Centennial Coal Company Ltd v Xstrata Coal Pty Ltd

[2009] NSWSC 788

CITATION:	Centennial Coal Company Ltd v Xstrata Coal Pty Ltd [2009] NSWSC 788
HEARING DATE(S):	22-23 June 2009
JUDGMENT DATE :	11 August 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Brereton J
DECISION:	Summons dismissed with costs
CATCHWORDS:	CONTRACTS – Construction – obligation to use “all reasonable endeavours” to transfer shares and contractual rights to defendant – where shares subject to pre-emptive rights of other shareholders – whether “best endeavours” require invocation of pre-emptive procedure – where both parties accept that consent of existing shareholders would not have been forthcoming – whether plaintiff has thus taken “all reasonable endeavours” – Held: obligations not discharged as future events may make it possible to affect transfer – where contract requires plaintiff to deal with contractual rights for benefit of defendant – whether dependant upon potential for ultimate transfer – Held: independent obligation unless and until transfer effected – REMEDIES – Declarations – Negative declaration – where plaintiff seeks declaration that defendants are precluded from bringing action against plaintiff for breach of provisions in deed because of limitations provisions contained in deed – where claims that may be brought have not been precisely articulated and may never be brought – Held: inappropriate to make declaration
LEGISLATION CITED:	(Cth) Australian Securities & Investments Commission Act 2001 (Cth) Corporations Act 2001 (Cth) Trade Practices Act 1974
CATEGORY:	Principal judgment
CASES CITED:	Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 Hospital Products Limited v United State Surgical Corporation (1984) 156 CLR 41 Hume v Monro (No 2) (1943) 67 CLR 461 Yewbelle Limited v London Green Developments Limited [2006] EWHC 3166 (Ch) Yewbelle Limited v London Green Developments Limited [2007] EWCACiv 475
PARTIES:	Centennial Coal Company Ltd (first plaintiff) Centennial Hunter Pty Ltd (second plaintiff) Xstrata Coal Pty Ltd (first defendant) Xstrata Mangoola Pty Ltd (second defendant)
FILE NUMBER(S):	SC 50072/09
COUNSEL:	Mr AJ Meagher SC w MA Jones & Dr EM Peden (plaintiffs) Mr AJ Bannon SC w GK Rich (defendants)
SOLICITORS:	Clayton Utz (plaintiffs) Chang, Pistilli & Simmons (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BRERETON J

Tuesday 11 August 2009

50072/09 Centennial Coal Company Ltd & anor v Xstrata Coal Pty Ltd & anor

JUDGMENT

1 HIS HONOUR: The Centennial group and the Xstrata group own coalmines in the Hunter Valley. All coal exported from the Hunter Valley is shipped through the port of Newcastle. Since about 2004, the volume of coal that producers have wished to export from the port of Newcastle has exceeded the port's capacity, resulting in large queues of vessels forming off the port and significant demurrage costs. In April 2007, the NSW Government approved an application by the Newcastle Coal Infrastructure Group Pty Limited (“NCIG”) to develop a new coal export terminal at the port, which would provide additional shipping capacity for NCIG shareholders through “ship-or-pay agreements” which each is required to enter into with NCIG. As at August 2007, the first plaintiff Centennial Coal Company Limited held 81 of 922 shares in NCIG, and its subsidiary the second plaintiff Centennial Hunter Pty Limited had recently received approval to develop an open-cut coalmine, then known as “Anvil Hill”, in the Hunter Valley. By a Deed dated 17 September 2007 and called the Anvil Hill Asset Sale Deed, the second plaintiff Centennial Hunter sold Anvil Hill to the second defendant Xstrata Mangoola; the obligations of the purchaser and vendor respectively were guaranteed by their respective holding companies, the first plaintiff Centennial Coal and the first defendant Xstrata Coal.

2 Centennial Coal’s shareholding in and contractual arrangements with NCIG (“the NCIG arrangements”) are the subject of Clause 8.6 of the Anvil Hill Asset Sale Deed, which relevantly provides that:

· each of Centennial Hunter (as seller) and Mangoola (as buyer) must “use all reasonable endeavours” to novate Centennial Coal's “rights and obligations under the NCIG arrangements to the buyer”, and transfer to Mangoola or its nominee Centennial Coal’s shares in NCIG, with effect from completion (clause 8.6(a));

· where such novation and transfer “has not occurred on and with effect from completion”, then the seller and the buyer must “use all reasonable endeavours to ensure that the novation and transfer occurs as soon as reasonably practicable after completion” (clause 8.6(b)); and

· where such novation and transfer “has not occurred on and with effect from completion”, then Centennial Coal must “subject to existing contractual obligations” continue to hold its interest and/or entitlement under the NCIG arrangements, not dispose of or deal with that interest and/or entitlement, take its commitments to Mangoola into full consideration during any negotiations with NCIG and when entering into contracts with NCIG and take reasonable care that their results do not contradict those commitments, and make available any capacity that it may be entitled to under the NCIG arrangements at the NCIG terminal for output of the Anvil Hill mine (clause 8.6(c)).

3 When the sale was completed on 17 October 2007, the novation and transfer of Centennial’s NCIG interests contemplated by clauses 8.6(a) had not occurred, and they have still not occurred – substantially because existing contractual obligations of Centennial Coal to other shareholders in NCIG restrict its ability to transfer its shareholding except to the other shareholders, and for commercial reasons it has not been thought desirable to seek consent to a transfer to Mangoola. Centennial Coal and Hunter now seek declarations to the effect that they have discharged their obligations under clauses 8.6(a), (b) and (c) of the Deed, and/or have no continuing obligation to comply with their requirements. They also seek a declaration that Xstrata Coal and Mangoola are precluded from bringing any claim for breach of those provisions, by reason of limitation clauses contained in the Deed.

