City of Stirling v Dicom Awt Operations Pty Ltd
[2018] WASC 228
•8 AUGUST 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: CITY OF STIRLING -v- DICOM AWT OPERATIONS PTY LTD [2018] WASC 228
CORAM: ARCHER J
HEARD: 13 - 14 MARCH 2018, 20 APRIL 2018, 1 JUNE 2018
DELIVERED : 8 AUGUST 2018
FILE NO/S: CIV 2931 of 2017
BETWEEN: CITY OF STIRLING
Plaintiff
AND
DICOM AWT OPERATIONS PTY LTD
Defendant
Catchwords:
Waste Supply Agreement - Declarations consequent upon proper construction - Turns on its own facts
Legislation:
Nil
Result:
Declarations made
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr K M Pettit SC and Mr A K Sharpe |
| Defendant | : | Mr R D Shaw and Mr G E Nairn |
Solicitors:
| Plaintiff | : | McLeods |
| Defendant | : | Lavan |
Case(s) referred to in decision(s):
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
M v Chief Executive Officer of the Department of Corrective Services [2016] WASC 185
Western Metropolitan Regional Council v DiCOM AWT Operations Pty Ltd [2018] WASC 229
WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10; (1999) 20 WAR 489
TABLE OF CONTENTS
Overview
The Issues
Background
Present proceedings
Who or what determines when Final Completion occurs? (proposed declaration 1.1)
Competing constructions
Legal principles to be applied
Commercial purposes and objects of the City Agreement
Purpose of Final Completion
Relevant clauses in determining when Final Completion occurs
Schedule Definition
Clause 3
City's contentions
DiCOM's contentions
Clause 3.2 versus 3.5
Requirement for satisfaction
Who bore the risk
Rejection of DiCOM's construction
Plain meaning of cl 3.2
What would a reasonable person have understood the terms to mean?
No work for cl 3.2
Commercial nonsense
Conclusion on DiCOM's construction
DiCOM's challenges to City's construction
Can the DC Contract determine Final Completion?
Acceptance of City's construction (and proposed declaration 1.1)
What does 'process' mean? (proposed declaration 1.2)
Relevant framework
DiCOM's submissions
Anticipated changes in outputs
Natural meaning of 'process'
Plain meaning of process in the City Agreement
DiCOM's earlier qualification
Conclusion on 'process'
Is Final Completion determined by the DC Contract? (Proposed declaration 2)
The Construction Contract is the DC Contract
Practical Completion Issue
What is required for 'Practical Completion' to be certified under the DC Contract?
'Waste' versus 'Municipal Solid Waste'
DiCOM's submissions
The influence of subsequent events on the City Agreement
Practical Completion requires more than just processing
Other means to satisfy cl 3.2
Conclusion on Practical Completion Issue
The Timing Issue
The purpose of the hearing
Alleged prejudice
Conclusion on proposed declaration 2
Initial Waste Characterisation Study (proposed declarations 3 and 4)
Relevant clauses
Is the Initial Study a condition precedent to the cl 4.16 charge? (proposed declaration 3)
Timing Declaration (proposed declaration 4)
Contractual framework
The connection between the Initial Study and Final Completion
The connection between the Initial Study and the ramp‑up
Not an exact alignment of periods
Conclusion on Timing Declaration (proposed declaration 4)
Explanatory declaration (proposed declaration 5)
Conclusion
ARCHER J:
Overview
In 2007, the City of Stirling (City) was approached by two companies about a waste processing technology that was said to be capable of significantly reducing the amount of waste going to landfill. The two companies were AnaeCo Limited (AnaeCo) and Perpetual Investment Management Ltd (Perpetual).
The technology involved separating organic from non‑organic municipal solid waste, recovering and recycling reusable materials, and bio-converting organics to compost and biogas. The technology was said to combine 'both aerobic and anaerobic system outcomes' into one continuous, fully automated process, occurring in one vessel. The aim of the technology was to provide an environmentally sustainable alternative to landfill disposal of municipal solid waste.
The process of treating waste using the technology has been patented in Australia and other countries as the 'DiCOM® System'. The system was named 'DiCOM' because it claimed to combine 'the benefits of anaerobic digestion and aerobic composting at the integrated process level' (original emphasis).
At the time that the City was approached, a prototype plant had already been built by AnaeCo at the Brockway Waste Transfer Station (Waste Transfer Station), now the JFR (Jim) McGeough Resource Recovery Facility. The Waste Transfer Station was operated by the Western Metropolitan Regional Council (Council), which had agreed to allow AnaeCo to build the plant there.
After the prototype plant had been built, AnaeCo and Perpetual proposed to the Council that they enter into a waste supply agreement and a related lease. AnaeCo and Perpetual proposed that, under those agreements, a commercial‑scale plant (Facility) to process waste using the DiCOM® System would be constructed and operated at the Waste Transfer Station.
The Facility was to be constructed in two stages. Stage 1 was a non-commercial demonstration stage (proof of concept). If the performance tests in Stage 1 were successful, Stage 2 would then proceed. Stage 2 was to be an expansion (by scale‑up of Stage 1) to a commercial operation.
AnaeCo and Perpetual proposed that the Council would ultimately supply 33,000 tonnes per annum (tpa) of waste to the Facility for processing. They proposed that a further 22,000 tpa would be sourced from third parties.
AnaeCo (as 20% shareholder) and Perpetual (as 80% shareholder) incorporated the defendant (DiCOM) as a special purpose vehicle to provide services to the Council under the proposed waste supply agreement.
On 5 April 2007, DiCOM and the Council entered into a waste supply agreement (Council Agreement).
AnaeCo and Perpetual sought to source the further 22,000 tpa from the City. On 13 August 2008, the City entered into a waste supply agreement with DiCOM. The agreement was varied on 7 November 2008 (City Agreement). Once the 'Operational Period' commenced, the City was to supply 22,000 tpa.
At the time that the City entered into the agreement, the DiCOM® System had not been implemented on a commercial scale and was commercially untested. In addition, the construction of Stage 1 (the non‑commercial demonstration stage) of the Facility was not yet complete.
Under the City Agreement, the City was obliged, among other things, to deliver waste to DiCOM to enable DiCOM to ramp‑up the Facility and conduct a waste characterisation study on the City's waste. However, the City Agreement provided that the City would not pay for the processing of its waste until after 'Final Completion'. From Final Completion, the City was obliged to provide prescribed amounts of waste, and pay a fee. Under the City Agreement, Final Completion would occur when the Facility was able to process waste at 55,000 tpa.
Stage 1 of the Facility was constructed under an agreement between the DiCOM AWT Investment Trust (DiCOM Trust) and AnaeCo. The trustee of the DiCOM Trust was Brockway DiCOM Facility Pty Ltd (Brockway). Brockway had been incorporated by AnaeCo and Perpetual to hold a lease over the land on which the Facility was to be constructed. The DiCOM Trust had been licensed to use the DiCOM® System by AnaeCo.
After Stage 1 was completed, Stage 2 was to be constructed under an agreement (DC Contract) between Brockway as the 'Principal' and AnaeCo and Monadelphous Group Ltd (Monadelphous) as the 'Contractor'.
As would be expected, the DC Contract provided a mechanism for the certification of 'Practical Completion'. Practical Completion under the DC Contract meant, among other things, that the Facility was able to process 55,000 tpa of municipal solid waste.
A certificate of Practical Completion was not issued under the DC Contract. On 9 February 2016, a Deed of Settlement and Release was executed in relation to the DC Contract (Deed). Under the Deed, the Contractor (AnaeCo and Monadelphous) was required to pay the Principal (Brockway) $5,800,000, excluding GST, for the Contractor's failure to meet its obligations under the DC Contract, in particular the Contractor's failure to meet all of the requirements of the Project Specification. Once that payment was made, the Deed provided that the date of Practical Completion would be 15 April 2016.
On 1 September 2017, DiCOM gave notice under the City Agreement that DiCOM anticipated 'Final Completion' would occur on 1 November 2017.
In the two months following this notice, the Facility accepted 609.08 tonnes, being an average of 304.54 tonnes per month. To be able to process 55,000 tpa, as required by Final Completion, the Facility had to be able to process an average of 4,583 tonnes per month.
Of the waste accepted by DiCOM in that two month period, over 70% went to landfill. The Assumptions Book annexed to the City Agreement indicated that the parties assumed that only about 20% of the waste would go to landfill.
DiCOM asserted that the Facility achieved Final Completion for the purposes of the City Agreement on 1 November 2017. The City disputed that. Each advances a different construction of when Final Completion will occur under the contract. This is the heart of what I must decide.
The City asserts that Final Completion occurs when the Facility has been certified in accordance with the DC Contract to be able to process waste at 55,000 tpa. Further, the City asserts that this certification will occur when 'Practical Completion' under the DC Contract is certified.
DiCOM asserts that Final Completion occurs when it itself is satisfied that the Facility can process waste at 55,000 tpa. Counsel for DiCOM, Mr Shaw, submitted that the only requirement of DiCOM's satisfaction was that it had to act in good faith. Initially, Mr Shaw did not concede that this involved an objective test. On the third day of hearing, Mr Shaw accepted that DiCOM had to have an objectively reasonable basis for declaring it was satisfied of Final Completion. However, Mr Shaw said that this related to its conduct, not the outcome. Mr Shaw said that 'it might be that an unreasonable outcome is produced. That's acceptable'.[1] In other words, Mr Shaw submitted that, while DiCOM had to have an objectively reasonable basis for declaring Final Completion, Final Completion will occur when DiCOM declares it to have occurred, even if, objectively, the Facility could not actually process waste at 55,000 tpa.
[1] ts 422.
In addition to the issue of Final Completion, the parties disagree about what it means to say that the Facility is able to 'process' waste. Both agree that the Facility had to be able to process waste under, and as required by, the DiCOM® System. The dispute was as to whether specific outputs had to be achieved. Using the organic fraction of waste as an example, the City asserts that 'process' requires that it be converted into compost and biogas. However, DiCOM asserts, in effect, that 'process' means the organic waste will be conveyed through the Facility for the purposes of converting it into compost and biogas. DiCOM asserts that 'process' does not mean any specific outputs will be achieved.
The City's commercial objective was to reduce the amount of waste going to landfill by removing the waste that was recyclable and converting the organic fraction of the waste into 'DiCOM® Bioconversion products' of compost and biogas. That was what the DiCOM® System promised to do. That is what the City agreed to pay for, and all it agreed to pay for. Under the City Agreement, the City would not be required to pay DiCOM unless the DiCOM® System worked. On DiCOM's construction, the City has to pay for the 'processing' of its waste even if the Facility does not produce any specific outputs such as compost and biogas.
