply agreement

26 The coal supply agreement was made on 12 April 2002. The parties were Powercoal Pty Ltd as Supplier and Delta as Purchaser. A related company of Centennial acquired Powercoal shortly after the supply agreement was made. On 13 August 2002, Powercoal, Centennial and Delta entered into a novation deed by which, in substance, Centennial was substituted for Mandalong as Supplier under the supply agreement.

27 The supply agreement was for a period of 16 years, commencing on 1 July 2006 and ending on 30 June 2022 (cl 2; item 1 of schedule 1).

28 The contract provided for a fixed delivery of 1 million tonnes of coal per annum, and in addition gave Centennial the option to put an additional 300,000 tonnes per annum to Delta. The base price per tonne for the 1 million tonnes was somewhat higher than the base price per tonne for the 300,000 tonnes.

29 In addition, there were elaborate provisions to regulate the rate of delivery. One effect of those provisions was that, at any given time, Centennial might deliver up to 150,000 tonnes in excess of the contractual quota.

30 Clause 3 provides:

3 Sale and purchase

The Supplier must sell and Deliver to the Purchaser, and the Purchaser must purchase and take Delivery from the Supplier, coal at the rate determined in accordance with this agreement on the terms and conditions of this agreement.

31 Delivery and title are dealt with by cl 4. At a level of some generality, Centennial is required to deliver coal, by one or more of the means specified in the agreement, to a "Delivery Point". Clauses 4.3, 4.4 and 4.5 are significant:

4.3 Delivery and acceptance

Delivery and acceptance of coal is deemed to have been made and taken when coal is discharged to the Delivery Points.

4.4 Title and risk

Title to coal Delivered under this agreement, including Consignment Coal, and all risk of loss, damage, destruction of coal or deterioration in coal quality passes to the Purchaser at the time and place of Delivery described in clause 4.3.

4.5 Source of Coal

The Supplier must supply at least 85% of the coal required to be Delivered under this agreement from coal mined from the Coal Mine [i.e., the Mandalong Mine].

32 The supply agreement contained elaborate provisions relating to:

(1) quotas and rates of delivery, shortfall and the like (clause 5);

(2) "Consignment Coal" (coal delivered in excess of the maximum amount permissible at any given time) (clause 6);

(3) "outages" (clause 7); and

(4) quality requirements (clause 9).

33 Mr Hutley of Senior Counsel, who appeared with Mr Watson of Counsel for Delta, referred at some length to these and other provisions. I do not propose to set them all out. I should however note that the provisions relating to "Consignment Coal" (which in substance describes coal delivered in quantities greater than Centennial was obliged to sell and deliver or Delta was obliged to purchase and take) dealt with the passing of title and risk, a process of "allocation", and for payment, in cls 6.4, 6.6 and 6.7. I set out those clauses:

6.4 Title and risk to Consignment Coal

For the avoidance of doubt, clause 4.4 applies with full force and effect to Consignment Coal so title to Consignment Coal and all risk of loss, damage, destruction or deterioration in coal quality of Consignment Coal passes to the Purchaser when it is discharged to a Delivery Point and not at the time of allocation.

...

6.6 Allocation of Consignment Coal

(a) The Supplier may allocate any one or more tonnes (but not part tonnes) of the Available Consignment Coal as coal Delivered in a month provided that the Supplier must give notice to the Purchaser of the allocation within 1 Business Day from the end of the month.

(b) Any available Consignment Coal allocated by the Supplier to a month ("the allocated month") shall, for the purposes of determining the Supplier's compliance with its coal Delivery obligations and for invoicing purposes, be taken to be:

(1) Delivered to the Purchaser in the allocated month; and

(2) of the quality of the Available Consignment Coal immediately prior to the allocation as determined under clause 6.5; and

(3) allocated as a separate Delivery Day from actual deliveries for the purposes of Coal Quality Adjustment.

6.7 No payment until allocated by Supplier

The Purchaser does not have to pay for any Consignment Coal until it is allocated by the Supplier in accordance with clause 6.6 and the Purchaser shall pay for allocated Consignment Coal in accordance with clauses 12 and 13 on the basis described in clause 6.6(b).

