Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Delta Electricity v Centennial Mandalong Pty Ltd [2014] NSWCA 178 Hearing dates: 22 April 2014 Decision date: 06 June 2014 Before: McColl JA at [1]; Barrett JA at [2]; Ward JA at [3] Decision: Appeal dismissed with costs [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: CONTRACTS - general contractual principles - construction and interpretation of contracts - whether government charges imposed under the national carbon pricing scheme on methane emissions were charges "attributable to" coal sold by the respondent and purchased by the appellant Legislation Cited: Clean Energy Act 2011 (Cth) Clean Energy (Consequential Amendments Act) 2011 (Cth) Clean Energy (Unit Shortfall Charge - General) Act 2011 (Cth) Coal and Oil Shale Mine Workers (Superannuation) Act 1941(NSW) Coal Industry Act 2001(NSW) Fair Trading Act 1973 (UK) Mine Subsidence Compensation Act 1961 (NSW) Mining (General) Regulation 1997 (NSW) National Greenhouse and Energy Reporting Act 2007 (Cth) National Greenhouse and Energy Reporting (Measurement) Determination 2008 (Cth) Cases Cited: Central Asbestos Co Ltd v Dodd [1973] AC 518 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 Dryden Construction Co Ltd v New Zealand Insurance Co Ltd [1959] NZLR 1336 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447 R v Monopolies and Mergers Commission, Ex parte National House Building Council [1994] TLR 38 Re Golden Key Ltd [2009] EWCA Civ 636 Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989; [1976] 3 All ER 570 Repatriation Commission v Law (1980) 31 ALR 140 Roncevich v Repatriation Commission [2005] HCA 40; (2005) 222 CLR 115 Total Transport Corp v Arcadia Petroleum Ltd (The Eurus) [1998] 1 Lloyd's Rep 351 Zhu v Treasurer of New South Wales [2004] HCA 56 at [82]; (2004) 218 CLR 530 Texts Cited: Sir Kim Lewison and David Hughes, The Interpretation of Contracts in Australia (2012, Thomson Reuters) J W Carter, The Construction of Commercial Contracts, (2012, Hart Publishing) Category: Principal judgment Parties: Delta Electricity (Appellant) Centennial Mandalong Pty Ltd (Respondent) Representation: Counsel: NC Hutley SC with JA Watson (Appellant) AC Archibald QC with JR Williams (Respondent) Solicitors: Jones Day (Appellant) Herbert Smith Freehills (Respondent) File Number(s): CA 2013/380234 Publication restriction: Nil Decision under appeal Citation: [2013] NSWSC 1505; [2013] NSWSC 1860 Before: McDougall J File Number(s): 2012/384031 Headnote [This Headnote is not to be read as part of the judgment] This judgment relates to an appeal by Delta Electricity, the owner and operator of the Vales Point power station, from two decisions in the Equity Division of the Supreme Court in favour of Centennial Mandalong Pty Ltd, the owner and operator of the Mandalong Mine located close to the power station. In the Equity Division, Centennial Mandalong had sought declaratory relief as to the proper construction of a particular clause in the Coal Supply Agreement pursuant to which Centennial supplied coal extracted from the Mandalong Mine to Delta Electricity, and as to its entitlement to require an adjustment to the price payable by Delta Electricity for the coal by reference to a proportion of the charges imposed on Centennial Mandalong under the national carbon pricing scheme in respect of methane emissions produced during the mining process. The principal issue was as to the meaning of "attributable to" in clause 12.3(c) of the Coal Supply Agreement. Centennial Mandalong contended, and the primary judge held, that this required that there be a sufficient connection between the carbon charges and the coal supplied to Delta Electricity, and that there was a sufficient connection by reason of the fact that the charges imposed on methane emissions that were a necessary incident of the process of extraction of that coal from the mine. Delta Electricity contended that the clause required adjustment only for government charges imposed on the particular coal supplied to it. There was also a dispute as to the appropriate method of quantification of the attributable charges, in the event that Centennial Mandalong's construction were correct, and as to whether the adjustment should include charges referable to methane emissions produced from certain disputed mining activities (pre-draining, road construction, "goafs" and stockpiles). Held: by Ward JA (McColl and Barrett JJA agreeing), dismissing the appeal: (1)There is a distinction between a charge that is "attributable to" the Delta coal, in the sense of referable to the coal or connected therewith, and a charge that is imposed "on" the Delta coal: [72] (2)The concept of attributability in clause 12.3(c)(3) of the Coal Supply Agreement means something other than "is imposed on"; it is a concept meaning "referable to" or "ascribable to"; and, while it requires a connection between the two things, the content of that connection need not be exclusively causal: [94] (3)There is a sufficient connection to satisfy the requirement of attributability in clause 12.3(c)(3) if the charge in question is referable to a necessary incident of the production of the Delta coal: [114] (4)Methane emissions are caused by and an integral part of the mining process; hence charges imposed on those emissions are attributable to the Delta coal for the purposes of the relevant clause: [114] (5)No error was shown in the primary judge's conclusion that the appropriate method of quantification of the charges attributable to the Delta coal was to pro-rate the charges by reference to the proportion of Delta coal compared with the total coal produced from the mine in the relevant period: [119] (6)There was no error in including, in the charges attributable to the Delta coal, charges on emissions referable to the four disputed sources of emissions (pre-draining, construction of mine roads, "goafs" and stockpiles) as these charges are referable to emissions caused by incidental measures necessary to extract the Delta coal or, in the case of stockpiles, imposed by reference to the total production of coal irrespective of whether it was in fact stockpiled: [126]; [131] Judgment 1MCCOLL JA: I agree with Ward JA's reasons and the order her Honour proposes. 2BARRETT JA: I agree with Ward JA. 3WARD JA: Delta Electricity (Delta) owns and operates the Vales Point power station in New South Wales. It formerly also owned and operated the Munmorah power station. On 12 April 2002, it entered into a coal supply agreement with Powercoal Pty Limited, then the owner and operator of the Mandalong Mine (Coal Supply Agreement). Unless terminated earlier in accordance with the agreement, the term of the agreement was 16 years commencing on 1 July 2006. On 13 August 2002, by Deed of Novation, Centennial Mandalong (Centennial) was substituted for Powercoal as the supplier under the Coal Supply Agreement (Deed of Novation). 4Following the introduction in 2011 of Commonwealth legislation putting in place a national carbon pricing scheme, a dispute arose between Delta and Centennial as to whether Delta was liable to pay an adjusted amount for the coal supplied to it under the Coal Supply Agreement, to take into account charges imposed on Centennial under that scheme. 5The dispute turns on the construction of a particular clause (clause 12.3(c)(3)) of the Coal Supply Agreement. Delta does not dispute that the charges imposed on Centennial in respect of methane produced in the process of extraction of coal at the Mandalong Mine are government charges. However, it contends that they are not charges "attributable to" the coal sold by Centennial and purchased by it under the Coal Supply Agreement within the meaning of clause 12.3(c)(3). Hence, it disputes that these charges give rise to an adjustment of the relevant component of the price payable by it for the coal supplied by Centennial, namely, the "Government Charges Component Per Tonne" component. It further disputes the calculation of any adjustment that, contrary to its principal contention, is required to be made by reason of clause 12.3(c)(3), on the basis that not all of the methane emissions in respect of which charges are imposed are emissions referable to the extraction of the particular coal supplied to it. 6After the parties had participated in an alternative dispute resolution process provided for under the agreement, Centennial sought declaratory relief in the Commercial List of the Equity Division as to the construction of clause 12.3(c)(3) and as to its entitlement to require an adjustment to the Government Charges Component Per Tonne of the price payable by Delta for the coal, by reference to a proportion of the carbon charges. That application was heard in September 2013. 7The primary judge held in favour of Centennial that the carbon charges incurred by Centennial under the carbon pricing scheme in respect of the operation of the Mandalong Mine were government charges falling within clause 12.3(c)(3) of the Coal Supply Agreement ([2013] NSWSC 1505 at [91]) and that the appropriate method of quantification of the attributable charges should be by pro-rating the emissions between the total quantity of coal produced from the Mandalong Mine in the relevant period and the quantity sold to Delta in that period (at [92]). 8After further submissions from the parties in relation to whether methane emissions from particular sources were to be included in the calculation of an adjusted price, his Honour held, again in favour of Centennial's contentions, that the methane emissions attributable to the coal sold by Centennial to Delta included emissions from each of the various sources that were in issue between the parties, including from coal stockpiles and from what are known as "goafs" (those being mined-out and sealed off areas of the mine into which methane will collect or is pumped) ([2013] NSWSC 1860). 