The final area of dispute relates to a waste characterisation study. The City asserts that an 'Initial Waste Characterisation Study' must be conducted on waste delivered in the six months leading up to Final Completion. DiCOM disputes this. The parties also disagree about whether the study can be properly described as a condition precedent to DiCOM's contractual right to invoice the City in relation to 'Residual Material'.[2]
[2] This is explained in the discussion of proposed declarations 3 and 4.
After declaring that Final Completion had occurred, DiCOM delivered invoices to each of the City and the Council (collectively, the 'Councils'). The invoices claimed payments for 'Monthly Aggregate Service Charges' in accordance with cl 10.2 of the respective agreements (Service Charges) for each of November and December 2017. In relation to the City, the invoices claimed $260,054.42 for November and $205,135.35 for December. The invoices to the Council claimed $58,509.51 for November and $122,334.89 for December.
Each of the Councils have refused to pay the invoices. The Councils deny that DiCOM was entitled to claim the Service Charges, asserting that Final Completion has not been reached, that DiCOM was not providing the 'Services' (as it was not 'processing' the waste as contractually required), and that DiCOM has not conducted the waste characterisation studies that are conditions precedent to its right to make the claims.
Whether or not DiCOM was entitled to render the invoices depends on the proper construction of the two waste supply agreements.
The Issues
The following issues arise:
1.When will 'Final Completion' occur?
(a)Is it when the Facility is certified as able to process waste at 55,000 tpa under the DC Contract?
(b)Or is it when DiCOM itself is satisfied that the Facility can do that?
2.What does 'process' mean in this context? Does it mean that the waste will be processed in accordance with the DiCOM® System? Or does it mean only that there is an intention to process it in that way? Must specific outputs be achieved?
3.Is it appropriate to make a declaration that an Initial Waste Characterisation Study is a condition precedent to DiCOM's contractual right to invoice the City in relation to Residual Material?
4.Must an Initial Waste Characterisation Study be conducted on waste delivered in the six months leading up to the date of Final Completion?
The City seeks declarations in relation to these issues. In order to understand the parties' contentions, it is necessary to set out the background in more detail.
Background
The following comes primarily from the agreed facts filed by the parties.[3]
[3] Statement of Agreed Facts, Legal Issues and Other Matters to be Determined in the Proceeding filed 6 March 2018 in proceedings CIV 2938 of 2017 (Statement of Agreed Facts). Although this was filed in proceedings CIV 2938 of 2017, those proceedings were heard and determined with these proceedings. The Statement of Agreed Facts was filed for the purposes of both proceedings.
The Council is a regional local government. It was established under the Local Government Act 1995 (WA) for the purposes of collecting, treating and disposing of waste and associated activities in its region.
The Council holds a Crown lease over Reserve 22986 in Shenton Park. On that land, the Council operates the Waste Transfer Station.
On 20 November 2001, the Council entered into an agreement with Organic Resource Technologies Pty Ltd (ORT) that permitted ORT to construct a prototype plant at the Waste Transfer Station. The purpose was to allow ORT to prove the DiCOM® System on a commercial scale.
Between 28 November 2001 and 30 June 2006, ORT built a prototype plant.
On or about 8 December 2006, ORT changed its name to AnaeCo.
On 8 February 2007, AnaeCo and Perpetual made the presentation to the Council referred to earlier, proposing a waste supply agreement and related lease.
On or about 8 March 2007, AnaeCo (as 20% shareholder) and Perpetual (as 80% shareholder):
1.incorporated DiCOM as a special purpose vehicle to provide services to the Council under the proposed waste supply agreement; and
2.incorporated Brockway as trustee for the DiCOM Trust to later hold a lease over the land on which the Facility was to be constructed.
On that same date, AnaeCo licensed the DiCOM® System to the DiCOM Trust.
On 5 April 2007, DiCOM and the Council entered into the Council Agreement.
Consistently with the 8 February 2007 presentation, the Council Agreement[4] dealt with Stage 1 (the non‑commercial demonstration stage) and Stage 2 (the expansion, if the construction proceeded to Stage 2, by developing two additional processing vessels and associated infrastructure).[5] Further, the Council was obliged to deliver waste to DiCOM for use in the pre-performance test commissioning and the Stage 1 performance tests.[6]
[4] The Council Agreement was in evidence in these proceedings, and each party relied on it in various respects. See, in particular, DiCOM Response to WMRC Submissions Dated 28 March 2018 (Relating to the Cost of Removing Residual Material) dated 4 May 2018 [16.2].
[5] For example, see the Council Agreement cl 4.2 and Schedule 1 definitions of 'Commission Date', 'Facility' and 'Stage 2'.
[6] Council Agreement cl 4.1(a) and (b), Schedule 5 section 1 and Schedule 10.
On 15 August 2007, the DiCOM Trust and AnaeCo entered into an agreement (EPCM Agreement) under which AnaeCo was to provide engineering, procurement, construction and management services for constructing and commissioning the Facility.
On 12 September 2007, the Council leased the site on which the Facility was to be built to Brockway.
On 21 September 2007, Brockway subleased this site to DiCOM, subject to a condition precedent that 'Final Completion' be achieved under the EPCM Agreement.
The Council Agreement contemplated that other parties would enter into waste supply agreements with DiCOM. It was anticipated that the Facility would process 55,000 tpa in total. Under the Council Agreement, the Council was to supply 33,000 tpa for processing once the 'Operational Period' commenced.
The second party to enter into a waste supply agreement with DiCOM was the City. Under the City Agreement, the City was to supply 22,000 tpa once the 'Operational Period' commenced. As noted in the Overview,[7] at the time that the City Agreement was executed, the construction of Stage 1 was not yet complete and the DiCOM® System was commercially untested.
[7] Overview [11].
On 3 December 2010, Brockway, AnaeCo and Monadelphous executed the DC Contract. The DC Contract replaced the EPCM Agreement and released the DiCOM Trust and AnaeCo from its terms. It appears that Stage 1 had been completed at this point.[8]
[8] The Statement of Agreed Facts does not actually deal with whether Stage 1 was completed at this point, or at any point, so this is merely an assumption. Nothing turns on it.
As would be expected, the DC Contract provided a mechanism for the certification of 'Practical Completion'. Practical Completion under the DC Contract meant, among other things, that the Facility was able to 'process' 55,000 tpa of municipal solid waste.
On 6 December 2010, DiCOM and AnaeCo entered into an agreement under which AnaeCo was to operate and maintain the Facility and be the 'Operator' for the purposes of the Council Agreement.
Between 2010 and 2016, AnaeCo and Monadelphous constructed Stage 2.
Under the Council Agreement, the 'Commission Date', in respect of Stage 2, occurs when DiCOM notifies the Council that the Facility is ready to process waste for the purposes of commencing the 'Commission Period'.[9] The Commission Date under the Council Agreement occurred no later than 21 October 2013.[10]
[9] Council Agreement Schedule 1 definition of 'Commission Date'.
[10] Statement of Agreed Facts row 28.
On 9 February 2016, the Deed of Settlement and Release was executed in relation to the DC Contract. As noted in the Overview,[11] under the Deed, AnaeCo and Monadelphous were required to pay Brockway $5,800,000 for, among other things, their failure to meet all of the requirements of the Project Specification. Once that payment was made, the Deed provided that the date of Practical Completion would be 15 April 2016.
[11] Overview [16].
On 1 September 2017, DiCOM gave notice under the City Agreement that DiCOM anticipated 'Final Completion' would occur on 1 November 2017. As noted in the Overview,[12] the City's payment obligations would be triggered when Final Completion occurred.
[12] Overview [12].
Under the City Agreement, Final Completion would occur when the Facility was able to process waste at 55,000 tpa.
In the two month period from 1 September 2017 to 31 October 2017, the Facility:
1.accepted a total of 609.08 tonnes of waste for processing;
2.exported no recyclable material;
3.exported 431.10 tonnes of waste to landfill;
4.exported no compost;
5.produced no electricity; and
6.retained in the Facility recovered organic material for 'DiCOM® Bioconversion', which had accumulated in the digester vessels.
The total waste accepted in this two month period equates to an average of 304.54 tonnes per month. To be able to process 55,000 tpa, as required by Final Completion, the Facility had to be able to process an average of 4,583 tonnes per month.
Of the waste accepted in this two month period, over 70% went to landfill. The Assumption Book annexed to the City Agreement indicated that the parties assumed that only about 20% of the waste would go to landfill.[13]
[13] See Annexure F to the City Agreement, especially page 127.
As noted in the Overview,[14] DiCOM delivered invoices to the Council and the City, claiming payment for Service Charges for November and December 2017.
[14] Overview [26].
The Councils have refused to pay the invoices. The Councils deny that DiCOM was entitled to claim the Service Charges, asserting that Final Completion has not been reached, that DiCOM was not providing the 'Services' (as it was not 'processing' the waste as contractually required), and that DiCOM has not conducted the waste characterisation studies that are conditions precedent to its right to make the claims.
Present proceedings
On 14 November 2017, the City commenced proceedings by an originating summons, seeking declarations consequent to the determination of questions of construction arising under the City Agreement. The City also sought an injunction to restrain DiCOM from, among other things, submitting invoices until certain events had occurred. A day later, the Council commenced its own proceedings, seeking similar relief.
On 21 December 2017, I made case management orders. One of those orders was that the two proceedings be heard and determined together. I also ordered that the evidence in each proceeding would be evidence in the other, subject to any objections as to relevance.
On 2 March 2018, I made further case management orders. DiCOM was concerned that the Councils were relying on disputed facts or that evidence might be required. DiCOM submitted that, if that was so, it was inappropriate to deal with the matters under originating summonses. In order to permit the central issues to be determined promptly, the parties agreed to defer issues that would raise disputed factual matters. In particular, it was agreed that the present hearing would not deal with the Councils' applications for injunctions. It was also agreed that the present hearing would not deal with the Council's contention that, by operation of a 'most favoured supplier' clause in its own agreement, certain terms of the City Agreement were incorporated into the Council Agreement.
The initial hearing was held on 13 and 14 March 2018. At the end of the second day of hearing, I granted leave to the parties to file further submissions as to the final declarations sought in light of the matters that emerged during the hearing. I also granted leave to the parties to file further submissions in relation to an issue that DiCOM felt it had not properly addressed.[15]
[15] ts 251.
The further submissions gave rise to new questions. There were also a number of matters that arose from the initial hearing about which I needed to give the parties the opportunity to be heard. Accordingly, the proceedings were listed for a further two days on 20 April and 1 June 2018.
The final declarations sought by the City were:[16]
[16] Plaintiff's Proposed Wording of Declarations Sought and Further Written Submissions filed 21 March 2018.
