NEW SOUTH WALES SUPREME COURT CITATION: Wambo Coal Pty Limited & Anor v Pacific National (NSW)

Pty Limited [2008] NSWSC 65 JURISDICTION: Equity Division Commercial List FILE NUMBER(S): 50217/07 HEARING DATE(S): 08/02/08 JUDGMENT DATE: 12 February 2008 PARTIES: Wambo Coal Pty Limited (First Plaintiff) Wilpinjong Coal Pty Limited (Second Plaintiff) Pacific National (NSW) Pty Limited JUDGMENT OF: Einstein J LOWER COURT JURISDICTION: Not Applicable LOWER COURT FILE NUMBER(S): Not Applicable LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL: Mr JH Karkar QC, Mr M Darke (Plaintiffs) Mr WG Muddle SC, Mr R Foreman (Defendant) SOLICITORS: Freehills (Plaintiffs) Clayton Utz (Defendant) CATCHWORDS: Practice and procedure

Application for a case management order not being for a separate question determination Case management order sought was for all questions of liability, injunctive and declaratory relief to be determined in advance of the question of quantum of any damages The trial judge would initially proceed to determine the one set of issues, would reserve and as soon as practicable deliver judgement If liability be established, the balance of the quantification of damages issues would be heard on a later occasion Consideration of the differences between this procedure and the more conventional separate question determination procedure Consideration of the appropriate matters to be taken into account where urgent relief sought from the Commercial List and where a quantum hearing could only practicably be heard at some considerable time into the future LEGISLATION CITED: Civil Procedure Act 2005 (NSW) Trade Practices Act 1974 (Cth) CATEGORY: Procedural and other rulings CASES CITED: Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 411 Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 Tallglen v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 TEXTS CITED: DECISION: Order that all questions of liability, injunctive and declaratory relief be determined in advance of the question of quantum of any damages claimed PUBLICATION RESTRICTION: This is a redacted form of judgment delivered on 12 February 2008. The Court has ordered that until further order the unredacted version of the judgment be restricted to the parties and their external legal advisers. JUDGMENT:
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST This is a redacted form of the judgment delivered on 12 February 2008. The court has ordered that until further order the unredacted version of the judgment be restricted to the parties and their external legal

advisers and counsel. Einstein J Tuesday 12 February 2008 50217/07 Wambo Coal Pty Limited & Wilpinjong Coal Pty Limited v Pacific National (NSW) Pty Limited

JUDGMENT The application 1 There is before the Court an application by the plaintiffs, Wambo Coal Pty Ltd and Wilpinjong Coal Pty Ltd [for convenience together referred to as Wambo] for a case management order that all questions of liability and injunctive and declaratory relief be determined in advance of the question of quantum of any damages. This is not then an application for a separate question determination of the type which may be pursued under UCPR Part 28 rule 28.2. If ordered the trial judge would initially proceed to determine the one set of issues, would then reserve and as soon as practicable deliver the judgment and if liability be established the balance of the quantification of any damages issues would be heard by the trial judge on a later occasion. The nature of the proceedings 2 The proceedings concern the mining and export of coal from the Hunter Valley which exercise involves a number of parties: these include the coal producers, the rail service providers who transport the coal from the mines to the terminal at the Port and the Port Authority which loads the coal on to the vessels at the port for export. The owners of the railway track are another relevant party: the defendant only providing the locomotives and the capacity to haul. Each of these parties arrangements are contractual. The current proceedings involve Wambos contract with the defendant, Pacific National, the relevant rail provider service provider. 3 Shortly, the defendants obligations under the Wambo contract include the obligations to: i. ii. iii. provide capacity to haul 100% of the Nominated Annual Tonnage [NAT] from the Loading Facility to the Port; use its reasonable endeavours to provide capacity to haul greater than 100% of the NAT from the loading facility to the Port as requested by Wambo; as soon as practicable after the end of each quarter, review the tonnage of coal hauled under the agreement in that quarter.

4 Further, the contract required the parties to negotiate prior to 30 September of each year with a view to agreeing the NAT to apply for the following calendar year.[ ]. If the parties could not reach agreement as to the NAT by 30 September prior to the applicable calendar year, then the NAT would be the same as applied for the previous calendar year. 5 The plaintiff's claims as identified in the amended summons filed on 10 December 2007 are no longer pressed in their entirety. Adjusting the summons to reflect the matters which are no longer pressed the claims are as follows:

1.

