Donaldson Coal Pty Ltd v Pacific National (NSW) Pty Ltd - [2007] NSWSC 1446

No judgment structure available for this case.

CITATION: Donaldson Coal Pty Limited v Pacific National (NSW) Pty Limited [2007] NSWSC 1446

HEARING DATE(S): 10 December 2007

JUDGMENT DATE :
14 December 2007

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Bergin J

DECISION: Declaration that the plaintiff and the defendant entered into a binding agreement. Order for specific performance.

CATCHWORDS: [CONTRACT] - Commercial setting - Export of coal from port with inadequate capacity to meet demand - Institution of co-operative arrangements to share the burden of the inadequacy - Whether parties entered into a binding agreement - "In principle agreement" - Meaning in context - [EQUITY] - Whether specific performance should be ordered.

LEGISLATION CITED: Trade Practices Act 1974 (Cth)

CASES CITED: Air Great Lakes Pty Limited v KS Easter (Holdings) Pty Limited (1985) 2 NSWLR 309
Baulkham Hills Private Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622
Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153
Cumnock No 1 Colliery Pty Limited v Pacific Power [2002] NSWCA 278
Masters v Cameron (1954) 91 CLR 353
McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579
Pacific Power & Elcom Collieries Pty Limited v Cumnock No 1 Colliery Pty Limited [2001] NSWSC 1100
Sinclair, Scott & Co Limited v Naughton (1929) 43 CLR 310
Stephenson v Dwyer [2006] NSWSC 1439
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165

PARTIES: Donaldson Coal Pty Limited - plaintiff
Pacific National (NSW) Pty Limited - defendant

FILE NUMBER(S): SC 50209/2007

COUNSEL: FM Douglas QC/DB Studdy - plaintiff
WG Muddle SC/IJ Stanley - defendant

SOLICITORS: Allens Arthur Robinson - plaintiff
Deacons - defendant

- 1 -

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

BERGIN J

14 DECEMBER 2007

50209/07 DONALDSON COAL PTY LIMITED v PACIFIC NATIONAL (NSW) PTY LTD

JUDGMENT

Introduction

1 The plaintiff, Donaldson Coal Pty Limited, a coal producer and operator of two mines in the Hunter Valley, New South Wales, claims that it has entered into a binding agreement with the defendant, Pacific National (NSW) Pty Limited, a rail haulage operator, pursuant to which the defendant has agreed to transport the plaintiff’s export coal to the port of Newcastle for loading onto ships. The plaintiff seeks declarations to that effect and orders for specific performance of the agreement.

2 The defendant denies that the parties entered in the agreement as alleged and claims that in any event, the agreement as alleged is incapable of performance.

Infrastructure and capacity

3 The plaintiff’s coal is marketed and sold to coal traders, who then on-sell the coal to users worldwide. Coal trucks haul the coal won from the plaintiff’s mines to facilities at the adjacent mine operated by Bloomfield Collieries Limited (Bloomfield). Bloomfield processes the plaintiff’s coal at its facilities before it is loaded onto trains operated by the defendant and transported by rail to the Port at Newcastle for loading onto ships. The ship loading terminal at Newcastle Port is operated by Port Waratah Coal Services Limited (PWCS).

4 As a result of the expanding coal output in the Hunter Valley to meet demand for coal from offshore buyers, Newcastle Port has reached its capacity limit. In about 2004 PWCS sought to address capacity issues through a proposed Capacity Balancing System (CBS), for which it sought interim authorisation from the Australian Competition & Consumer Commission (ACCC) under s 88 of the Trade Practices Act 1974 (Cth) (TPA). The authorisation process took about seven months and the CBS was approved for a one year period which expired on 31 December 2004. Although the CBS included a common user provision that allowed all coal producers access to the terminal, it was initially quite controversial and was not supported by the plaintiff, nor by approximately half of the Hunter Valley coal producers. This was due to a concern that the CBS did not address the need to expand the existing port loading facilities which the plaintiff and others, regarded as the only solution to the capacity problems, especially as coal production in the Hunter Valley was projected to increase.

5 In late 2004 the Newcastle Coal Infrastructure Group (NCIG) was set up as a lobby group on broad infrastructure issues seeking to address the growing need for expanded loading facilities at Newcastle Port and for the purpose of making submissions to the ACCC on the CBS. NCIG subsequently became a proprietary company with a view to becoming the developer and owner of a third coal loader in Newcastle Port, in addition to the existing facilities operated by PWCS. NCIG’s facility will not be operational until 2010.

6 The CBS was subsequently improved during 2005 by a series of checks and balances introduced to protect the interests of the smaller coal producers such as the plaintiff, resulting in general support for the revised CBS, for which authorisation was obtained from the ACCC for a three year period due to expire on 31 December 2007. As part of that process, in about August 2005 PWCS sought binding nominations of anticipated coal tonnage from the coal producers that were to be applied under the CBS. The CBS was temporarily suspended at the end of 2006 but was reinstated by broad industry agreement when in March 2007 the queue of ships at Newcastle Port had reached about 70 ships.

7 The infrastructure to deliver coal from the coal mines in the Hunter Valley, and adjacent loading points, to the export coal terminals and onto vessels for export is referred to as the Hunter Valley Coal Chain (HVCC). The Hunter Valley Coal Chain Logistics Team (HVCCLT) was set up in about 2004 pursuant to a memorandum of understanding between all the participants in the Coal Chain to co-ordinate all logistics in the Hunter Valley.

2004 Agreement to Haul Coal

8 On 1 October 2004 the plaintiff and the defendant executed an “Agreement to Haul Coal”. The commencement date of that agreement was 1 January 2004 with a termination date of 31 December 2006 (cl 1.1 and 2). The agreement provided that if the defendant was given a direction by PWCS: it would notify the plaintiff immediately of the details of the direction; the plaintiff was required to do such things necessary to enable the defendant to comply with the direction; and the defendant was not liable to the plaintiff for anything done in compliance with the direction from PWCS (cl 6.2). Clause 12 provided for termination of the agreement for breach or the affects of Force Majeure, or by seven days notice if the other party was in Financial Default.

9 “Haulage Rate” was defined as “the sum of the ‘capacity component’, the ‘fuel component’ and ‘variable component’, exclusive of GST, set out, and described as such, in paragraph 1 of schedule 1, as varied in accordance with paragraph 1 of schedule 2”. Paragraph 1 of Schedule 1 provided as follows:

1. Haulage Rate

1.1 From: Loading Facility

To: Port

Loading Performance Level	Maximum Loading Time	Capacity component ($/tonne)	Variable component ($/tonne)	Fuel component ($/tonne)	Haulage Rate ($/tonne)
1	153 minutes	$0.43	$0.64	$0.07	$1.14
2	140 minutes	$0.43	$0.61	$0.07	$1.11
3	125 minutes	$0.43	$0.59	$0.07	$1.09
4	110 minutes	$0.43	$0.55	$0.07	$1.05

Movement to a higher Loading Performance Level

If at least 75% of all trains in a Quarter achieved the maximum loading time for a higher Loading Performance Level (as set out in the table in paragraph 1.1 above) than the maximum loading time for the Loading Performance Level applicable in that Quarter, then on and from the commencement of the next Quarter:

a) the maximum loading time will be the maximum loading time that corresponds to the higher Loading Performance Level in respect of which at least 75% of all trains in that Quarter achieved the applicable loading time; and

b) the Haulage Rate for that higher Loading Performance Level so achieved will apply.

Pacific National will advise Donaldson in writing (to the person specified in clause 15(b)) as soon as practicable after any change.

Example

Assumptions	1) Haulage is being charged at the Haulage Rate corresponding with Loading Performance Level 3 (maximum loading time of 125 minutes). 2) In a particular Quarter, 10% of trains have a loading time between 125 and 140 minutes (Loading Performance Level 2), 10% of trains have a loading time between 110 and 125 minutes (Loading Performance Level 3) and 80% of trains have a loading time between 1 and 110 minutes (Loading Performance Level 4).
Conclusion	80% of trains achieved a maximum loading time which corresponds to Loading Performance Level 4 which is higher than the current Loading Performance Level 3.
Action	With effect from the commencement of the next Quarter, the applicable Haulage Rate will be the Haulage Rate corresponding with Loading Performance Level 4 (as set out in paragraph 1.1 of this schedule). Pacific National will advise Donaldson in writing of the change.

Movement to a lower Loading Performance Level

If less than 75% of all trains in a Quarter achieved the maximum loading time for the Loading Performance Level applicable in that Quarter as set out in the table in paragraph 1.1 above, then on and from the commencement of the next Quarter:

a) the maximum loading time will be the maximum loading time that corresponds to the Loading Performance Level in respect of which at least 75% of all trains in that Quarter achieved the applicable loading time; and

b) the Haulage Rate to apply will be the Haulage Rate that corresponds with the Loading Performance Level in respect of which at least 75% of all trains in that Quarter achieved the applicable maximum loading time.

Pacific National will advise Donaldson in writing (to the person specified in clause 15(b)) as soon as practicable after any change.

Example

Assumptions	1) Haulage is being charged at the Haulage Rate corresponding with Loading Performance Level 4 (maximum loading time of 110 minutes). 2) In a particular Quarter, 20% of trains have a loading time between 1 and 110 minutes (Loading Performance Level 4), 45% of trains have a loading time between 110 and 125 minutes (Loading Performance Level 3), 30% of trains have a loading time between 125 and 140 minutes (Loading Performance Level 2) and 5% of trains have a loading time between 140 and 153 minutes (Loading Performance Level 1).
Conclusion	Less than 75% of trains achieved the maximum loading time (110 minutes) corresponding to the current Loading Performance Level 4. Donaldson will move to Loading Performance Level achieved by at least 75% of trains, being Loading Performance Level 2.
Action	With effect from the commencement of the next Quarter, the applicable Haulage Rate will be the Haulage Rate corresponding with Loading Performance Level 2 (as set out in paragraph 1.1 of this schedule). Pacific National will advise Donaldson in writing of the change.

Maximum loading time is calculated as set out in paragraph (h) of schedule 4.

10 Clause 6 of Schedule 1 provided:

Nominated Annual Tonnage
The Nominated Annual Tonnage for the year 1 January 2004 to 31 December 2004 is 1.5 million tonnes.

Donaldson may, by notice to Pacific National prior to each 1 January, commencing 1 January 2005, initiate negotiations with a view to agreeing the Nominated Annual Tonnage to apply for the year commencing on that 1 January. If the parties do not reach agreement as to the Nominated Annual Tonnage prior to the applicable 1 January, or if Donaldson does not initiate negotiations, then the Nominated Annual Tonnage will be the same as applied for the previous year.