1.[T]hat, on the proper construction of the City of Stirling Waste Supply Agreement dated 13 August 2008 as amended on 7 November 2008:
1.1'Final Completion' for the purposes of clauses 3.5, 4.2 and 10.2 of the City of Stirling Waste Supply Agreement will not occur before the Facility has been certified in accordance with the agreement under which the Facility has been constructed to be able to process Waste at a rate of 55,000 tonnes per annum.
1.2For the purposes of Declaration 1.1, an ability of the Facility to 'process' Waste requires the Facility to:
1.2.1recover Recyclables;
1.2.2convert the organic fraction of Waste into DiCOM® Bioconversion Products, being:
1.2.2.1DiCOM® Compost; and
1.2.2.2DiCOM® Biogas; and
1.2.3value-add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
2.[T]hat, as from 3 December 2010, 'Final Completion' for the purposes of clauses 3.5, 4.2 and 10.2 of the City of Stirling Waste Supply Agreement requires certification of Practical Completion of the Facility in accordance with the Contract for Design and Construction DiCOM System Shenton Park Stage 2 dated 3 December 2010 between Brockway DiCOM Facility Pty Ltd and AnaeCo Ltd and Monadelphous Group Ltd.
3.[T]hat the carrying out by DiCOM AWT Operations Pty Ltd of an Initial Waste Characterisation Study in accordance with clause 4.10, for the purposes in clause 4.10(b)(i) and (ii), of the City of Stirling Waste Supply Agreement is a condition precedent of:
3.1the contractual right of DiCOM AWT Operations Pty Ltd to invoice the City of Stirling under clause 4.16(c); and
3.2the contractual obligation of the City of Stirling to pay under clause 4.16(c).
4.[T]hat the Initial Waste Characterisation Study, to be conducted under clause 4.10 of the City of Stirling Waste Supply Agreement on Waste delivered by the City of Stirling pursuant to clause 4.1, must be conducted on Waste delivered in the 6 months leading up to the date of Final Completion.
5.[T]hat, for the purposes of Declarations 1, 2, 3 and 4:
5.1The following expressions used in Declarations 1, 3 and 4 have the meanings as defined in Schedules 1 and 2 of the City of Stirling Waste Supply Agreement, namely: 'Facility'; 'Waste'; 'Recyclables'; 'DiCOM® Bioconversion Products'; 'DiCOM® Compost'; 'DiCOM® Biogas' and 'Initial Waste Characterisation Study'.
5.2The following expressions used in Declaration 2 have the meanings as defined in the Contract for Design and Construction DiCOM System Shenton Park Stage 2, namely: 'Facility' and 'Practical Completion'.
5.3The expression 'Facility' as used in Declaration 1 and Declaration 2 refers to the same facility, namely that facility constructed under the Contract for Design and Construction DiCOM System Shenton Park Stage 2 on lot 11541 on Deposited Plan 189946 on the corner of Brockway Road and Lemnos Street, Shenton Park Western Australia.
In these reasons, I will refer to the proposed declarations by reference to the paragraph numbers above.
These reasons deal with the final declarations sought by the City. My reasons in Western Metropolitan Regional Council v DiCOM AWT Operations Pty Ltd [2018] WASC 229 deal with the declarations sought by the Council.
Who or what determines when Final Completion occurs? (proposed declaration 1.1)
Competing constructions
It was common ground that Final Completion will occur under the City Agreement when the Facility is able to process waste at 55,000 tpa. The dispute is who or what determines when the Facility is able to do that.
As noted earlier, DiCOM asserts that Final Completion occurs when it itself is satisfied the Facility can process waste at 55,000 tpa. The City asserts that Final Completion occurs when the Facility is certified under the DC Contract as being able to process waste at 55,000 tpa.
As a preliminary observation, I note that it was common ground that the City Agreement was not well‑drafted.
Legal principles to be applied
The principles to be applied to contract construction are not in dispute. In Black Box Control Pty Ltd v Terravision Pty Ltd, the Court of Appeal summarised the relevant principles as follows (footnotes omitted):[17]
[17] Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42].
(1)The process of construction is objective. The meaning of the terms of an instrument is to be determined by what a reasonable person would have understood the terms to mean.
(2)The construction of a contract involves determination of the meaning of the words of the contract by reference to its text, context and purpose.
(3)The commercial purpose or objects sought to be secured by the contract will often be apparent from a consideration of the provisions of the contract read as a whole. Extrinsic evidence may nevertheless assist in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, its background, the context and the market in which the parties are operating.
(4)Extrinsic evidence may also assist in determining the proper construction where there is a constructional choice, although it is not necessary in this case to determine the question of whether matters external to a contract can be resorted to in order to identify the existence of the constructional choice.
(5)If an expression in a contract is unambiguous and susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.
(6)To the extent that a contract, document or statutory provision is referred to, expressly or impliedly, in an instrument, that contract, document or statutory provision can be considered in construing the instrument, without any need for ambiguity or uncertainty of meaning.
(7)There are important limits on the extent to which evidence of surrounding circumstances (when admissible) can influence the proper construction of an instrument. Reliance on surrounding circumstances must be tempered by loyalty to the text of the instrument. Reference to background facts is not a licence to ignore or rewrite the text. The search is for the meaning of what the parties said in the instrument, not what the parties meant to say.
(8)There are also limits on the kind of evidence which is admissible as background to the construction of a contract, and the purposes for which it is admissible. Insofar as such evidence establishes objective background facts known to the parties or the genesis, purpose or objective of the relevant transaction, it is admissible. Insofar as it consists of statements and actions of the parties reflecting their actual intentions and expectations it is inadmissible. Such statements reveal the terms of the contract which the parties intended or hoped to make, and which are superseded by, or merged into, the contract.
(9)An instrument should be construed so as to avoid it making commercial nonsense or giving rise to commercial inconvenience. However, it must be borne in mind that business common sense may be a topic on which minds may differ.
(10)An instrument should be construed as a whole. A construction that makes the various parts of an instrument harmonious is preferable. If possible, each part of an instrument should be construed so as to have some operation.
(11)Definitions do not have substantive effect. A definition is not to be construed in isolation from the operative provision(s) in which the defined term is used. Rather, the operative provision is ordinarily to be read by inserting the definition into it.
Commercial purposes and objects of the City Agreement
The commercial purposes and objects of the City Agreement are apparent from the agreement as a whole. With some minor variations between the parties (and the Council), it was common ground that the following purposes and objects can be gleaned from the City Agreement itself.[18]
[18] ts 395 ‑ 398, 416 ‑ 417.
First, an ultimate object was that, subject to certain events occurring, the City would deliver waste to the Facility and DiCOM would process that waste using the DiCOM® System for a fee. An ultimate object was that this would recover recyclables and convert some waste into compost and other renewable resources so as to significantly reduce the amount of waste going to landfill.[19] That was what the DiCOM® System promised to do. That is what the City agreed to pay for.
[19] See, in particular, City Agreement pages 6 ‑ 9; Schedule 1 definitions of the DiCOM® items, 'Facility', and 'Final Completion'; Schedule 2; Schedule 9 section 2 [4] ‑ [5]; Schedule 10, especially section 4 [2]; and Annexure F.
Second, it was a commercial purpose of the City Agreement that the City would not be required to pay unless its waste was processed under, and as required by, the DiCOM® System. In these reasons, I will use the shorthand description 'the DiCOM® System worked' to refer to processing waste 'under, and as required by, the DiCOM® System'. Under the City Agreement, while the City agreed to assist DiCOM to reach Final Completion,[20] the City was not required to pay DiCOM until DiCOM could, and did, process waste under, and as required by, the DiCOM® System.[21] In short, it was a commercial purpose of the City Agreement that the City would not be required to pay unless the DiCOM® System worked.
[20] The City was obliged to provide waste to DiCOM to enable DiCOM to, among other things, ramp-up the Facility and undertake steps preliminary to Final Completion – see City Agreement cl 4.1.
[21] See, in particular, City Agreement cl 3.5, 4.1 and 4.2. As to the assumption that approximately 80% of the waste would not go to landfill, see Annexure F to the City Agreement, especially page 127.
DiCOM agreed that an ultimate object was that the processing would recover recyclables and convert some waste into compost and other renewable resources so as to significantly reduce the amount of waste going to landfill. DiCOM agreed that the City would not have to pay if DiCOM was not processing waste under, and as required by, the DiCOM® System. However, DiCOM submitted that this did not mean that any specific outputs would be achieved.[22]
Purpose of Final Completion
[22] ts 416 ‑ 417.
The City Agreement uses the mechanism of Final Completion to determine the time at which the City becomes obliged to pay a service charge for waste it delivers. Prior to Final Completion, the City must deliver waste to enable the Facility's ramp‑up and the carrying out of the Initial Waste Characterisation Study. DiCOM is not paid in relation to this waste. After Final Completion, DiCOM is required to deliver the 'Services' in relation to the waste, and the City must pay for those services.[23]
Relevant clauses in determining when Final Completion occurs
[23] City Agreement cl 3.5, 4.1 and 4.2.
The parties identified two places in the City Agreement that potentially define Final Completion or determine when it is contractually established.
Schedule Definition
The first is contained in Schedule 1 of the City Agreement. Schedule 1 says 'Final Completion' means the date that the Facility is able to accept and process waste at 55,000 tpa 'to the satisfaction of [DiCOM]' (Schedule Definition).
Clause 1 states that each defined term has the meaning given to it in Schedules 1 and 2. However, many definitions are made outside that rule[24] and some capitalised expressions are not defined at all.[25] Accordingly, the City Agreement cannot be construed as requiring every capitalised term to be construed by reference to Schedule 1 or 2 without regard to other provisions.
Clause 3
[24] See, for example, City Agreement cl 5.1, 9.5(c) and (d), Schedule 3 section 1 [1] and Schedule 3 section 2 [8(a)]. Each appears to contain internal definitions of words or phrases.
[25] See, for example, City Agreement cl 19.4 - there is no definition of 'Supply Agreement'.
The second clause identified was cl 3.2. However, in view of DiCOM's submissions on this issue, it is appropriate to set out all of cl 3. I note that, by cl 1.1 of the City Agreement, headings do not affect the interpretation. Clause 3 provides (original emphasis):
3.Term and relevant periods
3.1Term
The Term begins on the date this agreement is executed by both parties and continues until the 20th anniversary of the end of the Bank Test Period (Expiry Date).
3.2Final Completion
Final Completion will occur when the Facility is able to process Waste at a rate of 55,000 tonnes per annum as certified in accordance with the engineering, procurement, construction and management agreement under which the Facility is constructed (Final Completion).
