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Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Ltd[2015] QSC 37

Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Ltd[2015] QSC 37

 

SUPREME COURT OF QUEENSLAND 

 

CITATION:

Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Limited [2015] QSC 37

PARTIES:

QUEENSLAND BULK HANDLING PTY LTD
ACN 010 284 509

(plaintiff/applicant)

v

PEABODY (WILKIE CREEK) PTY LIMITED

ACN 007 683 454

(defendant/respondent)

FILE NO/S:

SC No 6085 of 2014

DIVISION:

Trial Division

PROCEEDING:

Hearing

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

27 February 2015

DELIVERED AT:

Brisbane

HEARING DATE:

1 December 2014

JUDGE:

Philip McMurdo J

ORDER:

Declaration that the applicant and the respondent were bound to enter an agreement under cl 3.1(f) of the Coal Port Services Agreement made between them and dated 26 March 2009, upon substantially the same terms as that 2009 agreement and otherwise according to cl 3.1(f), within 30 days of 8 July 2013. 

CATCHWORDS:

CONTRACTS — GENERAL CONTRACTUAL PRINCIPLES  — FORMATION OF CONTRACTUAL RELATIONS — where the parties had made a written agreement containing a provision for a possible further term (the “Option Term”) — proper interpretation of that term of the Agreement which provided for a further “Option Term” — where the contractual term providing for a further term provided a sequence of steps — where the term obliged the plaintiff to “obtain agreement in principle” — intention of the parties to be bound — where the parties were bound to enter an agreement for the Option Term upon substantially the same terms as the Agreement

CONTRACTS — GENERAL CONTRACTUAL PRINCIPLES — CONSTRUCTION AND INTERPRETATION OF CONTRACTS — INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS —where the parties had made a written agreement containing a provision for a possible further term, described as the “Option Term”  — proper interpretation of term of an Agreement which provided for further term— where the term obliged the plaintiff to “obtain agreement in principle” — intention of parties to be contractually bound — where the parties were bound to enter an agreement for the Option Term upon substantially the same terms as the Agreement

INTERPRETATION — GENERAL RULES OF CONSTRUCTION OF INSTRUMENTS — COMMERCIAL AND BUSINESS TRANSACTIONS — PARTICULAR TRANSACTIONS — where the parties had made a written agreement containing a provision for a possible further term (the “Option Term”) — proper interpretation of that term of the Agreement which provided for a further term or “Option Term” – where the contractual term providing for a further term provided a sequence of steps — where the term obliged the plaintiff to “obtain agreement in principle” — intention of the parties to be bound — where the parties were bound to enter an agreement for the Option Term upon substantially the same terms as the Agreement

Uniform Civil Procedure Rules 1999 (Qld)

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, considered

GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631

COUNSEL:

B O'Donnell QC, with R B Dickson for the plaintiff/applicant

J Karkar QC, with P Franco QC for the defendant/respondent

SOLICITORS:

Campbell Standish Partners for the plaintiff/applicant

Johnson Winter & Slattery for the defendant/respondent

  1. At the Port of Brisbane there is a coal export terminal which is operated by the plaintiff (“QBH”).  The defendant is a coal mining company which has used this facility as it has exported through the Port.  The parties made a written agreement dated 7 September 2009 for the terms and conditions of that use for a period which expired on 31 December 2014 (“the Agreement”).  It contained a provision for a possible further term, to commence 1 January 2015 and expire on 31 December 2026.
  2. QBH says that in the events which have happened, the parties are contractually bound for that further term.  The defendant (which I will call Peabody) denies that the parties are so bound and says therefore that their contractual relations ended on 31 December last.  The relevant events are not substantially in question.  The dispute turns upon the proper interpretation of that term of the Agreement which provided for a further term, which it described as “Option Term”. 

Surrounding circumstances and commercial purpose

  1. At least most of the commercial context of the Agreement was recorded in its Recitals which included the following (the User being Peabody):
     

“A.The Port of Brisbane Corporation leases land and licenses infrastructure comprising the Coal Export Terminal at the Port of Brisbane to QBH which has operated the facility since 1983.  The Coal Export Terminal includes the Rail Unloading Facility, Stockpile Areas, and the Wharf.  QBH also owns and operates machinery and infrastructure for the purpose of operating the Coal Export Terminal.

B.The User mines Coal which it wishes to export through the Coal Export Terminal.

C.A number of existing Customers of QBH (Existing Customers) have utilised the services of QBH to take delivery of Coal by rail, allocate stockpile capacity for it for varying lengths of time, manage stockpiles and load it into ships provided by the Customers.  This has always been on an informal basis.  Those Existing Customers wish to continue to utilise the whole of the existing stockpile capacity of QBH for the foreseeable future.