11 Paragraph 1 of Schedule 2 provided as follows:

The ‘capacity component’ and the ‘variable component’ of the Haulage Rates will be adjusted on 1 January 2005 and 1 January 2006, in accordance with the following adjustment mechanisms:

Labour adjustment

25% of the ‘capacity component’ and the ‘variable component’ of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be escalated by a percentage which is equal to the increases (if any) in wage rates granted to Coal Train Drivers under any applicable Enterprise Agreement to which Pacific National is a party.

Coal Train Drivers

CPI adjustment

75% of the ‘capacity component’ and the ‘variable component’ of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be adjusted by a percentage which is equal to the nominal percentage increase or decrease in the CPI for the year ending the September quarter immediately preceding the relevant 1 January.

CPI

Quarterly fuel adjustment

The ‘fuel component’ of the Haulage Rates will be adjusted on 1 January, 1 April, 1 July, and 1 October of each year ( Quarterly Adjustment Date ), commencing on 1 April 2004, in accordance with the following adjustment mechanism:

Rounding and application

The Haulage Rates determined in accordance with the adjustment mechanisms set out in paragraphs 1.1 and 1.2 above will (sic) rounded as per Australian Standard AS2706.

12 The defendant’s obligations under the agreement were set out in Schedule 3 and included the following:

Pacific National must:

(Train orders and rail program )

(a) subject to paragraph (a) of schedule 4, as soon as practicable after receipt of an Order, in collaboration with PWCS prepare a Coal Haulage Plan for the haulage of the coal the subject of the Order. Pacific National may (acting reasonably) alter the detail and/or timing of the Coal Haulage Plan in consideration of improving or for the benefit of the HVCC. Pacific National will promptly advise Donaldson of any such alterations;

(b) subject to paragraph (a) of schedule 4, provide to Donaldson by 1200 hours each day a rolling daily Live Rail Plan for up to the next 36 hours (but not less than the next 24 hours) for the movement of coal which is the subject of an Order under paragraph (a) of schedule 4;

(Provision of trains)

(c) use its reasonable endeavours to provide Scheduled Trains to Donaldson at the Loading Facility;

(d) if Pacific National accepts a request from Donaldson for any Additional Trains, or if Donaldson accepts a request from Pacific National to run an Additional Train pursuant to paragraph (b) of schedule 4, use its reasonable endeavours to provide those Additional Trains;

(Wagons)

(e) in providing trains under this agreement, use wagons that have not contained anything but coal immediately prior to the journey to the Loading Facility, or which have otherwise been cleaned and made suitable to haul coal;

(Capacity)

(f) provide capacity to haul one half of 75% of the Nominated Annual Tonnage in each Half Year;

(g) use its reasonable endeavours to provide capacity to haul in excess of one half of 75%, and up to one half of 100%, of the Nominated Annual Tonnage in each Half Year;

(h) as soon as practicable after the end of each Half Year, review the tonnage of coal hauled under this agreement in that Half Year;

(Loading and unloading)

13 The plaintiff’s obligations were set out in Schedule 4 and included the following:

Donaldson must:

(Train orders and rail program)

(a) if it wants Pacific National to provide trains (other than Additional Trains) to haul coal under this agreement, provide Pacific National with an Order to allow the planning of rail coal deliveries with consideration of Port and RIC Network capacity available at the time and the Loading Facility standards including those set out in paragraphs (o) to (s) below. Donaldson may request an Additional Train at any time without providing an Order;

(b) use its reasonable endeavours to accept any request by Pacific National to run an Additional Train;

(c) not cancel a Scheduled Train;

(Loading and unloading)

(d) ensure (whether itself or through its Personnel or any third party) that all coal hauled by Pacific National under this agreement is loaded safely and Evenly into, and unloaded safely out of, wagons, without causing damage to any property of Pacific National;

(e) ensure (whether itself or through its Personnel or any third party), that any wagon which Pacific National advises Donaldson that it considers has not been loaded safely or Evenly is promptly made safe or Even;

(f) ensure that any train loaded by or on behalf of Donaldson is loaded to at least its Minimum Net Load Limit. If a train is loaded with less than its Minimum Net Load Limit, Donaldson must pay the applicable Make-up Charge;

(g) ensure that any wagon loaded by or on behalf of Donaldson is not loaded with more than its Maximum Gross Load Limit. If a wagon is loaded with more than its Maximum Gross Load Limit, without prejudice to clause 9.1, Donaldson must pay the applicable Overload Charge;

(h) accept for loading at the Loading Facility each train which has departed the Hunter Bulk Terminal for loading at the Loading Facility and ensure that each train is loaded and ready for departure within a maximum loading time of 153 minutes for a 5,500 tonne train (maximum loading time is measured from the time of arrival of a train for loading at the Loading Facility or from the time any delay begins to affect the arrival of the train at the Loading Facility, to the time the train is loaded and Donaldson advises Pacific National that the train is ready for departure). If in Pacific National’s opinion (acting reasonably) the maximum loading time for a train significantly exceeds 153 minutes for a 5,500 tonne train, for the avoidance of doubt, Pacific National may withdraw the train and cause it to depart from the Loading Facility and in such case Donaldson must pay a Make-up Charge on the difference between the actual tonnage of coal loaded (including if it is nil) and the Minimum Net Load Limit of the train;

(i) (not used)

(j) ensure that all trains unloaded at the Port are unloaded and ready for departure from the Port in a timely fashion;

(Capacity)

2004 Coal Handling Services Agreement with PWCS

14 On 22 December 2004 the plaintiff entered into a Coal Handling Services Agreement with PWCS. The plaintiff was obliged to make an application to PWCS for the loading of its coal onto a particular vessel at the Coal Handling facility. On receipt of the application PWCS would determine the suitability of the vessel identified to load the coal at its facility with the discretion to refuse to provide coal handling services to load a vessel which did not comply with certain criteria, or to impose conditions on the way in which the vessel would be permitted to be loaded with the plaintiff’s coal (Section 3; clause 3.1). The plaintiff was obliged to ensure that the coal required under a shipment contract to load a vessel would be available to be transported to the facility not later than seven days prior to the estimated time of commencement of loading of the particular vessel (cl 3.5.1). The only basis upon which direct loading of coal from trains onto vessels would occur was in accordance with the “Five Point Plan” (cl 3.6.2). The Five Point Plan was a set of protocols endorsed by the Coal Chain Transport Planning Group from time to time and developed by customers, transport providers and PWC to provide a framework for continuous improvements to the coal delivery system to the Port of Newcastle.

15 Annexure 4D to the Agreement included Part A – General Conditions of Capacity Distribution System which provided, inter alia:

16 Schedule 2 to the Agreement provided that PWCS would calculate the Coal Chain Capacity and that it would also determine the Forecast Requirement for each producer and the Forecast System demand for the particular year. It also provided a formula in respect of each producer’s loading allocation to manage the scheme in a fair and equitable manner.

17 On 27 September 2005 the defendant wrote to PWCS complaining that it had unilaterally proposed certain amendments to the Coal Handling Services Agreement purporting to require the plaintiff to submit five year forecasts of its loading requirements at Newcastle. It noted that the forecasts for the first three years were said to be binding and subject to “take or pay” penalties. That meant that the plaintiff was obliged to pay PWCS an amount equivalent to that which was nominated irrespective of whether such amount had actually been handled. The plaintiff also complained about the assertion by PWCS of a right to deny the plaintiff all coal loading services, irrespective of available capacity, if the forecasts were not provided. The plaintiff alleged that PWCS held a monopoly in the market for coal receiving, storage and loading facilities at Newcastle and that it was exercising its monopoly power to impose what the plaintiff regarded as penalties. The plaintiff claimed that PWCS was threatening the viability of the plaintiff’s business and alleged that the scheme proposed was obviously discriminatory and designed to induce shippers not to consider shifting any tonnage to a rival loader.

18 The tension that developed between the plaintiff and PWCS seems to have been caused by the inadequate port capacity to handle the volume of export coal. It is apparent that the rail operators were able to handle the capacity but that they and the coal producers were frustrated by the inadequate capacity at Newcastle Port. Notwithstanding the number of committees and organisations that have been established over the last five years to attempt to co-ordinate this very difficult situation, the structure between PWCS and the coal producers on the one hand and the coal producers and the rail operators on the other is clearly less than optimal by reason of the lack of commercial certainty from year to year in relation to the export tonnages that will be allocated by PWCS. Notwithstanding this lack of commercial certainty it appears that all parties have attempted to accommodate this very uncomfortable commercial situation, which will apparently not ease until 2010 when the next coal loader will become operational.

19 Although initially the subject of the abovementioned tension the plaintiff has nominated its annual tonnage allocation for the Newcastle Port to PWCS each year for the following calendar year. On 11 December 2006 the plaintiff sent an email to Queensland Rail enclosing its forecast annual volume of coal handling services required with PWCS for the period 2007 to 2013. The forecast for 2007 was 2.06 million tonnes; for 2008 2.65 million tonnes; for 2009 2.81 million tonnes and for 2010 4.15 million tonnes (Ex.A).

2004 Bloomfield Agreement

20 Also on 1 October 2004 Bloomfield executed an “Agreement to Haul Coal” with the defendant (the Bloomfield Agreement), in similar terms to the agreement between the plaintiff and the defendant, with a commencement date of 1 January 2004 and a termination date of 31 December 2006, for the haulage by the defendant of Bloomfield’s export coal to Newcastle. Clause 6 of Schedule 3 of that Agreement provided:

Nominated Annual Tonnage
The Nominated Annual Tonnage for the year 1 January 2004 to 31 December 2004 is 0.5 million tonnes.

Bloomfield may, by notice to Pacific National prior to each 1 January, commencing 1 January 2005, initiate negotiations with a view to agreeing the Nominated Annual Tonnage to apply for the year commencing on that 1 January. If the parties do not reach agreement as to the Nominated Annual Tonnage prior to the applicable 1 January, or if Bloomfield does not initiate negotiations, then the Nominated Annual Tonnage will be the same as applied for the previous year.

2006 Extension of Bloomfield Agreement

21 On 21 December 2006 the defendant’s General Manager (Coal), David Irwin, wrote to Bloomfield in the following terms:

RAIL HAULAGE AGREEMENT – LETTER OF INTENT

As you are aware our existing Rail Haulage Agreement for the haulage of coal from Bloomfield to the Port expires on 31st December 2006. I apologise for not having worked this through earlier than now, but from my perspective the operation of this agreement is working suitably and the commercial terms are acceptable given the ongoing Rixs Creek volumes and contractual position. It is for this reason that I propose a roll-over of the existing Bloomfield agreement until 30th June 2008 to line up with current expiry date for the Rixs Creek agreement.