34 Price was the subject of clause 12. By clause 12.2, the "base price per tonne" comprised two components. The first was "The Base CPI Price Component Per Tonne as at the base date". The second was "The Government Charges Component Per Tonne as at the base date".

35 Clause 12.3 provided for a contract price, which was to comprise the first component calculated in accordance with cl 12.3(b) and the second component adjusted in accordance with cl 12.3(c).

36 I set out cls 12.2, 12.3(a), (c):

12.2 Base Price Per Tonne

The Base Price Per Tonne is equal to the sum of:

(a) the Base CPI Price Component Per Tonne as at the Base Date; and

(b) the Government Charges Component Per Tonne as at the Base Date.

12.3 Contract Price Per Tonne

(a) The Contract Price Per Tonne is equal to the sum of:

(1) the Contract CPI Price Component Per Tonne as calculated in accordance with clause 12.3(b); and

(2) the Government Charges Component Per Tonne as adjusted in accordance with clause 12.3(c).

....

(c) The Government Charges Component Per Tonne shall be adjusted as follows:

(1) Either party may, by notice, advise the other party that it requires the amount of the Government Charges Component Per Tonne to be reviewed.

(2) Upon receipt of such notice the parties must negotiate in good faith and use all reasonable endeavours to reach agreement on the amount of the Government Charges Component Per Tonne.

(3) Failing agreement within 10 Business Days after receipt of the notice, either party may treat the matter as a Technical Dispute and take action under clause 16.5, and for such purpose the parties agree that it is their intention that, as far as is practicable, the Government Charges Component Per Tonne is to be calculated (on a per tonne basis) as all charges, taxes (excluding income tax, payroll tax and any fines or levies imposed by any Government Agency for failure to comply with any statute or regulation), royalties and other levies imposed on or payable by the Supplier under any statute of the State of New South Wales or the Commonwealth of Australia to the extent attributable to coal sold by the Supplier and purchased by the Purchaser under this agreement.

(4) The Government Charges Component Per Tonne shall be adjusted to the amount, and from the time, as agreed or determined.

37 Relevant defined terms include "Government Agency", "Government Charges per Tonne" and "Technical Dispute". I set them out:

"Government Agency" means any government or any governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity.

"Government Charges Per Tonne" means all charges, taxes (excluding income tax, payroll tax and any fines or levies imposed by any Government Agency for the failure to comply with any statute or regulation), royalties and other levies imposed on or payable by the Supplier under any statute of the State of New South Wales or the Commonwealth of Australia to the extent attributable to coal sold by the Supplier and purchased by the Purchaser under this agreement, calculated on a per tonne basis, the amount of which as at the Base Date is specified in Schedule 5.

...

"Technical Dispute" means any dispute or disagreement between the parties arising out of or in connection with this agreement which relates to technical or scientific facts or issues.

38 Clause 16.5 provided for Technical Disputes to be referred to an expert for "determination". Clause 16.5(I) has the effect that the determination is binding. It is not necessary to set out cl 16.5.

39 It was common ground on the "pleadings" that the charges, under the Clean Energy Act and related legislation, for carbon units and unit shortfalls were "charges" for the purposes of the definition of government charges per tonne and, hence, for the purposes of 12.3(c). The essential dispute between the parties was whether those charges were, in the words of the latter clause, "attributable to coal sold by the Supplier and purchased by the Purchaser under [the supply agreement]."

The parties' submissions

40 What follows is a brief summary of the submissions for each party. I have not attempted to reproduce the detail of the written and oral submissions. My intention is to give a summary sufficient to enable the basic issues to be delineated, and to give content to my decision.

41 Mr Archibald of Queens Counsel, who appeared with Mr Williams of Counsel for Centennial, put Centennial's case in two basic ways.

42 First, he submitted, the words "to the extent attributable to" did not "impose a causal relationship"; they were, he submitted, "allocative words directed to determination of the portion of any Government charge that is for Delta's account". (written outline, para 22). It followed, he submitted, that "the words are concerned to ensure proportionality between the amount of the charge to be passed onto Delta and volume of coal sold under the Contract".

