Charlick Trading Pty Ltd v Australian National Railways Commission

[1997] FCA 268

IN THE FEDERAL COURT OF AUSTRALIA    )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY    )    No SG 78 of 1996
  )
GENERAL DIVISION  )

BETWEEN:

CHARLICK TRADING PTY LTD

Applicant

- and -

AUSTRALIAN NATIONAL RAILWAYS
  COMMISSION

First Respondent

- and -

NATIONAL RAIL CORPORATION
  LIMITED

Second Respondent

REASONS FOR INTERLOCUTORY JUDGMENT

CORAM:     Mansfield J
PLACE:     Adelaide
DATE:     27 March 1997

HIS HONOUR:  This action was instituted by application on 27 September 1996.  It was supported then by affidavit and included a claim for interlocutory relief.  The issue as to appropriate interlocutory relief was the subject of submissions before the Court on 9 and 22 October, and 6 and 19 November 1996, as a result of which the parties (if I may say so, very sensibly) determined upon a series of undertakings, which enabled the matter to proceed to trial without an adjudication on the claim for interlocutory relief.  That led, on 19 November 1996, to the
Court giving directions for the hearing of the matter, including directions as to pleadings, and the listing of the matter for hearing on 17 March 1997.

In accordance with those directions, a statement of claim was filed by the applicant on 6 December 1996 and a cross‑claim by the first respondent was filed against both the applicant and the second respondent on 23 December 1996.

For reasons which I need not go into, it became apparent in early March of 1997 that the matter would be unable to proceed to trial as previously proposed and, on 11 March 1997, I formally vacated the hearing date.

At the same time, both the applicant through its solicitors, and the first respondent through its solicitors, gave notice of proposed amendments to the respective claim and cross‑claim brought by their clients.  Now before me is a series of objections by the second respondent to parts of the existing and proposed statement of claim of the applicant, and to one paragraph in the existing and proposed cross‑claim by the first respondent against the second respondent and, secondly a series of objections by the first respondent to parts of the proposed statement of claim of the applicant.

For the sake of convenience, I will refer to the statement of claim as incorporating both the proposed amendments notified on 11 March (or about that time) and the subsequent amendments
proposed to add or substitute some additional clauses subsequently notified, all of which have been the subject of submission, and I shall refer to the cross‑claim, which, as far as I can see as relevant to these issues, contains within the filed document on 23 March 1996 the relevant clauses.  The proposed amendments to it do not alter those clauses.

The basis of the objections varies, but the objections are made partly under O20 r2 of the Federal Court Rules ("the Rules") by which a statement of claim or an action may be struck out or dismissed ‑ in effect, for present purposes as simply unsustainable on any view of the facts or law ‑ or, under O11 r16, by which a statement of claim may be struck out on the ground that, as pleaded, that which is sought to be maintained is unsustainable, or on grounds that, as pleaded, it is embarrassing or otherwise improper.  If a strike‑out order is made under O11 r16, it will generally be the case that an opportunity to replead will be given.

Because the application in part sought, in effect, a final determination of issues adverse to the applicant, I received the affidavit of Mr Weber sworn in this matter on 24 March 1997, which exhibited the relevant documents or agreements and some correspondence.  On a strike‑out application based solely on the pleadings, it is not customary for the Court to receive any evidence, as the decision is made on the basis of the pleadings themselves.  In an application under O20 r2, that is not necessarily so.

In making the rulings which I am about to make, I am mindful of the principle established over many cases, that it is only in the very clearest of cases that the Court will dismiss an action on the pleadings or summarily as disclosing no reasonable cause of action.  I need only refer to the High Court decisions of Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 at 130; and Walton v Gardiner (1993) 177 CLR 378 at 393. I do, however, note from those authorities that, although the strike‑out power is to be exercised only in the clearest of cases ‑ sometimes said to be with exceptional caution, sometimes said to be where the argument that it ought to be maintained is clearly untenable, or cannot possibly succeed ‑ mere complexity of the argument is not of itself a reason in an otherwise appropriate case not to strike out the statement of claim or to dismiss the action. What is apparent is that, to succeed in striking out a statement of claim, there is a high hurdle to be overcome.

For reasons which are, no doubt, apparent to all parties, the decision which I am making is not a decision on the rightness or wrongness of the matters of law sought to be alleged on one side or another in any sense, nor is it a decision as to whether the facts which are asserted are or are not capable of being proved if the matter proceeds to trial.  What I am doing in making the rulings which I am about to make is to assume, as I should, that all the facts asserted in the application, in the statement of claim, or in the cross‑claim can be proved, subject to addressing
the particular matters that Mr Sulan QC on behalf of the second respondent addressed, to the effect that, under the agreements to which he referred, but in particular the Shareholders' Agreement (as it was called in submissions) of 30 July 1991, it is simply going to be impossible for the applicant, or in one case the first respondent, to prove the matters which are asserted.

