Weston Energy Pty Ltd v National Ceramic Industries Pty Ltd

This judgment involves a ‘price cap’ agreement for the wholesale supply of natural gas.

The plaintiff/cross-defendant is Weston Energy Pty Ltd (‘Weston’), represented by S Fitzpatrick of senior counsel. The defendant/cross-claimant is National Ceramic Industries Australia Pty Ltd (‘Ceramics’), represented by M S White of senior counsel.

Weston relied on the affidavits of:

Ceramics relied on the affidavits of Christopher Paul Schneider (‘Mr Schneider’), the managing director of Ceramics, dated 9 February 2023 (‘CPS-A 1’); 15 September 2023 (‘CPS-A 2’); and 26 August 2024 (‘CPS-A 3’). There was also an exhibit to these affidavits (‘CPS-A Ex’).

Ceramics also relied on two expert reports of Mr Arnold Shields (‘Mr Shields’), dated 10 February 2023 (‘the original report’) (CB536–785) and 30 September 2024 (‘the supplementary report’) (Exhibit 1, tab 2) which relate to the quantum of damages sought by Ceramics.

With the exception of Mr Shields, each of the above-named deponents were cross-examined.

Weston was a supplier of natural gas to commercial clients. Ceramics is a manufacturer of tiles and uses natural gas to fire its kilns.

In January 2018, the parties entered into a gas supply agreement for the 2018 and 2019 calendar years (JS-A 2 at [9]).

On 19 December 2019, the parties executed a new agreement for the 2020 and 2021 calendar years (JS-A 2 at [12]). In December 2020, this agreement was renegotiated, and was extended to cover the 2021 and 2022 calendar years (JS-A 2 at [14]). Under this arrangement, Weston would charge Ceramics the ‘wholesale market price’, that is, the ‘spot price’ of natural gas.

In early 2022, Mr Schneider had begun to search for new offers for gas supply contracts. It engaged NUS Consulting Group (‘NUS Consulting’) to assist (CPS-A 1 at [19]–[20]). In February 2022, Mr Schneider instructed Ralph Willy (‘Mr Willy’) of NUS Consulting to conduct a tender on behalf of Ceramics (CPS-A 1 at [21]–[23]).

Mr Willy conducted the tender, seeking offers on both ‘capped spot price’ contracts and fixed price contracts (CPS-A 1 at [24]).

On 15 February 2022, Mr Willy sent an email to Weston seeking both a fixed price offer and a capped spot price offer (JS-A 2 at [19]; CPS-A 1 at [24]). On 24 February, Mr Willy received a response from Dr Gholami with a fixed price quote (CPS-A 1 at [26]) (‘the first Weston offer’).

On 28 February 2022, Mr Willy informed Mr Schneider that of all offers received, Weston provided the best ‘capped spot price’ offer and Shell Energy (‘Shell’) the best fixed rate offer (CPS-A 1 at [24]–[28]).

On 1 March 2022, Dr Gholami provided a further offer to Mr Willy. This was a ‘capped spot price offer’. The ‘cap’ would apply for one month of the year (a month of Ceramics’ election) and would limit the rate that Ceramics would pay for natural gas in that month (CSP-A 1 at [32]) (‘the second Weston offer’).

On 2 March 2022, Dr Gholami phoned Mr Schneider to obtain feedback on the second Weston offer. Mr Willy seems to have expressed Ceramics’ desire for a 12-month price cap, as opposed to only a one-month price cap (AG-A at [14]). Following this conversation, Dr Gholami called James to discuss the possibility of such a term in a potential third offer (AG-A at [15]). During this conversation, Dr Gholami simultaneously called Mr Schneider and merged the calls; in this conversation James and Mr Schneider seem to have directly addressed a possible 12-month price cap (AG-A at [16]).

At 10:42am on 2 March 2022, after the three-way conversation, Dr Gholami emailed both Mr Willy and Mr Schneider with a revised contract (‘the third Weston offer’) (AG-A at [21]).

The covering email reads:

Attached to that email was the new agreement that is at the heart of this dispute. The critical clauses are 1.5 and 1.8, which are found in the schedule to the contract. They are reproduced a little later in the judgment, under the sub-heading ‘Third Weston Offer’. A copy of the whole agreement can be found at CB43–71, Annexure A to JS-A 1.

On 3 March 2022 Mr Schneider signed the contract on behalf of Ceramics and sent it, by way of email, to Dr Gholami and James (CPS-A 1 at [42]). On 4 March 2022, James countersigned and returned the same to Ceramics (JS-A 2 at [29]).

The agreement was executed about 10 days before Russia had begun its 2022 invasion of Ukraine. The aggravation of this conflict caused the price of natural gas to become volatile and to soar. Mr Simonian referred to this as a ‘black swan event’ (T222 [50]).

As a result, on 24 May 2022, the Australian Energy Market Operator (‘AEMO’) suspended Weston’s trading licence for exceeding its trading limit (JS-A 2 at [37]–[50]).

Clause 15.1(c) of the contract reads:

On 23 May 2022, in anticipation of the suspension, Weston terminated the contract with Ceramics under cl 15.1(c)(i) by way of email (JS-A 1 at [7]).

Having lost the benefit of the contract, Ceramics was compelled to source its natural gas from Origin Energy at a greatly increased price (CPS-A 1 at [64]–[68]).

The starting point is the pleading framework. On 1 September 2024, Weston filed a Statement of Claim (‘SOC’) seeking payment of an invoice for gas supplied in the billing period just preceding its suspension. It is alleged that Ceramics owes, excluding interest, a debt of $664,983.42 to Weston.

On 19 September 2024, Ceramics filed an Amended Defence (‘AD’) and an Amended Statement of Cross-Claim (‘AXC’) which raised the same matters as each other. Ceramics focused on the failure of Weston to obtain ‘price capping insurance’ and said that its losses flowed from this omission. Ceramics accepted that it had not paid for gas that it had used but plead that it was entitled to:

The quantum of damages sought by Ceramics’ cross-claim is in excess of $9 million.

On 19 July 2023, Weston filed a Further Amended Defence to Cross-Claim (‘FADXC’). It plead that Weston was never obliged to obtain any ‘price capping insurance’ and so could not be liable for any loss which flowed from the omission. It admitted that no such insurance was ever obtained. It denied that it was in breach of contract, that it had engaged in misleading or deceptive conduct, or that it was liable for restitution.

The dispositive questions in issue turn on the term ‘price capping insurance’, which, as Weston correctly submitted, is a term which ‘never [appears] in any primary document’.

In the third and final offer of Weston’s which Ceramics accepted, natural gas was charged on a ‘capped spot price’ model — that cap was set at $15/GJ. This means that Ceramics would pay for natural gas at the spot price up to and including $15/GJ. For example, if the price was $9/GJ, Ceramics would pay $9/GJ. However, if the price were to exceed $15/GJ (as it in fact did), for example, if the price were $20/GJ, Ceramics would nonetheless pay $15/GJ. A ‘premium’ of $0.15/GJ was paid by Ceramics to Weston for this ‘price cap’. An additional retail margin ranging around $1/GJ would also be paid. This is uncontested.

As I understand it, any ‘price capping insurance’ if Weston had in fact obtained it would operate to secure Weston against gas price fluctuations above $15/GJ. Were the wholesale gas price so to increase, the policy would be engaged to reimburse Weston. The increased stability of its gas supplier would thereby benefit Ceramics.

As mentioned above, no such policy was ever obtained. In fact, Dr Gholami said that to his and to Weston’s knowledge, no such policy was available at that time (T194–195, 211, 214).

The question of the meaning of ‘price capping insurance’ is critical in two respects.

I will deal with the matters in the following order: firstly, the parties’ earlier negotiations and offers leading to the final agreement which is the subject of this dispute; secondly, the witnesses’ evidence; thirdly, the issue of contractual interpretation, that will dispose of the question restitution for unjust enrichment; fourthly, the claim for misleading or deceptive conduct, causation of loss and calculation of loss under the ACL.