It is clear to me that continuing to contract for the rail haulage volumes from the two mines separately will lead to less than optimal commercial outcomes due to the decreasing Bloomfield volumes over time. It is for this reason that I suggest rolling over the Bloomfield agreement to align with Rixs Creek, and commencing a discussion regarding a future agreement for the combined volumes post June 2008, in early 2007. Also as we have discussed I suggest that:

as a part of our discussions we contemplate and explore the inclusion of Donaldson volumes into a combined rail haulage agreement, and

re-agreements for the combined volumes and the potential for exclusive haulage agreements, that Pacific National is willing to agree amended terms and apply these upon agreement rather than from July 2008 onwards

This Letter of Intent if signed on behalf of Bloomfield Collieries Pty Limited will reflect the terms under which Bloomfield Collieries Pty Limited and Pacific National intend to contract for rail haulage services from 1 January 2007 onwards. The below points outline the key components of this agreement :

Nominated Annual Tonnes for 2007 and onwards (subject to annual confirmation) of 0.5Mt.

An extension of the term of the existing agreement by 18 months, to expire on 30th June 2008.

An obligation on Pacific National to provide rolling stock to haul 100% of Bloomfield’s export coal haulage requirements.

All other terms and conditions to continue as per the existing agreement no. L10424.

A commitment by Pacific Nationl to commence discussions re combined volume haulage agreements (including the potential to include Donaldson volumes) before the end of January 2007.

Pacific National is willing to operate on the basis of this signed Letter of Intent and the pre-existing agreement until 28th February 2007 or the completion of execution of agreements reflecting the above amendments.

Upon your confirmation I will have drafting of the new agreement variations completed on the basis of the contents of this letter and will forward these to you as soon as they are available.]

2006 Extension of the plaintiff’s Rail Haulage Agreement

22 On 13 November 2006 the defendant wrote to the plaintiff in the following terms:

RAIL HAULAGE AGREEMENT – REQUEST FOR THREE MONTH EXTENSION OF TERM

20 March 2007 Haulage Proposal

23 It is apparent that there were discussions between the plaintiff, the defendant and Bloomfield in early 2007 and on 20 March 2007 the defendant wrote a joint letter to Bloomfield and the plaintiff (the Haulage Proposal) in the following terms:

RAIL HAULAGE PROPOSAL: BLOOMFIELD DONALDSON
Following discussions with regards to the development of a rail haulage proposal incorporating Bloomfield and Donaldson.

· Nominated Annual Tonnes for 2007 and onwards (subject to annual confirmation) of

o Bloomfield 500,000 t

o Donaldson 2,000,000 t

· An extension of the term of the existing agreement by 6 years to 30th June 2013.

· Reduced haulage rate if 75% of trains each quarter achieve set levels of loading performance.

· Volume Rebate - $0.02 pt for all tonnes over 2.5m to 3.5m

· Capacity charges calculated as per the existing agreement to apply if the coal hauled under this agreement in a Quarter is less than 85% (or 75% under alternate proposal) of the Nominated Annual Tonnes divided by four.

· An obligation on Pacific National to provide rolling stock to haul 100% of Bloomfield & Donaldson Collieries export coal haulage requirements.

· An annual CPI adjustment will be applicable from the 1st January 2008. The CPI adjustment is based upon the movements in the September CPI for Sydney as published by the Australian Bureau of Statistics, as 75% of the ‘variable component’ & ‘capacity component’ of the haulage rate escalated by a percentage which is equal to the nominal percentage increase in the CPI.

· 25% of the ‘capacity component’ and the ‘variable component’ of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be escalated by a percentage which is equal to the increases (if any) in wage rates granted to Coal Train Drivers under any applicable Enterprise Agreement to which Pacific National is a party.

· The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distillate.

· Rail Access charges are passed through.

· If Pacific National is unable to provide a Scheduled Train or a Scheduled Train does not discharge coal at the Port substantially in accordance with the Live Rail Plan and that results in a delay to the planned ship loading of a Donaldson or Bloomfield cargo, even if reasonable endeavours are used, then Pacific National must pay a delay charge of $3,000.00 (exclusive of GST) for each 24 hour period in which a Scheduled Train is not provided or a Scheduled Train does not discharge coal at the Port.

On this basis Pacific National proposes (subject to board approval) the below haulage rate structures.

Donaldson/Bloomfield

75% Capacity Commitment

Loading Performance Level	Maximum Loading Time	Capacity component ($/tonne)	Variable component ($/tonne)	Fuel component ($/tonne)	Haulage Rate ($/tonne)
1	153 minutes	$0.45	$0.67	$0.15	$1.27
2	140 minutes	$0.45	$0.64	$0.15	$1.24
3	125 minutes	$0.45	$0.62	$0.15	$1.22
4	110 minutes	$0.45	$0.58	$0.15	$1.18

85% Capacity Commitment

Loading Performance Level	Maximum Loading Time	Capacity component ($/tonne)	Variable component ($/tonne)	Fuel component ($/tonne)	Haulage Rate ($/tonne)
1	153 minutes	$0.45	$0.63	$0.15	$1.23
2	140 minutes	$0.45	$0.60	$0.15	$1.20
3	125 minutes	$0.45	$0.59	$0.15	$1.19
4	110 minutes	$0.45	$0.55	$0.15	$1.15

24 The “Live Rail Plan” referred to in the last bullet point in this letter is the timetable to which train services are provided to coal producers in the Hunter Valley distributed each day notifying services for the following 36 hours, starting at 12 noon and finishing at midnight the following day.

22 March 2007 Meeting

25 Jason McGregor, the Commercial Manager for Coal with the defendant was present at a meeting at the Bloomfield Colliery on 22 March 2007, the purpose of which was to discuss the 20 March 2007 letter. Also present at the meeting were Paul Taylor from Bloomfield, Douglas Gordon from the plaintiff, David Irwin, the General Manager Coal with the defendant and Ian Travis. At that meeting Mr McGregor claimed that the following conversation occurred:

McGregor: Until we reach agreement on a contract between all three parties we will just continue under the terms of the 2004 agreement for Donaldson and the existing agreement with Bloomfield. Are you both happy with that arrangement?

Gordon: Yes, Donaldson is happy with that arrangement.

Taylor: Yes, Bloomfield is happy with that arrangement too.

26 In cross-examination Mr Gordon agreed that Mr McGregor may have said those words at the meeting and that he agreed (tr 23).

Plaintiff’s conditional acceptance of Haulage Proposal

27 On 3 April 2007 the plaintiff, by its Chief Executive Officer, responded to the defendant’s Haulage Proposal in the following terms:

Donaldson has reviewed the Rail Haulage Proposal from the Pacific National dated 20 March 2007 and advises that it is prepared to accept the offer conditional on some amendments as discussed on 22 March in the offices of Bloomfield.

1 The Nominated Annual Tonnes must be subject to reduction caused by circumstances beyond the control of Donaldson. For example, any Capacity Balancing Scheme or other allocation system implemented by the port terminal operators or other coal chain participant. The current clause 6 in Schedule 1 is acceptable with amendment to include any coal chain party (not just PWCS).

2 The term of the agreement should be 3 years with an option for a further 3 years.

3 Haulage rate amendments acceptable as per the existing agreement clause 1.2, Schedule 1.

5 Capacity charge acceptable under the conditions of Clause 5, Schedule 1 where the calculation is on a half yearly basis not quarterly.

6 The base date for CPI adjustments (April 2007) is to be included in the agreement.

7 Details of the Enterprise Agreement should be included for verification.

8 Access to the shell Terminal Gate Price for Bulk Distillate to be included for verification.

a. If trains rescheduled from the 72 hr plan, without our agreement, each train that does not materialize as per the plan incurs a cost penalty to PN of $5000 for the first train and increases by $5000 increments for each subsequent train of each cargo.

b. Any demmurage caused by PN failure to supply to trains in a timely manner to be met by PN

c. All cargoes railed have an expected single unit make up train at the end of the railing campaign. If PN fails to provide this train and quality is not as could have been achieved, PN to cover any penalties or loss of revenue to Donaldson.

10 Clause 20.2 Insurance to be modified to reduce public liability cover to $50 million.

28 The reference in paragraph 10 of that letter to “Clause 20.2 Insurance” is clearly a reference to that clause in the 2004 Rail Haulage agreement.

Meeting 23 April 2007

29 On 23 April 2007 Mr Gordon met with Mr McGregor in relation to the defendant's Haulage Proposal and the plaintiff's conditional acceptance date in 3 April 2007. At that meeting the following conversation occurred:

Gordon: I just have to make sure you know how important it is to Donaldson to keep the delay charges in the agreement. This charge has to work incrementally. Otherwise they wouldn't be much of an incentive to run the trains on time.

McGregor: Well I don't think that PN would wear that. We cannot agree to the cumulative charge. We also think the charge is too high. I mean, I think the $3,000 would be enough.

14 May 2007 amended proposal

30 After a further meeting between Mr McGregor and Mr Gordon on Friday 11 May 2007 the defendant sent an amended proposal to the defendant on 14 May 2007. Mr McGregor advised in his e-mail to Mr Gordon that he had “made the changes as needed” to the proposal and asked Mr Gordon to review the changes and “if agreed” the defendant would “prepare the documents formally”. That document attached to the e-mail was in the following terms:

Following discussions with regards to the development of a rail haulage proposal incorporating Bloomfield and Donaldson.

· Nominated Annual Tonnes for 2007 and onwards (subject to annual confirmation) of

o Bloomfield 500,000 t

o Donaldson 2, 000,000 t

· An extension of the term of the existing agreement by 3 years with an option for a further 3 years to 30th June 2013.

· Reduced haulage rate if 75% of trains each quarter achieve set levels of loading performance.

· Volume Rebate on all tonnes adjusted annually when volume reaches trigger levels.

· Capacity charges calculated as per the existing agreement to apply if the coal hauled under this agreement on a half yearly basis less than 75% of the Nominated Annual Tonnes divided by four.An obligation on Pacific National to provide rolling stock to haul 100% of Bloomfield % Donaldson Collieries export coal haulage requirements.

· An annual CPI adjustment will be applicable from the 1st January 2008.The CPI adjustment is based upon the movements in the September CPI for Sydney as published by the Australian Bureau of Statistics, as 75% of the ‘variable component’ & ‘capacity component’ of the haulage rate escalated by a percentage which is equal to the nominal percentage increase in the CPI. The basis of CPI adjustments will be made available as justification of the increase.

· 25% of the ‘capacity component’ and the ‘variable component’ of the Haulage Rates applicable during the year immediately preceding the relevant 1 January will be escalated by a percentage which is equal to the increases (if any) in wage rates granted to Coal Train Drivers under any applicable Enterprise Agreement to which Pacific National is a party.Details of the EA will be included within the agreement for verification.

