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- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Adani Abbot Point Terminal Pty Ltd v Lake Vermont Resources Pty Ltd & Ors  QSC 260
ADANI ABBOT POINT TERMINAL PTY LIMITED ACN 149 298 206
LAKE VERMONT RESOURCES PTY LIMITED ACN114 286 841
QCOAL PTY LIMITED ACN 010 911 234
BYERWEN COAL PTY LIMITED ACN133357632
SONOMA MINE MANAGEMENT PTY LIMITED
ACN 124 677 443
BS 9440 of 2017
Supreme Court of Queensland
26 August 2020
24 February 2020 – 28 February 2020, 20 May 2020, and 23June 2020
Final written submissions received 10 July 2020.
TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – UNCONSCIONABLE CONDUCT – WHAT CONSTITUTES – where the applicant is the owner, and the respondents are users, of a coal terminal – where user agreements exist between the applicant and the respondents –– where the respondents argue that as the result of a series of agreements the applicant in effect received payment of a previous user’s future obligations while requiring the remaining users to pay the equivalent of those obligations as charges under the user agreements – where the applicant was in a monopolistic position – where market conditions put the respondents in a vulnerable position – where applicant was acting in the interests of related corporation as well as its own interests – where there were alternative courses of action available to the applicant – whether applicant went beyond its legitimate commercial interests – pricing of monopoly asset – situational disadvantage and vulnerability – where there was no breach of contract – dishonest behaviour and want of good faith – whether the applicant’s conduct was in all the circumstances unconscionable in contravention of s 21(1) of the Australian Consumer Law
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where user agreements exist between the applicant, as the owner, and the respondents, as users, of a coal terminal – where pursuant to the user agreements a user must pay fixed costs for each tonne of the user’s coal handled by the terminal – where following one user’s departure the fixed costs for all other users increased – where in calculating the fixed costs the applicant has not taken into account any part of the money it received through transactions related to the previous user’s departure – whether it is in breach of contract for the applicant to charge the new higher fixed costs
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where user agreements exist between the applicant, as the owner, and the respondents, as users, of a coal terminal – where the operator levies berthage and mooring charges on ships which come to the terminal to be loaded with coal – where pursuant to the user agreements the operator is obliged to handle the coal which a user delivers to the terminal onto ships at the terminal – whether revenue received by the operator as charges for berthage and mooring of ships should be deducted from the operator’s variable operating costs
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where user agreements exist between the applicant, as the owner, and the respondents, as users, of a coal terminal – where contract provides that the applicant must demonstrate that its charges are reasonable having regard to the efficient operation of the Terminal – whether applicant has made demonstration
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where user agreements exist between the applicant, as the owner, and the respondents, as users, of a coal terminal – where the fourth respondent’s user agreement contains a clause which provides “… No other Access Holder Presenting Coal for Handling at the Terminal will be charged less than the User is charged at that time for a substantially similar commercial arrangement” – where the applicant charges another user less to handle its coal than it charges the fourth respondent – whether the user agreements of the fourth respondent and the other user are “substantially similar commercial arrangements” – whether applicant’s conduct is in breach of contract
Competition and Consumer Act 2010 (Cth), The Australian Consumer Law
Infrastructure Investment (Asset Restructuring and Disposal) Act 2009 (Qld)
Queensland Competition Authority Act 1997 (Qld)
ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2012) 245 CLR 338
L Kelly QC with S Cooper QC and M Johnston for the applicant
S Couper QC with D de Jersey QC for the first respondent
J McKenna QC with N Derrington for the second to fourth respondents
Clayton Utz for the applicant
DLA Piper for the first respondent
Arnold Bloch Leibler for the second to fourth respondents
Table of Contents
Relevant Provisions of the User Agreements
QCPL Transactions and Security Deposit Agreement
Effect of QCPL Transactions on TIC and HCF charged to the Respondents
Negotiation of the QCPL Transactions
Mr Wicks’ Evidence about Derivation of Consideration for QCPL Transactions
Factual Findings about the Negotiation of the QCPL Transactions
Want of Credit Support not a Motivation for the QCPL Transactions
Findings about Want of Credit Support
QCPL Transactions and Security Deposit Agreement – Reprise
Applicant Received Total QCPL Consideration
Period to which $255 Million Payment Relates
Three Agreements Not One
Unconscionability – Analysis
Parties’ Relative Strengths, Bargaining Positions at the time of Contract
No Breach of Contract
Unusual Aspects to User Agreements
Parties’ Relative Strengths, Market Conditions at the time of Impugned Conduct
The identity of the Supplier, and its Commercial Motivations
Beyond the Applicant’s Legitimate Interests
Alternatives Available to the Applicant
Lack of Good Faith and Commercial Morality
Conclusions as to Unconscionable Conduct
Remedy for Unconscionable Conduct
IICONSTRUCTION OF CL 7.2 OF THE USER AGREEMENTS
III BERTHAGE AND MOORING
IVHANDLING CHARGES, CL 7.6, DEMONSTRATION
Chronology of Dispute
PWC Reports, September 2017 and August 2018
Conclusions to be drawn from the PWC Reports
Evidence in this Proceeding
Glencore Incentive to Fix Reasonable Charges for OFC and OVC
The evidence of Mr Poulton and Mr Freeman
Lack of Operational Evidence
Finding: No Demonstration
Indications as to Inefficiency
Evidence of Expert Economists
Terms of the Contracts Between the Owner and Operator
Allocation to Fixed and Variable Categories
Market Conditions and Payment for Operator’s Services
VTHE MOST FAVOURED NATION CLAUSE
Preliminary Point, cl 13.2
Construction of cl 25.1(a)(v)
Substantially Similar Commercial Arrangement
Second to Fourth Respondents
UCPR rr 149 and 166
The First Respondent
- The Abbot Point coal terminal is situated at the end point of a railway line on the Central Queensland Coast. It has facilities for coal to be received from trains, stockpiled, and loaded onto ships. The respondents have coal mines in central Queensland. To export coal, they need access to the terminal; there is no other terminal they can use.
- The terminal began operations in 1984. Until May 2011 it was owned by Ports Corporation of Queensland, a Government Owned Corporation. Until 2005 Mount Isa Mines Limited (now Glencore Coal Queensland Pty Ltd) was the sole user of the terminal. Between 2000 and 2016 the terminal was operated by Abbot Point Bulk Coal Pty Ltd (APB and the original operator). The original operator was a related entity of Glencore. Until 2011, it operated the terminal under a contract with Ports Corporation (the operating agreement).
- In 2005 the second respondent became the second company (other than Mt Isa Mines) to use the terminal. In 2008 the second respondent’s user agreement was novated to the fourth respondent, Sonoma. Perhaps because it was the first of the user agreements (after Mt Isa Mines), the Sonoma user agreement has some differences from subsequent user agreements. The difference of relevance here is cl 25.1(a)(v), which has become known amongst users as ‘the most favoured nation clause’. That clause attempts to ensure that no other user will be charged less than Sonoma pays under its user agreement.
- After 2005 the remaining respondents (and other mining companies who are not parties to this proceeding) entered into individual user agreements with Ports Corporation.
- The user agreements contain clauses compelling the parties to them to keep various matters confidential. As to these clauses, I agree with the observations of Jackson J in Velocity Frequent Flyer Pty Ltd v BP Australia Pty Ltd and the comments of Heenan J in Southern Cross Pipelines Australia Pty Ltd v Michael. The fundamental principle is one of open justice.
- Having said that, so far as I am aware, in writing these reasons it has only been necessary to refer to confidential information twice, and on both occasions the need has arisen in formulating the terms of my formal judgments and declarations.
●In some of the written material I have received the amounts in which I am asked to give judgment are highlighted so as to indicate they are confidential. These amounts are not themselves confidential information protected by the user agreements. Perhaps a mathematical person could use the amounts to ‘reverse engineer’ their way to discover information that is confidential.
●In running this proceeding, the applicant and the fourth respondent kept the identity of the other user referred to at  ff confidential, apparently even from the first respondent. I wrote my reasons for judgment at Chapter V below without mentioning that user’s name in deference to this. However, it seems to me that I cannot make a proper (in the sense of sufficiently precise) declaration in relation to this matter without revealing the name of that other user.
The confidentiality clauses in the user agreements are not a sufficient reason for my refraining from publishing the amounts of the judgments and making the declaration which is appropriate on the evidence. As Street CJ said in David Syme & Co Ltd v General Motors Holden Ltd:
“Important as it is that proceedings and reasons should be heard and stated in public, it is even more important that the solemn formality of a curial order should be capable of publication.”
- Otherwise, so far as confidentiality is concerned, I intend to publish the reasons to the parties’ lawyers and give them a limited time to bring anything of concern to my attention before I publish the judgment more widely. If any editing is necessary, that will be explicit in the final published version.
- The user agreements are each called “Standard Abbot Point User Agreement (Coal)”. As the name implies, and as the respondents all assumed, each agreement is in very similar terms to the others. The user agreements are of many years’ duration. They are take-or-pay contracts, ie, users are entitled to have a certain amount of coal handled through the terminal each year, viz. their Annual Maximum Tonnage, and they are charged the fixed costs for that amount of coal to be handled, whether or not they present it at the terminal.
- The users pay three charges to the owner under the user agreements:
- (a)A Terminal Infrastructure Charge (TIC) is the primary charge in relation to infrastructure. It is fixed according to a formula. The formula fixes a figure based on elements of the owner’s capital costs and a return on its asset. That figure is divided by the total of all the users’ Annual Maximum Tonnages to produce a charge per tonne of coal. The more the total tonnage, the less the charge per tonne and the less each user pays. The secondary infrastructure charge, the Take-or-Pay Component (TPC), is for any part of a user’s Annual Maximum Tonnage not presented to the terminal for handling. It is the same price per tonne as the TIC.
- (b)Fixed Handling Charges (HCF) are a reimbursement to the owner of the price it pays the operator to provide fixed cost services under the operating agreement. It is a fixed charge so, as with the TIC, the more the total tonnes of coal handled by the terminal, the less the HCF per tonne of coal, and the less each user pays.
- (c)Variable Handling Charges (HCV) are a reimbursement to the owner of the price it pays the operator to provide variable cost services under the operating agreement.
- The Adani Group, through Adani Mining Pty Ltd (AMPL), wishes to develop a huge coal mine in the Galilee Basin, to the south-west of the terminal. AMPL will require port services to export coal, just as the respondents do. The Abbot Point terminal is the only terminal which it is possible for Adani to use.
- In May 2011 Mundra Port Holdings Pty Ltd (part of the Adani Group) acquired a 99 year lease of the terminal. The applicant (also part of the Adani Group) took a sublease of the terminal from Mundra and assumed the rights and obligations of Ports Corporation under the user agreements, and under the operating agreement.
- The original operator continued in its role. However, by 2015 the applicant and the original operator were in dispute. In October 2016 an Adani company, Abbot Point Operations Pty Ltd (APO), became the operator. The contractual arrangements are such that APO is obliged to provide the same services as the original operator. In fact Adani bought the shares in the original operator, and APO subcontracted the provision of operator services at the terminal to the original operator. Except where it is necessary to distinguish between APO and APB (Chapter IV below), I will simply refer to the operator after October 2016 as the Adani operator.
- Queensland Coal Pty Ltd (QCPL), a subsidiary of Rio Tinto, was one of the users of the terminal. By an agreement dated 31 October 2016, between AMPL, QCPL and the applicant, QCPL assigned its rights to have coal handled at the terminal from 1July 2022-30 June 2028 to AMPL, and agreed to pay AMPL an amount of $138 million (the novation agreement). As a result, AMPL will become a user of the terminal from 1July 2022. By a separate agreement also dated 31 October 2016, QCPL and the applicant agreed to terminate their user agreement and QCPL agreed to pay the applicant $117 million (the termination agreement). The parties to this proceeding call these two agreements the QCPL transactions. By a third agreement (the security deposit agreement), also dated 31October 2016, the applicant and AMPL agreed that AMPL would pay the $138 million it received under the novation agreement to the applicant, subject to various conditions.
Issues for Determination
- The parties are in dispute about five matters:
IThe respondents allege unconscionable conduct in contravention of s 21(1) of Schedule 2 of the Competition and Consumer Act 2010 (Cth), The Australian Consumer Law (ACL). They rely on the applicant’s charging them TIC and HCF under the user agreements at a higher level consequent on the termination of the QCPL user agreement, in circumstances where they say the applicant has received a total of $255 million ($117 million and $138 million) under the QCPL transactions.
IIThe respondents say that to charge the new higher HCF in the above circumstances is in breach of cl 7.2 of the user agreements.
IIIThe respondents say that, on the proper construction of cl 7.3 of the user agreements, money collected by the Adani operator from shipping companies as fees for berthage and mooring should be taken into account in their favour when calculating HCV.
IVOnce the original operator was replaced, a precondition to the users paying handling charges arose pursuant to cl 7.6(b) of the user agreements. The respondents say that this precondition has not been fulfilled.
VThe fourth respondent claims that the applicant has breached the most favoured nation clause because it charges another user less to handle its coal than it charges Sonoma.
Effect of Arbitration
- Before moving on to consider each of these issues I should mention that after the departure of QCPL, the respondents were unable to agree a TIC through the contractual process, and exercised their rights pursuant to their user agreements to arbitrate the amount of TIC. That arbitration concerned not just mathematical or economic matters as to the amount of TIC, but a determination by the arbitrator of the respondents’ claims that the user agreements contained implied terms which required the applicant to take into account the amounts it had received under the QCPL transactions when calculating the TIC. The arbitrator, the Honourable MrMichael McHugh, gave a partial award on 15May 2019 and a final award on 23August 2019. He fixed the TIC on the basis that he rejected the respondents’ claims about implied terms.
- A large part of the applicant’s replies and the respondents’ rejoinders concerned the effect of the arbitration award on this proceeding. Largely these issues were resolved before the trial because the respondents amended their pleadings to remove claims based on implied contractual terms. There remained some limited dispute between the parties as to the effect of the decisions of the arbitrator. At paragraph 3.14(a)(i) and (ii) of both its replies, the applicant accepted that the respondents could agitate matters going to the construction of cl 7.2 of the user agreements and the unconscionability claim in this proceeding. In my view, that concession was properly made. The arbitration was to determine the TIC, not handling charges. Further, the arbitrator records that the respondents to this proceeding conceded that he had no jurisdiction to hear the unconscionability claim, and he did not hear or determine it.
- Because matters which bore on the arguments for implied terms before the arbitrator were also relevant to the claims based on cll 7.2 and 7.3, and to the unconscionability claim, there was some overlap both in the evidence, and in the type of arguments, before me and before the arbitrator. My view is that the respondents before me were free to make whatever arguments they wished in relation to both unconscionability and the construction of cll 7.2 and 7.3 of the user agreements. The arbitrator’s findings determined rights and obligations pursuant to the contract and in relation to the calculation of TIC. Before me the respondents did not argue that the conduct they said was unconscionable was in breach of contract, and they did not argue to the contrary of any of the arbitrator’s findings so far as their arguments concerned the construction of cll 7.2 and 7.3 of the user agreements.
Respondents to this Proceeding not all the Users
- I will dispose of one last matter at the outset. The applicant emphasised that only four of eight current users are respondents to this proceeding. This cannot logically have a bearing upon my determination of the issues in dispute between the current litigants. For one thing, the duration, tonnage, and monetary terms of all the user agreements differ. Secondly, the respondents were unable to agree a TIC with the applicant and, for them only, the TIC was determined by the arbitration hearing. In addition to these known differences between the group of users who are respondents to this litigation, and the group of users who are not, there may be any number of reasons why the other users have not joined in this proceeding. There is no logical inference available, even on the balance of probabilities, in favour of the applicant.
Relevant Provisions of the User Agreements
- As already noted, the user agreements are for long terms. Furthermore, neither the owner nor the user has the right to terminate except for breach – see cll 3.2 and 3.3.
- A user has the right to have a certain amount of coal handled at the terminal each year, its Annual Maximum Tonnage. The TIC is an amount paid, “for each tonne of the user’s coal handled through the terminal” – cl 5.1(a)(i). Every fifth year there is a wholesale review of the TIC in accordance with schedule 7 of the user agreements – cl 8.1.
- By cl5.1(a)(ii) the users are obliged to pay TPC, a price per tonne, “for every tonne … by which the tonnage of the user’s coal actually handled is less than the Annual Maximum Tonnage for that financial year”. TPC is the same price per tonne as TIC. The obligation to pay handling charges is found at cl 5.2. The users must pay two amounts, HCF and HCV.
- There are some provisions of the user agreements which mitigate the rigid structure brought about by the fixed nature of the Annual Maximum Tonnage concept and the take-or-pay nature of the contracts:
- (a)Clause 10.1(a) provides that a user may request a reduction in its Annual Maximum Tonnage and that the owner may “in its absolute discretion” accept or reject the request.
- (b)Clause 10.1(c) allows a user to request an increase to its Annual Maximum Tonnage. The owner is to determine whether or not there is “available unallocated Terminal Capacity to meet the requested increase”.
- (c)Clause 10.2 provides that if a user is not presenting its Annual Maximum Tonnage, and the owner has one or more requests from miners wishing to use the terminal which it cannot presently satisfy from “uncommitted terminal capacity”, the owner may reduce the user’s Annual Maximum Tonnage.
- (d)Clause 10.3 provides:
“Capacity to be taken into account only once
If PCQ reduces the User’s Annual Maximum Tonnage under Clauses 4.6 or 10.2 of this Agreement and subsequently provides that capacity to another Access Holder, it will not charge the User any TPC or HCF in relation to that reduced tonnage from the time that it is provided to the other Access Holder.”
- (e)Clause 14.2 gives a conditioned right to a user to assign “all or part of its rights or entitlements under this Agreement (including, in particular, all or part of its Annual Maximum Tonnage, either permanently or in respect of a period of time…)” with the consent of the owner. Clause 14.2(c) provides that unless the owner approves “in its absolute discretion”, an assignment under cl 14.2 must not give effect to an arrangement under which the assignee gives any consideration to the user in respect of the rights the assignee gains. Clause 14.2(d) provides that once the assignment has taken effect, the user is discharged from all obligations under the user agreement “in respect of the rights and entitlements assigned”.
- (f)Clause 14.3 provides a more informal method whereby, with the consent of the owner, not to be unreasonably withheld, the user may permit a third party to present coal to the terminal for handling. Again there is to be no arrangement where the third party pays the user without the consent of the owner, in its “absolute discretion”.
- By cl 4.2(a)(i) the owner is obliged to operate the terminal to enable the user’s Annual Maximum Tonnage to be handled each financial year.
- At cl 25.1(a)(ii) the owner warrants that it will cause its operator to ensure that the terminal is maintained so that “as far as practicable” it operates at design capacity.
- At cl 25.1(a)(iv) the owner warrants that, “… it will seek to contract all uncontracted Terminal Capacity from time to time … but will not deliberately enter into a User Agreement which can reasonably be expected to cause Terminal Capacity to be materially exceeded to the detriment of the user”.
- At cl 24.1 there is an obligation on the user to provide the owner with Credit Support by the execution date and maintain it for the duration of the agreement. It is an oddly open-ended clause in an otherwise well‑drafted contract. Credit Support is defined as, “any form of credit support, security, guarantee or undertaking required to be or in fact provided pursuant to clause 24”.
- Clause 24.2 applies after execution. Subclause (a) provides that if, “in the reasonable opinion of [the owner], there is a likelihood that the user … may have ceased or will cease to be reputable or of good financial standing with the capacity to satisfy in full the user’s obligations under this agreement” the owner may give a notice to the user. The user must then provide the owner with information to establish good standing. There is a similar provision at cl 24.2(b), which provides that if the user has ceased to be, or will in the owner’s reasonable opinion cease to be, reputable and of good financial standing, with the capacity to fulfil all its obligations under the user agreement, the owner may give the user a notice to provide Credit Support. The user must then provide Credit Support which secures the user’s obligations to the owner. This security must be in an amount, form, and for a duration satisfactory to the owner.
- Failure to provide Credit Support after a notice pursuant to cl 24:
- (a)puts the user in material breach of the agreement – cl 24.3;
- (b)allows the owner to call on any existing Credit Support – cl 24.3; or
- (c)suspend the user’s rights to have its coal handled at the terminal, but not its obligations under the agreement – cl 3.5.
- Clause 24.4(a) provides that the owner may call on the Credit Support at any time it becomes entitled to terminate the agreement for breach by the user.
QCPL Transactions and Security Deposit Agreement
- These three agreements were all made on 31 October 2016. The respondents describe these agreements as artificial constructs. I come back to that at  ff below. At this point in my judgment I will simply outline what the documents provide at face value.
- The novation agreement is between the applicant, QCPL and AMPL. The recitals say that QCPL is party to a user agreement which gives it the right to present an Annual Maximum Tonnage of coal to the terminal, and go on:
CQCPL no longer has any need for capacity under the User Agreement at the Terminal and has been unable to identify willing acquirers with demand for that Terminal capacity.
DSubject to the terms of this Deed QCPL has approached AMPL to assign the rights, and AMPL has agreed to accept that assignment and assume the corresponding obligations, relating to QCPL’s Annual Maximum Tonnage under the QCPL User Agreement for the financial years commencing on 1 July 2022…
IQCPL has agreed to make the payment to AMPL provided for in this Deed (Novation Payment) in consideration of AMPL accepting the obligations which AMPL is required to under this Deed.
JAMPL has satisfied [the applicant] that AMPL will provide appropriate credit support under and for the purposes of Clause 14.2(b)(ii) of the User Agreement via Security Deposit Terms (The Security Deposit Terms).
- By the agreement, QCPL assigns to AMPL its rights to have its Annual Maximum Tonnage handled in the financial years beginning 1 July 2022 and ending 30 June 2028 – cl 3.1(a). The agreement defines this tonnage as the Annual Contract Tonnage Assigned. AMPL accepts the assignment and agrees to comply with the terms and conditions of the QCPL user agreement to the extent that they relate to the Annual Contract Tonnage Assigned – cl 3.1(c). Clauses 3.1(d) and (e) provide:
“(d)by force of this subclause (d), [the applicant] and AMPL shall be deemed to have entered into an agreement in respect of the Annual Contract Tonnage Assigned upon the same terms as the QCPL user agreement such that the relevant part or portion of rights and obligations of QCPL under the QCPL user agreement in respect of the Annual Contract Tonnage Assigned shall be novated to AMPL and the rights and obligations of QCPL in relation to that tonnage under the QCPL user agreement shall be extinguished;
- (e)by means of the assignment and novation provided for within the preceding paragraphs of this clause 3.1, QCPL assigns absolutely to AMPL the Annual Contract Tonnage Assigned;
- Clause 8.1 provides, “In consideration for AMPL’s acceptance of the obligations under the novations or assignments provided for in this Deed, QCPL will pay to AMPL the Novation Payment of $138 million …”. The payment is to be made by three equal instalments.
- Clause 3.1(g) provides the Security Deposit Terms shall be deemed to be added as a variation to the user agreement between the applicant and AMPL.
- The termination agreement is between QCPL and the applicant. The recitals include:
GQCPL no longer has need for any capacity under the User Agreement at the [terminal] and has been unable to identify willing acquirers with demand for that [terminal] capacity.
HQCPL has not provided information as requested to [the applicant’s] request of March 10, 2016 concerning QCPL’s credit standing, and QCPL’s position is that it will not be responsive to requests from [the applicant] for Credit Support.
IQCPL has approached [the applicant] to secure the termination of the User Agreement.
JThis document sets out [the applicant] and QCPL’s agreement whereby QCPL and [the applicant] terminate the User Agreement … in consideration for the payment by QCPL to [the applicant] of the Termination Payment.
KIt is the parties’ intention that the Termination Payment will be in full and final settlement of all matters between the parties in respect of the User Agreement …”
- The parties agreed that the user agreement is terminated. Clause 4.1 provided, “In consideration for the termination of the User Agreement as provided for in clause 3.1, QCPL will pay [the applicant] the Termination Payment of $117 million”. This was to be paid in three equal instalments on the same days as the novation payments.
- At cl 3.4(a) the applicant gave QCPL the following unusual indemnity:
“[The applicant] indemnifies QCPL … against any claim made or liability claimed by [the applicant], its Related Bodies Corporate, the Operator, Clermont Coal Mines Ltd or any other [terminal] User or Users (collectively referred to in this clause as Other Users) … arising out of or in connection with the termination … effected by this agreement …” (my underlining)
- Schedule 3 of the termination agreement is detailed. It establishes a procedure whereby QCPL must notify the applicant should it receive any claim for which it wishes to claim indemnity. QCPL must not make any admission of liability without the authorisation of the applicant, and the applicant will, at its cost, assume the defence of any such claim. QCPL is to co-operate with the applicant for this purpose. The applicant’s assuming the conduct of any proceedings in relation to a claim for indemnity is at QCPL’s election. If QCPL assumes conduct, the applicant is obliged to co‑operate in QCPL’s defence of the claim.
- The security deposit agreement is entitled, ‘Deed – User Agreement – Security Deposit Terms’. The parties are the applicant and AMPL. The recitals contemplate the novation agreement bringing into existence a user agreement between the applicant and AMPL.
- Clause 2 adds a clause to the user agreement between the applicant and AMPL:
“24.6 Security Deposit Terms
The parties agree that the Security Deposit Terms set out in Schedule 8 form part of this agreement and that the Security Deposit in accordance with those terms shall be deemed to provide Credit Support for the purposes of this clause 24.”
- Clause 2.1 of the new schedule 8 provides as follows:
- (a)The parties agree that [AMPL] will, within 2 business days of receiving each Novation Payment pursuant to the Deed of Novation, pay to [the applicant] the amount of each novation payment as Credit Support under clause 24 of the Agreement and as security for the performance of the Obligations.
- (b)For the avoidance of doubt, [AMPL] agrees that it does not have any right, title or interest in the money paid to [the applicant] in accordance with clause 2.1(a) of this Schedule.”
- Clause 2.2 of the schedule provides that the applicant will pay AMPL interest to the extent that the applicant receives an Interest Benefit. That term is defined to mean:
“… the aggregate of:
- (a)the interest earned by [the applicant] from holding or investing that Deposit (if any); and
- (b)to the extent any of the Deposit is used to prepay any debt owed by [the applicant], the amount of interest that is no longer payable by [the applicant] as a result of the prepayment of that debt.”
- Clause 2.3 of the schedule authorises the applicant to use the monies on deposit as Credit Support to pay AMPL’s obligations under the user agreement. When an amount becomes payable by AMPL to the applicant under the user agreement, the applicant becomes obliged to return part of the security deposit in that amount to AMPL, although it is provided that the obligation may be satisfied by the applicant applying the money “by way of set-off”. These obligations under cl 2.3 are expressly subject to cl 2.4 of the schedule.
- Clause 2.4(a) of the schedule provides that:
“Notwithstanding any other provision of this Schedule, [the applicant’s] obligation to make any payments under this Schedule is limited to the extent that [the applicant] is permitted to do so under the Secured Documents. [AMPL] acknowledges that [the applicant] may only be permitted under the Secured Documents to make any payments under this Schedule to the extent of amounts held in a Distribution Account (as defined in the Secured Documents) from time to time.”