9Delta appeals from both decisions. Background 10The Mandalong Mine is located near the Vales Point Power Station. Centennial's General Manager, Operations - North, Mr Andrew Myors, deposed that the Mandalong Mine produces approximately 5 million tonnes of coal per year ([37]) and that in the 2011-2012 financial year deliveries to Delta under the Coal Supply Agreement represented approximately 23% of the total coal production of the mine ([40]). 11It is common ground that on 8 February 2012 Centennial advised Delta that it required an adjustment of the Government Charges Component Per Tonne, a component of the price payable for coal supplied to it, to include carbon charges, and that on 14 March 2012 Delta declined Centennial's request to adjust the amount of the Government Charges Component Per Tonne. 12The mining operations carried out at the Mandalong Mine, and the ways in which those operations cause methane emissions, are described in his Honour's first judgment (at [2]-[7]; [8]-[19]). There is no dispute between the parties as to his Honour's description of those matters. 13Nor is there any dispute as to the relevant operation of the carbon pricing scheme legislation that came into operation on 1 July 2012. This package of legislation includes the Clean Energy Act 2011 (Cth); the Clean Energy (Unit Shortfall Charge―General) Act 2011 (Cth); and the Clean Energy (Consequential Amendments Act) 2011 (Cth), schedule 1, part 1 of which amended the National Greenhouse and Energy Reporting Act 2007 (Cth). 14The carbon pricing scheme involves the acquisition and surrender of carbon units by liable entities. It is accepted that Centennial is a "liable entity" because it produces above a particular level of carbon emissions (25,000 tonnes) per year (s 20(3) & (4) Clean Energy Act). Under the scheme, a charge is imposed if, for a financial year, there is a "unit shortfall", as defined in s 5 of the Clean Energy Act, (s 3 of the Clean Energy (Unit Shortfall Charge―General) Act). In essence, there is a unit shortfall if, having regard to the liable entity's annual carbon emissions, the entity has insufficient carbon units to redeem for the relevant year (ss 125, 128, 129, 133 of the Clean Energy Act). Part 4 Division 2 of the Clean Energy Act deals with the issue of carbon units; Part 6 Division 2 with their surrender. 15Delta emphasises that the charges are imposed in respect of emissions; they are not imposed on a liable entity in respect of the disposal of, or dealing with, the product of the mining process. So, for example, carbon charges can be imposed in relation to methane emissions from coal stockpiled, but not sold, within a particular financial year. Relevant contractual provisions 16Under the Coal Sale Agreement, Delta is obliged to purchase, and Centennial is obliged to supply, on an annual basis, a particular tonnage of coal of a specified quality. The Coal Supply Agreement contains provisions as to matters such as the delivery arrangements and title (clause 4), quotas and rates of delivery (clause 5), and the supplier's obligations as to coal quality (clause 9). Pursuant to clause 4.5 of the Coal Supply Agreement, Centennial is obliged to supply at least 85% of the coal required to be delivered to Delta under the Coal Sale Agreement from coal mined from the Mandalong Mine. 17Clause 5.3(d) of the Coal Supply Agreement, dealing with quotas, provides that the Annual Contract Tonnage to be supplied for a Contract Year is the sum of the Fixed Annual Contract Tonnage (1.5 million tonnes - per Item 1 of Schedule 2) and the Option Annual Contract Tonnage (300,000 tonnes - per Item 5 of Schedule 2). The option to deliver the Option Annual Contract Tonnage is exercisable only by Centennial (clause 5.3(e)). Clause 6 permits Centennial to designate a quantity of Consignment Coal, providing that excess deliveries can be allocated to meet delivery obligations in subsequent months if appropriated as such. There is no obligation to pay for Consignment Coal until allocated (clause 6.7). 18Clause 12 of the Coal Supply Agreement contains the relevant provisions as to the price payable by Delta for the coal supplied to it. 19Pursuant to clause 12.3(a), the Contract Price Per Tonne is the sum of two components: the Contract CPI Price Component Per Tonne as calculated in accordance with clause 12.3(b) and the Government Charges Component Per Tonne as adjusted in accordance with clause 12.3(c). 20The first of those two components is calculated by reference to a formula in clause 12.3(b) that includes a Base CPI Price Component Per Tonne which is to be adjusted by reference to the Consumer Price Index as at the relevant quarter compared with the said index as at the quarter beginning on the defined Base Date (1 July 2002). 21The second of those components (the Government Charges Component Per Tonne) is to be adjusted in accordance with clause 12.3(c)(3). The term "Government Charges Component Per Tonne" is not defined in the Coal Supply Agreement. However, the term "Government Charges Per Tonne" is defined in clause 1.1, in very similar terms as those that appear in clause 12.3(c)(3), as meaning: ...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, calculated on a per tonne basis, the amount of which as at the Base Date is specified in Schedule 5. 22Schedule 5, headed "Price Components Per Tonne (as at the Base Date)", specifies the Base CPI Price Component Per Tonne and the Government Charges Per Tonne, respectively, for each of the Fixed Annual Contract Tonnage (the 1.5m tonnes) and the Option Annual Contract Tonnage (300,000 tonnes) over the contract term. In each case, the amount specified under the heading "Government Charges Per Tonne ($)" includes a description of its two component parts, those being "royalty" and "research levy". 23Clause 12.3(c), the construction of sub-clause (3) of which is the critical issue in dispute between the parties, provides for the adjustment of the Government Charges Component Per Tonne 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. (my emphasis) (4) The Government Charges Component Per Tonne shall be adjusted to the amount, and from the time, as agreed or determined. 24Adjustment to the Contract Price Per Tonne for any month is to be made to reflect variations in specific energy, ash and moisture content from the Standard Coal Quality (clause 12.4). 25Provision is made for a review of the Contract CPI Price Component Per Tonne on each of two specified Price Review Dates: 1 July 2011 and 1 July 2016 (clause 12.5). The clause 12.5 formula encompasses arithmetical calculations relating to: the tonne weighted average coal cost of deliveries to particular power stations over a set period (excluding the Mandalong Mine); the average New South Wales export FOB price (A$ per tonne) for steaming coal exports for the preceding 12 months; and the tonne weighted average electricity price for the relevant node for the Power Stations of the National Electricity Market for the preceding 12 months. On such a price review, clause 12.5(b) in effect caps any increase at, or limits any decrease to, 10%. 26Clause 12.6 provides that the Adjusted Contract Price Per Tonne is inclusive of all costs of complying with the agreement and meeting the delivery criteria, taxes and transport costs to the specified delivery point, except as otherwise provided in the agreement. 27Clause 16 contains provisions governing the procedure for resolution of disputes between the parties. Clause 16.5 requires referral to an expert for expert determination of a Technical Dispute, as defined. Clause 16.5 also provides that it is to apply to any other matter which, under the agreement, is to be treated as a Technical Dispute. Relevantly, for present purposes, either party may treat a dispute as to a notice issued under clause 12.3, which is not resolved by agreement within 10 business days, as a Technical Dispute and take action under clause 16.5 (12.3(c)(3)). 28An agreement treated for the purposes of the expert determination provisions as a Technical Dispute, if not resolved within 20 business days after delivery of the dispute notice or such further period as the parties might agree in writing, is to be dealt with pursuant to clause 16.5, which provides for expert determination of disputes. 29Clause 25.14 of the Coal Supply Agreement incorporates into the contract Special Condition 1 (set out in Schedule 4), which in effect provided a mechanism by which the supplier could bring the agreement to an end, without penalty, within a specified time and which entitled the purchaser to an option fee until the earlier of the date on which notice was given under that special condition and the expiry of the specified period. Special Condition 1 provides as follows: (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 the 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. 30Presumably, a notice was given under Special Condition 1(b), as there is no suggestion that the agreement did not become binding on the parties in the sense there contemplated. Its relevance for present purposes is the reference made by his Honour to Special Condition 1 when considering the commercial context of the agreement. Primary judgment 31His Honour construed the words "attributable to" in clause 12.3(c)(3) as requiring some form of connection between the charge (i.e., the carbon charge imposed on Centennial under the carbon pricing scheme) and the "coal sold by the Supplier and purchased by the Purchaser under this agreement" (at [61] and see also at [65]). 32In reaching that conclusion, his Honour had reference to various dictionary definitions of the word "attributable", and cognate forms of that word, as well as to the authorities referred to by the parties, including Central Asbestos Co Ltd v Dodd [1973] AC 518 (referring to what was there said by Lord Reid at 533 and by Lord Morris of Borth-y-Gest at 538). His Honour rejected the submission for Centennial that all that was signified by "attributable" was a process of allocation or the ability to allocate the charge to the coal ([65]). 