D.Existing Customers have indicated they wish to continue to utilise the QBH services.

E.One Existing Customer, and potential new Customers (Expansion Customers), wish to secure from QBH an allocation of additional stockpile capacity, which cannot be accommodated within the existing stockpile capacity and have QBH take delivery of Coal by rail, manage the stockpiles, and load it into ships provided by the Customers.

…

J.The User is …

  • an Existing Customer only. …”
  1. As was there recorded, QBH occupied the relevant part of the port as a lessee and licensee from the Port of Brisbane Corporation (“PBC”).
  2. Those recitals referred to an expansion of the capacity of the Terminal.  That expansion was completed by about October 2010.  What was called the “pre-expansion” capacity of the Terminal was used by two entities:  New Acland Coal Pty Ltd and Peabody.  After that expansion, New Acland Coal increased its allocation and a third entity, Syntech Resources Pty Ltd, also used the Terminal.
  3. QBH sought to tender agreements which it made in 2009 with New Acland Coal and Syntech Resources.  Like the (present) Agreement, those contracts had a duration from 1 April 2008 to 31 December 2014, the same terms for rates and charges and a clause for a further period the same as that which is the subject of this proceeding.  QBH also sought to prove that these contracts and their terms were known by Peabody at the time that it entered into the Agreement.  Peabody objected to this evidence on the basis that it was irrelevant.  It was agreed that I could decide that question in the course of this judgment. 

Terms of the Agreement

  1. Clause 2.1 provided for the date of commencement of the Agreement and for “the Initial Term” which was defined[1] to mean the period from the commencement date to 31 December 2014.  Clause 2.1 was a form which made certain provisions for “the Existing Customers” and other provisions for “Expansion Customers”.  For the former (which included Peabody), the commencement date was 1 April 2008.[2]
  2. By cl 4.1, QBH agreed that Peabody would have a certain stockpile capacity at the Terminal, to be available to accommodate coal on one week’s notice to QBH.
  3. Clause 6 provided for the services, such as the provision of equipment and facilities at the Terminal, which QBH was to provide. 
  4. Clause 7.3 required Peabody to provide for export Peabody’s “Minimum Annual Throughput each Year”.  A “Year” meant a year commencing on 1 April during the operation of the Agreement.  The term “User’s Annual Throughput” was defined to mean “the actual amount of Coal exported by the User in a Year determined in accordance with [the Agreement]”. 
  5. Clause 7.3(b) provided that if the User’s Annual Throughput was less than a certain quantity and as a consequence, QBH was required to surrender a part of its lease from the PBC, Peabody would be liable to QBH for the whole or part of the cost associated with the surrender of part of that lease.  There were further terms which permitted QBH, in some circumstances to offer to another customer the stockpile capacity to which Peabody was entitled if Peabody failed to export a certain Annual Throughput.[3]  That provision was not the only indication that the non-performance of the Agreement might affect the contractual position between QBH and the Port Corporation.  That was also indicated by cl 1.3 and Appendices 4, 5 and 6. 
  6. Clause 18.3(a) provided that if as a result of Peabody failing to export a certain quantity through the Terminal, QBH surrendered its lease of the area the subject of certain stockpiles, then, in addition to all other obligations, Peabody would pay to QBH one half of “the Termination Fee which would be payable in the event QBH terminated the Agreement at that time by way of liquidated damages …”.  Clause 18.3(b) provided that Peabody would pay the Termination Fee by way of liquidated damages in the event that the Agreement was terminated by QBH for its default.  The amount of the Termination Fee was to be according to Appendix 8.  It provided that the fee would be $20 million for a termination between 1 April 2008 and 30 June 2013, $10 million if terminated in the year to 30 June 2014 and “$10 million reduced proportionately for each day less than a year” if terminated from 1 July 2014 onwards.
  7. Clause 12 required Peabody to pay certain charges during the Initial Term.  It further provided for the escalation of those charges, according to formulae set out in Appendix 7 of the Agreement.  A new Appendix 7 was agreed within a Deed of Amendment which the parties executed and dated 8 October 2010.  The same new escalation formulae were included in the contracts of QBH’s other coal customers at the terminal. 

