Lake Vermont Resources Pty Limited v Adani Abbot Point Terminal Pty Limited & Ors; QCoal Pty Limited & Ors v Adani Abbot Point Terminal Pty Limited & Anor

[2022] HCATrans 110

[2022] HCATrans 110

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B52 of 2021

B e t w e e n -

LAKE VERMONT RESOURCES PTY LIMITED (ACN 114 286 841)

Applicant

and

ADANI ABBOT POINT TERMINAL PTY LIMITED (ACN 149 298 206)

First Respondent

QCOAL PTY LIMITED (ACN 010 911 234)

Second Respondent

BYERWEN COAL PTY LIMITED (ACN 133 357 632)

Third Respondent

SONOMA MINE MANAGEMENT PTY LIMITED (ACN 124 677 443)

Fourth Respondent

Office of the Registry
  Brisbane  No B53 of 2021

B e t w e e n -

QCOAL PTY LIMITED ACN 010 911 234

First Applicant

BYERWEN COAL PTY LIMITED ACN 133 357 632

Second Applicant

SONOMA MINE MANAGEMENT PTY LIMITED ACN 124 677 443

Third Applicant

and

ADANI ABBOT POINT TERMINAL PTY LIMITED ACN 149 298 206

First Respondent

LAKE VERMONT RESOURCES PTY LIMITED ACN 114 286 841

Second Respondent

Applications for special leave to appeal

KEANE J
EDELMAN J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION TO BRISBANE AND SYDNEY

ON FRIDAY, 17 JUNE 2022, AT 9.30 AM

Copyright in the High Court of Australia

KEANE J:   In accordance with the Court’s protocol when sitting remotely, I will announce the appearances for the parties.

MR S.B. LLOYD, SC appears with MR A.C. STUMER for the applicant in B52/2021 and for the second respondent in B53/2021.  (instructed by DLA Piper Australia)

MR J.D. McKENNA, QC appears with MR N.J. DERRINGTON for the applicants in B53/2021 and the second, third and fourth respondents in B52/2021.  (instructed by Arnold Bloch Leibler)

MR B.W. WALKER, SC appears with MR L.F. KELLY, QC for the first respondent in B52/2021 and the first respondent in B53/2021.  (instructed by Clayton Utz)

KEANE J:   Yes.

MR LLOYD:   May it please the Court.  We contend that the Court of Appeal made a fundamental error in this matter - the unduly narrow of the scope of section 121 of the Consumer Law.  The applicant claimed that AAPT had unconscionably insisted on its strict contractual rights – that was our claim.

KEANE J:   Mr Lloyd, it was not contended that those rights were obtained in circumstances which gave rise to unconscionability?

MR LLOYD:   Not in the circumstances when it was entered into with the Ports Corporation, no.  AAPT paid to receive $255 million in lieu of Queensland Coal’s payment of port charges that would have been paid over a number of years, and then required the remaining port users to contribute again towards that same port capacity, in effect recovering the charge twice.  That was the gist of the unconscionability.

EDELMAN J:   Mr Lloyd, what do you say AAPT should have done?  Was your case that AAPT should have just given QCPL an entirely free ride and socialised all of the cost?

MR LLOYD:   No, we say that QCPL should have – well, they were under an obligation to pay out their contract for the full 12 years.  Obviously, if Adani Mining wanted to succeed to the remaining six years, they could have done that, but QCPL otherwise was under an obligation to pay out its charges under the agreement that had been entered into for six years and, in effect, pay that out and the $255 million was essentially the sum that was due, the net present value of the sum that was due for that six years.

So, it basically paid its share of the charges and what the AAPT did was then say, well, we are taking that separately to the charges and we will now impose those charges for that port capacity on the remaining users and in so doing they received a return on capital and – well, an excess to the return on capital and to the operating expenditure which lay at the heart of the contractual terms.

EDELMAN J:   So, the unconscionable conduct was the socialisation of the cost, was it, or the socialisation of those amounts that had been received from QCPL?

MR LLOYD:   The unconscionable conduct was to take the money from QCPL, which was in lieu of port charges or port fees, and then impose those fees again.  So, it was the combination of those two elements.

EDELMAN J:   But what should they have done?  What do you say would not have been unconscionable - just to take it from only the other users, or to take it from only QCPL?

MR LLOYD:   QCPL had the liability, so, to take it only from QCPL would have resulted in AAPT getting paid the amount that it was due under the combination of user agreements.  It would have got a proper return on capital and a proper coverage of operating expenditure as a monopolist, so it would have got what it had bargained for under the agreements and it would not have required the other users to pay that amount twice.

So, that would have been one way of doing it.  It would have just been to accept the payment of $255 million in lieu of the amount that would have been paid, which was about $255 million, for that six‑year period.

KEANE J:   Mr Lloyd, how do you think the shareholders of Mr Walker’s client would have responded to their company acting in that way?