33His Honour considered that an understanding of the nature of the requisite connection required attention to the context in which the process of attribution occurs: "specifically, to why it is that one thing is required to be attributable to another" ([61]). His Honour, in that context, made observations as to the commercial context of the agreement (at [70]-[75]) when considering the form of connection required by the clause. 34Having formed the view that the reason the question of attribution was being asked was that government charges affect, or have an adverse impact on, the cost to Centennial of producing the coal that is to be sold to Delta, his Honour concluded that clause 12.3(c)(3) was intended to pick up government charges that: were not expressly excluded; could not be avoided; and were related in a rational way both to the production of coal and to the cost of production of coal ([77]). 35His Honour acknowledged that this conclusion might be regarded as requiring demonstration of some form of causation ([78]) but did not treat the notion of attributability as requiring a direct, immediate or obvious connection ([76]). His Honour referred in this regard (at [79]-[80]) to the decision of the High Court in Roncevich v Repatriation Commission; [2005] HCA 40 at [27]; (2005) 222 CLR 115 at 126, where McHugh, Gummow, Callinan and Heydon JJ considered that "[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", and (at [81]-[83]) to the decision of the Full Court of the Federal Court (Bowen CJ, Brennan and Lockhart JJ) in Repatriation Commission v Law (1980) 31 ALR 140 (at 151), where their Honours considered it clear that the expression "attributable to" involved an element of causation but provided it was a contributing cause it was sufficient, to show "attributability", that the cause be one of a number of causes. 36From [84], his Honour addressed the question whether attributability existed in the present case, having regard to the commercial context in which the issue arose, concluding (at [91]) that there was the relevant attributability between the carbon charges and the coal sold to and purchased by Delta. 37That context included (at [84]) "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". His Honour (at [85]) considered that Special Condition 1 of the Coal Supply Agreement (reproduced at [29] above) made it clear that the contract was an integral part of the decision to develop the mine and referred (at [86]) to the fact that Centennial was obliged to source from the Mandalong Mine at least 85% of the coal contracted to be sold over the life of the agreement (clause 4.5, to which I have referred at [16] above). His Honour took into account (at [87]) the necessity for the coal to be mined before it could be sold and delivered to Delta, observing that there was nothing in the evidence to suggest that there was a stockpile of coal at or near the Mandalong Mine from which Centennial might otherwise supply Delta. 38Noting the obvious link between coal production and the sale of coal, his Honour concluded that, because the carbon charges and unit shortfall charges were imposed on the emission of methane which was an inevitable consequence of mining, the charges were a necessary or integral part of the cost of production of coal ([88]). His Honour concluded that a charge which "arises inevitably upon production" could properly be said to be attributable to the sale of that which is produced ([90]). Hence, the conclusion (at [91]) that there was a sufficient connection between the charge under consideration and the sale and delivery of coal under the Coal Supply Agreement so as to render the former attributable to the latter. 39Turning to the issue as to how to allocate the charges, as noted earlier, his Honour considered that the appropriate method was to pro-rate the emissions caused by the process of mining in any given period as between the total quantity of coal produced in that period and the quantity sold to Delta ([92]). His Honour considered that the emissions to be included for that purpose were those that arose from the mining process itself. His Honour accepted that the mining process produced methane emissions from activities such as: the pre-draining of mined areas; the construction of roads; and the process of longwall mining, and that charges referable to those emissions should be included even though some of those activities (and hence the charges) could be said to relate not just to the actual quantities of coal mined in any given period but also to quantities mined in subsequent periods ([93]). His Honour was less certain about emissions from stockpiles and goafs ([95]). 40His Honour's second judgment ([2013] NSWSC 1860) addressed the dispute as to whether charges referable to particular sources of methane emissions charges were to be regarded as attributable to coal sold by Centennial to Delta. His Honour concluded that the emissions to be taken into account in the pro-rating exercise included each of the disputed categories of emissions (namely, pre-draining, roads, longwall mining, stockpiles and goafs). Appeal 41By its amended notice of appeal, Delta appeals both from his Honour's decision as to the construction of clause 12.3(c)(3) and from his Honour's decision as to the appropriate method of quantification of the charges, assuming his Honour's construction of the clause stands. The grounds of appeal are as follows: 1. His Honour erred in holding at Judgment [91] of the Judgment [2013] NSWSC 1505 dated 17 October 2013 that there was a sufficient connection between charges imposed by operation of the Clean Energy Act 2011 (Cth), Clean Energy (Unit Shortfall Charge―General) Act 2011 (Cth) and National Greenhouse and Energy Reporting Act 2007 (Cth) (Charges), and the sale and delivery of coal pursuant to Coal Supply Agreement Contract No 5060 dated 12 April 2002 (the Agreement), to render the former attributable to the latter so as to be included in the calculation of "Government Charges Per Tonne" within the meaning of clause 1.1 and for the purposes of clause 12.3(c)(3) of the Agreement. His Honour ought to have held that: a. the Charges were attributable to the emission of greenhouse gasses by the Respondent in the conduct of the Mandalong Mine; b. there was no sufficient connection or causal relationship between the Charges and the coal sold by the Supplier and purchased by the Purchaser for the Charges to satisfy "Government Charges Per Tonne" or the requirement in clause 12.3(c)(3) that the Charges be attributable to coal sold by the Supplier and purchased by the Purchaser under the Agreement; c. the Charges were not attributable to coal sold by the Supplier and purchased by the Purchaser in fact or law. 2. His Honour erred in coming to further conclusions of fact in Judgment [74] and [75] because: a. there was no admissible evidence or other textual basis to support the findings; b. the findings were not relevant to the proper construction or application of "Government Charges per Tonne" or clause 12.3(c)(3) of the Agreement. 3 His Honour erred at Judgment [77] in holding that "Government Charges per Tonne" or clause 12.3(c)(3) of the Agreement was intended to pick up government charges related in a rational way to the production of coal and related again in a rational way to the cost of production of coal, when: a. the sole test for "Government Charges per Tonne" and clause 12.3(c)(3) of the Agreement was whether the charges were attributable to coal sold by the Supplier and purchased by the Purchaser under the Agreement; b. there was no textual or other basis for concluding that "Government Charges per Tonne" or clause 12.3(c)(3) of the Agreement was intended to pick up, or mean, charges related in a rational way to the production of coal and to the cost of production of coal. 4. His Honour erred at Judgment [84]-[90] (inclusive) in that: a. his Honour applied the test proposed at Judgment [77], which was the wrong test under the Agreement; b. the matters at Judgment [84]-[90] (inclusive) do not establish a sufficient connection or causal relationship between the Charges and the coal sold by the Supplier and purchased by the Purchaser under the Agreement; c. the matters at Judgment [84]-[90] (inclusive) do not otherwise establish that the Charges were charges attributable to coal sold by the Supplier and purchased by the Purchaser under the Agreement, in fact or law. 5. His Honour ought to have held that: a. there was not a sufficient connection or causal relationship between the Charges and the coal sold by the Supplier and purchased by the Purchaser under the Agreement; b. the Charges were not otherwise charges attributable to coal sold by the Supplier and purchased by the Purchaser under the Agreement, in fact or law. 6. His Honour erred in Judgment [92] and [96] in determining that a pro-rating exercise was the appropriate method of quantification of the attribution of the Charges 7. In the alternative: a. his Honour erred at Judgment [94] and in the first declaration contained in the further Judgment [2013] NSWSC 1860 dated 16 December 2013 ("Further Judgment") by including charges resulting from emissions from pre-draining in the calculation of the Charges; b. his Honour erred at Judgment [94] and in the first declaration in the Further Judgment, by including charges resulting from emissions from the construction of roads in the calculation of the Charges; c. his Honour erred at Further Judgment [19] and in the first declaration in the Further Judgment, by including charges resulting from emissions from stockpiles in the calculation of the Charges; d. his Honour erred in the first declaration in the Further Judgment by including charges resulting from emissions from goafs in the calculation of the Charges. 