In late 2017, Ceramics was first attracted to Weston because it provided gas at spot price, which was at that time more favourable to the more widely offered fixed price offerings (CB 325).

The original Weston 2020 contract (‘Weston 2020 contract’), is an example of that pricing model. The key contract details in cl 1.5 provided for the gas cost to be the spot price, that is the 'wholesale market price', and Weston's revenue was limited to the 'retail margin charge', which was a percentage of the cost of the gas purchased by Ceramics (CB 312).

The relevant part of the original agreement extracted is below:

The ‘Trade Credit Insurance Policy’ is separate from the ‘price cap’ insurance policy which sits at the heart of this dispute. During the hearing there was some evidence given by Mr Schneider as to the Trade Credit Insurance Policy. In previous agreements with Weston, Ceramics was required to provide a bank guarantee in favour of Weston. That arrangement changed after Weston secured the Trade Credit Insurance Policy that protected it from any losses due to unpaid invoices arising from a customer’s bankruptcy, default, or other agreed reasons. Subsequently, the need and cost of a bank guarantee from Ceramics became redundant. There is an express reference to trade credit insurance in cl 1.5 of the contract; Weston absorbed the cost associated with the policy and did not pass it on to Ceramics (T63 [5]–[15]).

The Weston 2020 contract was not due to expire until 31 December 2022. However, due to rising gas prices in February 2022, Ceramics decided to tender and explore the wholesale gas supply market for a replacement of its current contract, seeking either fixed price or capped price contracts. That is to say, it sought to manage its risk exposure through either:

In tendering for gas supply contracts, Ceramics acted through its broker, Mr Willy. Mr Willy primarily dealt with Mr Schneider, the general manager of Ceramics, and Dr Gholami, the executive manager of customer relations at Weston.

On 15 February 2022, on instructions from Ceramics, Mr Willy sought from Weston, among other gas retailers, proposals based on the two different types of gas contracts that were to commence on 1 January 2023 (CB319). These offers were to be based on either a fixed price model or on a spot pricing model.

On 24 February 2022 Weston provided a response that offered neither a fixed price proposal, nor a simple capped spot price proposal. Rather, Weston offered what Dr Gholami described in a covering email as an ‘offering based on the wholesale gas price supported by a fixed block hedge to improve the certainty of this pricing model’ (CB325). Mr Willy described it to Mr Schneider as 'a kind of a hybrid (mixture of fixed price and spot market)' (CPS-A 1 at [27]; CB326).

The 'key contract details' in cl 1.5 provided for the 'gas cost' to be an 'effective price based on the ex-ante price in Sydney STTM Hub adjusted against the CFD as per Schedule 2: “Fixed Price Gas blocks”’. Weston's revenue would include a 'retail margin charge' calculated on different terms to the Weston 2020 contract. That charge was now to be based on the volume of gas supplied, rather than its cost (CB350). The term of the contract was to start on 1 July 2022; that is, before the scheduled end of the Weston 2020 contract.

The ‘price cap’ was set out in cl 1.8. It was described as ‘price insurance’ which would ‘cap’ the price ‘at $15.00/GJ triggered on a monthly value of the effective price’. No ‘premium’ would be charged for the 12 month ‘term’ of the price insurance, but ‘renewal’ would be considered ‘on an annual basis’.

Mr Schneider accepted in his cross-examination that 'Dr Gholami was using the word "premium" to mean a charge that was [on the terms of the first Weston offer] not going to be levied for this price cap' (T56 [26]-[28]).

The relevant parts of the first Weston offer are extracted below:

This offer at cl 1.8 provides price insurance for the effective monthly price. One of the terms of cl 1.8 entitled ‘renewal stipulated that the price insurance is to be reviewed on an ‘annual basis’. Under the heading ‘Calculation’, it stipulated that price insurance will be triggered on a ‘monthly value of the effective price’.

On 28 February 2022 Mr Willy forwarded the first Weston offer by email to Mr Schneider. The covering email included the terms ‘Weston Energy spot market contract’ and ‘Weston Energy's $15/GJ cap offer’. Mr Willy included the first Weston offer in his comparison of the 'five spot market offers', all of which were said to 'have a cap/ceiling of $15/GJ' (CB326). Based on his analysis, Mr Willy considered Weston's to be the 'best' of those (CB326). Alternatively, the best 'fixed price offer' was that of Shell.

In this email, Mr Willy did not suggest that there was any difference between the first Weston offer and any of the other capped offers based on the terms of cl 1.8 and the description of the 'price cap' as 'price insurance'.

Under cross examination, Mr Schneider agreed that he was not familiar with a price cap when Mr Willy had first proposed it (T63 [34]-[36]). He also agreed that, firstly, it was important to him to understand how the new concept of a price cap operated and what it meant (T63 [46]-[49]), secondly, that in cl 1.8 the words ‘price cap’ are not used, thirdly, that the words, ‘price insurance’ were used in the third and fourth bullet points and finally that there was no mention of an insurance policy anywhere in cl 1.8 (T64 [1]-[37]).

On 1 March 2022, after Mr Willy had negotiated with Dr Gholami, Weston made a further offer being the second Weston offer.

In his covering email to Mr Willy, Dr Gholami highlighted three differences between the first Weston offer and the second Weston offer (CB353). They were:

Those terms are seen in the ‘key contract details’ in cl 1.5. Another difference from the first Weston offer to the second Weston offer, was that its start date had been moved forward to 1 March 2022.

The terms of the ‘price cap’ under the second Weston offer are again in cl1.8 (CB355). Most relevantly, the description of the ‘price cap’ as ‘price insurance’ was unchanged from the first Weston offer, as was the ‘premium’ being $0.00/GJ and the basis for ‘renewal’ being annual. Weston submitted that, there appears to be an error in the fourth bullet point of the terms for the ‘price cap’ / ‘price insurance’, which retained a reference to ‘adjust[ment] by the fixed price’, despite the change in the way gas was to be charged.

The relevant parts of the second Weston offer are extracted below:

Clauses 1.5 and 1.8 of the third Weston offer (CB43–71, Annexure A to JS-A 1) which was ultimately accepted are reproduced below:

I will consider the third Weston offer in detail later.

Weston has referred to authorities urging that caution should be exercised regarding witness evidence generally and also in the context of proving ‘reliance’ in a claim for misleading or deceptive conduct. They are as follows.

In Dedakis v Deligiannis [2024] NSWSC 1018 at [15] (‘Dedakis’), Leeming JA sitting at first instance stated:

In Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 at [227], Quinlan CJ and Vaughan JA said regarding direct evidence on reliance (citations omitted):

In Dig It Landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd (No 2) [2024] FCA 31 (‘Dig It’), Jackson J rejected the relevant witness’ reliance evidence and dismissed a claim for misleading or deceptive conduct where:

As noted above Mr Schneider provided three affidavits (CPS-A 1; CPS-A 2; and CPS-A 3) as well as an Exhibit (CPS-A Ex). He also appeared before me where he gave evidence and was cross-examined (T40–150).

In July 2009, Mr Schneider began employment with Ceramics. Mr Schneider has over 15 years’ experience in the tiling and ceramic industry. He has held a position on the Australian Tile Council. In 2012, he was appointed managing director of Ceramics (CPS-A 1 at [5]–[6]).

In CPS-A 1, Mr Schneider deposed (my emphasis):

I accept the evidence of Mr Schneider as being truthful. Mr Schneider was wrong when he referred to only having one conversation with Weston on the morning of 2 March 2022. However, when the telephone records were shown to him, he freely admitted that he had no recollection of that conversation. I will return to this subject later.

As noted above Dr Gholami provided an affidavit (AG-A) and gave evidence and was cross-examined (T155–214).