43 Mr Archibald accepted that in many cases the phrase "attributable to" would involve a relationship of cause and effect. However, he submitted, this was not its core or essential meaning. What was required, for one thing to be attributable to another, was that there be some relationship or connection between them. That might be, but need not be, a causal relationship.

44 Mr Archibald relied on what Lord Reid had said in Central Asbestos Co Ltd v Dodd [1973] AC 5 at 18, where his Lordship said, of the word "attributable", that "[t]he essential element is connection of some kind". Not all the examples that his Lordship gave were of causal connection.

45 Mr Archibald submitted, secondly and in the alternative, that if it were necessary to find a causal relationship between the charges and the coal sold and delivered to Delta, such a relationship existed in this case. Mr Archibald submitted that there was no need to demonstrate a direct or proximate causal connection. There need be no more than some element of causation, which in turn need not be sole or dominant. He relied on a number of decisions, including Roncevich v Repatriation Commission (2005) 222 CLR 115 and Repatriation Commission v Law (1980) 31 ALR 140.

46 The causal connection was demonstrated, Mr Archibald submitted, because "the emission of methane is an unavoidable incident of the extraction of coal for sale under the Contract. Centennial cannot extract coal to sell to Delta under the Contract without producing emissions attracting carbon costs" (written submissions, para 30). That demonstrated, he submitted, by the twin standards of logic and common sense, a causal connection between the sale (following extraction) of coal and the imposition of carbon costs.

47 Mr Archibald submitted that, at a level of some generality, it was apparent that the parties had intended to provide a mechanism whereby new government charges incurred by Centennial could be passed on to Delta. This was commercially sensible, Mr Archibald submitted, because Delta was able to recoup the amount of those charges by increasing the price at which it sold its electricity into the market.

48 Mr Hutley submitted that the charges "are not charges attributable to coal sold by the supplier to the purchaser. They are attributable to the greenhouse gas emissions of the supplier" (written submissions, para 8). He noted that the legislative scheme provided for the charge to be imposed on purchase of a carbon unit or (including at a penal rate) on assessment of a unit shortfall.

49 Next, Mr Hutley submitted, the phrase "attributable to" included, both as part of its ordinary English meaning and as a result of its treatment in decisions of courts, a requirement of causation. The cases to which Mr Hutley referred included both Central Asbestos and Roncevich.

50 In this case, Mr Hutley submitted, there was no element of causation, because the emission of seam gases was an inherent aspect, or consequence, of the coal mining operations. It was not a consequence of the sale and delivery of coal to Delta.

51 Mr Hutley tracked through the various ways in which methane was emitted from the Mandalong mine, and submitted that none of them enabled any reliable attribution to be made of some portion of those emissions to coal sold and delivered to Delta.

52 In reply to Mr Archibald's primary position, Mr Hutley submitted that it involved no consideration of the relationship between the charge and coal sold and delivered to Delta. Thus, he submitted, any government charge would suffice. That followed, Mr Hutley submitted, because, on Mr Archibald's primary submission, the only function of the word "attributable" was to allocate some portion of all charges (other than those excluded) to coal sold and delivered to Delta.

53 Mr Hutley submitted that, if "attributable" did nothing more than effect some allocation of Government Charges between Centennial on the one hand and Delta on the other, then there was no need to find any connection between the charge and the coal sold. All charges, other than those covered by the parenthesised exclusions, must be allocated between Centennial and Delta, even if they had nothing to do with the sale and delivery of coal from the former to the latter. I refer at [66] below to an example given by Mr Hutley which, he submitted, showed that this could not be correct.

54 Further, Mr Hutley submitted, it was not possible to divine, from the language of cl 12.3(b) any formula (or, as he put it, "algorithm") by which the amount, or proportion, of charge to be passed on to Delta could be determined.

55 Mr Hutley submitted that, when one looked at the national electricity market, it was plain that Delta was not free to increase its prices as it would. Mr Hutley referred in some detail to the way in which that market operated. He submitted that Delta, as a relatively small player, would not be able to influence the market price in such a way as would enable it to recoup increased costs.