- The Secured Documents are defined to include the Common Terms Deed Abbot Point Coal Terminal dated 28 October 2013 between the applicant and others.
- Clause 2.5 of the schedule provides:
“[AMPL] acknowledges that [the applicant] may use the amount(s) paid by [AMPL] to it in accordance with clause 2.1 of this Schedule in such manner as it thinks fit without any liability to account to [AMPL], provided that nothing in this clause 2.5 limits [the applicant’s] obligations pursuant to clauses 2.2, 2.3 or 2.4 of this Schedule.”
- Clause 3.1(a) of the schedule provides, “This Schedule constitutes a continuing obligation regardless of … any other matter or thing until the [amount of the monies paid by AMPL as a deposit by way of Credit Support] has been fully applied in accordance with clause 2.3 of this schedule”.
- The Common Terms Deed,  above, is an agreement between the applicant and its creditors. Clause 1(b) of schedule 5 requires the applicant to deposit all monies received by it into an Operating Account. Pursuant to cl 1(c) of the schedule, there are only 14 types of payments which can be made from the Operating Account and they are listed in order of priority. The first is taxes. The second is not relevant here. The third to thirteenth are amounts due to creditors. Finally, the fourteenth is a transfer to a distribution account, but only if conditions in schedule4 cl 3(f) are met. These conditions are in turn a fairly complicated system to ensure that creditors’ interests are not neglected.
Effect of QCPL Transactions on TIC and HCF charged to the Respondents
- After the QCPL transactions, the applicant charged the respondents more by way of TIC and HCF.
- The TIC is set at five yearly reviews, on a Review Date, in accordance with schedule7 to the user agreements. Central to the operation of schedule 7 is the concept of Annual Revenue Requirement (ARR). Broadly speaking, this is the agreed revenue to reward the owner for its investment in the terminal infrastructure. Each user pays the proportion of the ARR which their Annual Maximum Tonnage bears to the total tonnage of all the users. Calculation is by a mathematical formula, in which the ARR is the numerator, and the total tonnage of all users is the denominator. The result is a price per tonne. The TIC set at the Review Date remains applicable for the succeeding five years, subject to CPI increases.
- There is no express contractual mechanism to adjust the TIC having regard to events that occur during the five year period. Therefore, events might occur during any five year period which advantage or disadvantage one of the parties to a user agreement. For example, if one month after the TIC was set for a five year period, one of the users became insolvent, the owner would be disadvantaged: the TIC paid by the remaining users would remain the same even though it had been calculated on the basis that the insolvent user would be sharing the infrastructure costs of the terminal; the owner would simply miss out on that share of the TIC which was to be paid by the insolvent user. Of course, the owner is able to protect itself against such an occurrence by using the Credit Support provisions.
- Here the relevant five yearly Review Date was 1 July 2017. At the Review Date the total tonnage denominator had decreased by reason of the fact that the QCPL tonnage had gone, and AMPL had not yet become a user. The applicant received the same amount by way of ARR, but this amount was shared across less tonnage. The effect is that the remaining users are, in effect, paying the amount of TIC which QCPL would have been obliged to pay under its (now terminated) user agreement. They will continue to do so until AMPL becomes a user on 1 July 2022.
- Had QCPL departed shortly after 1 July 2017, the TIC would have been calculated on the basis that QCPL’s tonnage was included. It would have remained at the same level for the ensuing five years even though QCPL would not have been paying its share. It is hard to imagine an owner would agree to a user leaving at such a time, except on terms which prevented the obvious loss of revenue to the owner. Only where the owner had no choice is such a loss of revenue likely to eventuate – the example of insolvency, above, is one. Another would be where a user was entitled to terminate for the owner’s breach, and did so soon after a review date.
- Here, in dealing with the departure of QCPL, the applicant was not only astute to avoid the type of loss of revenue just mentioned, it was astute to ensure that the remaining users would pay the amount of TIC referable to the loss of the QCPL tonnes. By cl8.1(a)(ii) of the user agreements, eight months prior to the Review Date the owner must notify the users of its determination of the TIC for the succeeding five years. Here the applicant was obliged to notify the users by 1 November 2016. It did so, notifying them of a determination based on the QCPL transactions having happened the day before, 31October 2016. During negotiations the applicant was concerned to achieve this timing – see  below.
- By cl 7.2 of the user agreements the HCF was also a price per tonne, determined annually. The users paid a proportion of the operator’s fixed costs based on the proportion their Annual Maximum Tonnage bore to the total tonnage to be handled by the terminal each year. Once QCPL was no longer a user of the terminal, the total tonnage decreased and the HCF for all other users increased as they paid a higher proportion of the operator’s costs of running the terminal. This situation will continue until AMPL becomes a user.
- While the termination agreement took effect on the date it was signed, it provides at cl 3.5 that its ‘economic effective date’ is 1 July 2016. The substance of that is contained at cl 3.1 which provides that although the user agreement terminates on 31October 2016, QCPL is only liable to pay up to 30 June 2016. This had the practical effect that QCPL was not liable to pay fixed costs between 1 July 2016 and 1 July 2017. This did not affect the amount of TIC paid by the remaining users until 1 July 2017. 1 July 2017 was a five yearly review date for the TIC. Clause 3.1 of the termination agreement also had the effect that there was a period in 2016 when QCPL was excused from paying HCF, but the other users were not affected. However, once HCF was calculated for the next year, the QCPL tonnes were not counted in the denominator and the other users paid more on four months before 1 July 2017.
- The nub of the respondents’ unconscionable conduct case is that in receiving the $255 million consideration under the QCPL transactions, the applicant in effect accepted payment for QCPL’s future TIC and HCF obligations until 30 June 2022 but required the remaining users to pay the equivalent of QCPL’s TIC and HCF obligations during this period.
- The applicant asserted that, to the contrary, the payments made to AMPL and the applicant under the QCPL transactions were commercial payments to (1) compensate AMPL for assuming QCPL’s rights and liabilities under the user agreement from 1July 2022 and (2) in settlement of a dispute the applicant had with QCPL about the provision of Credit Support, “in circumstances where there existed a real risk of QCPL ceasing to be reputable and of good financial standing to fulfil all its obligations under the QCPL User Agreement, thereby posing a commercial and financial risk to [the applicant].”
- The applicant did not call evidence from anyone who made the decisions to enter into the QCPL transactions and the security deposit agreement. Its only evidence-in-chief as to the QCPL transactions was from a Mr Christopher Wicks. Despite the fact that the applicant filed an affidavit of evidence-in-chief from a Mr Dwayne Freeman, and the fact that Mr Freeman was far more involved in negotiating the QCPL transactions than Mr Wicks, Mr Freeman’s affidavit of evidence-in-chief did not deal with the QCPL transactions.
- Submissions were made as to the credit of both Mr Wicks and Mr Freeman. MrFreeman was uncomfortable and reluctant at times in his evidence. However, I accept that Mr Freeman approached giving evidence in a genuine way and that he answered questions honestly. I accept his evidence, except where I specifically say otherwise.
- On the other hand, my conclusion is that I cannot rely on Mr Wicks’ evidence. The primary reason for my credit finding against him is that the substance of his evidence was false in significant respects. There are two major points in that regard and I deal with them at ff and ff. His demeanour was also important to my findings, and I deal with that now.
- Mr Wicks was the Manager, Regulation Access Pricing, for the applicant and by 31October 2016 was General Manager of the applicant. He had a university degree in business. There is no doubt that Mr Wicks is capable of concise and precise communication and is able to be astute to commercial issues. Generally in evidence he was vague and dithering, using generalised terms and speaking at such a level of abstraction that at times his evidence was simply meaningless. His answers were often over-inclusive of irrelevant detail, ambiguous, and not responsive to the questions asked to an unusual degree. Even when he was literally responsive to the question, he often managed to escape the substantive import of it in answering.
- On some topics he was entirely unco-operative. He could not say which Adani company Mr Freeman worked for, or what Mr Freeman’s position was, or why it was Mr Freeman who was negotiating the QCPL transactions alongside himself. Even though it is plainly documented in the contemporary correspondence between Clayton Utz and PWC that Mr Wicks provided the information which PWC needed to write the reports dealt with below, Mr Wicks had to be asked several times before he would concede this – see tt 3-20-21.
Negotiation of the QCPL Transactions
- In May 2014 QCPL sold such of its coal mining interests as were serviced by the terminal. Thereafter it presented no coal to the terminal, although it continued to pay its obligations under its user agreement on time – t 2-72. It was unable to find another party to whom it could assign its entitlement to have coal handled at the terminal.
- On 27 October 2015, and again on 11 February 2016, QCPL enquired of MrFreeman whether Adani (to use a non-specific name, as the correspondence does) wished to acquire its terminal capacity. The earlier of these communications (ex 6) begins, “as we have discussed previously…”. Mr Freeman thought these previous discussions were in September 2015, or early October 2015, and that at the time of that initial approach from QCPL he informed Mr Wicks of it – t 3-33.
- Early on it was made clear to QCPL that Adani would not be acquiring anything; if QCPL wished to terminate, the question would be what price it would pay to be relieved of its obligations. This was recognised by QCPL in its 11 February 2016 communication.
- Before 1 April 2016 Mr Freeman was working for AMPL and was looking for port capacity. However he did not consider that he was approached by QCPL because he was at AMPL; he considered it a general approach to the Adani Group – tt 3-34-35. Mr Wicks was involved because he worked for the applicant – t 3-36.
- On 18 March 2016 QCPL sent a term sheet to the applicant – ex 7. It proposed a payment in three instalments by QCPL in exchange for termination of the user agreement effective 1 July 2016. By 6 April 2016 the term sheet included QCPL’s figure of $180 million as the price it would pay – ex 8.
- QCPL requested a term giving it an unusual indemnity:
“[The applicant] will grant an indemnity in favour of QCPL in respect of any claim against, or any loss, damage or increased cost to, QCPL arising from any dispute or litigation in connection with the relinquished terminal capacity after 1 July 2016.” (my underlining)
- From 1 April 2016 Mr Freeman worked for the applicant as Head of Commercial Port Operations. From this point in time he understood that the only obligations QCPL had to the applicant were to pay the TIC/TPC and HCF – t 3-38, and that the amount of money QCPL would pay under the proposed QCPL transactions would necessarily relate to those obligations – t3-38. The basis for the initial negotiations was what percentage of the present value of those obligations QCPL would pay to terminate – tt 3-38-39. Negotiations were between the applicant and QCPL; AMPL was not involved.
- To the 6 April 2016 term sheet Mr Freeman sent “a high level response” on 29 April 2016 (ex 8). This included:
- There will be a requirement to either add Adani Mining Pty Limited to the term sheet or have separate term sheets for the port and rail transactions as they are with different Adani entities.
- Exclusion of liability and indemnity cannot be accepted in its current form.
- Future payment obligations by QCPL to AAPT, discounted to today’s dollars is in the order of $400M-$450M NPV.
- AAPT expects the port relinquishment fee to be in the range from $350M-$400M.
- Mr Freeman’s evidence was that the note at point 3 above was a reference to AMPL needing port capacity – t 3-42. I find he was mistaken about this. While I accept that Mr Freeman was looking for port capacity while he was at AMPL, and that this need on the part of AMPL continued, I reject the notion that this note referred to AMPL receiving port capacity as part of the transaction: the document says quite clearly that AMPL may need to be joined because it wants rail capacity. That is, the deal being proposed was a simple relinquishment for a price; it did not involve AMPL taking an assignment of QCPL’s rights to have coal handled at the terminal.
- So far as point 11 of Mr Freeman’s response is concerned, Mr Freeman explained that QCPL wanted indemnity from the applicant against claims from other users. It had concerns about “reputational risks” associated with relinquishment – t 3-42. QCPL feared that, “… if the other users found out about what had happened [QCPL] might get sued …” – t3‑43. That is evident from the underlined parts of the QCPL draft clause above. At the end of the day QCPL was successful in having an indemnity included,  above. The underlined parts of the final clause evidence QCPL’s fear that it might be sued.
- Points 12 and 13 of Mr Freeman’s response produced the following response from QCPL on 3May 2016:
- Previously Agreed Value Sharing Principle
●Discussion needs to move quickly back to sharing value.
●Credibility of the proposal has been damaged with this response. We have moved substantially away from original value sharing principles.
●AAPT revenue is limited to TIC … claim is greater than the TIC!!
●AAPT can make substantial gains through a sensible value sharing approach.
●[QCPL] has limited ability to move from the original offer.
- Future payment obligations – NPV (discount rate?)/ Period 15/16 to 27/28?
●AAPT revenue is limited to TIC/our obligations include HCF.
●But remain happy to contemplate value sharing TIC/HCF.
●Future obligations value is critical ….. need a clear understanding of calculation.
●To date – I have calculated around $400m including 15/16.
●If we can move to back value sharing principle – require a common view as a starting point.
●Keen to understand AAPT’s assertion of [QCPL’s] payment obligation.” – ex 9 (underlining and paragraph numbering error in the original).
- The concept of value sharing mentioned in this email needs to be understood. It referred to the applicant and QCPL sharing QCPL’s future financial obligations under its user agreement, ie, QCPL would only pay a percentage of the present value of those obligations to be released from them. QCPL’s unhappiness with exhibit 8 was because, before it was sent, QCPL had told Mr Freeman that it had approval from Rio Tinto in London to agree to a 50/50 split of the present value of its obligations under the user agreement and Adani’s figures were well above that – t 3-53 line 40.
- A further communication from QCPL was made on 9 May 2016 (ex 10):
“In terms of the port contract relinquishment I am happy to table the following series of payments with an NPV of $186.53m for your consideration.
A couple of points –
●You will understand that I am seeking to keep my annual payments under what I would otherwise have paid in terms of the total T/P [the TNPR] (TIC/HCF).
●I suspect this may also suit your preferred tax effective position.
●From your perspective this $186.53m should more than compensate for the expected loss of income likely in the next price reset.
●This represents around 6 years of our forecast TIC payments or around 4.5 years of our forecast (TIC + HCF) payments.
●Whilst the NPV provides a reference point for both parties the only certainty in this equation is what is able to be agreed. $186.59m is a considerable sum of money with certainty attached.
●Adani Ports in addition to acquiring the $186.59m contract relinquishment fee retains the upside of on selling/reusing this capacity all the while also maintaining its socialised port revenue base.” (my underlining)
This email annexes a table showing QCPL’s forecast of its TIC and HCF for the financial years 2017 to 2028.
- This email contains the first mention of ‘socialisation’. Mr Freeman (or perhaps the cross-examiner) explained the concept well at t 3-43, “… that [the applicant] would take the payment from QCPL, reduce QCPL’s tonnes under the agreement to zero and then bump up … every other user’s payment for the TIC on the basis that the payment made by QCPL didn’t count”.
- Mr Freeman acknowledged that the applicant intended to socialise the effect of the proposed QCPL transactions, although he was concerned to make clear in his evidence that it was not his plan, but the plan of others controlling the applicant who “instructed” him – tt 3-46-47. This attempt to distance himself from the actions of his employer was reminiscent of answers he gave early in cross-examination when the extent of his involvement in negotiations with QCPL was being explored. Hesaid:
“My – my job was purely to negotiate a price and to convince Rio that there was a transaction to be done. That was my job … Because that’s what I was instructed to do. I was following a legal and lawful instruction to get a price from Rio for the relinquishment of their capacity.” – t 3-36.
- Mr Freeman accepted that the significance of the term sheets providing that the QCPL transactions had an effective date of 1 July 2016 was that the date marked the beginning of the review process for the TIC. Mr Freeman admitted that this was what the applicant wanted, but again sought to distance himself personally from this matter – t3‑47.
- On 12 May 2016 Mr Freeman on behalf of the applicant responded to QCPL as to price in the form of a table showing the applicant’s estimate of QCPL’s obligations in relation to TIC and HCF for the years 2017 to 2028 – ex 11. The table shows a net present value of $423 million and shows the applicant’s preferred price for relinquishment of $350 million paid in three instalments in the financial years 2017, 2018 and 2019. The table shows these three payments as having a present value of $310 million, and a figure, $112 million, as a gain for QCPL – ie, a discounting (or value sharing) of that amount on the present value of its TIC obligations.
- The email says:
“[The applicant] considers any risk associated with the transaction is borne by [the applicant] which suggests the majority of the NPV to be allocated should be attributed to [the applicant].”
- Mr Freeman said the risk referred to in this email was to reputation and of litigation arising from the implementation of socialisation – t3‑48. He and his superiors at Adani regarded this as a real risk and the applicant had already taken formal legal advice about it before he moved from AMPL, ie, before April 2016 – t 3-48.
- On 13 June 2016 a Mr Gupta, from AMPL, not the applicant, approved the basis for the applicant’s agreement with QCPL by email (ex 3) which read in part:
“In summary, the initial payment would be $260m (plus 50% share of tax benefit that Rio would get). If the socialisation is successful, [the applicant] would refund $50m (and 50% of the associated tax impact). However, if socialisation is unsuccessful, Rio would pay additional $50m (plus 50% share of tax benefit that Rio would get). Therefore, [the applicant] would either get $210m or $310m (plus associated tax).”
- The table which followed this in fact showed QCPL paying a total of $242 million ($97 million to the applicant and $145 million to AMPL) if the payment was socialised. If it was not socialised, the table showed QCPL paying a total of $357 million; $143 million to the applicant and $214 million to AMPL. This had the effect that QCPL would pay 50% of the present value of its take-or-pay obligations if there was successful socialisation, and 73% of the present value of its take-or-pay obligations if there was not.
- Exhibit 3 contained the following:
[The applicant] secures the capacity [for] AMPL for the period from July 2023.
AMPL gets $179 million for the assignment of contract by Queensland Coal. AMPL subsequently pays this money to [the applicant] towards deposit.
[The applicant] gets $120 million from Queensland Coal for cancellation of the User Agreement and $180 million from AMPL as deposit.
[The applicant] uses the above fund to repay its debt.
[The applicant] would need to repay $50m Rio if [the applicant] is successful in ‘socialising’ the port costs to the remaining users, but would get additional $50m, if it is not able to ‘socialise’.
…” (my underlining)
- Mr Freeman said that his receipt of this email was the first notice he had that there was to be a split in the payment between the applicant and AMPL – t 3-49. He did not trouble QCPL with that information when he brought negotiations on price to a close over the next two days.
- On 13 June 2016 Mr Freeman went back to QCPL with a position he said was “based on a pure 50% split of the value and risks of the transaction including taxation implications and legal risk”, (ex 4). This was illustrated in a table as follows:
Initial Bullet Payment
$ 210 m
Plus refundable pricing risk fee
$ 50 m
Tax @ 30% (A+B) @ 50%
$ 39 m
Total initial Payment
$ 299 m
Positive pricing risk outcome
Return of pricing component ([the applicant] pays Rio Tinto)
$ 50 m
Return of pricing risk tax component ([the applicant] pays Rio Tinto) @ 30% @ 50%
$ 7.5 m
Negative pricing risk outcome
Additional pricing risk component (Rio Tinto pays [the applicant])
$ 50 m
Additional pricing risk tax component (Rio Tinto pays [the applicant]) @ 50%
$ 7.5 m
- On 13 June 2016 there was discussion about the idea of the $50 million refund as per exhibit 3 and exhibit 4. That idea was abandoned early as the participants recognised that it “was going to be too difficult and we’re better off just negotiating a number” – t3‑54. There were difficulties in how to document the idea, and also how to provide each of the parties with security for future obligations. Further, QCPL wished to have an agreement that ended the relationship once and for all.
- It is significant that the decision makers for the applicant were not its directors or employees, but those in other Adani Group companies. Mr Freeman’s instructions came from AMPL in the form of exhibit 3, and the bargain was only binding if approved by the chairman of the Adani Group.
- Mr Freeman had little to do with the QCPL transactions thereafter – t 3-56. There is no further evidence as to how the parties negotiated the final terms of the QCPL transactions.
- Exhibit 12 is a PWC document dated June 2016. It gave Adani advice as to “the appropriate share of the total $255 million payment” to “be provided to [the applicant] … and that share which would be retained by [sic] AMPL …” – p 2. Mr Wicks said that he was in charge of having PWC give that advice; he could not bring himself to say that he instructed PWC – t 2-96. MrFreeman had never seen the PWC analysis and did not know it had been undertaken – t 3-56.
- PWC consider two approaches to allocating the $255 million payment between the two periods produced by the QCPL transactions: 1 July 2016 to 30 June 2022, and 1July 2022 to 30 June 2028. Both approaches assume the consideration for the whole period, 2016-2028, is based on the relinquishment of the forecast obligations of QCPL under its user agreement. Given this similarity in approach, it is hardly surprising that the two PWC approaches yield figures similar to each other, and to those found in exhibit 3. One approach is to calculate the present value of QCPL’s tonnage over each of the two relevant periods. While the approach involves some mathematics, it is clearly based on the applicant’s estimate of QCPL’s future TIC. It produces an allocation of 46% to the period 2017-2022 and 54% to the latter period; this is equivalent to the figures used in the QCPL transactions – $118 million and $137 million.
- The PWC analysis does not identify any separate commercial motivation or justification for the novation agreement; it is simply based on present value of QCPL’s obligations under the user agreement.
Mr Wicks’ Evidence about Derivation of Consideration for QCPL Transactions
- As to the issue which I have described at  and  above, Mr Wicks swore to the applicant’s pleaded case in his affidavit of 12 February 2019:
“167.The termination payment of $117 million payable by QCPL to AAPT under the Termination Agreement represented a negotiated settlement agreed between the parties and was not an amount worked out by reference to a calculation based on forecast charges payable by QCPL under the QCPL User Agreement.”
- Mr Wicks conceded that he did not know how the amount was worked out. However, he claimed more than once that the statement was correct, and that he could make it, “because I was familiar with the documentation that was being passed around, though I had no direct involvement in the negotiations”. – tt 2-70-71. If there is anything that stands out clearly from the documents evidencing the negotiations towards the QCPL transactions, it is that the amounts to be paid by QCPL were very much based on its future obligations under its user agreement. So was the PWC advice of June 2016 – ex 12.
- Mr Wicks is shown as being copied into the emails which are exhibits 8, 9, 10 and 11, and admitted having seen a copy of exhibit 3 between June 2016 and October 2016 – t 2-88. He obtained the PWC advice. That QCPL’s future obligations are very significant inputs in determining the amount of the QCPL payment or payments is unmistakeable. So much was freely acknowledged by Mr Freeman in his evidence, see  above. Further, as to items 12 and 13 in his “high level response” of 29 April 2016 (ex8) Mr Freeman said:
“So that’s just an explicit indication that the amount of payment was tied to the amount of QCPL’s obligations under the user agreement; correct?--- Absolutely, yes.” – t 3-43.
- Mr Wicks ought not have sworn paragraph 167 of his affidavit, because he had no requisite knowledge. He gave false explanations on oath before me as to why the content of the paragraph was correct.
Factual Findings about the Negotiation of the QCPL Transactions
- There is no evidence of any negotiations between QCPL and AMPL. The only evidence is that the applicant negotiated the figure of $255 million with QCPL as the price for QCPL’s release from its user agreement, ie, from 1 July 2016 to 30 June 2028.
- The split of consideration between the termination agreement and the novation agreement occurred after the $255 million price had been fixed. It resulted from PWC’s advice to the applicant as to what suited the applicant and AMPL.
- The evidence is overwhelming that the amounts of $255 million, $138 million and $117 million were based on QCPL’s future financial obligations for both TIC and HCF under its user agreement.
- It was said on behalf of the applicant that the amount of $255 million could not be regarded as a payment based on QCPL’s future obligations because the amount of those obligations could not have been accurately determined at the time of the QCPL transactions. The amount QCPL would become obliged to pay under its user agreement could not be calculated to the very last cent at the time of the QCPL transactions. However, it was able to be very well estimated: both the applicant and QCPL did so during the course of negotiations; PWC did so in June 2016 (ex 12), and MrHouston did so for the purpose of his evidence in these proceedings. It is true that everyone who did the exercise came to a slightly different figure. It is also true that the $255 million figure represents what was a commercially acceptable figure to the parties; as the QCPL negotiator put it, “Whilst the NPV provides a reference point for both parties the only certainty in this equation is what is able to be agreed.” – ex10. Notwithstanding all of this, the reality remains that the basis for negotiations was a proportion of the present value of QCPL’s future obligations and the amount of $255 million was an amount which the parties agreed would be paid so that the applicant released QCPL from all its obligations under its user agreement.
Want of Credit Support not a Motivation for the QCPL Transactions
- As noted above at , part of the applicant’s case is that the QCPL transactions were the result of a settlement agreement with QCPL in circumstances where there existed a real risk of QCPL ceasing to be of good financial standing and being able to fulfil its obligations under its user agreement. On this issue I find for the respondents: the apparent concern with Credit Support expressed by the applicant was an attempt to disguise the nature of the QCPL transactions.
- In his affidavit of 12 February 2019 Mr Wicks swore:
“166.I considered at this time that there was a risk of QCPL ceasing to be reputable and of good financial standing so as to fulfil all of its obligations under the QCPL User agreement and there was a significant commercial and financial risk to AAPT that if QCPL was to default under its User agreement then AAPT would be unable to secure replacement tonnage on equivalent terms for the QCPL capacity. A significant factor in AAPT entering into the Deed of Novation and the Termination Agreement was due to the presence of these risks.” (my underlining)
- In relation to the underlined sentence, Mr Wicks conceded that he was not the relevant decision‑maker and said he did not know who was. Thus he conceded that, “I wouldn’t be able to say that…” – t2-69. Mr Wicks had sworn an identical paragraph in an affidavit in the Arbitration and on 20 February 2018 made the identical concession in cross‑examination before the arbitrator – tt3-11‑13. He refused to acknowledge the obvious difficulty with this and refused to acknowledge that the affidavit sworn in this proceeding was misleading –tt3-13-14.
- Mr Wicks swore that he became concerned about Credit Support in September or October 2015. This is the same time Mr Freeman swore he told MrWicks that QCPL was looking to relinquish its terminal capacity –  above. That is, there is no evidence that concern about Credit Support pre‑dated the possible QCPL transactions. Mr Wicks’ evidence is that his concern was brought about by ratings agencies downgrading the credit ratings of coal companies, and there is some evidence that was occurring at around this time. The applicant wrote to all users, including QCPL, on 26 and 27 November 2015, requesting financial information because of the downturn in the coal industry. QCPL refused to provide information.
- In one of the most inconsistent and unconvincing parts of his evidence Mr Wicks swore that he did consider taking action in a court against QCPL in relation to Credit Support in December 2015 – t 2-99 - t 3-4. I am not able to put any reliance on this evidence if he meant to say (and I find it impossible to tell) that he did anything more than consider whether or not this was a sensible thing for the applicant to do. Clearly enough, at least by 15 February 2016, he did make that limited consideration; decided that it was not a sensible thing for the applicant to do, and passed that information on to his superiors – see ex 14.