3.3Bank Test Period
(a)The Bank Test Period is the period during which all tests required to be undertaken by [DiCOM] in accordance with the Finance Agreements will be undertaken.
(b)The Bank Test Period will begin on a date notified by [DiCOM] to the Council. The Bank Test Period will end when the Financiers conclude that the bank tests are satisfied. [DiCOM] will promptly notify the Council of the date that the Bank Test Period ends.
3.4Operational Period
The Operational Period begins on the day immediately following the end of the Bank Test Period and ends on the Expiry Date.
3.5Commencement of Services
(a)Subject to clause 3.5(b), [DiCOM] must commence provision of the Services from the day immediately following the date of Final Completion and continue to provide the Services during the Operational Period.
(b)Not less than 60 days before the anticipated date of Final Completion, [DiCOM] will notify the Council of the anticipated date of Final Completion and will notify the Council of any changes in the anticipated date of [Final] Completion previously notified.
(c)At the date of this agreement, it is anticipated that the date of Final Completion will be the end of the first quarter of 2009.
City's contentions
The City submitted that cl 3.2 augments the Schedule Definition. Consequently, the City submitted that, to contractually establish 'Final Completion', the Facility must have been certified as being able to process 55,000 tonnes of waste per annum in accordance with the agreement under which the Facility was constructed (Construction Contract). As will be seen when discussing proposed declaration 2, the DC Contract was the Construction Contract.
DiCOM's contentions
Clause 3.2 versus 3.5
DiCOM accepted that, under cl 3.2, Final Completion will occur when the Facility can 'do something as certified in accordance with the DC Contract'.[26] However, DiCOM argued that Final Completion is defined solely by the Schedule Definition.
[26] ts 185. DiCOM qualified that by saying that this was true as at today, but would not remain true if the DC Contract was replaced by another contract.
DiCOM submitted that cl 3.1 to 3.5, read together, set out the stages in the process. DiCOM said 'the key point then at 3.5 is we [DiCOM] get to say when this occurs, and … the definition in Schedule 1 nicely tucks into 3.5'.[27]
[27] ts 187 ‑ 188.
DiCOM submitted that, by contrast to cl 3.5, cl 3.2 is more 'in the nature of a recital as to when in a series of events the particular event will occur'.[28] It submitted that cl 3 also informs as to when other relevant periods in the process would occur, being the Bank Test Period and the Operational Period.
[28] ts 186.
DiCOM said that cl 3.5 'is the operative provision as to when [DiCOM] must commence provision of its services, because [DiCOM] needs to be satisfied that the Facility can process 55,000 tonnes per annum'.[29] DiCOM said that cl 3.5 is the key provision because it refers to the date of Final Completion and the Schedule Definition also refers to the date.[30]
[29] ts 186.
[30] ts 186 ‑ 187.
DiCOM said that, by contrast to cl 3.5 and the Schedule Definition (which refer to the date of Final Completion), cl 3.2 describes when Final Completion will occur.[31] DiCOM submitted that the Schedule Definition refers to an objective state of affairs, whereas cl 3.2 merely says when it will occur.[32]
[31] Defendant's Submissions dated 8 March 2018 (DiCOM's Submissions) [32.3].
[32] DiCOM's Submissions [32.3.3].
DiCOM asserted that cl 3.5 should be read by replacing 'Final Completion' in that clause with the Schedule Definition, disregarding cl 3.2. Therefore, to establish Final Completion for the purposes of cl 3.5, DiCOM argued that all that is required is that DiCOM is satisfied that the Facility can process 55,000 tpa.[33]
Requirement for satisfaction
[33] ts 186.
DiCOM accepted that, at the time the City Agreement was executed, it was anticipated there would be some certification under the Construction Contract. DiCOM also accepted that the common understanding was that the Construction Contract would provide for the certification of the Facility's capacity to process the expected tonnage under the DiCOM® System.[34] However, DiCOM submitted it was open to itself to reject this certification. DiCOM also submitted that, even if the superintendent said the Facility was not yet ready, DiCOM was entitled to decide differently.[35] DiCOM submitted the only requirement of its satisfaction was that it had to act in good faith.[36]
Who bore the risk
[34] ts 421.
[35] ts 186 ‑ 187.
[36] ts 213.
DiCOM submitted that the DiCOM Trust bore all the risk if the system did not work, and the City bore none of that risk. DiCOM submitted that that is why the City Agreement had 'pretty tough terms to say, "When we say it's ready, you've got to start paying. We have to perform but you have to start paying."'[37] DiCOM agreed that, if it did not work, the City would not have to pay anything.[38]
[37] ts 174.
[38] ts 174.
Whether it was the DiCOM Trust or one of the other DiCOM‑related entities that bore all the risk, it was common ground that it was not the City.
In my view, the location of this risk does not support DiCOM's argument. On the contrary. The City Agreement was designed to ensure that, unless the system worked, the City would not have to pay anything. This objective could be entirely defeated if DiCOM could simply say it believed the system worked, without any verification of that.
Rejection of DiCOM's construction
I do not accept DiCOM's construction. As I will explain, DiCOM's construction:
1.is inconsistent with the plain meaning of cl 3.2;
2.is inconsistent with what a reasonable person would have understood the terms to mean;
3.would give cl 3.2 no work to do; and
4.would make commercial nonsense.
Plain meaning of cl 3.2
Clause 3.2 provides that 'Final Completion will occur when the Facility is able to process Waste at a rate of 55,000 tpa as certified in accordance with the [Construction Contract] (Final Completion)' (bolded emphasis in original).
On its face, it purports to define when Final Completion will occur. That it is intended to be a definition is further supported by the inclusion of '(Final Completion)' at the end of the clause, with those words in bold type and in brackets.
To assert, as DiCOM does, that Final Completion only requires DiCOM itself be unilaterally satisfied the Facility can process 55,000 tpa is entirely inconsistent with that plain meaning.
Not the point at which DiCOM 'gets to say when this occurs'
As indicated above, DiCOM submitted that cl 3.1 to 3.5, when read together, set out the stages in the process. DiCOM said 'the key point then at 3.5 is we get to say when this occurs, and … the definition in Schedule 1 nicely tucks into 3.5'.
Clause 3.5 is not, on its face, a clause that gives DiCOM the power to say when Final Completion occurs. It requires DiCOM to provide services after Final Completion and requires DiCOM to notify the City of the anticipated date of Final Completion. It says nothing about what or who determines when Final Completion will be achieved.
Further, accepting that cl 3.1 to 3.5 are to be read together, DiCOM's construction is entirely inconsistent with cl 3.2.
Not a recital
Further, cl 3.2 is not in the nature of a recital, neither in its form nor its location. It is not contained in the 'Background' section of the City Agreement. It is not expressed as a matter that is simply acknowledged by the parties as a factual matter. Rather, it is expressed as defining when Final Completion will occur.
DiCOM's distinction between the reference to when Final Completion will occur in cl 3.2 and the date of Final Completion in the Schedule Definition and cl 3.5 is purely semantic. There is no substantive distinction between 'Final Completion will occur' when the Facility is able to do something and 'Final Completion means the date' on which the Facility is able to do something.
Further, there is no justification for reading cl 3.2 as the sole sub‑clause of cl 3 to have no operative meaning.
Finally, DiCOM's construction would require a conclusion that the parties included a recital within cl 3 that was inconsistent with other provisions in the City Agreement, especially cl 3.5. Given that cl 3 contains only five sub‑clauses, it would be surprising if two of them were inconsistent, even if one could be characterised as merely a recital.
What would a reasonable person have understood the terms to mean?
The commercial purpose and objects sought to be secured by the City Agreement were not in dispute. The DiCOM® System was unproven.[39] The City Agreement was objectively intended to ensure the City bore none of the risk that the system wouldn't work.[40] DiCOM accepted that, if it did not work, the City would not have to pay anything.[41]
[39] This too was common ground – see, for example, ts 226.
[40] ts 174.
[41] ts 174. See also DiCOM's subsequent qualification or clarification, referred to earlier.
Against that background, a reasonable person would have understood cl 3.2 to define when Final Completion would be contractually established. A reasonable person would have understood the clauses operated so as to provide for certification that the Facility could process 55,000 tpa from a source who would not benefit from declaring that it could. In this way, the commercial objective would be met. The City would not have to pay merely because DiCOM asserted the Facility could process 55,000 tpa.
Alternative Construction?
It may be that a reasonable person would have also understood that the Schedule Definition gave DiCOM the right to refuse to accept that Final Completion had occurred, even after a certificate had been issued under the Construction Contract. In other words, perhaps Final Completion will occur when a certificate is issued, but DiCOM is not obliged to commence providing 'Services' under cl 3.5 until it itself is satisfied that the Facility can process waste at 55,000 tpa.
If this construction is adopted, there would be complete harmony among cl 3.2 and 3.5 and the Schedule Definition, and each would have work to do. Further, this construction is businesslike. DiCOM would be protected from having to deliver 'Services' before it felt that it could. The City would be protected from having to pay until there had been a certification of the Facility's ability to process 55,000 tpa.
Neither party advanced this construction, so it would not be appropriate to reach a concluded view on it at this stage. I will, however, refer to it later in these reasons, as the 'Alternative Construction'.
No work for cl 3.2
DiCOM's construction would give cl 3.2 no work to do. If possible, each clause should be construed so as to have some operation.
Commercial nonsense
The City submitted that DiCOM's construction makes commercial nonsense.
The City pointed out that DiCOM's construction has the practical effect that DiCOM alone determines whether it is 'processing' waste and, therefore, the point at which 'Services' are being provided, enlivening the City's payment obligations. In other words, despite the contractual provisions requiring the waste to be processed under the DiCOM® System, DiCOM could unilaterally declare itself satisfied that Final Completion was achieved without any objective determination that the Facility was capable of processing 55,000 tpa of waste under the DiCOM® System, and the City would still have to deliver waste and pay DiCOM for processing that waste.[42]
[42] Plaintiff's Submissions dated 7 March 2018 (City's Submissions) [96].
The City submitted that, in light of the commercial purposes of the City Agreement, it would be a nonsense if there was no objective certification that the Facility was capable of processing 55,000 tpa of waste under the DiCOM® System. In entering into the City Agreement, the City had sought to ensure that its waste was not merely buried in landfill, but was dealt with in the most ecologically responsible way that was reasonably achievable. This is what the City Agreement offered and what DiCOM was selling.
DiCOM argued that it has a strong financial incentive to process the waste under the DiCOM® System. DiCOM did not, and could not, dispute that if the system did not work, it would gain financially by claiming it did work. However, DiCOM submitted it could not do this due to its good faith obligation.[43] Both propositions require examination.
DiCOM's financial incentive
[43] ts 180, 503.