4 Analysis of the issues requires an understanding of the background to and nature of the NCIG arrangements.

The Original NCIG Arrangements

5 There are currently two coal-loading facilities at the port of Newcastle – the Carrington and Kooragang Island coal-loading terminals – each of which is owned and operated by Port Waratah Coal Services Limited (“PWCS”). PWCS is owned by a number of Hunter Valley coal producers and by importers – principally Japanese – of coal. The majority shareholders are Newcastle Coal Shippers Pty Limited (37%) and Coal & Allied Industries Ltd (16%). Xstrata Coal holds a substantial interest in Newcastle Coal Shippers. The current lease of the Kooragang Island terminal requires that it be maintained as a “common user facility” so that, subject to some exceptions, it must be made available to any and every shipper of coal through the port, under conditions and at a cost for like services that are not discriminatory as between users. The practical effect is that any person who wishes to use the Kooragang Island terminal can do so upon entering into a coal-handling services agreement with PWCS.

6 NCIG was formed in 2005, for the purpose of tendering for Crown Land and building and operating a third terminal at Kooragang Island, adjacent to the PWCS terminal. In April 2007, the NSW Government announced its conditional approval of NCIG’s plans to construct and operate a coal export terminal with a capacity of up to 66 million tonnes per annum, and also the approval of a development application by PWCS for expansion of the capacity of its Kooragang terminal to 120 million tonnes per annum. NCIG announced that it intended to develop its terminal in stages, initially to a capacity of 33 million tonnes per annum, with the first stage expected to be available in the second half of 2009. PWCS (on 20 June 2007) announced details of a “long term commercial framework intended to provide greater certainty for PWCS and its long term customers”, including that it was seeking the agreement of government to amend the “common user” provisions with effect from 1 February 2010, so as to enable it to give preference to those customers who may not be able to obtain access to coal-handling services from NCIG. PWCS also advised that it was planning to increase the capacity of its Kooragang terminal from 102 million tonnes to 113 million tonnes per annum.

7 As at September 2007, the arrangements between the NCIG shareholders were contained in “Restated Heads of Agreement Relating to Newcastle Coal Infrastructure Group” dated 10 June 2005, as amended and restated in September 2005. Part B dealt with the “Design & Approval Period” – which commenced on the execution of the agreement for lease, and ended upon the execution of the lease the NCIG terminal site (which was executed on 22 January 2008). Part C dealt with the subsequent “Construction & Operation Period”. As at September 2007, therefore, the provisions of Part B applied to any transfer of shares in NCIG. The relevant provisions (clauses 11.5 and 11.6) governing transfer of initial shareholdings were as follows:

11.5 A Shareholder (Transferring Initial Shareholder) may at any time during the Design & Approval Period seek to transfer some or all of its holding of initial Shares (Transferring Initial Shares) by offering its Transferring Initial Shares (whether or not for consideration) to the other Shareholders pro rata in proportion to the Initial Shares held by such Shareholders. Any Transferring Initial Shares not acquired by the other shareholders as a result of such offer must then be offered pro rata to any other of the remaining Shareholders who accepted the first offer for Initial Shares on the same terms as they were originally offered. Upon the transfer of the Transferring Initial Shares, the Transferring Initial Shareholder must pay to NCIG that share of all funding amounts then owing to NCIG by the Transferring Shareholder (as contemplated in clause 8) equal to the proportion that the Transferring Initial Shares bears to all its Initial Shares.
11.6 A Shareholder may not transfer any Initial Shares held by it except pursuant to clause 7.3 and 7.5. If any transfer by a Shareholder of its Initial Shares would result in a default under the Agreement for Lease, then NCIG must obtain necessary consents under the Agreement for Lease prior to such transfer occurring.

8 The reference to clause 7.3 and 7.5 involves a mistake in enumeration, and is intended to be a reference to clause 11.3 and 11.5. Clause 11.3 is not, in the present circumstances, relevant.

9 The NCIG Heads of Agreement provided that the shareholders should investigate and if appropriate establish one or more legal entities through which to pursue the project in substitution for NCIG and arrange for the transfer of NCIG’s rights and liabilities to such entity, and during the Design & Approval Period finalise such project agreements as they consider appropriate to pursue the project, including an agreement setting out the terms of the NCIG Heads of Agreement on a more developed and detailed basis (clauses 8, 9(e)). At the end of the Design & Approval Period, all shareholders who wished to proceed with the project were to have the opportunity to enter into “Take or Pay Commitments”, by which they would agree to ship tonnage through the facility in proportion to their holding of initial shares as at the end of the Design & Approval Period (or pay for such tonnage as if they had shipped it). From the commencement of the Construction & Operation Period, the NCIG shareholders would be issued with voting shares in proportion to the Take or Pay Commitments actually entered into by them (clause 10.2). The shares and the Take or Pay Commitments would be “coupled on a pro rata basis and cannot be transferred separately” (clause 16.1).

10 As to transfer of shares during the Construction and Operation Period, clause 19 relevantly provided as follows:

19.1 A Shareholder may transfer some or all of its Take or Pay Commitment and corresponding Voting Shares by offering it proportionally to the other Shareholders. The Take or Pay Commitment and Voting Shares will be divided proportionally between those Shareholders wishing to take on the related Take or Pay Commitment. Any remaining Take or Pay Commitment and Voting Shares not acquired by other Shareholders may then be offered to other independent shippers of substance and credit status reasonably acceptable to the Board.
19.2 A third party may not acquire Voting Shares or any interest therein except in accordance with clause 14.2 and 15.1 or where the Facility is to be expanded (see clause 17 below).

11 Again, the reference to clauses 14.2 and 15.1 involves enumeration errors and was intended to be a reference to clauses 18.2 and 19.1; clause 18.2 is not, in the circumstances, relevant.

12 Clause 33.8 provided:

33.8 Assignment

A Party must not assign or otherwise deal with this Agreement or any rights under this Agreement without the consent of the other Parties.

The Revised NCIG Arrangements

13 The foregoing summarises the NCIG shareholders’ arrangements under the NCIG Heads of Agreement as at September 2007, when the Anvil Hill Asset Sale Deed was negotiated and executed. However, between October 2007 and January 2008, the parties to the NCIG Heads of Agreement negotiated and executed a revised Shareholders Agreement, as had been envisaged in clause 9(e). Contemporaneously, the terms of “ship-or-pay agreements” (as the Take or Pay Commitments came to be described in the revised Shareholders’ Agreement) were finalised.