- On 25 February 2016 PWC sent Mr Wicks a one page letter saying that it had “developed a scoring framework to determine the creditworthiness of Adani’s counterparties”. In relation to eight of the 10 users, PWC’s advice was that they ought to be asked for a guarantee of 100% of their future obligations. In relation to one of the 10 users, nothing was recommended. In relation to QCPL, it was recommended that a guarantee of 50% of its future obligations be sought. Some preliminary version of this advice must have been provided to Mr Wicks, for he shows that he is acquainted with its contents in his email of 15 February 2016, ex 14.
- On 10 March 2016 (the date mentioned in recital H to the termination agreement,  above), the applicant wrote to QCPL saying that it had “formed the opinion … that there was a likelihood that [it] may have ceased or will cease to be reputable and of good financial standing with the capability to satisfy in full [its] obligations under the [user] agreement” – ex 15. That letter requested information as to QCPL’s finances. In reply, on 29 April 2016, QCPL said that the applicant had no basis to form a reasonable opinion as required by cl 24.2 of the user agreement, but nevertheless gave some substantive information as to its assets and the support of its parent, Rio Tinto Group. There was no evidence that this matter was genuinely pursued after the refusal of 29April 2016. As to events of 15 July 2016, see below,  ff.
- Mr Wicks swore that while initial (November 2015) letters were sent to all users, no Credit Support was pursued from any other user but QCPL. There was no explanation as to why the applicant would pursue QCPL, when eight of the other users were assessed as having a significantly worse credit profile. It is true that QCPL had no more coal to ship through the terminal, but it had always paid its obligations on time, and by 11 February 2016 was negotiating to pay a significant amount of money to Adani to terminate its right to have coal handled at the terminal. That is, it was dealing openly and honestly with the fact that it no longer needed to use the terminal. There was not the slightest indication that QCPL would act dishonourably in relation to its obligations under its user agreement.
- Mr Freeman’s instructions from AMPL on 13 June 2016, exhibit 3, contained the following:
“Steps followed for the assignment and cancellation Rio contract:
- AMPL requests [the applicant] for capacity at T1 for the period from July 2023.
- Rio (the parent entity of Queensland Coal) requests the cancellation of its user agreement with [the applicant].
- [The applicant] assesses the creditworthiness of Queensland Coal and requests further information from Rio.
- Rio refuses to provide further information regarding Queensland Coal.
- Based on assessment performed by [the applicant], by considering the available information, [the applicant] forms the opinion there is an elevated risk of default by Queensland Coal its obligation under the user agreement.
- [The applicant] facilitates discussions between AMPL and Rio for assignment of contracted capacity of Rio for the period from July 2023 to June 2028.
- AMPL and Rio agrees to enter into assignment deed for consideration.
- Rio agrees to pay $179 million to AMPL in order for AMPL agreeing to take the assigned capacity and related liabilities.
- AMPL agrees to deposit $179 million received from Rio as cash guarantee to [the applicant] against future capacity liabilities.
- [The applicant] agrees to terminate the Rio’s user agreement for the period from July 2016 to June 2023 in return for the payment by Rio of $120 million.
- [The applicant] agrees to refund $50m to Rio if [the applicant] is successful in ‘socialising’ the port costs to the remaining users and Rio agrees to pay additional amount of $50m, if [the applicant] fails to ‘socialise’.”
- These notes appear to be the plan for the QCPL transactions and the security deposit agreement. At the time the email was sent to Mr Freeman, the first four numbered points, although worded in the present tense, had occurred. Points numbered 6-11 had not occurred; they are clearly a plan for the future. There is no evidence, except for Mr Wicks’ testimony, which I am not prepared to act upon, that the fact recorded at point five ever occurred. The objective evidence is to the contrary.
- That the references to QCPL’s credit are included in a list of steps to be followed, “for the assignment and cancellation of Rio contract” is an indication that the idea of QCPL’s creditworthiness was only raised as a construct to show some commercial purpose for payment by QCPL to the applicant and AMPL which was not related to the extinguishment of QCPL’s future financial obligations under its user agreement.
- Mr Freeman said that the idea of Credit Support was never discussed in the negotiations with QCPL before June 2016 – t3-57. He said it then appeared on one of the applicant’s term sheets as a recital. There was no such document tendered in evidence, nor, I take it from the cross-examination of Mr Freeman, disclosed. MrFreeman describes the recital on the unavailable document as, “… a recital that was requested by [the applicant] to demonstrate the reason they were in that transaction because Rio obviously didn’t like that” – t3‑57. It was never clarified whether Rio did not like being in the transaction (with its reputational and litigation risk) or did not like the recital being in the term sheet (either because it cast doubt on QCPL’s credit, or because it falsely implied that Credit Support had something to do with the termination of QCPL’s user agreement).
- Mr Wicks swore that, even though by the end of June 2016 QCPL had agreed to pay $255 million to the applicant, he was still concerned about want of Credit Support from QCPL; the termination agreement and the novation agreement might not have gone ahead – tt 3-4-6. I do not believe his evidence in this regard.
- More extremely still, at t 2-69 Mr Wicks swore that as at 31 October 2016 he believed the QCPL financial position was, “a genuine risk to the [the applicant’s] business”. When cross‑examined about this statement he said that he had communicated this view to people further up the Adani hierarchy in June 2016. There was no document in evidence to that effect. Again I do not believe Mr Wicks. His evidence was inherently unrealistic. It is inconsistent with his views in exhibit 14; his failure to pursue Credit Support from the users whom PWC assessed as greater risks than QCPL; his failure to pursue Credit Support, or information preliminary to that, from QCPL in any persistent way from November 2019, and his failure to explain why he did none of those things. It is inconsistent with the documented course of the negotiations towards the QCPL transactions, and Mr Freeman’s evidence that it was never raised as part of the negotiations.
- On Friday afternoon, 15 July 2016, a month after he had otherwise ceased to work on the QCPL transactions, Mr Freeman sent an email to an employee of Rio Tinto with whom he had a good relationship. The email read:
“Attached is the updated recital and also the letter regarding Credit Support that are required as part of the transaction to confirm our understanding of the position. Let’s discuss this on Monday morning at 9am.”
- This email attached a draft letter from the applicant to QCPL. The draft is a formal letter of demand for Credit Support pursuant to cl 24.2 of the user agreement. Also attached to the email are a set of draft recitals as follows:
“HA.QCPL has refused to provide the information requested in [the applicant’s] request of 10 March 2016 concerning QCPL’s credit standing.
HB.QCPL has refused to provide Credit Support as demanded by [the applicant] in its notice issued pursuant to the User Agreement dated [insert] July 2016.
HC.[The applicant’s] position is that:
- (a)QCPL has ceased, or, [the applicant] has formed a reasonable opinion that QCPL will cease to be reputable and of good financial standing with the capability to fulfil all of its obligations under the User Agreement, including the payment of the ‘Terminal Infrastructure Charge’ (known as the ‘TIC’) and the ‘take-or-pay component’ (known as the ‘TPC’) as and when due and payable;
- (b)QCPL has not provided any information to [the applicant] which would reasonably cause [the applicant] to change its opinion noted in (a) above; and
- (c)QCPL is obliged pursuant to the User Agreement to provide the Credit Support that [the applicant] has requested.
HD.QCPL acknowledges [the applicant’s] position but nonetheless maintains its position that the Credit Support will not be provided to [the applicant].
HE.[The applicant] has considered commencing Court proceedings to seek specific performance to oblige QCPL to provide the requested Credit Support.
HF.QCPL acknowledges [the applicant’s] consideration to commencing Court proceedings, and QCPL’s position is that it will defend any such proceedings.
HG.The parties have agreed to settle their dispute concerning provision of Credit Support by execution of this agreement.”
- Mr Freeman said he was asked to send this email and did so without really understanding what the communication was designed to achieve. He said that he would have been prepared for the Monday morning meeting mentioned in the email, but the idea was dropped before then. As a result he never found out what the point of the email was – t 3-61. I do not draw an inference against Mr Freeman’s credit in this regard. I think the oddity in the substance of his evidence is more likely to be reflective of the truth of the Adani workplace.
Findings about Want of Credit Support
- It is possible that there was genuine concern on the part of the applicant which caused the investigation of the Credit Support position of the users at the end of 2015, and that the PWC report was commissioned arising out of those concerns. Even if there was a genuine concern at that stage, I find that there was no genuine concern about QCPL’s credit at 10 March 2016, or any time subsequent to that. Want of Credit Support was not the reason, or a reason, for the QCPL transactions.
- In my view, the email of 15 July 2016 was clearly an attempt to document an apparent reason for the QCPL transactions which did not exist. The letter of 10 March 2016 had never been followed up; the recited letter of demand had never been sent; the recited response to it had never been made; the only person who had considered commencing court proceedings (Wicks) had formed the idea in February 2016 that they were not in the applicant’s interests (ex 14). That attempt at disguise extended to instructions given as to the pleadings in this case. It extended to having Mr Wicks give false evidence about this matter in this case and in the arbitration. It is hard to overstate the seriousness of this conduct.
- It can be seen from Recitals G and H of the termination agreement,  above, that a modified reference to Credit Support survived. The surviving recitals are strictly factual. I find that they were irrelevant to the QCPL transactions and represent the last vestiges of the disguise which the applicant attempted.
QCPL Transactions and Security Deposit Agreement – Reprise
- As foreshadowed at  above, above I return to discuss various aspects of the QCPL transactions and security deposit agreement.
Applicant Received Total QCPL Consideration
- The respondents say that when regard is had to the terms of the security deposit agreement, the true position is that the applicant received all the $255 million consideration payable under the QCPL transactions.
- A deposit of $138 million is an extraordinarily onerous form of Credit Support. MrWicks gave this evidence about the topic:
“Do you know that the form of credit support agreed between [the applicant and AMPL] was completely different to the standard form user agreement credit support requirements?--- It’s 100 per cent consistent with the user agreement. However, yes, it is a lot harsher than some of the others that have been put in place.” – t 2-93.
- Given that Credit Support can be in “any form” – see the definition in the user agreement,  above, Mr Wicks is technically correct in saying that a deposit of $138 million was within the definition of what might be provided under the user agreement. However, given the rest of the definition, which refers to undertakings and guarantees, such a deposit appears extreme. There was no evidence that any other user had provided any Credit Support. PWC’s advice of 25 February 2016,  above, recommended a guarantee for 100% of future obligations of eight users. This implies that at that stage they had given no Credit Support. Mr Wicks could not offer any convincing explanation for requiring such extraordinary Credit Support from AMPL.
- The security deposit agreement is a most unusual collection of legal concepts. It seems to me there are only three points which matter:
●The first is that the $138 million which QCPL paid to AMPL was to be paid to the applicant within two days of receipt.
●Secondly, there is no obligation on the applicant to keep the money separate from its own money, or to set it aside as a security deposit. The agreement expressly contemplates that the applicant can use the money for its own purposes, eg, to repay debt. The term ‘security deposit’ in the title to the agreement is a misnomer.
●Thirdly, the applicant’s obligations to use the security deposit monies to pay AMPL’s obligations under the user agreement, or to pay AMPL interest on the monies (reinforced by the seemingly definitive words of cl 3.1(a) of the schedule), only come into being if the applicant is permitted to make the payments under the terms of the Common Terms Deed: by the terms of cl 2.3, cl 2.4 trumps cl 2.3 and therefore cl 3.1. Under the Common Terms Deed, the applicant may only make such payments if there is money in a distribution account, as defined. Whether money is paid into a distribution account will depend on the terms of the Common Terms Deed and upon the applicant’s election to do so.
- I find therefore that the security deposit agreement required payment of the $138 million to the applicant, and left it entirely within the applicant’s control as to whether there would ever be any monetary benefit to AMPL.
- On the evidence before me, I conclude that the $138 million paid by QCPL to AMPL was planned to be used as the applicant’s own money and has been. Exhibit 3 showed that the plan was that the $138 million to be paid to AMPL was to be paid back to the applicant – the applicant was to ‘get’ the money and then use it to repay its debt.
- The applicant admitted on its pleadings that it received the amount of $138 million from AMPL. Mr Wicks could not say where the amounts of $117 million and $138 million went, when they were received from QCPL – t 2-94. This was despite the fact that he was a general manager of the applicant. Mr Wicks said that his expectation was that the $138 million went into the applicant’s distributions account – t 2-95. It did not. Between 1 October 2016 and 25 February 2020 the balance of the applicant’s distribution account was at all times nil – ex 17. The sum of $138 million was paid into the applicant’s operating account and then paid out between November 2016 and July 2017. The applicant adduced no evidence as to what it did with the money. There is no evidence, for instance, that it had used the $138 million for its own purposes (as it might argue it was permitted to do pursuant to cl2.5 of the schedule,  above), but had the intention, and ability, to put that money back into its distribution account before 1 July 2022.
- The applicant is obliged to pay AMPL interest only if it receives an interest benefit – cl 2.2 of the schedule,  above, and only if there is money in a distribution account from which it can pay interest – cl 2.4(a) of the schedule,  above. The applicant seems unlikely to be holding the monies in an interest bearing deposit in circumstances where its debt is regulated by the Common Terms Deed. It might otherwise obtain an Interest Benefit, as defined, if it pre-pays debt (rather than simply repays it as ex 3 records that it planned to do). However, there was no evidence that the applicant had pre-paid any debt. Further, there was no evidence that the applicant had paid any interest to AMPL, even though it would have been obliged to have done so by now – see cl 2.2(c)(i).
- It follows that I am against the applicant on the contention it makes in its pleadings:
“The payment made by QCPL to AMPL under the novation agreement was a commercial payment justified by AMPL agreeing to assume QCPL’s rights and liabilities under its user agreement … from 1 July 2022 onwards; …”
Period to which $255 Million Payment Relates
- There is a gap in the evidence as to what happened between the time Mr Freeman agreed the figure of $255 million with QCPL (subject to Mr Gautam Adani’s approval) on 14 June 2016, and the signing of the QCPL transactions and the security deposit agreement on 31 October 2016. At 14 June 2016 the basis for agreement on the figure of $255 million was the present value of QCPL’s obligations from 30 June 2016 to 30 June 2028, with a discount for value sharing.
- As is evident from exhibit 3, persons in the Adani Group, but not part of the applicant, were making decisions as to what rights and obligations would be bought and sold and what transactions would be entered into using the price Mr Freeman negotiated. The applicant called none of these people as witnesses, and there were no documents disclosed, to show what happened between 14 June 2016 and 31October 2016.
- The amount of $255 million was very close indeed to the present value of the amount which QCPL would have paid for TIC and HCF for the period up to 30 June 2022. Perhaps the pre‑agreed figure determined the two time periods evident in the QCPL transactions (2016 to 2022 and 2022 to 2028). Perhaps the date of 1 July 2022 was the time when AMPL thought it might need terminal facilities. While these are possibilities, the lack of evidence prevents me making a finding.
- Clearly, although both the termination agreement and the novation agreement are dated 31 October 2016, the novation agreement must have been first in time. If it were not, QCPL would have had nothing to assign. Thus, once the assignment effected by the novation agreement had occurred, the only obligations which QCPL had to the applicant were in respect of the period 1 July 2016 to 30 June 2022. I find, therefore, that the amount of $255 million which the applicant has received from QCPL is referrable to that period.
Three Agreements Not One
- “A novation takes place where two contracting parties agree that a third, who also agrees, will stand ‘in the relation to either of them to the other’ … and ‘where a new contractor takes the place of the old’ …” It is essential to the idea of novation that the consideration for the substitution is the extinguishment of the original contract. Here the document styled novation agreement does not extinguish the QCPL user agreement. That task is left to the termination agreement. If there is a novation, it is of part only of the QCPL user agreement, cl 3.1(d) of the novation agreement. I need not explore that further because, whether or not the novation agreement effects a partial novation of the user agreement, the agreement is still effective to assign both the benefits and burdens of the QCPL contract from 1July 2020 onwards because all three parties (the applicant, QCPL and AMPL) agree.
- Apart from cl 3.1(d), the rest of the novation agreement is in terms of an assignment as allowed by cl 14.2 of the user agreement – see [22(e)] above. See the heading to cl 3.1 and clauses 3.1(e) and (f). The release and indemnity of QCPL in respect of obligations under its user agreement in relation to the Annual Contract Tonnage Assigned are consistent with an assignment, not with a novation or an extinguishment. The recitals include the following:
“FClause 14.2 of the user agreement permits assignment of part of the rights or entitlements of QCPL under the user agreement upon the basis that the user agreement will thereafter be treated as if it were only an agreement in respect of the unassigned rights or entitlements (except to the extent of any rights accrued prior to the assignment) and when the assignment takes effect QCPL is discharged from obligations in respect of the rights and entitlements assigned.
GIt is a requirement of the user agreement that a proposed assignee enter into a deed of assignment in this form under which the assignee agrees to be bound by the terms, conditions and obligations of the user agreement in respect of the assigned rights and entitlements as if the assignee were the user in respect of those assigned rights and entitlements and is conferred with the rights of a party under the user agreement to the extent of the rights and entitlements assigned. The assigned rights and entitlements are as to the Annual Contracted Tonnage Assigned under this deed.
H[The applicant] has agreed to consent to each of the assignments referred to in recital D and E, subject to and on the terms of this deed.” (my underlining)
- The fact that the agreement for assignment is styled as a novation does prompt the question as to why there was not a straightforward novation of the entire QCPL user agreement to AMPL. That would have given AMPL rights to have coal handled at the terminal from 2016 to 2028 and it would have extinguished QCPL’s obligations under its user agreement. AMPL was not ready to begin exporting coal through the terminal, and therefore would not have wished to immediately assume the burden of paying fixed costs. The amount of $255 million was the net present value of those fixed costs until 30 June 2022. It would have been simple to provide for that sum to have been paid either (a) to AMPL to compensate it for its having to bear these burdens before it had coal to be handled at the terminal, or (b) to the applicant as a pre-payment of those obligations.
- However, the straightforward scenario hypothesised did not achieve socialisation of the burden of QCPL’s departure, because the QCPL tonnes would have remained in the denominator for calculating TIC and HCF, so the users would not have paid more.
- To achieve socialisation of the burden of QCPL’s departure, it was necessary to have both the termination agreement and the novation agreement. This achieved the result that the QCPL tonnes were not in the denominator to calculate fixed costs between 1 July 2017 and 30 June 2022. Therefore, the remaining users’ fixed costs between 1 July 2017 and 30 June 2022 rose, and the applicant received twice the amount which QCPL would have paid either it or AMPL under the straightforward scenario.
- However, having two agreements meant that either (a) all the $255 million consideration from QCPL was not received by the applicant, or (b) it was all received by the applicant, and it was starkly apparent on the fact of the documents that the applicant was to be paid twice for QCPL’s obligations between 2017 and 2022. The security deposit agreement gave the applicant the right to secure all the $255 million consideration, but covertly.
- I do therefore accept the respondents’ submissions that the novation agreement, termination agreement and security deposit agreement were an artificial way to structure the transactions to deal with QCPL’s departure. They were more complicated than necessary to document the real transaction between QCPL, AMPL and the applicant because they sought also to achieve socialisation of the burden of QCPL’s departure and to disguise or camouflage this.
- Adani Group decision-making (rather than the applicant’s making decisions on its own behalf) is displayed. It is obvious from exhibit 3 that it suited the Adani Group that monies ended up in the applicant, because the applicant had debt which it wished to repay. Under the straightforward ‘price for relinquishment’ agreement which MrFreeman negotiated with QCPL, the applicant would have received the monies. While that suited the applicant, it did not advantage AMPL, and it left the socialisation apparent on the face of the documents. Under the straightforward novation postulated above, AMPL could have received the monies, but that did not suit the applicant. It can be clearly seen that the three transactions entered into were made in the interests, not just of the applicant, but at least of the applicant and AMPL, and possibly the wider Adani Group.
Unconscionability – Analysis
- Section 21 of the ACL provides as follows:
“Unconscionable conduct in connection with goods or services
- (1)A person must not, in trade or commerce, in connection with:
- (a)the supply or possible supply of goods or services to a person …
engage in conduct that is, in all the circumstances, unconscionable.
- (4)It is the intention of the Parliament that:
- (a)this section is not limited by the unwritten law relating to unconscionable conduct; …
- (c)in considering whether the conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
- (i)the terms of the contract; and
- (ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to the formation of the contract.”
- There was no dispute that the applicant was acting in trade or commerce within the meaning of s 21(1).
- The first respondent’s pleading is that the “conduct in connection with the supply of services” was, “the conduct of the applicant in entering into the Novation Agreement and Termination Agreement and in failing to bring to account in the calculation of HCF, the TIC and the TPC, the Annual Maximum Tonnage of QCPL, or alternatively, the sum referable to HCF, the TIC and the TPC received from QCPL …”.
- The second to fourth respondents’ pleading was less closely defined. It certainly encompasses what is pleaded by the first respondent.
- The applicant disputes that the respondents have shown any conduct in connection with the supply of services within the meaning of s 21(1). I am against the applicant on this point. It seems to me that the words “in connection with” are wide enough to include the conduct alleged against the applicant in calculating the fixed prices for the supply of services at the terminal without regard to the payments it received under the QCPL transaction and the security deposit agreement.
- The question whether the conduct is unconscionable must be decided having regard to “all the circumstances” – s 21(1) of the ACL.
- Section 22 provides a non-exhaustive list of matters for the Court to consider. If a matter listed in s 22 is relevant to the matter before the Court, it must be considered – Paciocco v Australia and New Zealand Banking Group Ltd. I will record that I have considered all the sub-sections of s 22(1) and that I cannot see that subsections (c), (d), (g), (h) or (k) are relevant to the facts here. The others are all relevant to a greater or lesser degree and I have referenced them in the discussion below. There are matters not listed in the section which are also relevant and discussed below.
- The cases on statutory unconscionability show that the Courts have striven to bring some certainty to a very wide provision. Because of the width of the provision, varied circumstances form the factual bases of the cases decided so far. It is therefore necessary to have regard to the factual context of each case in interpreting statements of principle. For example, statements as to victimisation may be appropriate in a case where the plaintiff alleges exploitation of a mental illness – Kakavas v Crown Melbourne Ltd; emphasis on inequality of bargaining power may be relevant where the applicant is the customer of a bank – Paciocco (above), and reference to respect for autonomy and cultural diversity may be relevant in considering a case where it is alleged that there was exploitation of Aborigines in a remote community – Australian Securities and Investments Commission v Kobelt.
- Even without the factual diversity in the cases, I think there is a danger in applying dicta from other cases as though they provide a definition or rule. I agree with the approach put forward by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd: “Equitable relief for unconscionable conduct is based on a principle, not a rule.” While the statutory cause of action is different from equitable doctrines, the approach of the Court – applying principles not rules, ought remain the same. That approach necessarily gives rise to contestable judgments, and until the jurisprudence is more thickly populated with cases, exercising that judgment remains difficult – see - of Kobelt. The fact that the High Court divided in Kobelt shows just how real the difficulties are in making a judgment in terms of the statutory cause of action – see  in Kobelt as to this point.
- There has been some difference of opinion as to whether or not a finding of “moral obloquy” or “moral obliquity” is necessary. I agree with the remarks of Leeming JA and Sackville AJA that the words are old-fashioned, imprecise, and thus unhelpful in identifying unconscionable conduct. I think this is particularly relevant having regard to the fact that the law ought to be clear to commercial people. I note the comments of Gageler J in Kobelt at - regarding that terminology; he described it as “arcane”. He says that unconscionable conduct is:
“Conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. … For a court to pronounce conduct unconscionable is for the court to denounce that conduct as offensive to a conscience informed by a sense by what is right and proper according to the values which can be recognised by the court to prevail within contemporary Australian society.”
- Immediately before this passage Gageler J had noted:
“‘Unconscionability’, as has been long and well understood, ‘is not a slight matter and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person’s legal rights’.”
- Gageler J recognises that the statutory cause of action is wider than the grounds for equitable relief in terms of the “fact-pattern” which might be shown. However, he goes on to say at :
“Important to the resolution of this appeal, in my opinion, is that what Parliament’s appropriation of the terminology of equity in the expression of the normative standard in [the relevant statute] does not do is to authorise a court exercising jurisdiction in a matter arising under that section to dilute the gravity of the equitable conception of unconscionable conduct so as to produce a form of equity-lite.”
- The observations of Keane J in Kobelt are to similar effect. He notes that the legislature has used the word “unconscionability” rather than “less morally freighted terms such as ‘unjust’, ‘unfair’ or ‘unreasonable’.” Keane J says, “In its ordinary meaning, the term ‘unconscionable’ requires an element of exploitation”.
- I turn now to consider the facts of this matter in the framework of the statute and the decided cases.
Parties’ Relative Strengths, Bargaining Positions at the time of Contract
- There was evidence about the negotiation of the user agreements; that is, negotiation between the respondents and Ports Corporation. The respondents are large companies, and they negotiated as a group with Ports Corporation to increase their bargaining strength. Ports Corporation was a monopolistic supplier and therefore was in a powerful negotiating position. As it was a Government Owned Corporation, it might have been presumed to have acted reasonably, although in its own interests.
- In my view the evidence about negotiations of the user agreements did not disclose anything relevant. There was no evidence of any behaviour which was so outside normal commercial negotiation that it might lend support to the respondents’ cases. There was no evidence of negotiation about terms which would have prevented, or mitigated the effect of, the owner of the terminal acting as the applicant has done here.
No Breach of Contract
- There is no allegation made by the respondents that the applicant has breached the terms of its user agreements with them. This is a very relevant factor in considering whether or not there has been unconscionable conduct. It is a factor which tends against there having been unconscionable conduct. This is particularly so in the present case, where what the respondents complain of, is the exercise of a contractual entitlement, namely to charge TIC and HCF determined in accordance with the contract.
- Throughout the unconscionability cases is a theme that it will be difficult for someone to prove unconscionability if they have agreed to, or acquiesced in, the conduct about which they complain.
- Separately to this idea of consent or acquiescence, there is a need for certainty in the law, and in contractual relations. If parties’ rights and obligations are governed by a contract, they are generally entitled to think that the law will not intervene to adjust those rights and obligations in the absence of a breach of contract.
- Not only has the applicant not breached any of the user agreements, its conduct in demanding a price from QCPL to be relieved of its obligations under its user agreement appears ordinary enough. The idea that one user might agree to terminate its contract with the owner, on terms that it paid the owner to be relieved of its obligations must have been with in the objective contemplation of the parties to all the user agreements – it was plainly foreseeable as a result of the take-or-pay nature of the user agreements, and the fact that they could not be terminated except for breach.
- Nevertheless, the fact that there is no breach of contract is not a bar to the availability of the statutory remedy. If a party had a contractual remedy it would not need to rely upon unconscionable conduct. Generally this notion is in accordance with the idea that equity mitigated the harshness of the common law. AllsopCJ discusses the importance of certainty in Paciocco at  ff. The discussions are particularly apposite here, for while recognising that commerce depends on the confidence of participants to make bargains and undertake actions relying on the certainty of the law, Allsop CJ also points out that equity has modified principles of contract law for centuries by reference to concepts of commercial morality and commercial conscience. This is not a contract case, I must consider all the applicant’s conduct in terms of statutory unconscionability.