I am mindful that, in any event, this matter will, even if all the objections are successful, nevertheless proceed to trial and, therefore, that it is better to say too little rather than too much.  In taking that position, I will obviously not do justice to the quality or depth of the submissions which have been put before me variously in relation to the particular paragraphs of the statement of claim or of the cross‑claim under challenge.  However, I think it is better to say as little as possible, except, where appropriate, to indicate whether I accept that an assertion of fact is simply impossible to prove given the documentary evidence adduced and, if so, whether that means that a claim of law is simply untenable on any view of it, or whether, on the other hand, despite those submissions and assertions, an assertion may be tenable, whether in fact or law.

In considering the applications generally, I am, in a sense, also mindful of the need to step back to see the nature of the applications brought.  As presently formulated, the applicant's claim against the first respondent is essentially under what is called in the submissions and, I think in the statement of claim,
the Intermodal Services Agreement of 29 June 1993.  The statement of claim alleges that that agreement arose in circumstances that I need not go into, but in the context of the applicant expending considerable sums of money on development of the Gillman Facility, which it leased from the first respondent, and in conducting and providing services from that facility, and in the context of the first respondent for its part then providing facilities for the transportation of interstate freight between Adelaide from Gillman and Melbourne.

It was contemplated that it would operate for a considerable number of years.  Under the Intermodal Services Agreement as it is pleaded, the amount to be charged by the first respondent to the applicant for the transportation services contemplated would be varied from time to time in particular circumstances.  The claim against the first respondent by the applicant is essentially that such variations were not made as required by the agreement when, on 2 September 1996, and subsequently on 16 January 1997, the first respondent imposed or determined upon new charging rates for that service, which it is said were not in accordance with the agreement.

One of the issues relevant to the validity of the charges as then fixed is whether the first respondent should have been guided ‑ and I am describing it in a very loose way on purpose ‑ by the rates charged for what is called the Superfreighter Service operated by the second respondent between Adelaide and Melbourne from the Islington facility or terminal.  It is said that, under
the Intermodal Services Agreement, consideration of the cost or charges of the second respondent in providing the Superfreighter Service should not be had regard to.  I will advert to that when I come to consider the particular pleadings.  It is, essentially, however, a claim for breach of contract.

The claim against the second respondent is brought under two headings or for two causes of action.  It arises because either under the Shareholders' Agreement to which I have referred, or under the Rail Freight Services Agreement of 11 May 1993 as subsequently amended, to which both the first and second respondents were parties, and perhaps in conjunction with some other agreements, including what was called in submission the Assumption of Functions Agreement, the second respondent is entitled, and, on the part of the first respondent in one of the paragraphs of the cross‑claim which is under review, is obliged to progressively take over the interstate rail freight services and facilities operated by the first respondent.

Again, I express that dispute in very broad terms, but I note that Mr Sulan QC, again for the second respondent, stressed very substantially what he contended to be the discretionary functions or powers of the second respondent under the Shareholders' Agreement to take over some or all parts of the interstate rail freight business of the first respondent and to do so in whole or in part.

Mr Taylor QC for the first respondent contended that the obligation had become more specific and more compulsive, if I can describe it that way ‑ more absolute ‑ by certain provisions of the Rail Freight Services Agreement, which, it is said, requires the progressive assumption by the second respondent from the first respondent of all of its interstate rail freight services.  Again, I shall need to refer to that in a little detail.

The applicant says that action taken by the second respondent in relation to the first respondent's interstate rail freight service activities more generally, and taken pursuant to the Shareholders' Agreement or the Rail Freight Services Agreement or other agreements, and including the National Rail Corporation Agreement Act, has led to two consequences. One is that the second respondent's action or threatened action gives rise to a cause of action on the part of the applicant for inducing the first respondent to breach its contract or its contractual relations with the applicant, and the second is that, by virtue of the position which it has come to occupy in one of the two markets ‑ or both of the markets ‑ to which reference is made, purported to be defined in the statement of claim, it has a position within that market which it has exercised for the purpose of damaging the applicant, contrary to s46 of the Trade Practices Act.

It is in that overall context of the causes of action which the applicant alleges against the first and second respondents that I turn now to consider the objections to the applicant's
statement of claim.  I propose to do so simply in the sequence in which those paragraphs appear in the document.  As I said, I am, regrettably, confident that I shall not do justice to the quality of the submissions in the brief remarks that I propose to direct to each of the sets of paragraphs under consideration.

The first is paras23A.1, 23B.1, and 23C.1 of that statement of claim.  In my view, despite the objection, those paragraphs of the statement of claim should be allowed.  It seems to me that all they are is a plea by the applicant as to what it contends to be the proper construction of the Intermodal Service Agreement, and that such form of pleading is permissible under O10 r4, pleading the effect of documents, or under O10 r9, pleading points of law.  Even if the pleading were otherwise improper, it is necessary to consider whether, in its form, it may cause embarrassment to the respondents in having to plead by way of defence to those paragraphs.  I do not think there is any embarrassment.  If the construction contended for is not accepted, as I assume is the case, the construction asserted can simply be denied and the parties then refer to the documents as they have otherwise in their defences already filed for their true force and effect.