56 There were submissions directed to the significance (or otherwise) of the parenthesised exclusions in the definition of "Government Charges Per Tonne" and in cl 12.3(c)(3). Mr Archibald submitted that if, as he said was Delta's primary case, the only charges to be passed through were those which were a direct impost on the selling of coal, then there was no reason to exclude income tax or payroll tax from the definition of "Government Charges Per Tonne". Mr Hutley submitted that this was an inappropriate way to approach the task of construction. He submitted that one should look first at the liability provisions before turning to the exclusions. In any event, and perhaps more firmly, Mr Hutley submitted that the parenthesised words plainly included an element of "abundant caution", and that this undermined the force of the submission based on them.

Decision

"Attributable"

57 I start with the adjective "attributable". As a matter of etymology, it conveys the sense of "capable of being attributed". The Oxford English Dictionary (OED) online gives the meaning:

"Capable of being attributed or ascribed, ESP. As owing to, produced by."

58 The Macquarie Dictionary (MD) online gives no separate definition of "attributable". It refers one, as in any event the plain meaning of the word requires, to its cognate forms "attribute" and "attribution".

59 As to "attribute":

(1) when used as a noun, the OED online gives, as relevant meanings: "a quality or character ascribed to any person or thing, one which is in common estimation or usage assigned to him"; a quality or character considered to belong or to be inherent in a person or thing; a characteristic quality";

(2) when used as a verb, the OED online gives, as relevant meanings: "to assign, bestow, give, concealed, yield to anyone, as his right"; "to ascribe to as belonging or proper; to consider or view as belonging or appropriate to"; "to ascribe as a quality or "attribute" belonging, proper, or inherent"; "to ascribe, impute, or refer, as an effect to the cause; to reckon as a consequence of".

(3) when used as a noun, the MD online gives, as relevant meanings: "something attributed as belonging; a quality, character, characteristic, or property"; and

(4) when used as a verb, the MD online gives, as relevant meanings: "to consider as belonging to, authored by etc"; to consider as caused by".

60 As to "attribution":

(1) the OED online gives, as relevant meanings: "the action of attributing; the result in which this action is embodied"; "ascription in word or statement"; "the (internal) act of ascribing or imputing"; "the assigning or ascribing of a character or quality as belonging as proper to anything"; the ascribing of an effect to a cause..."; and

(2) the MD online gives, as relevant meanings: "the act of attributing; ascription" and "that which is ascribed; an attribute".

61 It seems to me to be clear, both from the various dictionary definitions to which I have referred and from the authorities relied upon by counsel, that the relationship between two things, that one be "attributable" to the other, requires some form of connection between them. However, an understanding of the nature of the connection requires attention to the context in which the process of attribution occurs and, specifically, to why it is that one thing is required to be attributable to another.

62 In Central Asbestos, the House of Lords was considering whether a limitation period could be extended. That required consideration of the plaintiff's knowledge of material facts relating to his cause of action. The concept of materiality had a number of characteristics, one of which concerned the extent to which the personal injuries complained of were attributable to the alleged negligence, nuisance or breach of duty.

63 Lord Reid dealt at 533 with what was meant by "attributable" in that context. His Lordship said:

So probably the key lies in the use of the word "attributable." That means capable of being attributed. "Attribute" has a number of cognate meanings; you can attribute a quality to a person or thing, you can attribute a product to a source or author, or you can attribute an effect to a cause. The essential element is connection of some kind. ... strictly one cannot say that injuries are caused by the legal concept of negligence. But it would be quite proper to attribute injuries to negligence. The connection here is that the injuries were caused by certain acts and that those acts involved or amounted to negligence.

64 Lord Morris of Borth-y-Gest identified the importance of the context in which the word appeared. His Lordship noted at 538 that it was used in a section which also included the words "resulted" and "resulting", and hence that "it must have its own meaning". That meaning, his Lordship said, was "that something was capable of being attributed to or of being owing to or produced by negligence".