- In a more specific argument based on the terms of the user agreements, the applicant says that cl 10.1(a) of the user agreements, [22(a)] above, shows that the parties to them should be regarded as having contemplated, “what has occurred and also contemplated increased charges for the Respondents as a result.” The argument is that “in substance and effect” QCPL’s approach to the applicant to secure termination of the QCPL user agreement was a request to reduce its Annual Maximum Tonnage to zero, which was a request permitted under cl 10.1(a) of the user agreement. I struggle to see the point of this argument. As a matter of fact QCPL made no approach pursuant to cl10.1(a). As just discussed, the structure of the QCPL transactions was very particular, in order to achieve a very particular result. Further, reference to cl 10.1(a) is not necessary to make the point at  above.
Unusual Aspects to User Agreements
- That the applicant has not breached the user agreements, and that it was entitled to a price to relinquish its rights against QCPL under the QCPL user agreement, are very strong points in its favour. However, there are two respects in which the user agreements are unusual. An understanding of these points diminishes the strength of the applicant’s case.
- First, I accept the submission made by counsel for the second to fourth respondents that, with such long term contracts as the user agreements are, there is an increased chance of the factual circumstances against which the parties contracted changing substantially over time. On the facts here, there has been a significant change to the identity of the owner of the terminal. I discuss this below. I think that is a factor which tends to support a finding of unconscionable conduct even though there has been no breach of contract.
- Secondly, the user agreements are unusual in that they form part of a set of standard form agreements regulating the rights of all the users who share the terminal. The user agreements are standard agreements, and the users each know that their user agreement contains virtually the same terms and conditions as each other user’s agreement.
- The provisions of the user agreements recognise the reality that the terminal is shared by several users. This is very much evident in the provisions which deal with calculation of the price. TIC and HCF are calculated having regard the proportion each user’s coal bears to the total contracted to be handled by the terminal. Associated with this, clauses 10(c) and 25.1(a)(iv) recognise that it is in the interests of all users to have the terminal operating at full, or near full, capacity.
- Clauses 2.6(c), 3.7, 4.2(a)(i), 8.1(f), 25.1(a)(ii) and 25.1(a)(iv) recognise the fundamental context in which the user agreements are made: that the terminal is essential to each of the users and must be operated so as to allow each of their contracted tonnages to be processed each year. These clauses recognise that, in practical effect, the terminal is a facility shared and paid for by all the users, although not under their control. Lastly, there are other provisions, such as cl 29, which compel, and formalise, communication between all the users, as a group, and the owner.
- As a matter of contract law, each user agreement binds only the parties to it. However, expressly and implicitly, the user agreements recognise that all the users’ economic fortunes are to some extent linked because of their shared use of the terminal. Relevantly here, it is plain that adjustments of rights and obligations between one user and the owner can have a significant commercial effect on the other users; the users are each vulnerable to the commercial effects of the owner dealing with another user. That is relevant in circumstances where I am dealing with an unconscionable conduct case, not a contract case.
Parties’ Relative Strengths, Market Conditions at the time of Impugned Conduct
- In Ipstar Australia Pty Ltd, Leeming JA commented that it was not merely the negotiations between the parties for renewal of their contract, “but also the market conditions under which they were operating” which made the conduct unconscionable. Ipstar was a case where the parties’ rights were regulated by contract, and where there was no breach of contract.
- The monopolistic position of the applicant at the time it engaged in conduct said to infringe s 21 of the ACL is made relevant by s 22(1)(e) of the ACL. There is no option for the respondents but to deal with the owner of the terminal to export their coal. There is an analogy between their position and the position of SkyMesh in the Ipstar case. SkyMesh sold internet services for which Ipstar’s hardware was necessary. When Ipstar wished to increase the price of the services (as it was entitled to do in a contractual renegotiation), SkyMesh needed to agree with Ipstar as to price, or effectively start its business again, with a new supplier of hardware, at a cost of tens of millions of dollars.
- Also relevant, and to similar effect, is the long term nature of the user agreements; the restriction on the rights of the users to terminate (only for breach), and the take‑or‑pay nature of the user agreements. The respondents are contractually locked into a long term, finally onerous relationship with the owner.
- These factors put the respondents in a position of economic vulnerability to the applicant. They are captive in the sense that should they find the applicant’s behaviour “affronting” as counsel for the QCoal respondents described it, they have nowhere else to go. They are bound by their long contracts; the price they would have to pay to terminate them, and more fundamentally, by the economic reality that they need access to the terminal.
- The applicant says that the respondents could have applied to have the terminal declared a monopoly business activity under the Queensland Competition Authority Act 1997 (Qld). The respondents could have made such an application and have made a choice not to, but in my view that cannot mean that their other remedies are reduced. Further, the applicant’s submissions focus on the choice available to the respondents to apply under the Queensland Competition Authority Act, rather than enter into their user agreements with Port of Queensland. I see this choice, made years ago, and under very different circumstances, of limited relevance to the points I must decide.
The identity of the Supplier, and its Commercial Motivations
- There were other market conditions affecting the relative positions of the respondents and the applicant at the time of the conduct alleged to be unconscionable. The replacement of Ports Corporation by the applicant as owner of the terminal is a relevant factor in assessing the applicant’s conduct.
- The user agreements allowed the original owner, Ports Corporation, to assign or novate with the consent of the user, which could not be unreasonably withheld – cl14.1. Ports Corporation could assign to “any person who is responsible and has the expertise and financial capacity needed to operate and maintain the Terminal and comply with the obligations of [Ports Corporation] under this Agreement” – cl14.1(a). That clause went on to say that it would be unreasonable for a user to withhold consent if the assignee had an investment rating of at least BBB or above, and the necessary expertise to operate and maintain the terminal and discharge the obligations of Ports Corporation under the user agreement. Clause 14.1(b) provided that Ports Corporation did not require a user’s consent to assignment or novation if the assignee was a Government Owed Corporation, a subsidiary of Ports Corporation, or a company wholly owned by the State of Queensland.
- These provisions of the user agreements show that the identity of the owner of the terminal is important to the users. The parties regard such a person as needing to be responsible, financially capable and technically capable. This is unsurprising. The terminal is an asset which all of the users need to be run reliably and fairly.
- Pursuant to the Infrastructure Investment (Asset Restructuring and Disposal) Act 2009 (Qld), the Queensland Government transferred the terminal to Mundra and effected a novation of all the user agreements so that the parties to them were the users and the applicant. It was not in issue before me whether or not Mundra, or the applicant, would have been responsible, financially capable and technically capable, so as to be a suitable assignee under the user agreements. It is significant, however, that the contractual provisions were rendered irrelevant by an act of State power, and an act of State power in favour of the Adani Group which included AMPL, a company which aims to develop a very large coal mine, and export coal through the terminal. It is difficult to see that the Adani Group would have been interested in acquiring the terminal had AMPL not had plans for the mine.
- Further, by the time of the conduct I am concerned with, the applicant was also a related entity of the Adani operator. The arrangements between the owner and the operator, and the way the operator charges, are considered in detail at chapter IV below. However, it is relevant to note here that under its contract with the owner, the operator is allowed to make a 10% profit on its costs of providing services to users of the terminal. The owner is entitled to a complete reimbursement of the amount the operator charges to it. That is, the owner passes through the operator’s costs, including its profit, to the users.
- Thus, by the time of the conduct alleged to be unconscionable, the users were not only locked into long term contracts with a monopolistic supplier who controlled an asset vital to their businesses, but that supplier was no longer a Government entity which did nothing but operate the port; it was a private company with its own profit motives. Further, it was related to two companies, each of which has commercial profit motives of its own, and each of which was associated with the terminal, but at different levels of the market to the terminal owner. AMPL aims to become a coal miner, and to become a user of the terminal. That is, it intends to operate at the same level of the market as the respondents. The Adani operator operates at a third level: providing services to the terminal owner. Because the cost of these services is passed through to the users, it has a profit motive potentially at odds with the users, see  below.
- As the negotiation of the QCPL transactions show, the officeholders of the applicant do not necessarily make the decisions of the applicant. Significant decisions are made by other corporate entities in the Adani Group, or by the chairman Mr Gautam Adani. The owner of the terminal, its operator, and AMPL, a future user of the terminal (from 2022), are likely to act in the best interests of the Adani Group, not their individual corporate entities. Together the applicant, AMPL and the Adani operator span three levels of market operation in relation to the terminal. This must increase the vulnerability of the users to which I have referred at  and  above.
Beyond the Applicant’s Legitimate Interests
- While the terminal was not regulated as a monopoly, the way the price for access was calculated under the user agreements was similar to a regulated price scheme for a monopoly asset. The detailed mechanism at schedule 7 of the user agreements reflects the owner’s agreed costs and profit margin in the ARR. The operator was entitled to a fixed amount of profit (10%) and this was passed on to the users by the owner. Fundamentally, the respondents argued, these provisions defined what profit the owner was to make from running the terminal.
- The schedule 7 pricing mechanism was common to all user agreements, and all the users knew that. As well as setting a default return for the owner, it had the effect that, as a default, each user paid a share of costs which reflected the proportion its coal bore to the total tonnage handled by the terminal each year.
- The applicant argued that the default scheme under the user agreements could be changed: any individual user might agree a TIC and HCF with the owner which was different from that of any other user. That may be accepted. However, such an agreement cannot change the total tonnage to which regard must be had under the default pricing mechanisms for fixing the TIC and the HCF. That is, the principle that a user pays in proportion to the amount its coal bears to the total coal, cannot be changed by the owner agreeing a different price per tonne with another user. Furthermore, that this possibility of individual negotiation exists, does not detract from the fact that a default scheme is established by the user agreements.
- The other point the applicant made in this regard was that the user agreements do not provide for a minimum tonnage to be used as the denominator in calculating the TIC; there is a risk that one or two users might end up paying the entire infrastructure costs and fixed handling costs. Perhaps it is too strong to describe this as a theoretical risk only. It must however be regarded as a remote or extreme risk, and not one to which I attach significant weight in looking to see what the true bargain between the owner and the users was.
- Clauses 14.2 and 14.3 of the user agreements, which prevent a user making a profit by on-selling its rights to have coal handled (except with the consent of the owner), tend to support the idea of the scheme for which the respondents argue. So do clauses 10.1(c), 10.2 and cl 25.1(a)(iv), because they show an understanding that the users’ interests are best served if the terminal operates at, but not beyond, capacity. These clauses are all set out at paragraphs  and  above. Clause10.1(a) is an express exception to this scheme and, of course, the parties can contract to vary any of the provisions of their user agreements. However, it is still significant in my view that the terms of the user agreements do establish, at least as a default, the type of scheme for which the respondents contend.
- The respondents argue that the conduct they seek to impugn went beyond the parties’ bargain and beyond the permissible range of legitimate self-interested commercial conduct. They describe the $255 million payment as a windfall, and say that it was obtained at their expense.
- The $255 million payment was agreed when the applicant intended not to be out of pocket as a result of QCPL’s departure: until 1 July 2022 the remaining users would pay QCPL’s share of TIC and HCF, and after that AMPL would (ex 3). The applicant will be paid two sums of money for the period 1 July 2017-30 June 2022, both referable to QCPL’s contractual obligation to it. Whereas, had the QCPL user agreement remained on foot, it would only have received one such sum. The $255 million payment is a large extra payment compared to the applicant’s entitlements under the default pricing mechanism provided by the user agreements. The applicant has become entitled to that extra payment without cost to itself, and without having to provide anything extra to any remaining user. In that sense there is a quality of windfall about the $255 million payment.
- As discussed above, the applicant went out of its way to structure the transactions so that it received an extra $255 million payment. The way it achieved that was to impose a detriment on the remaining users. In that sense the payment is at the expense of the users.
- As well, as the discussion above shows, the applicant went beyond acting in its own interests and acted in the interests of AMPL in structuring and entering into the QCPL transactions and security deposit deed. To do so was not part of the ordinary or legitimate aspects of the business of a terminal owner, to paraphrase Keane J in Paciocco at .
- The second to fourth respondents raise another point related to the applicant acting in the interests of AMPL. Because AMPL currently has no coal to export, the structure of the QCPL transactions was that it would not become a user until 1 July 2022. This left a five year window between 2017 and 2022 where the terminal was not operating at capacity. There is evidence that on 1 September and 17 November 2016 the owner offered the remaining users an increase on their Annual Maximum Tonnage – p 706 Trial Bundle. In December 2016 one of the respondents asked for a substantial increase in tonnage from 2020-2029. The applicant rejected that and offered extra tonnage only for two years. The user swore that it was not economic for it to spend the capital costs necessary to increase its output for only two years availability.
- The argument made on behalf of the second to fourth respondents is that, in order to suit AMPL’s interests as a coal exporter from 2022, the structure of the QCPL transactions created a small window of available capacity at the terminal. Because of the small size of this window, the respondents could not increase their exports and so recover some of the loss caused by higher fixed charges after October 2017. That is, the structure of the QCPL transactions wrought additional economic detriment on the remaining users. The evidence is that this only adversely affected one user. There is no evidence that any other user was similarly affected. In fact, there were indications that no other user wished to take up any extra capacity at around this time. QCPL could not find anyone to take over the obligations under its user agreement before September 2015; that is why it approached Adani. When the applicant did enquire of users as to whether any user wanted extra capacity, only one user asked for extra capacity. In these market conditions, I cannot find that any more than one user was disadvantaged by the short five year window produced by the QCPL transactions, and I cannot find that the applicant ought reasonably to have expected that remaining users would be disadvantaged by a short (five year) window being produced by the QCPL transactions.
Alternatives Available to the Applicant
- It was not necessary for the applicant to structure the QCPL transactions and security deposit agreement as it did to protect its own legitimate interests. They would have been protected by the novation postulated at  above. More effort and some sophistry were necessary to produce the three transaction structure which was used. The three transaction structure did not document the bargain reached by Mr Freeman, and it was not the most simple structure available. The existence of an alternative means of achieving its ends without causing detriment to the respondents is relevant in assessing whether or not the applicant’s conduct was reasonably necessary in its own legitimate commercial interest.
- The applicant’s conduct was deliberate, not just heedless or indifferent to the position of the remaining users. The applicant was fully cognisant as to the effect its behaviour would have in increasing the fixed costs to the remaining users. It desired that effect in order to advantage itself financially. That is, to achieve a gain for itself, the applicant engaged in calculated behaviour to the disadvantage of the respondents. This is evident in the timing and structure of the QCPL transactions.
Lack of Good Faith and Commercial Morality
- In assessing whether or not there has been unconscionable conduct, the Court’s approach must be to look for conduct which “objectively answers the description of being against conscience” and to avoid intuitive or idiosyncratic approaches to what constitutes commercial morality. The Court must evaluate business behaviour in the light of the values and norms recognised by the statute.
- While statutory unconscionability requires, “an objective value judgment on behaviour” it has been recognised that, “the subjective state of mind of the alleged contravener whether actual or constructive is relevant in the broader sense.” Industry practice is relevant in assessing conduct for the purpose of statutory unconscionability. There are no formal industry standards here, but there is evidence as to what the applicant, QCPL, and Mr Freeman thought of the conduct sought to be impugned.
- The applicant recognised the risk that its conduct might be successfully impugned in subsequent litigation as beyond the bounds of commercially acceptable behaviour. It took formal legal advice on its position before April 2016. It was aware of risks to its reputation and of litigation; these were expressly referred to in negotiations with QCPL as a reason for QCPL to pay a higher price. It attempted to disguise the fact that its bargain with QCPL involved no more than fixing a price for QCPL’s departure, based on QCPL’s future obligations. By the convoluted terms of the security deposit agreement it attempted to camouflage the fact that, at its discretion, it could keep the whole $255 million payment.
- I infer that QCPL’s state of mind as to the commercial morality of socialisation was similar to that of the applicant. It insisted on an unusual indemnity being included in the termination agreement, even though this was resisted by the applicant. The provisions in the schedule to the termination agreement dealing with this are very detailed, and similar to what one might find in an insurance policy. It was clearly concerned that what it was doing might result in its being sued. Mr Freeman thought that QCPL’s concerns were that it might be involved in litigation such as this, and for its reputation –  above.
- Mr Freeman spontaneously distanced himself from the conduct which the respondents seek to impugn on three occasions in his evidence –  (twice), and  above. This indicates some shame or repugnance at the conduct. He is a senior executive with many years’ experience working in the mining industry.
- The applicant’s behaviour in attempting to disguise or camouflage the true basis of its dealings with QCPL involved dishonesty –  ff and , and so far as this proceeding is concerned, involved serious dishonesty –  and .
- The dishonest behaviour was not directly connected with the applicant’s supply of services to the respondents. However, it is clear from the indemnity in the termination agreement that the remaining users of the terminal, including the respondents, were persons whom the applicant had in mind as persons who would be disadvantaged by its conduct and may wish to sue as a result of it. The disguising and camouflaging behaviour was designed to prevent remaining users having a true appreciation of the QCPL transactions, and thus their legal rights. The behaviour in this litigation went well beyond that, and was a dishonest attempt to defeat the respondents’ exercise of their legal rights.
- For these reasons I think the dishonest behaviour is sufficiently closely connected to the behaviour which is relied upon as unconscionable conduct to take into account in deciding whether the applicant has acted unconscionably.
- The relevance of the matters dealt with in this part of my judgment is that they show the parties to the QCPL transactions recognised that they were not acting within ordinary accepted standards of commercial behaviour. The dishonest behaviour is relevant as a marker of lack of good faith towards the respondents. These matters are also significant markers which show that the applicant’s behaviour was more than simply robust, and possibly unfair, commercial dealing, but was exploitative in the sense discussed by Keane J in Kobelt.
Conclusions as to Unconscionable Conduct
- As explained at ,  and  above there were several factors which made the respondents vulnerable to an exercise of contractual power by the applicant. Counsel for the second to fourth respondents characterised the result of these matters as “situational disadvantage and vulnerability” to the applicant within the meaning of the decided cases. I accept that. The applicant exercised contractual power to obtain a large financial reward. It deliberately chose to do so knowing that it would thereby disadvantage the respondents. It was not just acting in its own commercial interests as port owner; it was acting on instructions from, and in the interests of AMPL. There were alternatives available which would have enabled it to protect its own interests; advantage AMPL, and not disadvantage the respondents. It, QCPL and Mr Freeman recognised that its conduct was not within the boundaries of normal commercial behaviour. It attempted to disguise its behaviour in complex transactions. It attempted to include dishonest recitals in those transactions. It pleaded matters which were false in this proceeding and had Mr Wicks give false evidence in its case. In my view these matters establish unconscionable conduct as alleged by the respondents. They overwhelm the fact that the applicant was contractually entitled to act as it did.
Remedy for Unconscionable Conduct
- Section 236(1) of the ACL provides:
- (a)a person (the claimant) suffers loss or damage because of the conduct of another person; and
- (b)the conduct contravened a provision of chapter 2 or 3;
the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.”
- To determine the amount of loss or damage suffered because of the conduct the Court is required to compare the position in which the respondents are in, and the position they would have been in had there been no contravention. The respondents are worse off because the applicant has socialised, or shared, the burdens of the QCPL transactions, but not their benefits. This means that from 1 July 2017 to 30 June 2022 the respondents have paid, and will continue to pay, TIC and HCF calculated on the basis that the QCPL tonnes are not brought into account, but will not receive a corresponding share of the benefit which the applicant obtained from the departure of QCPL. In my view, damages should be calculated on the basis that the applicant ought to have brought into account the money it received from QCPL.
- Alternatively, damages could be calculated by effectively putting the QCPL tonnes back into the denominator of the formulas for TIC and HCF and describing the extra that the respondents have paid as loss because of the unconscionable conduct. In one way it is more straightforward to say that because of the contravention the users paid amounts of TIC and HCF calculated without the QCPL tonnes in the denominator of the relevant formulas and that, therefore, this is what they have lost because of the contravention.
- Although it is a slightly more sophisticated approach, I think that the conduct in contravention should be regarded as charging pursuant to the user agreements without bringing into account the $255 million payment. If that is so, the basis for calculation of damages which I have adopted produces loss and damage suffered because of the conduct.
- The respondents have suffered loss from 1 July 2017 and will continue to do so until 30 June 2022. The amount of $255 million was paid in respect of the period 1 July 2016 to 30 June 2022. To put the respondents in the position they would have been had the applicant shared the benefits of the QCPL transactions, as well as the burden of those transactions, a proportionate amount of the $255 million payment ought to be paid to the respondents as damages. Understandably calculations in relation to this were somewhat complex and were the subject of evidence. Except for one point, the economists Mr Houston and Professor Grey agreed as to what the amount of damages was.
- The point of difference between Mr Houston and Professor Grey was that Professor Grey maintained that $41.9 million should be deducted from the $255 million before the calculations performed by Mr Houston at table 6.9 of his report were performed. It is hard to understand Professor Grey’s reasoning. The amount of $41.9 million is distinct factually in the sense that liability for it had accrued (or partly accrued) under the QCPL user agreement at the time of the QCPL transactions. In effect liability for these amounts was forgiven because the parties agreed that the termination agreement had an economic effective date of 30 June 2016.
- Professor Grey seeks to differentiate these payments on the basis that “they are known amounts that [the applicant] will no longer receive as a result of QCPL being released from its obligations, and which also cannot be recovered from others users via any change to the TIC or HCF”. I cannot see the logic of this. The payment of $255 million to the applicant was to compensate it for all the money which it would not receive after 30 June 2016 as a result of QCPL’s departure. That some of those obligations had already accrued by 31 October 2016 can make no difference in principle to the damages calculation.
- It is true that the termination of the QCPL user agreement had no impact on the TIC paid by the respondents for the period 1 July 2016 to 30 June 2017. Mr Houston’s calculations at table 6.9 make it clear he has not included any damages in that regard. But I cannot see that this fact makes Professor Grey’s view any more logical or relevant. I note that Professor Grey was taken to this matter in cross-examination at t 5-82. I could not see that he shed any light upon his thinking.
- As to the point of difference, I prefer the evidence of Mr Houston. At tables 6.9-6.12 of his report of 12 November 2019 he calculates the relevant figures under the heading “Give credit counterfactual – subtracting QCPL payments”. He presents the equivalent lump-sum payment due to each party in 2017 dollars at table 6.13 in the second column under the heading, “Give credit counterfactual (QCPL payments)”.
- I reject the applicant’s argument that damages ought to be calculated having regard to the swinging payment of $50 million referred to in exhibit 3. This was an idea of somebody within AMPL. It was expressly rejected by Mr Freeman and negotiators on behalf of QCPL as a basis for fixing a price for QCPL’s departure. There is no evidence at all as to what the figure of $50 million was based upon, or how it could properly represent an amount to use in fixing damages to compensate the respondents for loss they have suffered because of the applicant’s unconscionable conduct.
- I give judgment on the unconscionable conduct claim against the applicant and assess damages in relation to the first respondent at $37.9 million; in relation to the second respondent at $25.3 million; in relation to the third respondent at $31.7 million and in relation to the fourth respondent at $11.9 million.
- As these sums are calculated in 2017 dollars, an interest calculation will be necessary. I will hear the parties further as to that.
- The second to fourth respondents ask that I modify the user agreements so as to prevent what has happened here happening in the future. I refuse to give this relief. There is no term of the user agreements which allows the contravention here. The matters which ground the contravention are all extra-contractual.
IICONSTRUCTION OF CL 7.2 OF THE USER AGREEMENTS
- Clause 7 of the user agreements deals with the handling charges which the respondents must pay to the applicant. By cl 7.1(a)(i), in January each year each user must give the applicant an estimate of the amount of coal it proposes to present to the terminal during the next financial year. This is called a Utilisation Advice. Clause7.2(a) says that the applicant will consult with the operator of the terminal and give written notice of the HCF payable by the user during the next financial year. Clause 7.2(c) provides that the users must pay the HCF, a rate per tonne on the user’s Annual Maximum Tonnage.
- Clause 7.2(b) provides:
“HCF per tonne of the User’s Coal for each Financial Year is calculated as follows:-
- OFC is defined as:
“(A)the total costs payable by [the owner] to the Operator in respect of the total fixed operating costs incurred by the Operator for the Financial Year … ; plus
- (B)the Operator’s Margin on that amount.” (my underlining).
- ART is:
“… the Annual Relevant Tonnage, being the aggregate for each Access Holder of the Terminal (including the User) of the greater of:
- (i)their respective Annual Maximum Tonnages; or
- (ii)the annual tonnage which the User has notified the Operator [that it intends to present to the terminal in the Utilisation Advice].”
- Because the HCF is based on anticipated costs to be charged by the operator and anticipated volumes of coal (of each user and in aggregate), cl 7.5 provides for a “true‑up” of these charges at the end of each financial year.
- The respondents argue that “total costs payable by [the owner] to the Operator” in the definition of OFC should be construed so that:
“… where the burden of paying the total fixed operating costs incurred by the Operator for the Financial Year did not fall on the applicant, because it had already secured compensation or damages from a User in respect of those costs, on the proper construction of the OFC, credit was required to be given for those benefits in the calculation of the OFC.”
- The respondents say, as is the case, that the applicant has calculated the HCF for each year since financial year 2016/2017 on the basis that there are no QCPL tonnes in the ART, and that in calculating the OFC it has not taken into account any part of the money it received under the QCPL transactions. The respondents say that part of the money which the applicant received under the QCPL transactions was in substance an indemnity for the HCF which QCPL would have paid, had it remained a user and not entered into the QCPL transactions. They argue that indemnity ought to be taken into account in calculating the OFC.
- In my view the text of the contract is against the respondents. The word “costs” is used twice in the definition of OFC. Under the operating agreement the owner is obliged to pay the operator its total fixed costs and a margin. Whether or not the owner recovers these costs from anyone else is irrelevant to the owner’s obligation to pay the operator. Here, whether or not the owner received an amount which “in substance” indemnified it for the QCPL’s share of the OFC, the owner was still obliged to pay the operator under the operating agreement and it is those costs, payable by the owner to the operator, which are the subject matter of the definition of OFC.
- Likewise, so far as the text of the user agreements is concerned, after the QCPL transactions, QCPL was not an Access Holder and it did not have an Annual Maximum Tonnage. There was no basis to include its previous Annual Maximum Tonnage when calculating the ART.
- Reliance was placed on cll 7.4(d), 10.3 and 25.1(b) of the user agreements as showing that the parties to them should be taken to have contracted on the basis that the owner would not recover the same charge twice. I do not find these clauses of assistance in construing the definitions of OFC or ART. Clause 7.4(d) and cl 10.3 make it clear that if an owner becomes entitled to charge for the same service under two different provisions of the user agreement, or in the case of cl 7.4(d) another user agreement, it must only charge once. Clause 25.2(b) is to the effect that should the operator charge the owner and later recover an insurance indemnity in respect of the subject matter of the charge, credit for that will be passed on to the users. There would be no need for cl 25.2(b) if the respondents’ argument about cl 7.2 were incorrect. I do not think these disparate examples bear upon the clear words in the definition of OFC so as to compel the owner to take into account amounts received under the QCPL transactions.
- The respondents rely upon the fact that each of them knew that they had entered standard form agreements, and they knew from pricing provisions, such as the one under consideration here, that the price they paid for handling charges was a proportionate share of the total amount of coal handled by the terminal. As well, the respondents rely upon similarities between the charging regime established by the user agreements and a regulated pricing model used in the other parts of the economy, for other assets, which are held by a monopoly owner. I cannot think that these contextual matters can overwhelm the plain words of the definition of OFC.