MR LLOYD:   Well, we say they would have had nothing to complain about because ‑ ‑ ‑ 

KEANE J:   Well, in fact, they would have been cheering Mr Walker’s client to the echo in terms of what Mr Walker’s client did.  Your client’s shareholders, perhaps not so much. 

MR LLOYD:   Well, certainly that is true that my client’s shareholders would be disturbed by it.  But we say that the point is that there is unconscionability in the conduct of setting up the agreement or the termination in the way that it did.  Now, under the user agreements, if a contract just came to an end at some point, the review mechanism would have recognised that and any unused capacity would have been shared out among the remaining users.  So, there is no ‑ ‑ ‑ 

KEANE J:   So, is your complaint as to the terms of the agreement?

MR LLOYD:   No.  Our complaint is as to the manner of the exercise of the rights of AAPT in both terminating, by agreement – the user agreement with QCPL – and in so doing getting paid for the port charges for six ‑ ‑ ‑ 

EDELMAN J:   In effect, Mr Lloyd, the complaint is that Mr Walker’s client failed to waive or give up rights – contractual rights that it had, and had acquired properly, to around $250 million, and that what it properly should have done, one way or the other, was give up $250 million of entitlements that it had. 

MR LLOYD:   Well, obviously we do not put it that way.  We say that it had a series of contracts under which it was entitled.  The core of the bargain was that, as a monopolist, the port operator would get a return on capital of an agreed rate and be able to charge reasonable costs for reimbursement of the port costs.  That was the arrangement.  Then, as it turned out, one of the users wanted to terminate early. 

Now, they were obliged to run for 12 years, but they wanted to terminate early, so there was an interest in that user, QCPL, to pay out an amount early.  To do that, and to treat that amount, which they were liable to pay for the port charges, but did not treat it in lieu of the port charges, then socialised the costs and made the other port users pay that amount and allowed for, in effect, a windfall amount to go to AAPT, who had not negotiated for that.  It is true that the contract, the user agreements – we accept, and there was a finding that they did not prevent an impediment to seeking the additional fees that have been sought for my clients, but that is not to say that that was ever part of the deal.

We say, as the court below recognised at paragraph 166, the broad objectives of the agreement were recognised there as being to provide a level of return on the capital investment and a reimbursement of operator’s costs.  That was the underlying agreement between the users and – well, to lead to the creation of the port, and then the payment for the costs involved in it.  That was the broad objective. 

Accepting that they have the ability under the contract, because the contracting party is to envisage the possibility of what happened, they have the ability under the contract to require my client to do it, that does not mean it is consistent with the agreement, and so we say not that there is a breach of the agreement, but that there is unconscionability in requiring the remaining parties to pay again the costs that have already been recovered from the terminating party.  That that was ‑ ‑ ‑ 

GLEESON J:   Mr Lloyd, I have a question about the facts upon which the appeal will be decided.  Are you relying on facts that are the subject of the procedural fairness complaint on the appeal?

MR LLOYD:   No, we say we are not.  That issue was addressed in paragraph [176], I think primarily of the Court of Appeal decision.  The central point of what we say is the unconscionability is in requiring the remaining port users to pay them an amount which has already been recovered and thereby recover in excess of what was the substance of the arrangement for the funding in the port.  In doing that, that is unconscionable because it results in unjust enrichment and it was done in a way and in a timing that, well, had the intention of doing what was done to both recover the port charges from QPCL and then to recover them again from my clients.

Now, we say that that is the unconscionability.  What is said at [176] is not part of that.  It is true that we accept that on the basis of the finding of procedural fairness we cannot rely upon the notion that the three transactions that were used to pay the $255 million were – I think it is put there – as manufactured or artificially designed.  That is not part of how we put the case.  We say it is enough that the $255 million – the facts are the $255 million was agreed before that structure was put in place and then it was set up in a way to have the effect that it did have and it is the seeking to enforce the rights to compel my client to pay for the unused capacity, which is an unused capacity which the AAPT in effect created.

EDELMAN J:   Mr Lloyd, there has been no suggestion in any of the decisions below that that conduct amounted to a breach of contract, as I understand.

MR LLOYD:   No, well, there was a separate arbitration and there was no breach of contract.

EDELMAN J:   That includes any contractual obligations to exercise any discretions in a reasonable manner.

MR LLOYD:   Well, we do not ‑ I accept ‑ but we do not put it that way.  So we do not say that there was a breach of contract.  We say that it is unconscionable in the sense that it offends the conscience to exercise the right to require my client and the other users to pay the port charges which have already paid for in a way which then double dips, or double recovers, or – I mean, there is an issue, I should say, as to whether it is really a double recovery or only a one and a half recovery, and the court below at paragraph [138] properly recognised that whether it is a double recovery or only a one and a half recovery really is not an answer to the unconscionability point, and we say they were right to do that.