14 On 19 December 2007, NCIG, Centennial Mandalong Pty Limited and Centennial Newstan Pty Limited entered into a Ship-or-Pay Agreement for a term of ten years, under which the mine owners nominated Centennial’s Mandalong and Newstan mines as their source mines. Pursuant to the ship-or-pay agreements, NCIG is obliged to make available for utilisation by Centennial Mandalong and Centennial Newstan in the loading of ships their “capacity entitlement”, which represents 8.79% of the nominal capacity of the NCIG terminal. Clause 10.1 of the ship-or-pay agreement permits the shipper to “make available to any other person ready to ship coal from the terminal … all or any part of its capacity entitlement”, by notice for a period of up to twelve months, but which can be renewed repeatedly (clauses 10.1, 10.3, 10.7).

15 The revised NCIG Shareholders Agreement was finalised and dated 15 January 2008, and on 22 January 2008 NCIG executed a lease of the proposed terminal site. As permitted by clauses 8 and 9 of the NCIG Heads of Agreement, the arrangements between the original NCIG shareholders and the vehicle by which they were to hold their interests in NCIG were restructured. The original shareholders, or their nominees, became shareholders in a new vehicle, NCIG Holdings Pty Limited, in the same proportions as they had held shares in NCIG; NCIG became a wholly owned subsidiary of NCIG Holdings; long term ten year Ship-or-Pay Agreements were entered into by each original shareholder or its nominee; and Centennial Coal transferred the shares it acquired in NCIG Holdings to its wholly owned subsidiary Centennial Coal Infrastructure Pty Limited (“CCI”).

16 Clause 14 of the NCIG Shareholders Agreement (Disposal of Terminal Interests) relevantly provided as follows:

14.1 Restriction on Disposal of Terminal Interests
A shareholder may not Dispose of any Share, and the Board must not register any transfer of Shares, unless:
(a) the transfer is under clause 14.2 or clause 14.3;
(b) the transfer is pursuant to the exercise of a put option or a call option under clause 14.8; or
(c) the Shareholder and its Affiliated SoP Shipper comply with Schedule 7, and in each case the transfer would not constitute a deemed assignment of the Agreement for Lease or the Dry Land Lease.
14.2 Permitted transfer of Shares to Related Bodies Corporate
Despite anything in Schedule 7, a Shareholder may Dispose of all or part of its Shares to a Related Body Corporate of the Shareholder provided that:
(a) the transferee is also a Related Body Corporate of the relevant Affiliated SoP Shipper;
(b) the transferee obtains all necessary Authorisation to the transfer from Government Agencies; and
(c) the transferee enters into a Deed of Accession and Novation.
14.3 Permitted transfer to Qualifying Third Parties
Despite anything in Schedule 7:
(a) a Shareholder may transfer all or part of its Shares; and
(b) the Affiliated SoP Shipper of the Shareholder may assign and novate all or part of its Capacity Entitlement and its rights and obligations under its Ship-or-Pay Agreement
to Qualifying Third Parties provided that:
(c) the proposed SoP Shipper is, or is guaranteed by, a New Mine Owner;
(d) the proposed Shareholder is a Related Body Corporate of the proposed SoP Shipper;
(e) the Qualifying Third Parties obtain all necessary Authorisations to the transfer from Government Agencies; and
(f) the Qualifying Third Parties enter into a Deed of Accession and Novation.

17 A “Qualifying Third Party” is a person (proposed SoP Shipper) that has marketable coal reserves sufficient to enable the proposed SoP Shipper to meet its obligations under a ship-or-pay agreement in respect of the proposed capacity entitlement if it were to become an SoP Shipper, jointly with a proposed shareholder that is a related body corporate of the proposed SoP Shipper. Schedule 7 prescribed a procedure for the invocation of the pre-emptive rights of the existing shareholders in the event of a proposed transfer of shares and Ship-or-Pay Agreements, relevantly providing that:

· Proposing transferors must give an assignment notice to the company, specifying the number of the subject interests, the transfer price (which must be a cash price) and all other terms of payment, accompanied by the certificate for the shares held by the shareholder and the ship-or-pay agreement between the affiliated SoP shipper and NCIG;

· The company must give an offer notice to each shareholder and its affiliated SoP shipper(s) collectively, other than the proposing transferors, offering the subject interests for sale at the transfer price on the basis that each shareholder and affiliated SoP shipper collectively have a right of first refusal in respect of its initial allocation and on terms that if not accepted within 30 days the offer was taken to have been declined, and may be accepted for all or some only of the offeree’s initial allocation;

· A shareholder and its affiliated SoP shipper collectively may exercise the right of first refusal by giving to the company within the offer period an acceptance notice and the transfer price, and may add an offer to buy additional shares at that price;

· The Board must allocate any subject interests not accepted by shareholders who had a right of first refusal amongst those that included offers to buy additional subject interests;

· If the Board has not allocated all subject interests to other shareholders and affiliated shippers within 90 days after the assignment notice, it may not dispose of any of them and the company must immediately repay any amounts paid by shareholders and their affiliated shippers for the transfer price and return the share certificates to the proposing transferors;

· If within 90 days after the assignment notice the company has not allocated all subject interests to other shareholders and their affiliated shippers or qualifying third parties, the proposing transferor may transfer the shares and novate its ship-or-pay agreement or so much as has not been allocated by the Board to qualifying third parties at the transfer price and otherwise on terms no less favourable than those set out in the assignment notice.

18 Thus, if a shareholder wishes to transfer all or any proportion of its terminal interests (constituted by its shares, and its capacity entitlement under its Ship-or-Pay Agreement), it is required first to offer them to existing shareholders, and only if existing shareholders did not acquire all of the terminal interests can the residue be transferred to a third party, who must satisfy the definition of “Qualifying Third Party”.

Are Centennial Hunter’s obligations under clauses 8.6(a), (b) and (c) discharged or released?