The second block of paragraphs to which I refer ‑ paras23A.2, 23B.2, 23C.2 and 35A ‑ seek to allege an implied term in the Intermodal Services Agreement as to the basis upon which charges will be fixed between the applicant and the first respondent.  It is said that, as a matter of law, facts are not alleged from
which, on any view, the Court could conclude that either those particular terms, or indeed any terms, could be implied into the Intermodal Service Agreement because of its comprehensiveness and because of the way it is expressed to operate, and it is also said that those particular alleged implied terms are inconsistent with express provisions of the Intermodal Services Agreement, in particular, because that agreement, insofar as it refers to the charge fixing procedures detailed in sch2 of that document under the heading "Operating Terms", refers to comparative costs to Australian National Railways Commission associated with the provision of the Islington service and direct rail service and the comparative market prices of those services and any similar service.

The Islington service is defined in para1 of sch2 of that agreement to exclude the first respondent's Superfreighter Service ‑ since taken over by the second respondent.  It is submitted that if either of those propositions is made out in fact, then the terms sought to be alleged should not be permitted.

In relation to the first question, para23D of the statement of claim sets out the facts upon which it is said that the terms sought to be implied are to be implied.  The difficulty I have in accepting the submission, in particular that the terms are not required to give business efficacy to the Intermodal Services Agreement, derives not so much from the background facts to the Intermodal Services Agreement, including the expenditure of
some $5.9m by the applicant to set up and establish the Gillman Facility, but that clause 23D.8 specifically asserts as a fact a necessity for those terms to be implied to give business efficacy to that agreement.  I do not know what particulars would be provided in support of that clause were they to be sought, or indeed whether or not they have been sought.  It is a paragraph which, obviously, would attract ‑ or could attract ‑ a request for particulars.  As a conclusional fact, however, so long as it stands, I find it difficult to accept that it is untenable that business efficacy may not, on any view of the circumstances, require such terms to be implied.  I am being cautious not to express any view on the merits of the particular claims, but simply to indicate that, at least in this respect, it seems to me that, if that conclusional fact is made out as it is asserted ‑ and, presumably, in respect of which some primary factual evidence which will be led at trial ‑ then that ground of objection will not succeed.

The other ground of objection, which also applies to para35A of the statement of claim, is the inconsistency point, which I have identified.  In answer to that, Mr Besanko QC for the applicant makes the submission that the proper construction of clause 1 of the operating terms in sch2 of the Intermodal Services Agreement does not, on its proper construction, exclude consideration of the Superfreighter Service charges, because that clause of the operating terms referring to the Islington service relates only to comparative costs, as distinct from comparative charges, and the subsequent parts of that clause referring to comparative
market prices of those services and any similar service is sufficiently wide to encompass the Superfreighter Service, albeit that the comparative costs to the first respondent associated with the provision of the Islington service, excluding the Superfreighter Service, is the specific subject of that clause.  I do not comment upon the merits of the argument other than to say that, in my view, it is not untenable in the relevant sense.  Accordingly, I do not accede to the application to strike out paras23A.2, 23B.2, 23C.2, or 35A of the statement of claim.

Objection is taken to para24A of the statement of claim on grounds of materiality, i.e. that it is immaterial to any matter in issue in the proceeding and that, if it is allowed to stand, it will be embarrassing in the relevant sense.  It is said to be immaterial, because it relates to post contractual conduct, as it were, in the air, without properly being tied to the establishment of a cause of action.

Assuming for the moment that the facts sought to be asserted can be made out and are properly admissible in the proceeding, it seems to me that those particular facts can enjoy no greater status than as matters of evidence to be proved.  In my view, they are not material facts which go to the establishment of the cause of action against the first respondent, or to either of the causes of action against the second respondent.  It is explicit in the Rules that only material facts or proper particulars of material facts should be pleaded.  Accordingly, I propose to disallow para24A of the statement of claim.  In doing so, I
indicate that that will not necessarily exclude the applicant from seeking to lead that evidence at trial, and I make no indication as to whether, if it seeks to do so, it will or will not be ruled admissible.  That is for trial.  I also note that para23D.7 of the statement of claim seems to relate to the same transaction and seems to be one of the facts to lead to the terms sought to be implied.  That paragraph of the statement of claim has not been the subject of objection.

The next block of the statement of claim to which objection is taken is parts of para47, in particular, paras47.2, 47.3, and 47.4, 47.5 and 47.6.  It is contended ‑ if I can again seek to describe, and no doubt inadequately, the submission ‑ that each of those paragraphs seeks to assert a process by which the review of charging rates under the Intermodal Services Agreement should have been carried out, and that there is no primary fact alleged to which the failure to consider or the consideration of the specified matters is attracted as a breach; in other words, it is said that there is no allegation that the Intermodal Services Agreement requires certain particular processes to be carried out and, therefore, the complaints which are of a failure to carry out those processes as distinct from the result cannot give rise to a cause of action.