Declaratory relief concerning the true construction of section 6 of schedule 1 of what is described in the pleadings as the Wambo Contract entered into on or about 12 April 2006 between the first plaintiff and the defendant, the contention being that upon its proper construction and in the events which have happened, the defendant is obliged to negotiate in good faith with the first plaintiff with a view to agreeing the NAT [as that term is used in the contract] to apply for 2008. [during argument it became clear that the essence of the issue was as to the precise content of the obligation of good faith in terms of what that obligation had in fact required the defendant to do in the particular circumstances].

2. 3.

A declaration that the defendant breached the said obligation to negotiate in good faith to agree the NAT referred to above. Not pressed [save for the restraint from the defendant entering into or giving effect to any contract, arrangement or understanding or otherwise cooperating with any third party to give effect to any system similar to that of the previous Vessel Queue Management System [VQMS]]. A declaration that the defendant contravened section 52 of the Trade Practices Act 1974 by representing that it was not or would not be obliged to haul to the Port (as that term is defined in the Wambo Contract) in 2008 more than a nominate number of tonnes of the first plaintiff's coal for export [the carriage representations]. An order restraining the defendant, by itself, its servants or otherwise, from making the carriage representations [being alleged misrepresentations made by the defendant to third parties in relation to the volume of the plaintiffs coal which the defendant is obliged to haul in 2008 under the Wambo Contract]. An order that the defendant take such steps as are necessary to correct or rectify any misleading or deceptive effect of the carriage representations. Damages for breach of contract. Not pressed. Costs.

4.

5.

6. 7. 8. 9.

This history of the proceedings 6 The detailed history of the commencement of the proceedings in early December 2007 and the various events which took place thereafter are carefully recorded on the Associates notes taken. There is some difficulty in narrating the detail because a deal of it was constituted by affidavits in respect of which confidentiality orders were made, there being no intent to presently erode the confidentiality then recognized. It is common ground that on 7 December 2007 an order was made for the separate and early determination of the then claim for injunctive relief. That matter was in fact fixed for hearing during the long vacation. However when the defendant withdrew its application to the ACCC for interim authorisation late in 2007, the Court vacated the dates in December and fixed dates in February [for the reason that at that stage, the defendant and others were still proposing to apply for final authorisation from the ACCC, the ACCC having announced that it was not going to grant interim authorisation and that it would not return to the question before a date in the new year]. Ultimately the application referred to below for a VQMS was withdrawn in mid-January of this year. The background to the dispute in more detail

7 For a number of years, demand for rail services to haul coal to the Port [provided by the plaintiff and QR Limited] and coal handling services to load coal onto ships at the Port [provided by Port Waratah Coal Services Pty Ltd PWCS] had outstripped the capacity of those service providers to meet it, leading at times to export vessels being queued off the Port. Accordingly, it had been necessary to allocate the limited capacity amongst producers. Various systems for doing this had apparently been adopted. Some had been authorised by the ACCC. Apparently all had been agreed after consultation between service providers and producers and implemented by amendments to the standard form Coal Handling Services Agreement (CHSA) which every producer required to enter into with PWCS for its coal to be loaded onto vessels for export at the Port. 8 The proceedings were commenced during a period when the then current system of allocation, which had been authorised by the ACCC until 31 December 2007, was due to cease on that date. Apparently earlier in the year, producers and service providers held discussions about a replacement system but failed to reach agreement. 9 The plaintiff alleged that the later replacement system referred to as the VQMS had been developed by PWCS, Pacific National being the defendant and QR Ltd. The plaintiff alleged that those companies had entered into an arrangement to implement that system, providing it was authorised by the ACCC and had made a joint application for authorisation under section 88 of the Trade Practices Act in late November 2007. The plaintiff's contention was that if authorised, the VQMS was to be implemented, if necessary, retrospectively, from the commencement of January 2008 by amendments to the standard form CHSA which, subject to consultation with each customers, PWCS had power to amend unilaterally. 10 In a submission prepared back in early December 2008 counsel for the plaintiffs contended inter alia as follows: i. The effects on Pacific Nationals performance of its obligations have been admitted. On 13 November 2007, Pacific National wrote to Wambo and stated (without having negotiated) that, even though it had the physical capacity to haul in excess of 50% more coal, it would only agree to the minimum possible NAT for 2008. It added that under the VQMS, and despite its physical capacity, Pacific National did not expect to provide capacity to haul even that NAT. The draconian effects of the VQMS on Wambos enforcement of its rights are revealed by the limitation of liability clause in the amended CHSA. The intended effect of cl 5.1 is, amongst other things, to prevent Wambo from suing Pacific National (even though it is not a party to the CHSA) for any breach of the Agreement between them caused by arising from or relating to Pacific National or Wambos participation in or use of the VQMS (cl 5.1(a)) or any failure on the part of Pacific National to haul the quantity of coal determined under the VQMS (cl 5.1(g)). Clause 5.2 would make it a breach of the CHSA for Wambo to commence such proceedings. And cl 5.3, which appears superficially to preserve some ability for Wambo to enforce its rights under the Agreement, is neutered because it excludes liability arising under the Agreement from operation of the VQMS. Although consultation with PWCS customers (as required under the CHSA) is yet to occur, given that the amendments have been approved by its Board and that its services are essential for anyone who wants to export coal via the Port, the prospects of the limitation of liability clause being narrowed through that process do not seem likely. The limitation of liability clause is particularly significant. It makes hollow any assurance that Pacific National will comply with its obligations under the Agreement after the VQMS has been implemented. As explained below, Pacific National is already in breach of those obligations, making assurances of compliance with its contractual obligations difficult to believe. But even if that were not so, the limitation of liability clause, forming part of the VQMS for which Pacific National must bear some responsibility, is intended to prevent Wambo from doing anything about the