42Centennial has filed a notice of contention in which it contends that the primary judgment is supportable on two alternative grounds: 1. ...that the connection between charges imposed on the Respondent under the Clean Energy Act 2011 (Cth) and related legislation (Carbon Charges) and coal sold to the Appellant under Coal Supply Agreement Contract No 5060 (Agreement) sufficient to render the former attributable to the latter for the purpose of cls 1.1 and 12.3(c) of the Agreement need not be a connection of a causal kind. 2. ...on the alternative ground, and his Honour ought to have found, that the exclusions in cls 1.1 and 12.3(c) of the Agreement (for income tax, payroll tax and fines or levies imposed for failure to comply with any stature or regulation) indicate that the parties did not intend "Government Charges Per Tonne" to comprise only those charges or imposts imposed directly on the sale of coal under the Agreement. 43I will deal with ground 1 of the notice of appeal and ground 1 of the notice of contention after considering the more confined grounds of appeal/contention challenging particular aspects of his Honour's reasoning. Ground 2 of notice of appeal - parties' assumed understanding as to effect of charges on increase in the price of bulk electricity 44Ground 2 is addressed to the reasoning set out in [74] and [75] of his Honour's first judgment. 45At [74], his Honour rejected a submission made for Centennial that Delta was or is in a position to increase the charges for electricity that it sold in the national electricity market and hence that there was a prospect that the carbon charges could be passed on to its customers. 46His Honour nevertheless went on to express the opinion that 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" ([74]). His Honour referred to government charges that affected all electricity producers, or all of a particular kind or in a particular area, as an example of charges that would be likely to flow through to price. At [75], his Honour said: ... 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. (my emphasis) 47His Honour had earlier (at [70]-[72]) made a number of observations as to what the parties had, or might be presumed to have, sought to achieve for their respective commercial purposes under the Coal Supply Agreement. His Honour inferred (at [73]), among other things, that Centennial was not prepared to accept all the risk of additional government charges and that Delta had agreed to bear at least some of that risk. No complaint is made as to those observations, which broadly attribute to one or other of the parties, or both as the case may be, a wish to achieve that which it can be seen from the concluded agreement they had objectively achieved. 48Complaint is made, however, as to his Honour's reasoning in [74] and [75], to the extent that those paragraphs record findings of fact. Delta contends: (a) that there was no admissible evidence or other textual basis to support an inference that the intent of clause 12.3(c)(3) was to produce a mechanism by which to pass on to Delta government charges that Centennial could not otherwise recoup under the contract but which Delta had some prospect of so doing from its customers; and (b) that the matters in these paragraphs are not relevant to the proper construction or application of clause 12.3(c)(3). 49As to contention (a) above, not surprisingly in the absence of any claim for rectification or the like to which that evidence would have been admissible, Delta points to the absence of evidence before his Honour as to the pre-contractual negotiations leading up to the Coal Supply Agreement. Further, Delta notes, in relation to the prospect that the prices Delta achieved for its electricity would reflect the burden of government charges affecting electricity generators who sold their output into the national electricity market, that the clause is not limited to charges levied at the Commonwealth level. 50It is submitted by Delta that were the parties to have intended clause 12.3(c)(3) to operate so as to pass on government charges that could be recouped by it in such a fashion, there would have been no need for clause 12.5, which provides for a review of the Contract CPI Price Component Per Tonne taking into account, among other things, the time weighted average electricity price. It was suggested that there would be a risk of double counting if electricity pricing were to be taken into account both under clause 12.3 and under clause 12.5. It was, however, accepted by Delta that the possibility of double counting would equally apply had the carbon charges been unambiguously caught by clause 12.3(c)(3). Little, therefore, can be drawn from the possibility that, if the clause were to apply to the carbon charges in the present case, there might be an unintended double counting, i.e., that the impact of government charges on electricity pricing might be taken into account in two stages of the pricing provisions under the Coal Supply Agreement. 51There is some textual support for the proposition that the parties must have appreciated that coal pricing could have an effect in some way on ultimate electricity pricing, by reference to the fact that national electricity pricing was included as a factor in the price review formula in clause 12.5. That said, I am not persuaded that there is anything in the text of the Coal Supply Agreement that would support a finding that the parties' common intention was that Delta should assume liability for any or all government charges that Centennial could not otherwise recoup but which Delta might be able to pass on to its customers. 52There can be no doubt that clause 12.3(c)(3) was intended to operate so as to permit adjustment of the coal price to take into account government charges, provided they were relevantly attributable to what I will refer to as the "Delta coal", i.e., the particular coal supplied to Delta under the Coal Sale Agreement. While it would no doubt have made commercial sense for Centennial to seek to pass on any such charges that it could not otherwise recoup, it would equally have made commercial sense for Delta to resist adjustments that would increase the price payable to it for the Delta coal. Therefore, the matter that his Honour considered the parties should be taken to have understood as part of the commercial context to their argument, i.e., that there might be government charges imposed on Centennial that Delta might be able to pass onto its customers and for which provision was not otherwise made in agreement, does not assist in the construction of the clause. 53Centennial only faintly suggests otherwise. It accepts that commercial context in this regard has only slight weight but argues that the utility in the reference to the prospect of an increased burden on Delta being able to be recouped from its downstream customers is that this supports the clause not being a given a narrow construction. The fact that the clause was addressing future charges that would presumably not have been foreseen at the time, since otherwise one might expect them to be expressly dealt with in the contract, supports the proposition that the clause should not be narrowly construed. However, for the reason set out in [52] above, no weight can be placed on whether or not Delta might commercially have been able to pass on to its customers price increases referable to the carbon charges. 54The force of Delta's submissions in relation to this ground of appeal, in my opinion, would be to the extent that his Honour found the purpose of clause 12.3(c)(3) by hypothesising its object, i.e., the capacity to pass on charges. Delta maintains that his Honour's conclusion in this regard was the product of impermissible reasoning. However, as I explain below, that is not what his Honour did when referring to the commercial context of the agreement. 55That said, I do not read [74] and [75] of his Honour's reasons as conveying a finding that the common intention of the parties was for this clause to have such an operation. His Honour, as noted, had expressly rejected the submission by Centennial that Delta was in a position to increase electricity prices. The observation at [75] seems to be no more than by way of background. I do not read it as leading to his Honour's ultimate conclusion, which Delta challenges, namely the conclusion that the charges were relevantly attributable to the Delta coal because they were rationally related to the production, or the cost of production of that coal. 56As to contention (b) above, it was not suggested by Delta that reference to the commercial context of the Coal Supply Agreement as a whole was impermissible in confirming the meaning of "attributable to" in clause 12.3(c)(3). Rather, Delta contends that his Honour erred in embarking on a purposive enquiry in respect of clause 12.3(c)(3) itself. 57Delta emphasises that this is but one clause in a carefully drafted contract. Delta contends that the only commercial purpose that can be discerned from the contract is that it was for the sale of coal and that there was no material to enable a conclusion to be drawn by his Honour as to the commercial purpose of this one clause in isolation. Whether the commercial purpose of the contract would necessarily be so broadly stated, in circumstances where the purpose might more narrowly be described, say, as for the sale of coal the bulk of which was to be produced from the Mandalong Mine, is a moot point. I accept the proposition that its purpose could not be confined to one referable to who was to bear liability for government charges that affected the cost of production of the coal supplied. 58The force of Delta's submissions in relation to this ground of appeal, in my opinion, would be to the extent that his Honour found the purpose of clause 12.3(c)(3) by hypothesising its object, i.e., the capacity to pass on charges. Delta maintains that his Honour's conclusion in this regard was the product of impermissible reasoning. However, I do not read his Honour's reasons as involving a circular process of reasoning as submitted by Delta. 