Under the City Agreement, DiCOM is entitled to charge the City in relation to a pre‑determined proportion of 'Residual Material' produced by the Facility that is deemed to be the City's responsibility.[44] The proportion is determined by the Initial Waste Characterisation Study (Initial Study). The Initial Study evaluates waste delivered for the purposes of the study to determine the proportions of Non‑Specification Material, Recoverable Material, Recyclables and the Residual Material in that waste. This is then used to determine, among other things, the proportion of Residual Material produced by the Facility for which each of the City, the Council and any third parties will be treated as responsible. This determination affects what DiCOM can charge the City on an ongoing basis in relation to Residual Material under cl 4.16.[45]
[44] The clauses that relate to the Initial Study are set out in the discussion of proposed declarations 3 and 4.
[45] This is explained in the discussion of proposed declarations 3 and 4.
It was common ground that the City Agreement regulates which party bears the risk of an increase in Residual Material from the pre‑determined baseline. DiCOM bears the risk of any increase caused by the Facility becoming less efficient in extracting Recoverable Material. The City bears the risk of any increase caused by the City supplying waste that, at delivery, contained more irrecoverable material than it should.[46]
[46] ts 501.
DiCOM argued, therefore, that it has a strong incentive to properly process the waste under the DiCOM® System.[47]
[47] ts 501.
However, the baseline is determined by the Initial Study. If the baseline percentage is set when the Facility is not properly processing waste under the DiCOM® System, the baseline will be artificially high. The City would be required to pay, under cl 4.16, for a larger percentage of Residual Material than if the baseline had been set when the Facility was properly processing waste under the DiCOM® System.
It can be seen, therefore, that DiCOM has a strong financial incentive to process waste to at least the same level of efficiency as when the Initial Study was done.[48] This is not the same as an incentive to properly process waste under the DiCOM® System.
[48] ts 501.
Indeed, the fact that the City's liability to pay for Residual Material is determined by the Initial Study is a further reason to conclude that it is necessary to objectively determine the Facility's ability to process waste under the DiCOM® System.
Good faith
Clause 2.1 of the City Agreement provides:
The parties are committed to the operation of the Facility for the Term, and in this regard, and generally, the parties will deal with each other in good faith and in a spirit of mutual cooperation, openness and trust with the intention of addressing issues that arise from time to time.
DiCOM initially submitted that its obligation to act in good faith meant it had to have 'a genuine and rational basis' for being satisfied the Facility could process 55,000 tpa under the DiCOM® System before it could declare that Final Completion had occurred.[49] It said it could not give notice 'if it had no grounds upon which it be so satisfied'.[50]
[49] ts 190.
[50] DiCOM’s Submissions [30].
Initially, DiCOM did not concede that this involved an objective test.[51] DiCOM submitted that good faith meant reasonableness in the sense that the conduct was not capricious, dishonest, unconscionable, arbitrary, or the product of a motive which was antithetical to the object of the contractual power.[52] DiCOM said that it had to have reasonable grounds but only in that sense. DiCOM said it wasn't a test that was 'technically objectively reasonable'.[53]
[51] ts 191.
[52] ts 191 ‑ 192.
[53] ts 292.
Prior to the third day of hearing, I drew the parties' attention to WMC Resources Ltd v Leighton Contractors Pty Ltd[54] in the context of DiCOM's submissions as to what good faith required. I indicated that I would invite the parties to comment during the third day of hearing. During that third day, Mr Shaw said that DiCOM accepted it was required to act by reference to objective criteria. Mr Shaw accepted DiCOM was required to act honestly, bona fide and objectively reasonably in deciding whether it was satisfied that Final Completion had been reached. Mr Shaw accepted DiCOM had to have an objectively reasonable basis for declaring it was satisfied of Final Completion. However, Mr Shaw said that this related to DiCOM's conduct, not the outcome. Mr Shaw said that 'it might be that an unreasonable outcome is produced. That's acceptable'.[55]
[54] WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10; (1999) 20 WAR 489 [46].
[55] ts 421 ‑ 423.
There are several difficulties with DiCOM's submissions on good faith, even in their most recent iteration.
First, on its face, cl 2.1 appears to be directed to the manner in which the parties are to act in dealing with issues that arise from time to time. It does not appear to operate to qualify the proper interpretation of contractual requirements and obligations under the City Agreement.
Second, DiCOM's construction on this issue is commercially nonsensical. On DiCOM's construction, it could unilaterally declare it was satisfied that Final Completion had been achieved if it had an objectively reasonable basis for so declaring, even if this produced 'an unreasonable outcome'.
The technology was unproven. The commercial purpose of the City Agreement was that the City would not have to pay anything if the technology did not work. Once Final Completion occurred, the City was obliged to pay. If the waste was not processed as required by the DiCOM® System, the City could end up paying more for its waste disposal for no benefit at all. It could end up paying more than if it had never entered into the Agreement and had just sent its waste straight to landfill.
In those circumstances, it would be commercially nonsensical to construe the City Agreement in such a way that DiCOM could unilaterally declare Final Completion without any objective determination that the Facility was capable of processing 55,000 tpa of waste under the DiCOM® System.
Conclusion on DiCOM's construction
For these reasons, I reject DiCOM's construction.
Before leaving this topic, it is appropriate to comment on a submission made by the Council that DiCOM's assertion, that the Councils could simply rely on DiCOM's good faith to determine Final Completion, had 'worn very thin'.[56]
Bad faith?
[56] ts 133-134.
The Council sought to rely on numerous documents to demonstrate, in effect, that DiCOM had acted in bad faith. DiCOM submitted that the documents were inadmissible. It was agreed that I would decide the issue of admissibility in these reasons, to the extent necessary.[57]
[57] ts 139 - 140.
Counsel for the Council, Mr Ward, first referred to exchanges between DiCOM and each of the Councils prior to the execution of the waste supply agreements. In particular, Mr Ward referred to the presentation by AnaeCo and Perpetual to the Council on 8 February 2007. This was the presentation referred to earlier that proposed a waste supply agreement and a related lease. In that presentation, it was said that it was intended that an independent engineer would provide technical sign-off on performance prior to the commencement of Services.[58] Mr Ward also referred to a similar presentation that had been made to the City.[59]
[58] Trial Bundle (TB) tab 15 at page 910.
[59] TB tab 14 at page 881.
After the presentation, the Council sought more information. The Council was told, again, that the achievement of Stage 2 Final Completion would be certified by an independent engineer.[60]
[60] TB tab 16 at page 938.
Mr Ward next referred to email exchanges in 2016 in which DiCOM first announced Final Completion 'will be achieved' and then retracted that.
The first document was an email sent on 28 April 2016 from DiCOM[61] to the Council, attaching a letter 'confirming final completion'. The attached letter had the heading 'Notice of Final Completion'. It said that DiCOM 'hereby gives notice that ends on 29 April' and that the Operational Period would commence on 1 May 2016.[62]
[61] The correspondence was actually written by the CEO of Palisade Asset Management Ltd. The Council said that company was a shareholder of DiCOM, and this was not disputed (see ts 134). The content of the correspondence shows that it was written on behalf of DiCOM.
[62] TB tab 31.
On the same date, DiCOM notified the City that Final Completion 'will be certified' on 29 April 2016 'in accordance with' the Construction Contract.[63]
[63] TB tab 32.
The only Construction Contract seemingly in existence at this time was the DC Contract. However, about 11 weeks earlier, the Deed of Settlement and Release had been executed in relation to the DC Contract. As noted in the Overview,[64] the Deed required AnaeCo and Monadelphous to pay $5,800,000 to Brockway for, among other things, their failure to meet all of the requirements of the Project Specification. Once that payment was made, the Deed provided that the date of Practical Completion under the DC Contract would be 15 April 2016.
[64] Overview [16].
DiCOM was a party to the Deed. It is unclear why, after executing that Deed, which referred to a date of Practical Completion of 15 April 2016, DiCOM would inform the City that Final Completion 'will be certified' on 29 April 2016 'in accordance with' the Construction Contract.
The Council responded to DiCOM's letter of 28 April 2016 the same day. The City responded the following day. The Councils disputed, in effect, that Final Completion had occurred.[65]
[65] TB tabs 33 and 34.
On 3 May 2016, DiCOM notified the Councils that it withdrew the notice of Final Completion and confirmed that Final Completion had not been reached.[66]
[66] TB tabs 35 and 36.
Mr Ward next referred to events that had occurred in the two months leading up to 1 November 2017, the date on which DiCOM asserted Final Completion had been achieved.[67] Counsel for the City, Mr Pettit SC, had commented on these events in his opening submissions.[68] In that two month period, the Facility accepted 609.08 tonnes, being an average of 304.54 tonnes per month. To be able to process 55,000 tpa as required by Final Completion, the Facility had to be able to process an average of 4,583 tonnes per month. Over 70% of the waste accepted by DiCOM went to landfill. The Assumptions Book annexed to the City Agreement indicated that the parties assumed that only about 20% of the waste would go to landfill.[69]
[67] ts 133.
[68] ts 82 - 83.
[69] See Annexure F to the City Agreement, especially page 127. In relation to the Council Agreement, see Annexure J.
While there are aspects of the above that may be relevant in resolving issues arising in the future, in my view they do not assist with the issues that arise at this stage. Accordingly, it is unnecessary to determine the admissibility of the documents and I will not take them into account.
DiCOM's challenges to City's construction
As noted earlier, the City submitted cl 3.2 augments the Schedule Definition. The City submitted that, as a result, to contractually establish 'Final Completion', it is necessary that the Facility has been certified as able to process waste at a rate of 55,000 tpa in accordance with the DC Contract.
Can the DC Contract determine Final Completion?
DiCOM contended that Final Completion cannot be determined by the DC Contract. It based this contention on three factors:
1.the City and DiCOM were not parties to the DC Contract;
2.the City Agreement did not describe the stringency of the certification requirements; and
3.the City Agreement and the DC Contract were not part of a single transaction, and so it is not permissible to consider the DC Contract when construing the City Agreement.
I will discuss each in turn.
The City and DiCOM were not parties to the DC Contract
DiCOM is right that the City and DiCOM were not parties to the DC Contract. DiCOM also pointed out that the City Agreement did not provide for either party to be notified of any Construction Contract certification or for DiCOM to receive a copy of any such certificate.
I do not accept this means Final Completion could not be said to occur when there had been certification under the DC Contract. This is for two reasons.
First, it was open to the parties to agree that Final Completion would occur upon the happening of an event external to the City Agreement. This is what they appeared to do by cl 3.2.