65 Accordingly, I do not accept the primary submission put by Mr Archibald - at least in what might be called its "pure" form. I do not accept that, in the context of cl 12.3(c), the word "attributable" does nothing more than signify a process of allocation (or the ability to allocate). In my view, what the clause requires is that there be some connection between the two things, so that one can be said to be attributable to the other. Put in the language of subpara (3), there must be some connection between the "charge" and the "coal sold... and purchased" that makes it possible to say that the former is "attributable" to the latter.

66 I think that Mr Archibald accepted this point in his oral submissions in reply. Mr Hutley had given, as an example of a government charge, stamp duty levied on the purchase by Centennial of a house for its mine manager to live in. Mr Archibald accepted that such a charge could not be prorated between Centennial and Delta, because "there is no relationship at all that makes it appropriate to bring that tax into account" (T42.2-.3). Mr Archibald accepted also (as Mr Hutley had earlier accepted) that subpara (3) was to be read as though the words "that such charges, taxes, royalties and other levies are" were inserted between the words "extent" and "attributable" (see T42.16-.19; and, for Mr Hutley's acceptance, see at T31.36-32.6, noting that Mr Hutley said that those words would be "supererogatory").

67 It is convenient at this point to return to the submissions based on the parenthesised exclusions. Ordinarily, one should seek to interpret the words of a contract in a way that gives all of them meaning, not in a way that involves regarding some of them as redundant. See, for example, Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476 at [152], [230]. However, as Ball J recognised in AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd (2010) 15 BPR 28, 199 at [13], that principle does not operate invariably, or without exception. In some cases, an interpretation which entails a degree of redundancy may be favoured where that interpretation is consistent with the commercial purpose of the contract, particularly if it appears that the words have been included by way of boilerplate drafting, or out of more abundant caution.

68 In the present case, I think, it is possible to regard the parenthesised exceptions of income tax and payroll tax as words included out of more abundant caution, or, more bluntly, as superfluous. The initial task is the ascertainment (objectively) of the commercial purpose of the language used; and if the parenthesised words seem to be inconsistent with that purpose, so ascertained, then their significance must diminish.

69 I return to the question of attribution. Just as the answer to a question of causation must depend, among other things, on the reason why the question is asked, so, too, it seems to me, the answer to the question of whether one thing is attributable to another must depend on the reason why the question is asked.

70 Centennial and Delta sought to achieve a number of things by their agreement. Centennial wanted a guaranteed buyer for 1 million tonnes of coal per annum, with the right to put another 300,000 tonnes per annum to that buyer. Delta wanted a guaranteed supply of at least 1 million tonnes per annum, and was prepared to accept another 300,000 tonnes per annum at Centennial's option.

71 Both parties wanted an agreement as to price that would endure, with as little complication as possible, for the life of the agreement. That they achieved by starting with a base price and providing for adjustment for two factors. One was a CPI adjustment. The other was an adjustment for increases in government charges.

72 Presumably, the parties intended the CPI adjustment either to compensate, or to act as a surrogate, for increased costs of production (labour, consumables, and all the other things that are involved in getting coal out of the ground). But they recognised also that government charges (including, as one obvious example on which they fixed, royalties) might increase.

73 On that analysis, Centennial agreed to accept the risk that its costs of production might increase in a way for which CPI increases did not fully or properly compensate (and Delta accepted the risk that such increases might overcompensate Centennial). Centennial was not prepared to accept all the risk of additional government charges, and Delta agreed to bear at least some of that risk.

74 Although I do not think it is correct to say, as Mr Archibald submitted, that Delta was or is in a position to increase the charges for electricity that it sold into the national electricity market, nonetheless, I think, the parties must have recognised that there were some factors, including government charges, that would be likely to bring about an increase in the price of bulk electricity. For example, government charges that affected either all electricity producers, or all of a certain kind, or all in a certain state or locality, would be likely to flow through to price. Even though one producer (such as Delta) might not produce enough electricity to be able to affect the price itself in any significant way, the situation would be different if a number of producers were subjected to the same charge, and sought (acting individually and not in concert) to reflect this in the prices at which they offered to supply into the national electricity market.