The “Option Term”

  1. The present case turns upon the proper interpretation of these provisions for a further agreement beyond 31 December 2014:

“3.Right of First Refusal - Option

3.1Right of First Refusal - Option

If:

(a)the User is not in substantial breach of this Agreement, and has not on a consistent basis been in breach of the Agreement (whether substantial or not), and

(b)between 24 and 18, months before the expiration of the Initial Term the User provides to QBH a binding indication of preparedness to commit to continue to require the User’s SSC at that time and such minimum annual throughput for the Option Term as will be required by the PBC on a pro rata basis determined by comparison of the User’s SSC with the QBH SSC, together with supporting Capacity Criteria Information, and

(c)by 18 months before the Option Term commences, QBH has sufficient binding commitments from all Customers as to Static Stockpile Capacity and minimum annual throughputs for the Option Term to justify seeking from the PBC an extension of the rights to access and use the Coal Export Terminal,

then:

(d)QBH must make reasonable endeavours for 90 days to obtain agreement in principle from the PBC on reasonable commercial terms acceptable to QBH for the continued right to access and use the Coal Export Terminal for a period equal to or greater than the Option Term, and

(e)if QBH obtains agreement in principle from the PBC on reasonable commercial terms acceptable to QBH for the continued right to access and use the Coal Export Terminal and with the same Stockpile Areas as it then leased, for a period equal to or greater than the Option Term, QBH must notify the User of same within 14 days, which notice must also include confirmation:

(i)of the base rates and escalation formula proposed by QBH for the Option Term, including reasonable details of any proposed reset, consistent with Clause 3.2; and

(ii)that the terms on which QBH is offering capacity to other then current Customers as to the rates, capital contribution for any necessary further expansion of the Coal Export Terminal, infrastructure upgrades, security, and any other matters QBH proposes in order to provide the requested SSC applicable for such Option Term are substantially the same for all               Customers and potential Customers, and

(f)if within 30 days of the notice in Clause 3.1(e), the User has entered into an agreement for the Option Term for the User’s then current Static Stockpile Capacity (comprised of Existing or Expansion Capacity) on substantially the same terms as this Agreement (omitting the provisions regarding Infrastructure Upgrades and the Expansion Project as these are completed during the initial Term and the User’s obligations to pay any Expansion Charge, Interim Capacity Charge and Infrastructure Upgrade Charge, which are payable during the Initial Term only) and such other terms as referred to in Clause 3.1(e)(ii) as are agreed by the User, conditional upon:

(i)QBH obtaining from the PBC the continued right to access and use the Coal Export Terminal for a period equal to or greater than the Option Term, and

(ii)other Customers entering into agreements within the same time on similar terms and for the same duration to justify QBH seeking to enter into the agreements with the PBC contemplated by Clause 3.1(f)(i), with QBH relying on the Customers’ Capacity Criteria Information,

then:

(iii)QBH will use reasonable endeavours for a further 90 days to obtain from the PBC on reasonable commercial terms acceptable to QBH the continued right to access and use the Coal Export Terminal for a period equal to or greater than the Option Term, and

(iv)QBH will notify the User whether it has obtained the right in Clause 3.1(g) within 7 days of the right being obtained or refused.

3.2Other provisions

(a)QBH intends to charge the same rates as would apply immediately prior to the commencement of the Option Term but in the event the Escalation Formula has failed to ensure QBH has recovered increases in costs (as determined by an independent auditor engaged by QBH) the Parties agree that the base rates and the escalation formula will be reset at that time, as recommended by that auditor, whose decision will be final and binding on all Parties and not subject to the dispute resolution provisions in Clause 19.  For the avoidance of doubt, the Parties agree and acknowledge that the Escalation Formula is not intended to ensure recovery of increases in costs by way of Change in Law costs, PBC Rental Increases, and carbon trading costs if same are recovered under other provisions of this Agreement, or costs arising from wrongful acts or omissions of QBH.

(b)Unless the User fails to give a binding indication of preparedness in accordance with Clause 3.1(b) or enter into the agreement in accordance with Clause 3.1(f), QBH will ensure that (if its QBH Lease(s) for the Coal Export Terminal are extended or it is granted new QBH Lease(s) for the same area as the QBH Lease(s) immediately prior to the commencement of the Option Term) at least the SSC which applied for the Initial Term is available to the User for the Option Term.

(c)QBH will

(i)notify the User and other Customers of any previously allocated Customer Static Stockpile Capacity which may become available as the result of (without limitation) a Customer relinquishing part or all of its SSC or for any other reason and invite requests from Customers (to be supported by Capacity Criteria Information) for allocation of that capacity, and

(ii)QBH will in its discretion, acting reasonably, allocate that capacity to one or more Customers having regard to the Capacity Criteria Information and such other matters QBH considers to be relevant at the time.