In submission, Mr Besanko QC for the applicant indicated that it was the applicant's contention that the processes, the subject of the alleged breaches in those paragraphs, were themselves required by the Intermodal Services Agreement, presumably under
clause 1 of the operating conditions in sch2 of that agreement.  I make no comment as to the prospects of the applicant succeeding in a contention that, upon the proper construction of clause 1, if it be clause 1 of the operating conditions, or on some other clause of the Intermodal Services Agreement, the applicant will establish that it required the first respondent, in considering its charges from time to time, to have regard to particular things, or to not have regard to particular things, being those things specified in those paragraphs, but I think it is sufficiently spelt out in the pleading ‑ although it may be that, in the light of my observations, the applicant may consider making it more clearly spelt out, that the applicant seeks to assert that, on the proper construction of the Intermodal Services Agreement, the particular things specified in those paragraphs are required so that the particular breaches by failure to carry out those things are therefore breaches of that agreement upon its proper construction.

If, at trial, some other justification for those clauses is sought to be made out, I will not entertain it.  But, on the basis that Mr Besanko QC has identified as justification for those causes, and subject to what I wish to say about paragraph 47.6 of the statement of claim, I propose to allow those paragraphs to stand.

Paragraph 47.6 requires its own particular consideration, because it was accepted by Mr Besanko QC that, as it stands, that clause is inadequately pleaded and subject to further consideration that
the quantification which that clause seeks to achieve of a different charging rate may need to be separately heard and determined after the principal action.  Even if it is to be heard and determined by this Court as part of the claim, either at the time of the principal relief or subsequently, it will need to be properly particularised.  As it stands, I do not think it is fair to expect the respondents to plead to it.  For those reasons, I strike out para47.6 of the statement of claim, but I indicate that, if the applicant wishes to maintain a claim in respect of the matters to which it refers, it may seek leave to replead that paragraph with proper particularity.

The next block of the statement of claim to which objection was taken is paras52 to 56 in which it is sought to identify against the second respondent the conduct said to amount to wrongful interference with the contractual relations between the applicant and the first respondent.  It is now apparent from the submissions that the work of paras50 and 51 of the statement of claim is only to serve that alleged cause of action and otherwise to provide a matter of historical fact relevant generally, but not separately, to identify a cause of action against the second respondent.  It is also now plain, although I think it was fair on the part of the second respondent not to proceed with it at the time, that paras66 to 68 of the statement of claim also exist only to serve that allegation or that cause of action as claimed by seeking to identify wrongful conduct on the part of the second respondent, which, on one view of the law, is necessary to be made out to support the cause of action.
For the second respondent, it is asserted that no wrongful conduct is alleged, that it is necessary to allege wrongful conduct, and more specifically, that in the light of the withdrawal of the defence of force majeure (which originally was raised by the first respondent) and so in the light of the first respondent's assumed intention specifically to admit the particulars in paras43 and 44 of the statement of claim ‑ and I note, in particular, para44.4 of the particulars ‑ that there is, in effect, no problem, because the first respondent does not now assert that the conduct of the second respondent prevents it from performing the Intermodal Services Agreement.  It is therefore said that there is no allegation that the conduct of the second respondent prevents the first respondent from performing, or from being able to perform, its contractual obligations to the applicant under the Intermodal Services Agreement.

In my view, sufficient reason has been made out by the applicant to lead to the conclusion that those paragraphs of the statement of claim should not be struck out.  Whether the second respondent's view of the law is correct, that is, that there needs to be specifically wrongful conduct, or that there needs to be specific action which prevents, as distinct from discourages or impedes, the first respondent in performing the Intermodal Services Agreement, is a matter for later determination.  I do not think those matters are so clear as to warrant the striking out of the statement of claim.

I note, in particular, that the conduct complained of and specified in paras53 and 54 of the statement of claim includes the conduct by reference in paras50.1 to 50.3 of the statement of claim and I think, having heard Mr Besanko QC, that it is sufficiently arguable that such conduct may amount to conduct which, for the purposes of the cause of action, may constitute interference with contractual relations as to allow those pleadings to stand.  Again, I am being careful not to make any observations as to the prospects or otherwise of the success in the maintaining of those obligations, as distinct from concluding that they are not hopeless, or some other more sophisticated expression which has been used in the cases from time to time.

The final block of paragraphs in the statement of claim to which objection is taken are those which seek to identify the breach of s46 of the Trade Practices Act on the part of the second respondent.  There are a number of objections taken ‑ one of which I think Mr Besanko QC acknowledged ‑ as to the ambiguity of the market alleged.  That was clarified in oral submissions, and I think it is accepted by the applicant that, if these pleadings are allowed to stand, the position which it expressed orally as to the nature of the market may need to be followed through by some refinement of the subsequent paragraphs of the statement of claim.

The first objection is that the market is inadequately identified by material facts pleaded.  The two markets involved, expressed as alternatives, are, in terms of the applicant's preference or
primary contention, firstly, for the carriage of international shipping container freight by both rail and road between Adelaide and Melbourne and, secondly, as its alternative submission, the carriage of international container freight by rail between Adelaide and Melbourne.  In my view, those markets are sufficiently particularised, or sufficiently described to remain as appropriate pleadings.