19 If an NCIG shareholder wishes to transfer its interests, the Schedule 7 procedure requires that it inform NCIG Holdings of the subject interests to be sold, the proposed transfer price, and all other terms of the payment. On 2 May 2008, Centennial informed Xstrata that transfer of Centennial NCIG Arrangements shares pursuant to clause 8.6 of the Anvil Hill Asset Sale Deed would require that an assignment notice be given to the other NCIG shareholders, and requested that Xstrata supply the requisite information to prepare such a notice. It has since reiterated this position. Xstrata has sought access to the NCIG Shareholders’ Agreement and related documentation, to which Centennial has responded by asserting that the material sought is confidential and inviting Xstrata to identify those parts to which it requires access, so that approval of other NCIG shareholders can be sought. It has also invited Xstrata to say that it was a bona fide prospective purchaser of Centennial’s NCIG terminal interests, which would have enabled Centennial to provide access to the Shareholders Agreement and related documentation without approval from other NCIG shareholders (clause 12.8 of the Shareholders Agreement), but Xstrata has declined to do so. Centennial has also proposed that it write to the other NCIG shareholders to obtain consent to disclosure of the Shareholders Agreement and Ship-or-Pay Agreement and sought Xstrata’s views; Xstrata ultimately responded that it considered it “impractical” to send such a request to the other NCIG shareholders. Xstrata has never accepted that the transfer of shares to it should proceed under the pre-emptive provisions in the NCIG Shareholders Agreement.

20 Centennial Coal and Hunter submit that Centennial Hunter has been discharged by performance of its obligations under clause 8.6(a), (b) and (c) of the Anvil Hill Asset Sale Deed, and alternatively is relieved from further performance, by reason of breach by Mangoola of those provisions. In essence, this submission proceeds as follows:

· although no novation or transfer had occurred as at completion on 17 October 2007, they could only have occurred if all other parties to the NCIG Heads of Agreement agreed to waive the provisions of clauses 11.5 and 11.6, which did not permit the transfer of shares to third parties during the Design & Approval Period;

· the entry by Centennial Coal and its subsidiaries into the NCIG Shareholders Agreement and the Ship-or-Pay Agreement involved no breach by Centennial of any obligations under 8.6(c), but happened in accordance with Centennial’s existing contractual obligations under the NCIG Heads of Agreement;

· after 15 January 2008, when the NCIG Shareholders Agreement was finalised, the only way in which the shares and Ship-or-Pay Agreements could be transferred to Mangoola was in accordance with the Schedule 7 procedure;

· in circumstances where the shares could not be transferred except pursuant to the Schedule 7 procedure, Centennial Hunter’s obligation under clause 8.6(b) to “use all reasonable endeavours” (or to procure that CCI do so), required no more than seeking to effect a transfer in accordance with the Schedule 7 procedure;

· Centennial Coal and Hunter have endeavoured to do precisely that, but Xstrata Mangoola has refused to cooperate by providing the requisite information to enable the preparation and giving of an assignment notice;

· in those circumstances, Centennial Hunter has done everything it is reasonably able to do to produce a real chance of achieving the transfer and novation and is discharged from further performance of clause 8.6(b), or alternatively Mangoola is in breach of its obligations under that clause, which breach relieves Hunter from further performance;

· the obligations in clause 8.6(c) are subsidiary to the “paramount” obligations in clauses 8.6(a) and (b) and are intended only to preserve the utility and value of the rights and obligations in shares the subject of clauses 8.6(a) and (b) while the obligations in those clauses continue, and as those obligations have been discharged so too are the obligations under clause 8.6(c).

21 Xstrata Coal originally, on 21 August 2007, offered to acquire, via its subsidiary Xstrata Mangoola, inter alia “Centennial’s 100% interest in the Anvil Hill project assets, associated liabilities in respect of land purchases … project costs … and Centennial's interest in the NCIG project”. However, a revised offer of 30 August 2007 recorded:

In view of Centennial's stated difficulties in including its NCIG interest as originally contemplated, Xstrata is willing to discuss this further to find a mutually acceptable solution.

22 Clause 8.6 the Anvil Hill Asset Sale Deed embodied the “mutually acceptable solution” in respect of Centennial's NCIG interest. It provided:

8.6 Transfer of interest in NCIG Arrangements
(a) The Seller and the Buyer must use all reasonable endeavours to:

(1) novate the Seller’s Guarantor’s rights and obligations under that NCIG arrangements to the Buyer; and

(2) transfer to the Buyer or its nominee the Seller’s Guarantor shares in NCIG,
in each case with effect from Completion.
(b) Where the novation and transfer of shares required under clause 8.6(a) has not occurred on and with effect from Completion, the Buyer and the Seller must use all reasonable endeavours to ensure that the novation and transfer occurs as soon as reasonably practicable after Completion.
(c) Where the novation and transfer of shares required under clause 8.6(a) has not occurred on and with effect from Completion, the Seller’s Guarantor must use reasonable endeavours (subject to existing contractual obligations) to:

(1) continue to hold its interest and/or entitlement under, in and to the NCIG Arrangements;

(2) not dispose of or otherwise deal with its interest and/or entitlement under, in and to in the NCIG Arrangements;

(3) take into full consideration its commitments to the Buyer in this clause during any negotiations with NCIG when entering into contracts with NCIG and must take reasonable care that the results of those commitments, negotiations or contracts do not contradict those commitments; and
(4) make available any capacity that it may be entitled to under the NCIG Arrangements at the NCIG terminal for output of the Anvil Hill Mine.
In return, the Buyer’s Guarantor must use reasonable endeavours to assist any application by the Seller Group for throughout entitlement at the coal loading facility owned by Port Waratah Coal Services Limited for output from the Seller Group’s Mandalong and Newstan mines.
(d) If the novation and transfer of shares required under clause 8.6(a) occurs the parties acknowledge and understand the terms of clause 12.4 of the NCIG Heads of Agreement and agree that the Preliminary Expenses (as that term is defined in the NCIG Heads of Agreement) funded by the Seller’s Guarantor under or in connection with the NCIG Heads of Agreement will be reimbursed to the Seller’s Guarantor in the circumstances contemplated by that clause, together with interest at the rate described in that clause.
(e) If the novation and transfer required under clause 8.6(a) has not occurred, the Buyer may without any liability exclude the NCIG Arrangements from this deed and the provisions in clause 8.6(c) cease to apply.

23 In the Anvil Hill Asset Sale Deed, “NCIG arrangements” are defined to mean:

Any interest and/or entitlement of the Seller’s Guarantor (however described, howsoever arising and of whatever nature) under, in and to:
1. The NCIG Heads of Agreement; and
2. Any other contract, agreement, deed or similar arrangement as at the date of this Deed in relation to the NCIG project to which the Seller’s Guarantor is a party or has an interest and/or entitlement.