- The case of Papale v Wilmar Sugar Australia Ltd was referred to. The word to be construed in that case was “value”, a word which was found to be commodious enough to encompass costs incurred, as well as payments received. In contradistinction, I think the words of the definition of OFC are plain and not capable of bearing the meaning which the respondents seek to attribute to them.
- It was argued that the word “costs”, where first used in the definition, should be treated as “meaning only those amounts paid which are, in substance, costs to AAPT …”. Not only is this not the plain meaning of the word costs, where twice occurring, in the definition, it is such a nebulous notion that it could never occur in any properly drafted contractual clause.
- I reject the respondents’ case as to the construction of cl 7.2(b).
IIIBERTHAGE AND MOORING
- The operator has always levied berthage and mooring charges on ships which come to the terminal to be loaded with coal. Both in law and in fact it has been the operator who was paid, on invoices issued by it. That is, it was not that the operator collected the money on behalf of the owner. These charges are paid to physically secure the ship to the jetty; for its occupying the berth at the end of the jetty, and to physically release the ship – t 2-57.
- Prior to October 2016 the operator had offset that income against the HCV. After October 2016 this changed. The fees are still levied by the operator as they always have been. An estimate is made as to the cost of the operator’s labour in securing and releasing the ships. The operator then notifies the applicant of the berthage and mooring fees collected and the cost of the operator’s labour in earning the fees. The applicant then submits to the operator an invoice for an amount equal to the fees less the labour.
- The effect of this change is to increase the HCV, because the income from ship owners is no longer deducted. The sums of money involved are not inconsiderable. For the 2018 financial year the net berthage and mooring remitted to the applicant was $1,334,271. This was after an adjustment of $365,344 for labour. The HCV increased by this amount, around 13% of total HCV.
- The provisions of cl 7.3, dealing with calculating HCV, are similar to those at cl 7.2. Clause 7.3(a) provides that after consulting with the operator, the owner must advise the user of the HCV for the next financial year. Clause 7.3(b) provides that:
“HCV per tonne of the User’s Coal Handled is calculated as follows:-
- At cl 7.3(b)(i)(A) OVC is defined in a similar way to OFC to be, “the total costs payable by [the owner] to the Operator in respect of the Operator’s total variable operating costs” (my underlining). FT, or “Forecast Throughput”, is the total coal forecast to be handled by the terminal based on the Utilisation Advices received by the owner for the relevant financial year.
- Pursuant to cl 4.2(a)(ii) of the user agreements the operator is obliged to handle the coal which a user delivers to the terminal; see also cl 4.3. The term “handle” is defined to mean, “the receiving by rail, unloading, stacking, storing, reclaiming and loading of vessels with Coal …”.
- In order to fulfil its obligation to load the users’ coal on to ships it is necessary for the operator to allow ships to securely dock at the jetty and stay there for the period of time it takes to load them with coal. To receive the money from shipping owners for berthage and mooring the operator does nothing more than it is obliged to do to handle the users’ coal. Monies received by the operator for berthage and mooring are received in the course of, and as a direct result of, its performing its contractual obligations to the users.
- The same argument was advanced on behalf of the respondents as was advanced in relation to cl 7.2(b), above. That is, it was argued that, “total costs payable by [the owner] to the operator” does not include any amount for which, as a matter of substance, the owner has been indemnified by a user or any other person. Consistently with what I have said about cl 7.2 above, I reject this argument as not supported by the words of cl 7.3(b)(i)(A). However, in the different factual circumstances which relate to the construction of this clause, I do think that the respondents are entitled to succeed on their more narrow alternative construction argument.
- The evidence which the applicant put before the Court on this point could have been clearer and more up to date. However, I am satisfied on the balance of probabilities that it is the operator who invoices the ships for berthage and mooring, and therefore the operator who receives the income in the form of these fees paid by the ships. I do not regard Mr Freeman’s affidavit as convincing evidence to the contrary. It appears to be hearsay, or documentary hearsay, and is at an unhelpful level of generality. In particular, Mr Freeman does not contradict Mr Poulton’s specific evidence that it is the operator who invoices the ship owners and receives the berthage and mooring fees. Further, the applicant’s practice of invoicing the operator for the net amount of these charges only makes sense if the operator has received the berthage and mooring charges on its own account.
- Because the berthage and mooring fees are so closely and directly connected with the obligation of the operator to load the users’ coal on to ships, it seems to me that the “Operator’s total variable operating costs” in cl 7.3(b)(i)(A) must be construed to mean costs less the berthage and mooring fees. These fees are received by the operator for doing the very thing it is obliged to do under the operating agreement: load the coal onto ships.
- Although it was not argued, it seems to me there is another point of contractual construction which leads to the same conclusion. Clause 7.3(b)(i)(A) focuses on the “total costs payable by [the owner] to the operator …”. Under the operating agreement the “Contract Payment” to which the operator is entitled is one which is less “Ancillary Income”. That latter term is defined to mean, “any income received by the Operator from a person other than Adani and retained by the Operator, for charges levied by the Operator within the Terminal, including wharfage and line handling.” Wharfage and line handling are probably the same service as berthage and mooring, but even if they are not, they are of like nature in the sense that they are received by the Operator in response to a charge it makes within the terminal from someone other than the applicant. Thus, berthage and mooring fees must be deducted from the other variable costs incurred in running the terminal in order to ascertain, “the total cost payable by [the owner] to the Operator” in accordance with cl7.3(b)(i)(A). The operating agreement refers to the user agreements at various points. In these circumstances it seems sensible to interpret the words of cl7.3(b)(i)(A) having regard to the payment provisions in the operating agreement.
- I will make the declaration sought by the respondents.
IVHANDLING CHARGES, CL 7.6, DEMONSTRATION
- I have outlined the relevant provisions of cll 7.1, 7.2, 7.3 and 7.5 of the user agreements above. The scheme of those clauses is to allow for handling charges, fixed and variable, to be calculated using the users’ forecast tonnage and the operator’s budgeted cost for the financial year ahead. Then, as soon as practicable after the end of each financial year, there is “true-up” in which the actual through-put and actual operating charges are substituted for the budgeted figures and any necessary financial adjustments are made.
- The clause which is relevant to this issue is cl 7.6. It provides:
“7.6Determination of OFC and OVC
- (a)While the Operator is either:
- (i)the Operator existing as at the Execution Date; or
- (ii)an Operator owned and/or controlled by at least sixty per cent (60%) of [the users] by tonnage,
then, Clauses 7.2(b) and 7.3(b) will apply.
- (b)Whilst Clause 7.6(a) does not apply, then Clauses 7.2(b) and 7.3(b) will apply, provided that [the owner] must demonstrate that the OFC and the OVC as agreed between [the owner] and the Operator represent a reasonable charge having regard to the efficient operation of the Terminal.”
- Because APO became the operator in October 2016, it was common ground that from 1 July 2017 onwards cl 7.6(a) did not apply and the applicant became obliged to demonstrate that the OFC and OVC, as agreed between it and the operator each year, represented “a reasonable charge having regard to the efficient operation of the Terminal” within the meaning of cl 7.6(b). This issue between the parties is as to whether or not the applicant has demonstrated the matters required by cl 7.6(b) in relation to the 2018 and 2019 financial years.
- Some matters can be disposed of shortly. I accept that my interpretation of the obligation in cl 7.6(b) must be a business-like one. I regard the word “demonstrate” as requiring an explanation which sets out sufficient of the facts and reasoning the applicant relies upon to enable a hypothetical reasonable user to see for itself that the OFC and OVC are reasonable charges having regard to the efficient operation of the terminal. The phrase, “reasonable charge having regard to the efficient operation of the Terminal” should be construed as one composite phrase.
- I accept the applicant’s submission that the word reasonable is deliberately somewhat flexible. The clause does not specify that the charges must be the lowest possible charges, but that they be reasonable charges having regard to the efficient operation of the terminal. I accept that there will be, in effect, a range of charges, all of which are reasonable and thus fall within this definition.
- I accept the applicant’s submission that the phrase “efficient operation of the terminal” should bear its ordinary English meaning and should not be construed according to theoretical concepts from the discipline of economics. The first respondent submits that the efficient operation of the terminal would not encompass tasks, resources and labour which were not reasonably necessary, and would not allow unreasonable costs for tasks, resources and labour which were necessary. I accept this and allow that the phrase may encompass more than that. Like the concept of “reasonable charge”, it has some width and flexibility about it. Medium and long‑term considerations as to what is best for the terminal, as well as short-term efficiencies, are encompassed in the expression.
- I reject the applicant’s argument that, as a matter of construction, cl 7.6 means that the parties agreed that the operator “existing as at the Execution Date” charged the owner a reasonable charge having regard to the efficient operation of the terminal. There was some evidence as to the negotiations which resulted in this clause. No objection was taken. The original operator was a company related to Glencore, and at the beginning of the terminal’s life, Glencore was its only user. Perhaps one might infer from the evidence about the negotiations that, subjectively, some of the users had faith in the original operator to charge reasonably having regard to the efficient operation of the terminal, if for no other reason because at the time some of the users entered into user agreements, Glencore had a great deal of coal handled at the terminal. However, looking at cl 7.6 objectively, there is no basis to say that it should be construed as meaning the parties have agreed that particular charges made by Glencore as operator, many years after entering into the user agreements, were reasonable having regard to the efficient operation of the terminal. The clause shows the bargain that was struck. My task is to enforce it, not to speculate about the subjective states of mind of the persons who made the bargain years ago, in circumstances very different from those which now obtain.
- The respondents made submissions based on the fact that there had been litigation between the applicant and the original operator as to whether or not the original operator was in material breach of its operating agreement. However, there is almost no evidence about this. I do not rely on this evidence to draw conclusions of my own; nor do I conclude that either of the expert economists would have reached different conclusions had they been informed of the facts which were proved in evidence before me.
- Lastly, the applicant was critical of the respondents for running what it termed a purely negative case in relation to this cl 7.6(b) point. I think the respondents are correct to point out that the user agreements require the owner to demonstrate within the meaning of cl 7.6(b). Furthermore, so far as this litigation is concerned, no doubt the applicant bears the onus of persuading me that there has been such a demonstration.
Chronology of Dispute
- Strikingly, the chronology does not begin with engagement between the applicant and the users. On 17 April 2017 the applicant engaged MrFenton of PWC to produce a report. The email brief to PWC came through Clayton Utz and was marked “privileged and confidential”. It said:
“AAPT anticipates that Users (or some of them) will seek to challenge AAPT as to the reasonableness of the amounts [agreed with the operator], and may claim a breach by AAPT of the requirements of clause 7.6(b) of the User Agreement. In anticipation of such dispute and in preparation for a potential claim by a User or Users, AAPT has sought Clayton Utz legal advice as to its arrangements with APO concerning the setting of OFC and OVC for the FY 2018 Financial Year.
For the purpose of us providing this advice Clayton Utz wish to engage PWC (you) to undertake a review of the proposed Operator charges for FY 2018 financial year and report to Clayton Utz on the reasonableness thereof, having regard to the efficient operation of the Terminal (Engagement). It is anticipated that, with the benefit of your report and our advice, AAPT will engage with APO as to the setting of the operator’s FY 2018 budget for undertaking terminal operations.”
- The email went on to say that Mr Fenton should liaise with MrWicks in order to gain information about the matter, but that should Mr Wicks refer to any documents which Mr Fenton needed, Mr Fenton should ask MrWicks to send them to Clayton Utz so that Clayton Utz could provide them to MrFenton. This was because, the email says, “our and AAPT’s communications with you in relation to the Engagement are confidential and are subject to legal professional privilege”. MrFenton was advised to deliver his reports, including drafts, to Clayton Utz only and to mark them as privileged.
- The reply from Mr Fenton, duly marked as privileged, introduces a gloss on the retainer; he understands that his assistance is sought on “whether proposed FY2018 operations charges for T1 are consistent with the requirements of clause 7.6(b) of the user agreement” (my underlining). Mr Fenton’s response also records that the assessment is to be completed by 31 May 2017. It was not, and there is no explanation for the delay.
- On 27 June 2017 the applicant wrote to the respondents giving them notice of the OFC and OVC, ART and FT, and the HCF and HCV for the financial year 2017‑2018. Despite the fact that the applicant was aware of the requirements of cl7.6(b), and that it anticipated that some of the users would challenge the reasonableness of its operator’s costs, no attempt was made to comply with cl 7.6(b) at the time of this notification.
- On 10 July 2017 there was a User Group Meeting. The users were given a two page PowerPoint presentation as to the OFC and OVC by Mr Wicks and Mr Freeman and (despite the elaborate arrangements to ensure privilege noted above) were told that PWC had been engaged to look at the reasonableness of the charges.
- On 24 July 2017 the second to fourth respondents sent a letter to the applicant asking for information, including a copy of the operator’s agreement with the owner and details about the budget for the 2018 financial year. On 25 July 2017 the first respondent asked for information as to the cost increases in each component of both the OFC and OVC, and asked the applicant to substantiate why the OFC and the OVC were reasonable charges having regard to the efficient operation of the terminal. The applicant provided none of the requested information to the respondents. The respondents gave notices of dispute under cl 13.1(a) of their user agreements.
- At a User Group Meeting on 22 August 2017, a five page PowerPoint presentation was given.
- Given how brief and general the PowerPoint presentations were, they could not amount to a demonstration in accordance with cl 7.6(b). The user group meetings were fairly brief – one to two hours; only accounting personnel from the operator attended, not operating personnel, and because the users had little information to begin with, there was a limit to what they were able to achieve by asking questions.
- In June 2018 the applicant advised the respondents of the HCF and the HCV for the 2019 financial year. Again notices of dispute were given by the respondents.
- In June 2018 the applicant gave users a six page summary of the OFC and OVC for the 2019 financial year at a User Group Meeting. Mr Freeman gave a presentation. Again, because of its brevity, this additional material could not be regarded as a demonstration.
PWC Reports, September 2017 and August 2018
- No report was delivered by PWC until September 2017. It was in evidence before me. It was relied upon by the applicant as demonstrating that the OFC and OVC for the financial year 2017/2018 were reasonable charges having regard to the efficient operation of the terminal.
- In May 2018 Mr Fenton was asked to perform the same task as he had the previous year in relation to proposed OFC and OVC for the financial year 2018/2019. He produced another report. Again there was a considerable delay; it was not made available to the parties until August 2018. Again the delay was not explained. The applicant relies upon the report as demonstrating that the OFC and OVC for the financial year 2018/2019 were reasonable charges having regard to the efficient operation of the terminal.
- The two PWC reports are very similar, and I will deal with them together. There are some preliminary points to note. The reports are not the equivalent of expert reports prepared for a litigation under the UCPR. They were given to a party, not the Court, and they do not comply with the safeguards in the UCPR for ensuring the independence of witnesses. To the contrary, considerable efforts were made to ensure that the reports and any drafts were privileged. They contained disclaimers that they were not to be relied upon by anyone but the applicant. MrFenton records that he is charging the applicant at a special rate, having regard to the amount of work his firm receives from the applicant. Changes to an earlier draft demonstrate that, to some extent at least, MrFenton was biddable in providing the reports. The delivery of the reports to the users is part of the factual structure of the applicant’s case but they should not be confused with independent expert reports.
- Further, the gloss on the retainer which Mr Fenton introduced in his initial reply is persisted with. The conclusions in both his reports are expressed in these terms and so is the affidavit he swore in this proceeding. That is, in terms, Mr Fenton never addresses the question of whether or not the OFC and OVC were reasonable charges having regard to the efficient operation of the terminal.
- I agree with the submissions made on behalf of the second to fourth respondents that the information contained in the PWC reports is simple. The reports are limited, and to be fair to Mr Fenton, many of these limitations are explicit. He performs three tasks.
●First, he assumes that budgets in the years 2014-2017 were reasonable having regard to the efficient operation of the terminal and then compares (i)the budgets for the financial years 2017-2018 and 2018-2019 to them, and (ii)the actual costs in years 2014-2017 against the 2018 and 2019 budgets. In his second report Mr Fenton includes the actual costs of the 2018 year as an additional comparator.
●Secondly, he looks at particular items which have increased in cost in the 2018 and 2019 budgets as compared to the previous year, and records the applicant’s explanation of these increases.
●Lastly, he compares the 2018 and 2019 budgets for handling costs to the limited public information which is available in relation to the coal handling terminal at Dalrymple Bay.
- As well as the limited nature of the tasks which PWC undertook, the methodology PWC used was also restricted. Mr Fenton assumed he was being provided accurate information by the applicant; he made no attempt to check or audit the information. As part of this he accepted that the operator’s methodologies and practices were correct and reasonable. For example, he assumed that the operator’s method as to choosing which costs to capitalise was correct; that the operator’s allocation of costs between fixed and variable categories was correct, and that the original operator correctly accounted for shared costs between itself and wider Glencore activities.
- Further (contrary to my findings above), MrFenton accepted that the applicant’s view that berthage and mooring charges which the operator received from vessels to be loaded with coal were not properly brought into account to reduce overall operating costs, but belonged to the applicant as owner. The effect of this was mitigated, at least for comparative purposes, because Mr Fenton adjusted the budgets for 2014‑2017 to remove the reduction in HCV as a result of this income.
Conclusions to be drawn from the PWC Reports
- The reports show that the budgeted OFC and OVC for the years 2018 and 2019 were not greatly different from those in the years 2014-2017. There was more difference shown when the budgets were compared to the actual spend in 2014‑2017. How much can be drawn from this is difficult to fathom as the data set of actual costs for the years 2014-2017 shows quite some variance. The disparity between handling charges from year to year, and as between budget and actuals in any given year, is made plain at the tables at Trial Bundle p 682. Even as adjusted by Mr Fenton, the 2018 actuals were $2.6 million greater than budget. I do note in that regard, that 2018 was the first financial year of all those reviewed in which the actual costs exceeded budget. In all other years all actual costs were lower than budget.
- Although Mr Fenton hoped to find some sort of trend in the data sets of budgeted and actual costs between 2014 and 2018, he could find no trend – t 4-69. This means that in fact his reports simply compare total numbers, either budgeted or actual, against the 2018 and 2019 financial year budgets. Where there is a limited data set; significant internal variation within the data set, and little contextual information as to what money was spent on in any of the years under review, this must be of limited value in assessing whether or not the budgeted costs in the 2018 and 2019 years were reasonable having regard to the efficient operation of the terminal. MrFenton conceded in cross‑examination that much of the internal variance between the amounts budgeted and spent in any particular year was explained by the need for different expenditure on a year-to-year basis – t 4-69.
- Furthermore, MrFenton simply assumed that the budgets and charges in 2014‑2017 were reasonable charges having regard to the operation of the terminal. This is a very significant limitation on the usefulness of his reports.
- In discussing cost increases in the 2018 and 2019 years, the reports provide information which is essentially hearsay from employees of the operator which MrFenton conceded he had not checked or analysed in any critical way.
- I think it is correct, as the second to fourth respondents submit, that Mr Fenton’s seeking to explain individual cost increases is significantly flawed in another way. It attempts to explain significant increases in expenditure on some particular items in the 2018 or 2019 budgets against an unstated and unproved assumption that the rest of the expenditure in those budgets is reasonable having regard to the efficient operation of the terminal. There is no factual foundation for this premise, and I do not think it can be assumed in circumstances where expenditure varies considerably from year to year through this period, to meet demands at various times.
- A comparison of the Adani operator’s charges to handling charges at the Dalrymple Bay Coal Terminal in 2017 and 2018 is provided. I do not think that information is of any real use in demonstrating anything within the meaning of cl7.6(b). Dalrymple Bay Coal Terminal differs in many respects from the Abbot Point Coal Terminal. Only two years’ information from Dalrymple Bay are used and there is no reason to assume they are typical of the costs for that terminal, or indeed that they are themselves reasonable charges having regard to the efficient operation of that terminal. Secondly, the Dalrymple Bay terminal publishes limited information as to its operations, including handling charges. Mr Fenton made a number of concessions about this in his oral evidence.
- For the above reasons I find that by providing both the PWC reports, in addition to the earlier brief PowerPoint presentations, the applicant had not complied with the obligation to demonstrate pursuant to cl 7.6(b).
Evidence in this Proceeding
- That point having been reached, the applicant’s remaining argument was that together, the PowerPoint presentations, the PWC reports, and its evidence in this proceeding demonstrated all that was necessary pursuant to cl 7.6(b). Accordingly, I turn to consider the relevant evidence in this proceeding. Most of this was provided by a Mr Poulton and to a lesser extent, MrFreeman. There is another discrete area of evidence which is relevant, and I deal with that first.
Glencore Incentive to Fix Reasonable Charges for OFC and OVC
- The applicant argued that while the original operator ran the terminal, it was likely OFC and OVC were reasonable having regard to the efficient operation of the terminal because the original operator was a related entity of Glencore, and Glencore was a user of the terminal. The evidence was that, even taking into account the fact that Glencore would make 10 cents on every inefficient dollar charged by its operator, it still lost a significant sum for each of those inefficient dollars because it was a user of the terminal.
- The economists (see below) argued over whether this was a sufficient incentive for the original operator to charge a reasonable OFC and OVC having regard to the efficient operation of the terminal. Even if it was, they speculated about whether or not the original operator may have been mistaken in thinking that it was operating efficiently, etc etc. I think their opinions on this matter are theoretical.
- In my view, the potential loss for Glencore for each inefficient dollar spent by the operator was a real incentive for the original operator to have done its best to keep the costs of operating the terminal to a minimum. There was no argument from any party that Glencore would not have been sophisticated and astute enough to understand this financial incentive.
- That the original operator had this incentive is only circumstantial evidence as to part of the question I must decide. It tends to support the applicant’s case because it tends to make the exercise Mr Fenton undertook more meaningful, ie, it lends some support to the idea that the budgets in the years 2014‑2017 kept costs to a minimum. It falls short of lending support to the idea that the budgets in the years 2014-2017 were reasonable having regard to the efficient operation of the terminal, and this is a different concept, see  below.
The evidence of Mr Poulton and Mr Freeman
- Anthony Poulton is a chartered accountant. He was employed between 2012 and October 2018 as a commercial manager at APB. He had superintendence of the accounting system and the IT system. He was responsible for preparing the operator’s budgets and managing tenders for the terminal. He lived in Bowen and worked at the terminal. Between October 2016 and October 2018 he reported to Mr Freeman, who was the CEO of both APO and APB.
- Mr Poulton made two affidavits in this proceeding. He gave evidence, and I thought he was honest and meticulous. Mr Freeman’s evidence is also relevant to this issue. I have already recorded my view that he was an honest witness.
- Mr Poulton’s evidence was that APB had continued to provide the same services, and perform the same functions, after the shares were bought by Adani, as it had before the purchase. He was not challenged as to this evidence. He exhibits the new operating agreement to his affidavit. It provides for the same, or very similar, obligations on the part of the operator as the original operating agreement did.
- Just as Mr Poulton’s employment straddled the transition from the original operator to the Adani operator, so did the employment of the Production Manager and the Maintenance Manager. Mr Freeman swore that the continuity of these managers meant that a significant part of the corporate knowledge and experience of the original operator was transferred to the Adani operator. This evidence was not challenged.
- At all times, under both operating agreements, the operator has been obliged to submit an Annual Operation Maintenance and Capital Plan and Budget for the terminal, together with projections for the following two operating years.
- Mr Poulton’s evidence was that APB undertook the process of budgeting for the future costs of operating and maintaining the terminal five years in advance, and reviewed that budget forecast on a monthly basis. He attended two main meetings every month with the personnel responsible for operations at the terminal. The first was at the beginning of the month to focus on performance against budget over the previous month, and the second meeting was at the end of each month to update forecasts for the coming month – t 2-45. During these twice-monthly meetings members of the finance team would “challenge the site personnel where the cost or lead times associated with planned activities required it”. It is evident from his affidavit that the twice-monthly reviews were disciplined, detailed and thorough.
- Mr Poulton’s first affidavit exhibited three year budgets for financial years 2014 to 2016; 2015 to 2017; 2016 to 2018; 2017 to 2019; 2018 to 2020, and 2019 to 2021. It also exhibited two five year budgets, one prepared in 2017 and the other in 2018. These documents are very detailed.
- The Annual Operation Maintenance and Capital Plan and Budget required under the operating agreement was derived from the monthly budget forecasting process after review, first by members of APB’s financing department, and then by its senior executive. When the Annual Operation Maintenance and Capital Plan and Budget was delivered to the applicant as owner, there were discussions between APB and the applicant before costs to be charged to the applicant as OFC and OVC were finalised.
- As to increases in the 2018 budget, Mr Poulton gave a detailed explanation. When Glencore owned the shares in APB, APB shared costs with Glencore across such departments as financial accounting, payroll, human resources, IT support, legal, procurement, and engineering. The benefit of these shared costs was lost when the shares in the operator were sold to Adani. There was no equivalent replacement cost‑sharing with Adani. This increased costs for APB in the 2018 financial year. As well there were two new supervisory roles included in the 2018 financial year costs; those roles had been forecast for some time, and prior to the sale of the shares in the operator to Adani. There were also eight permanent positions created in the 2018 budget to replace contract labour, and other increased costs as to such matters as training, administration, etc, explained by Mr Poulton in detail in his first affidavit.
- Mr Poulton undertook a similar exercise in relation to increased costs in the 2019 financial year in the same detailed way.
- This evidence of Mr Poulton provides a proper substantial basis in evidence for MrFenton’s brief hearsay comments about individual items of increased cost in the 2018 and 2019 financial years. It does not address the separate problem mentioned at  above.
- Mr Freeman said that he was directly involved in the preparation of the budget for the 2018 financial year. He said he met with each development manager to understand and discuss their input into the budget. He reviewed drafts of the budget and sought to understand any cost increases. He swore that, “The process in preparing the [2018 financial year] budget had been thorough and comprehensive. I considered the FY18 budget reflected a reasonable estimate of the cost to APO of providing the operations and maintenance services required of it in FY18 in accordance with APO’s contractual and legal obligations”. Mr Freeman had earlier in his affidavit set out the terms of the contract between the owner and the manager, including those terms as to efficiency. Mr Freeman swears in identical terms as to the 2019 budget.
Lack of Operational Evidence
- The respondents submit that even when the above evidence is considered, the applicant has still failed to demonstrate that the 2018 and 2019 budgets were reasonable having regard to the efficient operation of the terminal. They say the applicant has never provided any information about the efficiency of the operations at the terminal, only about their cost. Mr Fenton and Mr Poulton are both accountants. So is Mr Freeman – t3-72. Turning back to the first respondent’s submission as to the meaning of cl7.6(b) at , accountants and financial managers are able to speak about whether or not unreasonable costs for tasks, resources and labour are being incurred. However, they cannot speak with any authority as to whether or not the tasks, resources and labour (however well‑priced) were reasonably necessary for the efficient operation of the terminal.
- The applicant associates this submission with what it says is the respondents’ position: that the only way in which a demonstration could be made in accordance with cl7.6(b) is for a bottom-up assessment to be made of how the terminal operates and the costs of its operating. Certainly one witness for the respondents, MrHouston, advanced the view that one way in which a demonstration of the matters required by cl 7.6(b) could occur was for such a bottom-up assessment to be undertaken. I do not know that he put this forward as the only way in which such a demonstration could occur. I did not understand the respondents to do so.
