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Glencore Coal Queensland Pty Limited v Aurizon Network Pty Ltd & Ors; Yarrabee Coal Company Pty Ltd & Ors v Aurizon Network Pty Ltd & Ors
The appellants in this case were four coal mining companies who had each entered into separate deeds with Aurizon, a rail network operator, pursuant to which they each agreed to pay fees for their anticipated use of the rail network. The case before the court concerned the validity of notices given by each of the appellants under the deed which if valid would have meant that they ceased to be liable to pay the fees. The trial judge had concluded that the notices were ineffective because of a breach of an implied duty of good faith. The Court of Appeal agreed with the trial judge that the notices were ineffective, but for different reasons: namely, because of the proper construction of the relevant contractual clause; because of an implied term about when the power to give notice could be exercised; and because the notices were given too late.
Fraser and McMurdo and Mullins JJA
1 September 2020
The appellants are coal mining companies that entered into deeds with Aurizon, a rail network operator. –. The deeds, all in relevantly identical terms, were entered into as consideration for Aurizon agreeing to upgrade the capacity of its network to transport coal to the Wiggins Island Coal Export Terminal (“WICET”). . Under the deeds, the appellants agreed to pay certain fees, including a “WIRP fee”, which was calculated according to each company’s anticipated use of upgraded sections of the network – referred to as “Customer Segments”. .
Importantly, cl 6.1(c) of the deeds provided that, prior to a certain milestone, a customer could give notice that a segment of the railway extension was no longer to be a Customer’s Segment (with a consequent reduction in the WIRP fee that the customer would be liable for). . On 30 September 2015 Glencore gave such a notice; the following day, each of the other appellants also gave such a notice. , –. If those notices were valid, the result was that the liability to pay WIRP fees for all segments was placed on the last remaining customer who was unable to give such a notice. The trial judge likened this to a game of “musical chairs”. .
At first instance Aurizon sought declarations that the notices given were invalid and of no effect. . It made three arguments for this conclusion: (1) that there was an implied term that prevented the giving of notice in the circumstances; (2) that the giving of notice was conditioned by an implied duty of good faith, which had been breached; and (3) that the notices were given too late. –. The trial judge, Jackson J, rejected the implied term argument, but accepted that there was a breach of an implied duty of good faith. His Honour also concluded that, had it been necessary to consider, he would have rejected the third argument about timing. . On appeal, all of these issues were in contention. . McMurdo JA gave the reasons of the Court, with which Fraser JA and Mullins JA agreed. , .
The proper construction of cl 6.1(c)
The Court of Appeal considered that the proper construction of cl 6.1(c) lead to the conclusion that the notices were ineffective. . This was because of the “text in the context of the whole of the contract, and some of its terms in particular”. . As to context, McMurdo JA emphasised that the deeds indicated that a defining feature of a Customer’s Segment was that it was “necessary in order to enable QR Network [now Aurizon]” to provide certain access rights, which were provided separately under access agreements. , . As to particular terms, his Honour emphasised the words indicating that a notice was to be given for a Segment to “cease being a Customer’s Segment”. . His Honour considered that the proper construction of cl 6.1(c) was that a notice could only be given if a Segment was “no longer necessary” for the provision by Aurizon of the access rights under the access agreements. .
Notably, none of the appellants had given any indication that it would not use any of the Segments, or that they had become unnecessary. Their case was simply that they were entitled to avoid payment for the upgrades by giving notice, while still having access to the Segments under their separate access agreements. . Because the proper construction of cl 6.1(c) precluded the giving of notice unless a Segment was no longer necessary for a customer, the notices given had been ineffective. .
The implied term argument
McMurdo JA considered that, even if he was wrong in the proper construction of cl 6.1(c), “I would give the same effect to the Deed by an implied term”. . The trial judge had concluded that an implied term – to the effect that notice could only be given where a customer no longer required access to a Segment – was unavailable, including because it was “not clear enough” that that would be the only circumstance in which the parties might have contemplated a notice. However, McMurdo JA disagreed, considering that it was “telling that the appellants’ arguments were unable to identify” any other circumstance in which there could have been a reason for a customer to give a notice. .
His Honour considered that the implied term was necessary to give business efficacy to the contracts, because otherwise a customer “could opt out of its obligations to contribute, whilst necessarily enjoying the benefits of the infrastructure”. . Further, having regard to the purpose of the contracts – of having infrastructure delivered in return for customers contributing in proportion to their anticipated use of it – the implied term was “so obvious that it would go without saying”. –.
The good faith argument
The trial judge had found that the power to give notice under cl 6.1(c) was conditioned by an implied duty of good faith. . Ultimately, McMurdo JA said that it was unnecessary to express a concluded view on the reasoning in this regard, given the conclusions already reached (outlined in the above two sections of this summary). . However, his Honour did say that the trial judge “may not have identified the circumstances … by which the appellants’ use of the power was in bad faith or unfair”. .
The timing argument
A valid notice under cl 6.1(c) could only be given prior to a defined “First Milestone Target Date”. . The determination of this date involved a number of complex factual inquiries, which in broad terms were concerned with the progress of completing WICET. . After considering the evidence in some detail, McMurdo JA concluded that this issue should have – contrary to the trial judge’s view – been decided in Aurizon’s favour. In other words, even if the notices were otherwise effective, they “were given too late”. .
In the result, the Court of Appeal upheld the trial judge’s declarations that the notices given by the appellants were ineffective. –. However, as has been seen, the reasons given by the Court of Appeal differed substantially from those of the trial judge.