I will not deal with each of the succeeding paragraphs at length in that part of the statement of claim, because it seems to me that it would be more appropriate for the applicant then to make its allegations in at least para61 and following by reference separately to each of the markets for which it contends.  If it does not do so, I can see some embarrassment, on the part of the second respondent, in having to plead to the statement of claim as it presently stands.  I can also see some difficulty, on the part of the second respondent, in being able to obtain proper particulars, if it needs further particulars, in relation to those matters.

There are one or two particular aspects, however, to which I wish to refer.  Paragraph 61 seeks to assert the conduct undertaken by the second respondent said to be taking advantage of its power in one or other of those markets and, in some respects, the complaint is made, and I say understandably, in the sense that there is some authority to support it, that the conduct complained of at first blush appears not to be the exercise of power in the market, but the exercise of a contractual right or
obligation.

In respect of para61.1, depending upon the operation of the Rail Freight Services Agreement, in the face of the broad discretions which the Shareholders' Agreement appears to indicate, as identified by Mr Sulan QC, it is an assertion inconsistent with the discretions which the Shareholders' Agreement seems to give to the second respondent.  It has been put to me, however, that the exercise of contractual powers or rights may in certain circumstances itself be the taking of advantage of a power in the market, and some authority was referred to me in support of that proposition.  That is a remark of Dawson J in the Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1988-1989) 167 CLR 177 at 202. I do not think even Mr Besanko QC would contend that that observation of his Honour is definitive of the point which will arise in the particular proceedings, being as it is in the context of the particular facts of that case. Nor am I called upon to decide ‑ nor would I at this point ‑ the validity of Mr Besanko QC's proposition. However, I am not satisfied that it is so untenable as to lead to those parts of the statement of the particular allegations in para61 to be struck out, nor do I think that the argument as to predatory pricing or as to price determination, whether under the agreement or otherwise, is sufficiently untenable as to mean that it could not, on any view of the facts, or on any view of the law, amount to evidence of taking advantage in the market. Accordingly, I do not propose to disallow or strike out the subparagraphs of para61 to which
reference is made.

The remaining part of those allegations of substance which attracted a different objection are the particulars referred to in para62.2 of the statement of claim, where it is said that a number of facts support the conclusion that the second respondent engaged in the exercise of the power in the market or markets referred to substantially for the purpose of eliminating or damaging the applicant or others in each of the markets.  In my view, that paragraph of the statement of claim is not properly pleaded and should be struck out.

Insofar as paras62.1 and 62.2 refer to other competitors, because there is said to be a substantial purpose directed to eliminating or preventing other competitors from engaging in conduct in the markets, I think the applicant should be able to identify those entities or persons.  If the purpose of conduct is to eliminate a competitor from a market, that competitor, by definition, must be in the market and must be targeted.  Obviously, in those respects, the applicant should have the opportunity to replead that paragraph.  I also think that the particulars specified are embarrassing.  As was I think acknowledged by Mr Besanko QC, the particulars set out do not constitute particulars of material facts or of facts, but a series of historical events, which appear to me to be more in the nature of evidence ‑ and Mr Besanko QC acknowledged ‑ to a large degree were simply a recital of some of the evidence proposed to be led.

In my view, that is embarrassing to the second respondent to have to plead to those matters in that way.  Where it is alleged to have a substantial purpose of eliminating the applicant or some other entity from a market by undertaking the conduct referred to in para61, the facts from which that purpose is sought to be proved or said to exist should, in my view, be identified clearly and precisely.  A chronological sequence of the evidence proposed to be led, leaving the second respondent to seek to work out from that sequence whether it is the letter or the content of the letter, or a particular part of the content of the letter, or whether it is the taking part in the meeting, or the discussion at the meeting, or a particular part of the content of the discussion at the meeting which gives rise to the conclusion contended for, is in my view an insufficient basis for pleading such a set of facts to support the conclusion.  Accordingly, I propose to strike out or disallow para62 of the statement of claim.

In the balance of that section of the statement of claim, paras63 to 65 were acknowledged to follow the fate of the substantive clauses and will stand.

I should remark, by way of an interposition, that the Rules of this Court do draw a clear distinction between material facts and particulars.  Particulars do not comprise part of the pleading, and are not to be pleaded to, and general conclusions of the nature which paras62.1 and 62.2 assert are probably, without having heard detailed argument on it, insufficient to constitute
of themselves a material fact, although I am not finally to be taken to conclude that.  I do not want the further preparation of this matter for trial to be caught up in an argument about whether a particular is part of a pleading or not and to have particulars struck out, or to have pleadings struck out because the particulars are not part of it.  I make those observations simply to invite the applicant to give consideration to that when and if it chooses to replead para62.2.

It follows from those rulings that I do not think it appropriate to strike out, as a consequence of those primary rulings, any parts of the application as proposed to be amended.

The remaining pleading issue is as to para112 of the first respondent's cross‑claim against the second respondent.  It, too, seeks to assert an implied term, in this case in the Rail Freight Services Agreement.  I will not repeat the comments I made earlier about the circumstances in which a term may be implied, or the test which I am adopting to consider whether the pleadings should or should not be allowed to stand.