· The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distillate. Access to the Shell Terminal Gate price to be included for verification within the agreement.

· Rail Access charges are passed through.

· If Pacific National is unable to provide a Scheduled Train or a Scheduled Train does not discharge coal at the Port substantially in accordance with the Live Rail Plan(72hr plan) without agreement and that results in a delay to the planned ship loading of a Donaldson or Bloomfield cargo, even if reasonable endeavours are used, then Pacific National must pay a delay charge of $5,000.00 (exclusive of GST) for the first train and increases by $5000 increments for each subsequent train.

· Any demmurage caused by PN rail operations to supply trains in a timely manner will be discussed to agree an outcome.

· All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $5000 per train as stipulated above.

· Insurance to be modified to reduce public liability to $50 mill .

On this basis Pacific National proposes (subject to board approval) the below haulage rate structures.

Donaldson/Bloomfield (agreed rates)

75% Capacity Commitment

Loading Performance Level	Maximum Loading Time	Capacity component ($/tonne)	Variable component ($/tonne)	Fuel component ($/tonne)	Haulage Rate ($/tonne)
1	153 minutes	$0.45	$0.67	$0.15	$1.27
2	140 minutes	$0.45	$0.64	$0.15	$1.24
3	125 minutes	$0.45	$0.62	$0.15	$1.22
4	110 minutes	$0.45	$0.58	$0.15	$1.18

19 May 2007 clarification

31 On 19 May 2007 the plaintiff requested clarification of the defendant’s “proposal” in the following terms:

With respect (sic) your proposal dated 14th May 2007, the following needs to be clarified/amended – have numbered your blank dot points

Dot point 5 re capacity charges needs a two divisor not four if it is half yearly?

Dot point 10 to be revised “If pacific National is unable to provide a scheduled train, or a scheduled train does not discharge coal at the port in accordance with the confirmed status with the live rail plan, without agreement from Donaldson/Bloomfield, then PN must pay a delay charge of $5000 (ex GST) for the first train and increases by $5000 increments for each subsequent train of that cargo

Dot point 11 to have added “if an agreed position is not reached the PN will cover the demurrage costs incurred as a result of the failure to supply trains in a timely manner”

32 On 1 June 2007 Mr Gordon wrote to Mr McGregor asking him "how are we going with the finalisation of the letter, as per my previous comments?". By return e-mail later that day Mr McGregor wrote to Mr Gordon, "sorry Doug I will have the final details to you later today with an area for you to sign and then I can get the contract draft complete".

4 June 2007 draft letter

33 On 4 June 2007 Mr McGregor wrote to Mr Gordon advising that he had made “further changes as per your note on the 19th May and requested him “review and you agree with “the ‘in principle’ agreement I can then get the draft contract drawn up and submitted to you". The attached document was addressed only to Mr Gordon and was in the following terms:

DONALDSON/BLOOMFIELD RAIL HAULAGE AGREEMENT
Thank you for your time and active participation in the discussions and negotiations which have allowed us to reach an ‘in principle’ agreement regarding future rail haulage for Donaldson & Bloomfield.

I outline the key agreement terms, principles and rates which will be included in the detail of the contractual agreement being developed:

Agreement terms:

Agreement Term 3 Years from July 2007, with an option for a further 3 year to July 2013.

Agreement Volume 2.5mta for the first year rising to 4.15mta by 2010 subject to annual confirmation.

PN Capacity Obligations Commitment to provide required capacity to haul 100% of nominated annual volumes.

Capacity Charges If the actual tonnage of coal hauled in a half year is less than one half of 75%of the applicable Nominated Annual Tonnage, a capacity charge will be payable equivalent to the tonnage difference multiplied by the applicable ‘capacity component’ of the applicable Haulage rate.

Load Point Performance Reduced haulage rate if 75% of trains in each quarter achieve set levels of loading performance as stipulated in agreed rates table.

Volume Rebate A rebate on all tonnes adjusted annually when the volume trigger is reached in any 12 month period.
0.02 cent pert (sic) tonne over 2.5m to 3.5m
0.04 cents per tonne over 3.5 m to 4.5m
0.06 cents per tonne over 4.5 to 7.0m

Adjustment of Haulage Rates The ‘capacity component’ and the variable component of the haulage rates will be adjusted on the 1st January each year of the agreement based upon 75% of the ‘capacity component for CPI adjustments and 25% of the variable component for Labour adjustments. The basis of each will be made available prior to any change of the haulage rate.

Fuel Adjustment The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distilate. Changes to fuel and the calculation will be made available prior to any change.

Access Charges The parties acknowledge that all access charges are pass through.

Scheduled Train Delay Charge If Pacific National is unable to provide a scheduled train, or a scheduled train does not discharge coal at the port in accordance with the confirmed status with the live run plan, without agreement from Donaldson/Bloomfield, then PN will pay a delay charge of $5000 (ex GST) for the first train and a further $5000 for each subsequent train of that cargo.

Make up Train All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $5000 per train as stipulated above.

Vessel Demurrage Any demurrage caused by PN rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy Donaldson or Bloomfield dependent on the party that has been affected.

Rate Table:

Donaldson/Bloomfield

Loading Performance Level Maximum Loading Time Capacity component ($/tonne) Variable component
($/tonne) Fuel component
($/tonne) Haulage
Rate
($/tonne)

1 153 minutes $0.45 $0.67 $0.15 $1.27

2 140 minutes $0.45 $0.64 $0.15 $1.24

3 125 minutes $0.45 $0.62 $0.15 $1.22

4 110 minutes $0.45 $0.58 $0.15 $1.18

Would you please confirm Donaldson/Bloomfields ‘in principle’ agreement to the above terms, and rates (subject to resolution of the detailed contractual terms) by arranging for a copy of this letter to be signed by an authorized person, dated and returned to Jason McGregor at the above address as soon as convenient.

Yours sincerely

JASON MCGREGOR
Commercial Manager-Coal

Signed on behalf of Donaldson/Bloomfield Coal

………………………… …………………..

Signature Name

Date…………………………

Title………………………….

34 Also on 4 June 2007 Mr Gordon responded to Mr McGregor by e-mail in the following terms:

Have reviewed with our people. So there is no misinterpretation, would you reword the following items.

Volume rebate-refers to the volume trigger being reached in "any 12 month period". This needs to clearly indicate it is at any point in each calendar year, not in any 12 month period.

The scheduled train delay charge is (sic) needs to be worded such that the initial train has a $5,000 penalty and each subsequent train is subject to $5,000 increments over and above its predecessor i.e. train 1 = $5,000 train 2 = $10,000 train 3 = $15,000.

With respect [to] the vessel demurrage I think it should reflect Donaldson or Bloomfield, whoever is affected at the time, not both unless both are affected

Apart from that, looks okay to me. Could you amend the wording and resend so we can get the contract drawn up.

35 On 8 June 2007 Mr Gordon wrote to Mr McGregor asking him how "is the revision to the letter going?". On the same day Mr McGregor wrote to Mr Gordon advising "you will have its first thing on Tuesday, I've been travelling over the past three days and have not been in the office".

12 June 2007 draft letter

36 On 12 June 2007 Mr McGregor wrote to Mr Gordon in the following terms:

I hope you did not get too much damage in the recent storms, and all is well at the site.

I have attached the hopefully final 'in principle' agreement so we can get the contract drawn up, with regards to the scheduled train delay charge, I can agree on $5,000 per train, and $5,000 for each subsequent train in a cargo.

37 The attached letter dated 12 June 2007 was addressed only to the plaintiff. It was an identical terms to the letter dated 4 June 2007, except that in the "Volume Rebate" section the word "annually" was deleted and in the "Vessel Demurrage" section the words "dependant (sic) on the party that has been affected" were added after the word "Bloomfield".

38 When Mr Gordon read the letter dated 12 June 2007 attached to Mr McGregor's e-mail, he noticed that it did not contain the amendments relating to the delay charges that he had suggested in his e-mail of 4 June 2007. Mr Gordon wrote to Mr McGregor on 14 June 2007 following terms:

Thanks for the note. At our meeting on site, the charge per train was agreed as incremental. As explained at the time the diversions/cancellations were of major concern to Donaldson, and although many promises were made in the past to address the matter, nothing eventuated, hence our logic behind the charges. My concern is now that without some form of escalation the people who disorganize our railing will continue to do what has been done in the past and consider the charge to be ok. Our real focus is to not “lose” the trains once confirmed. If you require a fixed charge per train, let’s make it $20,000 for each train. The loss of these consists (sic) will become a greater problem for us once tonnages increase.

Give me a call, or we’ll meet again to sort out.

39 On 14 June 2007 Mr McGregor wrote back to Mr Gordon advising:

I have made the changes to the rebate. In terms of the train cancellations I believe that 5k is fair per train, we can discuss again if you require.

40 The only change to the letter dated 12 June 2007 was the re-insertion of the word "annually" in the Volume Rebate section of the letter.

21 June 2007 meeting

41 On 21 June 2007 Mr Gordon met with Mr McGregor and they had the following conversation:

Gordon: If the delay charge does not escalate the situation of the trains is not going to change.

McGregor: Well, PN cannot agree to an escalating charge.

Gordon: What about the higher figure, say $7,000?

McGregor: For each train?

Gordon: Yes, not escalating.

McGregor: I think that should be fine.

22 June 2007 letter

42 On 22 June 2007 Mr McGregor wrote by e-mail to Mr Gordon in relation to the subject, "In Principle Agreement", in the following terms:

Attached is the detail as discussed yesterday, the 7 K. is applicable from train cancellations not agreed after the live run plan is complete which generally comes out at noon, I have increased the makeup train to reflect the 7 K. amount as well, and added in the 85% capacity if nominated, but at this stage we are going with 75%, when it signed can you either e-mail or post to me please.

43 The letter attached to the e-mail was dated 22nd June 2007 and was addressed only to the plaintiff. It was in the following terms:

Thank you for your time and active participation in the discussions and negotiations which have allowed us to reach an ‘in principle’ agreement regarding future rail haulage for Donaldson & Bloomfield.

I outline the key agreement terms, principles and rates which will be included in the detail of the contractual agreement being developed:

Agreement terms:

Agreement Term 3 Years from July 2007, with an option for a further 3 year to July 2013.

Agreement Volume 2.5mta for the first year rising to 4.15mta by 2010 subject to annual confirmation.

PN Capacity Obligations Commitment to provide required capacity to haul 100% of nominated annual volumes.

Capacity Charges If the actual tonnage of coal hauled in a half year is less than one half of 75%of the applicable Nominated Annual Tonnage, a capacity charge will be payable equivalent to the tonnage difference multiplied by the applicable ‘capacity component’ of the applicable Haulage rate.