Second, the City Agreement plainly contemplated that an entity related to DiCOM would build the Facility.[70] This is what happened. DiCOM's parent entity, AnaeCo, and Monadelphous built the Facility under the DC Contract. They were each and together the 'Contractor' under the DC Contract.[71] DiCOM's related entity, Brockway, was the 'Principal'.[72] In those circumstances, it was inevitable that DiCOM would be provided with any certification of the Facility and would also be told if Brockway disputed the certification. DiCOM could then notify the City that Final Completion had occurred.[73]
[70] TB 512, the first paragraph under the heading 'Background' and see the Statement of Agreed Facts row 16.
[71] DC Contract cl 1.1 definition of 'Contractor'.
[72] DC Contract page 7.
[73] After first providing the requisite notice of the anticipated date under cl 3.5(b).
Similarly, under the Alternative Construction,[74] DiCOM could choose not to trigger its obligations to provide Services under cl 3.5 if it was not satisfied that the Facility could process 55,000 tpa despite the certificate.
The City Agreement did not describe the stringency of the certification requirements
[74] See [105] of these reasons.
DiCOM pointed out that the City Agreement did not describe the stringency of the certification requirements under the Construction Contract.
I accept that, on the City's construction of cl 3.2, the City could not control the strength of the performance certification under the Construction Contract. At best, it might have expected that DiCOM and the related entities would act in good faith to ensure the certification requirements would be strong (as they were). This means that, on the City's own construction, the City would have been bound even if the performance certification had been weak.
However, this is an insufficient reason to reject the City's construction. It was open to the parties to make an agreement in these terms. It was open to the City to expose itself to that risk. The risk was only that the performance certification could be weak, not that DiCOM would be free to simply 'shovel waste in one end and out the other' without even using the DiCOM® System.[75] In my view, the risk does not make the City's construction untenable.
[75] See the discussion in relation to proposed declaration 1.2.
Further, the City's construction is far more tenable than the result of DiCOM's construction. On DiCOM's construction, the City agreed to allow DiCOM to unilaterally declare it was satisfied the Facility could process 55,000 tpa of waste under the DiCOM® System if it had an objectively reasonable basis for doing so, even if this produced 'an unreasonable outcome' and there had been no objective determination that the Facility could in fact process 55,000 tpa of waste under, and as required by, the DiCOM® System.
Is it permissible to consider the DC Contract when construing the City Agreement?
DiCOM also submitted it was not permissible to have regard to the DC Contract when construing cl 3.2 of the City Agreement. DiCOM submitted that the test for permitting regard to be had to other contracts was not met because the DC Contract and the City Agreement were not part of a single transaction. The DC Contract was between different parties and was executed two years after the City Agreement.
However, the City was not seeking to rely on the DC Contract in that way. The City argued that cl 3.2 merely identified a future matter that would be determined by an external event.
The parties to the City Agreement were entitled to contract on the basis that Final Completion under the City Agreement would occur on the happening of a future event. They were entitled to do this irrespective of whether that future event was a factual event or a discretionary evaluative judgment. They were entitled to contract on the basis that Final Completion would occur when the Facility was certified as being able to process 55,000 tpa under the Construction Contract.[76]
[76] For example, see WMC Resources Limited v Leighton Contractors Pty Ltd.
This is what the parties did in this case. Accordingly, I am entitled to consider the DC Contract in determining when Final Completion will occur under the City Agreement.
Acceptance of City's construction (and proposed declaration 1.1)
I accept the City's construction for the following reasons.
First, the City's construction accords with the plain meaning of cl 3.2, both read on its own and in the context of the City Agreement as a whole.
Second, the City's construction gives cl 3.2 work to do.
Third, it is harmonious with the actual Construction Contract (the DC Contract) because the party who is to benefit from Final Completion occurring will not have the definitive say on when it occurs.
Fourth, the City's construction would not make commercial nonsense.
Therefore, I find that cl 3.2 should be construed as the City contended. To contractually establish Final Completion under the City Agreement, the Facility must be certified in accordance with the Construction Contract to be able to process waste at a rate of 55,000 tpa. Final Completion will not occur before that happens.
The City's proposed declaration 1.1 asks for a declaration that Final Completion will not occur before that happens for the purposes of cl 3.5, 4.2 and 10.2 of the City Agreement. The City seeks a declaration in those terms to avoid any complexities in articulating what Final Completion actually means. Accordingly, the City seeks a declaration as to the effect of the meaning of Final Completion in those clauses which directly relate to the proceedings. DiCOM did not contend that the declaration should be cast so as to define the actual meaning of Final Completion. Indeed, DiCOM's proposed declaration in this regard was also framed as a declaration as to the effect of the meaning of Final Completion for the purposes of the same clauses.[77]
[77] DiCOM Submissions in Response to City of Stirling's Supplementary Submissions filed 28 March 2018 (DiCOM's Response Submissions), Schedule A [1.1].
Further, DiCOM did not contend, nor could it have, that there was no utility in making proposed declaration 1.1.
For these reasons, it is appropriate to make the proposed declaration 1.1. Final Completion for the purposes of cl 3.5, 4.2 and 10.2 of the City Agreement will not occur before the Facility has been certified in accordance with the Construction Contract to be able to process waste at a rate of 55,000 tpa.
I turn next to proposed declaration 1.2. This proposed declaration relates to what it means to say that the Facility is able to 'process' waste.
What does 'process' mean? (proposed declaration 1.2)
Proposed declaration 1.2 builds upon proposed declaration 1.1. It states that, for the purposes of proposed declaration 1.1, an ability of the Facility to 'process' waste requires the Facility to:
1.recover Recyclables;
2.convert the organic fraction of Waste into DiCOM® Bioconversion Products, being:
(a)DiCOM® Compost; and
(b)DiCOM® Biogas; and
3.value‑add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
The City submitted that this is what 'process' relevantly means under the City Agreement.
DiCOM's position on the meaning of 'process' changed multiple times during these proceedings.[78] In these reasons, I will deal with DiCOM's final position.
[78] DiCOM's position changes are set out in [179] - [188] of these reasons.
The parties' dispute is limited to what 'process' relevantly means under the City Agreement. It was common ground that, whatever it means, the reference to 'process' in cl 3.2 is a reference to 'process' under the City Agreement rather than under the Construction Contract. As it happens, and perhaps not surprisingly given the context, the meaning of 'process' under the DC Contract is almost identical to the meaning under the City Agreement.
Relevant framework
The word 'process' is not defined in the City Agreement.
The 'DiCOM® System' is defined as follows:[79]
[79] City Agreement Schedule 1 definition of 'DiCOM® System'.
[T]he integration of Organic developed:
(a)Waste receival, sorting & recovery system;
(b)solid organic waste processing system using DICOM® Bioconversion; and
(c)auxiliary systems for DICOM® Bioconversion Products,
for the purposes of processing Waste by:
(a)recovering Recyclables;
(b)converting the organic fraction of Waste into DICOM® Bioconversion Products; and
(c)value adding DICOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
The reference to 'Organic' is a reference to AnaeCo under its former name.[80]
[80] This was common ground - see ts 527. It is also defined in that way in the Council Agreement.
Under the City Agreement, DiCOM must commence providing 'Services' from the day immediately following Final Completion.[81] From that point, the City is required to pay the 'Service Charges'.
[81] City Agreement cl 3.5.
'Services' is defined to mean 'sorting and processing of Municipal Solid Waste at the Facility'.[82]
[82] City Agreement Schedule 1 definition of 'Services'.
The 'Facility' is not defined merely as a place or structure. It is defined to mean 'the DiCOM® System and supporting infrastructure at [the Council]'s Shenton Park Waste Transfer Station to be located on the Site'.[83]
[83] City Agreement Schedule 1 definition of 'Facility'.
The City Agreement requires the City to deliver 'Municipal Solid Waste' to DiCOM.[84] Municipal Solid Waste is required to have a composition consistent with the composition previously determined under the relevant 'Waste Characterisation Study'.[85] Accordingly, the City cannot deliver waste that contains, for example, less recoverable material than the proportion determined by the relevant study.
DiCOM's submissions
[84] City Agreement cl 2.4, 4.1 and 4.2.
[85] City Agreement Schedule 2 definition of 'Municipal Solid Waste'. The City Agreement also provides a mechanism for dealing with any change in waste composition - see cl 4.11, 4.13, Schedule 2 definition of 'Municipal Solid Waste', and Schedule 3 section 2.
In written submissions filed prior to the hearing, DiCOM submitted that the 'processing' of waste by the Facility refers to 'the actions taken in processing, not the results produced from processing'. However, DiCOM accepted that, if MSW is processed through the Facility, there will be bio-conversion of organic matter into compost and gas.[86]
[86] DiCOM's Submissions [3] and [7].
During the second day of hearing, counsel for DiCOM, Mr Shaw, accepted that if the Facility did not incorporate the DiCOM® System, it would not be 'the Facility'.[87] Mr Shaw accepted that DiCOM had to process the waste through a facility that did, in fact, process the waste in accordance with the DiCOM® System.[88] I asked if he accepted that DiCOM had to, for example, recover recyclables because that is part of the DiCOM® System. He said 'Yes. It has got to process it so that, if that's the DiCOM system, that would be the result'.[89]
[87] ts 182.
[88] ts 195.
[89] ts 196.
Mr Shaw also accepted that DiCOM had to process waste by converting, for example, the organic fraction of waste into DiCOM® Bioconversion Products. Mr Shaw noted that there was a range of DiCOM® Bioconversion Products and said that some particular ones may never be produced. However, Mr Shaw accepted that DiCOM had to produce DiCOM® Bioconversion Products.[90]
[90] ts 197.
I then asked Mr Shaw why, in that case, DiCOM opposed proposed declaration 1.2. After 'conferring with his colleagues', Mr Shaw told me that DiCOM’s position was actually that 'the definition of – with processing and the reference to the DiCOM system refers to intention to recover the outcomes so that your intention to recover compost, the intention to recover biogas, the intention to recover all these other things, but is not a mandatory requirement'.[91]
[91] ts 197 - 198.
I asked Mr Shaw if, therefore, he wished to change the answers he had previously given me. He said that he did. Ms Shaw said that DiCOM objected to proposed declaration 1.2 because DiCOM was required 'to run the waste through the facility with the intention that it will produce [compost and biogas for example], not that it will'.[92]
[92] ts 198.
However, after I continued to seek clarification of this, Mr Shaw agreed that to 'process' waste through the Facility meant that it will undergo bio‑conversion.[93] Mr Shaw said 'the waste will come in one end, go through the DiCOM system, go through bio‑conversion, going through the sorting process that's part of the system, and it will produce an output at the end. It can't be defined by what output it produces because process is the means by which it happens, not the results of what happens'.[94]
[93] ts 198.
[94] ts 199.