75 That is a rather roundabout way of saying that Centennial had no way, apart from the contract, of passing on increases in government charges, whereas (as I think the parties should be taken to have understood), there was at least some prospect that the prices that Delta achieved for its electricity would reflect, among other things, the burden of government charges that affected the whole, or a substantial part, of the electricity generators who sold their output into the national electricity market.

76 I referred earlier to the importance of understanding the purpose or which it is asked that A is attributable to B. If that question were being asked (for example) for the purpose of imposing criminal liability on B, there would be good reason for construing the words so as to require some direct, immediate and obvious connection between the two. Again, if the question were being asked for the purpose of considering whether statutory or delictual civil liability should be imposed on B, ordinarily the search would be for a clear and obvious connection. But in the present case, the question is asked for the purpose of considering whether a government charge should be passed on, in whole or in part.

77 The reason why the question is being asked in the present case is because, by hypothesis, the government charge affects, or has an adverse impact on, Centennial's cost of production: the cost to Centennial of producing the coal that is to be sold, over the life of the contract, to Delta. The clause is intended to pick up government charges that:

(1) are not expressly excluded;

(2) cannot be avoided;

(3) are related in a rational way to the production of coal; and

(4) are related, again in a rational way, to the cost of production of coal.

78 That may be regarded as requiring demonstration of some form of causation. But putting the matter in terms of causation does no more than return to the proposition that the answer to the question of causation will depend, among other things, on the reason why question is asked.

Causation

79 As I have noted, Mr Archibald relied on the decision of the High Court in Roncevich. That involved the construction of s 70 of the Veterans' Entitlements Act 1986 (Cth). Members of the armed forces were entitled to compensation for incapacity from "defence-caused" injury. By s 70(5)(a), an injury was taken to be a defence-caused injury if it arose out of, or was attributable to, any defence service. It will be seen straight away that para (a) associated "arose out of" disjunctively with "was attributable to". The former might well be thought to indicate direct causal relationship.

80 The plurality (McHugh, Gummow, Callinan and Heydon JJ) commented at [27] on the disjunctive use of "arose out of" and "attributable". Their Honours said that this usage:

... manifest [sic] a legislative intention to give "defence-caused" a broad meaning, and certainly one not necessarily to be circumscribed by considerations such as whether the relevant act of the appellant was one that he was obliged to do as a solider. A causal link alone or a causal connection is capable of satisfying a test of attributability without any qualifications conveyed by such terms as sole, dominant, direct or proximate....

81 The Full Court of the Federal Court of Australia expressed a similar view in Repatriation Commission v Law (1980) 31 ALR 140 at 151. That case concerned a statutory ancestor of the provision considered in Roncevich: s 101 of the Repatriation Act 1920 (Cth). The relevant test combined, disjunctively, "has arisen out of" and "is attributable to".

82 The court (Bowen CJ, Brennan and Lockhart JJ) considered the expression at 151. Their Honours referred to authorities considering the phrase in different legislative contexts and concluded:

It seems clear that the expression "attributable to" in each case involved an element of causation. The cause need not be the sole or dominant cause: it is sufficient to show "attributability" if the cause is one of a number of causes provided it is a contributing cause.

83 In my view, their Honours' insistence on some concept of causation is a function, or incident, of the statutory test. It is clear, from what Lord Reid in Central Asbestos, that causation and attribution, whilst sharing a core meaning, may have different denotations in different contexts. As his Lordship said, injuries may be caused by acts; and if the acts involved negligence, then, as a matter of language, the injuries may be said to be attributable to that negligence.

Attributability exists in this case

84 In this case, the question is what is required to attribute charges under or referable to the Clean Energy Act - carbon charges and unit shortfall charges - to coal sold by Centennial to Delta under the contract. The context in which that question is to be asked includes, as I have said, the way in which the parties sought to ensure certainty of pricing, whilst at the same time recognising that there would be some external factors - specifically, government charges - that might have a direct impact on the mining of coal for sale to Delta.