(d)In the event that QBH has less Static Stockpile Capacity than it had prior to the expiry of the Initial Term, the quantities of SSC which QBH will offer to Customers (again having regard to the Capacity Criteria Information) will be correspondingly reduced, with QBH being entitled to offer and allocate capacity in quantities to ensure maximum utilisation of the QBH SSC, having regard to operational constraints such as the quantity of Coal which can be accommodated on a Stockpile Area.

(e)In the event there are insufficient commitments from Customers to allocate all available QBH SSC, QBH may offer capacity to potential new Customers who are not existing Customers of QBH.”

  1. Clause 3.1 thereby provided for a sequence of events or steps as follows:
  1. a notice by Peabody under cl 3.1(b);
  2. the receipt by QBH of “binding commitments from all Customers” under cl 3.1(c);
  3. endeavours by QBH to obtain agreement in principle from the PBC under cl 3.1(d);
  4. that agreement in principle being reached:  cl 3.1(e);
  5. a notification by QBH to Peabody under cl 3.1(e);
  6. an entry into an agreement for the Option Term under cl 3.1(f);
  7. other customers entering into agreements within the same time on similar terms and for the same duration:  cl 3.1(f)(ii);
  8. endeavours by QBH to agree terms with PBC for use of the terminal for a period of no less than the Option Term:  cl 3.1(f)(iii);
  9. notification by QBH to Peabody on obtaining that agreement with PBC or upon its being refused:  cl 3.1(f)(iv).

The facts

  1. Step (1) occurred by a letter from Peabody to QBH dated 28 June 2013. 
  2. As to step (2), New Acland Coal Pty Ltd wrote to QBH on 20 May 2013 giving notice under the identical provision of its contract of its “binding indication of preparedness to commit”.  And on 28 June 2013, a letter was written to QBH on behalf of Syntech Resources providing its “binding indication of preparedness to commit” under the identical provision of its contract.  Peabody does not concede that step (2) occurred.  The effect of its pleading is to put QBH to proof of the letters to which I have just referred.  The letters are proved.  There is no issue raised as to whether the quantities for those other Customers were “sufficient … to justify seeking from the PBC an extension of the rights to access and use the Coal Export Terminal …”.  Nor is it suggested that a “binding commitment” within cl 3.1(c) was something different from “a binding indication of preparedness to commit” within cl 3.1(b).  In summary, I find that step (2) occurred.
  3. There is no suggestion that Peabody was in substantial breach of the Agreement.[4]  Therefore, steps (1) and (2) having occurred, it fell to QBH to take step (3), namely to make reasonable endeavours to obtain an agreement in principle from PBC on reasonable terms acceptable to QBH.
  4. QBH obtained an agreement from PBC.  It obtained more than an agreement in principle:  it concluded a final agreement with PBC.  It extended its leases for a period of 12 years to 6 April 2027.  There are other documents, dated 28 June 2013, which evidence the exercise by QBH of an option to renew its wharf licence. 
  5. At an interlocutory hearing on 21 November last, I was told that there was an issue as to whether QBH’s agreement with PBC was on “reasonable commercial terms”.  This explains the second of the questions for preliminary determination, which are set out below.  It was then accepted that this was an issue which had been raised by Peabody.  But counsel for QBH now submits that there is no issue on the pleadings as to whether the terms agreed with PBC were reasonable commercial terms.  In its pleading, Peabody denied the allegation that the condition that QBH obtain the continued right to use the Terminal (step (4)) was satisfied.[5]  But there was nothing pleaded about the reasonableness or otherwise of the terms.  Nor was there any submission by Peabody that any terms were unreasonable, or at least, that these were terms not demonstrated to be reasonable.  In short, there is no issue as to the reasonableness of the terms of QBH’s agreement with PBC.
  6. The only argument apparently advanced for Peabody as to step (3) is that, by reaching a final agreement with PBC, QBH did not observe the required step of first reaching an agreement in principle with it.  I will return to whether this matters for the outcome.
  7. On 8 July 2013, QBH gave a notice which purported to be in compliance with cl 3.1(e), or in other words step (4). It wrote to Peabody in (relevantly) the following terms:

“Pursuant to Clause 3.1(e) of the CPSA, QBH advises and notifies you that:-

It has obtained agreement from Port of Brisbane Pty Ltd on reasonable commercial terms acceptable to QBH for the continued right to access and use the Coal Export Terminal and which will include, but not be limited to, the current Stockpile Areas it currently leases, for a period equal to or greater than the Option Term.