I then asked Mr Shaw if this meant that he accepted that processing of waste by the Facility requires DiCOM to convert organic waste into bioconversion products. Mr Shaw said he did not. He said processing 'requires the plant, the waste to go through the facility with the intention that it will recover recyclables and convert the organic fraction. It doesn't mean it must do so or produce a particular result'.[95]
[95] ts 199 - 200.
I asked Mr Shaw how this position was consistent with his acceptance that DiCOM had to process waste through a facility that incorporated the DiCOM® System.[96] The following exchange then occurred:[97]
[96] ts 200.
[97] ts 201.
SHAW, MR: That may be relevant to the question of final completion as to processing 55,000 tons, but we're putting it ‑ ‑ ‑
ARCHER J: Well, that's where we are. That's what we're asking about.
SHAW, MR: Yes, but it's an artificial thing to say it has got to produce particular things, because the word 'processing' just doesn't stand up to that. The word 'processing' is 'run it through the facility'. You run it through the facility. It will bio‑convert. It will do that. But it doesn't say ‑ ‑ ‑
ARCHER J: Okay. Stop there … So if you run it through the facility, the organic waste will be bio‑converted.
SHAW, MR: If it works, yes.
ARCHER J: So to process means it - working, right?
SHAW, MR: Yes.
ARCHER J: Right. So process means converting the organic material.
SHAW, MR: It's the intention it will convert the organic material. It's not that it must produce a particular result.
At that point, I told Mr Shaw that his position appeared to be moving back and forth, but that I would not keep asking him questions about it.[98]
[98] ts 201 -202.
On the third day of hearing, DiCOM identified its final position[99] on this issue, with one qualification. DiCOM said that 'processing' could not require that specific outcomes be achieved because DiCOM cannot control the inputs. For example, DiCOM cannot produce certain types of recyclables if none are delivered to it.[100] DiCOM accepted, however, that 'process' meant that, if the 'right' materials were put into the system, the outputs would be in accordance with the DiCOM® System. In other words, DiCOM accepted that 'processing' meant, for example, if there is organic material in the waste, it will be bio‑converted under the DiCOM® System.[101] Further, DiCOM could not dispute that the City Agreement requires the City to deliver waste that has a composition consistent with a composition previously determined under the relevant waste characterisation study.
[99] During the final day of hearing, counsel for DiCOM confirmed that there had not been any further change of position on this issue - see ts 512 ‑ 513.
[100] ts 233.
[101] ts 233.
The qualification was that DiCOM contended that the third component of the DiCOM® System was 'aspirational'. DiCOM submitted, by way of example, that it was not mandatory for briquettes to be produced.[102] Accordingly, subject to that qualification, the only real point of difference between the parties was the extent to which outcomes of processing were captured by the meaning of 'process' in this context.
[102] ts 282 ‑ 283.
DiCOM's submissions were based on two propositions:
1.the parties anticipated outputs may change over time, which is inconsistent with the proposed declaration; and
2.the natural meaning of 'process' did not include outputs.[103]
[103] ts 522 ‑ 523.
I will deal with each of these in turn.
Anticipated changes in outputs
DiCOM drew attention to two clauses in the City Agreement that it said demonstrated that the parties had anticipated outputs may change over time.[104]
[104] DiCOM's Response Submissions [13].
The first is cl 2.5. It relevantly provides that DiCOM will use its reasonable endeavours to increase the creation or derivation of 'Recyclables' and 'Renewable Resources' using the Facility. DiCOM asserted that this showed the parties understood that the technology was subject to continuous improvement.
The fact that the outputs may be improved does not affect the construction of the City Agreement. DiCOM is obliged, under the City Agreement, to provide 'Services'. As earlier discussed, this requires DiCOM to, among other things, process waste under the DiCOM® System. The DiCOM® System is defined. As pointed out by the City, if new or improved commodities are produced that do not diminish 'Services', as defined, there would be no breach of contract. If, however, something is to be done that would reduce the contracted 'Services', then the City's consent would be required.[105]
[105] See, for example, cl 20.1 of the City Agreement.
The second clause relied on by DiCOM is cl 4.14. It provides:
(a)The parties acknowledge that the materials that are Recoverable Material may change over time given that markets for Recyclables and Renewable Resources develop and decline (and may disappear or reappear), and that the definition of Recoverable Material recognises this.
(b)If a party considers that a material should be defined as a Recyclable or Renewable Resource or should cease to be so defined it may give notice to the other party, such notice to specify the material and whether that party considers that it should be defined as or should cease to be defined as a Recyclable or a Renewable Resource. Within 5 business days after the date of the notice, the parties must meet to discuss whether there is an established market for the material and whether [DiCOM] is able to make an acceptable profit from the sale of that material in that market. If within 15 business days after the date of the notice the parties have not agreed, either party may refer the dispute for expert determination under Schedule 11.
The City seeks two declarations in relation to the Initial Study.
The first is proposed declaration 3. It states that conducting the Initial Study is a condition precedent to DiCOM's contractual power to invoice the City under cl 4.16(c), as well as to the City's obligation to pay.
The second declaration sought on this issue is proposed declaration 4. It states that the Initial Study must be conducted on Waste delivered in the six months leading up to the date of Final Completion (Timing Declaration).
Relevant clauses
Clause 4.1(a) of the City Agreement provides:
Up to and including the date of Final Completion the Council must deliver Municipal Solid Waste to the Receival Point, as reasonably required by [DiCOM] to enable ramp-up of the Facility by [DiCOM] and as required by [DiCOM] to undertake the Initial Waste Characterisation Study.
Clause 4.10 provides (original emphasis):
(a)The parties acknowledge that, in addition to Waste delivered to the Facility by the [City], Waste will also be delivered to the Facility by [the Council] and Third Parties.
(b)During the period that [the City] delivers Waste to the Facility prior to Final Completion in accordance with clause 4.1, an Initial Waste Characterisation Study must be undertaken, at [DiCOM]'s cost and in accordance with Section 1 of Schedule 3, in respect of that Waste and Municipal Solid Waste. The purpose of the Initial Waste Characterisation Study will be to determine:
(i)the proportion of Recoverable Material being delivered by each of the [City], [the Council] and Third Parties; and
(ii)the proportion of Residual Material produced by the Facility for which each of the [City], [the Council] and each Third Party will be treated as responsible.
The Initial Study must be conducted over a period of between two and six months.[169]
[169] City Agreement Schedule 3 – section 1 [4(c)] and section 2 [8(a)].
Clauses 4.16(a) to (c) of the City Agreement provides (original emphasis):
Removal of Residual Material and Non-Specification Material
(a)The [Council Agreement] provides that [the Council] must remove, transport and dispose of all Residual Material and Non-Specification Material, being Residual Material derived and Non-Specification Material separated or sorted from Waste delivered by [the Council] and the [City].
(b)The cost per tonne of removal, transportation and disposal of Residual Material (with Non-Specification Material delivered by the [City] to be treated as Residual Material for these purposes under the [Council Agreement]) will be deducted from amounts payable to [DiCOM] under the [Council Agreement].
(c)[DiCOM] will charge the [City] the amount that [the Council] deducts from amounts payable to [DiCOM] under the [Council Agreement] in respect of the Residual Material determined in accordance with clause 4.10(b) and Non‑Specification Material delivered by the Council.
Under cl 4.11(a), the parties acknowledged that the composition of waste may change during the Operational Period and that further waste characterisation studies may be required. Under Schedule 3, the parties have the right to arrange for further studies to be carried out at any time.[170]
[170] City Agreement Schedule 3 section 2.
In addition, the City Agreement requires further studies to be conducted before waste is delivered by any new third party. Each such study is then to be used to calculate the amount that DiCOM can charge the City in relation to Residual Material.[171]
Is the Initial Study a condition precedent to the cl 4.16 charge? (proposed declaration 3)
[171] City Agreement cl 5.
From these provisions, it can be seen that the amounts chargeable under cl 4.16(c) depend upon the Initial Study's determination of the proportions of Residual Material under cl 4.10(b). It is therefore necessary that DiCOM conduct the Initial Study before it can charge an amount under cl 4.16(c).[172] This was common ground.[173]
[172] See also City Agreement Schedule 3 section 1 [5(c)].
[173] See ts 204 ‑ 205. See also DiCOM's Submissions [20].
However, DiCOM objected to proposed declaration 3 on the basis that the phrase 'condition precedent' is not actually contained in the City Agreement. DiCOM accepted that it is necessary to conduct the Initial Study before it can invoice the City under cl 4.16(c). DiCOM accepted that conducting the Initial Study is a condition precedent to its contractual right to invoice under cl 4.16(c) but only 'in layman's terms'. DiCOM submitted that there is no need to depart from the wording of the City Agreement.[174] DiCOM also objected to proposed declaration 3 on the basis that it has no utility because no dispute had been identified.[175]
[174] ts 203 and 277.
[175] ts 202.
In my view, it is appropriate to make the proposed declaration. It will promote certainty to declare in legally certain terms that conducting the Initial Study is a condition precedent, as it is both at law and in 'layman's terms'.
Further, as I will explain, in light of the tortured history of these proceedings, there is significant utility in promoting certainty and avoiding unnecessary disputes.
During the conduct of these proceedings, DiCOM's position on significant issues repeatedly changed over time. I have noted elsewhere that DiCOM's positions on the meaning of 'process' and on the content of its good faith obligation changed significantly over the course of these proceedings.
In addition, prior to the third day of hearing, I advised the parties that I would hear submissions as to whether it was relevant that DiCOM's concessions had not been made in a formal, binding way. I referred the parties to M v Chief Executive Officer of the Department of Corrective Services.[176] In that case, Beech J, as his Honour then was, declined to make the declarations sought because the respondent had made formal and binding concessions, and so there would be no utility in making the declarations. During the hearing before me, I pointed out to counsel for DiCOM that, unless DiCOM filed a formal and binding concession on the issue, it was open to the City to say there was utility in making proposed declaration 3. Despite that, DiCOM did not seek to provide any formal, binding concessions.[177]
[176] M v Chief Executive Officer of the Department of Corrective Services [2016] WASC 185.
[177] ts 376.
Accordingly, it is appropriate to make a declaration in the terms of proposed declaration 3.
Timing Declaration (proposed declaration 4)
The City seeks a declaration that the Initial Study must be conducted on Waste delivered in the six months leading up to the date of Final Completion.
The City seeks a declaration about when the waste is delivered, rather than when the study must be done, because various factors might extend the time it takes to complete the study. By focusing on when the waste is delivered, the City effectively submitted it is possible to definitely state the period in which the waste must be delivered.