From March 2018 to July 2022, Dr Gholami was the executive manager of customer operations at Weston. Dr Gholami has PhD in Petroleum Engineering and an MBA. Before working for Weston, he was a researcher. At the material time, he had over four years' experience buying and selling natural gas on wholesale markets (AG-A at [1]-[6]).

Dr Gholami’s affidavit is uncontroversial. Much of it addresses the fact that Weston never intended to take out ‘price capping insurance’ and affirms that ‘price insurance’ or ‘price cap insurance’ simply meant a price cap. Dr Gholami was cross-examined on his understanding of the contract, particularly cl 1.8 (the ‘price cap’ clause) and what it was intended to convey (T164–180).

As to Weston’s understanding of the terms ‘price insurance’ or ‘price cap insurance’ Dr Gholami deposed:

Dr Gholami was cross-examined on his understanding of these terms (T169–171; my emphasis):

To the extent that Dr Gholami suggested that it was incumbent on Weston’s clients (for example, at T169 [43]–[49]) to seek clarification on the contractual terms that Weston proffered, that suggestion should be rejected. It was incumbent on Weston to ensure that the terms it proffered were clear.

Dr Gholami was further cross-examined as to its interaction with another client, Baxter Health, whose contracts with Weston included the ‘price cap’/’price insurance’ clause and who also were complaining to Weston for their failure to obtain an insurance policy (T208–212).

Dr Gholami’s evidence as to the objective factual matters is consistent with Mr Schneider’s. However, it diverges in one critical respect, in that it details the three-way conversation had between Mr Schneider, Dr Gholami, and James. This conversation was absent from Mr Schneider’s initial affidavit (CPS-A 1), Mr Schneider does not remember it (CPS-A 2 at [8]; T99 [31]–[34]; T100). Mr Schneider accepted phone records proving that the conversation occurred (T90 [12]–[15]) and at no point denied that the conversation occurred.

Regarding the two phone conversations had between the parties on the morning of 2 March 2022, Dr Gholami deposed (AG-A):

Dr Gholami was cross-examined on his recollection of this three-way phone conversation (T189–199):

As noted above Mr Simonian provided an affidavit (GS-A) and gave evidence and was briefly cross-examined (T216-229).

Mr Simonian is the managing director of Weston and the father of James. He was not personally involved with the relevant negotiations with Ceramics, however he recalls a conversation he had with James and Dr Gholami on 2 March 2022 where his approval for the final agreement was sought (GS-A at [1]–[9]). He deposed (GS-A at [10]):

Mr Simonian when cross-examined stated that he did not refer to a ‘price insurance’ but rather to a ‘price cap’ (T226–227):

James relied upon two affidavits (JS-A 1 and JS-A 2). He gave evidence and was cross-examined (T233–252).

James is a company director of Weston (JS-2 at [1]). As to most of the objective matters, James’ evidence is consistent with that of Mr Schneider’s and Dr Gholami’s.

Importantly, James gave evidence as to the telephone conversations had on the morning of 2 March 2022 before execution of the third Weston offer, that is, the agreement. He explained the conversation between himself and Dr Gholami, which eventually turned into the critical three-way conversation between himself, Dr Gholami, and Mr Schneider.

James deposed (JS-A 2 at [21]–[22]):

James was cross-examined on the language used in the negotiations and the contract (namely, in the third Weston offer) (T244 [1]–[39]):

James’ evidence on this topic is unconvincing. I am not persuaded of James’ ignorance of insurance policies or of their terminology. This evidence seemed to me to be somewhat evasive.

Dr Gholami maintained his position that the words said during the conversation were intended to provide "assurance" to the customer (T176 [45]-[50]; T177 [5]-[25]):

Dr Gholami was asked in cross examination (T210 [36]-[42]; T211 [16]-[35]):

In the end, Dr Gholami's evidence conceded the fact that he did not have clear recollection of what was specifically said during the three-way telephone conversation, especially regarding information that may have been conveyed to Mr Schneider about the price cap insurance and the lack of any such third-party policy. Dr Gholami in fact admitted to having a poor recollection. The evidence of James is largely consistent with that of Dr Gholami where Dr Gholami says in cross examination (T174 [47]-[50]; T175 [1]-[15]):

Regarding the three-way telephone call, Dr Gholami agreed that neither he nor James said to Mr Schneider that there is no insurance policy involved in the contract (T194 [44]-[50]; T195 [0]-[4]):

Dr Gholami admitted that he did not have a clear memory of either of the phone calls that took place on 2 March 2022. While his evidence was that they had an understanding, I take that to be an understanding on Weston’s camp only, but it was never mentioned to Mr Schneider.

At this time, both James' and Dr Gholami's evidence show that they were keen to secure a contract with Ceramics.

I accept that James said the words, "The best I can do against my book is for a 12-month price cap" during the three-way telephone conversation; and that Dr Gholami recalled James saying, "[W]e are writing off any losses against our own profit book". While their recollections are slightly different, I accept that either of those statements were said but whichever it was, the most that was said to Mr Schneider was that the best Weston could do was a 12-month price cap and that Weston was writing any losses off against its own profit book.

Neither James nor Dr Gholami mentioned that there was no third-party insurance.

I accept that on 2 March 2022, the three-way phone call took place between Mr Schneider, Dr Gholami and James. I accept that the following was said "We definitely can't offer a cap for [a] 24-month retail contract. The best I can do against my book is for a 12-month price cap". However, I accept that neither James nor Dr Gholami explained to Mr Schneider that there was no third-party policy insurance. Both James and Dr Gholami wanted to secure the contract, so Mr Schneider was asked to pay a premium and the reason given to him was that it was difficult to offer such a long price cap because Weston was writing off any losses against its own profit book; and given the risk with a 12-month price cap, Weston would require a fee of $0.15/GJ. The natural and ordinary meaning of this statement is that for Weston to provide such a long price cap, it would have to charge an extra fee of $0.15/GJ. There was no reference to cl 1.8 of the proposed offer that refers to a price cap insurance.

As mentioned above, Mr Willy of NUS Consulting was the broker engaged by Ceramics to conduct the tender. He was primarily responsible for the negotiations with Weston on Ceramics’ behalf. Mr Willy did not proffer an affidavit nor did he appear before this Court to give evidence. In this circumstance, Weston asks this Court to draw an inference that any evidence that Mr Willy would have given would have not been of assistance to Ceramics — such an inference is known as a ‘Jones v Dunkel inference’ from the eponymous Jones v Dunkel (1959) 101 CLR 298.

Weston put many authorities on the rule in Jones v Dunkel before the Court which I have summarised and reproduced here:

In closing oral submissions counsel for Ceramics submitted that a Jones v Dunkel inference should not be drawn for the failure for Mr Willy to be called to give evidence. The following matters were raised:

I accept Ceramics’ submissions. It was Mr Schneider’s state of mind, not Mr Willy’s, that is relevant. There has been no suggestion that Mr Schneider conveyed verbally to Mr Willy his understanding of any ‘price cap insurance’ nor vice versa. When Mr Schneider was asked the hypothetical question (T69 [24]–[26])

Mr Schneider replied (T69 [44]–[45]):

I do not agree with Weston’s submission that Mr Willy’s interpretation of Ceramics’ conduct in the case beyond what has been provided by way of his written correspondence is relevant. It seems to me that all of Mr Willy’s involvement in the case is contained in emails which have been produced to the Court and speak for themselves. There is no evidence that Mr Schneider spoke to Mr Willy for advice on the meaning and ramifications of the term ‘price cap’ in the offer. In these circumstances, in the exercise of my discretion I decline to draw a Jones v Dunkel inference in relation to Mr Willy.

Clauses 1.5 and 1.8 of the schedule to the contract are in dispute. They have been reproduced above. The claim for restitution rises and falls on construction of the parties’ agreement. It must be determined whether Weston was obliged to obtain a third-party insurance policy to support the price cap.