(i)it proposes to charge the current base rate as escalated in accordance with the current escalation formula, for the Option Term.  QBH proposes to continue to use the current escalation formula in determining the rates to be charged during the Option Term; and

(ii)capacity at the existing premises is currently only being offered to current Customers as all current Customers have provided binding indications of preparedness to require their current SSC for the Option Term.  The Terms for the provision of the SSC to all current Customers are the same.

QBH hereby provides a draft Deed of Amendment for the CPSA.  We look forward to discussing with you the terms of such draft Deed of Amendment.”

  1. The Deed of Amendment which was with that letter would, if agreed, have recorded the renewal or extension of the Agreement for the Option Term, according to the terms of the Agreement but amended in the respects set out in a schedule to that Deed.  Those amendments included the deletion of cl 3.1.  There was no amendment of the liquidated damages provisions. 
  2. The proposed Deed of Amendment, taken with the letter which accompanied it, sufficiently explained the terms on which QBH was offering capacity to other then current Customers as required by cl 3.1(e)(ii).  The Deed was not expressed to be conditional upon the entering into agreements on the same or similar terms with other Customers (step (7)). 
  3. Apart from the doubt about whether a concluded agreement was sufficient for step (3), QBH notified Peabody as required by cl 3.1(e) and step (4) was taken. 
  4. QBH pleads that it provided a revised form of Deed of Amendment on 30 October 2013.  Peabody denies receipt of it.  But what is common ground is that on 13 December 2013, Peabody wrote to QBH to the effect that it did not wish to “continue discussions in relation to an amendment and extension of [the Agreement]” and that it disputed that it was “bound in some way to an extended port agreement”. 

The questions

  1. At an interlocutory hearing I ordered, under UCPR r 483(1), that the following questions be determined separately and before the trial of the proceeding:
    1.               What was the contractual effect, if any, of the notice given by the defendant to the plaintiff on 28 June 2013?
    2. Whether in terms of clause 3.1(b) of the Coal Port Services Agreement between the parties, any terms which are acceptable to the plaintiff constitute ‘reasonable commercial terms’ under that clause?
    3. If yes to Question 2, whether the parties became contractually bound for the Option Term as referred to in clause 3.1?”