ii.

iii.

non-observance of its assurances. iv. Nor are the effects of these matters entirely in the future. As things presently stand, [

]. This is necessarily so because the business of exporting coal by sea to various parts around the world is self-evidently one which requires careful planning ahead of time. The details of these effects are commercially sensitive and are not repeated here, but they are set out in the second confidential affidavit of Geoffrey Steven Hardes of 5 December 2007 which is at tab B of the bundle and presently confidential to the parties external lawyers (second Hardes affidavit). If the proceeding cannot be determined before the end of the year, these effects will undoubtedly worsen. 11 The changed environment as between the position in December and January and the present involves the former Premier of New South Wales, Mr Greiner, having been appointed to head a review into the problems which have arisen in relation to the Port's capacity. The continuing need for expedition and urgency 12 Wambo maintains its carriage misrepresentations case and principally seeks declaratory and injunctive relief in respect of the alleged conduct. At a practical level it contends that there remains utility in seeking such relief against the possibility that Wambo might repeat the misrepresentations, for example in the course of the Greiner review process. 13 During argument on the application [and seemingly in response to the defendant's contention that the proposed case management regime would be unworkable for the reason that the defendant would want to contend that the grant of the injunctive relief sought should be refused because damages would be an adequate remedy] Wambo elected to give up any claim to damages which may otherwise have been open to it in terms of its carriage representations case. 14 Wambo also advanced the following contention on its application: Wambos failure to negotiate and to use reasonable endeavours case is also pressed and on that declaratory relief and damages are sought. The measure of Wambos loss in this case will essentially reflect its loss of revenue (or loss of opportunity to earn revenue) by reason of its ability to fulfil existing and future contracts throughout 2008 and by the defendants breaches of contract or, to put it in another way, will be the difference between its 2008 profits and the profits it would have made if the obligation to negotiate and use reasonable endeavours had been performed and a higher NAT had been agreed (with the result that Wambo could have exported more coal), plus any loss of custom in future years as a result of being unable to supply customers in 2008 who could have been supplied if a higher NAT had been agreed. The result of this is that Wambos loss will not be able to be quantified until the end of 2008 when its actual profits for the year are known. Additional uncertainty is introduced by the possibility that PN might haul as much coal as Wambo wants to export in 2008 by performing its obligation to use reasonable endeavours to provide capacity to haul more than the NAT. In this case, there may be no loss at all. Other considerations 15 Wambo contends that in the coming months, both it and the defendant will need to negotiate the NAT