The parties agree on the general principles of interpretation of commercial contracts. They rely on two relatively recent decisions of the High Court that emphasise that written contracts, and commercial contracts, are to be objectively construed.

First, in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640 (‘Woodside’), at [35], French CJ, Hayne, Crennan and Kiefel JJ stated (citations omitted; my emphasis):

Those authorities make clear that that contracts are to be construed from the perspective of a reasonable businessperson. Generally, proper construction can be achieved entirely by reference to the text of the document evidencing the contract. Evidence going to the contracting parties’ subjective states of mind (their intentions, expectation, and understanding) is not relevant.

Ceramics’ submissions focus on cl 1.8 and it urges that the collocation of the characteristically insurance-related terms ‘price insurance’, ‘premium’, ‘term’, ‘renewal’, ‘trigger’ would lead a reasonable businessperson to understand that ‘price insurance for the gas commodity charge’ referred to ‘an insurance policy to cover the risk of including a $15/GJ price cap in the contract terms for which Ceramics would pay the premium’.

Ceramics also draws attention to the fact that the parties were looking to negotiate a contract which would address the rising prices of wholesale natural gas. It is said that both parties understood that Weston was taking on a larger risk with this ‘capped spot price’ model as opposed to the parties’ previous arrangement. In this context, noting that insurance is a product which defrays risk, a reasonable businessperson would understand that ‘price insurance’ was a reference to a price insurance policy that would be obtained by Weston.

As a matter of textual analysis, Weston points to the ‘credit support’ section of cl 1.5. It says that in that clause, a ‘Trade Credit Insurance Policy’ is expressly referred to. The clause clearly states what is ‘covered’ and clearly states that Weston will pay the premium (‘Premium is paid by Weston Energy’). The presence of this clearly worded clause would operate to displace a like reading of cl 1.8, where it is not clearly expressed as an insurance policy.

Weston says that ‘price insurance’ is a synonym for ‘price cap’ and raises these further points of textual construction:

Weston submitted that cl 1.8 does not say that Weston was to have the benefit of any price insurance policy, but rather provide (not obtain) it and, in any case, the term ‘price capping insurance’ does not appear primary documentation.

Generally, where an agreement has been entirely reduced to a written document, that document is conclusive evidence of the terms of the agreement — this is known as the parol evidence rule. As the former Chief Justice of this Court has said, writing extracurially:

The rule was unanimously reaffirmed by the High Court in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471: ‘a party executing a written agreement is bound by it’ (at [33]); ‘the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside’ (at [35]).

This rule was expressed by the High Court in the passage from Wright Prospecting quoted above:

In commercial contracts, this process of textual construction is conducted in the light of ‘the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract’ (Wright Prospecting at [47]).

It is common ground between the parties that, there is no need to go outside the agreement nor have recourse to the events, circumstances and externalities of the contract.

Counsel for Ceramics argued that when interpreting the Court must look to the language of the contract that was unambiguous and clear when referring to terms that are commonly used in the insurance industry. I agree that the language of ‘premium’, ‘price insurance’, ‘term’, ‘renewal’ and ‘triggered’ are all terms conventionally used to describe elements of insurance policies provided by third-party insurers to cover particular risks. Ceramics further submitted that these terms would be familiar to a reasonable businessperson such as Mr Schneider who would naturally associate them and comprehend them to be terms consistently used to describe insurance policies. I also agree with this submission.

Ceramics also addressed the fact that the ‘objective purpose’ of the discussions and subsequent agreement was to appease Ceramics' concerns with the sudden global volatility in gas prices. Therefore, the overarching purpose of renegotiating a new contract was to acquire pricing stability and the mitigation of risk from a volatile market. Weston could offer Ceramics stability by introducing the ‘price cap’ feature, however, this would shift the risk exposure to Weston, which was, as Ceramics submitted, intended to be mitigated with the use of ‘price insurance’. Objectively, what the parties intended to achieve when drafting the contract was for Ceramics to receive a contract that capped gas at $15/GJ and for Weston to retain a substantial account while simultaneously mitigating its risk of sustaining a loss if the price went over the $15/GJ threshold.

Weston's counsel raised several additional matters in its closing submissions on the interpretation of cl 1.8 and its meaning. It was argued that cl 1.5 of the contract explicitly refers, under the subtitle ‘credit support’, to an ‘insurance policy’ specifically using the terms ‘insurance’ and ‘policy’, in contrast to cl1.8 which does not use these terms. Instead, it refers to ‘price insurance’ and ‘price cap’. This difference does not necessarily exclude the possibility that cl 1.8 describes a distinct or novel form of insurance. It is my view that the language used in the clause largely aligns with common terminology typically found in insurance policies.

Weston’s submission regarding the express mention of an insurance policy in cl 1.5 has force. In S A Christensen and W D Ducan, The Construction and Performance of Commercial Contracts (Federation Press, 3rd ed, 2023) the learned authors stated at 48:

When interpreting a contract, a court considers not only the text of the impugned provision but also its context, that is, the words and provisions surrounding the impugned provision. The court strives to make sense of a contract as a whole. The fact that a third-party insurance policy is clearly contemplated by cl 1.5 weighs against the conclusion that the same is contemplated by cl 1.8.

It was further argued that cl 1.8 indicated that Weston was ‘providing’ price insurance, rather than ‘obtaining’ it from a third party. I do not find the difference in this terminology is significant. According to this argument, Weston is ‘insuring’ the gas price by capping it at $15/GJ, rather than securing an external policy to hedge against the risk. Dr Gholami agreed that simpler and clearer language could have been used, simply stating that the price for gas would be capped at $15/GJ for a period of one year would have more effectively communicated the intent of the clause, but it was not.

Counsel for Weston also submitted that ‘nowhere does [cl 1.8] say it was for the benefit of Weston’. However, even if the policy was not intended for Weston's benefit, the ability of ‘insuring’ price fluctuations of the gas price and providing a cap for its customers would present a competitive advantage for Weston in acquiring new business, ultimately benefiting Weston. The logic behind ‘providing’ insurance for Ceramics' benefit would still work to provide a price cap, therefore, if the price fluctuated above the cap of $15/GJ the policy would be triggered and the insurance would step in to pay for the difference in price, benefiting both Ceramics, who maintain their payment of $15/GJ and Weston, who would presumably receive the balance of the difference as payment from the policy. Counsel for Weston then addressed the term ‘premium’, suggesting that it only referred to an additional charge imposed for assuming the risk of capping the price, rather than a form of payment for a third-party insurance policy.

The terms ‘price cap’ and ‘price insurance’ are interchangeable in the contract and essentially have the same meaning. The wording in cl 1.8, ‘price insurance will be triggered…’ is to suggest that the term ‘triggered’ would not be associated with a traditional insurance policy which is always in place and not there periodically. By adopting this view, the phrase ‘price insurance will be triggered…’ could be changed to, ‘price cap will be triggered…’ much like how a standard insurance policy is activated or ‘triggered’ by an event. For example, an accident triggers payment of an automotive insurance policy, or an illness triggers payment of a health insurance policy. Similarly, if the price of natural gas exceeds $15/GJ, the clause would ‘trigger’ the price cap policy. Therefore, the expression price insurance is ‘triggered’ if the price of natural gas exceeds $15/ GJ is consist with the terms of an insurance policy.

Weston sought to dismiss the concept of ‘price capping insurance’ as it ‘permeates Ceramics' pleadings’ by establishing that there is no documentation (including the contract authored by Weston) that includes that phrase. I accept that in the final contract the specific words ‘price capping insurance’ do not appear in the written agreement.