The arguments

  1. In essence, QBH argues that by taking step (1), Peabody and QBH became contractually bound.  An agreement between them was made which, subject to the occurrence of step (2), required QBH to take step (3) (endeavour to obtain an in principle agreement with PBC).  If and when step (3) was achieved, QBH was obliged to give the notice under cl 3.1(e) (step (4)).  That notice having been given, QBH argues, the parties were bound to record what was their existing contractual position for the Option Term, albeit a contract which contained conditions precedent to performance as specified in cl 3.1(f)(i) and (ii). 
  2. Peabody argues that it is not bound under any agreement for the Option Term.  Step (1) having occurred, QBH had to pursue an agreement in principle with the PBC.  Even accepting (which Peabody does not) that there was an agreement in principle obtained according to cl 3.1(d), and that QBH gave a notice under cl 3.1(e), Peabody says that neither party was then under any further obligation in respect of a possible agreement for the Option Term, unless and until an agreement was entered into under cl 3.1(f).  That not having occurred, there is no agreement between the parties for the Option Term.
  3. An important part of QBH’s argument is that step (1) involved a binding indication.  Similarly, step (2) involves “binding commitments from all Customers”.  It is submitted that the word “binding” could mean only something by which Peabody (and other customers) became bound, which could mean only, in this context, contractually bound. 
  4. Clause 3.1(b) did not provide that an agreement for the Option Term would come into existence upon the provision by Peabody of that “binding indication”.  But QBH argues that Peabody did become contractually bound, in the sense of being bound by an agreement for the Option Term if steps (2), (3) and (4) occurred. 
  5. As to the meaning of the word “binding” in this context, Peabody argues that the word was synonymous with “sufficiently firm”.  It says that the purpose of steps (1) and (2) was to assist QBH in seeking an agreement in principle with PBC, because “by requiring Users to give a binding indication, QBH arms itself with documentation that it can take to PBC and persuade PBC to treat with QBH”.  It submits that by that means, QBH could show PBC that there was “a sufficiently firm (to use a neutral word) interest from Users to justify QBH and PBC seeking to reach agreement in principle for the Option Term”.[6]  The commercial purpose of steps (1) and (2) was limited to ensuring that there was a “sufficient genuine interest from Users to justify QBH approaching PBC for an in‑principle agreement”, in contrast to the object intention of cl 3.1(f), which was to ensure that QBH had sufficient concluded agreements to warrant QBH entering into a concluded agreement with PBC. 
  6. The next argument for QBC focuses upon the word “Option”.  Clause 1.1 defines “Option” as “the option for extension of this Agreement in Clause 3”.  QBH argues that for cl 3 to confer an option, it must entitle one party, by unilateral action, to compel the other to perform an agreement for the further term. 
  7. The word “binding” in cl 3.1(b), Peabody argued, must be seen in the context that it is used as part of the phrase “binding indication of preparedness to commit”, as distinct from becoming immediately contractually bound.  Step (1) could be relied upon by QBH to seek expenses wasted by QBH’s negotiating with PBC an agreement in principle that led nowhere.
  8. As to that submission, Peabody says that the word “Option” is not used within any of the sub-clauses of cl 3.1.  The use of that word in the heading of cl 3.1 and also the heading of cl 3 is of no consequence.  Further, Peabody says that cl 3.1 confers an option in the sense that it gives Peabody “the option of providing a clause 3.1(b) notice”.[7]  And the presence of the word “Option” in the headings does not assist when the headings also refer to a “Right of First Refusal”, which further obscures any significance in the word “Option” within the headings.
  9. The next submission for QBH relies upon cl 3.2(a).  It provides for the possible “reset” of the base rates and the escalation formula by an independent auditor, “whose decision will be final and binding …”.  QBH argues that the auditor’s determination would precede step (6), the entry into the written agreement under cl 3.1(f).  In that context, the auditor’s determination could be binding on the parties only if they were contractually bound to enter into a written agreement under cl 3.1(f).  If Peabody was free to walk away at any time before entering into such an agreement, the auditor’s determination could not be final and binding. 
  10. Peabody’s response addresses the particular way in which cl 3.2(a) is relied upon in QBH’s submission.[8]  The apparent response of Peabody is that this requires some implication, because the express words do not provide for that sequence. 
  11. QBH further argues that cl 3 provides for “working out the essential terms of the agreement for the Option Term” without the need for any further agreement.  Peabody’s response focuses upon QBH’s pleading in this respect, where it is alleged that apart from the terms as to static stockpile capacity, rates, escalation and limitation of liability,[9] the agreement of the Option Term would otherwise be “substantially the same terms as the existing agreement adapted, as appropriate, to the period of the option, together with such additional terms, if any, as may be agreed between QBH and Peabody”.[10]  Peabody says that reasonable minds might differ as to what adaptations were appropriate.  It provides two examples.  The first involves the liquidated damages provision under cl 18.3 to which I have referred at paragraph 12.  The second is whether cl 3 itself would be part of the new agreement and if so in what terms.
  12. QBH says that its interpretation is supported by the context that the process in cl 3.1 was to operate in parallel with an identical process involving other users, whose agreements were in relevantly identical terms.  This meant, it is argued, “that there was no scope for individual negotiation between QBH and Peabody on essential terms such as rates, escalation formula … to apply during the option period”.
  13. More generally, Peabody submits, cl 3 contained no express obligation upon Peabody to enter into an agreement for a further term.  Rather, it was given a discretion as to whether it would do so, which is demonstrated by cl 3.2(b).  That provision provides for two distinct contingencies, one being the non-occurrence of step (1) and the other the non-occurrence of step (6). 

Resolution

  1. The court must objectively construe the contract, guided by the authorities as recently summarised in this passage in the joint judgment of French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation v Woodside Energy Ltd:[11]

“35… 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.  That 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 purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.  As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’.  A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”

(Footnotes omitted)