85 One matter relevant to this issue is that, as the coal supply agreement itself makes clear, the contract was an integral part of the decision to develop the mine. At the time the agreement was made, it was apparently contemplated that the owner of Powercoal (in effect, the State government) might sell it. Special condition 1, set out in Sch 4, dealt with what would happen thereafter:

Schedule 4 - Special Conditions

Special Condition 1

(a) On or before the date which is nine months after the earlier of the change of ownership of the Supplier or the sale of the Mine ('Completion Date'), the Supplier may notify the Purchaser in writing whether the Supplier intends to proceed with the development of the Coal Mine for the supply to the Purchaser of the Fixed Annual Contract Tonnage.

(b) If the notice specifies that the Supplier intends to proceed with the development, that notice once given binds the Supplier to supply the Purchaser with coal in accordance with this agreement (subject to the receipt of all necessary approvals and consents and force majeure).

(c) If the notice specifies that the Supplier does not intend to proceed with the development, or if the Supplier fails to issue a notice, this agreement will terminate without penalty to either party on the earlier of the date on which this notice is given, or the expiry of the nine month period (as the case may be).

(d) From the Completion Date until the earlier of the date on which the notice is given or the expiry of nine months from the Completion Date, the Supplier must pay to the Purchaser an option fee of $200,000 per month.

86 Further, as appears from cl 4.5 of the contract itself, Centennial is obliged to source from the Mandalong mine at least 85% of the coal contracted to be sold to be Delta over the life of the agreement.

87 It may be stating a truism, but coal cannot be sold and delivered until it is mined. There is nothing in the evidence to suggest that there was some vast stockpile of coal at or near the Mandalong mine, from which (regardless of cl 4.5), Centennial might supply Delta.

88 Further, in my view, carbon charges and unit shortfall charges are at present a necessary, or integral, part of the cost of production of coal. That is because they are imposed on (in this case) the emission of methane. As the evidence of Mr Myors shows, the mining of coal inevitably releases seam gases into the atmosphere, and methane is a seam gas, formed (and trapped) as part of the process of "coalification".

89 If there were no mining, there would be no carbon charges or unit shortfall charges (at least, in respect of the Mandalong mine). But neither would there be any supply of coal. Once the Clean Energy Act and its cognate legislation came into effect, the charges authorised and levied by that constellation of legislation became an inevitable and unavoidable incident of coal production.

90 On the facts of this case, there is an obvious link between coal production and the sale of coal (at least where there is, as in this case, a present sale of "physical" coal). Coal must be produced (by mining) before it can be sold. That being so, a charge which arises inevitably upon production can properly be said to be attributable to the sale of that which is produced, in circumstances where the producer - Centennial - has no right under the contract to cease production until the contract comes to an end.

91 Accordingly, I conclude, there is a sufficient connection between the "charge" under consideration and the sale and delivery of coal under the agreement to render the former attributable to the latter.

How to allocate?

92 That leads to the question of how the attribution should be quantified. In principle, it seems to me, the appropriate method of quantification is to take the totality of the emissions that are caused by the process of mining in any given period and to prorate those emissions between the total quantity of coal produced in that period and the quantity sold to Delta. That raises at least two subsidiary questions. The first is: what are the emissions to take into account? The second is: how is the process of prorating to be effected?

93 As to the former question: I think that the emissions to be considered are those that arise from the mining process itself. That would include the pre-draining of areas that are mined, the construction of roads and process of longwall mining. I accept, as Mr Hutley submitted, that some of those costs could be said to relate not just to the actual quantities mined in any given period but also to quantities mined in subsequent periods. Clearly, pre-draining may range beyond the particular area being mined for particular shipments of coal. And as the evidence showed, the construction of roads advances beyond what is necessary for the immediate production of coal.

94 However, activities carried out before mining commences in a particular period will have had the effect of reducing the amount of methane emitted during that period (the same examples, of pre-drilling and road construction, come to mind). Thus, at least where the rate of production is not increasing (and the evidence suggests that this is not happening, because only one longwall mining machine is used at any given time), there is, although at a level of generality, some balance.