There are two points put in response.  The first is that the implied term sought to be asserted is a "best endeavours" term, and not itself an obligation to obtain the consents referred to; in other words, it is simply said to be an implied term to service or support the express term alleged in the Rail Freight Services Agreement in para110 of the cross‑claim.  In that context, it is not inconsistent with the Rail Freight Services
Agreement and, in particular, I refer to para22(1) of that agreement and clause 2.2(b) of that agreement, and it is a term which, although it may not need to be implied, is one which is quite commonly asserted to be implied in such agreements.  I do not think the assertion that it may be implied in the circumstances of that agreement is so hopeless as to lead to that clause being struck out.

Insofar as it asserts an obligation to use best endeavours to do something by way of a positive obligation for all of the first respondent's customers in relation to interstate rail freight, it is, however, said that that is inconsistent with the discretionary exercise of powers to which I have referred in the Shareholders' Agreement.  That may well be right.  However, Mr Taylor QC for the first respondent referred me in particular to clause 2.1(a) of the Rail Freight Services Agreement and to clauses 10.5 and 10.6 of that agreement as indicating that it is arguable that, despite the discretions or powers of the second respondent contained within the Shareholders' Agreement to acquire or not to acquire, and, if acquiring, to acquire in whole or in part, parts of the first respondent's rail freight assets.  He said that, nevertheless, under the Rail Freight Services Agreement, that agreement may make more explicit and insistent or absolute the obligation on the part of the second respondent to assume responsibility for all the interstate rail freight activities of the first respondent, at least over a period of time.  It is not for me, on this application, to conclude that that argument is wrong and, although Mr Sulan QC urged me to do
so, I decline the invitation at this point.

I make the observation that, in allowing the pleading to stand, I do not, in particular, want to be seen as accepting, or indeed as rejecting, the construction of clause 10.5 or clause 10.6 of that agreement for which Mr Taylor QC contended.  However, on the relevant test, in my view, para112 of the first respondent's cross-claim should be allowed to stand.

I turn to the question of the first respondent's application to be released from the undertaking given on 9 October 1996 and continued and then renewed ‑ or at least maintained ‑ on 19 November 1996, when the parties, by arrangement, ‑ and, in my view, a very sensible compromise ‑ reached some accommodation for the maintenance of the service, or some part of the service, under the Intermodal Services Agreement, which the applicant sought to insist upon by way of interlocutory relief.

Mr Besanko QC, firstly, objected to that application being entertained at this point.  Secondly, he objected to favourable consideration being given to it, because there had been no relevant change of circumstances sufficient to warrant the Court's considering the application.  Thirdly, he contended that, in any event, a release of the undertaking ought not be granted, because on the facts it was unnecessary and because, in the exercise of my discretion, it should not be granted.  Having regard to the course of the proceedings and, in particular, the decision of the first respondent only relatively recently to
abandon its claim that it was no longer able to perform the Intermodal Services Agreement by reason of force majeure, I am indebted to Mr Besanko QC for referring me to the decision of Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 in relation to the Court's power to entertain the application.

In my view, it is appropriate to entertain that application.  The undertakings given were by way of a compromise and were not after a hearing of the interlocutory relief application.  Had they been at a point in the course of the interlocutory application when the Court had made a decision or expressed a view as to the appropriateness of certain relief and then undertakings given instead of orders made, the sort of considerations required to reopen an interlocutory order would arise, but they were not.  They were expressed to be given by way of a collective compromise of all the parties until further order.  At the time, liberty to apply was given.  At the time, they were intended to operate to trial, which was then fixed for 17 March 1997.  Accordingly, I propose to entertain the application.

The first point I note, because it was raised by Mr Taylor QC on behalf of the first respondent ‑ and properly acknowledged explicitly by Mr Besanko QC on behalf of the applicant ‑ is that the undertaking proffered by John Ernest Barr ("Mr Barr") in his affidavit of 26 September 1996 on behalf of the applicant to pay to the respondent such damages as the Court considers the respondents or one or other of them shall have sustained by
reason of any orders made by way of interlocutory relief, and which was expressly then said to be offered in respect of the undertakings offered by each of the first and second respondents, has continued ‑ and does continue ‑ and, absent any other order of the Court relieving the applicant from that undertaking, will continue until the trial or until further order.

I turn then to consider the merits of the application.  It is said that the first respondent seeks security, if it is not to be released from its undertaking, in respect of the shortfall which it alleges, between what it has recovered and what it claims to be entitled to charge the applicant for services provided since the undertakings were given.  That amount is presently in the order of about $640000, and is now increasing at the rate of about $56000 per week.  It is a matter of simple arithmetic to say that, if the trial does not now take place for some months, it will be an amount considerably in excess of $1m at the time of trial.  The precise calculations were not disputed by Mr Besanko QC, but, of course, the applicant says that the first respondent is not entitled to be charging the amounts which it is charging, so it will not be entitled to recover those amounts.  It is a somewhat circuitous claim of loss on the part of the first respondent, so it is said, in those circumstances.