Contractual framework
Clause 4.10 of the City Agreement is set out in par 306 above. Clause 4.10(b) makes it clear that the Initial Study must be conducted on the waste delivered under cl 4.1(a).[178] It is less clear what the phrase 'that Waste and Municipal Solid Waste' means in this context. The Councils submitted that, in this context, 'that Waste' is the waste delivered by the City pursuant to cl 4.1(a), while 'Municipal Solid Waste' is the waste delivered by the Council during the same period (i.e. the ramp‑up period). However, 'Municipal Solid Waste' is defined in the City Agreement in terms that do not relate to Council waste.
[178] City Agreement cl 4.10(b). This was conceded by DiCOM - ts 377.
Ultimately, nothing turns on this. This is because, regardless of how the phrase is interpreted, it was common ground that DiCOM is obliged to conduct waste characterisation studies on waste delivered by any party, so that the proportions of Residual Material in each party's waste can be determined and defined. Once the proportions are established, DiCOM can determine how much each deliverer of waste should be charged in relation to Residual Material on future deliveries, subject to any further waste characterisation studies altering the proportions.
Returning to the combination of cl 4.1 and cl 4.10, it can be seen that the Initial Study must be conducted on the waste that is delivered by the City in the period 'up to and including the date of Final Completion' as 'reasonably required' by DiCOM to enable ramp‑up of the Facility and as required by DiCOM to undertake the Initial Study. This is further confirmed by the first paragraph of Schedule 3, which requires DiCOM to conduct the Initial Study during the period in which the City is obliged to deliver waste prior to Final Completion under cl 4.1.
DiCOM accepted that the objective intention of the parties gleaned from the City Agreement was that the Initial Study would be done at about the time of the ramp‑up and Final Completion, 'depending upon how long everything took'.[179]
[179] ts 377.
The City argued that the period 'up to and including the date of Final Completion' in cl 4.1(a) means the six months prior to the date of Final Completion.
DiCOM argued that it was impossible to define the period because, for example, the ramp‑up might take longer than expected.
After some discussion on the issue, the City's argument rested on the fact that, under the City Agreement, the Initial Study was to last between two and six months.[180]
[180] ts 538 ‑ 541. The City also referred to similar provisions in the Council Agreement to the same effect.
Before considering this, it is useful to say more about the connection between the Initial Study and Final Completion and the connection between the Initial Study and the ramp‑up.
The connection between the Initial Study and Final Completion
In support of the Timing Declaration, the City pointed to numerous provisions in the City Agreement that indicated the parties' objective intention was that the Initial Study would be conducted on waste delivered shortly before Final Completion. These provisions included those that related to the payments the City would have to make once the Operational Period began. To calculate those payments, any changes to the Assumptions Book would have to go through the stipulated processes.[181]
[181] City Agreement cl 10.2, Schedule 3 section 1 [5(c)], and Schedule 10 section 4 ‑ 5. See also City Agreement Schedule 1 section 1 definition of 'Assumptions Book'.
The City also referred to the Assumptions Book, in which it was assumed that Stage 2 would take six months.[182]
[182] Annexure F to the City Agreement.
The City also referred to the fact that the City's liability to pay for Residual Material is determined by the Initial Study. The City said this is a further reason to conclude that the Initial Study must be conducted on waste delivered very shortly before the Facility reaches optimal capacity.
I accept that these provisions indicate the objective intention was that the Initial Study would be conducted on waste delivered very shortly before Final Completion. DiCOM did not strongly contend otherwise. However, DiCOM submitted that these provisions do not lead to a conclusion that the period should be limited to six months.[183] Ultimately, the City conceded, rightly in my view, that the provisions did not compel that conclusion.[184]
[183] ts 377. When asked if DiCOM accepted that it was the parties' objective intention that the initial study be done proximately to Final Completion and at the same time as the ramp-up, Mr Shaw said: 'Well, that was the intention it was to be done at about that time, depending upon how long everything took'.
[184] ts 366 ‑ 367, 538 ‑ 539.
As noted earlier, the City relied on the fact that, under the City Agreement, the Initial Study was to last between two and six months.[185] The City noted that DiCOM is required to give the City at least 60 days' notice of the anticipated date of Final Completion.[186] The City said that timeframe would allow for the minimum two months needed to conduct the Initial Study.
The connection between the Initial Study and the ramp‑up
[185] City Agreement Schedule 3 section 1 [4(c)] and section 2 [8(a)]. The Council Agreement also provides that the study is to be done over six months.
[186] City Agreement cl 3.5(b).
The City did not contend that all of the waste delivered for the ramp-up needed to be the subject of the Initial Study. This is because the Initial Study involves a sampling of waste. However, it was common ground that any waste delivered for the purposes of the Initial Study would be put through the Facility as part of the ramp‑up.[187]
[187] ts 378.
DiCOM's power to request waste for the Initial Study is inextricably connected to the ramp‑up period for the following reasons.
Clause 4.1(a) anchors the City's obligations to deliver waste to the period 'up to and including' the date of Final Completion. Clause 4.1(a) also allows DiCOM to request waste for two purposes: to enable ramp‑up and to undertake the Initial Study.
In my view, cl 4.1(a) should be construed as limiting DiCOM's power to require waste for the Initial Study to the period in which DiCOM is conducting the ramp‑up. There is no sensible reason to oblige the City to deliver waste prior to that point. There is no sensible reason to oblige the City to deliver waste solely for the purpose of the Initial Study. Rather, when waste is delivered for the purposes of the ramp‑up, some of that waste can be sampled for the purposes of the Initial Study. After it has been sampled for the purpose of the Initial Study, the waste would then be put through the Facility as part of the ramp‑up.
Clause cl 4.1(a) is the only source of the City's obligations to deliver waste prior to Final Completion. In its terms, it is tied to the dual requirements of ramp‑up and the Initial Study.
If it was intended that DiCOM could request waste for the purposes of the Initial Study at any time, the City Agreement could have said so.[188] If it was intended that DiCOM could request waste for the Initial Study completely unconnected with the ramp‑up period, the City Agreement could have set out this entitlement in a sub‑clause separately to the ramp‑up sub‑clause.
[188] See, for example, such a provision in City Agreement cl 4.11(b).
In my view, cl 4.1(a) does not allow DiCOM to demand waste for the Initial Study long before Final Completion is anticipated. It only permits DiCOM to demand waste to be delivered during the ramp‑up period.
Not an exact alignment of periods
As set out earlier, DiCOM accepted that the parties' objective intention was that the Initial Study would be conducted at about the time of the ramp‑up and Final Completion. However, DiCOM argued that it was impossible to define the period as six months because, for example, the ramp-up might take longer than expected.
I accept this submission. To illustrate this, I will use a hypothetical example.
If DiCOM notified the City on 1 January that the anticipated date of Final Completion was 1 July, six months later, DiCOM could then request waste for the Initial Study and for the ramp‑up.
If there was some hiccup in the ramp-up in March, DiCOM could amend the anticipated date of Final Completion to 1 August. DiCOM could conduct the Initial Study on the waste that was delivered in January and February and complete the ramp‑up in time for Final Completion on 1 August. In my view, cl 4.1(a) would allow this.
From this, it can be seen that the Initial Study would have been conducted on waste delivered outside of the six months immediately before Final Completion.
Conclusion on Timing Declaration (proposed declaration 4)
I accept that the Initial Study could not be validly conducted on waste delivered outside of cl 4.1. In other words, the Initial Study had to be conducted on waste delivered for the purposes of the study and associated with the ramp‑up period.
Clause 4.1 would not permit DiCOM to request waste for the Initial Study unless DiCOM anticipated that Final Completion would occur reasonably soon.
Clause 4.1 would not permit DiCOM to request waste for the Initial Study unless it was also undertaking the ramp‑up around the same time.
The Initial Study had to be on waste that was delivered consistently with the above. That is, it had to be on waste that was delivered pursuant to a request that DiCOM had the power to make under cl 4.1.
However, I do not accept that the Initial Study must be conducted on waste delivered in the six months immediately before Final Completion. Further, I do not consider it is possible to define a particular length of time in this regard. In my view, the Initial Study must be conducted on Waste delivered during the ramp‑up period and reasonably close to the date of Final Completion. However, given that the ramp‑up period could be protracted or interrupted for functional reasons, a precise period cannot be defined in a factual vacuum.
Therefore, I will not make proposed declaration 4.
Explanatory declaration (proposed declaration 5)
Proposed declaration 5 seeks a declaration as to the meaning of various expressions.
As to proposed declaration 5.3, DiCOM submitted that it was not sure there was a dispute about the Facility's location. However, DiCOM did not have a substantive objection to proposed declaration 5 if the other declarations were made.[189]
[189] ts 546.
Proposed declaration 5.3 states:
The expression 'Facility' as used in Declaration 1 and Declaration 2 refers to the same facility, namely that facility constructed under the Contract for Design and Construction DiCOM System Shenton Park Stage 2 on lot 11541 on Deposited Plan 189946 on the corner of Brockway Road and Lemnos Street, Shenton Park Western Australia.
While there may be no dispute as to the Facility's location, proposed declaration 5.3 makes clear it is that Facility that is the subject of proposed declarations 1 and 2.
It is appropriate to make proposed declaration 5.
Conclusion
In these reasons, I have explained my findings as to the proper construction of the City Agreement and, where relevant, its application to the agreed facts.
I have concluded that, on the proper construction of the City Agreement:
1.Final Completion for the purposes of cl 3.5, 4.2 and 10.2 will not occur before the Facility has been certified in accordance with the Construction Contract to be able to process waste at a rate of 55,000 tpa.
2.For the purposes of par 1, an ability of the Facility to 'process' Waste requires the Facility to:
(a)recover Recyclables;
(b)convert the organic fraction of Waste into DiCOM® Bioconversion Products, being:
(i)DiCOM® Compost; and
(ii)DiCOM® Biogas; and
(c)value‑add DiCOM® Bioconversion Products by producing renewable energy, organic fertiliser/soil conditioner or solid recovered fuel briquettes.
3.From 3 December 2010 to at least 9 February 2016, 'Final Completion' for the purposes of cl 3.5, 4.2 and 10.2 of the City Agreement requires certification of 'Practical Completion' of the Facility in accordance with the DC Contract.
4.The carrying out by DiCOM of an Initial Waste Characterisation Study in accordance with cl 4.10, for the purposes in cl 4.10(b)(i) and (ii), of the City Agreement is a condition precedent of:
4.1DiCOM's contractual right to invoice the City under cl 4.16(c); and
4.2the City's contractual obligation to pay under cl 4.16(c).
Finally, I have noted it is appropriate to make the declaration set out in proposed declaration 5, which explains the meanings of various terms for the purpose of the other declarations.
I will make declarations in these terms.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AK
COURT OFFICER8 AUGUST 2018
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