95 I am not so certain that the emissions to be taken into account should include emissions from stockpiles. There may also be a question as to emissions from goafs, although those emissions would be captured to the extent that they are exhausted through the vertical shaft. However, if that is the extent of the remaining problems, it could be dealt with by reference to an expert as a Technical Dispute.

96 The second question requires some comparison of the volume of coal sold and delivered to Delta in any given period with the total amount of coal mined over that period. The prorating exercise would be done using a fraction, the numerator of which is the former value and the denominator of which is the latter.

97 Again, I accept, as Mr Hutley submitted, that there will be individual complications within this process. Mr Hutley took as an example Consignment Coal. That is coal, in excess of the quota required, that, subject to some conditions, Centennial may deliver to Delta and Delta must accept. However, although title to that coal passes on delivery and acceptance, Delta is not obliged to pay for it until the coal is "allocated" towards satisfaction of Centennial's obligations of sale and delivery. There may be a question as to whether, in those circumstances, that coal can be described as "sold... and purchased". I think that it can: there is a contract for sale, there is delivery, title has passed; all that is deferred is the obligation to pay.

98 Another example relates to "Reject Coal", which is the subject of cl 9.3 of the contract. As its name indicates, that is coal that does not meet the stipulated quality standard. On the face of things, it should be excluded from the calculations.

99 Mr Hutley focused on what he said was the prospective as well as the retrospective nature of the charges imposed under the Act. The issuing or sale of units occurs before the liability is assessed; and any shortfall occurs when the liability is assessed. Regardless of the precise structure of the legislation, and mindful that I should not move beyond what has been agreed on the pleadings, I think that, at least for the purpose of attribution (or allocation), the question is to be considered at a point in time when the actual liability for emissions in any given period can be stated. That will be at a time when the actual number of emissions for that period has been ascertained, and when the number of units required to be surrounded in satisfaction of that liability likewise can be ascertained.

100 I accept that it may be difficult (at least) to arrive at a result that has absolute precision, or that is precise to the last cent. But, it seems to me, the language of cl 12.3(c)(3) does contemplate less than absolute precision, by the use of the words "as far as is practicable". That may be why CPI adjustments are to be "calculated", but Government charges are to be "adjusted" (see cl 12.3(a)).

101 Accordingly, whilst I do not pretend that the process of allocating the charge is as simple as Mr Archibald suggested, nonetheless I think in principle the pro-rating mechanism that I have discussed provides a way of achieving this.

Conclusions and orders

102 I conclude that Centennial has made good its claim to the first declaration that it seeks, which is as follows:

1. A declaration that the charges incurred by the plaintiff under the Clean Energy Act 2011 (Cth) or the Clean Energy (Unit Shortfall Charge - General) Act 2011 (Cth) in respect of the operation of the Mandalong mine (Carbon Charges) are charges, taxes, royalties or other levies imposed on or payable by the plaintiff within the meaning of "Government Charges Per Tonne" in clause 1.1 of Contract 5060 between the plaintiff and defendant (Contract).

103 The second declaration sought relates effectively to the means of dividing the overall liability between Centennial and Delta. In principle, I think, that should be done by the pro-rating mechanism that I have outlined. However, because there remain concerns as to precisely what emissions (or more accurately, charges resulting from emissions) should be prorated, and precisely how the prorating should be effected, the parties should have an opportunity to reflect on these reasons and address further submissions to the point.

104 An alternative approach would be to declare (as I propose to do) the entitlement in principle, and to leave it to the parties to work out the mechanism. If they cannot do that, then they could refer the whole question of quantification to an expert as a Technical Dispute.

105 I make the following orders:

(1) declare that the charges incurred by the plaintiff under the Clean Energy Act 2011 (Cth) or the Clean Energy (Unit Shortfall Charge - General) Act 2011 (Cth) in respect of the operation of the Mandalong mine are charges, taxes, royalties or other levies imposed on or payable by the plaintiff within the meaning of "Government Charges Per Tonne" in clause 1.1 of Contract 5060 between the plaintiff and defendant;

(2) stand over to 9:30am on 6 November 2013 before me for directions;

(3) reserve costs;

(4) reserve liberty to apply on 3 days' notice.

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Decision last updated: 18 October 2013