The applicant resists the application, firstly, because it says there should be a change of circumstances before it is granted ‑ and there is none; secondly, because there are no new relevant considerations; and, thirdly, because, in the exercise of my discretion, I should refuse to release the first respondent from the undertakings without requiring more information, because the withdrawal of the force majeure defence by the first respondent at this point should lead me to speculate as to what, if any, action the applicant would have brought but for the first respondent's having previously confronted the applicant with the assertion that it was, by force majeure, unable to perform the Intermodal Services Agreement and, secondly, because that allegation being extant during the period of preparation for the trial may have led in some way to the preparation of the trial being complicated and directed in ways which would not enable the action to proceed as it was contemplated.

I will deal with those submissions shortly.

It is also put by the first respondent that it should be released from the undertaking in any event, because, at the time the undertaking was given, the financial situation of the applicant was such that, when the undertaking was offered on its behalf by Mr Barr, the first respondent was not made aware of that financial situation and should have been.

I reject that second submission for a couple of reasons.  Firstly, the evidence shows that the applicant and the first respondent have been trading or dealing with each other since 1992, at least in respect of the Intermodal Services Agreement, and in the period 1992 to 1994 a bank guarantee was required or procured for the first respondent in the sum of $500000,
presumably to support the indebtedness from time to time of the applicant to the first respondent.  In those circumstances, I am not prepared to infer, in the absence of direct evidence, that the first respondent was not aware of the general financial position of the applicant from time to time, in particular, in the second half of 1996, without evidence to that effect.  That really is sufficient to conclude the submission.

However, I add, although it is not necessary for me to conclude one way or the other as to whether there was a duty on the part of the applicant in the circumstances to disclose its financial affairs and a breach of that duty, that I am not to be taken as accepting either of those propositions as a matter of law, or, on the information presently before me, in particular, the picture presented by the 1995 financial statements, that, as a matter of fact, there was then material which ought to have been disclosed, even assuming a duty to disclose of such substance as to warrant the conclusion for which Mr Taylor QC contends had I taken those two steps.  I simply do not need to address those matters.

I turn then to the application for release of the undertaking or security in support of it.  In my view, it is available to the first respondent to raise that matter in the absence of changed circumstances, as I have said, because the arrangement first entered into was consensual without any Court decision or intervention, and was not expressed to be for a determinate time, either the hearing and determination of the trial or some other
specified time.  Secondly, it was until further order.  Thirdly, liberty to apply was given.  And fourthly, even if none of those matters applied, and assuming that the first respondent had simply overlooked the question as to the worth of the undertaking offered by the applicant, in my discretion, I would, if it became apparent at a later point that that had been overlooked, have permitted it to raise the matter.

In any event, I think there are sufficient changed circumstances to warrant the application, if it is necessary to make them out.  The first is that, since the undertakings were given, the 1996 financial statements, at least in draft form, have become available, and they disclose that, unlike the 1995 year, the applicant's operating profit before tax during the 1996 year led to a substantial deficit in its trading position and, secondly, because, albeit probably, in the scheme of things, in a relatively minor way, its net asset position, either looked at absolutely or in terms of current assets and current liabilities, has worsened over that 12 month period.  Secondly, in my view, the fact of the delay of the trial ‑ and I do not ascribe any responsibility for that ‑ means that the first respondent's potential exposure for which it might ultimately wish to seek recovery under the undertaking offered by the applicant will be significantly greater than it had contemplated at the time the consensual arrangement was entered into and will continue to increase.  Thirdly, associated with that reason is that, on the material before me, the amount which the second respondent is charging the first respondent for services which, expressed very
loosely, the first respondent is then passing on to the applicant and charging at a different rate, means that the amount of the loss which the first respondent stands to incur in terms of its liability to the second respondent compared to its recoverability from the applicant is again substantial and increasing.

My approach to the matter is, therefore, that any of the three parties may apply to vary or discharge the undertakings and, in that event, it would be necessary to revisit the question of whether interlocutory relief should or should not be granted and, if so, on what terms.  As I have said, albeit I accept that I am relatively uninformed as to the legal, factual and commercial considerations ‑ subject to that reservation - it seems to me the arrangement entered into last November was a very sensible arrangement between the parties to preserve their respective positions as best as possible and to preserve their respective rights as best as possible whilst this matter was tried.

In effect, the application presently is not to say that that was not a sensible thing to do or the orders made by consent or the undertakings noted by consent ought to be discharged and some other form of orders substituted, but simply to say, on one aspect of those undertakings now, as a result of the information the first respondent has, in particular the undertaking which was accepted from the applicant, really does not carry with it the substantive economic support which it was assumed to carry and which it was intended to carry at the time it was proffered.

I do not, therefore, see the application at present as seeking to reopen the application for interlocutory relief generally, but seeking simply to say that, given that was a sensible consensual arrangement at the time in the proceedings, the common intent then that the undertakings respectively given should, for each of the parties, be worthwhile.  Thus, it is said that it is now desirable to protect the first respondent in respect of the undertaking given by the applicant.  I, therefore, assume still that there is a serious question to be tried.