  1. One part of the context which is said to have been relevant here was the existence of like agreements with other users.  As cl 3 demonstrates, the coexistence of like agreements with those parties was relevant and indeed critical to QBH in dealing with PBC.  The precise terms of the agreements with other users for the original period are said to have been known to Peabody at the time that it entered into the Agreement.  That is put in issue in Peabody’s defence, although curiously, by a non-admission rather than a denial.  Absent proof of that fact, the particular terms of the agreements with other users could not be properly considered in construing the subject Agreement.  But I have concluded, without reference to the terms of those other contracts, that the case for QBH should be upheld, for the following reasons. 
  2. The principal reason is that the submissions for Peabody do not provide any persuasive explanation of a sense in which step (1) could have been “binding”, but not contractually binding.  At its highest, Peabody’s argument is that an indication by it under cl 3.1(b) could oblige it to pay to QBH any expenditure wasted by QBH in acting in reliance upon Peabody’s indication.  Just what would be the legal basis for that obligation to pay expenses was not developed in Peabody’s submission.  Nor was there any indication in cl 3 of such an obligation.
  3. The occurrence of steps (1) and (2) had the consequence of obliging QBH to take step (3).  It is evident from cl 3.1(c) that QBH regarded the demand for use of the Terminal by not only Peabody but also other Users as essential if Peabody was to have an agreement for the Option Term.  Yet there is nothing to suggest any reason why QBH would have required any different indication or commitment from other users than that to come from Peabody.  And cl 3.1(c) refers to “all Customers” rather than to “all other Customers”, so that it included Peabody.  It follows that a “binding indication of preparedness to commit” was the same as a “binding commitment”. 
  4. Peabody was therefore “bound” in a contractual sense having taken step (1).  The question then is:  what was the content of that contractual obligation? 
  5. Upon the occurrence of step (3), QBH was to notify Peabody of that occurrence and of the matters within cl 3.1(e)(i) and (ii).  By notifying Peabody of the terms on which it was offering capacity to other current Customers, in order to provide that the new contracts for the Option Term would be substantially the same for all Customers, QBH was thereby notifying Peabody of the terms which it proposed for Peabody’s Option Term. 
  6. The fact that QBH might offer new and different terms was not inconsistent with the parties being contractually bound at that time to perform an agreement for the Option Term.  They were bound for a further term in “substantially the same terms as this Agreement (omitting the provisions regarding Infrastructure Upgrades and the Expansion Project as these are completed during the Initial Term and the User’s obligations to pay any Expansion Charge, Interim Capacity Charge and Infrastructure Upgrade Charge, which are payable during the Initial Term only)”.[12]  But at the same time, the parties were free to include “such other terms as referred to in Clause 3.1(e)(ii) as … agreed by the User”.[13]  In that way, the provision for an agreement for the Option Term, being step (6), could be seen as an example of what was described by McHugh JA (as he then was) in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd.[14]  McHugh JA there said:

“Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound.  Upon the proper construction of the document, it may sufficiently appear that ‘the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms’:  Sinclair, Scott & Co Ltd v Naughton.”

  1. It is true that cl 3.1(f) is not in the form of a promise by Peabody (or QBH) to enter into an agreement as there described.  Rather, it is in the form of the expression of a contingency, the occurrence of which would engage the promises by QBH which are set out in cl 3.1(f)(iii) and (iv).  However, cl 3.1(f), of course, must be considered in the context of cl 3 as a whole.  As Peabody would have it construed, neither party would be bound in any respect although steps (1) to (5) had been taken.  In that event, unless an agreement under cl 3.1(f) was entered into, each party would be at considerable commercial risk.  Having decided to extend the duration of its use of the Terminal, Peabody would have had no entitlement to that use on any terms and conditions.  On an objective view, that is unlikely to have been Peabody’s intention. 
  2. There was no uncertainty as to what might constitute the terms of an agreement for the Option Term under cl 3.1(f).  They were to be terms which were substantially the same as the (existing) Agreement.  Naturally, that required a document which was not a precise replication of the Agreement.  It required some modifications from the fact that some provisions, which by their terms, could have been applied only within the operation of the (original) Agreement, would not be included.  An example is the provision for liquidated damages, because Appendix 8 provided for its operation only by reference to particular time periods.
  3. Peabody suggested a further difficulty from the absence of an express exclusion of an identical provision to cl 3 for an agreement under cl 3.1(f).  In my view, it is clear enough that the parties did not intend to make the agreement one which was perpetually renewable.
  4. It is true that cl 3.2(b) distinguishes between steps (1) and (6).  But that does not strongly indicate that Peabody was able to refuse to enter into the Agreement which is step (6).  Rather, the intention of the parties in this respect was to identify the ways in which Peabody would not have an entitlement for the Option Term (other than the entitlement conferred by cl 3.2(b)).
  5. Then there was the provision for the parties to be bound by an auditor’s determination under cl 3.2(a).  The evident intention was that if QBH proposed different base rates and/or a different escalation formula (or in other words a “reset”) it was to do so in its notice under cl 3.1(e).  It was then open to Peabody to agree or disagree with that proposal.  In the former case, those terms would be in the category of “such other terms … as are agreed by the User” under cl 3.1(f).  In the latter case, the matter would be resolved by the auditor under cl 3.2(a).  I do not accept QBH’s submission that the auditor’s determination would have to precede the entry into of an agreement under cl 3.1(f).  In that context, the parties were to enter into that agreement within 30 days of QBH’s notice.  If the auditor’s determination was made by then, the auditor’s determination would be reflected in that agreement.  But if not, then the rates and escalation formula, according to the cl 3.1(f) agreement which the parties were to sign, would be as subsequently determined by the auditor. 
  6. But more generally, the submission for QBH about cl 3.2(a) has force, because the words of cl 3.2(a) are inconsistent with the notion that the parties were not at all contractually bound after step (5) but preceding an agreement under cl 3.1(f). 
  7. I return to the question, noted above, as to whether it matters that QBH reached a concluded agreement or agreements with PBC, rather than simply an agreement in principle.  In my view, it would be nonsensical for cl 3 to then have no operation, from the fact that QBH’s ability to become unconditionally bound for a further term became clear at an earlier date.  In particular, the parties cannot have intended that Peabody would lose its entitlement to such a further term, having elected under cl 3.1(b), by the fact that the negotiations between QBH and PBC had been more expeditious.  Therefore, a concluded agreement satisfied cl 3.1(d) and was an agreement which obliged QBH to give the notice required by cl 3.1(e).  In turn, it required an agreement under cl 3.1(f), albeit one which was not conditional as stipulated by cl 3.1(f)(i) and one which made it unnecessary for QBH to perform steps (8) and (9). 
  8. Therefore in the events which have occurred, Peabody and QBH were obliged to enter an agreement for the Option Term upon substantially the same terms as the Agreement (with the omissions specified in cl 3.1(f)) within 30 days of QBH’s notice which was dated 8 July 2013.
  9. In the way that the arguments were developed and the issues have been resolved, it is preferable to make a declaration in those terms, rather than to simply answer the questions raised for preliminary determination.  Such a declaration will effectively answer them. 
  10. It will be declared that the applicant and the respondent were bound to enter an agreement under cl 3.1(f) of the Coal Port Services Agreement made between them and dated 26 March 2009, upon substantially the same terms as that 2009 agreement and otherwise according to cl 3.1(f), within 30 days of 8 July 2013. 