for 2009 under the Wambo contract, which negotiations must be completed by 30 September 2008 and so should preferably commenced in the next few months. The contention is that the conduct of the corresponding negotiations [or rather the alleged lack thereof] during 2007 to agree a NAT for 2008, and what is put as the defendant's failure to use reasonable endeavours, form a substantial part of the current ongoing dispute between the parties. 16 Wambo makes the point that in the event that the Courts decision on whether the defendant has failed to negotiate, or failed to use reasonable endeavours, is handed down prior to Wambo and the defendant negotiating the NAT for 2009, the potential for further disputes arising between those parties will be substantially reduced. This is because their negotiations and the defendants conduct in relation to the NAT for 2009 will be informed by the decision of the Court as to, among other things, the nature and content of the obligation to negotiate and to use reasonable endeavours, including whether the obligation is to negotiate in good faith and what this entails. To my mind this submission is of substance. 17 In terms of the principled exercise of the relevant discretion I accept as of substance Wambo's contention that the position may be seen as analogous to one where the resolution of a separate issue carries with it a strong prospect that the parties will thereafter be able to resolve their dispute themselves and thus avoid further litigation: Tallglen v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141 - 142 per Giles CJ in Comm D; Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 per Einstein J at [7]. 18 Here resolution of liability carries with it the prospect that the parties will be able to avoid further disputes. And there is always the chance that a decision on liability, if favourable to the plaintiffs, will assist the parties to settle their present dispute. I further accept that making an order of the kind the plaintiffs seek in these circumstances is also consistent with s.56 of the Civil Procedure Act 2005 (NSW) providing for the just, quick and cheap resolution of the real issues in the proceedings. The more particular contentions of the defendant in opposition to the making of the case management order sought Witness overlap 19 The defendant raised questions of the difficulties which might be occasioned because of it being necessary to call certain particular witnesses both during the liability hearing as well as during the quantum hearing. It was said that the whole exercise might miscarry if the same witnesses were permitted to be crossexamined in relation to each tranche of a bifurcated hearing. The defendant in particular drew attention to what it submitted would be a need for Mr Hardes [who had made two confidential affidavits] to be cross-examined during each tranche of a bifurcated hearing. The plaintiffs response was to indicate that it was prepared to undertake to the Court that it would not call this witness during the quantum hearing. The defendant's riposte was that this was not good enough because the defendant itself might require to cross-examine Mr Hardes during the second tranche and it would be improper for the Court to prevent this. 20 To my mind the urgency of the current litigation makes it clear that these particular concerns should not stand in the way of making the orders for the bifurcated hearing. It has to be kept in mind that this would not be a separate question regime, and that the Courts general discretion to continue to case manage the proceedings could be expected to cope with any such difficulties. 21 The Commercial List holds itself out to the commercial community to provide swift hearings where they are necessary and in doing so, to retain a proper balance between the urgency of the situation in hand and the need for both parties to be in a position to properly prepare their cases. Ultimately the interests of justice will always be the lodestar. And sometimes a perfect world cannot be achieved. The possibility of duplication of witnesses or of problems where the parties or one of them may disagree as to whether a particular issue [as for example causation] was properly to be determined during the first tranche or during the quantum tranche will always be there and the Court will as necessary determine such issues. Without necessarily deciding the issue presently it may be that causation is in focus at different points in particular litigation, but it seems clearly

the case that the question of whether conduct has caused particular loss can only arise when quantum is in focus. 22 There were a number of references made by the defendants to the so-called "Spedley problem". I take this to be a reference to Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 411 which concerned a series of cases arising from complex company litigation which had been assigned to a judge of the Commercial Division. The same or similar issues were dealt with in successive proceedings. In some of the proceedings the trial judge had made findings in which he was critical of the recollection, of the credit and the commercial conduct of the parties. It was held that the trial judge ought to have disqualified himself from hearing related matters in which the same issues and the credit of the same witness would arise for determination on the ground of a reasonable apprehension by a bystander of prejudgement: essentially a fair minded observer would conclude that the judge had formed opinions which might affect his determination of outstanding matters. 23 The present situation is very different to the particular situation faced in Spedley. I have ready dealt with the manner in which the Court may have to deal with common witnesses if called during both tranches. There are a number of ways of dealing with these issues should they arise. 24 The principled approach to the exercise of the relevant discretion as to how to case manage these proceedings does have to take into account that there could be some risks: but the exigencies of the litigation are seen to require the Court to permit so much of the hearing as can be achieved as soon as possible, to go forward. 25 Likewise the suggested difficulty raised by the defendant [concerning the need for the putative liability hearing to canvass in considerable detail the course of the negotiation, the claim being that precisely the same areas would have to be treated with in both tranches] is not to my mind of substance in terms of the claim to the bifurcated hearing. 26 The defendants also drew attention to other case management considerations essentially concerning what forms of discovery may still be requisite prior to final hearing. Apparently many documents were exchanged during calls which took place in early December on notices to produce and on subpoena, all of which were part of the case management of the case towards the application for an injunction against the VQMS. To my mind these matters are simply of the common or garden type to be treated with on the further giving of directions. Statutory right of appeal 27 The defendant contended that to order the bifurcated hearing would mean to remove from the defendant, its statutory rights of appeal prior to completion of the second tranche. This was said to particularly be the case where the grant of injunctive relief was concerned. The short answer to this proposition is that the Court of Appeal can always grant leave to appeal depending upon the circumstances. Decision 28 For these reasons the principled exercise of the relevant discretion is to accede to the application for the making of the orders to bifurcate the hearing. It also seems to me that the plaintiffs have made good their proposition that an expedited hearing should be given as soon as practicable. The question of the dates which may be available and of the proper approach to the further case management of the proceedings up to the hearing date remains, of course, as questions for the List Judge.

LAST UPDATED: 28 February 2008