59The concession by Delta, in effect, that reference by his Honour to the commercial context of the contract as a whole was not impermissible when construing the relevant clause is well-founded. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447, the majority of the High Court (French CJ, Hayne, Crennan and Kiefel JJ) said at [35], 454-455: [T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" [Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 350, citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574]. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience" [Zhu v Treasurer of New South Wales [2004] HCA 56 at [82]; (2004) 218 CLR 530 at 559]. (footnotes omitted). 60As I read his Honour's reasons, it is clear that what his Honour was doing was construing the particular clause, in the context of the whole of the agreement, by reference to the surrounding circumstances known to the parties at the time, something recognised in Electricity v Woodside as appropriate to be taken into account in construing a commercial contract. No error is revealed in that approach. The criticism of his Honour's reasoning made by Delta in ground 2(b) is not made good. Ground 3 of notice of appeal - conclusion at [77] 61The complaint made by ground 3 of the notice of appeal is that his Honour erred in holding that clause 12.3(c)(3) was intended to pick up government charges related in a rational way to the production of coal and to the cost of production of coal. It is said there is no textual or other basis for those conclusions. 62Delta contends (in ground 3(a)) that the sole test (for attributability) was whether the carbon charges were attributable to the coal sold/purchased under the agreement. That, however, does little more than re-state the relevant words of clause 12.3(c)(3). What his Honour was seeking to determine was how the question of attributability was to be answered having regard to the particular charges in dispute, i.e., what was the necessary form of connection between the carbon charges and the Delta coal. 63Delta submits that [77] of his Honour's reasons is fallacious because the enquiry made by his Honour assumes the conclusion, i.e., that it is only if one assumes that the objective purpose of the clause was to ensure that it protected Centennial from all charges having an adverse effect on production that the enquiry as to the form of connection between the charge and the Delta coal can be answered as it was by his Honour (at [77]). It is submitted that if this were the commercial purpose or intent of the contract, then every change in costs that has an impact on the cost of production would fall within the expression "attributable to" in the relevant clause and that this cannot be the test for attributability. 64Delta further contends that his Honour's conclusion effectively reads into the contract the words "related in a rational way to" the production, or the cost of production, of coal. Delta submits that this leaves unclear how such a rational relationship is to be determined, such as whether the relationship must be direct or indirect, and that this itself bespeaks error on his Honour's part. 65Centennial submits that his Honour should be read (in [77]-[78]) as concluding simply that the relationship between the charges and the coal must be one that involves an element of causation and that (at [76]) his Honour was not purporting to identify the commercial purpose of the clause but was referring instead to the purpose of asking the relevant question, i.e. why the contract requires that the charge be "attributable to" the Delta coal, so as to assist in determining whether that requirement is satisfied in the present case. I agree. 66Insofar as criticism is made of his Honour's description (at [77](1)-(4)) of the government charges that the parties objectively intended to form part of the relevant price adjustment, there was no criticism of the first component of that description (in [77](1)). Clearly the clause 12.3(c)(3) adjustment was not to include charges expressly excluded in the parenthetical words of the clause. While it is not clear the basis on which his Honour drew the second component identified (in [77](2)), namely that the charges be ones that "cannot be avoided", no complaint seems to be made of this. It may be that his Honour had in mind that an optional charge, or one the imposition of which was avoidable, could not objectively have been intended to constitute a "charge", i.e., imparting some concept of finality to the relevant charge(s). However, it is not necessary to explore this since no issue was taken as to this component. 67The real complaint by Delta is as to the third and fourth components identified by his Honour (set out in [77(3)] and [77(4)]). Both components are phrased as requiring a rational connection. Insofar as the complaint is as to the words "related in a rational way", this cannot in my opinion be sustained. What his Honour must there have been contemplating is that the parties must have intended there to be a rational basis for the connection or that the connection must be a rational one. That goes no further than excluding an irrational form of connection or relationship between the charge and the Delta coal. One would not readily conclude that, in a commercial contract such as this, the parties had intended to adopt an irrational basis of attributability. 68Therefore, the only substantive complaint about his Honour's conclusion at [77] as to the charges the clause was intended to pick up can sensibly be as to his Honour having read into the notion of attributability that the charge be one that is rationally related to the "production of" and/or the "cost of production of" the Delta coal. 69Delta submits, in effect, that these words cannot be read into the clause and that the clause is limited to charges "attributable to" the Delta coal in the sense of charges "on", or seizing upon, the Delta coal; not to its production or the cost thereof. 70I accept that there is no textual basis for reading into the clause, in effect, the words "the cost of production". To the extent that this is what is contemplated by [77(4)], with respect to his Honour in my view it does involve the impermissible reading of words into the clause and introduces a requirement for which I see no textual basis. It does not necessarily follow from the link between the mining extraction process and the Delta coal, that all costs of mining activities at the mine will be costs sufficiently causally connected to the coal itself. The example Delta gives of the cost of providing accommodation at the mine, which is incurred whether or not any coal is produced let alone any Delta coal, illustrates this. Centennial does not contend that a charge related to such a cost would fall within the clause. 71However, the same criticism cannot be made of the component identified in [77(3)]. This does not involve any impermissible reading of "production" into the clause. What his Honour was there pointing to was the fact that, for the coal to be available for sale to Delta it had first to be mined, and hence there was an obvious connection between the mining process, and emissions caused as an inevitable part of that process, on the one hand, and the Delta coal, on the other. 72The distinction his Honour was in my opinion there drawing, when seeking to determine whether there was a logical or rational connection between the charge and the coal, was a distinction between a charge that is "attributable to" the coal, in the sense of a charge referable to or connected rationally therewith, and a charge that is imposed "on" the coal; in other words, a distinction between attributability and imposition. That distinction is in my view well-founded. 73Had the parties wished to confine government charges under clause 12.3(c)(3) to charges imposed on the Delta coal, they could readily have done so. Elsewhere in the clause the concept of imposition was employed. In this context, however, the parties chose instead to employ the concept of attributability, which in my opinion has an operation beyond that of imposition. 74Therefore, other than the requirement identified in [77(4)], I consider that his Honour did not err in the conclusion reached in [77] as to the types of government charges that were intended to be picked up by the clause. Ground 4 of notice of appeal - finding of sufficient connection or causal relationship based on effect of charge or impact on cost 75Ground 4 contends that his Honour applied the "wrong test" of attributability, by asking whether the government charge affects or has an adverse impact on the cost of production, and that the matters referred to in [84]-[90] do not establish a sufficient connection or causal relationship between the relevant charges and the coal supplied to it. I have summarised above (at [37]-[38]) the matters to which his Honour had regard at [84]-[90]. 76Delta submits that his Honour's error in this regard commenced at [61], where it is said that his Honour adopted an impermissible purposive analysis of clause 12.3(c)(3) in stating that "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". It is submitted that his Honour erred in proceeding on the basis that the question whether there was a relevant connection between the charge and the coal sold was "for the purpose of considering whether a government charge should be passed on, in whole or in part" ([76]). 