However, when ultimately interpreting this agreement, cl 1.8 is headed by the words ‘price cap’ and not ‘price cap insurance’ therefore, by taking the ordinary and natural meaning of the words, the Court must infer, that this section will address how the ‘price cap’ is to operate, and not how the ‘price cap insurance’ is proposed to operate. In the second line of cl 1.8 the contract stipulates ‘Weston Energy will provide price insurance for the effective…’ alluding to the fact that, a price cap will be achieved by the mechanism of Weston providing a ‘price insurance’ and not by Weston ‘obtaining’ a price cap insurance policy. The mechanism ‘price insurance’ operates with respect to the terms listed in cl 1.8, being the ‘premium’ charged for the service, the ‘term’ for which it will operate, ‘the renewal process’ and finally how the mechanism will be triggered. Alternatively, the calculation needed to give effect to the ‘price insurance mechanism’ which, in turn, works to cap the price at $15/GJ.

Although under the heading ‘price cap’ the words ‘price insurance’ appear three times where it stipulated, ‘Weston Energy will provide price insurance for the gas commodity price’, ‘[t]he price insurance is to be renewed on an annual basis’, ‘[p]rice insurance will be triggered on a monthly weighted average…’, there is no reference to the actual term ‘price insurance policy’ nor to the term 'price cap insurance policy'. After examining the ordinary and natural meaning of the words in the agreement, paying particular attention to the construction of cl 1.8 (although it is not entirely clear per se), it is my view that a reasonable businessperson would not have understood cl 1.8 to mean that Weston had an insurance policy in place with a third-party insurer.

The next issue to be determined is Ceramics’ cross-claim for misleading or deceptive conduct.

Relying on the email sent after the conversations had on the morning of 2 March 2022, already referred to earlier in this judgment, from Dr Gholami to Mr Schneider and Mr Willy, Ceramics pleads that Weston (AXC at [18]):

Ceramics further pleads that by the wording of cl 1.8 itself Weston represented that ‘it would, and presently intended, to obtain price capping insurance on the following terms (AXC at [19]):

Ceramics pleads that this conduct gave rise to the following representations (AXC at [20]):

Ceramics also pleads that, having entered into the agreement, by purporting to pass on the insurance premium for ‘price capping insurance’, Weston represented ‘that it had taken out price capping insurance to protect itself against gas commodity price rises on the spot market and was charging the cross-claimant the agreed premium (the Fifth Representation) (AXC at [21]).

Section 4 of the ACL relevantly reads:

In so far as the representations made relate to future matters, Ceramics pleads that Weston had no reasonable grounds for making them and relies on s 4 of the ACL to say that the conduct giving rise to the representations is captured by s 18 of the ACL (AXC at [22]).

Weston accepted that it did not take out ‘price capping insurance’, but denies that it engaged in conduct which gave rise to any of the pleaded representations or that it was ever under any obligation to take out any ‘price capping insurance’ (FADXC at [1]–[14]).

The prohibition on misleading or deceptive conduct in trade or commerce is found in s 18 of the ACL, which relevantly reads:

It is in near identical terms to the now repealed s 52(1) of the Trade Practices Act 1974 (Cth) (‘TPA).

It has been said that the words ‘misleading or deceptive’ in the statutory context share the common meaning ‘to lead into error’: Parkdale Custom Built Furniture Pty Ltd v Puxu (1982) 149 CLR 191 at 198 per Gibbs CJ (‘Puxu’) and also that the secondary basis of liability ‘likely to mislead or deceive’ adds little to the section, ‘at most [it makes] it clear that it is unnecessary to prove that the conduct in question actually deceived or mislead anyone’: Puxu at 198.

In Self-Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186 at [80]–[83] (‘Self-Care’), the High Court recently addressed the process to be followed when determining whether conduct is misleading or deceptive (citations omitted):

So, the four steps to be carried out in determining whether a person has breached s 18 of the ACL are:

However, this is only the preliminary analysis, if the execution of all those steps turns up favourably for the defendant, a plaintiff may only recover if they suffer loss or damage ‘because of’ the misleading or deceptive conduct: ACL s 236(1).

In claims for misleading or deceptive conduct, the claimant must prove each of the elements of the cause of action to the ‘reasonable satisfaction of the court, which means that the court must feel an actual persuasion of its occurrence or existence’ (Watson v Foxman (1995) 49 NSWLR 315 at 319 per McClelland CJ in Eq). ‘Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of fact … [r]easonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences’ (Warner v Hung (No 2) (2011) 297 ALR 56; [2011] FCA 1123 at [48] per Emmett J — these words are from Dixon J’s judgment in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362).

Proof of intention is not required to prove a breach of s 18: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216. Liability may be founded even where the contravener (at least where they are a corporation, as they are here) has acted honestly and exercised reasonable care: Puxu.

However, there are cases where the contravener’s intention may in fact be relevant, for example where the misleading or deceptive conduct relates to promises or opinions; see C Lockhart, The Law of Misleading or Deceptive Conduct (6th ed, 2023, LexisNexis) at 97–98 (citations omitted):

As stated in Self-Care, the first step is to identify with precision the conduct said to be misleading or deceptive. Here, the pleadings referred broadly to ‘pre-contractual negotiations’ (AXC at [19]) and the particulars draw attention to the covering email accompanying the third offer sent by Dr Gholami to Mr Willy and Mr Schneider (produced above) and also the wording of cll 1.5 and 1.8 themselves. The pleadings also identified the post-contractual conduct of invoicing for the premium (at $0.15/GJ) (AXC at [21]). In the course of proceedings, the conduct has also been identified to include the three-way telephone conversation between Dr Gholami, James, and Mr Schneider. Summarily, the conduct said to be misleading or deceptive is the following:

The five representations which are said to arise from this conduct are noted above under ‘Ceramics’ submissions’. They relate to the availability of a ‘price capping insurance’, to Weston’s capacity and intention to obtain it, and to Weston’s having obtained it.

As mentioned above in Self-Care, where the conduct is directed to the world at large or to a class of people, the assessment is to take place by reference to a hypothetical ordinary and reasonable member of the people to whom the conduct was directed.

Here, although we are dealing with the conduct of one corporation specifically directed to one other corporation, Weston proffered the same ‘price insurance’ product to different companies (T208–212).

On 16 May 2022, for example, another employee of NUS sent the following email to Dr Gholami regarding Baxter Health’s dissatisfaction with Weston’s failure to honour their apparent obligations (Exhibit 3):

In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [24]–[26] (‘Backoffice Investments’), French CJ said (citations omitted):

Therefore, the question of whether a person has been misled or deceived is irrelevant to the question of whether conduct is misleading or deceptive or likely to mislead or deceived. That question, however, is relevant and must be asked when assessing whether the impugned conduct caused the claimant’s loss.

When assessing conduct directed to a class of persons, characterisation proceeds by reference to a ‘representative member of that class’ (Backoffice Investments at [26]). Here, the relevant class of persons is purchasers of wholesale gas under a price cap contract.

The characterisation of Weston’s conduct proceeds by reference to a representative member of that class of people who buy wholesale gas, of which Mr Schneider was part (at the time of the negotiations he had approximately 14 years’ experience ‘in the tiling and ceramic related industry in Australia’ (CPS-A 1 at [6])).

The concept of a ‘price cap’ in wholesale gas agreements was a relatively new one. However, in reality, there was no price cap insurance available in the marketplace, as Weston was well aware. Mr Schneider was not aware of this, and Weston took no steps to explain this shortcoming.

Weston’s suggestions of the import and meaning of cl 1.8 are key to any finding of misleading or deceptive conduct. On the morning of 2 March 2022, there were two important phone calls.

The first phone call was between Dr Gholami and Mr Schneider and was only 7 minutes in duration; the second phone call was between Dr Gholami, Mr Schneider, and James and was 17 minutes in duration.