Load Point Performance Reduced haulage rate if 75% of trains in each quarter achieve set levels of loading performance as stipulated in agreed rates table.

Volume Rebate A rebate on all tonnes adjusted when the volume trigger is reached in any 12 month period.
0.02 cent pert (sic) tonne over 2.5m to 3.5m
0.04 cents per tonne over 3.5 m to 4.5m
0.06 cents per tonne over 4.5 to 7.0m

Adjustment of Haulage Rates The ‘capacity component’ and the variable component of the haulage rates will be adjusted on the 1st January each year of the agreement based upon 75% of the ‘capacity component for CPI adjustments and 25% of the variable component for Labour adjustments. The basis of each will be made available prior to any change of the haulage rate.

Fuel Adjustment The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distilate. Changes to fuel and the calculation will be made available prior to any change.

Access Charges The parties acknowledge that all access charges are pass through.

Scheduled Train Delay Charge If Pacific National is unable to provide a scheduled train, or a scheduled train does not discharge coal at the port in accordance with the confirmed status with the live run plan, without agreement from Donaldson/Bloomfield, then PN will pay a delay charge of $7000 (ex GST) for the first train and a further $7000 for each subsequent train of that cargo.

Make up Train All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $7000 per train as stipulated above.

Vessel Demurrage Any demurrage caused by PN rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy Donaldson or Bloomfield dependant (sic) on the party that has been affected.

Rate Table:

Donaldson/Bloomfield 75% Capacity

Loading Performance Level Maximum Loading Time Capacity component ($/tonne) Variable component
($/tonne) Fuel component
($/tonne) Haulage
Rate
($/tonne)

1 153 minutes $0.45 $0.67 $0.15 $1.27

2 140 minutes $0.45 $0.64 $0.15 $1.24

3 125 minutes $0.45 $0.62 $0.15 $1.22

4 110 minutes $0.45 $0.58 $0.15 $1.18

85% Capacity Commitment (If nominated)

Loading Performance Level Maximum Loading Time Capacity component ($/tonne) Variable component
($/tonne) Fuel component
($/tonne) Haulage
Rate
($/tonne)

1 211 minutes $0.45 $0.63 $0.15 $1.23

2 193 minutes $0.45 $0.60 $0.15 $1.20

3 173 minutes $0.45 $0.59 $0.15 $1.19

4 152 minutes $0.45 $0.55 $0.15 $1.15

Would you please confirm Donaldson/Bloomfields ‘in principle’ agreement to the above terms, and rates (subject to resolution of the detailed contractual terms) by arranging for a copy of this letter to be signed by an authorized person, dated and returned to Jason McGregor at the above address as soon as convenient.

Yours sincerely

JASON MCGREGOR
Commercial Manager-Coal

Signed on behalf of Donaldson/Bloomfield Coal

………………………… …………………..

Signature Name

Date…………………………

Title………………………….

27 June 2007 – plaintiff signs 22 June 2007 letter

44 On 27 June 2007 Mr McPherson signed this letter in the space provided for "Signature", as “CEO” and dated it 27 June 2007.

45 In early July 2007 Mr McGregor had the following conversation with Mr Gordon:

McGregor: We are going to have to separate agreements between Pacific National and Donaldson, and Pacific National and Bloomfield.

Gordon: That's fine, but the rates have to stay the same as in the in principle agreement.

McGregor: No problem.

The "contract agreement"

46 On 13 July 2007 Mr McGregor wrote by email to Mr Gordon in the following terms:

Please find attached a marked up and clear copy of the new agreement, I have sent as separate agreement to Bloomfield based upon this Donaldson agreement. Can you have your people review the information and send back any changes or amendments so we can move to execution plays.

I was wanting to have the agreement applicable from the 1st August

47 On 20 July 2007 Mr Gordon responded to Mr McGregor’s email in terms that included the following:

Thanks for the document. What concerns me is that you have not included the various points as discussed/agreed/and/or corresponded on during the course of formulating this document.

I do not wish to "find Wally" each time you go to print

In order to stop wasting your time, our time and our legal people’s time, please amend the document to reflect our agreed items. Any items outside that can be addressed in due course.

Once you have completed please forward the document and note in your email what you have altered.

48 On 20 July 2007 Mr McGregor responded to Mr Gordon in the following terms:

49 On 23 July 2007 Mr Gordon responded to Mr McGregor stating: “

I agree there should be no changes but the reality is that there has been. Some areas which have been altered by PN -

P11 Weighing – it was agreed that if the PN weighbridge was not operational, then the PWCS conveyor scales would be the next measuring instrument. Following that the deemed weight scenario

20.2 PN have previously agreed verbally to Brendan’s letter of April 3 2007 - $50M is the insurance liability

P27 cont. 1.3 the haulage rebate is for all tonnes once the rebate hurdle point is reached – the document must reflect this position – also previously agreed with PN

P31 ‘c” (i) ref the In Principle Agreement dated 22 June 07” – we have not agreed that the payment is only due when” and that results in a delay to the planned ship loading of a Donaldson cargo” and PN have agreed this is not the wording as well. The payment is due when PN fail to achieve the live run plan!

Ditto Par.3 of (ii) ref the same letter of 22 June 07 – “any demurrage caused by PN rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy Donaldson” – (this is all we will agree to and PN agreed)

50 On the same day after discussing the matter with Mr McGregor, Mr Gordon wrote again in the following terms:

51 On the same day Mr Gordon sent a further copy of the 22 June 2007 letter (as signed by the plaintiff) to Mr McGregor who responded by thanking Mr Gordon and advising him that he was well aware of the document and had copies of it.

52 After further email exchanges of the marked up document Mr McGregor wrote again to Mr Gordon on 21 August 2007 enclosing the document with the following message:

53 On 22 August 2007 Mr McGregor sent a further copy of the document to Mr Gordon with the following message:

54 On 23 August 2007 Mr McGregor wrote to Mr Gordon in relation to the identified subject “2008 Port & Rail Allocations” in the following terms:

Doug, if your (sic) happy with the detail below can you email it back to me so I can release this information to PWC for the 2008 port and rail allocations, if you require any further information let me know.

…

55 In response to this email Mr Gordon wrote:

Can you make the changes to suit the above and advise when done so we can then give the okay for the below to occur!

56 On the same day Mr McGregor wrote back to Mr Gordon in the following terms:

57 Later the same day Mr Gordon responded:

58 Also on 23 August 2007 Mr Gordon wrote to Mr McGregor in the following terms:

We require the contract document to commence 1 July 07, and have the initial period to the end of Dec 07 and based on the allocated tonnage we have at the port of 847464t at this point in time. We then need to have calendar year 2008 at 2.4M t for Donaldson.

59 Later that same day Mr Gordon wrote to Mr McGregor in the following terms:

60 On 24 August 2007 Mr Gordon wrote to Mr McGregor in the following terms:

Schedule 1 5 Capacity Charges – we have agreed in our correspondence 22 June 07 that the capacity charge is reviewed half yearly.

Schedule 3 c(ii) train make-up charge is $7,000 per train as stipulated in scheduled delay charge as agreed in our correspondence 22 June 07, and not as you have it for a single train.

61 After further emails between the plaintiff and the defendant in relation to tonnages Mr McGregor finally advised Mr Gordon on 27 August 2007 that he then had all the supporting documents that he would submit to PwC (apart from rates and rebates).

62 On 30 August 2007 Mr Brendan McPherson, the Chief Executive Officer of the plaintiff, telephoned Mr McGregor to confirm when the contract would be available for execution. Mr McGregor advised Mr McPherson that it would be available the following Monday or Tuesday as there were no outstanding issues and that he would deliver it to Mr McPherson at the plaintiff’s Sydney office. Mr McPherson advised Mr McGregor that he would be in Dubai the following week and asked him to email it to Mr Gordon who would have the authority to sign it on the plaintiff’s behalf.

63 On 3 September 2007 Mr Gordon wrote by e-mail to Mr McGregor advising that the plaintiff's "corporate and legal people" had reviewed the document and had amended it. Mr Gordon advised that the "commencement date changed to suit". That date in the document was changed from 1 August 2007 to 1 July 2007. There was a change to an e-mail address in clause 15. Clause 6 of schedule 1 was amended in the marked up document as follows:

6.1 Year commencing 1 August 2007

July

2,100,000

~~1,950,000~~

of which 1,250,000 t is allocated from 1 Jan 08 to 30 June 08

6.2 Each subsequent Year

July

~~2.5~~

2.75M

of which 1,250,000 t is allocated from 1 July 08 to 31 Dec 08 or Donaldson’s tonnage allocation under the PWCS Capacity Balancing System for that Year, whichever is the lesser.

each

will be nominated on the anniversary date of the agreement.

~~August~~

July,

or Donaldson’s tonnage allocation under the PWCS Capacity Balancing System for that Year, whichever is the lesser.

~~Any change from the Nominated Annual Tonnage set out in paragraph 6.2(a) above requires agreement in writing by both parties, and it can not be less than that which applied in previous Year.~~

~~If the parties do not reach such agreement prior to the applicable 1 August, or~~

, or Donaldson’s tonnage allocation under the PWCS Capacity Balancing System for that Year, whichever is the lesser.

(c) Donaldson must notify Pacific National of Donaldson’s tonnage allocation under the PWCS Capacity Balancing System within 7 days of receiving same.

(d) For the purposes of this paragraph 6, “PWCS Capacity Balancing System” means the system in place at PWCS to allocate tonnages of export coal to be shipped by coal exporters in a given period or such other system that replaces that system.

64 Mr Gordon’s comments on these changes were as follows:

65 On 10 September 2007 Mr Gordon wrote to Mr McGregor by e-mail asking whether the "final document" was "ready for signatures?". Mr McGregor advised that it was "with our internal lawyers" and he would "chase it up again today". On 10 September 2007 Mr McPherson telephoned Mr McGregor to follow up Mr Gordon's e-mail in relation to the contract. Mr McGregor advised Mr McPherson that the lawyer looking at it had been away on sick leave but that he would follow it up immediately.

Capacity Imbalance for 2008

66 The Hunter Valley Coal Producers’ Working Group (PWG) was set up in January 2007 to provide an informal discussion forum between coal producers, the rail operators and PWCS to discuss ways to address the issue of capacity imbalance for 2008. The Working Group could not reach agreement about how the vessel queue at Newcastle Port could be reduced and how Coal Chain capacity could be allocated. There were four allocation options proposed by the Working Group: Scenario 1 – allocation based on pro-rata of revised demand nominations for 2008; Scenario 2 – allocation based on a pro-rata of revised demand nominations for 2007; Scenario 3 – allocation based on past actual usage or demand nomination for new mines and the balance pro rated; and Scenario 4 – allocation based on pro-rata of less or revised demand nomination for 2008 or aggregate rail contract for 2008.