I assume further that the balance of convenience requires the sort of undertakings given by the first and second respondents and, for its part, that the applicant must give the undertaking which it has given but that it should be worthwhile.  Any such undertaking, if accepted by the Court, is subject to the Court being satisfied that it is worthwhile.

In my view, the material now available indicates that that is not sufficient of itself to simply maintain that undertaking without some support for it.  Subject to the discretionary considerations to which I shall turn shortly, in my view, the applicant should support that undertaking in some form ‑ whether that be by its parent or parent companies also providing an undertaking as to damages, and I assume that they are substantive entities where there would be no issue as to the enforceability of the undertaking if it came to that, or the directors, with the same assumption, or by some form of bank guarantee ‑ that is up to the applicant, because, subject to my comments in a moment about
discretion (and it will appear that I am proposing to authorise the release of the undertaking unless some form of security or additional undertaking is given at the expiration of 21 days from today's date) I think the undertaking will, therefore, require some reinforcement.  If some other associated entity or the directors with substance behind them are not prepared to proffer the undertaking in support of the applicant's undertaking, it seems to me that a bank guarantee of some form will have to be provided, and I have in mind, in that event, rather than seeking to tie it too closely to the past and ongoing loss of the first respondent, if it ever comes to that, that allowing something like 20 weeks to a trial would require a bank guarantee in the order of $1m.

I propose, however, simply to adjourn this aspect of the matter for 21 days, having published my reasons, whilst the applicant and the first respondent have the opportunity to further consider what I have said, or the applicant simply procures, through some other associated entity or persons, an undertaking to support its own undertaking as to damages.

I deal finally with the question of discretion.  It is said that the abandonment of the force majeure claim is relevant, because, but for it having been made in the first place, the applicant may have not brought this action as and when it did, because it would not have been confronted with the prospect of simply not getting any further services.  I accept that.  But it seems to me that, nevertheless, the applicant is now persisting with its claim, as
it is entitled to do, claiming substantial relief against both respondents, and the applicant does not seek to say that it no longer requires either respondent to honour the undertakings which they have given.  So long as it requires them to do so, it should be required to provide a supporting undertaking and, so long as it provides a supporting undertaking, it should be an undertaking of value.

Accordingly, although I have noted the weight of the point Mr Besanko QC made, I am really approaching the matter de novo from now and I am persuaded that, because the applicant is proceeding with substantial claims against both respondents and because the applicant apparently seeks, as it is entitled to do, to maintain the claims for interlocutory relief presently met by undertakings, the first respondent, for its part, is entitled to have the applicant's undertaking in return and an undertaking of substance.

The second discretionary consideration was that the maintenance of the force majeure defence, until recently, meant that the progress of the action may have been advanced in such a way that, but for that defence having been made, and more recently abandoned, the action would have been able to proceed as previously fixed.  That may or may not be the case, but I do not think, as a discretionary consideration, it is a sufficient reason not to expose the respondents, who have given undertakings in lieu of interlocutory relief in exchange for an undertaking as to damages from the applicant, not to get a valuable
undertaking from the applicant.

Accordingly, I propose, as I have indicated, at the expiration of 21 days from today, to release the first respondent from its undertaking unless, in the meantime, the applicant provides additional undertakings of value to support the undertaking for damages of the applicant, or otherwise provides security in support of the applicant's undertaking, and I indicate that I would require, subject to any further evidence that may be adduced, but as presently advised, approximately an amount of $1m.  (I am assuming 20 times $50000 is a bit over $1m.  If my arithmetic is wrong, I am happy to be corrected on that.)

If the applicant no longer requires the undertakings, or if it thinks that in some other way it is entitled to some different or more extensive or less extensive interlocutory relief, then it is entitled, given the reasoning that I have referred to above, to itself make an application.

Mr Sulan QC, for the second respondent, has also sought an order that his client may also apply for such security.  Any party is free to do so in respect of the current consensual undertakings upon proper notice to the other parties.

Accordingly, on that application of the first respondent, whilst I make no order today, having delivered those reasons, it will be necessary to bring the matter back before me at a time convenient to the parties.  I think it was suggested that this
matter should be listed for directions next week some time.

I will vary the time specified above from 21 days to 30 days and adjourn the matter and the undertaking will remain for 30 days unless otherwise ordered in the meantime.

I certify that this and the preceding        pages are a true copy of the Reasons for Interlocutory Judgment of the Honourable Justice Mansfield.

Associate:

Dated:

Counsel for the Applicant           :    Mr A J Besanko QC
  with him
  Mr S P White
Solicitors for the Applicant        :    O'Loughlins

Counsel for the First Respondent          :    Mr P W Taylor QC
  with him
  Mr R D Ross-Smith
Solicitors for the First Respondent  :    Phillips Fox

Counsel for the Second Respondent         :    Mr J R Sulan QC
  with him
  Mr P Grey
Solicitors for the Second Respondent :    Deacons Graham &
  James

Hearing Date  :    27 March 1997