Application Martin No: gr9902 Jones Contents

Clause 32 Payment

Commission’s considerations

In the Draft Decision, proposed amendment A3.23 required that clause 32.1 allow ten business days for payment of an invoice rather than seven as originally proposed. Epic’s access arrangement of 29 June 2001 allows nine business days to pay an invoice. The only market participant to comment on this clause, Origin, indicated that nine days was acceptable.⁴⁰⁸ Accordingly, the Commission accepts that the revision made by Epic is sufficient to overcome concerns raised and no further amendment is required.

Clause 34 Force Majeure

Origin submits that a party should not have to act in an unreasonable manner to avoid force majeure events and therefore clause 34.1 should refer to events beyond the reasonable control of a party rather than beyond the control of a party.⁴⁰⁹ Origin argues further that the matters excluded from the definition of force majeure events in clause 34.2(b) should be deleted because it is not logical or fair for a party to be liable for any events that it can not reasonably control.⁴¹⁰

Commission’s considerations

Proposed amendment A3.24 of the Draft Decision required that Epic amend clause 34.4(b) in accordance with the proposal in its lodgement of 2 March 2000. This change specified that a users obligation to pay money owing is reduced / suspended only to the extent that Epic is unable to provide the service due to a force majeure event. This amendment has been made.

The Commission agrees with Origin that it would be unreasonable to require a party to be responsible for events that were beyond its reasonable control. Further, reasonable control is the standard used in most other access arrangements, including those for the Central West pipeline, the Moomba to Sydney pipeline, the Amadeus Basin to Darwin pipeline and the Ballera to Wallumbilla pipeline (which is also owned by Epic). As such, the Commission requires that the access arrangement is amended in accordance with amendment FDA 3.28.

The Commission considers that it is reasonable for the access arrangement to specify events that do not constitute force majeure events. Given the substantial consequences of force majeure provisions, it is appropriate to limit the circumstances in which these provisions apply. Further, limitations on force majeure events are present in commercially negotiated contracts.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires that Epic must:

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  Amend clause 34.1(a) as follows:
  

For the purposes of this Agreement, ‘Force Majeure’ means any event or circumstance not within the control of a Party and which, by the exercise of due diligence, that Party is not reasonably able to prevent or overcome including (but not limited to) …

Clause 35 Liability and indemnity

Most market participants, including TGT, NRG Flinders, AGLES&M, Energy SA consider the revised liability and indemnity provisions to be reasonable.⁴¹¹

However, Origin submits that liability for fraud and wilful disregard in clause 35.3 should apply only to the service provider. Users’ liability for breaches of the agreement, both wilful and otherwise, is already dealt with in other clauses of the access arrangement.⁴¹²

In contrast, Energy SA submitted that the application of this provision to all contracting parties made it ‘even-handed’.⁴¹³ AGLES&M expressed a similar view.⁴¹⁴

Further, Origin submits that the various indemnities in the access arrangement from users to Epic should not extend to situations where Epic has been negligent, has not acted as a reasonable pipeline owner or used reasonable endeavours to mitigate its losses.⁴¹⁵ It also states that the user should not have to indemnify the service provider for loss of profits.⁴¹⁶

Commission’s considerations

Proposed amendment 3.25 of the access arrangement required that Epic incorporate in clause 35 the revisions proposed in its lodgement of 2 March 2000, subject to changing the word ‘lesser’ in clause 35.3 to ‘greater’. Clause 35 has been substantially revised in Epic’s access arrangement of 29 June 2001 and this proposed amendment is no longer relevant.

The Commission is of the view that it is reasonable for both parties to be liable for fraud and wilful disregard. While users may be liable for charges in addition to their liability under clause 35.3, this is not inappropriate given the seriousness of fraud and wilful disregard.

In relation to clause 35, the Commission notes that indemnities and liabilities are limited to direct liabilities and that both parties have reciprocal obligations. As such, the Commission does not consider that it is necessary to limit the liabilities further as submitted by Origin.

The Commission notes that 15.3(d), 19.5 and 25.6 provide very strong indemnities for the service provider by users. These have been discussed above and necessary amendments have been specified.

On balance, the Commission does not require any amendment to clause 35.

Clause 36 Default and Termination

Origin submits that clause 36 gives the service provider greater rights than the user and that this clause should be adjusted so that the rights of all parties are balanced.⁴¹⁷ In particular:

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  Users should have an option to suspend as well as terminate an agreement because termination may be an insufficient remedy given that the user would loose its capacity rights.
  
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  An insolvency event and failure to pay money due should be considered an event of default by the service provider as it is by the user.
  
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  Where an event of default is not capable of being remedied but the user compensates the service provider in accordance with the access arrangement, then the event of default should be deemed to be cured so that the service provider can not terminate the agreement.
  
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  Clause 36.1(c) should not apply to amounts unpaid which are the subject of a genuine dispute.
  

In response, Epic indicated that it was prepared to review this clause.⁴¹⁸ However, it has not been altered in Epic’s access arrangement of 29 June 2001.