The content of the first conversation on 2 March 2022 is uncontroversial. Mr Schneider told Dr Gholami that a one-month price cap was insufficient and pushed Dr Gholami to offer a 12-month price cap. Dr Gholami said that he would seek guidance from his superiors. This phone call was of 7 minutes’ duration. In cross-examination, Dr Gholami said that in such negotiations it was his practice to inform clients that gas prices might fall (T186 [45] – 187 [3]):

As to the second conversation that same morning, Mr Schneider has no recollection of it, Dr Gholami and James give accounts innocuous to themselves. Applying the counsel of prudence offered by Leeming JA in Dedakis, in such instances it is best to start with documentary evidence. Here, the email was sent at 10:42 AM on 2 March 2022 after the conversations took place in which Dr Gholami stated (my emphasis):

I accept that on 2 March 2022, the three-way phone call took place between Mr Schneider, Dr Gholami and James. I accept that during the three-way telephone conversation that James said something to the effect of '[w]e definitely can't offer a cap for a 24-month retail contract. The best I can do against my book is for a 12-month price cap.' It is common ground that neither James nor Dr Gholami explained to Mr Schneider that there was no third-party insurance policy.

An important consideration in evaluation of the three-way phone conversation is that Weston was eager to secure the contract. Dr Gholami during cross-examination conceded the fact that he did not have clear recollection of what was specifically said during the three-way telephone conversation, especially regarding information that may have been conveyed to Mr Schneider about ‘price cap insurance’ and the lack of any such third-party policy. Dr Gholami admitted to having a poor recollection.

I find Dr Gholami’s and James’ evidence as to the three-way phone conversation unreliable. It is difficult to determine exactly what was said in this phone conversation, but it is my view that, after carefully observing them giving evidence and being cross-examined, they had tailored their evidence to bolster Weston’s case. Starting with the email, it is my view that Dr Gholami and James exploited the loose and imprecise language of cl 1.8 to secure Ceramics’ business. Regarding the text of their email, it appears that “insurance” was discussed.

Weston’s position has always been that the ‘price cap’ and ‘price insurance’ are synonymous and refer to the same thing, the price cap. However, the email extracted above contemplates that they are separate things. In the first sentence of quotation the email refers to the ‘price cap’ whereas in the second sentence it refers to the ‘insurance’ and the ‘coverage’ it provides (the ‘capped retail margin’ refers to another feature of the agreement).

The policy of the prohibition on misleading or deceptive conduct in trade or commerce is relatively clear: people engaged in trade or commerce must actively ensure that what they do is not misleading or deceptive. Liability is absolute. It matters not how reasonably or honestly the party has behaved. Where conduct is misleading or deceptive, and because of it another person suffers loss, the policy is that the loss should fall with the person responsible for the misleading or deceptive conduct.

Weston’s repeated use of terms intimately connected with insurance policies, such as ‘insurance’, ‘premium’, ‘term’, ‘renewal’, ‘trigger’, and ‘coverage’ to refer to something other than an insurance policy in my view was misleading or deceptive. This conclusion is put beyond any doubt in circumstances where Weston failed to disabuse Ceramics of the existence of any sort of third-party insurance policy. The use of the term ‘price insurance’ as a synonym for ‘price cap’ is misleading or deceptive.

As a result of s 18 of the ACL (and of other analogous torts) people have a right, in trade or commerce, to expect that others are conducting themselves honestly, candidly, and straightforwardly; not only that, but that others are also conveying the truth by their conduct. In trade or commerce, people must be honest, candid, and straightforward with their words. To use the words ‘insurance’, ‘premium’, ‘term’, ‘renewal’, ‘trigger’, and ‘coverage’ to refer to something other than an insurance policy is slippery, definitely misleading, perhaps deceptive, and in any case illegal under the law of Australia.

I am satisfied that the conduct was misleading or deceptive and that it gave rise to the five pleaded representations. Namely, that:

These representations are the natural and ordinary ones to arise where a person repeatedly and in different settings uses the words ‘insurance’, ‘premium’, ‘term’, ‘renewal’, ‘trigger’, and ‘coverage’ to refer to a product, even when directed to a wholesale natural gas purchaser. This is notwithstanding that I have found that, as a matter of contractual interpretation, there was no contractual obligation to obtain a third-party insurance policy. Here, there was conduct (pre- and post-contractual conduct) which urged upon Ceramics a certain interpretation of the contract which was contrary to both the meaning of the contract and to Weston’s intentions.

Causation is a question of fact which ‘must be determined by applying common sense to the facts of each particular case’ (March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 (‘March v Stramare’) at 516 per Mason CJ quoting Lord Reid in Stapley v Gypsum Mines Ltd [1953] AC 663, 681).

Under s 236 of the ACL, a claimant may only recover loss or damage suffered because of the misleading or deceptive conduct:

Ceramics alleges that because of misleading representations made to it by Weston regarding ‘price capping insurance’, it chose Weston’s gas supply offer over Shell’s gas supply offer, and thereby is entitled to be put in the position it would have been in had it contracted with Shell (see Westpac Banking Corporation v Jamieson [2015] QCA 50 at [143]–[144]).

At common law, ‘acts done by the representee in reliance on the misrepresentation constitute a sufficient connexion to satisfy the concept of causation’ (Wardley Aust Ltd v Western Australia (1992) 175 CLR 514 at 525) (‘Wardley’). Although ‘reliance is not a substitute’ in the context of the ACL (Back Office Investments [143] per Gummow, Hayne, Heydon and Kiefel JJ; emphasis in original), reliance may be ‘a link … in the chain of causation’ (Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 356 per Brennan J).

Here, the loss or damage argued for is that which was eventually occasioned by the decision to accept the Weston offer over the Shell offer. That act was allegedly done on reliance on Weston’s representations. It was that act of election which caused the loss claimed.

If Ceramics is able to prove that at the time of its of election of contracts, it looked to and relied on any misrepresentation as to ‘price capping insurance’ made by Weston, and that additional factor settled any indecision or prevarication and caused it to elect Weston, the misleading or deceptive conduct can properly be said to have caused the loss claimed. Similarly, if Ceramics is able to show that Weston’s misleading or deceptive conduct ‘materially contributed to’ its election of Weston over Ceramics, that misleading or deceptive conduct can be properly said to have caused the loss claimed (March v Stramare at 515 per Mason CJ).

Although this formula of ‘material contribution’ is generally used in negligence actions where there appears to be more than one cause of the damage, in Wardley at 525, the Court discussing s 82(1) of the TPA said that that section ‘should be understood as taking up the common law practical or common-sense concept of causation [discussed in March v Stramere]’. Section 82(1) of the TPA was in slightly different terms to the current s 236 of the ACL. The former provided that loss or damage which occurred ‘by an act of another person’ was recoverable, whereas the latter provides that loss or damage which occurs ‘because of the conduct of another person’ is recoverable. This analysis, still with reference to s 82(1) of the TPA, was approved by Gaudron J in Henville v Walker (2001) 206 CLR 459 at [61] where her Honour said, ‘that common-sense approach requires no more than that the act or event in question should have materially contributed to the loss or injury suffered.’ For these purposes, the difference in wording between the two provisions is not significant and a satisfactory causal nexus can be established if it can be shown that Weston’s misleading or deceptive conduct materially contributed to Ceramics’ loss, which is said to ultimately arise from the act of electing Weston over Shell.

On the other hand, if it is proved that Ceramics would have entered the Weston contract even if the misleading or deceptive conduct had not occurred (that is, if there were no representations as to ‘price capping insurance’ made), the misleading or deceptive conduct cannot be said to have caused the loss, and Ceramics’ case will fail: Backoffice Investments.

If the Court finds that Ceramics would have entered into the contract with Weston even if the misleading or deceptive conduct had not been engaged in, that misleading or deceptive conduct will not be the cause of the loss occasioned by entering into the contract with Weston and Ceramics' claim under the ACL will fail.

Ceramics is only able to recover loss which occurs because of the misleading or deceptive conduct. Mr Schneider’s evidence is that he relied on Weston’s representations as to ‘price capping insurance’ and that, otherwise, he would not have entered into the contract with Weston but would have entered into a contract with Shell (CPS-A 1 at [48]–[49]). This evidence was not challenged in cross-examination. Nonetheless, this Court must feel an actual persuasion before determining this issue of causation.