24 Clause 1.5 provided that any term of the Deed which provided for an obligation on the seller was to be interpreted to mean that the seller must perform, or procure that the applicable seller group member perform, the relevant obligations.

25 As Mr Meagher SC for the plaintiffs emphasises, clause 8.6(b) is not, in terms or in effect, an obligation to “ensure that the novation and transfer occurs as soon as reasonably practicable”; it is an obligation to “use all reasonable endeavours” to that end.

26 While the content of a “best endeavours” clause depends upon the particular obligation and the circumstances in which it was undertaken, it posits an objective standard to be addressed by reference to what was done or not done in the circumstances that existed; it requires the doing of what can reasonably be done in the circumstances to achieve the contractual object [Hospital Products Limited v United State Surgical Corporation (1984) 156 CLR 41, 64-65, 91-92, 118]. It necessarily includes an obligation not to hinder or prevent achievement of the contractual object [Hospital Products, 64-65 (Gibbs CJ), 95 (Mason J)]. The obligation continues until the obligor “should reasonably judge in the circumstances that further efforts would have such remote prospects of success that they are simply likely to be wasted” [Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135, 150-151, 152]; however, one must allow for events, including extraordinary events, as they unfold, as Lewison J said in Yewbelle Limited v London Green Developments Limited [2006] EWHC 3166 (Ch) (at [123]); affirmed [2007] EWCACiv 475 [29], [33], [122], [124]] (emphasis added):

I come back to the question: for how long must the seller continue to use reasonable endeavours to achieve the desired result? In his opening address, Mr Morgan said that the obligation to use reasonable endeavours requires you to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted. You would simply be repeating yourself to go through the same matters again. I am prepared to accept this formulation, subject to the qualification that account must be taken of events as they unfold, including extraordinary events .

27 Centennial Coal and Hunter submit that such an obligation may be discharged by performance, in circumstances where there is nothing reasonably available to be done which has a realistic chance of achieving that outcome. However, this proposition must be subject at least to the following qualifications: first, that such endeavours as could be made to achieve the outcome have been made; and secondly, that even though there may be no realistic chance of achieving the contractual object presently, regard must be had to the possibility of that situation changing – to what extent and for how long that will be so will depend on the contractual context in each individual case.

28 In the present case, the relevant contractual object was the transfer of Centennial’s shareholding and capacity entitlement to Mangoola. Other than invoking the Schedule 7 procedure, one way in which that object could have been – and still could be – achieved is if the other parties to the NCIG Shareholders Agreement waived their pre-emptive rights. Seeking the agreement of the other shareholders to that course would ordinarily be a reasonable step towards achieving the contractual object, and one that an obligation to use “all reasonable endeavours” would require be taken. It has not been taken, Centennial Hunter having formed the view that the other shareholders would not agree. Xstrata does not assert the contrary. In those circumstances, it cannot be said that Centennial Hunter has failed to use all reasonable endeavours by not seeking the agreement of the other NCIG shareholders to the transfer and novation. Xstrata has suggested two other means (apart from the Schedule 7 procedure) by which the contractual object might be achieved. It is unnecessary for me to examine them in detail; I am unconvinced that either could lawfully achieve the contractual object, and it follows that I am unsatisfied that they would be “reasonable endeavours”. In those circumstances, Centennial contends that the only way in which the contractual object could be achieved is by invoking the Schedule 7 procedure, that its invocation is a “reasonable endeavour” to secure the contractual object, that it has done everything it can to invoke it, and that Mangoola is obliged to co-operate in it but has failed to do so.

29 However, the purpose of the Schedule 7 procedure is to permit existing shareholders in NCIG to acquire shares from any shareholder who wishes to sell, in priority to an external party. If a low transfer price were nominated, there would be a very substantial probability that the shares would be snapped up by the existing NCIG shareholders, and not transferred to Mangoola at all. If so high a price were nominated as to deter other existing shareholders, Mangoola would become obliged to pay – and Centennial entitled to receive – a very substantial premium over and above the consideration provided for by the Anvil Hill Asset Sale Deed. It is impossible to see how the invocation of a procedure which in all probability will result in the shares and ship-or-pay agreements being transferred to other existing shareholders and not to Mangoola, or at best Mangoola having to pay a substantial consideration over and above that in the Asset Sale Deed, could be a reasonable endeavour to achieve the contractual object. To the contrary, its likely consequence would be to defeat the contractual object by resulting in the shares and ship-or-pay agreements being transferred to persons other than Mangoola. To invoke such a procedure would be contrary to Centennial Hunter’s obligations under clause 8.6(c)(i) and (ii). Far from being a “reasonable endeavour” to achieve the contractual object that Hunter is obliged to take, it would be calculated to defeat the contractual object and prohibited.

30 It also follows that the Schedule 7 procedure is not one in which Mangoola is obliged to cooperate. Accordingly, its refusal to cooperate is not a breach of its obligations under clause 8.6(b), and does not discharge Hunter from its obligation.

31 It follows that, other than by seeking consent – which both parties appear to accept would at present be futile – there is no reasonable step which Centennial could take to procure the transfer and novation. The plaintiffs contend that the result is that they are discharged by performance.

32 However, that there is no step than can presently be taken to that end is not to say that reasonable endeavours to achieve the result “as soon as reasonably practicable after completion” have been exhausted, so as to discharge the obligation. It may be accepted that Centennial Hunter is not in breach of its obligation to use “best endeavours” under clause 8.6(a) and (b). But breach and discharge by performance are not the only possibilities; a party may be not in breach of a contractual obligation, and still not yet have been discharged from that obligation by performance. Just because novation and transfer are not presently reasonably practicable does not mean that the position is forever frozen. The evidence shows that there are currently on foot negotiations in relation to the implementation of a long-term solution for access to and the expansion of export capacity at the port. The climate for obtaining consent from the other NCIG shareholders may change, and some other commercial realignment of interests may emerge, presenting an opportunity not presently perceived for a transfer: these possibilities are, at least in the context of this case, within the concept of “events, including extraordinary events, as they unfold” referred to by Lewison J in Yewbelle Limited v London Green Developments Limited, in the passage cited above.

33 In this respect, context is of importance. It is not as if the parties did not give consideration to and make provision for the circumstance that it might be impracticable and remain impracticable for the novation and transfer to take place. Indeed, it was because they recognised the difficulties in securing that end that they adopted the “reasonable endeavours” approach, and the interim arrangements in clause 8.6(c). Together, clauses 8.6(a), (b) and (c) recognise that it may not be reasonably practicable to effect the novation and transfer upon completion. Clause 8.6(b) appears in the context of the remainder of clause 8.6, which involves ongoing mutual obligations of each party, unless and until they are “excluded” by Mangoola pursuant to clause 8.6(e). Clause 8.6(c) is intended to achieve the contractual object to the best of the parties’ ability, unless and until the novation and transfer takes place, or the NCIG arrangements are excluded under 8.6(e). The obligation imposed by clause 8.6(b) is to use all reasonable endeavours to ensure that the novation and transfer occurs “as soon as reasonably practicable after completion”. The obligation to use reasonable endeavours is connected with the state of affairs that the novation and transfer be “reasonably practicable”. The evidence establishes that it was not at completion, and is not now (and in the interim has not been) “reasonably practicable” to effect the novation and transfer. If and when it becomes “reasonably practicable”, clause 8.6(b) will oblige Centennial then to use reasonable endeavours to effect it. Unless and until that happens, clause 8.6(c) operates to govern the position.

34 In my view, therefore, the obligation imposed by clause 8.6(b) is an on-going one which subsists until a novation and transfer is achieved, or the NCIG arrangements are excluded under clause 8.6(e). Clause 8.6(c) regulates the relevant arrangements in the meantime.

35 I also reject the submission about clause 8.6(c) – that the obligations in clause 8.6(c) are subsidiary to the “paramount” obligations in clauses 8.6(a) and (b) and are intended to preserve the utility and value of the shares and contractual rights and obligations the subject of those clauses only so long as the obligations in clause 8.6(a) and (b) continue – for the following reasons.

36 First and foremost, even if the submission were otherwise correct, for the reasons already advanced Hunter has not been discharged from its obligations under clause 8.6(b), which subsist.

37 Secondly, clause 8.6(c) expressly applies “where the novation and transfer of shares required under clause 8.6(a) has not occurred on and with effect from completion”. It contains no hint that it is to cease to apply if the parties cannot effect a novation or transfer after completion.

38 Thirdly, the parties provided by clause 8.6(e) for Mangoola – but not Hunter – to have the ability to exclude the NCIG Arrangements, whereupon clause 8.6(c) would cease to apply. That provision would be superfluous if clause 8.6(c) expired automatically upon discharge of the obligations to use “all reasonable endeavours” under clauses 8.6(a) and (b).

39 Fourthly, a reasonable person with knowledge of the facts known to both parties would conclude that they intended the obligation imposed by clause 8.6(c) to subsist, even if “reasonable endeavours” did not result in a novation and transfer under clauses 8.6(a) or (b), or that such novation and transfer never became “reasonably practicable”. Part of the factual matrix known to both parties when the Anvil Hill Asset Sale Deed was agreed was that there were significant capacity constraints at the port; under the Asset Sale Deed Xstrata acquired a new coal mine for which port capacity would be required; initially, the parties contemplated including Centennial’s interest in NCIG in the sale, but because of the contractual difficulties imposed by the NCIG Heads of Agreement sought an alternative solution; that alternative solution involved Centennial agreeing to make capacity available through NCIG for the output of the Anvil Hill Mine; and when the sale deed was negotiated, the NCIG terminal was not expected to be operational until late 2009, when Anvil Hill itself was expected to commence production, some two years after completion – so that clause 8.6(c)(iv) was always intended to operate, if at all, some years after completion.

40 Centennial urged that such a construction would leave it in a position of uncertainty in the longer term, with on-going and indeterminate obligations under the ship-or-pay agreement, but potentially no ability to use its capacity entitlement at NCIG because of the on-going obligation to make it available for Mangoola for out-put from the Anvil Hill Mine, with the consequence that it could not rely on its capacity entitlement at NCIG for output from its own Newstan and Mandalong mines. I do not find this persuasive, for multiple reasons: (1) if the contractual object were achieved and the transfer and novation effected, Centennial would have exactly the same problem with access to port capacity for coal extracted from Newstan and Mandalong; (2) the PWCS facility is a common user facility, and it is not self-evident that capacity would not be available to Centennial through PWCS – the mere possibility that its accessibility to NCIG shareholders might in the future be reduced is not a compelling consideration; and (3) in any event, this was a billion dollar deal, and the assumption of some commercial risk by Centennial in return is far from incomprehensible. Far more telling, in my judgment, is that for the acquisition of Anvil Hill to be a commercial proposition, shipping capacity was necessary; conceptually, the Anvil Hill project had included as an aspect the securing of shipping capacity through NCIG, and Anvil Hill was to come on line at about the same time as NCIG; the parties initially contemplated including Centennial’s interest in NCIG in the asset sale, and when that proved impracticable – having regard to the terms of the NCIG Heads of Agreement – substituted an alternative mechanism for the purpose of securing, so far as they were able to do so without contravening existing obligations, access to capacity through the NCIG terminal so long as the transfer of shares and novation of the ship-or-pay agreement had not taken place.

41 It follows that clause 8.6(c) is not temporarily limited the way in which the plaintiffs contend. It was intended to be of indeterminate operation, to secure to Mangoola as best as the parties were able, in the context of existing legal constraints, access to capacity at the NCIG terminal, unless and until there was a transfer and novation, or the NCIG arrangements were excluded by Mangoola.

42 It follows that the plaintiffs’ claims for declarations to the effect that they have no further obligations under clause 8.6(a), (b) and (c) fail. My conclusion that invocation of the Schedule 7 procedure is not a “reasonable endeavour” within clause 8.6(b) sufficiently disposes of the alternative claim, insofar as it was pressed, for specific performance, by which the plaintiffs contended that the defendants ought to be required to provide the requisite information to facilitate the preparation and issue of an assignment notice to trigger the Schedule 7 procedure.

Should it be declared that Centennial is not liable for breaches of clause 8.6?