77Centennial submits that there was no error in his Honour having had regard to the objective commercial purpose for which there was required to be a connection between the relevant charge and the coal. It is submitted, and I agree, that the last sentence in [76] does not indicate that his Honour was embarking on a purposive enquiry but, rather, that his Honour was there addressing the commercial context of the clause and posing a question as to the objective purpose of the contractual requirement for attributability between the charge and the coal. 78Clearly, whether the relevant government charge is attributable to the coal identified in clause 12.3(c)(3) is a question the answer to which determines whether the charge is to be taken into account in adjusting (potentially upwards or downwards) the relevant component of the contract price. If a particular charge were required to be taken into account, and were to increase the price payable for the particular coal, then in that sense this would involve the charge being passed on, in whole or in part, to Delta. That requires no impermissible enquiry into the parties' pre-contractual negotiations. It is the logical consequence that follows if, but only if, the clause encompasses a charge of this kind. 79That his Honour engaged in the process of examining the purpose for which attribution was necessary so as to determine whether there was the requisite connection, and was not, as was suggested by Delta, embarking on a purposive enquiry as to the function of this particular clause, is in my opinion clear from what his Honour said at [78]. 80As I read the first sentence of [77], his Honour was not postulating the test of attributability, simply addressing the relevance of that question in the context of this contract. As I read the second sentence of [77], what his Honour was there describing was the type of charge that would have a sufficient connection with the Delta coal as to lead to the conclusion that it was attributable thereto for the purposes of the clause; not treating this as the definitive test of attributability. In other words, his Honour considered that a government charge which had these characteristics would be attributable to the Delta coal but without confining the clause to a charge with those characteristics. Therefore, although I consider (at [70]) that there is no textual basis to read the "cost of production" into clause 12(c)(3), I am not of the view that his Honour erred in applying a "wrong test" of attributability in the present case. 81His Honour addressed the test of attributability in [61] and [65], and applied it at [91], namely whether there was a sufficient connection - not necessarily of a direct, immediate or obvious kind ([76]) - between the relevant government charges and the Delta coal. 82No error has been shown in his Honour having posed the question as to the objective purpose for which attributability between the charge and the coal was required. Nor did his Honour apply the wrong test of attributability. Ground 4 is not made out. Ground 2 of notice of contention - significance of parenthetical words 83Centennial seeks to support his Honour's judgment by reference to the parenthetical words contained in clause 12.3(c)(3). His Honour noted the competing submissions as to this issue at [56] of his reasons. 84Centennial argued before his Honour that if the only government charges to be adjusted under clause 12.3(c)(3) were direct imposts on the sale of the coal, then there would have been no reason to exclude income or payroll tax from the definition. Hence, it was submitted that the parenthetical words supported the construction for which it contended. 85His Honour at [67] referred to the principle of construction that, ordinarily, one should seek to interpret contractual clauses in a way that gives all the words meaning but noted that this principle did not operate invariably. At [68], his Honour concluded that the parenthetical exclusions of income tax and payroll tax were superfluous and able to be regarded as having been added out of more abundant caution. 86Centennial accepts that the fact that certain charges have been parenthetically excluded is not decisive but submits that the express exclusion of payroll and income taxes can be treated as confirmatory of the construction adopted by his Honour: namely, that what is contemplated by the clause are charges relating in a rational way to production, or the cost of production, of the coal. It is submitted that this cannot be dismissed as boilerplate drafting and cannot wholly be attributed to a superabundance of caution. 87Delta places weight on what was said in Dryden Construction Co Ltd v New Zealand Insurance Co Ltd [1959] NZLR 1336 at 1339 - 1340 as to the danger of enlarging the meaning of a clause by reference to specified exclusions, as well as to the academic commentary by JW Carter in The Construction of Commercial Contracts, (2012, Hart Publishing) (at [4-43]) and by Sir Kim Lewison and David Hughes in The Interpretation of Contracts in Australia (2012, Thompson Reuters) (at [7.03]). In Carter, at 4-43, reference is made to what was said by Straughton LJ said in Total Transport Corp v Arcadia Petroleum Ltd (The Eurus) [1998] 1 Lloyd's Rep 351 at 357, namely that the presumption against surplusage is of little value in the interpretation of commercial contracts. 88Delta submits that the fourth criterion identified at [77] cannot be drawn from the parenthetical words, since income tax is not a tax related to the cost of production, nor are fines or levies, or such. Therefore, it is submitted that the parenthetical words do not assist in his Honour's conclusion. 89Given that the parties were addressing, in clause 12.3(c)(3), charges the nature of which would not necessarily have been foreseen at the time of their agreement, it is logical to assume that they were seeking by the parenthetical exclusions to specify general categories of excluded charges as a matter of more abundant caution and should not thereby be taken to have enlarged the meaning of the clause itself. His Honour did not err, in according little, if any, weight to the parenthetical exclusions when construing clause 12.3(c)(3). Ground 2 of the notice of contention is not therefore made good. Grounds 1 and 5 of the notice of appeal (and Ground 1 of notice of contention) - finding that charges attributable to the coal sold and delivered to Delta/sufficient connection or causal relationship between carbon charge and coal 90These grounds address the ultimate issue of construction on which, in the end, the difference between the parties was a narrow one. Delta does not contend, as Centennial had understood its position to be, that for the purposes of clause 12.3(c)(3) the charge was required to be one levied on the "sale" or the transaction involved in selling. Rather, it accepts that the words "coal supplied ... and purchased" are, as Centennial contends, descriptive of the particular coal to which the charge must be attributable, i.e., to the Delta coal. 91Both parties therefore accept that what is required, for a charge to be within the clause, is that it be attributable in some way to the Delta coal, as for convenience I have termed it. So, for example, Centennial accepts that amounts payable by way of superannuation or mine subsidence levies or the cost of a mine manager's residence, which will be costs payable whether or not any coal is produced at all, would not fall within the clause. 92Where the parties are at odds is that Delta contends that the criterion for the operation of the clause is a charge that seizes "upon" the Delta coal, not a charge that "relates to" the production of coal generally at the mine. Delta contends that his Honour ought to have held that the relevant carbon charges are attributable not to the Delta coal but to methane emissions (or greenhouse gasses) in the conduct of the Mandalong Mine. 93Delta submits that his Honour incorrectly adopted a "but for" test when searching for the requisite connection between charge and coal, i.e., when asking whether, but for the activity in question, the coal would have been available for sale to Delta. Relevantly, reference was made to R v Monopolies and Mergers Commission, Ex parte National House Building Council [1994] TLR 38 at 39, where Neill LJ considered that the words "attributable to", in the legislation there being considered, did not exclude the possibility of other concurrent causes, and hence a "but for" test might be too rigid. However, what was there disavowed was the suggestion that the "but for" test was the necessary test of attributability (for the purposes of s 48(d) of the Fair Trading Act 1973 (UK)); not that such a test could never be appropriate. 94Centennial submits, and I agree, that Delta's construction substitutes for "attributability" the notion of "imposition". Centennial argues that such a notion is more narrow, immediate and direct than that of attributability. Centennial contends that the concept of attributability means something other than "is imposed on"; that is a concept meaning "referable to" or "ascribable to"; and that, while it requires a connection between the two things, the content of that connection need not be exclusively causal (this last contention being the subject of ground 1 of its notice of contention). It points to the use elsewhere in clause 12.3(c)(3) of the verb "imposed" in the expression "imposed on or payable by the Supplier". Ultimately, my conclusion that the clause bears the construction for which Centennial contends is that I see no basis for treating the words "attributable to" the Delta coal as meaning "imposed on" that coal. Textual matters 95From a textual perspective, Centennial points to the fact that clause 12.3(c)(2) obliges the parties, in circumstances where a notice requiring review of this price component is issued, to "negotiate" the amount of the said component, as indicating that something more than a direct imposition coal was contemplated by the clause. 