- The applicant submits that a comparison between the requirement to demonstrate in cl 7.6(b) of the user agreements, and the much more elaborate provisions made by the user agreements as to fixing the TIC – see cl 8 and schedule7, show that cl 7.6(b) contemplates something less than a complete review of the operations of the terminal and a costing of them. Further, that as the OFC and OVC are fixed each year – cl 7.2, the available timeframe in which a demonstration must take place is a relevant matter in determining how extensive a demonstration must be. Again, by way of comparison, the TIC is recalculated pursuant to schedule 7 only once every five years. I accept that there is merit in these submissions, and that both these factors should be borne in mind in deciding what is sufficient to “demonstrate” within the meaning of cl 7.6(b).
- However, also bearing on this issue is the fact that the terminal is a complex operation located in a marine environment which is both hostile to some of the elements of the terminal (thus requiring preventative maintenance) and which itself might be harmed by the terminal, thus requiring environmental safeguards. As well as the complexities of its operation, the terminal is large. It employs around 150 full-time employees and has an annual operating budget somewhere around $70 million, which is the amount passed on to the users of the terminal by way of handling charges. Both the size and complexity of the operation, and the amount of money charged to users are relevant to construing the obligation to demonstrate contained at cl 7.6(b). These factors tend to show that more is required before there can be said to be a demonstration than would be the case if the terminal were smaller, less complex, and cost the users less.
- Further, as the respondents say, a detailed review and costing of the operations of the terminal would not be required every year for, once a demonstration in accordance with cl 7.6(b) had been made, that would form a reliable benchmark for comparison in subsequent years.
Finding: No Demonstration
- I do not consider that a demonstration in accordance with cl 7.6(b) has occurred, even taking into account the evidence in this proceeding. The reason is that the information given by MrPoulton and Mr Freeman, impressive as far as it goes, does not address the operational processes in the terminal. It is entirely possible that although the financial managers of the operator have done a good job over the years in making sure that expenditure on the terminal’s operation has been organised and scrutinised, the terminal’s operational processes are themselves inefficient due to its design, set up, age, or any number of other factors.
- No evidence at all was produced by the applicant from the operational or engineering equivalent of MrPoulton or Mr Freeman to explain how the terminal operates. It would not in my view be necessary to have an independent expert conduct a review of the terminal in order to satisfy the requirements of cl7.6(b). Evidence from the experienced Production Manager or Maintenance Manager, mentioned by MrFreeman, see  above, would likely have been sufficient, if it had been of the calibre and detail given by Mr Poulton. However, without some evidence as to the operational side I cannot see that the applicant has demonstrated that the OFC and OVC produced by its budget processes in 2018 and 2019, and agreed with the operator, are reasonable charges having regard to the efficient operation of the terminal. As I have endeavoured to explain, on the present state of the evidence it is only possible to conclude that they are reasonable charges having regard to the way the terminal is operated. That may, or may not, be efficient. The evidence that Glencore had an incentive to keep costs to a minimum and the weight that adds to MrFenton’s comparisons is not sufficient to remedy this deficit. It is the applicant which must make the demonstration under cl 7.6(b), and in my opinion it has not done so. I will make the declaration sought by the respondents. It follows that I refuse the relief sought in the originating application and statement of claim.
Indications as to Inefficiency
- Having stated that conclusion I will now refer to some aspects of the evidence which indicated that the operations at the terminal may not be efficient. These matters strengthen the conclusion I have reached, and show that the gap I have identified in the material relied upon by the applicant is not merely logical or theoretical. However, I do not want it to be thought that in examining this evidence my reasoning is that the respondents had an obligation to prove that the operation of the terminal was inefficient.
- Mr Poulton’s evidence was that, while he was concerned with financial matters, the operator employed personnel, including a team of engineers, who were tasked with checking the efficiency of the maintenance works carried out at the terminal – tt2‑39‑40.
- Mr Poulton had not worked for a coal handling terminal before 2012 so he had nothing to compare the operations of this terminal to.
- Attempts to cross-examine Mr Poulton about the operational efficiency of the terminal were unsuccessful. He explained that he could not give evidence about such matters. To take one example, Mr Poulton was asked about the measured rates of delay between the coal being received from the incoming trains and being loaded onto the ships. He described it as a production issue rather than a commercial issue, and therefore outside his knowledge – t 2-37. Mr Poulton also said that in his part of the business there was no discussion about, or analysis of, these rates – t 2-37.
- The detailed budget process discussed at  above is very much concerned with keeping a close watch on the costs of operations, but does not address the efficiency of the operations themselves. This was evident in the following exchange:
“Mr [Poulton], am I right in thinking that your role was in some respects as a conduit between the operational people who were making decisions about what needed to be done and what needed to be spent, and the reporting chain up to [the CEO of the operator] and to [the applicant]?--- Yes, in some respects.
And that’s because without operational expertise it would have been very hard for you to query operational people about the wisdom or lack of wisdom in doing what they were proposing?--- No, our focus was more on whether the proposals were deliverable. So, for example, if they were proposing to spend an amount that required a contract process to be run in a period of time that didn’t allow for that, we would provide guidance on that. But, no, I’m not an engineer or a production operator or logistics specialist, so I couldn’t comment on the operational requirement or otherwise.” – t 2-46.
- Mr Freeman, although also an accountant, was older, and a different style of manager. He impressed as more robust and businesslike. He had “extensive port and infrastructure services related experience” from 2003 before becoming CEO of APO in 2016. From his evidence it seems that he was more able to, and concerned to, look at the overall operations of the terminal to address inefficiencies and poor systems.
- I think this point of distinction between MrFreeman and MrPoulton is illustrated in their evidence about the idea of an asset management and strategic maintenance plan for the terminal. There has never been a formal asset management strategy or maintenance plan for the terminal. Maintenance is simply based upon a series of rolling work orders based on the manufacturer’s recommendation for any piece of machinery or equipment used in the terminal – t2‑37.
- When MrPoulton was asked about the way maintenance was managed he first said that, “in terms of the specifics of the plan, I’m probably not best placed to comment on how it operated” – t 2-26. He said he was not concerned about the lack of formal asset management strategy. He thought that the system of simply generating work orders based on manufacturer’s maintenance guidelines for each piece of equipment in the plant was a sufficient strategy – t 2-28.
- In the 2017/2018 budget an allowance was made to implement a strategic maintenance plan at a cost of $634,000. Mr Poulton explained that he had been away on leave when this had been achieved. However, he saw it on his return and thought this was a reasonable figure to spend. He explained that the Maintenance Manager had told him that the implementation of a plan would allow the plant to rationalise the workforce, “He did quote figures of as high as 30 per cent in terms of maintenance hours … and so in the context of the maintenance labour budget, it seemed like a worthwhile area to explore” – t 2-36. Mr Poulton was not aware of any reason why a plan like this could not have been prepared and implemented in earlier years.
- On the other hand, Mr Freeman thought that the terminal ought to have had a formal asset management strategy – t 3-65. He explained the amount allowed to implement an asset management strategy in the 2017/18 budget ($634,000) only related to phase1. Mr Freeman expected implementation of such a strategy to cost two or three million dollars in total – t 3-66. He thought that was a worthwhile spend in terms of the efficient operation of the terminal – t3-66, and that such a strategy would provide a guide as to expenditure over the longer term – t 3-65.
- Mr Freeman also had a view that in terms of planned maintenance, the operator was using “more contractors [than] I was comfortable with and there had been a reliance over time of putting contractors on through a company called WorkPac” – t 3-68.
- Speaking about the above concerns, his evidence was that, had he been in charge of the terminal five years earlier, these things would have been addressed five years earlier – t 3-68.
- A second contrast in attitudes is evident in relation to the outdated logistics system used by the operator to manage the incoming coal, through its stockpiling and reclaiming, to its being loaded onto the ships. Mr Poulton said that he was aware of a desire to introduce an automated, computer based system for the logistics department which liaised with users, rail companies and shipping companies to arrange coal deliveries to the terminal, and from the terminal, in an orderly way – tt2‑41-42. However, he was not particularly familiar with what difference this would make. He understood other terminals, for example, Dalrymple Bay, had an automated system – t 2-42. There was an attempt by the applicant to develop such a system for the terminal at Abbot Point but it was unsuccessful – t 2-42. At the time Mr Poulton left the operator there was an allowance for it in the capital program for the future – t2-43. The costs of the unsuccessful program to introduce it were borne by the applicant, and MrPoulton said they were about five and one-half million dollars – t2‑43.
- Mr Freeman hoped to achieve the introduction of a computer logistics information system rather than spreadsheets to organise the rational arrival and departure of coal from the terminal. He was surprised that the terminal was still using spreadsheets to organise these matters manually – t 3-68.
- On a separate topic, Mr Freeman’s evidence was that when he joined the operator in October 2016 there had been audits by the operator itself, or the applicant, as to such matters as safety and IT, and there had been external consultants who had made condition assessments of parts of the operation, but there had been no external reviews of the systems of work employed by the operator – t 3-64. Mr Freeman’s initial familiarisation with the business of the operator led him to conclude that there was room for improvement in the efficiency with which the terminal was operating – t3‑65. He thought that the main cause of that was the dispute between the owner and operator which had caused a reduction in costs spent on the terminal in the 18 months prior to October 2016 –t3-65.
- Clearly enough, Mr Freeman’s view soon after he arrived at the terminal was that improvements could be made to the efficiency with which the terminal operated and he outlined various strategies in his first five year budget which he hoped would achieve this. There was no evidence that these strategies had been implemented or that they had been successful.
Evidence of Expert Economists
- The respondents (jointly) called Mr Houston, an economist, on the cl 7.6(b) issue. The applicant objected to this evidence on various grounds, including that it was theoretical and irrelevant, but itself called Professor Grey, another economist, of an even more academic bent than Mr Houston. I found the evidence of both witnesses of limited value. They gave opinions as to what economic theory might or might not say based on a partial understanding of the facts of this matter and assumptions not made out in the evidence. At times both witnesses tended to swear the issue. These matters offend the well-known rules as to opinion evidence so that, in large part, their evidence was inadmissible. In so far as the evidence of the economic experts raised matters which could sensibly bear upon whether or not there had been a demonstration in accordance with cl 7.6(b), I discuss these matters below. The caveat at  applies.
Terms of the Contracts Between the Owner and Operator
- The two operating agreements were exhibited to Mr Poulton’s affidavit of 12February 2019. They do not differ in terms of material obligations and I will refer to the provisions of the original contract.
- The operator was to maintain records and provide them to the owner – cl 9.3. The operator was to perform services under the contract “competently, diligently, expeditiously, [in accordance with the owner’s requirements] and in accordance with Good Operating and Maintenance Practice” so that the terminal was at all times maintained and operated to achieve “optimum reliability and efficiency” and to achieve “optimum effective life” of the terminal – cll 10.1 and 10.2. The owner could designate a qualified person to audit the operator’s “systems and procedures”, whether “financial, technical, environmental” or otherwise – cl 20.2. The operator was obliged to report to the owner monthly on Annual Operation Maintenance and Capital Plan and Budget issues – schedule 3, appendix 6.
- Schedule 3, appendix 7 contained a set of key performance indicators and cl 7.1 of that schedule provided that the operator’s performance would be assessed against those key performance indicators as part of the preparation of the Annual Operation Maintenance and Plan and Budget process. It was further provided:
“Key Performance Indicators are intended to provide a high level indication of the effectiveness of and impacts on the delivery of the Services. The Operator must use all reasonable best endeavours to achieve compliance with Key Performance Indicators as from time to time established pursuant to this Specification.”
- Mr Poulton’s evidence was that the operator did take its obligations under the contract seriously and there were frequent, regular and systematic reviews of the operator’s budget and challenge by the accounting staff employed by the operator to the operational staff about budgetary matters. I accept this. However, the major qualification is that just discussed: Mr Poulton kept a close watch on the costs of the operation, but there is no evidence that until Mr Freeman arrived in 2016 anyone was concerned with the efficiency of the operations. There is no evidence that, before his departure, Mr Freeman succeeded in making changes which made the terminal more efficient.
- Further, so far as fear of litigation to enforce the contractual obligations is relevant to consider as an incentive to comply with the contract, I think the reality must be that once the terminal and the operator were owned by Adani, there was little likelihood that the operator feared any risk of litigation, or other meaningful sanction, if it did not fulfil its contractual obligations.
- While the operating agreement no doubt provided some incentive to operate efficiently, the evidence relied upon by the applicant to show what was done to comply with the contract was that of Mr Poulton and Mr Freeman. It addresses the budget forecasting process, and the review of budgetary matters, but as discussed above, not matters going to operational efficiency.
- Mr Houston said that, for various reasons, while Glencore was the operator it had an incentive to allocate common costs as part of the operating budget of the terminal (and thus into the OFC and OVC) instead of where they truly belonged, in some other part of the overall Glencore operation. This idea was relied upon by the respondents as something which tended to show the unreliability of Mr Fenton’s assumption that the OFC and OVC charged when Glencore was the operator were reasonable having regard to the efficient operation of the terminal.
- Mr Poulton’s evidence was that he never saw evidence of the type of activity MrHouston speculated about. He would have regarded it as improper. As a matter of accounting practice within APB, including common costs in the operator’s budget could only have been achieved if Mr Poulton had been complicit in that action. He says this definitely did not happen. I accept his evidence. He said that his observation of Glencore’s financial systems was that they provided a “transparent” methodology for the provision of such shared services. He gives considerable detail as to this, including exhibiting relevant documents.
- Not only that, the evidence is that when Glencore was replaced with the Adani operator, the operator’s costs increased in several respects because of the advantage the operator was receiving from sharing services that were part of the wider Glencore operation.
- Mr Houston also had the idea that the Adani operator was conducting activities other than operating the terminal and had an incentive to include costs of those activities in the operator’s costs, and thus ultimately in the OFC and OVC. Mr Poulton said that the Adani operator conducted very limited activities other than operating the terminal; that those activities were funded by another Adani company, and that care was taken to see that they were not included in the operator’s costs. Mr Freeman said that APO wanted to develop independent tug and rail businesses centred on the terminal, but that “very little” was done as to this in the year 2017/2018 and that less than $1million was spent on it in 2018/2019 – t 3-69. In accordance with Mr Poulton’s evidence, I work on the basis that this amount was not included in the OFC and OVC. Mr Freeman did say that the Adani Group head office did charge the operator $500,000 as salary costs in support of the terminal operations in the financial years 2018 and 2019. Whether that was a legitimate charge was not explored in the evidence.
- Mr Houston also speculated that the Adani Group would have a strong incentive to include shared costs in the expenses of the operator, and thus, ultimately, in the OFC and OVC. Mr Poulton says he saw no evidence of this. He explained that the accounting systems of the operator are separate from those of the other companies in the Adani Group, so that to do so would require an invoice from the Adani company and a paper trail making it evident that there had been some interference. Further, the operator pays invoices only against its own purchase orders, so in order for another Adani company to use the operator to bear its costs, an employee of the operator would be required to raise a purchase order.
- In all, there seemed nothing substantial in Mr Houston’s speculative ideas about this topic.
- Mr Houston thought that the operator had a cash flow incentive not to capitalise items but to recover them in the financial year they were incurred. More broadly, he thought that the operator’s capitalisation policy needed to be reviewed before any opinion could be formed as to whether or not the applicant had demonstrated what was required by cl 7.6(b) of the user agreement.
- Mr Poulton said that, contrary to Mr Houston’s assumption, from a purely cash flow perspective, the operator’s incentive was to treat expenses as capital because of its reimbursement arrangements with the owner. He was not challenged on this.
- Mr Poulton said that for the duration of his employment with APB there were well established procedures to categorise, allocate and charge expenditure as capital. He explained this in detail. He exhibited the relevant guides used in the accounting department of the operator. He explained that the operator’s staff were trained as to use of the guide. Decisions to treat expenditure as capital were reviewed within the “commercial team”. There was a system for approval of capital expenditure which required approval by each of four managers, including himself, his superior (the operations manager) and the owner. Mr Houston refers to three categories of expenditure from the 2018 financial year which arouse his suspicion. MrPoulton deals with each of them.
- Again, I find there is nothing relevant in the matters raised by Mr Houston.
Allocation to Fixed and Variable Categories
- In a similar vein, Mr Houston questioned whether or not any view could be formed as to a demonstration within the meaning of cl 7.6(b) unless the operator’s policy as to the allocation of costs as either fixed or variable was reviewed.
- Mr Poulton explained that from the time he commenced working with APB in 2012 he had considered the operator’s “approach to the allocation of operating costs as fixed or variable costs to be somewhat arbitrary and I had been of the view that a more considered approach to this allocation was warranted”. Accordingly, prior to the preparation of the budget for the financial year 2016 he conducted a review of the operator’s policies in this regard. He gives details as to how he conducted this review, and he gives the view that the process was better after the review than before it. He attended a user group committee meeting in June 2015 to present the changes as a result of his review and says that he never became aware of any objection raised by any user.
- So far as one can glean from Mr Poulton’s affidavit, his review seems to have meant that more costs were allocated as fixed costs than had previously been the case; see the split in the period 2013 to 2015 (70 to 75% fixed costs and 25% to 30% variable costs) as against the split in 2016 (86% fixed costs and 14% variable costs).
- I cannot see that Mr Houston raises any substantial matters in relation to this topic.
Market Conditions and Payment for Operator’s Services
- Mr Houston pointed out that the operator of the terminal, like the owner of the terminal, operated in monopoly, or monopoly-like conditions. It was working under a long‑term contract, and there were high barriers to entry for any other entity wishing to undertake the task. Now that Adani owns the terminal and has appointed a related company operator, I think the barriers to entry must be regarded as nearly impregnable.
- Furthermore, users paid the operator’s costs, as they were essentially passed through by the owner. As the owner was being reimbursed for the costs, there was less incentive for the owner to scrutinise them as carefully as it would if it were paying the costs itself. The operator is paid a margin of 10% on its costs. This too is paid by the users on a pass‑through basis by the owner, so that the comment about scrutiny applies here too. Further, the 10% margin meant that the operator was rewarded if it spent an unreasonable or inefficient amount of money (so long as that was not detected), because it would earn 10% profit on each inefficient dollar. Until AMPL becomes liable to pay handling costs (1 July 2022) these last three factors are sensible concerns.
- Mr Poulton responded directly to Mr Houston’s criticism that there was an incentive for the owner to avoid the time, effort and cost associated with applying close scrutiny to the operator’s costs. His evidence was that between 2012 and 2016 the owner’s representative engaged in close scrutiny of the operator’s cost budgets. Mr Poulton acknowledges that, in the last part of the 2016 financial year and in the 2017 financial year, that scrutiny reduced because the owner and Glencore were in dispute.
- My considerations and conclusions at paragraph  to  above bear on this issue. Mr Poulton’s evidence, just discussed, answers MrHouston’s concerns only until the last part of the 2016 financial year. Of course, that is the very time I am concerned with, ie, the financial years 2018 to 2019. Once Adani owned the operator, the incentive which Glencore had to minimise costs no longer existed. Until AMPL becomes a user of the terminal, there is no disadvantage to the Adani Group generally if the operator’s costs are higher than they need be; to the contrary. I think these considerations are like those discussed at -; they support my conclusion that the applicant has not made the demonstration required by cl 7.6(b), even on its evidence in this proceeding.
VTHE MOST FAVOURED NATION CLAUSE
- The Sonoma User Agreement provided as follows at cl 25.1(a)(v):
“… No other Access Holder Presenting Coal for Handling at the Terminal will be charged less than the User is charged at that time for a substantially similar commercial arrangement. For the purposes of comparison of charges, amounts payable for TIC, TPC, HCF and HCV, and any rebates receivable by the User and other relevant Access Holder will be taken into account.” (my underlining)
- Since 1 July 2017 the applicant has charged one of the other users of the terminal, who is not a party to this litigation, the same HCF and HCV as it has charged Sonoma, but has charged that other party a lower TIC than Sonoma. The other party uses the terminal pursuant to a standard user agreement. Sonoma’s user agreement is in terms close to the standard user agreement. Sonoma claims that this conduct is in breach of cl 25.1(a)(v). I find that that is so.
Preliminary Point, cl 13.2
- Before giving my reasons for that finding I must deal with a preliminary point raised by the applicant. The applicant contends that I should not deal with this part of the proceeding because of cl 13.2 of the Sonoma user agreement, which provides:
“… neither [the owner] nor [Sonoma] may commence any court proceedings or arbitration in respect of any dispute arising out of or in connection with this Agreement until that party has given notice under Clause 13.1 and complied with the requirements of this Clause 13.2 and Clause 13.3.”
- The remainder of cl 13.2 provides that after service of a cl 13.1 notice of dispute, the senior executives of the owner and the user must confer to attempt to resolve the dispute. If this fails, cl13.2 allows either party to give a notice requiring a formal conciliation process. That conciliation process is the subject of cl 13.3. If the conciliation fails, the parties may agree to refer the dispute to arbitration, or either party may pursue litigation – cl13.3(c).
- In my view cl 13.2 does not apply because Sonoma has not commenced Court proceedings in relation to a breach of cl 25.1(a)(v). It is the applicant who commenced this proceeding. Effectively the cl 25.1(a)(v) point is raised by way of counterclaim.
- In any case, I have a discretion whether or not to refuse to deal with Sonoma’s cl25.1(a)(v) point. In my view this is a plain case where the dispute ought to be dealt with by the Court. The dispute plainly exists. It exists in a context where both parties are large, well-resourced, and represented by senior counsel. If there were an out-of-Court solution to the problem, one would expect that it would have been reached. The evidence about the dispute is all before the Court. The dispute is brought by way of counterclaim and is obviously closely and directly related to the subject matter of the proceeding brought by the applicant. Refusing to deal with the point would delay its determination; duplicate work which has been undertaken in this proceeding, and further multiply dispute resolution procedures between these parties where there has already been an arbitration between them, as well as this proceeding.
Construction of cl 25.1(a)(v)
- Contrary to the applicant’s argument, I am satisfied that Sonoma has made a proper comparison between what the other user is charged and what it is charged. Where the HCF and HCV are the same, the only relevant point of difference is in the TIC, and the other user is charged a lesser rate of TIC per tonne than Sonoma.
- The applicant next raises cl 6.3(a)(ii) of the Sonoma user agreement. This clause provides that if a user disputes the quantum of an invoice from the owner, the user may pay only 50% of the disputed portion until the dispute is resolved. Here Sonoma, like the other respondents, has been paying only 50% of the handling charges invoiced by the applicant since 1 July 2017 on the basis that it disputes the applicant’s entitlement to levy any handling charges until it has made the demonstration required by cl 7.6(b). As a result, the applicant argues, that in fact Sonoma has been paying lesser “amounts payable for TIC, TPC, HCF and HCV” within the meaning of cl25.1(a)(v).
- In my view this argument must fail. Clause 25.1(a)(v) focuses on amounts which the user is charged. Here there is no doubt that the full HCV and HCF have been charged to Sonoma since 1 July 2017. For this period Sonoma has been charged more than the other user. The fact that Sonoma had, and continues to have, a lawful reason not to pay the handling charges does not derogate from that point. The clause is concerned with what the owner is entitled to charge Sonoma.
- The applicant advances a similar, but separate, argument that if Sonoma’s TIC ought to be reduced from 1 July 2017 because damages ought be paid to Sonoma for unconscionable conduct, the amounts of money Sonoma will pay under its user agreement will accordingly be less than the amounts which the other user will have paid, and will continue to pay (in the case of TIC until 2022). The applicant says that in these circumstances Sonoma would be paying a lesser amount than the other user, or would be receiving a rebate which cl25.1(a)(v) requires to be taken into account.
- Sonoma has taken the position that, if it were to succeed in relation to unconscionable conduct, the damages which it obtains for breach of cl25.1(a)(v) would be nominal. In my view, that position involves a partial concession, rather than being based on a strict interpretation of cl 25.1(a)(v). As explained above, the clause focuses on what is charged, not on what is paid, and therefore the applicant’s argument is unmeritorious.
- The other relief Sonoma claims is an injunction “restraining the ongoing breach of clause 25.1(a) by the applicant”.
- At this stage I would prefer to make a declaration. If it is necessary to do more than that, I will hear the parties further on the terms of any injunction sought. I am prepared to make a declaration that since 1 July 2017 the applicant has been in breach of cl25.1(a)(v) of the user agreement it has with the fourth respondent because it has charged the other user, Clermont Coal Mines Ltd, less than Sonoma is charged to handle the coal which it presents to the terminal under its user agreement. A cause of action in contract is complete once a breach is proved and, where parties are in a continuing relationship, as the applicant and Sonoma are, there is utility in making a declaration which will resolve the construction point which gives rise to this part of the dispute between the parties.
Substantially Similar Commercial Arrangement
- In a further argument the applicant contends that the differences between the Sonoma user agreement and the other user’s agreement are such that Sonoma and the other user could not be considered to have “substantially similar commercial arrangements” with the applicant for the purpose of cl25.1(a)(v). In support of this argument the applicant relied on 13 clauses which are listed in Annexure B to its final submissions.
- One of the clauses so identified was cl 25.1(a)(v) itself. I think it is self-evident that to regard this clause as meaning that the Sonoma agreement was not substantially similar to the agreement of the other user would render the clause nugatory.
- Of the remaining 12 differences identified in Annexure B to the applicant’s final written submissions, six differences were differences between the standard user agreement in 2008 when the Sonoma agreement was executed, and the Sonoma agreement. Sonoma argued that, if cl25.1(a)(v) was to have any operation, those differences could not render the Sonoma agreement not substantially similar to the standard user agreement. I do not accept that argument as a matter of logic. I consider that all 12 clauses relied upon by the applicant must be examined.
- Before turning to the individual clauses relied upon by the applicant I note that, apart from these clauses, the agreements were the same: long-term, take-or-pay agreements for handling coal at the terminal for which the users paid infrastructure charges and handling charges calculated according to the same formulas. Apart from the differences discussed below, the rights and obligations of the other party and Sonoma are regulated by the same provisions as have been outlined and discussed in the rest of this judgment.
- Clauses 5.1(c), 8.1(g) and (h), and cl 26.4 all deal with the calculation of TIC or TPC in circumstances where there is an expansion of the terminal’s handling capacity. Clause 5.1(c) of the Sonoma agreement deals with a “one-off” situation occurring at or about the time Sonoma entered into its agreement (2008). It makes a minor pricing adjustment for that expansion. Clauses 8.1(g) and 8.1(h) are clauses contained in the user agreement of the other user. They deemed a major terminal expansion, called the X50 expansion, to occur on 1 July 2012. This means that the calculation of the other user’s TIC and TPC was to be affected from that date. The Sonoma agreement did not contain these clauses. Therefore, pricing under the Sonoma agreement remained unaffected until the X50 expansion did in fact take place. Depending upon when the X50 expansion took place, this might, or might not, have conferred a pricing advantage on Sonoma for a short period of time.
- Clause 26.4 is in the other user’s agreement. It deems some of the owner’s obligations to have been satisfied in relation to the X50 expansion. There is no equivalent clause in the Sonoma user agreement. Depending upon whether or not the obligations were in fact satisfied, there may have been an advantage to Sonoma on a comparison between the two agreements.
- In my view these three clauses which deal with expansion had the potential to give Sonoma a commercial advantage for a short, finite period of time if certain events occurred. These relatively minor differences do not in my view mean that the two user agreements are not substantially similar commercial arrangements within the meaning of cl 25.1(a)(v) of the Sonoma agreement.
- The fourth clause relied upon by the applicant is cl 8.1(a)(v)(A) of both the Sonoma agreement and the other user’s agreement. Both clauses provide for circumstances where there is a dispute about what the proper amount of TIC is. The Sonoma agreement provides that the TIC which applied at the last relevant review date will continue to apply until the parties agree on a new TIC, or until a new TIC is determined. The clause in the other user’s agreement provides that until the dispute about the TIC is determined, the other user must pay the amount the applicant asserts is correct. In the context of the entire bargain contained in the user agreements I do not regard this clause as showing that the Sonoma user agreement and the user agreement of the other party are not substantially similar commercial arrangements within the meaning of cl25.1(a)(v).
- The fifth and sixth clauses relied upon by the applicant are cll 10.1 and 10.6 of the Sonoma agreement. Clause 10.1(a) allows Sonoma to reduce its annual maximum tonnage applying after 1 July 2017 up to a maximum of 2 million tonnes per annum without penalty. Clause 10.1(b) allows a reduction in annual maximum tonnage without penalty after 1 July 2019. Under cl 10.1(b), the reduction can be to nil. There is no equivalent in the other user agreement.
- As the background facts in relation to QCPL’s desire to terminate its arrangements with the terminal owner show, the flexibility provided by cl 10.1 in the Sonoma agreement is a potentially valuable right. The right in Sonoma pursuant to cl 10.1(a) accrued nine years after the Sonoma agreement was made, and the right at cl 10.1(b), 11 years after the Sonoma agreement was made. The term of the Sonoma agreement was 16 years and seven months. In effect cl10.1 allowed Sonoma to reduce its obligations and, in practical terms, to bring its user agreement to an end at a time earlier than it would expire.
- The term of the other user agreement commenced in June 2014 and ends in June 2028, that is a 14 year term. Whether the Sonoma agreement lasts for 16 years or 11, I do not think that the different lengths of the terms of the two agreements mean that they are not substantially similar commercial arrangements. I think the flexibility which is allowed to Sonoma under its user agreement is a real difference between the two agreements and I think, of all the differences the applicant has relied upon, this is probably the most significant. It allows real advantages to Sonoma depending upon considerations related to its coal resource, but also in relation to market conditions. Even so, I am not persuaded, having regard to the similarities between the Sonoma agreement and the other user’s agreement in all other respects, that this difference means that they are not substantially similar commercial arrangements within the meaning of cl 25.1(a)(v).
- Clause 10.6 of the Sonoma user agreement provides that the owner could not charge TIC or HCF in relation to coal which Sonoma notified it could not present, to the extent that the owner provided that capacity to another user. This clause does give Sonoma an advantage over the other user whose rights are limited to those found at cl 10.1 (dependent upon the owner’s absolute discretion) and cl 10.2 (subject to delay and dependent upon the owner’s discretion) which might be used to bring about a similar result. However, in the scheme of the whole user agreement, I do not see this advantage as being so significant that the Sonoma agreement is not a substantially similar commercial arrangement to that which the applicant has with the other party.
- The seventh clause relied upon by the applicant is cl 12.4. In both the Sonoma agreement and the other user’s agreement, cl 12.4(a) gives the user a right to claim from the owner loss and damage incurred as a result of delay in handling the user’s coal. Clause 12.4(a) provides that the amount of loss and damage which a user may claim is capped at the “Recovery Amount”. The words used to define Recovery Amount differ slightly between the two agreements. Sonoma is entitled to recover the amount for which the owner “is actually indemnified by the operator and/or another third party” in respect of any claim Sonoma makes. The other user is entitled to the amount which the owner “actually recovers from the operator and/or another third party” in respect of the claim made by the user. In my view, although slightly different words are used in the two clauses, their effect is the same. If I am wrong about that, I do not think the difference is enough to mean that the commercial arrangements between Sonoma and the owner are not substantially similar to those between the owner and the other user.
- The eighth and ninth differences relied upon by the applicant relate to cll 14.2(c) and 14.3(b) of the other user’s agreement. In both contracts cl 14.2 deals with the user’s right to assign its rights and obligations under the agreement. Both the other user and Sonoma have a right to assign with the consent of the owner, which must not be unreasonably withheld – cl 14.2(a). Clause 14.2(b) provides a qualification on that right which is common to both agreements. There is an additional qualification in the other user’s agreement: unless the owner approves, in its absolute discretion, an assignment by the user must not give effect to any arrangement which requires the assignee, or any third party, to make a monetary payment, or give other consideration, to the user in respect of assigned rights to have coal handled at the terminal.
- It seems to me that the Sonoma agreement is more beneficial in this regard than the agreement of the other user. However, having regard to the overwhelming similarity between the agreements otherwise, the difference is not so significant that the Sonoma agreement and the agreement of the other user are not substantially similar commercial arrangements.
- Clause 14.3 of both agreements allows the user to make an arrangement with the owner for a third party to present coal for handling although there has not been a formal assignment in accordance with cl 14.2. Both parties have identical rights to do this – cl 14.3(a) of both agreements. However, the other user is subject to a condition at cl 14.3(b) to which Sonoma is not subject. The other user is not entitled to permit a third party to present coal for handling at the terminal if the quantities of coal which would be so presented are available as a result of the other user’s breach of a particular warranty at cl 25.2 of that agreement. Further, the other user is not entitled to permit a third party to present coal for handling at the terminal if there is some arrangement whereby that third party, or someone related to it, will give monetary or other consideration to the user in respect of the coal to be so presented.
- Again I think that the absence of an equivalent to cl 14.3(b) in the Sonoma agreement does give Sonoma a commercial advantage not enjoyed by the other user. Again however, in the overall context of a comparison between the two user agreements this difference is not so great as to mean that the Sonoma agreement and the other agreement are not substantially similar commercial arrangements.
- The tenth difference between the user agreements relied on by the applicant is the presence of cl 23.1 in the Sonoma agreement. This clause is needed in the Sonoma agreement due to the fact that the owner is dealing with several joint venture participants. There is no equivalent in the other user agreement because there the other user is not a joint venture. There is nothing in this point of difference.
- The eleventh difference relied upon by the applicant is concerned with the Credit Support provisions. The owner has greater rights under the user agreement with the other user because the circumstances in which the owner is to be provided with Credit Support are somewhat wider, although it must be said that the differences are not great. Furthermore, under the agreement with the other user, the amount of Credit Support which is to be provided is the owner’s discretion, whereas in the Sonoma agreement it is limited to a monetary figure, or by a formula.
- Once again, while it may be accepted that the Sonoma agreement is different from the agreement with the other user, the differences are relatively minor in the context of a comparison of the entire agreement and do not mean that the two agreements are not substantially similar commercial arrangements.
- The last difference relied upon by the applicant is found at item 2.2(b) of schedule 7 to both the Sonoma user agreement and the other user agreement. This part of schedule 7 is concerned with the quite complex calculation of the TIC on five yearly reviews. In the Sonoma agreement, depreciation of terminal infrastructure is on the basis that the remaining life of the assets is a maximum of 35 years from July 2007. In the other user agreement, depreciation is to be calculated on the basis that the remaining life is a maximum of 25 years from July 2007.
- Once again, the difference is not so significant that it means that Sonoma and the other user do not have substantially similar commercial arrangements with the owner.
- Finally in relation to this matter, several of the clauses identified by the applicant and discussed above give Sonoma an advantage over the other user on a comparison between the two agreements. In these circumstances, as well as considering each individual clause, it must be right to consider the cumulative effect of the differences in order to see whether or not Sonoma and the other user have substantially similar commercial arrangements with the owner. Even when the cumulative effect of the differences identified by the applicant is considered, I am still of the view that Sonoma and the other user do have substantially similar commercial arrangements with the owner.
- I will hear the parties separately as to interest and costs.
- On 20 May 2020, whilst writing my Reasons for Judgment, I became concerned that submissions by the second to fourth respondents went beyond the pleaded case as to unconscionability. The submissions acknowledged that it says little as to whether or not there has been unconscionable conduct to state that a party is pursuing its own commercial interest with a view to profit. They continued:
“326.However, [the applicant] was not just acting in its own self‑interest in this case, as it seeks to contend.
- It was also acting in the interests of AMPL, a competitor of the users. Doing so was not justified by its self-interest.
- The purpose of [the applicant] terminating QCPL’s agreement was, self-evidently to obtain an upfront payment from QCPL to pay down its secured debt, and then to enrich itself at the expense of the users by charging the remaining users as if it had not received the lump sum and on the basis of a reduced contracted tonnage amount.
- Of course, an additional purpose was obviously to provide AMPL access to the terminal. While providing access to AMPL was not, on its own repugnant to the framework of the agreement, the fact that [the applicant] did that does not justify its conduct or bring the QCPL transactions within the scope of a valid exercise of power under cl 10.1(a) [of the user agreements].
- … the personality of PCQ, the counterparty, was obviously important to the users – and it changed in a way not contemplated by the parties at the time they entered into the user agreements.
- … The users would have little reason to be concerned about another state entity taking over as the monopoly service provider for port services for coal in the area surrounding the terminal. But they would have reason to be concerned that a private operator might seek to extract greater profit from the agreements to which they had signed up to and from which they could not withdraw.
- It is true that the users, by entering into the user agreements, agreed to be bound by cl 10.1(a) of the user agreements. But in the absence of a user having a right to terminate their agreement, such changes were only likely to occur if a user chose not to renew their agreement or became insolvent.
- What was not in the contemplation of the parties was that PCQ would take advantage of the users’ vulnerability to the risks of changes in the total AMT by:
- (a)PCQ terminating another user’s agreement for the purpose of enabling a related party of PCQ to have access to the terminal; and
- (b)PCQ terminating another user’s agreement for the purpose of enriching itself at the expense of the users, by taking a lump sum payment from QCPL and then charging the remaining users as if it had not received the lump sum and on the basis of a reduced contracted tonnage amount.
- However, [the applicant] had other purposes in mind. As set out above, the real reason that the transactions were entered into was because [the applicant] had an interest in obtaining an upfront payment from QCPL to pay down its secured debt, obtaining that money a second time, charging the other users for the same amount and because AMPL also wanted access to the terminal.
- Taken as a whole, those were not legitimate reasons to enter into the transaction.
- The users entered into the agreement in circumstances where they had no choice but to use the terminal … But they did so at a time where:
- (a)Their contractual counterparty was a GOC, with no interest in competing with the users, and which provided a principled way in which PCQ was to be remunerated, and the users were to be charged …
- (a)[the applicant] sought to take advantage of that vulnerability of the users by utilising QCPL’s desire to exit the terminal to enable a company within its corporate group to obtain capacity at the terminal, and at the same time, enrich itself at the expense of those users (to pay its secured debt).
- (b)Those purposes were not just extraneous to the purposes envisaged both by the user agreements and those apparent in the regulatory environment to which the terminal could have been subject. They were so far outside the spirit and objective intention of the contract, that there is no possibility that the parties to the original agreement would ever have agreed to it, let alone raised it.
- (c)And, [the applicant] did so in a way that not only ensured its enrichment – but ensured that it was at the expense of the users. That is because as the users could not increase their capacity for the five years to make up the additional costs imposed on it by shipping more coal, the users had to bear the cost of QCPL dropping out.
- By providing that capacity for AMPL only six years in the future, [the applicant] prevented the users from increasing their capacity at the terminal. This is significant.
- [The third respondent] requested, following the QCPL transactions, to take up additional capacity from FY18/19 onwards. Although QCPL was released from its capacity from the start of FY16/17, the amount of capacity requested by [the third respondent] would have made up for more than half of QCPL’s capacity that was lost from the terminal.
- Had that been able to occur, [the applicant] would still have received its payment from QCPL. But [the applicant’s] revenue requirements, and the operating cost, would have been spread among more capacity and [the third respondent] would have had the benefit of shipping more coal.
- But because [the applicant] permitted AMPL to take the capacity in this way, that could not occur. [The applicant] offered [a respondent] access until the end of FY19/20, but no more. Therefore, it is true to say the way [the applicant] chose to structure the deal manufactured the risk of harm eventuating for the users.” (underlining in original)
- The submissions were to the effect that there were two factual matters which bore on whether or not the impugned conduct was unconscionable.
- (a)That the applicant was acting not just in its own interests, but also those of a related company AMPL, which was to be in the future a coal miner, a user of the terminal, and competitor of the respondents, and
- (b)by structuring the QCPL transactions so that there were only five years of excess capacity at the terminal (between 2017 and 2022) the applicant made it uncommercial for the remaining users to respond to the new circumstances and increase their export of coal through the terminal in the five year period when they would be charged more for TIC and HCF.
- I raised my concerns that these matters were beyond the pleadings and asked for the parties’ response.
Second to Fourth Respondents
- The second to fourth respondents submitted that their pleading did sufficiently raise the two matters I was concerned about. The applicant contended it did not.
- As a preliminary matter I observe that the pleadings in this case are unusually extended by reason of the fact that the applicant commenced the proceeding by originating application claiming a declaration in relation to the issues which are the subject of chapters II and IV of my judgment. That is, it claimed declarations which would, if it were successful, remove obstacles to the respondents’ paying handling charges. When pleadings were ordered, these issues became the subject matter of the statement of claim, a relatively brief document of seven pages. It was not until the respondents filed defences and counterclaims that the unconscionability issue was raised. Articulation of issues going to unconscionability was therefore found, predominantly, in the defences and counterclaims, and replies and answers. However, as the second to fourth respondents’ submissions on this matter shows, some significant points are found only in the rejoinders.
- The defence of the second to fourth respondents was structured in such a way that many of the facts material to its unconscionability case had already been pleaded by the time the pleading came specifically to unconscionability – paragraphs 47-49 of the defence. Paragraph 48 pleads conduct of the applicant by reference to various of the foregoing paragraphs and then, at subparagraphs (a)-(j), pleads the circumstances in which it is alleged that that conduct was unconscionable.
- One of those circumstances was:
“(h)the inability of the [second to fourth] respondents to offset the increase in HCF, TIC or TPC payable by increasing production and utilising any of the tonnage that formed part of the QCPL [Annual Maximum Tonnage], either at short notice, or in accordance with the limited terms upon which [the applicant] would approve any increased access to the terminal. …”
- I accept that that is a sufficient pleading to enable the submissions referred to at [2(b)] above to be made. I note that the affidavit evidence relied upon by the second to fourth respondents in support of that pleaded contention was delivered to the applicant in April 2019. No objection was taken to that part of the evidence by the applicant at any time, and indeed, there was never any objection to the submissions made on the basis of these factual matters.
- The matter at [2(a)] above is not pleaded by the second to fourth respondents as one of the circumstances which made the conduct relied upon unconscionable; ie, it is not the subject matter of one of the subparagraphs at paragraph 48 of the defence.
- At the preliminary part of paragraph 48 of the defence, where reference is made to the applicant’s conduct already pleaded, there is a reference to, “conduct pleaded in paragraphs 29-38B, and 43(c) and 46A, or 45 and 46F herein”. Paragraph 30 of the pleading, in describing the QCPL transactions, provides as follows:
“30.Neither QCPL nor [the applicant] had grounds to terminate the QCPL user agreement pursuant to either clauses 3.3 or 3.4 of that agreement.”
- In response to paragraph 30 of the defence, but not paragraph 48 of the defence, the applicant pleaded:
- (a)says that neither QCPL nor [the applicant] purported to exercise any right of termination under clauses 3.3 or 3.4 of the QCPL user agreement, but otherwise does not admit the allegations as they raise questions of law and [the applicant] remains uncertain as to the truth or falsity of those allegations;
- (b)says further that [the applicant] entered into the novation agreement and the release agreement pleaded in paragraph 29 of the defence, as it was entitled to do, acting in its own commercial interests and in circumstances where:
- (i)QCPL approached [the applicant] to secure termination of the QCPL user agreement;
- (ii)as recorded in the recitals to the novation agreement, QCPL no longer had any need for capacity and had been unable to identify willing acquirers with demand for its capacity, and QCPL had approached AMPL to assign its capacity;
- (iii)[the applicant] was concerned about QCPL ceasing to be reputable and of good financial standing to fulfil all its obligations under the QCPL user agreement, thereby posing a commercial and financial risk to [the applicant] if QCPL was to default and then [the applicant] was not able to secure replacement tonnage on equivalent terms.” (my underlining)
- Paragraph 39A of the rejoinder said:
“39A.As to the amended paragraph 29(b) of the reply, the [second to fourth] respondents:
- (c)deny the allegation pleaded in subparagraph (iii) therein, and believe it to be untrue, as [the applicant] entered into the novation agreement and the [termination] agreement because:
- (i)in October 2016, AMPL required access to the terminal but [the applicant] could not provide AMPL with access to the terminal … from FY 22/23 onwards without reducing a user’s [Annual Maximum Tonnage] or terminating a user’s user agreement; and
- (ii)[the applicant] had maturing debt that it required further cashflow to be able to meet; and
- (iii)[the applicant] intended to use the payment it received directly from QCPL, and the payment it received from QCPL via AMPL, to meet those debt obligations and to attempt to retain those amounts as a windfall payment …” (my underlining)
- I accept that an allegation of unconscionable conduct is a serious allegation and therefore the circumstances relied upon to found it ought be clearly pleaded. In my view the proposition that the applicant was acting in the interests of AMPL by entering into the QCPL transactions is raised by paragraph 39A(b)(i) of the amended rejoinder. The matter is not specifically itemised at paragraph 48 of the pleading, and it might be accepted that it would have been better if it had been. Nevertheless I do accept the second to fourth respondents’ submissions that, “when the pleadings are read as a whole, there cannot be any doubt that the AMPL purpose is part of the [second to fourth] respondents’ case that [the applicant’s] pleaded conduct was unconscionable.” I think the pleaded case is clear enough that the applicant ought not be taken by surprise. I have regard to the principles in AON Risk Services Australia Ltd v Australian National University and Griffiths v Martinez.
- In one respect the submissions of the second to fourth respondents do go beyond the pleaded case. It is not pleaded that AMPL was or would become a competitor of the respondents. The applicant said that it would have raised factual matters as to coal markets etc, to contest this proposition had it been part of the respondents’ case. The second to fourth respondents accept this part of the applicant’s submissions. In making my findings about unconscionability I have respected this distinction and proceeded on the basis that there is no pleading or evidence that AMPL is or will be a competitor of the respondent.
- I record that the second to fourth respondents submitted, in the alternative, that if the point was not raised as part of their unconscionability case, they ought to be given leave to add a new subparagraph to paragraph 48 of their defence:
“(k)[the applicant’s] purposes for entering into the QCPL agreements, as alleged in paragraph 39A(c) of the second amended rejoinder filed on 6 March 2020.”
- I further record that had I thought that application necessary I would have granted leave to make the amendment. The amendment does not raise any new factual issue, it simply makes clearer the connection between a fact which was already pleaded by the second to fourth respondents and their unconscionability claim. It was a point which was alive at trial.
- Very detailed written opening submissions were filed by all parties. The opening submissions on behalf of the second to fourth respondents contained the following paragraphs:
“The evidence will show that there were in fact three other reasons why it was in [the applicant’s] interest to terminate QCPL’s agreement in exchange for a payment of QCPL’s future obligations.
- (a)the first is that it is self evident from its entry into the novation agreement that AMPL wanted access to the terminal and this was a mechanism by which [the applicant] could confer that benefit on AMPL.” – paragraph 67 (emphasis in the original).
“What was not in the contemplation of the parties was that the users agreed to be vulnerable to risks of changes in the total [Annual Maximum Tonnage] brought about by:
- (a)PCQ terminating another user’s agreement for the purpose of enabling a related party of PCQ to have access to the terminal …” – paragraph 272.
“As we have explained, had AMPL not obtained an [Annual Maximum Tonnage] from QCPL, there was no guarantee that AMPL would have been able to access the terminal.” – paragraph 279.
“The vice in [the applicant’s] conduct is that it sought to take advantage of an unexpected development (QCPL’s desire to exit from the terminal) to enable companies within its corporate group to compete with the users, and at the same time, enrich itself at the expense of those users. Those purposes were extraneous to the purposes envisaged by both the user agreements and those apparent in the regulatory environment which the terminal sat in the shadow of.” – paragraph 290.
- There was also a paragraph in the opening submissions filed on behalf of the first respondent to the following effect:
“However, the effect of the QCPL transactions entered into by [the applicant] is to not only sterilise substantial capacity at the terminal for a period of five years in order to benefit Adani Mining, a company related to [the applicant], but to make [the first respondent] amongst other current users, bear the resulting cost.” – paragraph 128.
- In his oral opening counsel for the second to fourth respondents gave an example of a case which he was not running; one that was more extreme and clearer than the one he was running. He said, “… if, for example, [the applicant] were a competitor of our clients and their motivation – their reason for [entering into the QCPL transactions] was to inflict some kind of harm upon us, one would have thought that was quite a strong case for saying there was unconscionable conduct”.
- It is noteworthy that there was never any objection to evidence on the basis that the respondents had not pleaded that the applicant was acting in AMPL’s commercial interests, and no objection was taken to submissions to that effect made by the second to fourth respondents, even though other objections were taken to other parts of the respondents’ submissions on the basis that they were outside the pleaded case. In telling contradistinction, at paragraph 53(f) of its reply submissions dated 27 March 2020, the applicant did take objection to the second to fourth respondents’ submissions that AMPL was a competitor:
“The [second to fourth] respondents in [their] closing submissions are  assert that Adani Mining is a ‘competitor of the users’. This was not alleged or proved. No one proved what relevant coal markets particular users were operating in and it was not relevant on the pleadings.”
UCPR rr 149 and 166
- Before moving on to consider the position of the first respondent, I need to deal with a collection of cases which the applicant said stood for the proposition that, because the pleading at paragraph 39A(c)(i) of the second to fourth respondents’ rejoinder was part of a reason for its denying paragraph 29(b)(iii) of the reply, it could not be regarded as pleading material facts upon which the second and fourth respondents rely on to make their case in the proceeding. The reason was said to be that r 166(4) of the UCPR requires a party to explain a denial, whereas the obligation to plead material facts is imposed by a separate rule – r 149(1)(b) and (c).
- The rules as to when an issue is fairly raised by a pleading predate the advent of the UCPR by hundreds of years. As a general proposition, the UCPR contains rules aimed at making the passage of civil litigation through the Courts more efficient and less technical – see r 5. It would be an odd result if it introduced a technical rule which would invalidate a pleading which was otherwise good.
- Rule166 was a new rule introduced by the UCPR with that aim. It aimed to prevent the previous practice which allowed parties to not admit or to deny allegation after allegation in a pleading simply to put the other side to proof, or to frustrate the efficient progress of a proceeding. The requirement to give a direct explanation for a denial means that a party is required to have a proper reason for denying an allegation. Secondly, the party is required to state what that explanation is, so that the other party no longer has to guess what factual dispute (or other reason) underlies a denial. The issues in dispute between the parties are thus clarified. Efficiency in litigation is promoted.
- Rule 149(1)(a)-(d) lists matters long established by the case law. At 1(e) it makes a change to the previous position in order to prevent surprise and make litigation more efficient. Nowhere does r 149 (or for that matter r 166) say that a material fact may not be pleaded in a part of a pleading which explains a non-admission or denial.
- In these circumstances it seems to me most unlikely that cases concerning rr149(1) and 166(4) would establish the proposition the applicant contends for. When the cases relied upon by the applicant are examined, it is apparent that they do not.
- The first is Gilbert v Goodwin (No 3). This is a report of ex tempore reasons given by Helman J refusing an application for further disclosure. The reasons are seven sentences long. It appears that, in providing an explanation in compliance with r166(4), a pleader referred to documents. An application was brought to compel disclosure of those documents. Helman J refused disclosure saying:
“… the respondents should not be required to produce the documents or give the particulars sought because, by referring to them by way of explanation for the respondents’ pleading, the respondents did not put the contents of those documents or the facts referred to in issue in the proceeding. In the case of a denial, the fact in issue is the fact denied. In the case of a non-admission, the fact in issue is the fact not admitted. The explanations given in the amended defence were included to comply with the rules but did not thereby create issues of fact for determination at the trial of the proceeding.
… It appears to me that the acceptance of the proposition advanced for the applicants that the direct explanations create further issues for determination at the trial of the proceeding would result in a proliferation of ancillary issues not directly relevant to the questions in issue between the parties.”
- As White J remarked in Ballesteros v Chidlow, the reasons given for the denial of an allegation in a pleading will be many and varied. In some cases there will be no possibility that they raise factual matters relevant to any pleaded issue: a denial on the basis that the opposing party will not particularise the allegation properly, or that a client or witness relevant to the matter is unavailable to give instructions in the time limited for pleading are examples. In other cases the explanation for a denial contains factual matters which do go to the issues in the proceeding. Because the reasons in Gilbert v Goodwin (No 3) do not set out the pleadings in that case, it is impossible to have a full understanding of the decision. The pleadings may well have been of the type where the explanation was not relevant to any pleaded issue. If that were so, it seems to me that the decision was correct. If that were not so, then, with respect, the very wide statements made may not be applicable beyond the facts of that matter.
- Often facts pleaded are denied on the basis that they are not true. Soon after the introduction of the UCPR it was held that such a statement did not, by itself, provide a sufficient explanation to satisfy the requirement at r 166(4). It has become common, therefore, for the pleader to say that an allegation is denied because it is not true and include, in that part of the pleading, the factual matter which is asserted to the contrary, ie, the matters which it contends show the fact pleaded is not true. This is often an efficient way to plead. It saves pleading the same factual allegation at two different parts of the pleading, which depending on the circumstances, might render the pleading prolix. It also saves pleading the factual matter once, and then referring back to it in numerous paragraphs denying or not admitting other allegations. Sometimes that latter approach may be effective, in other cases it will be better to include the factual matter in the paragraph which makes the non-admission or denial, because the factual matter will be set in its context and, as an exercise in communication, the pleading will be more effective.
- Paragraph 39A(c)(i) of the second to fourth respondents’ rejoinder adopts the pleading style which I have described as common: it raises a factual response going to the matters in issue in the proceeding in its context as part of a denial. The pleading serves two purposes: it provides the direct explanation required by r 166(4) and it pleads a material fact in issue in the proceeding. That the plea serves these two purposes is plain on the face of the pleading. It does not create confusion or mystery. No lawyer would read paragraph 39A(c)(i) and not understand that it raised a factual matter relevant to the issues between the parties.
- The first respondent points out by way of written submission that the applicant’s amended reply and answer to the amended defence and counterclaim of the first respondent is replete with examples of the applicant using this style of pleading, ie, pleas which raise matters which are clearly in issue in the proceeding itself, as well as being explanations for denying allegations. The same pleading practice has been used by the applicant in the further amended reply and answer to the amended defence and counterclaim of the second and fourth respondents. As I say, it is a common pleading style and often both efficient and effective.
