Electricity Generation Corporation t/as Verve Energy
v Woodside Energy Ltd  WASCA 36
How far can you push a commercial advantage under a contract
before you fall foul of the doctrine of economic duress? This was
one of the issues before the Western Australian Court of Appeal in
Electricity Generation Corporation t/as Verve Energy v Woodside
Woodside Energy (Woodside) and Electricity Generation
Corporation (Verve) were parties to a Gas Sale Agreement (GSA)
under which Woodside:
was required to supply with gas up to a maximum daily quantity,
"use reasonable endeavours to make available" an
additional amount of gas up to a supplemental maximum daily
quantity (the additional gas).
Due to an explosion at a gas production facility owned by Apache
(the other main supplier of gas in the market), available supply
dropped and the market price spiked.
Woodside informed Verve that it would no longer supply Verve
with the additional gas under the GSA but would supply an
equivalent quantity of gas under short-term gas sale agreements at
a much higher price.
Verve argued that:
Woodside had not used reasonable endeavours to make the
additional gas available, and
it was forced to enter the short-term gas sale agreements under
The GSA required Woodside to "use reasonable endeavours to
make available" the additional gas. However, Woodside argued
that the separate condition in the GSA stating that, "[i]n
determining whether [Woodside is] able to supply SMDQ on a day,
[Woodside] may take into account all relevant commercial, economic
and operation matters".
Woodside argued that the words "all relevant commercial,
economic and operation matters" qualified the word
"able" in the reasonable endeavours obligation, which
meant that it had not breached its obligation by refusing to supply
the additional gas in circumstances where it was more profitable to
sell the gas under short-term gas sale agreements.
The Court held that the word "able" referred to
Woodside's capacity to supply the additional gas, and the
increase in the market price of gas did not alter Woodside's
reasonable endeavours obligations.
Verve argued that the short-term gas sale agreements were
voidable under the doctrine of economic duress. The doctrine of
economic duress applies where illegitimate pressure has been
applied to a party that has induced the party to enter into a
contract, resulting in the contract being voidable.
The Court held that despite Woodside's genuine belief that
it was not in breach of the GSA, its refusal to supply the
additional gas left Verve with no option but to accept the
short-term gas sale agreements. Essentially, Woodside had
"applied" pressure on Verve.
The Court held that this was illegitimate pressure that was a
cause of Verve entering the short-term gas sale agreements in
circumstances that constituted a breach of the GSA.
Fatally for Verve's unjust enrichment claim for economic
duress, Verve had not taken the next step of rescinding the
short-term gas sale agreements, rendering them void. Accordingly,
Verve was limited to seeking damages for breach of the GSA, which
was subject to a liability cap.
Implications for agencies
This case highlights some of the risks associated with
attempting to take advantage of a strong bargaining position when
you already have contractual arrangements with a party. Economic
duress is another factor that must be considered, along with good
faith, when negotiating variations to your contract.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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