67 In about August 2007, as a result of legal advice regarding potential TPA issues arising from PWG’s activities, PWG agreed that an independent organisation should be engaged to assist in reaching a compromise solution in relation to the 2008 allocations. PricewaterhouseCoopers (PwC) was appointed to review the proposed allocation methods. PwC entered into a Confidentiality Deed Poll with PWCS, Queensland Rail and the defendant under which it was required to review each coal producer’s contracted coal loading requirements for 2008 with PWCS and contracted rail haulage requirements for 2008 with Queensland Rail and the defendant, known as the “Contracted Volume”. It was also required to calculate for each coal producer, the lesser of the sum of that producer’s contracted volumes with Queensland Rail and or the defendant or the producer’s contracted volume with PWCS, known as the “Minimum Contracted Volume”. It was also required to calculate the amount, known as the “Reduction”, by which the producer’s contracted volume with PWCS, Queensland Rail or the defendant would need to be reduced to ensure that each producer’s contracted volume with PWCS and the sum of each producer’s contracted volume with the defendant and Queensland Rail was equal to the amount of the Minimum Contracted Volume.

68 The Deed Poll defined “Contracted Volume” as follows:

Contracted Volume

PWCS tonnage allocations

69 On 5 September 2007 Mr McGregor wrote by email to Mr Gordon in relation to the “PWC Review” in the following terms:

We have reviewed each of the agreements and provided PwC with a new set of numbers based upon current agreements and interpretations within the contract. Prior to next Wednesday’s meeting I would like to meet with you to identify the critical issues that will need to be resolved through the PWG process.

70 On 5 September 2007 PWCS advised all coal producers that PwC had re-calculated the “lesser of port or rail contracts” to be 103.72Mt. PWCS also advised that this forecast still exceeded the coal chain capacity forecast and that a revised pro-rata calculation for that option was to be performed based on 97.5/103.72. PWCS further advised that it had also revised the calculations for the other options based on the latest 2008 coal chain capacity estimate of 97.5Mt and that they would be emailed to individual coal producers later that day.

71 Also on 5 September 2007 PWCS wrote by email to the plaintiff advising it of the calculations for the plaintiff’s allocation for the 2008 calendar year. The allocation pursuant to Scenario 1 (pro-rata of revised demand nominations for 2008 to capacity) was 2.227Mt. The allocation pursuant to Scenario 2 (pro-rata of revised demand nominations for 2007 (106Mt) to capacity (97.5Mt)) was 2.227Mt. The allocation pursuant to Scenario 3 (based on best actual with protection of new mines, pro-rata remainder) was 2.505Mt. The allocation pursuant to Scenario 4 (pro-rata of lesser of demand nomination for 2008 or aggregate rail contract for 2008) was zero.

72 On 12 September 2007 Mr McPherson wrote to PWCS in relation to the calculations contained in the email of 5 September 2007. That letter included the following:

It appears that based on Donaldson Coal not having executed a formal contract with Pacific National (“ PN ”) for rail haulage services during 2008 by 18 July 2007, PwC has decreed that Donaldson would receive no allocation under scenario 4 of the port and rail analysis.

This is clearly not an acceptable outcome for Donaldson. Nor does it comply with the deed we signed or the broader obligations governing PWCS’ allocation scheme.

The basis upon which Donaldson agreed to participate in this port and rail analysis was to apply the accepted rail haulage volumes between PN and Donaldson.

Donaldson would not have agreed to have participate in this analysis if it resulted in Donaldson receiving a Minimum Contracted Volume of Zero, by disregarding the communications between ourselves and PN. To do so is obvious commercial nonsense.

PN and Donaldson had agreed as to the rail haulage services for 2008 by a signed letter agreement dated 22 June 2007 ( attached ). The nominated annual tonnage for Donaldson for 2008 was agreed in this document to be 2.5 million tonnes.

This letter is a binding contract.

As such that volume is Contracted Volume for the purposes of the exercise undertaken by PwC.

As requested in your email of 5 September 2007, PN has confirmed Donaldson’s contracted rail haulage volumes for 2008 (at approximately 2.5 million tonnes) and has forwarded this supporting material to PwC.

73 On 12 September 2007 Mr Gordon sent a copy of the plaintiff’s letter to PWCS to Mr McGregor and David Irwin. Eight minutes later Mr McGregor wrote back to Mr Gordon in the following terms:

74 On 12 September 2007 Mr McGregor telephoned Mr McPherson to advise him that he was extremely upset that the plaintiff had provided PWCS "with a copy of the letter of offer signed by Donaldson on 22 June 2007". Mr McPherson explained to Mr McGregor that he believed that the only way he could substantiate that the plaintiff had an agreed tonnage position for 2008 was to provide that letter. Mr McGregor said that the zero allocation for the plaintiff was not relevant as option 4 would not "get up" and that the defendant was taking legal advice to argue against the strict interpretation of the definition of contract adopted by PwC.

75 After further e-mails asking for the production of the final document Mr Gordon wrote to Mr McGregor on 2 October 2007 in the following terms:

We returned the final document to you on about the 3rd September for processing. For the last three weeks you have been indicating it would be ready "next week".

As the final changes were minimal and agreed to, I don't understand what the hold-up is in getting the signed copies to us.

Please advise!

76 On 2 October 2007 Mr Irwin wrote by e-mail to Mr Gordon in the following terms:

In the context of where we are regarding capacity allocation in 2008 and the discussions which have been ongoing during over the last 6-8 weeks, we are in a position to be signing any agreements until these issues are resolved. I understand discussions have been had between PN and Donaldson and documents exchange, but we need to continue the current process before finalising any new agreements. We will be in touch to discuss further with Donaldson shortly.

77 Also on 2 October 2007 Mr McPherson responded to Mr Irwin's e-mail in the following terms:

I am overseas at present, but will be back at the end of the week. I do not see the relationship between current industry discussions and the execution of our contract. Donaldson and PN have agreed a position and I expect a document to be executed as agreed. Donaldson will not accept being discriminated against because of issues outside of its control.

78 On 3 October 2007 Mr McGregor wrote to Mr Gordon in the following terms:

Pacific National (PN) has been a participant in discussions with the Hunter Valley Coal producers Working Group (PWG) assessing cold chain capacity and demand imbalances for 2008.

To further inform discussions at the next PWG meeting I would appreciate if you can advise your Nominated Annual Tonnes within the context of rail haulage agreement, for 2008 calendar year by Friday 5th October 2007. (I recognize that the period for nomination in agreement is different to calendar years, but request your nomination for this period to simplify discussions). This nomination should not exceed your binding 2008 Port nomination tonnage.

After receiving this information from all customers, PN will contact you to discuss your nomination prior to the next PWG meeting scheduled for October 10th 2007.

79 On 4 October 2007 Mr Gordon advised Mr McGregor that the plaintiff's 2008 calendar year tonnage for the rail contract was 2.5 million tonnes.

8 October 2007 meeting

80 On 8 October 2007 there was a meeting between the plaintiff and the defendant. Present at the meeting for the plaintiff were Mr McPherson and Mr Gordon and for the defendant Mr McGregor and Mr Irwin. Mr Gordon's recollection of what was said at the meeting included the following:

McPherson: Are you telling is that you are not going to honour our agreement?

Irwin: We are not trying to get out of the agreement. I am just trying to explore if a compromise solution for scenario four is possible. We could offer you 1.3 million tonnes for 2008.

McPherson: That is a 'go broke' number for us. What's the basis for that number?

Irwin: I can't say. The problem is the capacity of the port, not the railway. The rail providers could carry up to 120 million tonnes.

McPherson: your compromise solution is not acceptable to Donaldson. We want you to sign the formal contract that has been agreed.

McGregor: I'll follow up the contract.

81 Mr McPherson's recollection of the conversation was as follows:

Irwin: We are trying to broker a compromise solution for the coal producers who have been adversely affected by scenario 4. Donaldson will be offered 1.39 million tonnes, but that's going to be scaled back to 1.1 million tonnes by PWCS.

McPherson: Is this mean that you are not going to honour what you agreed to in the letter of offer that we accepted in June? Are you saying that you are now not going to execute the contract?

Irwin: No, that's not the case at all. What I am saying is that the additional industry knowledge that came out of the PWG process means that we need to review our position in the Hunter Valley.

McPherson: I am not aware of any new information coming out of that process which materially changes anyone’s understanding of the industry and the capacity issues.

Irwin: Well, how much do you need then for next year?

McPherson: We need 2.5 million tonnes. This has been our position all along. It has not changed. We cannot support a position that would give substantially less. So, when will we get our contract?

McGregor: I will follow it up straight away.

82 Mr Irwin gave affidavit evidence of his recall of the conversation at that meeting as follows:

Irwin: What is your position on true tonnages for 2008?

McPherson: We need 2.5.

Irwin: The system capacity is only 95, we are not able to give the 2.5.

McPherson: 2.5 is like a drop dead, otherwise we have a shut the mine.

Irwin: We want to haul Donaldson, but we have to come up with a solution and a compromise. Everybody is being scaled back. Everybody wants more than the system can provide.

McPherson: We will take this further. Where is the contract?

Irwin: It's been held up as some people have been away. It is difficult for us to finalise any contract given that we don't know what the allocations are going to be for 2008. I will find out where it is at.

Proceedings commenced

83 After these discussions and further communications the parties were unable to move forward consensually and the plaintiff commenced the litigation on 28 November 2007 by the filing of a Summons and Commercial List Statement. Having regard to the urgency of the matter and the commercial importance for the parties to have a speedy resolution of their differences the matter was heard on a final urgent basis on 10 December 2007 when Mr FM Douglas QC leading Mr DB Studdy SC appeared for the plaintiff and WG Muddle SC leading Mr IJ Stanley appeared for the defendant.

Consideration

84 The applicable legal principles in determining whether or not the parties entered into a binding contract are not in issue. The meaning of the terms of a contractual document are to be determined by what a reasonable person would have understood them to mean and requires consideration of the text, the surrounding circumstances known to the parties and the purpose and object of the transaction: Toll (FGCR) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 per Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ at 179, par [40]. This is a commercial transaction of some significance and although the test identified in Toll refers to a “reasonable person” it is appropriate in this case to apply the test of the reasonable “businesslike” person: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 per Gleeson CJ at 589, par [22].