96It also points to the expression in the clause of the parties' common intention that the calculation be on the specified basis "as far as is practicable", as indicative of the inexactness of the metrics in clause 12.3(c)(3) when compared with the formula in clause 12.3(c)(5). Centennial submits that, if the adjusted provisions were as explicit and narrow, or arithmetical, as Delta contends them to be, then there would be no need for the technical dispute provisions to apply to a dispute of this kind, on the basis that the meaning contended for by Delta the charge is not one susceptible to negotiation. 97Similarly, it is submitted by Centennial that the words "to the extent attributable" in the clause indicate that the parties contemplated an element of imprecision or latitude in identification of the government charges that are attributable to the Delta coal and/or their quantification. By contrast, it is said that, if the approach of Delta were adopted, there would not be room for apportionment or for the exercise of judgment as to whether, and if so how much of, a particular charge is attributable to the Delta coal for the purposes of the clause. 98Insofar as Centennial refers to those textual matters as indicative of a broader concept of attribution than that which would be encompassed in the notion of "imposition", Delta points to the possibility that government charges might have been imposed by reference to other matters that required assessment (such as a charge imposed by reference to the coal quality or energy output), in which case terminology of the kind to which Centennial refers would be explicable without the need to construe the words "attributable to" in the manner for which Centennial contends. Delta further submits that the dispute resolution process is not one that informs the characterisation of the clause, noting that while the dispute resolution provisions were applicable, a dispute under this clause is not a technical dispute per se. 99I accept that the unforeseen nature of the government charges that might in future be levied may well explain why the parties contemplated that there should be scope in the clause for negotiation as to the relevant charges or to encompass the potential need for some form of assessment or judgment as to what, and how much, of a government charge is "attributable to" the Delta coal. This makes it difficult to draw much significance from the fact that was a detailed formula in clause 12.5 for calculation, on and from each review date, of the Contract CPI Price Component Per Tonne, in contrast with the absence of any such formula in clause 12.3(c)(3). However, it does not mean that the adjustment process contemplated by clause 12.3(c)(3) as potentially arising in relation to government charges is not equally applicable to an adjustment necessary to take into account, say, what proportion of carbon charges on methane emissions should be attributable to the Delta coal as opposed to coal produced generally at the mine. Therefore, while I see this factor as being of slight assistance to the Centennial construction I do not regard it as determinative of that construction. 100Similarly, the fact that there was a mechanism in the contract by which matters of the kind referred to at [77], such as the adverse impact of government charges on the cost of production over the life of the contract, could be addressed on the review dates (which Delta contends his Honour overlooked), is also of little assistance, for the reason that there is nothing to conclude that parties, intended to limit the operation of price adjustments referable to government charges to those particular review occasions. Special Condition 1 101Delta contends that his Honour erred in placing emphasis on Special Condition 1, whether his Honour is taken as having done so as informing the commercial context in determining what was meant by "attributable to" or in considering the commercial purpose of the agreement. It is submitted that this special condition operated as a "put" option for Centennial's benefit and that there was no obligation to issue a notice under that special condition irrespective of whether Centennial chose to develop the coal mine. 102I agree that little assistance can be drawn from the existence of this condition when construing clause 12.3(c)(3). However, as I read his Honour's reasons, reference to this special condition as part of the commercial context of the agreement was not critical to his Honour's conclusion as to the meaning of the clause. Significance of royalty impost as part of contract price 103Centennial refers to the fact that the parties did include in the Government Charges Per Tonne, as initially set (see schedule 5), a royalty impost as being confirmatory of the submission that government charges attributable to the Delta coal include carbon charges referable to methane emissions produced on the extraction of that coal. It notes that pursuant to s 282(1) and s 283(2) of the Mining Act 1992 (NSW), royalties are payable by reference to minerals "recovered" from the land at rates applicable as at the time the material from which the mineral is recovered is extracted from the land. 104Delta contends that the inclusion of a royalty component in the initial price is equivocal, challenging the proposition that the essential notion of a royalty is one limited to extraction and referring to regulation 39(4) of the Mining (General) Regulation 1997 (NSW), which provided for calculation of the particular royalty in question by reference to the quantity of coal disposed of during the relevant period. To this, Centennial responds that what was imposed under the legislation as a deemed "royalty" was nevertheless imposed on extraction. 105Little assistance can in my opinion be drawn from the fact that the parties included in the initial charges an amount referable to such a royalty, when considering what charges were to be treated for the purposes of clause 12.3(c)(3) as attributable to the Delta coal. Difficulties in process of determining attribution of charges to coal 106Reference is also made by Delta to other legislation at the time as indicative of the proposition that, if his Honour's calculation is correct, there will be questions as to whether other charges or amounts levied on the mine owner would rationally relate to the production of coal for the purposes of this clause (referring to the Mine Subsidence Compensation Act 1961 (NSW) (s 11), the Coal Industry Act 2001(NSW) (s 19) and the Coal and Oil Shale Mine Workers (Superannuation) Act 1941 (NSW) (s 19)). It is submitted by Delta that if the test is simply whether something was "rationally related to" the production of coal, then his Honour's construction itself needs construction and this betokens the error. However, the words "attributable to" in my opinion are what gives rise to any such difficulty, not his Honour's construction of those words. The fact that difficult questions may arise in determining the ambit of the clause in particular contexts is not a reason not to give the words "attributable to" their ordinary meaning, i.e., as requiring a sufficient (and rational) connection between the two things being considered (the charge and the Delta coal). 107Complaint is also made by Delta that matters affecting the imposition of the charges (such as the acquisition by Centennial of sufficient carbon units to avoid unit shortfall charges or the efficiency or otherwise of its mining processes) are matters in the hands of Centennial in its operation of the mine. Hence it is submitted that the carbon charges are not charges imposed on, or causally relevant to, the Delta coal. What is there adverted to is the possibility that Delta will be made liable for charges incurred by reason of matters beyond its control. Delta submits that charges imposed for carbon units and unit shortfalls are charges imposed in respect of emissions, not charges attributable to the Delta coal. 108With respect, that argument assumes that a charge "imposed" on or in respect of emissions cannot at the same time be a charge "attributable to" the Delta coal for the purposes of clause 12.3(c)(3). I do not accept that such an assumption should be made, having regard to the difference between the concept of imposition and that of attributability. 109Whether or not a charge imposed on Centennial is one that in some fashion can be said to be attributable to inefficiencies in the mining process, or incorrect decisions as to how many carbon units to acquire for a particular year, does not point to error in his Honour's construction of the clause. Such a result would equally be possible had the charge unequivocally have been imposed on the production of coal but quantified, say, by reference to the level of methane emissions produced in the relevant period. The possibility of a result that Delta might be liable to pay a higher price for coal due to Centennial's inefficiency is yet another matter that raises the spectre of the negotiation that the clause contemplated would take place in relation to a notice issued thereunder for review of the price payable for the Delta coal and the possibility that such matters could be taken into account in attributing the appropriate portion of the charges that is properly attributable to the Delta coal. Absence of a formula for allocation of costs 110Delta contends that the absence of any formula for allocation of costs confirms that the intended meaning of the clause was not as his Honour found. However, the uncertainty of future charges makes it understandable why there would be no detailed formula in clause 12.3(c)(3). Conclusion on construction of clause 111In my opinion, the construction placed by his Honour on the clause is broadly correct. The connection required between the charge and the coal must be something more than the direct imposition of a charge on (or "seizing upon") the Delta coal, which would be the effect of adopting the construction for which Delta contends. Had that been the case, the parties might be expected to have used the concept of "imposition" as they did elsewhere in the clause. 