There is evidence suggesting that Mr Willy (and perhaps, by close association, Mr Schneider) was actually misled by Weston’s conduct into believing that a third-party insurance policy was involved in the ultimate agreement. Weston put many reasons before the Court as to why it should reject Mr Schneider’s (that is, Ceramics’) evidence on his reliance on Weston’s representations and his submissions on causation.

I have carefully examined Weston’s submissions. Weston says that Mr Schneider’s evidence is:

Mr Schneider was cross-examined in line with the contention taken in sub-paragraph (a) above, that is, he was criticised because he did not keep a written diary recording internal thoughts. This argument is unpersuasive. While it may be that a person in Mr Schneider’s position may have kept a diary of appointments and brief file notes, it would not have been expected that such a person would record their internal thoughts.

As to sub-paragraph (b), it is somewhat inaccurate. There are two emails from Mr Willy revealing something approximating the matters addressed in sub-paragraph (b). On 12 May 2022, Mr Willy sent an email to Mr Schneider which read so:

On 20 May 2022, Mr Willy sent a further email to Mr Schneider:

These emails suggest that Mr Willy himself was actually misled by the representations relating to the supposed ‘price cap’ insurance policy and that he relied on them in some way.

As to sub-paragraph (c), it is true that Mr Schneider deposed that a chief reason for selecting Weston was the opportunity it presented for Ceramics to simultaneously capitalise on low spot prices while being protected from increases above $15/GJ (CPS-A 1 at [27], [30]–[31], [35]). However, that does not exclude the finding that Weston’s misleading or deceptive conduct amounting to representations about a ‘price cap’ insurance policy caused Ceramics to enter into the contract with Weston (that is, caused the loss). It is not farfetched that the guarantee of security provided by a third-party insurance policy would materially contribute to one’s decision to enter into a contract, notwithstanding that there are other considerations.

Sub-paragraph (d) is unpersuasive. This is because Mr Schneider had sole responsibility for making the decision of which offer to accept. Those others would not have had any specific knowledge as to price cap agreements. It would have not been in his interest to ask his seniors because it was part of his job to make this decision.

Weston refers again to Dig It, where the Federal Court rejected the evidence of a witness that Weston says was in the same shoes as Mr Schneider. Weston says that the same matters which caused the Federal Court to reject that witness’s evidence arise here:

So far as sub-paragraph (a) is concerned, it is true that Mr Schneider was not an impartial witness. However, this point is somewhat trite. Witnesses in commercial cases are rarely impartial. It does not mean that they are disabled from telling the truth. As I said earlier when he was shown to be in error, he freely accepted that. To my mind, after carefully observing him when he was giving evidence and being cross-examined, I formed the view that he was an honest witness.

I have dealt with the substance of sub-paragraph (b) above.

While I understand there is always the risk of reconstruction. On balance, I do not accept that it occurred here. Therefore, I accept Mr Schneider’s evidence.

Again, in response to sub-paragraph (c), Mr Schneider had sole responsibility for making the decision of which offer to accept. The two emails from Mr Willy to Mr Schneider above weigh against and perhaps even disprove the notion that the importance of the price cap insurance was never discussed.

In line with sub-paragraph (d) above, Mr Schneider was also criticised on some factual matters on which he was mistaken. However, I do not think he was untruthful as I have already set out.

I am satisfied that Weston’s misleading or deceptive conduct gave rise to the pleaded representations. That conduct was comprised of:

I am reasonably satisfied that this misleading or deceptive conduct materially contributed to Mr Schneider’s decision to choose Weston’s contract over Shell’s, which is the key act causing loss. In other words, I am actually persuaded that Weston’s misleading or deceptive conduct materially contributed to Ceramics’ decision to choose Weston over Shell. In the event, Weston became unable to fulfil its contractual obligations and Ceramics lost the benefit of its contract. This would not have happened if Ceramics chose Shell — Ceramics chose Weston and not Shell because of Weston’s misleading or deceptive conduct.

Under s 236 of the ACL, loss or damage which is suffered ‘because of’ the misleading or deceptive conduct is recoverable.

In tort, an award of damages is fashioned by reference to the principle that, so far as is possible by way of money, a party is to be put in the position that they would have been in had the wrong not occurred. The same principle is ‘appropriate in most, if not all [cases involving] misleading or deceptive conduct’ (Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 15 per Gibbs CJ).

Here, the loss or damage claimed is the funds expended in surplus of that which would have been expended had Ceramics, in March 2022, accepted the Shell offer as opposed to the Weston offer. Since Ceramics accepted Weston’s offer and failed to accept Shell’s offer because of Weston’s misleading or deceptive conduct, it is entitled to be put in the position it would have been in had it accepted Shell’s offer, which was a two-year fixed price offer.

This requires an analysis of what Ceramics paid in fact during the period of the Shell offer and what it would have paid over the same period had it accepted the Shell offer.

Ceramics relied upon the original report and supplementary report on damages prepared by Mr Shields of Doleman Bateman & Co Pty Ltd. Mr Shields is a chartered accountant who specialises in forensic accounting. While Weston never admitted that Ceramics suffered loss or damage, the reports of Mr Shields were not challenged. Mr Shields was not cross-examined.

The supplementary report calculated that between 4 March 2022 and 30 June 2024 (the end date of the Shell offer), Ceramics expended $26,775,918.65 including GST on its natural gas supply. It arrived at this figure by the addition of the following invoices:

Below is a table charting those costs:

The supplementary report (dated 30 September 2024) differs from the original report (dated 10 February 2023) because it is able to calculate Ceramics’ expenditure based on the actual invoices as issued, rather than predictions. The original report had predicted total costs to be $23,270,882.55 excluding GST, that is $25,587,970.8 including GST (if I calculate correctly). The value in the supplementary report of $26,775,918.65 including GST will be adopted.

As to the counterfactual analysis relevant to quantification of damages, the original report considered the costs that Ceramics would have incurred if it had accepted the Shell offer at a fixed rate of $10.25/GJ for the period of 1 July 2022 to 30 June 2023 and $10.49/GJ for the period of 1 July 2023 to 30 June 2024. It assumed that the contract that Ceramics had entered into with Weston would have remained on foot and that Ceramics would have been subject to the terms of that contract until the commencement of the Shell contract on 1 July 2022— under the 2020 Weston contract, Ceramics would have continued to be charged gas at the spot price plus 10% of the ‘Gas Commodity Charge’. The report assumed that Weston continued to provide gas to its customers and was not suspended from trading on 23 May 2022. By the addition of the theoretical costs from 1 March 2022 to 30 June 2024 on the Weston contract ($5,115,728.01 excluding GST) and the theoretical costs of two years under the Shell contract ($11,865,956.88 excluding GST), Mr Shields arrived at a figure of $16,981,684.89 excluding GST, that is, $18,679,853.38 including GST (if I calculate correctly).

Below is a table charting those costs:

The supplementary report however, assessed the counterfactual scenario of Ceramics accepting the Shell offer taking into account the fact that Weston was in fact suspended and that Ceramics had to rush to reinstate its gas supply. Therefore, from the period of 1 March 2022 to 30 June 2022 it considered Ceramics’ actual costs in obtaining gas, taking into account the suspension. The period from 1 July 2022 to 30 June 2024 is assessed in accordance with the Shell offer, as in the original report. As above, the supplementary report had the benefit of hindsight and could consider actual gas consumption as opposed to predicted gas consumption. Mr Shields concluded that Ceramics’ expenditure from 1 March 2020 to 30 June 2024 would have been $17,517,741.17 including GST. The supplementary report considers the correct factual scenario. Even if Ceramics had chosen Shell, it still would have been in a contract with Weston until 30 June 2022, and Weston would have still been suspended on 23 May 2022.