85 The plaintiff submitted that the evidence establishes that the parties intended to be immediately bound to perform the Haul Agreement when the letter of 22 June 2007 was signed on 27 June 2007. It was also submitted that the evidence establishes that at the same time the parties intended to have the terms restated in a form that would be fuller and more precise but not different in effect. In this regard it was submitted that this agreement was within the first class referred to in Masters v Cameron (1954) 91 CLR 353. Dixon CJ, McTiernan & Kitto JJ said at 360:

Blackburn

Rossiter v Miller

86 The plaintiff submitted that there are a number of factors on the face of the letter of 22 June 2007 which demonstrate that the parties intended to be immediately bound. In this regard the plaintiff emphasised the first paragraph of the letter in which the defendant thanked the plaintiff for its “active participation in the discussions and negotiations which have allowed us to reach an ‘in principle’ agreement”. The plaintiff submitted that this refers to concluded discussions resulting in agreement. The plaintiff also emphasised the fact that the words “in principle” were in quotations thus signifying that they had a concluded agreement and had emphasised the point by the use of the quotations. In support of this submission the plaintiff relied upon the following analysis by McLelland J in Baulkham Hills Private Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622 at 628 as follows:

… I do not accept that the words “agreement in principle” in the present context import the idea that there must necessarily be agreement on further terms to be embodied in the “formal contract” provided for in the consensus, as opposed to an expectation that there would or might be agreement on further terms to be so embodied. In other words, I do not consider that the phrase in question should be construed as an “agreement to agree” on further terms, but rather as an indication, at the most, of an expectation of agreement on further terms.

…

Masters v Cameron

Sinclair, Scott & Co v Naughton

87 The plaintiff submitted that the second paragraph of the letter of 22 June 2007 acknowledged the “key agreement terms, principles and rates” which were to be included in the detail of a contractual agreement. It submitted that this sentence is particularly significant as all essential terms have been agreed including the term of the agreement, the haulage volume, the capacity obligations, the capacity charges, the volume rebates, haulage rates and delay charges. The plaintiff submitted that this statement in the second paragraph must be read with the expression “(subject to resolution of the detailed contractual terms)” on the last page of the letter. It was submitted that in other words, there would be an agreement which would contain more detail but it would not be different in effect from the key terms. It was also submitted that the fact that the defendant required the letter to be signed by an authorised officer of the plaintiff was to confirm the terms of the agreement.

88 The defendant submitted that the following passage of Mahoney JA’s judgment in Air Great Lakes Pty Limited v KS Easter (Holdings) Pty Limited (1985) 2 NSWLR 309 at 326 should guide the determination of the question before the Court:

89 The defendant submitted that the letter of 22 June 2007 evidenced agreement on a framework for an agreement, but not an agreement. It was submitted that the evidence does not establish an intention that any consensus should constitute a binding contract. The defendant also relied upon the words “in principle” as evincing an intention not to enter into a legally binding agreement. In support of this submission the defendant relied upon the following passage of Biscoe AJ’s judgment in Stephenson v Dwyer [2006] NSWSC 1439 at [37]:

90 The defendant recognised the fourth class of case referred to in Sinclair, Scott & Co v Naughton but submitted that the evidence did not support such a conclusion. Further it was submitted that the cases which have followed Sinclair, Scott have involved dealings between parties who had no prior contractual relationship in relation to the subject matter of the alleged contract. I am not sure that this submission is entirely accurate having regard to the decision in Pacific Power & Elcom Collieries Pty Ltd v Cumnock No. 1 Colliery Pty Limited & Ors, [2001] NSWSC 1100; Cumnock No. 1 Colliery Pty Ltd v Pacific Power & Anor [2002] NSWCA 278. Indeed in Pacific Power, the expression “in principle”, was used by the parties in correspondence that was the subject of detailed consideration in determining whether they had entered into a binding agreement. At paragraph [122] of the judgment at first instance the following was said:

GR Securities Pty Limited v Baulkham Hills Private Hospital

Pty Ltd

91 It is inappropriate to construe the words “’in principle’ agreement” without placing them in the context in which they appear and the commercial setting in which the parties were operating. It is also necessary to analyse the nature of the transaction in which the parties had reached such an agreement. Much will depend upon the individual circumstances of each case as to whether those words demonstrate that the parties had or had not reached a consensus on the essential terms of their bargain and whether they intended to be immediately bound by them. Both parties relied upon the language used in the letter and on the conduct prior to and after the letter in support of their competing submissions. It is necessary to apply the principles identified by Heydon JA in Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at 163-164, pars [24]-[27] in particular the principle that post-contractual conduct may be considered on the question of whether a contract was formed.

92 Mr Muddle submitted that one relevant circumstance for consideration is that the plaintiff was being charged the rates applicable in the 2004 Rail Haul Agreement and not the rates identified in the letter of 22 June 2007. Mr Douglas submitted that the history between these parties demonstrates that when new agreements are negotiated and indeed reached between them, they have previously allowed the rates applicable in former contracts to apply during the negotiation phase and even after the new agreement is reached. When the new agreement is signed later than the commencement date the parties have conducted a form of reconciliation so as to apply the new rates from the commencement date of the new agreement rather than from the date the agreement was signed. This approach is supported by the conversation in which Mr McGregor suggested that the terms of the 2004 Agreement would apply until a new agreement was reached, as opposed to when it was signed. This history between the parties seems to me to render the circumstance of the 2004 rates being applied as a neutral factor in the determination of whether the parties reached a binding agreement.

93 The defendant also relied heavily on the fact that the letter of 22 June 2007 referred to both Bloomfield and the plaintiff. Mr Muddle submitted that this was not a document setting out an agreement, if that is what it is, between two parties but between three parties. He submitted that there was no authority for anyone from the plaintiff to sign the letter on behalf of Bloomfield. In those circumstances it was submitted that it is not possible that any binding agreement could have been reached in the absence of one of the proposed contracting parties.

94 There is no doubt that the original plan put forward by the defendant was to combine the volume of coal for export produced by both Bloomfield and the plaintiff. That much appears from the contents of the correspondence prior to June 2007 and the fact that the Haulage Proposal of 20 March 2007 was addressed to both Bloomfield and the plaintiff. The amended proposal in May 2007 was addressed to the plaintiff alone, but it is clear that the content of the letter of 22 June 2007 included Bloomfield. When the plaintiff signed the letter on 27 June 2007 it signed it on its own behalf and not on behalf of Bloomfield. It agreed to the terms, rates and principles set out in that letter which included 500,000 tonnes of Bloomfield's coal to be transported by the defendant and 2 million tonnes of the plaintiff's coal to be transported by the defendant for the first year rising to a combined 4.15 Mt by 2010 “subject to annual confirmation”. It is clear that the parties agreed that both the plaintiff and Bloomfield would be parties to the agreement with the defendant, in particular having regard to the amendment made to the section on "Vessel Demurrage” to include the words "dependant (sic) on the party that has been affected".

95 Although there is no separate letter signed by Bloomfield in evidence the correspondence between Mr McGregor and Mr Taylor of Bloomfield on 9 August 2007 leads to the irresistible conclusion that Bloomfield agreed to the terms of the 22 June 2007 letter. In his e-mail to Mr McGregor dated 9 August 2007 Mr Taylor thanked Mr McGregor for the draft contract and noted that "some of the commercial terms contained in the original letters of offer" were not reflected in the draft contract. That e-mail included the following:

It was my intention that all terms agreed between DC/BC and PN would be reflected in the RC contract, as we are being viewed as one group from PN’s viewpoint.

96 The reference to "RC" is to "Rix Creek” referred to in earlier correspondence, however the significance of Mr Taylor's statement is that he wished to have the draft contract reflect what had been "agreed" between "DC”, meaning the plaintiff, “BC” meaning Bloomfield and “PN” meaning the defendant. Mr Taylor also requested Mr McGregor to remove references to the defendant evidencing Bloomfield’s agreement that it was to contract with the defendant individually and separately from the plaintiff. Mr Taylor’s subjective feelings are not relevant. It is the fact that Mr Taylor referred what had been “agreed” that is to be weighed in the balance when considering whether an agreement was entered into in June 2007. That is the limit of the use to which this evidence can be put in applying the principle referred to in Brambles in relation to the utilisation of post-contractual conduct.

97 Mr McGregor’s evidence was that in “early July 2007” he said to Mr Gordon: "We are going to have to separate agreements between Pacific National and Donaldson, and Pacific National and Bloomfield". The affidavit evidence used the words "to separate agreements" and not "two separate agreements". Mr McGregor was cross-examined about this statement and Mr Douglas did not use either the word “to” or “two” in his question, to which there was no objection. That cross-examination was as follows (tr 32):

Q. I just want to deal with one aspect of your evidence. In par 42 of your affidavit you depose to a conversation you had with Mr Gordon in or about early July 2007 in which you recount that you said words to the following effect "We are going to have separate agreements between Pacific National and Donaldson and Pacific National and Bloomfield" and he’s said to have responded "That's fine with me but the rates have to stay the same as in the in principle agreement" and you have yourself responding "no problems". Do you recall that?

98 It was suggested to Mr McGregor in cross-examination that the conversation may have occurred earlier than July 2007 but he resisted that suggestion (tr 32). Once the plaintiff agreed to the defendant separating Bloomfield and the plaintiff into separate agreements with it, or put another way, the defendant having two separate agreements, one between it and the plaintiff and one between it and Bloomfield, the plaintiff and the defendant moved forward in drawing up what was referred to in the letter of 22 June 2007 as the "contractual agreement".

99 The evidence establishes that this conversation occurred prior to 13 July 2007. It was on 13 July 2007 that Mr McGregor wrote to Mr Gordon enclosing the draft contract between the plaintiff and the defendant advising that he had sent a "separate agreement" to Bloomfield based upon the agreement between the plaintiff and the defendant.

100 The text or language used by the parties in the alleged agreement is of significance. The first paragraph of the letter is a clear indication that the parties have concluded their discussions and negotiations. The second paragraph of the letter makes it abundantly clear that the parties have agreed on the "key” terms and I am satisfied that they intended that these were the essential terms of their agreement. That same paragraph makes it very clear that those essential or "key" terms would not be changed. That much is clear from the use of the words "which will be included in the detail of the contractual agreement being developed". In its context, the word "developed" simply means that the parties will prepare the document. It would defy common sense, commercial or otherwise, to suggest that these parties having spent three months concluding their discussions and negotiations, would then agree to recommence their discussions and negotiations to develop some other form of agreement. Negotiations had concluded and agreement had been reached. All that was being developed or prepared was the “contract agreement” (as referred to in the letter) or the form of formal contract referred to in the letter as the “detailed contractual terms” of the agreement as reached. The reliance the defendant placed on the use of the word "developed" to submit that it demonstrates a lack of agreement is in my view without foundation.