112Textual considerations suggest that the parties contemplated that there might be a practical need for some form of negotiation or assessment as to whether, and how much of, a particular government charge is attributable to the Delta coal. That supports the construction for which Centennial contends, although is not determinative of it. What in my view is determinative is that the clause envisages a connection beyond the mere fact of imposition. The words "attributable to" must be given a broader meaning than simply "imposed on". Delta's construction does not give the words "attributable to" any real work to do that could not have been achieved by a charge directly imposed on the Delta coal. 113As to the difficulties envisaged by Delta in enabling a precise line to be drawn as to the applicability of particular charges or the amount of those charges that is attributable to the Delta coal, these do not of themselves bespeak error of construction on his Honour's part since the clause itself contemplates there may not be a precise connection between the charge and the Delta coal. 114There is, in my opinion, sufficient connection to satisfy the requirement of attributability if the charge in question is referable to a necessary incident of the production of the Delta coal. Delta submits there is no real causal link between charges on emissions and the Delta coal. However, it is clear from the evidence of Mr Myors that methane emissions are caused by and are an integral part of the mining process. Hence, charges imposed on those emissions are attributable to the Delta coal and there is a sufficient causal connection in that sense. 115Grounds 1 and 5 of the notice of appeal are not made out. It is not strictly necessary then to determine ground 1 of the notice of contention. I simply note that if the contention is that all that is required to make out attributability of the charge to the Delta coal is that there be an allocation of the charge to the coal, then I agree with his Honour's rejection of that proposition. That would make the application of the charges a process of what might be an arbitrary allocation basis. I consider that the better view is that some form of causal connection is required in order to establish that a particular government charge is attributable to the Delta coal. Ground 6 - pro-rating exercise ([92] and [96] second judgment) 116His Honour concluded that the appropriate method of quantification of the charges attributable to the Delta coal was to pro-rate, in effect, the charges by reference to the proportion of the Delta coal compared with the total. His Honour noted (at [97]) that there might be complications in that process, referring to Consignment Coal and Reject Coal but concluded that those complications did not point against the conclusion he had reached. 117As to the former, his Honour noted that Consignment Coal is coal delivered under the contract in excess of the quota required and that the only difference with it is the timing of the obligation to pay ([97]), but that it could still be described as coal sold to, and purchased by, Delta under the contract. As to the Reject Coal, his Honour considered it should be excluded from the calculations and no complaint is made as to this ([98]). 118Delta contends that there is no clear basis in clause 12.3(c)(3) as to how the allocation process is to take place or by reference to what such a process is to take place. It submits that the difficulties with apportionment are a strong indication that the charges are not attributable to the Delta coal. Centennial maintains that sufficient flexibility is provided by use of the words "to the extent attributable" and "as far as is practicable." 119To the extent that Delta's complaint is that there was no textual basis for the finding that the charges should be pro-rated to ascertain the amount attributable to Delta coal, no other method of attribution was suggested. His Honour's suggestion is logical and gives effect to the words "the extent attributable". No error has been shown in this regard. Ground 7 of notice of appeal - inclusion of charges resulting from emissions from disputed sources 120The final ground of appeal relates to whether particular sources of methane emissions could be reasonably identified as attributable to the Delta coal, those being: pre-draining of methane gas from areas to be mined; construction of roads within the mine; the stockpiling of mined coal and "goafs". Delta did not challenge his Honour's finding as to the inclusion of methane emissions from longwall mining. 121The "pre-draining" process is a process by which the concentration of methane is reduced, for safety reasons, prior to mining coal from longwall coal panels. It is described by his Honour at [14] and [15]. No complaint is made as to that description. Similarly, the manner in which methane emissions occur as a result of the extraction of coal for roadways in the mine was explained by his Honour at [9]. The concept of stockpiling of coal, though in one sense self-explanatory, must be understood in the context that it forms part of what are referred to as "post-mining activities", (included within which category are activities such as the handling, processing and transportation of the coal extracted) (see his Honour's judgment at [11]). As to goafs, his Honour explained at [21]-[23] the purpose of pumping methane into goafs and noted Mr Myors' evidence that residual methane can percolate through goaf seals during periods of declining pressure ([66]-[68]). His Honour accepted that the methane escaping from goafs was in effect the recirculation of methane released by the production of coal [26]. 122His Honour accepted that the methane produced in the above activities might not be able to be attributed with exactitude to the particular coal produced in a given year (such as at [27]) but considered that this was contemplated by the "as far as practicable" wording adopted in clause 12.3(c)(3). 123Delta's complaint is not that methane emissions are not caused as a result of the above activities. Rather, it contends that it has been made liable for charges in relation to all emissions whenever and howsoever arising in the whole of the mining process, irrespective of whether the emissions in question related to the particular coal produced for supply to it. It submits that emissions from pre-draining, roads, stockpiles and goafs cannot be said in a rational way to be attributable to the Delta coal. 124So, for example, Delta contends that emissions from pre-draining activities and from construction of mine roads cannot fairly be attributed to the Delta coal, or the monthly sale of that coal to it. Reference is made by Delta to the acknowledgment by Mr Myors ([51] ff) to the effect that gas can be released from coal that is neither sold nor to be sold for a period of some months afterwards, such as is the case for gasses from roadway construction ([61]). 125Centennial argues that emissions caused by incidental measures necessary to achieve extraction of that coal are attributable to the Delta coal and are properly included within the clause, the relevant connection being the process of extraction which yields the coal delivered to Delta and that his Honour correctly so found. 126In relation to charges on emissions referable to the activities involved in pre-draining, construction of mine roads, and goafs, I see no error in his Honour's treatment of these as being attributable to the production of coal extracted at the Mandalong Mine, part of which was then sold to Delta and hence within the relevant clause. 127Where I had some doubt was as to the charges referable to emissions from stockpiled coal, since it is not disputed that the coal sold to Delta was not stockpiled. Delta submits that his Honour's construction leads to an absurd outcome in this regard, on the basis that the charges can have nothing to do with Delta coal if it is not in fact stockpiled. It submits that emissions from post-mining activities such as stockpiles is referable to activities occurring after coal had been produced for delivery to it and independently of that production and delivery. 128However, the attraction of that submission disappears when it is appreciated that the charges imposed for emissions referable to post-mining activities such as stockpiling of coal do not relate to whether any coal is stockpiled at all. There is a mandatory formula for the calculation of emissions referable to post-mining activities, which applies regardless of whether any of those activities are in fact carried out and is calculated by reference to the amount of coal produced (see s 1.8 of the National Greenhouse and Energy Reporting (Measurement) Determination 2008 (Cth)). 129Centennial submits that since it is charged on emissions from those activities in respect of all coal produced, including Delta coal, whether or not that coal is in fact stockpiled, this is a charge that falls within the relevant clause. 130His Honour concluded (at [17]) that, since s 3.17 of the Determination provides a method of calculation of emission from such activities by reference to an estimate derived from the total tonnage of run of mine coal produced in any year, the charges referable to emissions from stockpiling apply to coal sold to Delta as much as to any other coal produced. His Honour noted at [18] that it is the "very fact of production of coal generates a liability for the charge in respect of post-mining activities". That is sufficient in my opinion to render the charge for methane emissions from post mining activities attributable to the Delta coal. I see no error in his Honour's conclusion in this regard. 131Ground 7 of the notice of appeal is therefore not made out. I see no error in his Honour's conclusion in relation to charges referable to methane emissions from any of the four disputed sources or activities. Conclusion 132For the reasons set out above, I consider that the appeal should be dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 June 2014