Below is a table charting those costs:

Ceramics in fact spent $26,775,918.65 on natural gas from 1 March 2022 to 30 June 2024. If it had entered into the contract with Shell, it would have spent $17,517,741.17. The difference between these two figures is $9,258,177.48. Ceramics entered into the contract with Weston and did not enter into the contract with Shell because of Weston’s misleading or deceptive conduct. In order for Ceramics to be put into the position had the misleading or deceptive conduct not occurred, provisionally, subject to what is said below, it is entitled to damages of $9,258,177.48.

On 25 May 2023, Ceramics received a refund of $782,563.76 including GST from AGL Energy (one of the retailers Ceramics used following Weston's suspension) (CPS-A 3). Mr Schneider's affidavit confirming this refund was sworn on 26 August 2024 and so the refund, it seems to me, was omitted from Mr Shields' reports. This refund will be taken into account to reduce Ceramics' entitlement. So, provisionally, subject to what is said below, Ceramics’ entitlement stands at $8,475,613.72.

As is noted in the orders below, the parties are to check my calculations here. There may be errors as the figures in Mr Shields’ reports oscillate between including GST and excluding GST. Where GST has been excluded, 10% has simply been added to arrive at a figure ‘including GST’. Some of the costs which make up the ‘excluding GST’ figures in Mr Shields’ reports are themselves exempt from GST, and so, therefore, it is not possible to calculate the exact figure by the simple addition of 10%, although it seems to be close, and I have done so to arrive at an estimate of the quantum of final judgment.

Ceramics claims that is entitled to an equitable set-off in relation to Weston’s claim for non-payment of the invoice. Ceramics has admitted non-payment of this invoice. Because of the liabilities established in this judgment, such a set-off would have the effect of extinguishing Weston’s claim entirely and reducing Ceramics’ entitlement by the commensurate quantum.

It is necessary to say something about the character of an equitable set-off. In R Meagher, D Heydon, M Leeming, and P Turner, Meagher Gummow & Lehane’s Equity Doctrines & Remedies (LexisNexis, 5th ed, 2015) (‘Lehane’) the learned authors state at 1098 (citations omitted; my emphasis):

In Roadshow Entertainment v (ACN 053 006 269) Pty Ltd Receiver & Manager Appointed (1997) 42 NSWLR 462 (‘Roadshow’), the Court of Appeal stated at 481 (my emphasis):

Roadshow was approved in Concrete Constructions v Dalma Formwork [1999] NSWCA 16 at [21]–[22] and in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [54] per Campbell JA.

There are four types of equitable set-off (Lehane at 1102). The purely equitable set-off is the one where ‘the party seeking the benefit of it can show some equitable ground for being protected against his adversary’s demand’ (Lehane at 1042 quoting Rawson v Samuel (1841) Cr & Ph 161 at 178; 41 ER 451 at 485 per Lord Cottenham LC). Since the claim and the counter-claim arise from precisely the same transaction, a transaction which Ceramics entered into because of Weston’s illegality (misleading or deceptive conduct), Ceramics is entitled to an equitable set-off as it would be inequitable to allow Weston to satisfy its debt without first clearing its conscience by compensating Ceramics for the loss which it has suffered at Weston’s hands.

A question arises as to when the equitable set-off should be applied. The timing of the application is of critical importance as it will affect the quantum which will be off-set. If the set-off is applied sooner, it will be of a lesser quantum as the accrual of interest will be arrested. If the set-off is applied at the time of this judgment, the quantum will be larger as more interest will have accrued.

Clause 7.3(b) of the parties’ agreement (CB55) relevantly determined interest payable on an unpaid invoice. It is in the following terms:

On the question of when the set-off should be applied, Ceramics made the following submission:

Ceramics relied on AMP v Specialist Funding Consultants (1991) 24 NSWLR 326 at 330–331 (‘AMP v Specialist Funding Consultants’), where Rogers CJ stated:

Rogers CJ in turn relied on Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd [1988] FCA 88, I am unable to locate the judgment, however, its digest reads:

It is my view, in agreement with Ceramics, that a set-off may be applied ‘when circumstances subsist which support the equitable set-off regardless of whether proceedings are brought at the time’. As Campbell JA said in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [53]:

However, it is not clear, as submitted by Ceramics, that Ceramics’ cause of action arose at the time it entered into the contract with Weston or, even if that was the case, circumstances at that time subsisted so as to support an equitable set-off.

No cause of action arises simply because a person engages in misleading or deceptive conduct. The cause of action is created by s 236 itself and arises when a person suffers loss or damage because of that misleading or deceptive conduct. Damage is the gist of the statutory claim. In Wardley at 529–532, the High Court rejected the decision in Jobbins v Capel Court Corporation Ltd (1989) 91 ALR 314 (which was relied on by Rogers CJ in AMP v Specialist Funding Consultants); the Court in Wardley held that where a person granted an indemnity as a result of misleading or deceptive conduct, the loss did not occur when the indemnity was granted, but when ‘the contingency is fulfilled and the loss becomes actual’ (at 532).

It seems that same rule applies to Ceramics’ contract with Weston. The cause of action under s 236 arose when, on account of Weston’s misleading or deceptive conduct, Ceramics begun to suffer loss. The counterfactual scenario from which loss has been gauged in this case is Ceramics’ contracting with Shell. At the point that it became clear and the Court could be reasonably satisfied that Ceramics would be paying more (would suffer loss) having contracted with Weston than if it had contracted with Shell, at that point can the cause of action be said to have arisen. Here, that time is 23–24 May 2022, when Weston was suspended from trading, when Weston terminated its contract with Ceramics, and when Ceramics was forced to obtain natural gas from elsewhere at heightened prices. The quantum that could be yielded by the cause of action at that time would have been similar to the quantum yielded during these current proceedings (calculations of damages would have proceeded by prediction of prices and consumption, as opposed to actual prices and consumption). For that reason, circumstances subsisted on 24 May 2024 which could support an equitable set-off of the entirety of Weston’s claim.

The invoice was issued 23 May 2022 and was due for payment 3 June 2022 (that date was specified on the invoice and was also the date on which Weston would be entitled, under cl 7.3(b) to begin charging interest on the unpaid invoice).

At the time the invoice fell due, circumstances subsisted to support an equitable set-off. The result is that no interest is able to accrue on the invoice. Correspondingly, however, Ceramics’ primary entitlement on which interest accrues is also commensurately reduced. Ceramics entitlement is reduced by the quantum of the unpaid invoice, being $664,983.42.

So, finally, Ceramics’ entitlement can be quantified by the subtraction of $664,983.42 from $8,475,613.72 which yields $7,810,630.30. Weston’s cause of action is extinguished by the set-off.

Ceramics’ cross-claim under s 18 of the ACL is upheld; its cross-claim for restitution for unjust enrichment fails.

Weston’s claim for its unpaid invoice is made out but is extinguished by the equitable set-off claimed and established by Ceramics.

Section 100(1) of the Civil Procedure Act 2005 (NSW) relevantly governs the court’s power to award interest; it is as follows:

In Hexiva Pty Ltd v Lederer (No 2) [2007] NSWSC 49 at [7]–[8], Brereton J stated:

It has been said that ‘the award of interest should always be approached in a broad and practical way [and] should not be allowed to assume disproportionate importance’ (Cullen v Trappell (1980) 146 CLR 1 at 22 per Gibbs J).

Taking into account the equitable set-off, Ceramics would have had the totality of $7,810,630.30, being the loss occasioned by misleading or deceptive conduct, in its hands on 30 June 2024 (the end date of the Shell contract). So, accepting the statement of Gibbs J, interest should accrue from that date, 30 June 2024, to the date of judgment.

The parties have agreed to calculate interest once this judgment is handed down.

Costs are discretionary. Costs are reserved.

The Court orders that:

The proposed order that I will make subject to receipt of the short minutes of order is: