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  • Unreported Judgment

Callide Power Management Pty Ltd v Callide Coalfields (Sales) Pty Ltd No 2

 

[2014] QSC 216

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Callide Power Management P/L & Ors v Callide Coalfields (Sales) P/L & Ors No 2; CS Energy Ltd v Callide Coalfields (Sales) P/L & Ors [2014] QSC 216

PARTIES:

CALLIDE POWER MANAGEMENT PTY LTD
ACN 082 468 700
(first applicant)
and
CALLIDE ENERGY PTY LIMITED
ACN 082 468 746
(second applicant)
and

IG POWER (CALLIDE) LTD
ACN 082 413 885
(third applicant)
v
CALLIDE COALFIELDS (SALES) PTY LTD
ACN 082 543 986
(first respondent)
and
ANGLO COAL (CALLIDE) PTY LTD
ACN 081 022 228
(second respondent)
and
ANGLO COAL (CALLIDE) NO. 2 PTY LTD
ACN 004 784 454
(third respondent)

 

 

CS ENERGY LIMITED
ACN 078 848 745
(applicant)
v
CALLIDE COALFIELDS (SALES) PTY LTD
ACN 082 543 986
(first respondent)
and
ANGLO COAL (CALLIDE) PTY LTD
ACN 081 022 228
(second respondent)
and
ANGLO COAL (CALLIDE) NO. 2 PTY LTD
ACN 004 784 454
(third respondent)

 

FILE NO/S:

BS12122/13 & BS12138/13

DIVISION:

Trial

PROCEEDING:

Application

DELIVERED ON:

2 September 2014

DELIVERED AT:

Brisbane 

HEARING DATE:

22 August 2014

JUDGE:

Jackson J

ORDERS:

On application 12122/13, the order of the Court is that:

  1. the application is dismissed.
  2. the proceeding is transferred to the supervised case list to be managed by Flanagan J.

 

On application 12138/13 the order of the Court is that:

  1. the application is dismissed.
  2. the proceeding is transferred to the supervised case list to be managed by Flanagan J.

 

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – OTHER MATTERS - where the coal supply agreement between the parties provided a process for amendment by agreement upon a “Change Event” occurring – where the contract stipulated that notice of a “Change Event” must be given – where the applicants challenge the validity of the respondents’ notice of Change Event – where, in defending the validity of the notice and counterclaiming in the alternative that the contract is void for frustration, the respondents allege the occurrence of the facts relied upon as constituting the relevant event or events in the notice of the Change Event – where applicants seek to have the counterclaim excluded from the trial of the proceeding and an order that a separate question raised by the defence as to frustration of the agreement be heard after determination of the other questions raised on their claims – whether the scope of the factual inquiries to determine the relevant questions makes determination of separate questions or the exclusion of the counterclaim and question as to frustration inappropriate

Uniform Civil Procedure Rules 1999 (Qld), r 182, r 483

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, cited

Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334, cited

Electricity Generation Corporation v Woodside Energy Ltd (2014) 88 ALJR 447, referred to

Director of Public Prosecutions (Cth) v JM (2013) 250 CLR 135, cited

Jacobson v Ross (1995) 1 VR 337, cited

Seven Network Ltd v News Limited, referred to

Tepko Pty Ltd v Waterboard (2001) 206 CLR 1, cited

COUNSEL:

In proceeding BS12122/13

P O’Shea QC, with D O’Brien QC, for the applicants

In proceeding BS12138/13

T O’Sullivan QC, with J O’Regan, for the applicants

D Clothier QC, with SJ Webster, for the respondents in both proceedings

SOLICITORS:

In proceeding BS12122/13

Johnson Winter Slattery for the applicants

In proceeding BS12138/13

Corrs Chambers Westgarth for the applicants

Gilbert and Tobin Lawyers for the respondents in both proceedings

  1. Jackson J:  On 26 June 2014, I made orders in each of these proceedings striking out parts of the amended defences of the respondents.  On 22 August 2014, I published reasons for those orders.  Those reasons describe the parties to the proceedings, the background facts to the dispute and set out the central contractual provision.[1] It will be necessary to expand on some of those matters to determine these applications but I will not repeat what is said there. 
  1. Each proceeding continues as if started by claim. For precision, it is appropriate to deal with the present applications by reference to proceeding 12122/13, but on the footing that the points made in that proceeding apply, mutatis mutandis, to the other proceeding, unless a distinction is made.
  1. The pleadings have closed, at least ostensibly. The respondents (the seller and coal mine owners) have filed and served further amended defences and counterclaims. The applicants (the buyer) have each filed a reply and answer. I say the pleadings have closed ostensibly because the applicants make no secret of the fact that they have not completed the enquiries which are necessary to respond to the facts alleged in the counterclaim for the purposes of filing their reply and answer. Accordingly there are many non-admissions made on the footing that the applicants are uncertain as to the truth or falsity of relevant allegations. The proposition is that the applicants have made reasonable enquires in the time available, but that further enquires, quite likely leading to fuller responses, would be required in order to prepare to meet the allegations of fact set out in the counterclaim for trial.
  1. In that state of the pleadings, the applicants apply for an order excluding the counterclaim from the trial of the proceeding, under Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”), r 182 and for an order under UCPR r 483 for a separate determination of the questions raised by the defence as to frustration of the coal supply agreement (“CSA”), after the determination of the other questions raised on their claims. 
  1. Simply put, the subject of the remaining questions is whether the notice given by the seller under cl 12.3(b)(i) of the CSA and the change event notice given by the seller under cl 12.3(b)(ii) were invalid. The applicants’ objective is to separate and have decided their allegations of invalidity of those notices before anything else is decided. In particular, they seek to defer the hearing of the respondents’ allegation in the defence that the CSA has been frustrated so that the relief sought by the applicants should not be granted. As well, they seek to defer the hearing of the respondents’ counterclaims. One of those is that the CSA should be adjusted in accordance with the contractual provisions and for damages to be awarded to the respondents for the applicants’ failure to engage in the contractual process for adjustment. If the change event notice is invalid, it will not fall for determination. The other is that if the change event notice is invalid the CSA is frustrated and discharged. That claim will not fall for determination if the change event notice is valid.
  1. Consistently with that objective, the applicants in proceeding BS12122/13 apply in the alternative for an order that questions which would go to the validity of the notices be heard and determined separately from and in advance of other questions in the proceeding. They propose different and alternative forms of the questions in par 3 of their application and annexure A to their submissions.
  1. In proceeding BS12138/13, the applicants also apply for an order under r 182 excluding the counterclaim and under r 483 for a separate determination of the questions raised by the defence as to frustration of the CSA, after the determination of the questions raised on their claim. They do not apply in the alternative for an order for the determination of particular separate questions. However, in submissions they advanced an alternative that questions as to the validity of the notices be heard and determined separately from, and in advance of, the other questions in the proceeding, except for the questions whether the notice under cl 12.3(b)(i) was given promptly and whether the notice under cl 12.3(b)(ii) was given as soon as possible.
  1. The respondents in each proceeding opposed any order for the exclusion of the counterclaim or that any question be heard and determined separately from any other question in the proceeding. In order to understand the contentions one way and the other it is necessary to identify some potentially relevant questions with a little more precision.

The notices on their face

  1. Taking the statement of claim in proceeding BS12122/13, it is alleged that on or about 6 November 2013 the seller delivered to the buyer a document described as a notice pursuant to cl 12.3(b)(i) of the CSA, which provides that the seller is to notify the buyer that a change event has occurred and that it is the seller’s intention to initiate a review under cl 12 of the CSA.
  1. Summarising, it is alleged that the purported notice advised that there had been a number of changes in circumstances which, in the seller’s reasonable opinion, had and continued to have a material effect on the coal mine owners’ competitiveness in the coal mining industry, such that a change event within the meaning of cl 12.3(a) had occurred. The notice continued that the effect of those changes is that the cost of production in the Callide Mine has substantially increased in circumstances where the contract price had remained relatively stable.
  1. The statement of claim further alleges that on or about 12 November 2013 the seller delivered a document described as a change event notice pursuant to cl 12.3(b)(ii) of the CSA. It alleges that the purported change event notice provided by paragraphs 4.2 to 4.6:

 

“4.2  Since the time of entry into the CSA, there have been a number of changes in circumstances (identified below in this Notice) which, in the Seller’s reasonable opinion, have had, and continue to have, a material effect on the Coal Mine Owners’ competitiveness in the coal mining industry.

 

4.3  The effect of these changes in circumstances is a substantial increase in the cost of producing coal from the southern areas of Callide Coalfields (referred to as the Callide Mine), in circumstances where a significant proportion of the coal from the Callide Mine is sold to the Buyer under a contract which fixes the coal price paid by the Buyer at a rate far lower than market value. These changes in circumstances together and cumulatively constitute a Change Event, being a Change Event within the meaning of clause 12.3(a).

 

4.4  The Seller identifies the following changes in circumstances, the nature and extent of each of which is described in sections 5 to 16 of this Notice:

 

(a)Changes to market and economic circumstances;

(b)Changes to the mine planning conditions;

(c)Extensive and ongoing rainfall initially constituting Force Majeure Events under the CSA, together with the frequency of such rainfall Force Majeure Events and their immediate, cumulative and ongoing effects;

(d)Significant reduction in operating flexibility due to changes in government regulation resulting in changes to the mine’s water discharge and storage requirements;

(e)Significant increases to the overall costs of production of coal at the mine;

(f)Increases in labour and contractor costs at the mine;

(g)Increases in the cost of diesel incurred by the mine;

(h)Increases in the cost of explosives incurred by the mine;

(i)Increases in maintenance costs incurred by the mine;

(j)Increases in the cost of electricity incurred by the mine;

(k)The Coal Mine Owners ceasing to benefit under the CSA; and

(l)Significant change in the coal prices paid by other power stations.

 

4.5  Pursuant to clause 12.3(b)(ii) upon the issuing of this Notice, a Change Event will be deemed to have occurred.

 

4.6  If any part of this Change Event Notice is determined to be ineffective or invalid for any reason whatsoever, such ineffectiveness or invalidity will not affect the validity or operation of the remainder of this Change Event Notice and such ineffective or invalid part will be deemed to be deleted from this Change Event Notice.”

  1. The statement of claim alleges that the purported change event notice describes the nature and extent of each of the changes in circumstances identified in par 4.4, in sections 5 to 16.
  1. One category of alleged invalidity of the purported change event notice turns on the contractual requirements for a change event notice. It is alleged that:

 

“10.On the proper construction of the Coal Supply Agreement, a Change Event Notice given by the Coal Mine Owners under clause 12.3(b)(ii) must, on the face of the notice:

 

(a)Describe a change in circumstances which is capable (if the change circumstances described in the notice is assumed to have occurred as described in the notice) of comprising a Change Event as that term is defined in clause 12.3(a);

 

(b)In respect of such Change Event:

 

(i)Contain detailed information regarding the nature and extent of the Change Event;

(ii)Contain detailed information regarding the quantum of the cost and revenue impacts of the Change Event;

(iii)Specify options and alternatives identified by the Notifying Party available to accommodate or mitigate the Change Event;

(iv)Contain detailed information regarding the quantum of the cost and revenue impacts of each such option and alternative;

(v)State the Coal Mine Owners’ recommended option; and

(vi)Specify a time for the meeting referred to in paragraph 12.5.

 

  1. On the proper construction of the Coal Supply Agreement, it is a necessary condition for a change in circumstances to comprise a Change Event under clause 12.3(a) that:

 

(a)The change in circumstances comprises the occurrence of a single event or closely related series of events that brings or bring about a change to the conditions or state of affairs existing at the time of entry into the Coal Supply Agreement;

 

(b)The change in circumstances is such that, in the reasonable opinion of the Coal Mine Owners, it has or will have a material effect on the competitiveness of the Coal Mine Owners in relation to the industry in which they operate;

 

(c)The change in circumstances does not comprise merely a change from the conditions or state of affairs which a party expected, at a time of entry into the Coal Supply Agreement, to encounter in the future; and

 

(d)The change of circumstances is one which, on the proper construction of the Coal Supply Agreement, may be the subject of Adjustment pursuant to clauses 12.3 to 12.8.”

  1. Paraphrasing, the statement of claim alleges that the purported change event notice fails on its face to meet the requirements pleaded in paragraphs 10 and 11 for a valid change event notice. It alleges that the contents of the purported change event notice contravene those requirements. It alleges that those contraventions render the change event notice invalid. For present purposes, it is enough to set out paragraphs 13 to 20 of the statement of claim, which illustrate one of the overall grounds of alleged invalidity and one of the particular subject matters of the grounds of invalidity, as follows:

 

“13.The Second Notice [the purported change event notice] identifies the Change Event which is the subject matter of the notices as being the twelve changes in circumstances referred to in paragraph 4.4 of the Second Notice taken together and cumulatively.

 

  1. The twelve changes in circumstances referred to in paragraph 4.4 of the Second Notice taken together and cumulatively do not comprise the occurrence of a single event or closely related series of events that brings or bring about a change to the conditions or state of affairs existing at the time of entry into the Coal Supply Agreement.

 

  1. Accordingly, the Second Notice does not identify a Change Event under in [sic] clause 12.3(a) and is not a Change Event Notice under clause 12.3(b)(ii).

 

  1. Alternatively:

 

(a)For the reasons given in paragraphs 17 to 35 below, one or more of the changes in circumstances recited in the Second Notice as comprising the Change Event do not themselves comprise Change Events under clause 12.3(a);

 

(b)Accordingly the Change Event identified in the Second Notice cannot be a Change Event under clause 12.3(a) and the Second Notice is not a Change Event Notice under clause 12.3(b)(ii).

 

‘Changes to mine planning conditions’ change in circumstances

 

  1. Section 6 of the Second Notice identifies the nature and extent of the changes to mine planning conditions referred to in paragraph 4.4(b) of the Second Notice.

 

  1. Section 6 relevantly identifies the change in circumstances as the Seller becoming aware of geological features of the Coal deposit at Callide Mine which were not known by the Seller at the time of execution of the Coal Supply Agreement which increased the costs of mining and reduced profitability under the Coal Supply Agreement.

 

  1. The change in circumstances described in Section 6 of the Second Notice:

 

(a)Did not bring about a change to the conditions or state of affairs existing at the time of entry into the Coal Supply Agreement for the purposes of clause 12.3(a);

 

(b)Comprises merely a change from the conditions or state of affairs which the Coal Mine Owners believed, at the time of entry into the Coal Supply Agreement, that they would encounter in the future.

 

  1. Accordingly, the changes to mine planning conditions as described in the Second Notice cannot, either alone or together with other matters, comprise a Change Event within the meaning of clause 12.3(a).”
  1. With immaterial exceptions, there is no dispute as to the when the purported notice under 12.3(b)(i) was given, or its contents, or when the purported change event notice under 12.3(b)(ii) was given, or its contents. The respondents’ defence to the allegations of invalidity set out above begins, in substance, with a dispute as to the requirements for a valid change event notice on the proper construction of cl 12 of the CSA, as set out in paragraphs 10 and 11 of the further amended defence as follows:

 

“10.As to paragraph 10 of the statement of claim, the respondents:

 

(a)deny that the construction pleaded in subparagraph 10(a) is the proper construction of the Coal Supply Agreement because, on the proper construction of that agreement, if the change or changes in circumstances identified in a notice of a Change Event satisfy, in substance, the requirements  of the definition of ‘Change Event’, then that notice will be a Change Event Notice within the terms of, and given in accordance with, clause 12.3(b)(ii) notwithstanding any deficiency in the form of the notice;

 

(b)deny that the construction pleaded in subparagraph 10(b) is the proper construction of the Coal Supply Agreement because, on the proper construction of that agreement, if (in connection with the delivery of a notice under clause 12.3(b)(ii)) the Notifying Party;

 

(i)provides information to the Receiving Party which constitutes detailed information regarding the nature and extent of the Change Event;

 

(ii)provides information to the Receiving Party which constitutes detailed information regarding the quantum of the costs and revenue impacts of the Change Event;

 

(iii)identifies for the Receiving Party the options and alternatives available to accommodate or mitigate the Change Event;

 

(iv)provides information to the Receiving Party which constitutes detailed information relevant to calculating the cost and revenue impacts of the Change Event as they relate to all of the options and alternatives identified by the Notifying Party available to accommodate or mitigate the Change Event;

 

(v)identifies for the Receiving Party the Notifying Party’s recommended option;

 

(vi)specifies to the Receiving Party a time for the meeting referred to in clause 12.5,

 

then the notice delivered by the Notifying Party will be a Change Event Notice within the terms of, and given in accordance with, clause 12.3(b)(ii) whatever the form of notice.

 

11.  As to paragraph 11 of the statement of claim:

 

(a)the respondents deny the allegations because the construction pleaded in that paragraph is not the proper construction of the Coal Supply Agreement;

 

(b)upon the proper construction of the Coal Supply Agreement:

 

(i)a Change Event may be any change or changes in circumstances, whether comprised of a single event or circumstances or a number of events or circumstances, which, in the reasonable opinion of a Party has, or will have, the effect specified in the definition of Change Event;

 

(ii)the relevant opinion pleaded at subparagraph 11(b) of the statement of claim is the opinion of the first respondent.”

  1. The respondents also dispute the allegation of invalidity based on the cumulative nature of the section of the purported change event notice devoted to changes in mine planning conditions. Paragraphs 13 to 18 of the further amended defence are as follows:

 

“13.The respondents admit paragraph 13 of the statement of claim.

 

  1. The respondents deny paragraphs 14 and 15 of the statement of claim because the changes in circumstances referred to in the Change Event Notice and identified in the respondents’ counterclaim acted together to cause the effect specified in the definition of Change Event, and repeat paragraph 11 above.

 

  1. The respondents deny paragraph 16 of the statement of claim because:

 

(a)of the matters pleaded in paragraphs 16 to 30 below; and

 

(b)on the proper construction of the Coal Supply Agreement, even if one or more of the changes in circumstances identified in the Second Notice does not itself constitute a Change Event as defined in clause 12.3(a), which is denied, the Change Event Notice still identifies a Change Event as defined in clause 12.3(a) and is a Change Event Notice under clause 12.3(b)(ii).

 

  1. The respondents admit paragraph 17 of the statement of claim.

 

  1. As to paragraph 18 of the statement of claim, the respondents:

 

(a)deny that paragraph pleads an accurate summary of section 6 of the Change Event Notice because it does not; and

 

(b)rely upon the full terms of section 6 of the Change Event Notice.

 

  1. The respondents deny paragraphs 19 and 20 of the statement of claim because:

 

(a)the increased costs of mining and reduced profitability under the Coal Supply Agreement caused by the geological features encountered by the respondents in mining the Callide Mine (as defined in paragraph 7 of the respondents’ counterclaim) constituted, together with other matters described in the Change Event Notice, a change or changes in circumstances which, the change in circumstances described in Section 6 of the Change Event Notice;

 

(i)brought about a change to the conditions or state of affairs existing at the time of entry into the Coal Supply Agreement;

 

(ii)did not comprise merely a change from the conditions or state of affairs which the Coal Mine Owners believed, at the time of entry into the Coal Supply Agreement, that they would encounter in the future;

 

(iii)constituted, together with the other matters described in the Change Event Notice, a change or changes in circumstances which, in the reasonable opinion of the first respondent, had the effect specified in the definition of Change Event;

 

(b)of the proper construction of clause 12.3(a) of the Coal Supply Agreement pleaded in paragraph 11 above;

 

(c)in the circumstances pleaded in paragraphs 19 to 28 and 122 of the respondents’ counterclaim, the matters set out in section 6 of the Change Event Notice are capable of comprising a fall within the definition of Change Event.”

  1. In substance, the reply denies the positive allegations in those paragraphs.
  1. The narrowest question raised by the present applications is whether it is appropriate to make an order for separate determination of the questions raised by those paragraphs as to the validity of the purported change event notice. The determination of those questions would raise the same or similar considerations as apply to a number of the applicants’ alleged grounds of invalidity of the purported change event notice, on its face. So it is appropriate to consider those questions first, bearing in mind that there may be a question of the utility of picking only limited questions for separate determination.
  1. One of the grounds of the respondents’ opposition is that there is an issue about whether cl 12 of the CSA should be given a broad and beneficial construction, on the one hand, or should be construed as containing particular limitations and requiring strict adherence to particular requirements, including whether particular kinds of matters were objectively within the contemplation of the parties as matters which would or would not fall within the operation of the clause, on the other hand.
  1. In particular, the respondents rely upon a statement from the reasons of the High Court in Electricity Generation Corporation v Woodside Energy Ltd[2] that:

 

“…[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract.  The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean.  This approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.  Appreciation of the commercial purposes or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties were operating’ …” (citations omitted)

  1. The respondents submit that evidence of market and other conditions, as contemplated by the parties at the time when the CSA was entered into, is relevant to and admissible upon the issues of construction of the agreement. However, the respondents do not identify any extrinsic facts which, on that footing, would inform their contentions as to the proper construction of the CSA. They do not do so either in the further amended defence or in any of the affidavits filed by them in opposition to the applications. Rather, they point to allegations made in the counterclaim as to the proper construction of cl 12 which they submit are intertwined.
  1. When faced with the difficulty that their allegations in the counterclaim as to the proper construction of the CSA are not pleaded by way of defence, the respondents’ counsel submitted that the defence could be amended to do so. However, since the matters of construction raised by the counterclaim are not presently live issues raised by the defence it would be inappropriate for me to attempt any analysis of them.
  1. So it appears that even the narrowest of the proposed separate questions is disputed as one which would raise the need for an unidentified and unquantified body of evidence. The respondents did not identify details of who would be called or the number of witnesses beyond stating that the evidence will include evidence from officers of the seller who were involved in the negotiations of the CSA, the officers of Shell who were involved in the negotiations of the CSA and current officers of the seller.
  1. As I commented during argument at the hearing of the application, the respondents’ approach and the evidence adduced in support of its opposition raise a question whether the respondents are complying with their implied undertaking to the Court and to the other parties to proceed in an expeditious way pursuant to UCPR r 5(3). That is a matter which the Court may have to keep under review.
  1. As foreshadowed, there are a number of other allegations of invalidity of the purported change event notice. They include the contents of the notice as to the effect of alleged rainfall events, during late 2010 and early 2011, and again in January and March 2013, increases in costs (whether it be the overall costs of production or increases in component parts of the costs of production) and the alleged failure of the respondents to continue to benefit under the CSA. They do not require separate further consideration at this point.
  1. A second category of the grounds of alleged invalidity is the allegation that the purported change event notice identifies cost and revenue impacts of the changes in circumstances cumulatively and together, rather than individually. A similar complaint is made that the stated options and alternatives to accommodate or mitigate the changes in circumstances are identified cumulatively and together rather than by reference to each change in circumstances, as are the costs and revenue impacts of those options and alternatives.
  1. It is unnecessary to say anything further about those allegations at this point.
  1. A significant part of the debate on the applications focused on whether it would be appropriate to order that separate questions be heard and determined as to the validity of the notices because they were not given in time. This is a third category of the grounds of alleged invalidity. The notice under cl 12.3(b)(i) is to be given promptly. The notice of change event under cl 12.3(b)(ii) is to be given as soon as practicable after the prior notice or upon the change event being known to the coal mine owners. Separate allegations are made in the statement of claim about the coal mine owners’ knowledge of particular categories of changes in circumstances identified in the purported change event notice. Thus, paragraphs 49 to 52 of the statement of claim allege as follows:

 

“49.Section 5 of the Second Notice identifies the market and economic conditions referred to in paragraph 4.4(a) of the Second Notice.

 

  1. Section 5 relevantly identifies the change in circumstances as being the change in the market and economic conditions from being weak, with an expectation of weak market conditions into the future at the time of entry into the Coal Supply Agreement to being strong conditions driven by the mining boom.

 

Particulars

 

See paragraphs 5.3 to 5.5 and 5.9 and 5.10 of the Second Notice

 

  1. The Coal Mine Owners gave the First Notice to the applicants on 6 November 2013 and the Second Notice to the applicants on 12 November 2013.

 

  1. To the extent (which is not admitted) that the market and economic conditions change in circumstances is capable of constituting a Change Event:

 

(a)The Coal Mine Owners did not provide the First Notice or the Second Notice within the times pleaded in paragraphs 46 and 47(b) respectively; and

 

Particulars

The best particulars the applicants can provide prior to completion of interlocutory steps is that the change in market and economic conditions identified in the Second Notice were known to the Coal Mine Owners by, at the latest, in 2009 which is to be inferred from paragraphs 5.9, 5.12 and 5.14 of the Second Notice.

 

(b)Accordingly, the First Notice does not comprise a Notice of Intention under clause 12.3(b)(i) and the Second Notice does not comprise a Change Event Notice under clause 12.3(b)(ii).”

  1. In response, par 47 of the further amended defence provides:

 

“The time between the episodes of severe wet weather experienced at the Callide Mine since 2010 was not sufficient for the Callide Mine to recover its operations from the preceding episode, resulting in the impacts from one episode compounding the impacts of the preceding episodes.”

  1. The applicants and the respondents submit that there will be evidence relevant to the timing of the notices on the hearing of any separate question as to whether the notices were given in time. The respondents submit that the factual issues likely to be raised are:

 

  1. when the respondents became aware of the [relevant] change event;
  1. when the respondents formed an intention to initiate a review;
  1. whether the notice of intention given on 6 November 2013 was given promptly; and
  1. whether the change event notice was given as soon as practicable in all the circumstances. 
  1. The respondents submit that those factual issues will require them to lead evidence of the occurrence of the underlying change or changes in circumstances, as to the occurrence and effect of the change or changes in circumstances relied upon in the circumstances surrounding the change or changes in circumstances described in the change event notice, and how the respondents came to be aware of them and their effect. Again, no details of who would be called and the number of witnesses have been provided, beyond evidence that the respondents would tender evidence of relevant officers of the seller, the steps taken to mitigate any effects of the changes in circumstances (whatever they might have been) and the occurrence of without prejudice discussions, including relevant decision making officers and relevant officers involved in accounting, mine planning, engineering and operations and geological conditions.
  1. The applicants seek to deflect those points. They submit that the respondents’ evidence as foreshadowed will not be relevant and therefore not admissible because a change event, as defined, occurs when a reasonable opinion is formed by the respondents that a change in circumstances has had or will have a material effect on their competitiveness in relation to the industry in which they operate. The trigger is not the change in circumstances itself. It is the formation of the reasonable opinion.
  1. At first blush I was inclined to accept that view. It is consistent with the respondents’ plea in par 47(g) of the further amended defence that named individuals formed the intention to initiate the review either in late March 2013 or 6 November 2013. But things are not so simple. The statement of claim alleges in the particulars given under par 52(a) that “the change in market and economic conditions identified in the Second Notice were [sic] known to the Coal Mine Owners by, at the latest, in 2009 which is to be inferred from paragraphs 5.9, 5.12 and 5.14 of the Second Notice”. Those facts are relied upon to support the allegation of invalidity of both the cl 12.3(b)(i) notice and the purported change event notice under cl 12.3(b)(ii) as being out of time. That is to say, the statement of claim alleges the fact, which may be disputed,[3] as to when the respondents became aware of the relevant change in circumstances. 
  1. The same pattern is repeated, for example, in relation to the allegation of awareness of a change in mine planning conditions as a change in circumstances in paragraphs 53 to 55 of the statement of claim. That is, basing themselves on something set out in the change event notice itself, the applicants allege an awareness on the part of the coal mine owners of the change in circumstances, comprising the changes to mine planning conditions from, at the latest, around 2012.
  1. It can be seen that it is the applicants, not the respondents, who raise the question of fact when the coal mine owners became aware of the relevant change in circumstances. Further, the applicants’ case is not confined to the dates which I have mentioned. Each of those particular dates is given as “the best particulars the applicants can provide prior to completion of interlocutory steps”, meaning before disclosure.
  1. In other words, the applicants seek to have tendered as a relevant issue of fact to be decided, at the hearing of a separate question, the time when the coal mine owners became aware of a relevant change in circumstances, by reference to individual subject matters, to be informed by disclosure and possibly other evidence. Thus, as the pleadings are presently framed, it is the respondents who focus on the relevant question, namely when the relevant intention to initiate a review was formed but it is the applicants who, by the particulars in their pleading, seek to open up the factual issue as to when the relevant changes in circumstances were known to the respondents.
  1. In proceeding BS12138/13 the applicants provide particulars of “when the change event became known” to the respondents and when the respondents knew that the matters alleged in the change event notice comprised a change event. The particulars are more detailed than in 12122/13. The particulars encompass a significant time period, including meetings occurring as early as 2006 in respect of one section, and data starting as early as 1998 in another.
  1. It might be thought that at least some of the matters set out in the particulars in each proceeding would not require extensive evidence. But there are two observations to be made. First, how extensive the evidence will be is not something about which either side has given any detail. Second, the particulars are provided on the footing that they are the best that can be given prior to the completion of interlocutory steps. So there may well be further allegations of knowledge on the part of the respondents made by the applicants.
  1. The foregoing oversimplifies the range of disputes and submissions upon which the parties engaged for the purpose of arguing the present applications. But in the circumstances, I think little further purpose would be served by greater exposition.
  1. In each proceeding, the applicants’ solicitor, an experienced commercial litigator, estimates that a determination of the issues sought to be raised by the exclusion of the counterclaim and hearing and determination of separate questions would take one to two weeks. That estimate includes the validity questions based on whether the notices were given in time. I was informed during the argument that the assessments were made about a hearing of those questions for both proceedings. The respondents’ solicitor is also an experienced litigator. By way of contrast, she says that such a trial of those questions will take between five and ten weeks, and potentially longer, if the applicants do not limit their cases in ways that she identifies.
  1. Some of the difference may be explained by the inclusion in her affidavit of matters I have not mentioned which may not be the subject of admissible evidence. But it is impossible, in an informed way, to try to unpick the estimates on either side, on the present evidence. As I raised at the hearing, an overall impression is created by the respondents’ affidavit material and submissions in opposition to the applications that every possible point in opposition is raised, whether reasonable or unreasonable. In any event, there is one criticism to be made. There are matters contained in one the affidavits of the respondents’ solicitor which are not appropriately contained in an affidavit. The matters of expert legal opinion or practice which should be tendered in evidence do not extend to matters of argumentative submission.
  1. A further point which occupied part of the oral hearing was the respondents’ contention that in the circumstances of this case the applicants are unable to avoid a factual dispute as to whether the changes in circumstances constituting the change event for the change event notice occurred and when they occurred. The applicants submit that those facts are not alleged in the statement of claim, are not properly put in issue in the defence and, therefore, would not be the subject of relevant and admissible evidence.
  1. In my view, that contention may not be wholly correct. I have already made some observations as to the form of the statement of claim as to the change event notice being given out of time. The applicants submit, however, that the separate questions as to whether the notices were given in time may be decided by assuming that the relevant change in circumstances and alleged change event had become known to the respondents before the relevant intention was formed.  As to that, there is a further point of opposition raised by the respondents.  They submit that if the validity of the notices is determined on that assumption, the decision will proceed on an assumed fact or facts which are neither agreed nor determined.  The respondents submit that to proceed in that way would be contrary to the reasons of the High Court in Bass v Permanent Trustee Co Ltd[4] where it was said:

 

“Judicial power involves the application of the relevant law to facts as found in proceedings conducted in accordance with the judicial process.  And that requires that the parties be given an opportunity to present their evidence and to challenge the evidence led against them.  It is contrary to the judicial process and no part of judicial power to effect a determination of rights by applying the law to facts which are neither agreed nor determined by reference to the evidence in the case.  However, that is what happened in this case.” (citations omitted)

  1. To the extent that it is submitted that a separate question should not be heard or determined if it involves a factual assumption which may have to be resolved later, I do not accept that the extracted passage means that it is always inappropriate to do so. In an earlier part of the same reasons for judgment,[5] the High Court set out with approval a passage from the judgment of Brooking J in Jacobson v Ross[6] as follows:

 

“Care must be taken to ensure that, in one way or another, all the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable … as facts assumed to be correct for the purposes of the preliminary determination or as facts which both sides accept as correct, or as facts which are to be judicially determined.” (emphasis added)

  1. As was more recently said by the High Court in Director of Public Prosecutions (Cth) v JM,[7] concerning the process of decision of a reserved question of law under the Criminal Procedure Act 2009 (Vic):

 

“It follows that before a trial governed by the CP Act begins, it will be possible to decide whether there is any issue between the parties about how the law applies to the acts, facts, matters and circumstances on which the prosecution intends to rely to support a finding of guilt.  The question which thus arises may said to be contingent upon the prosecution establishing the relevant facts to the requisite standard of proof.  But the question is not  hypothetical.

That the question is not hypothetical may be demonstrated by reference to the reasons for reserving questions which are set out in s 302(2) of the CP Act.  Determination of a question reserved may render the trial unnecessary (s 302(2)(b)(i)).  Determination of the question would do so if the matters relied on by the prosecution were held not to establish the offence charged.  Similarly, determination of a question reserved may substantially reduce the time required for the trial (s 302(2)9(b)(ii)) if some matters upon which the prosecution proposed to rely were held not to be necessary to establish the offence charged.

 

Further, to read s 302 of the CP Act as permitting reservation of questions arising for trial, by reference to the facts which the prosecution asserts it will prove at trial, does not differ in principle or effect from the demurer procedure which has been used by this Court throughout its history …”.[8]

  1. The point is not simply whether determination of a separate question might still require the determination of the contested issue of fact assumed for the determination of the question. That may be a reason which militates against an order to decide the separate question as a matter of discretion. But it does not provide an answer to an application for determination of a separate question as a matter of improper exercise of judicial power. For example, if the assumed (and disputed) fact will not have to be decided if the separate question is decided in one way, there may be sufficient reason to decide the question first, so as to potentially avoid the trial of that disputed fact. It depends on the circumstances.
  1. However, in the present case, it seems to me that there are two problems with the making of any relevant assumptions. First, what are the assumptions to be? At present, the scope of the factual foundations to determine the questions of validity because the notices were not given in time is not identified, whether as factual issues or assumptions. Second, a decision or judgment of the validity of the notices based on an assumption as to the time when events constituting a change in circumstances became known to the respondents and when the respondents formed the intention to initiate a review of the CSA might proceed on facts which are inconsistent with facts as to the same subject matters which will fall to be determined later, in the event the notices are invalid, as between the same parties, on the respondents’ counterclaim. In the present state of the issues and evidence, it is difficult to assess that potential problem further.
  1. The respondents raised a plethora of other grounds of opposition to the applications. It is not necessary to deal with all of them to further consider the applications. Instead, it is appropriate to proceed to the alternative scenario, that is, if there is no separate question to be heard and determined.
  1. If no order for a separate question is made, the applicants’ claims, the respondents’ defences and the respondents’ counterclaims will all proceed to a single trial. It is necessary to say something more about the respondents’ counterclaims. They include inconsistent alternatives.
  1. The first alternative assumes that the CSA is on foot but the applicants’ claims of invalidity of the change event notice are unsuccessful. The respondents allege that the applicants’ refusal to accept the validity of the notices and to attend a meeting under cl 12.5 of the CSA was a breach of cl 12.7 of the CSA. The respondents also allege that the applicants’ further refusal to participate in the referral of the dispute about whether the applicants have breached cl 12.7 of the CSA was a breach of cl 13.2 of the CSA, which provides for dispute resolution. The respondents allege that those breaches of contract have caused the respondents loss or damage because, but for them, the parties would have agreed to the adjustments to the CSA suggested in one of the proposed alternatives contained in the change event notice.
  1. Those allegations support a claim by the respondents for a declaration that the CSA is to be adjusted in accordance with one of those proposed alternatives and for damages.
  1. The inconsistent alternative claim is that the CSA is frustrated. There are two grounds of alleged frustration. The first is that, if the change event notice is not valid, the CSA has become impossible to perform other than in a manner fundamentally different from that which the respondents had undertaken to perform and is frustrated. The second is that, if the change event notice is valid, but no adjustment to the terms of the CSA would produce the result that both the coal mine owners and the station owners benefit under the CSA and remain competitive in relation to their respective industries, in accordance with the principles set out in cl 12.1(a), the respondents’ obligations are so changed that the CSA is frustrated.
  1. Each of those counterclaims proceeds on the footing of the positive allegation in the counterclaim of each of the relevant facts or circumstances comprising the changes in circumstances constituting the change event for the purpose of the change event notice.
  1. The parties are in agreement that the trial of all questions raised by those allegations will possibly take years to prepare (possibly until at least 2016) and the applicants’ solicitors opine a period of four (perhaps six) months to be heard. The respondents’ solicitor did not give an estimate of how long a trial of those questions would take. The approach taken is that it is too difficult to do so because the applicants have not admitted many allegations in the counterclaim. When a court is faced with the prospect of the utilisation of public resources over many months turning on the preparedness of the parties to frankly state to the best of their ability what they know about what will be required, such an approach does not assist in deciding how to proceed without undue delay, expense or technicality, as r 5 requires.
  1. In making their written submissions, the parties referred to numerous cases dealing with the relevant considerations upon the hearing of an application such as this. By and large, their references to the relevant cases and principles did not greatly differ. However, the cases relied on by the respondents call for one observation. It is illustrated by the respondents’ reliance on the contention that experience suggests that being too readily tempted by the promise of a saving of time and costs often results in the wasting of time and money and can cause delay.
  1. None of the cases relied upon by the respondents was one in which the court was faced with the alternatives of a week or two of trial on the one hand and a trial of four to six months on the other hand. But there is more to it than that. Despite the respondents best attempts to submit to the contrary, I am not yet persuaded that the issues which will be raised by its counterclaims upon the contract on the one hand and by its claim of frustration of the contract on the other hand are the same or closely similar.
  1. Further, the respondents’ submissions did not cover the range of possible outcomes if the proceedings are heard as one. The respondents positively submitted that one reason why the validity of the change event notice on the applicants’ claims should not be separately determined is because a possible outcome is that a particular notice may have contravened a requirement of the CSA, and be invalid, but that another notice could be given because time in giving the notice is not a factor going to validity. That point is a two edged sword. If it is right, a possible outcome of a trial of all the existing claims and counterclaims as one is that after a lengthy trial it may be determined that the notices were invalid, but the contract is not frustrated, and that further notices will have to be given and dealt with in the future before any question of breach of contract or damages for breach of contract on the part of the buyer arises.
  1. Returning to the relevant principles, the respondents submit that litigation that is large and complex does not create any predisposition against hearing all issues together. At that level of generality, and removed from any relevant context, in my view, that contention is of no particular assistance. In support of their submission, the respondents referred in particular to the passage from the reasons for judgment of Kirby and Callinan JJ in Tepko Pty Ltd v Waterboard[9] that:

 

“Single-issue trials, should in our opinion, only be embarked upon when their utility, economy and fairness to the parties are beyond question.”

  1. The respondents further submitted that any separation leading to an abbreviated course being adopted could be perceived as a course adopted for the court’s benefit rather than in the parties’ interest, by reference to another passage in those reasons.[10] 
  1. In my view, two things should be made clear in answer to those submissions. The first is that the overriding obligations of the parties and the Court contained in UCPR r 5 cannot be overlooked.  They are:

 

5Philosophy—overriding obligations of parties and court

 

(1) The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.

(2) Accordingly, these rules are to be applied by the courts with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules.

(3) In a proceeding in a court, a party impliedly undertakes to the court and to the other parties to proceed in an expeditious way.

(4) The court may impose appropriate sanctions if a party does not comply with these rules or an order of the court.

Example—

The court may dismiss a proceeding or impose a sanction as to costs, if, in breach of the implied undertaking, a plaintiff fails to proceed as required by these rules or an order of the court.

  1. Secondly, the significance of Aon Risk Services Australia Ltd v Australian National University[11] extends to the central role that r 5 plays in determining procedural matters generally, including the present circumstances.  One of the things said by the plurality in that case was:

“The achievement of a just but timely and cost-effective resolution of a dispute has an effect on the court and upon other litigants.”[12] (emphasis added)

  1. I do not regard it as impermissible for the Court to look for ways in which a proceeding can be speedily and less expensively determined in whole or in part, having regard to the prospect that a single trial of all the issues in the proceeding will require the deployment of an inordinate level of resources on the Court’s part, as well as by the parties. The time has long passed when courts can sanguinely confront the desires of parties to engage in total war, in preference to speedier and less expensive alternatives, even if the procedural alternatives may be attended by some real risk of failing to achieve a better outcome. If this case truly involves a trial of six months or about 120 hearing days, then considerations of the kind generated by “mega litigation” of which the C7 case, Seven Network Ltd v News Limited,[13] is an exemplar, start to intrude.  It is all very well for parties such as those in that litigation to be prepared to sink hundred of millions of dollars into the litigation.  It is another thing entirely to suggest that the cost to the community of providing the resources to try and decide the case should be borne in the interests of those parties without demur, or energetic attempts to see whether some other methodology short of such a trial cannot quell the controversy or parts of it. 
  1. For all that, I have reached two dispositive views about the present applications. First, although I consider that an order should probably be made to hear and determine some or all of the separate questions within the range applied for by the applicants, in advance of the other questions in the case, my view is also that it is not yet clear enough what the scope of the factual enquiry will be to hear and determine all of them. In particular, it does not seem to me that the ambit of the facts to be decided or assumed in relation to questions whether the purported notice under cl 12.3(b)(i) and the purported change event notice under cl 12.3(b)(ii) were given in a timely fashion has yet been established clearly enough. In those circumstances, it seems to me to be premature to make the orders sought by the applicants. The applications as presently framed should be refused.
  1. That conclusion is not answered by the separation of questions as to the validity of the notices be heard and determined separately from, and in advance of, the other questions in the proceeding, except for the questions whether the notice under cl 12.3(b)(i) was given promptly and whether the notice under cl 12.3(b)(ii) was given as soon as possible. As yet, the ambit of the facts which the parties may tender in evidence as surrounding circumstances relevant to the proper construction of cl 12 in respect of the subject matter of the applicants’ claims of invalidity is unclear.
  1. A possible way of proceeding may be for the Court to make directions calculated to define some or all of those facts and for the parties to identify the evidence by way of witness statements or summaries which they seek to tender on those facts. The Court would then be better placed to decide whether separate questions should be ordered to be determined. In passing, I note that a procedural step employed in other jurisdictions that may be considered in this case is to defer the question of the ambit of disclosure on those questions until after the relevant witness statements or summaries have been exchanged, so that only necessary disclosure is made.
  1. However, as the parties have not had the opportunity to make submissions on those matters, it would be inappropriate to take them further.
  1. Secondly, it seems to me that the trial of the separate questions advanced by the applicants could well exceed the maximum time of 10 days which is permitted under the practice direction for the hearing of cases entered on the commercial list. The demands upon the list at this time militate in favour of adhering to the limit.
  1. In those circumstances, an order which should be made is that the case be transferred to the supervised case list. From my brief involvement with each of the proceedings so far it seems clear enough that it is a case which requires active and ongoing management, if the prospect of a long delayed and extremely long trial is to be minimised. Accordingly, with the concurrence of the senior judge administrator and Flanagan J, I propose to order that the proceeding be placed on the supervised case list to be managed by Flanagan J.
  1. I will hear the parties on costs.

 

Footnotes

[1] Callide Power Management P/L & Ors v Callide Coalfields (Sales) P/L & Ors (No 2); CS Energy Ltd v Callide Coalfields (Sales) P/L & Ors [2014] QSC 205, [3]-[11].

[2] (2014) 88 ALJR 447, 454-5 [35].

[3] The allegation is made in the particulars which are not responded to directly.

[4] (1999) 198 CLR 334, 359 [56].

[5] (1999) 198 CLR 334, 358 [53].

[6] (1995) 1 VR 337, 341.

[7] (2013) 250 CLR 135.

[8] (2013) 250 CLR 135, 153-4 [30]-[32].

[9] (2001) 206 CLR 1, 55.

[10] Tepko Pty Ltd v Waterboard (2001) 206 CLR 1, 55.

[11] (2009) 239 CLR 175.

[12] (2009) 239 CLR 175, 211, [93].

[13] [2007] FCA 1062.

Close

Editorial Notes

  • Published Case Name:

    Callide Power Management P/L & Ors v Callide Coalfields (Sales) P/L & Ors No 2; CS Energy Ltd v Callide Coalfields (Sales) P/L & Ors

  • Shortened Case Name:

    Callide Power Management Pty Ltd v Callide Coalfields (Sales) Pty Ltd No 2

  • MNC:

    [2014] QSC 216

  • Court:

    QSC

  • Judge(s):

    Jackson J

  • Date:

    02 Sep 2014

Litigation History

No Litigation History

Appeal Status

No Status