43 Centennial Coal and Hunter also claim a declaration that they are not liable for any claim by Xstrata in relation to breaches or performance of clause 8.6. This claim is based on clauses 11.5 and 12 of the Asset Sale Deed. Clause 11.5 provides as follows:

11.5 Time Limits
The seller group is not liable under a claim if:
(a) the buyer does not notify the seller of the claim in accordance with clause 12.1(a) within one year after completion; and
(b) within six months (or such longer period as may be agreed) of the date the buyer is required to notify the seller (as applicable) of the claim under clause 12.1(a):
(1) the claim has not been agreed, compromised or settled; or
(2) the buyer has not issued and served legal proceedings against the seller in respect of the claim.

44 Clause 12 relevantly provides as follows:

12.1 Notice of Claims
(a) (Actual Claims) The Buyer must promptly notify the Seller if:

(1) it or the Buyer’s Guarantor decides to make a Claim against a Seller Group Member that, either alone or together with other Claims, exceeds any applicable thresholds set out in clause 11.4(a); or

(2) A Third Party Claim is made which may give rise to a Claim against a Seller Group Member.
(b) (Potential Claims) Without limiting clause 12.1(a), the Buyer must also promptly notify the Seller if the Buyer believes that it or the Buyer’s Guarantor would be entitled to make a Claim against a Seller Group Member but for the thresholds set out in clause 11.4(a);
(c) (Details required) The Buyer must include in a notice given under clause 12.1(a) or 12.1(b) all relevant details (including the amount) then known to a Buyer Group Member of:
(1) the Claim and if applicable, any other Claims which together with the Claim give rise to any applicable thresholds in clause 11.4(a) being exceeded;
(2) if applicable, the Third Party Claim; and
(3) the events, matters or circumstances giving rise to the Claim.
(d) (Extracts) The Buyer must include in a notice given under clause 12.1(a) or 12.1(b) an extract of:
(1) any part of a Demand that identifies the liability or amount to which the Claim relates or other evidence of the amount of the Demand to which the Claim relates; and
(2) if available or relevant, any corresponding part of any adjustment sheet or other explanatory material issued by a Governmental Agency that specifies the basis for the Demand to which the Claim relates or other evidence of that basis.
(e) (Demands) The Buyer must provide a copy of any document referred to in clause 12.1(d) to the Seller as soon as practicable and in any event within 5 Business Days of receipt of that document by a Buyer Group Member.
(f) (Developments) The Buyer must also, on an on-going basis, keep the Seller informed of all developments in relation to the Claim notified under clause 12.1(a) or 12.1(b)
(g) (Compliance) If the Buyer does not comply with this clause 12 in respect of a Claim, the Seller Group is not liable under the Claim to the extent that the non compliance has increased the amount of the Claim.

45 Clause 1.2 contains a definition of “claim”, in the following terms:

Any claim, demand, legal proceedings or cause of action including any claim, demand, legal proceedings or cause of action:
(1) based in contract (including breach of warranty);
(2) based in tort (including misrepresentation or negligence);
(3) under common law; or
(4) under statute (including Part V or VI of the Trade Practices Act 1974 (Cth)), or like provisions in any State or Territory legislation,
in any way relating to this deed or the sale and purchase of any of the total assets in the Anvil Hill Mine by the seller to the buyer and includes a claim, demand, legal proceedings or cause of action arising from a breach of warranty or under an indemnity in this deed or under the land sale contract.

46 Clause 11.4 relevantly provides:

11.4 Maximum and minimum amounts
(a) The Seller Group is not liable under a Claim unless the amount in respect of that Claim:

(1) exceeds $500,000; and

(2) either alone or together with the amount finally agreed or adjudicated to be payable in respect of other Claims exceeds $4,000,000,
but once the amount of the Claim exceeds $4,000,000 in aggregate, the Seller is liable for all of that amount, including the initial $4,000,000.

47 Clause 11.12 provides:

(a) It is the intention of the parties that the Buyers and Buyers Groups’ sole remedies in occasion with the sale will be as set out in this deed.
(b) No Seller Group Member has any liability to a Buyer Group Member;

(1) in connection with the Sale or the matters the subject of this deed, the land Sale contract or the Disclosure Materials; or

(2) resulting from or implied by conduct made in the course of communications or negotiations in respect of the Sale or the matters the subject of this deed, the Land Sale Contract or the Disclosure Materials,
under a Claim unless the Claim may be made under the terms of this deed or arises out of a statutory right or other claim which cannot be excluded by contract.

48 Sale is defined to mean “the sale and purchase of the Anvil Hill Assets [as defined] and the assumption of Assumed Liabilities [as defined] in accordance with clause 3”.

49 Clause 11.15 provides:

Nothing in this clause 11 limits the Seller’s liability in respect of a Claim which arises as a result of fraud or wilful misconduct of the Seller.

50 On 15 October 2008, Xstrata gave Centennial a notice, said to be pursuant to clause 12.1, that they had decided to make a claim, exceeding the applicable threshold in clause 11.4(a), for preliminary discovery in relation to whether Xstrata were entitled to relief in respect of any breaches of clause 8.6 or misleading conduct which had been committed by Centennial as at that date, and for substantive relief in respect of any such breaches or misleading conduct. The parties agreed to extend the period for compliance under clause 11.5(b) until 20 April 2009, but no other extension of time has been agreed, and Xstrata did not issue and serve legal proceedings in respect of the notice of claim on or before 20 April 2009, or at all.

51 In those circumstances, Centennial Coal and Hunter contend that they are not liable under the claim notified on 15 October 2008, and due to effluxion of time under clause 11.5(a) cannot be liable for any other claim for breach of any of their obligations under clause 8.6. Xstrata accept that, the claims referred to in the Notice having not been pursued in any legal proceeding brought within the time limited by the Deed, they are accordingly barred by clause 11.5. However, they contend that clause 11.5 must be construed as applying only to claims that have arisen not later than one year after completion, and as not applying to claims that depend on facts not occurring until some later time, and that clause 11.5 applies only to claims that could be notified under clause 12.1(1), and could not apply to a claim that has not yet arisen.