 

Footnotes

[1] By cl 1.1 of the Agreement.

[2] Agreement, appendix 1.

[3] Cl 7.3(i).

[4] Cl 3.1(a).

[5] Amended Statement of Claim, para 22(a); Defence, para 22.

[6] Defendant’s Written Submissions, para 33.

[7] Defendant’s Written Submissions, para 29(b).

[8] Plaintiff’s Written Submissions, para 7(c).

[9] For which provision was made by cl 3.3 of the Agreement.

[10] Amended Statement of Claim, para 18(e).

[11] (2014) 251 CLR 640 at 656-657 [35].

[12] Cl 3.1(f).

[13] Cl 3.1(f).

[14] (1986) 40 NSWLR 631 at 634.

Close

Editorial Notes

  • Published Case Name:

    Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Limited

  • Shortened Case Name:

    Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Ltd

  • MNC:

    [2015] QSC 37

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    27 Feb 2015

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2015] QSC 3727 Feb 2015Declaration that the applicant and the respondent were bound to enter an agreement under cl 3.1(f) of the Coal Port Services Agreement made between them and dated 26 March 2009, upon substantially the same terms as that 2009 agreement and otherwise according to cl 3.1(f), within 30 days of 8 July 2013: Philip McMurdo J.
Notice of Appeal FiledFile Number: 2462/1510 Mar 2015SC6085/14
Appeal Determined (QCA)[2015] QCA 20223 Oct 2015Appeal dismissed with costs: Fraser JA, Douglas J, North J.
Appeal Determined (QCA)[2015] QCA 23720 Nov 2015Costs made on 23 October 2015 vacated. Appellant to pay the respondent’s costs of the appeal: Fraser JA, Douglas J, North J.

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd and Ors (2014) 251 CLR 640
2 citations
Jump To
Cite 1 - (2014) 251 CLR 640
Cite 2 - (2014) 251 CLR 640
G R Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSW LR 631
2 citations
Jump To
Cite 1 - (1986) 40 NSW LR 631
Cite 2 - (1986) 40 NSW LR 631

Cases Citing

Case NameFull CitationFrequency
Peabody (Wilkie Creek) Pty Ltd v Queensland Bulk Handling Pty Ltd [2015] QCA 20221 citations
Peabody (Wilkie Creek) Pty Ltd v Queensland Bulk Handling Pty Ltd [2015] QCA 2371 citation
Queensland Bulk Handling Pty Ltd v Peabody (Wilkie Creek) Pty Limited (No 2) [2015] QSC 1064 citations
1

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