- The second case relied upon by the applicant is Holdway v Arcuri Lawyers. That case concerned the admirably brief allegation in a pleading that, “12.The executor, as he was entitled to do, distributed the estate”. The responsive pleading was:
“The defendant does not admit the allegation in paragraph 12 of the statement of claim, and cannot admit same unless and until the plaintiff provides proper particulars of the matters alleged therein, save to the extent that the defendant says that the two principal assets of the estate of the deceased, being the real property described as … and the unit described as …, were not distributed by the personal representative of the said estate until 25 July 2003 when transfers of each of the said properties from the name of the deceased into the name of Francis John Virgona were registered in the Office of the Registrar of Titles.”
- The trial judge relied upon the paragraph in the defence as an admission that the land was distributed by the executor as there described.
- In the Court of Appeal Keane JA said:
“… the defendant argues that there was no implied admission in the defence that the pieces of real property had been distributed. This argument is that the reference in paras 5 and 11 of the defence to the distribution of assets to the executor is not an admission, but part of the explanation for a non-admission. It may be said immediately that this argument is less than compelling. While an explanation of a non-admission does not amount to a pleading of fact, in this case the assertions in paras 5 and 11 of the defence that the pieces of real property had been distributed to the executor, can hardly be said to be part of the explanation for the non-admission of the allegations in para 12 of the statement of claim. In truth, they were a qualification of the defendant’s non-admission.”
- Gilbert v Goodwin is referenced by way of a footnote after the words, “While an explanation of a non-admission does not amount to a pleading of fact”. Keane JA looked at the substance of what was pleaded, and was not deflected by the fact that an admission of a material fact was contained in a part of a pleading explaining a non‑admission. While there is an acknowledgment of Gilbert v Goodwin, it is in passing, and in circumstances where it was not necessary for the Court to deal any further with it.
- The last authority relied upon by the applicant is Cape York Airlines Pty Ltd v QBE Insurance (Australia) Ltd. Daubney J acknowledged the difference between a requirement to give an explanation under r 166(4) and the obligation to plead material facts at r 149 of the UCPR. He also made observations about those obligations in the context of the common pleading practice which I have referred to above. He said:
“It is important, however, that the requirement for a defendant to give its ‘direct explanation’ for its belief that an allegation is untrue not be elided with the obligations on a defendant imposed by r 149(1)(b) and (c) to state all the material facts on which it relies (but not the evidence by which the facts are to be proved) and to state specifically any matter that, if not stated specifically, may take the plaintiff by surprise.
The direct explanation itself, clearly enough, is not a statement of a material fact for the purposes of r 149. It may be, however, that the nature of the direct explanation of the party’s belief that an allegation is untrue necessarily compels the party to plead, in compliance with r 149, the material facts (not evidence) on which it will rely to controvert the allegation or other matters to prevent the opponent being taken by surprise. …” (my underlining)
- In that case paragraph 5(c) of the defence was structured as follows:
“(c)denies the allegations contained in subparagraph 8(b) on the grounds that:
- Daubney J describes the pleading at 5(c)(iii) as, “… an example of a direct explanation which led the defendant, in compliance with r 149, to plead material facts on which it will rely to controvert the plaintiff’s allegation” – . While critical of the pleading in other respects, Daubney J is not critical of the material fact being pleaded in the part of the pleading which also provides the direct explanation for the denial. That is clear also at  where he says:
“For completeness, I should also say that I would not accept in an unqualified way the submission made on behalf of the defendant that a denial of a fact alleged in the statement of claim puts the matter in issue and both sides may lead evidence about it. If, for example, a defendant’s direct explanation for a denial of an allegation of fact was that the matter simply did not occur, then the evidence which the defendant might lead on that issue would be limited to controverting the plaintiff’s evidence. If, however, the explanation for the denial was not limited to a controversion of the fact but involved the advancement of an affirmative case, one would expect that to be apparent on the pleadings.” (my underlining)
The First Respondent
- The first respondent could point to no pleading of either of the issues raised at  above. It did not seek to take any action in relation to the point I have described at [2(b)] above. As to the issue at [2(a)] above, it says that the applicant’s own pleadings put the applicant’s motivation for entering into the QCPL transactions in issue: paragraph 18(a) of the applicant’s reply to the effect that it, “was entitled to pursue its own lawful commercial interests and contractual rights under the user agreement”. This was not admitted by the first respondent. At another part of the first respondent’s pleading it alleged that the applicant engaged in the conduct it seeks to impugn with, “the purpose of advantaging itself by obtaining a windfall gain and disadvantaging users, including the first respondent”. In those circumstances, I accept that the pleadings were wide enough to allow the first respondent to explore the applicant’s motivation for entering into the QCPL transactions. On those pleadings, all the evidence needed to establish the proposition at [2(a)] above was led without objection.
- In my view the first respondent does need leave to bring its pleading into line with the evidence led at trial. It asks for leave to amend its defence as follows:
“26.The applicant entered into the novation agreement and the termination agreement for the purpose of receiving payments from QCPL, including payments referable to the HCF, the TIC and the TPC for the financial year commencing 1 July 2017 and the years thereafter up to at least 30 June 2022, without having to bring to account the Annual Maximum Tonnage of QCPL or the payments made by QCPL.
- The applicant thereby had the purpose of advantaging itself by obtaining a windfall gain, advantaging Adani Mining Pty Ltd and disadvantaging users, including the first respondent.” (my underlining to show proposed change)
- I will grant that leave. The point was alive at the trial. The evidence was relevant on the second to fourth respondents’ pleadings, and was admitted at the trial for or against all the parties, and as going to all the pleaded issues.
- The applicant opposed any amendment. It said the amendment is late and that might be conceded at once. In saying that the amendment lacks utility because nothing is pleaded to flow from it, the applicant fails to understand the respondents’ case. The respondents do not plead that anything flows from the facts alleged; they simply plead that they are part of the circumstances in which the conduct by the applicant is to be judged.
- Lastly, the applicant says that it would be prejudiced if the respondents were granted leave to amend. Much of its submission in that regard relates to it wishing to pursue disclosure and evidentiary points in relation to the idea that any of the respondents, but particularly the respondent who led the evidence at  of my judgment, were in a position to use extra capacity at the terminal had it been available for a longer period than the five years between 2017 and 2022. The difficulty with that is that paragraph 48(h) has always been part of the second to fourth respondents’ case on unconscionability, and the first respondent does not seek leave to re-plead in relation to this point.
- The other focus of the applicant in relation to prejudice is that it would wish to investigate by way of disclosure much of the same matters – ie, whether the respondents could have used the additional capacity relinquished by QCPL – because it says it is relevant to whether or not the applicant’s acting in AMPL’s interest or seeking to advantage AMPL caused anything. As already noted, there is no allegation made by the respondents that the conduct did cause anything.
- By Court Document 167 the applicant seeks leave to amend its pleading if leave is granted to the first respondent. I will grant leave in terms of the proposed pleading (new paragraph 15(c) at page 6 of the application), Attachment B, from the introductory words up until the end of paragraph (c)(iii)(C). The remainder of the proposed amendment relates to the issue at [2(b)] above or to the false causation point, see . The first respondent does not seek leave to amend its pleading in respect of the issue at [2(b)] and so far as that issue was alive at trial, it is because it has always been part of the second to fourth respondents’ pleading. There is therefore no occasion for the applicant to amend its pleading in these respects. For the same reason, there is also no occasion for the applicant to have further disclosure of the documents it outlines in Attachment C to the application which is Court Document 167.
  QSC 29, -.
  WASC 171, , cited in Velocity Frequent Flyer Pty Ltd at .
  2 NSWLR 294, p 301.
 See also t 1-20. So far as its concession is concerned, the applicant appears to have overlooked the separate argument of the respondents about cl 7.3 of the user agreements. This concerns variable handling costs and is properly treated as outside the scope of the arbitration.
 See for example the determinations pleaded at paragraphs 3.12(i) and (j) and 3.21(d) and (e) of the replies.
 That is, those matters which the arbitrator found as the “ultimate facts” on which his award was based – Blair v Curran (1939) 62 CLR 464, 531-532.
 Clause 4.6 allows the owner to reduce a user’s Annual Maximum Tonnage if the user does not present its coal at the terminal in accordance with the owner’s requirements.
 This analysis obviously ignores other changes to the TIC dating from the Review Date of 2017; they are not controversial before me.
 Paragraph 17 of the first respondent’s defence.
 Paragraphs 8(b), 9(b), 9(c) and 13(c) of the applicant’s reply.
 See for example, tt 3-36-38.
 It took me three questions to elicit this piece of information, and then it was downplayed as far as it could be – it was an undergraduate degree, not a postgraduate degree, and was something that apparently one might consider not “counting” as a professional qualification – t2‑84. I had initially asked the question because I was surprised by the lack of understanding seemingly betrayed in the exchange immediately preceding my questions. I suspect my purpose was evident to MrWicks and caused the downplaying just described.
 See exhibit 14 as an example of his written communication displaying all these characteristics.
 For example, tt 2-74-77; tt 2-81-83, and then further at tt 2-85-86 as to his role in considering the proposed QCPL transactions. His evidence as to whether he considered that Court action should be taken to compel QCPL to either provide information as to its credit-worthiness, or provide Credit Support under the user agreement is a particularly pronounced example of this – see t 2-99 and t 3-4 at lines 5-15.
 For example, t 2-39.
 Tt 2-72-73, tt 2-75-76 and tt 2-79-80. Even when shown an Adani email, which he accepted was from Mr Freeman, he could not say if the footer recording Mr Freeman’s position was correct – he remained “unaware” – t 2-87. During the events material to this case Mr Freeman, like Mr Wicks, was working for the applicant, spending his time at the terminal and at the Brisbane office, on the same floor as MrWicks – t 3‑63. The two men had known each other for over 10 years and it was Mr Freeman who recruited Mr Wicks to work for Adani – t 3-62.
 His evidence between t 3-18 line 19 and t 3-20 line 11 is an example of a deliberately prevaricating and avoidant style of answering questions.
 Ex 7 and ex 8.
 After a short initial period where AMPL was involved – t 3-40.
 QCPL’s term sheet of 6 April 2016 (ex 8) had recited that QCPL held rail capacity to the terminal under an Access Agreement between QCPL and “QR Network Pty Ltd (now Aurizon Network)”, and that the parties were discussing QCPL granting to Adani a right of first refusal to acquire that rail capacity – see Recitals E and F. The evidence does not reveal what became of the proposal to assign rail capacity; it is something separate to the subject matter of this litigation.
 T 3‑44 line35 and see t 3-45 lines1‑25 and t 3-53 line 20. MrFreeman’s evidence became slightly confused about this. At t 3-43 he agreed with leading questions as to the meaning of the term when he ought not to have. However, his evidence was clarified at tt 3-44-45. In this context I interpret the passage at t 3-44 to mean that the concept of value sharing was “always there” – and this can be seen to be so when exhibit 9 is considered.
 Unfortunately, due to the confusion mentioned at fn 21 above, the concept is called value sharing in the questions at that part of his evidence. Nonetheless, it is clear that what he was describing was socialisation – see t 3-46 lines1‑5.
 T 3-47 lines 1-25 and t3-52 and see cl8.1(a) of the user agreements.
 See the boxes labelled Scenario 1 and Scenario 2 which are part of ex 3.
 Exhibit 4 and t 3-49.
 T 3-55.
 T 3-52.
 For the directors of the applicant, see the company search at p 5350 of the Trial Bundle.
 In chronological order: exhibit 8, page 2, paragraph 12; exhibit 9, numbered page 99, paragraphs 12 and 13; exhibits 10 and 11; exhibit 4, numbered paragraph 1; exhibit 3, table and calculations in the attachment.
 See Mr Freeman, t 3-52.
 Paragraph 9(a) of the applicant’s reply.
 Trial Bundle Vol 3, p 1779.
 Exhibit 14 and t 3-4 line10.
 Trial Bundle Vol 3, p 1789.
 PWC were engaged to give this advice in September 2015 – Trial Bundle p 704.
 Trial Bundle Vol 3, pp 1804-1805.
 T 3-4 and t 3-5, Trial Bundle p 703.
 T 3-56 and t 3-60.
 The explanation he gave at t 2-93 line35 has no logical bearing on why Credit Support from AMPL was necessary.
 Paragraph 8 of the applicant’s reply to the first respondent’s defence.
 In his affidavits Mr Wicks described himself as General Manager, Commercial Operations for the applicant and says that he has access to the books and records of the applicant and had day-to-day responsibility for its commercial operations – for example, Trial Bundle p 3952.
 Mundra, the head lessee of the terminal, also had a distribution account. I cannot see how this is relevant given that the security deposit agreement refers only to the applicant’s distribution account, and deals with payments only by the applicant. In any case, the Mundra account does not show that any substantial sum has been paid into it from 2016 – ex 18.
 Ex 19.
 Paragraph 8(b)(i) of the applicant’s reply to the amended defence and counterclaim of the first respondent.
 Trial Bundle p 5210. See paragraphs 17-27 of the first respondent’s defence and the equivalent pleading at paragraphs 35 and 36 of the defence of the second to fourth respondents. These allegations are denied – see paragraphs 9(b)-(d) of the applicant’s reply.
 Coghill v Indochine Resources Pty Ltd  FCA 377, .
 Olsson v Dyson (1969) 120 CLR 365; Coghill, above,  and .
 “While rights may be assigned, neither at law nor in equity is a debtor able to relieve itself of its liability to a creditor by assigning the burden of the obligation to a third party; that can only occur with the consent of all three parties and involves the release of the original debtor – Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd  2 KB 660 at 668 (Collins MR).” – Coghill v Indochine Resources Pty Ltd  FCA 377, .
 Schedule 2, s 2 Competition and Consumer Act 2010 (Cth).
 However, the statutory cause of action may include aspects of the equitable cause of action – Australian Competition and Consumer Commission v Medibank Private Ltd  FCAFC 235, . In that sense it has been said that the statutory cause of action is broader than the equitable doctrine.
 Paragraph 32 further amended defence and counterclaim of the first respondent.
 Paragraph 48 of its second further amended defence and counterclaim and the paragraphs referred to therein.
 Paragraph 465 of its final written submissions.
 (2016) 258 CLR 525 , per Gageler J.
 (2013) 250 CLR 392.
 (2019) 368 ALR 1.
 (2015) 236 FCR 199,  and , and see also  and .
 Ipstar Australia Pty Ltd v APS Satellite Pty Ltd  NSWCA 15,  for the view of Leeming JA and PT Ltd v Spuds Surf Chatswood Pty Ltd  NSWCA 446, - for the view of Sackville AJA cited by Leeming JA.
 See Allsop CJ in Paciocco,  citing Lord Mansfield.
  quoting from Burt v Australia and New Zealand Banking Group Ltd (1994) ATPR (Digest) 46‑123 at 53, 598.
 Kobelt, above, .
 Kobelt, above, .
 Section 22(1)(a) and (j)(i).
 Section 22(1)(j)(ii), (iii).
 Kobelt, above, , ; Paciocco in the High Court, above, ,  and -; Kakavas, above, ,  and .
 Hurley v McDonalds Australia Ltd  FCA 1728, ; Ipstar (above)  and , and the cases cited there.
 Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301, -.
 Final submissions, paragraph 517.
 Paragraph 8(b)(iv) of the applicant’s reply.
 Section 22(1)(e).
 Above, .
 Ipstar, above, , ,  and .
 Section 22(1)(b), to some extent.
 Section 22(1)(b).
 Section 168A(a) of the Queensland Competition Authority Act 1997 (Qld) provides that one of the pricing principles in relation to the price of access to a regulated service is that the price should, “generate expected revenue for the service that is at least enough to meet the efficient costs of providing access to the service and include a return on investment commensurate with the regulatory and commercial risks involved”.The respondents rely upon this section of the Act as statutory endorsement of a pricing framework for assets which are held by a monopolist.
 Paragraph 272 of the first respondent’s final submissions.
 There was a pleading point as to this which is the subject of the appendix to this judgment.
 There was a pleading point as to this which is the subject of the appendix to this judgment.
 See p 3177 ff of the Trial Bundle. Evidence as to this contained some confidential information and I record these facts rather vaguely.
 Kobelt,  and .
 Kobelt  referring to Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392.
 Kobelt, above , again paraphrasing Keane J in Kakavas.
 Section 22(1)(l).
 Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1, , per Kiefel CJ and Bell J.
 Australian Competition and Consumer Commission v Woolworths Ltd  FCA 1472, , YatesJ.
 Allsop CJ in Paciocco, , Gageler J in Kobelt, ; Keane J in Kobelt, .
 Australian Competition and Consumer Commission v Medibank Private Ltd  FCAFC 235,  per Beach J.
 Medibank, above, per Beach J at -, citing Keane J in Paciocco at , see also s 22(1)(g) and (h).
 I have wondered whether I could safely infer that the reason there was no meeting between Mr Freeman and QCPL at 9.00 am on Monday, 18 July 2016 was that QCPL communicated that it would not be a party to what the applicant was proposing. That is certainly one possibility, but I think that to infer it in the absence of any other evidence would be speculative. There is also the complicating factor that if QCPL did refuse to participate in what the applicant was proposing, it may not have been because it disapproved of the conduct per se, but because it involved serious concerns being expressed as to its financial position in a document which might become public.
 Ipstar, above, , , ,  and . Paragraphs  and  show the importance with which the lack of good faith in that case was regarded.
 Because the amount of $255 million is so close to being the present value of QCPL’s obligations under its user agreement between 1 July 2016 and 30 June 2022, damages calculated on this alternative basis are not very different from those calculated on the basis I adopt; they are slightly more.
 In fact Professor Grey’s report is on the basis that only $117 million was actually received by the applicant. He treats the $138 million payment as having been made in substance to AMPL. Obviously this is contrary to my factual findings. Nevertheless, my understanding is that the point he makes about $41.9 million TIC for the 2017 financial year would apply whether or not the calculations were based on a payment of $117 million or a payment of $255 million. Therefore I deal with his point as a matter of principle.
 P 5343 of the Trial Bundle.
 Trial Bundle p 5296 ff.
 Paragraph 5(c) of the first respondent’s defence.
 Paragraphs 43, 44 and 45 of the second to fourth respondents’ defence.
  QSC 72.
 Paragraph 242, final submissions for the second to fourth respondents.
 Trial Bundle p 173, .
 Occasionally there were charges to hire equipment to the ship. These were minor and I disregard them in dealing with this point.
 Trial Bundle p 174, . The offset was against HCV, not HCF, because the fees received varied in any given period having regard to the number of ships and the time they spent at the jetty.
 Trial Bundle p 174, .
 Trial Bundle p 175, .
 Actually these figures are the result of the ‘true-up’ process whereby each year’s budgeted costs are adjusted to reflect actual costs. In fact the deduction of $365,344 was not made in the 2018 budget, but this was corrected in the ‘true-up’. The omission seems to be an oversight by the applicant, or its operator. The applicant’s case is that the ‘true-up’ produced the correct result.
 Tt 2-57-58.
 Paragraph 708 of the second to fourth respondents’ final submissions and paragraph 11(b) of their defence.
 Paragraphs 719-720 of the second to fourth respondents’ final submissions.
 That was Mr Poulton’s evidence –  above. So far as the terms of the operating agreement (at p295 of the Trial Bundle) bear on this, they are consistent with my conclusion. It is the operator who has the day to day operation of the terminal – cl 3.1 and access to the terminal sufficient to perform the services required of it – cl 7.1(a) and (b). The services to be performed by the operator are defined in schedule 3 part 2 to the agreement and include operating the terminal from train scheduling to loading of ships in accordance with the user agreements – see cl 2.1(a). It is expressly provided that the operator is not the agent of Adani – cl 4.1 of the operating agreement.
 P 1923 of the Trial Bundle, paragraph 55.
 For clarity, if it were the applicant company which was receiving the berthage and mooring charges I would be against the respondents on this aspect of the case for the same reasons which I have expressed in relation to cl 7.2(b) above. That is, if all that could be shown is that the applicant received an amount of money from ship owners to use its jetty, I do not think that the words of cl 7.3(b)(i)(A) can be constructed to compel that to be taken into account in calculating “the total costs payable by [the owner] to the Operator”.
 Clause 1 of schedule 5 to the operating agreement at p 376 of the Trial Bundle.
 See the definitions at cl 2.1, and the definition of services in schedule 4 at cl 2.1(a)(vii). At cl 10.2(c) the operator acknowledges that the performance of its contract with the applicant is “co-ordinate with the performance of the User Agreements”; promises to provide services which are co-ordinate with the performance of the user agreements, and not to do anything which will cause the applicant to be in breach of the user agreements.
 See for example the definition of “optimum” in the 2015 Operator’s Agreement. Optimum outcomes are the contractual standard for some aspects of the operation of the terminal, see cl 10.2(b). Other standards are good operating and maintenance practice, see cl 10.2(a).
 Trial Bundle p 2358 at p 315 of the affidavit.
 Of course, the current operator is no longer related to any current user, much less a user with a substantial tonnage of coal being handled by the terminal.
 Say, the years 2014-2017, which would be helpful to the applicant having regard to the assumptions which Mr Fenton makes in his reports (see below).
 Trial Bundle p 18.
 Trial Bundle pp 1475-1477.
 Trial Bundle pp 1499-1505.
 T 2-48.
 Trial Bundle pp 1579-1587.
 Trial Bundle p 13.
 See the evidence as to caution being used in relying on any comparison with the Dalrymple Bay Terminal at tt 4-85-91.
 Paragraphs 2, 7, 8 and 11, affidavit of Craig Anthony Fenton, sworn 1 November 2018, Trial Bundle pp 5-7.
 Trial Bundle pp 21 and 94.
 Trial Bundle pp 22 and 95.
 Trial Bundle pp 23 and 96.
 Trial Bundle pp 24 and 97.
 For a reason I do not understand, in Mr Fenton’s second report there is less variance shown in the actual costs – compare figure 2 in each report. This was not explored in cross-examination.
 Compare figures 1 and 2 of Mr Fenton’s first report.
 And in relation to the 2019 financial year, 2018.
 T 4-68.
 Tt 4-81-83; t 4-85, and tt 4-87-88.
 The 10% profit margin allowed under the operating agreement.
 I have not specified the exact amount for reasons of confidentiality.
 This was the original operator owned by Glencore. Mr Poulton was employed one year after the applicant became the owner of the terminal, but it was not until October 2016 that Adani bought the shares in APB, and APO sub-contracted the work of operator to APB.
 Trial Bundle p 156, .
 Trial Bundle p 1918. Production was the term used to refer to the handling of coal through the terminal.
 Trial Bundle p 1918, .
 Trial Bundle p 158, .
 Trial Bundle p 159, .
 Trial Bundle pp 158-161.
 Trial Bundle pp 168 ff.
 Trial Bundle pp 175 ff.
 Trial Bundle p 1920.
 Trial Bundle p 1921, .
 Trial Bundle pp 1922-1923, .
 Trial Bundle p 1914, .
 T 3-68 and p 625 of the Trial Bundle.
 T 3-67 and pp 625 and 626 of the Trial Bundle.
 Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705.
 Trial Bundle p 3869, .
 Trial Bundle p 3872, .
 Trial Bundle pp 3869-3873.
 Tt 2-52-53.
 Trial Bundle p 3879, .
 Trial Bundle p 3878.
 Trial Bundle p 3880, .
 Trial Bundle pp 3880-3884.
 Trial Bundle pp 3884-3885.
 Trial Bundle p 3875, .
 Trial Bundle p 3877, .
 Trial Bundle, pp 3877-3878.
 Pages 3875 and 3877 of the Trial Bundle,  and .
 Trial Bundle p 3866,  ff.
 Trial Bundle pp 3866-3867, .
 Onslow Salt Pty Ltd v Buurabalayji Thalanyji Aboriginal Corporation  FCAFC 118,  ff.
 This clause is not unique to the Sonoma user agreement but is found in the standard user agreement.
 Paragraph 784 of the second and fourth respondents’ final submissions.
 Paragraph 7B of its second further amended defence and counterclaim.
 The differences numbered 2, 4, 5, 7, 8 and 10 in the applicant’s Annexure B.
 It appears that the user agreement between the other user and the applicant was executed after 2008. It also appears that some, relatively minor, changes have been made to the standard user agreement over time.
 Exhibit 28.
 Clause 12.2 defines delay as an unscheduled or abnormal stoppage in loading or unloading of coal at the terminal which creates a delay of more than 48 hours in loading or unloading of coal of the user concerned.
 To paraphrase Keane J in Kobelt, above, .
 Final submissions second to fourth respondents.
 Further amended reply and answer to the further amended defence and counterclaim of the second to fourth respondents filed 11 February 2020.
 Amended rejoinder filed 17 February 2020.
 Written submissions on the pleading issue filed by the second to fourth respondents, 27 May 2020, paragraph 16.
 The partner having conduct of this matter on behalf of the applicant has sworn that he did not appreciate that this was the respondents’ case. In fact he also swears that he did not understand the point pleaded at paragraph 48(h) of the second to fourth respondents’ defence to be part of their case either. On information and belief, he swears that counsel running the case on behalf of the applicant did not appreciate either of these things. On my view of the pleadings they certainly had the opportunity to understand these things, and that is what is relevant.
 (2009) 239 CLR 175.
  NSWSC 664, -.
  1 Qd R 499.
  QSC 285, cited in Cape York Airlines Pty Ltd v QBE Insurance (Australia) Ltd  1 Qd R 117, , see to the same effect  in Cape York Airlines.
 Groves v Australian Liquor, Hospitality and Miscellaneous Workers’ Union & Anor  QSC 142, cited in Cape York Airlines Pty Ltd v QBE Insurance (Australia) Ltd  1 Qd R 116, .
 See for example paragraphs 9, 11, 13(b) (an allegation of such factual substance that it runs to 17 particulars), 16, 18 and 19.
 See for example paragraphs 30, 33(a), 33A(a), 47(c)(i) and (xiv), 57(a) and (h), 58(b), 61D(a), 61E.
  2 Qd R 18, .
 The executor was also the recipient of the distribution.
  1 Qd R 116, .
 Supplementary submissions in reply, Court Document 163, paragraph 26.
 Paragraph 27 of the first respondent’s further amended defence.
 There was an objection to exhibit 3 being tendered in the first respondent’s opening. Counsel for the applicant said he was “at a loss to understand how this is relevant to unconscionable conduct”. I was against the applicant on this. As can be seen from my Reasons for Judgment, exhibit 3 is one of the most relevant documents on the unconscionability case. There was no precisely formulated objection to the document on the basis, say, that it showed AMPL was directing the negotiation of the QCPL transactions, or that the applicant was acting in AMPL’s interests and that that was outside any pleaded case.
 Paragraphs 5-6 of the affidavit of Ross Graham Perrett sworn 26 June 2020.
 Paragraphs 7-11 of Mr Perrett’s affidavit.
- Published Case Name:
Adani Abbot Point Terminal Pty Ltd v Lake Vermont Resources Pty Ltd & Ors
- Shortened Case Name:
Adani Abbot Point Terminal Pty Ltd v Lake Vermont Resources Pty Ltd
 QSC 260
26 Aug 2020