Centennial Coal Company Ltd v Xstrata Coal Pty Ltd

Centennial Coal Company Ltd (the vendor) and Xstrata Coal Pty Ltd (the purchaser) were parties to an agreement for the sale of a coal mining project. The central dispute concerned the vendor's obligations under the agreement, specifically whether it had used reasonable endeavours to novate rights relating to a coal loading facility for the benefit of the purchaser. The agreement also stipulated that capacity at the coal loading facility be made available to the purchaser. The matter came before the Court of Appeal of New South Wales.

The Court of Appeal was required to determine two primary legal issues. First, it had to consider whether the vendor's obligation to use "reasonable endeavours" to novate the rights included taking steps to implement pre-emption provisions contained within the facility agreement. Second, the Court had to decide whether the vendor's agreement to ensure capacity at the coal loading facility was made available to the purchaser was merely subsidiary to the novation obligation, or if it constituted a separate and independent obligation.

The Court reasoned that the phrase "reasonable endeavours" imposed a positive obligation on the vendor to take all reasonable steps to achieve the novation. This included exploring and pursuing the implementation of the pre-emption provisions, as these were a mechanism by which the novation could be achieved. The Court found that the vendor had not taken all reasonable steps in this regard. Furthermore, the Court held that the agreement to make capacity available at the facility was an independent obligation, not merely ancillary to the novation clause. The appeal was dismissed with costs.