52 Several provisions of the deed impose obligations on the seller which, on any view, were intended to extend beyond completion and indeed beyond the anniversary of completion. Thus clause 8.7(b) provides that the seller must not after completion use any trademark, business or corporate name containing any of the words “Anvil” or “Anvil Hill”. Clause 8.13 provides that the seller’s guarantor must not liquidate the seller before 30 June 2009 without the buyer’s written consent, and after that date must consult with the buyer before doing so. Clause 8.14(a) provides that the seller must procure that copies of all “excluded records” retained by it and relating to any time before the completion date be preserved until the later of six years from the completion date and any date required by an applicable law; and clause 8.14(b) provides that after completion the seller must on reasonable notice provide the buyer with reasonable access to those records. Clause 17.1 contains a guarantee by the seller’s guarantor (Centennial Coal) of the due and punctual performance of the seller’s obligations, and an indemnity against all loss etc incurred arising from any default or delay in such performance. Clause 19.17 has the consequence that that indemnity is a continuing obligation which, despite completion, remains in full force and effect so long as Mangoola has any liability or obligation under the deed and until those liabilities or obligations have been fully discharged. Prima facie, it seem unlikely that the parties intended these apparently solemn obligations to be ephemeral in the sense that a breach committed after the anniversary of completion could not be the subject of a claim.

53 In Hume v Monro(No 2) (1943) 67 CLR 461, the plaintiff brought a suit for a declaration negativing privity between the parties in respect of certain land and liability of the plaintiff to pay money to the defendant in respect thereof, when the defendant asserted that based on certain facts the plaintiff was and would continue to be liable to pay rent. The High Court held that the suit was properly dismissed, (by Latham CJ and Starke J) on the ground that the evidence did not disclose such a precise definable equitable claim by the defendant as would form the proper subject matter for a suit for a negative declaration; and (by Rich and Williams JJ) on the ground that the plaintiff had failed to prove that the defendant was not entitled to have specifically performed a contract for lease made between the plaintiff and the defendant’s predecessor in title. Latham CJ said (at 474):

The procedure enabling a court to make declarations of right without consequential relief is not to be used to enable a person who thinks that another person may make some kind of claim against him to make that person a defendant to proceedings for a declaration, so as to fix upon him the responsibility of supporting some claim which he may or may not determine to make: see In re Clay; Clay v Booth [1919] 1 CH 66. In an action for a declaration that a right alleged to be claimed by the defendant does not exist the onus rests upon the plaintiff of establishing first that a claim sufficiently definite and intelligible in its terms to be a proper subject of adjudication has been made against him by the defendant. … Next, the plaintiff seeking a declaration denying any possible foundation for the alleged claim of right must exhaust the possibilities and show that the claim cannot possibly be supported. It is not for the defendant in such a proceeding to make a claim and to justify that claim.

54 Similarly, Starke J said (at 478) that while there was no objection to making declarations denying the existence in the plaintiff of equitable rights, they should be “carefully watched” and “should not be made unless the controversy between the parties is clearly formulated and defined …”. His Honour concluded (at 479):

And the court ought not to make declarations as to equitable rights or the want of equitable rights in the air but only in respect of claims carefully formulated and capable of specific statement or negation.

55 In my opinion those observations apply in the present circumstances. Insofar as Centennial Coal and Hunter claim a declaration to the effect that the notice of 15 October 2008 is invalid and ineffective, no submission was advanced as to why that was so; it is not apparent otherwise why the notice did not comply with the requirements of clause 12.1 of the Asset Sale Deed, and in the absence of any suggestion that proceedings have been or are to be brought in reliance on that notice, nothing turns on its validity and there would be no utility in making such declaration.

56 Insofar as Centennial Coal and Hunter seek a declaration that by reason of Xstrata’s failure to bring proceedings as required by clause 11.5(b), they may not bring and the Centennial Companies have no liability in respect of any of the claims recorded in the Notice:

· The Xstrata Companies have not sought to bring, and there is no indication that they presently intend to bring, any such claims;

· The claims in the Notice are expressed in relatively general terms, by reference to the contractual or statutory obligation which may have been breached, and are not precisely defined as they would be in a pleading;

· The notice includes claims based on contraventions of the (Cth) Trade Practices Act 1974, the (Cth) Corporations Act 2001, and the (Cth) Australian Securities & Investments Commission Act 2001. Clause 11.12(b), in providing that no seller group member has any liability to a buyer group member under a claim unless it may be made under the terms of the deed, excepts from that limitation a claim that “arises out of a statutory right or other claim which cannot be excluded by contract”, and it is at least arguable that claims under the Trade Practices Act , the Corporations Act and the ASIC Act fall within that exception;

· It is not impossible that one or more of the claims referred to in the Notice arises as a result of wilful misconduct on the part of Centennial. At least, that possibility has not been negatived.

57 Insofar as Centennial Coal and Hunter seek a declaration that the defendants are precluded from bringing any “claim” against them for breach of any of the obligations under clauses 8.6(a), (b) or (c), that suffers from the further difficulty that such claims have never been formulated at all, have never been made, may never be made, are not identified or capable of being identified except in the broadest terms, and include claims arising from events which have not occurred and may never occur.

58 For those reasons, it is inappropriate to make the declarations sought by the plaintiff in claims 8, 9 and 10 of the summons.

Conclusion

59 My conclusions may be summarised as follows.

60 The obligation imposed by clause 8.6(b) is an on-going one which subsists until a novation and transfer is achieved, or the NCIG arrangements are excluded under clause 8.6(e). Clause 8.6(c) regulates the relevant arrangements in the meantime. It is not temporarily limited in the way in which the plaintiffs contend. It was intended to be of indeterminate operation, to secure to Mangoola as best as the parties were able, in the context of existing legal constraints, access to capacity at the NCIG terminal, unless and until there was a transfer and novation, or the NCIG arrangements were excluded by Mangoola. It follows that the plaintiffs’ claims for declarations to the effect that they have no further obligations under clause 8.6(a), (b) and (c) fail.

61 It is inappropriate to grant a negative declaration in respect of claims that have been formulated, if at all, only in general terms; that there is no indication Xstrata presently intends to pursue; and that may include claims that arise from events which have not occurred, or which are outside the protection of the limitation clause.

62 It follows that all the plaintiffs’ claims fail. My order is:

1. Order that the summons be dismissed, with costs.

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