101 In the final paragraph of the letter the plaintiff was asked to confirm the “in principle” agreement to the terms and the rates "(subject to resolution of the detailed contractual terms)" by having an "authorised person" sign, date and return the letter. Mr Muddle submitted that this language demonstrates that the parties did not intend to be bound by the terms of this letter and that the terms of the letter were effectively "subject to contract" or put another way, the parties would not be bound by the terms of this letter until the contract was signed. I disagree. I am of the view that the language used both in the first paragraph of the letter referring to the "in principle agreement" and this language in the final paragraph support a finding that the parties intended to be immediately bound by the terms of the in principle agreement whilst they prepared a more “detailed” document reflecting their agreement. The formality of having an “authorised person” within the plaintiff sign this document, date it and return it to the defendant, supports the conclusion that the parties wished to have the agreement documented so that they knew the applicable “key” terms then and there whilst the more “detailed” document was being “developed” or prepared.

102 The post-22 June 2007 conduct and the surrounding circumstances are also of significance. The parties utilised the defendant’s pro forma agreement that had been used for the 2004 Rail Haul Agreement. As appears from the above history the defendant forwarded both a clean copy and a marked up copy to the plaintiff suggesting that amendments had been made to the pro forma document to reflect what had been agreed. On 20 July 2007 Mr Gordon complained about the difficulty in identifying the amendments that had been made to the document and suggested to Mr McGregor that to avoid wasting time and money he should simply amend the document "to reflect our agreed items". On the same day Mr McGregor agreed that there should be no changes "to what we have agreed". On 23 July 2007 Mr Gordon agreed that there "should be no changes" although acknowledging that in reality some had been made in the document that had been prepared or developed. His e-mail went on to press Mr McGregor to return the language to that which had been "previously agreed". This language is in my view supportive of a finding that the parties decided that they would be bound by the terms of the agreement they reached on 27 June 2007 by the plaintiff signing the defendant's letter.

103 The language used in the conversation in early July 2007 supports a finding that the parties agreed that as from that date they would be bound by the terms in the letter of 22 June 2007 as it applied to the plaintiff and the defendant to the exclusion of Bloomfield. The defendant agreed with the plaintiff that the "rates" as they appeared in the agreement were not to change notwithstanding the exclusion of Bloomfield. The term was "from July 2007", that is commencing in July 2007 for three years. The volume the defendant agreed to was not 2.5mta for the plaintiff, but only 2mta. That is because the 500mta was applicable to Bloomfield.

104 Mr Muddle submitted that the heading to the table in the letter "85% Capacity Commitment (If nominated)” demonstrates that the parties had not reached agreement because no nomination had been made. I disagree with this submission. The parties agreed to proceed with the 75% capacity commitment, however at some stage in the future there may be a nomination to 85%. This was a contract formed in very difficult commercial circumstances where the intervention of PWCS with its annual allocations of tonnages required flexibility in the parties’ contractual relationship. It is apparent from the correspondence, as I have alluded to earlier, that it is not the Coal producers or the rail operators who lack capacity, but rather the Port authority. These parties were aware that whatever they decided by way of volume might have to be adjusted by reason the intervention of the PWCS allocation of tonnages. That is reflected in the section on Volume wherein they agreed that the amounts were “subject to annual confirmation”. In the circumstances, the fact that those tonnages may be vulnerable to the intervention of PWCS does not mean that the parties did not agree to be bound by the terms of the agreement made on 27 June 2007 as varied in early July 2007.

105 Mr Muddle made a further submission that because the parties had not identified the Maximum Loading Time within the 75% table in the letter they had not agreed on all the terms of their bargain. Once again I disagree with that submission. The essential and key term in this regard was the agreement as to the "75%" capacity and that these rates would apply. The key term on these rates provided that the “adjustments” would be made on 1 January each year with the basis of any change being made available prior to the change occurring. The section of the letter dealing with “Load Point Performance” refers to the “set levels” (as opposed to “level”) of loading performance as stipulated in agreed rates table”. Although Mr Muddle suggested that “a” level had to be agreed, this wording does not to my mind require such a stipulation or agreement. The machinery provisions in this agreement mean that in the first quarter performance will dictate the haulage rate. The time it takes for loading will dictate the rate and thereafter the adjustments will be made pursuant to the key terms. Alternatively the parties may adjust or choose the rates dependent upon the actions taken by PWCS.

106 The plaintiff also relied upon the statement made by Mr McGregor on 12 September 2007 in his rebuke of Mr Gordon for sending PWCS “an agreement between PN and Donaldson” because it was “confidential information”. I am satisfied that the plaintiff is entitled to use this statement in support of its submission that the parties had reached an agreement, however the earlier references to their communications in which they were striving to ensure that the more “detailed contractual terms” reflected what had “been agreed” seems to me to be more powerful.

107 The purpose and object of the transaction was to have in place agreed terms as to haulage in the commercial setting that has been described. This enabled the plaintiff to take part in the cooperative nomination for tonnages in the overloaded system at Newcastle Port and the defendant to carry the plaintiff’s export coal to Newcastle, either as agreed or as adjusted by PWCS pursuant to the CBS. The fact that PWCS may take a particular view about the status of the contractual relationship between these parties is irrelevant to the questions to be decided in this case. I am satisfied that these parties agreed on the terms of their bargain and intended to be immediately bound to the performance of them but at the same time proposed to have the terms restated in a form which would be fuller or more precise but not different in effect. If that be wrong then I am satisfied that they were content to be bound immediately by the terms which they had agreed upon and having regard to the anticipated allocation of tonnages by PWCS they expected to make a further contract in substitution therefore or alternatively, as Mr McGregor suggested, by Deed of Variation, when PWCS allocated the tonnages.

108 The defendants submitted that an order for specific performance of the agreement should not be made because the agreement cannot be performed. Once again I disagree. These parties have agreed on the terms of their bargain. They have also agreed that their bargain will be restated in a fuller document. The defendant has refused to produce the “fuller" document to the plaintiff by reason (it seems) of the conduct of PWCS. That is not a reasonable basis upon which to refuse to provide the fuller document. This aspect of the agreement can be performed and the plaintiff is entitled to an order for specific performance in relation to the production of that document. However I am not satisfied that it is appropriate to make the more general order for specific performance of the obligations under the agreement. However should circumstances arise wherein the plaintiff seeks to move for such an order it may apply for leave to make that application.

Conclusion

109 I declare that the plaintiff and the defendant entered into a binding agreement on 27 June 2007 in the terms of the letter dated 22 June 2007 to commence from 1 July 2007, as amended prior to 13 July 2007, to exclude Bloomfield from the agreement and to exclude 500,000 tonnes from the "Agreement Volume" section of the agreement for the first year.

110 I order that the defendant prepare the "contract agreement" reflecting the terms of the agreement I have declared was reached and provide it to the plaintiff for its execution by no later than 24 December 2007 or such other date as the parties may agree. The parties are to agree on a costs order otherwise I will hear argument when the matter is listed for finalisation on 1 February 2008.

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Citations

Donaldson Coal Pty Ltd v Pacific National (NSW) Pty Ltd [2007] NSWSC 1446

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CITATION:	Donaldson Coal Pty Limited v Pacific National (NSW) Pty Limited [2007] NSWSC 1446
HEARING DATE(S):	10 December 2007
JUDGMENT DATE :	14 December 2007
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Bergin J
DECISION:	Declaration that the plaintiff and the defendant entered into a binding agreement. Order for specific performance.
CATCHWORDS:	[CONTRACT] - Commercial setting - Export of coal from port with inadequate capacity to meet demand - Institution of co-operative arrangements to share the burden of the inadequacy - Whether parties entered into a binding agreement - "In principle agreement" - Meaning in context - [EQUITY] - Whether specific performance should be ordered.
LEGISLATION CITED:	Trade Practices Act 1974 (Cth)
CASES CITED:	Air Great Lakes Pty Limited v KS Easter (Holdings) Pty Limited (1985) 2 NSWLR 309 Baulkham Hills Private Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 Cumnock No 1 Colliery Pty Limited v Pacific Power [2002] NSWCA 278 Masters v Cameron (1954) 91 CLR 353 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Pacific Power & Elcom Collieries Pty Limited v Cumnock No 1 Colliery Pty Limited [2001] NSWSC 1100 Sinclair, Scott & Co Limited v Naughton (1929) 43 CLR 310 Stephenson v Dwyer [2006] NSWSC 1439 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165
PARTIES:	Donaldson Coal Pty Limited - plaintiff Pacific National (NSW) Pty Limited - defendant
FILE NUMBER(S):	SC 50209/2007
COUNSEL:	FM Douglas QC/DB Studdy - plaintiff WG Muddle SC/IJ Stanley - defendant
SOLICITORS:	Allens Arthur Robinson - plaintiff Deacons - defendant

Agreement Term	3 Years from July 2007, with an option for a further 3 year to July 2013.
Agreement Volume	2.5mta for the first year rising to 4.15mta by 2010 subject to annual confirmation.
PN Capacity Obligations	Commitment to provide required capacity to haul 100% of nominated annual volumes.
Capacity Charges	If the actual tonnage of coal hauled in a half year is less than one half of 75%of the applicable Nominated Annual Tonnage, a capacity charge will be payable equivalent to the tonnage difference multiplied by the applicable ‘capacity component’ of the applicable Haulage rate.
Load Point Performance	Reduced haulage rate if 75% of trains in each quarter achieve set levels of loading performance as stipulated in agreed rates table.
Volume Rebate	A rebate on all tonnes adjusted annually when the volume trigger is reached in any 12 month period. 0.02 cent pert (sic) tonne over 2.5m to 3.5m 0.04 cents per tonne over 3.5 m to 4.5m 0.06 cents per tonne over 4.5 to 7.0m
Adjustment of Haulage Rates	The ‘capacity component’ and the variable component of the haulage rates will be adjusted on the 1st January each year of the agreement based upon 75% of the ‘capacity component for CPI adjustments and 25% of the variable component for Labour adjustments. The basis of each will be made available prior to any change of the haulage rate.
Fuel Adjustment	The inclusion of a fuel component rise and fall mechanism calculated and applied quarterly based upon the movements in the Shell Terminal Gate Price for Bulk Distilate. Changes to fuel and the calculation will be made available prior to any change.
Access Charges	The parties acknowledge that all access charges are pass through.
Scheduled Train Delay Charge	If Pacific National is unable to provide a scheduled train, or a scheduled train does not discharge coal at the port in accordance with the confirmed status with the live run plan, without agreement from Donaldson/Bloomfield, then PN will pay a delay charge of $5000 (ex GST) for the first train and a further $5000 for each subsequent train of that cargo.
Make up Train	All cargoes railed have an expected single unit make up train at the end of the railing campaign, failure to supply a planned train that has been scheduled will result in a delay charge of $5000 per train as stipulated above.
Vessel Demurrage	Any demurrage caused by PN rail operations to supply trains in a timely manner will be discussed to agree an outcome to satisfy Donaldson or Bloomfield dependent on the party that has been affected.