EDELMAN J:   Some of these expressions are probably not accurate anyway.  To describe it as a “windfall” or as “unjust enrichment” or as a “double recovery”, all assumes the very issue that you need to convince the Court of, which is that there was no entitlement to do so in the first place.  There is an entitlement to do so, there is no unjust enrichment.  The parties have agreed that the wind will blow that way, and it is very difficult to see, without any other circumstances, how it could be unconscionable to insist on that which the parties have agreed you are entitled to.

MR LLOYD:   Your Honour put it as an agreement to entitlement.  At paragraph [142] the court said:

By the respondents’ contracts, there was no impediment to the appellant-

doing that.  So, we say that the contract did not envisage what happened happening.  We accept that is not a breach of the contract for them to do it.  But not everything that happens pursuant to a contract that is not a breach of the contract is necessarily something that the contract envisaged.  In the same way…..in a common law mortgage, you retain a common law mortgage where there was a conveyance with an obligation to re‑convey, the substance of that agreement is that it is a security but, at face value, equity could stop somebody unconscionably refusing to re‑convey if the mortgagor paid the remaining amount plus interest, because, in substance, it was a security. 

Here, we say that the substance of the agreement - what was said by the court to be the broad objects of the agreement in [166], is to pay a reasonable return on the capital, and to pay operating costs.  Then, it is said – and we accept this – what is said in [167], that there was scope in the agreement to address what happens if there was substantially unused capacity.  So if, for example, a contract came to an end, then the agreement made provisions for allocating the remaining part.  But then, at [168], it says:

What happened here was that this risk to the users eventuated, and not by the appellant’s contrivance –

Now, we do not take issue with the word “contrivance”, but it is clearly by the appellant’s action.  If the appellant had done nothing, let us say the appellant had done simply nothing – not the appellant, the appellant in that case, but the current respondent - if AAPT had done nothing, then my clients would not have had to pay anything further.  All that would have happened is QCPL would have just had to pay out its share of the port costs for the period.  But it did do something, whether it is called a contrivance, or just more neutrally, action. 

It took action to terminate the QCPL arrangement.  It created the unused capacity and thereby triggered the provisions in the agreements in a way which we say had not been anticipated.  So, yes, it is true it was foreseen that agreements would come to an end, and arrangements were made for that.  The bringing of them to an end for a payment in lieu of port charges, and then charging port charges again, was itself a novel thing. 

We say that although it is true, and we are bound to accept that it is true, that the contract provides no impediment to that, that does not mean that it is not unconscionable for AAPT to use its rights in that way – in the same way as it might be unconscionable for a common law mortgagee to exploit some circumstances to resist reconveyance of a property.  Equity could interfere in that case, and we say that section 21 is drafted broadly and with plenty of scope for the power to be exercised in a case like this. 

If I can just go to section 21, which is at the back of our – starts at page 186 of the book.  We draw attention to several provisions.  First of all, section 21(4)(c):

It is the intention of Parliament that . . . 

(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:

 . . . 

(ii)the manner in which and the extent to which the contract is carried out –

So here we are talking about the “manner in which”.  It is true that they are enforcing their rights, but it is the manner in which they are enforcing them in all the circumstances which makes it unconscionable.  We also draw attention to 22(1)(b).  So, that is, a mandatory consideration is:

whether, as a result of conduct engaged in by the supplier –

Here, the conduct includes the termination of the QCPL agreement, thereby creating the unused capacity, thereby requiring my clients to pay again that amount, then:

whether . . . the customer was required to comply with conditions –

that is, the conditions of their user agreements:

they were not reasonably necessary for the protection of the legitimate interest of the supplier -

Now, the legitimate interests of the supplier are those identified by the court at [166] as the broad objectives, which is to get a reasonable return for their investment.  What they are doing is not done to protect their legitimate interests, it is done to achieve a windfall, and we say that the Act specifically envisages that conduct of this kind could be unconscionable, and what the court did in this case was, at every turn, say, it is not unconscionable because the contract allows for this to be done, and we say that that is too narrow a reading of section 21, and we seek a grant of special leave in order to be able to test that - we say, to correct that.

KEANE J:   Mr McKenna, I take it we should hear next from you?

MR McKENNA:   Yes, please, your Honours.  I just have a couple of short points to add, if I may now.

KEANE J:   Very well.  Go ahead.

MR McKENNA:   May I take you, please, to the application book at page 14, in particular at paragraphs [8] and [9].  These are really the key to the points about why it matters that there is double recovery here.  The point from paragraph [8] is that this was a standard agreement entered into by all users, who all understood that others were entering into it.  Paragraph [9] explains the charges, or the logic behind the charges.  You sill see that in [9](b) and (c) those two charges:

are a reimbursement to the owner –

of certain charges.  You will see in paragraph (a) that the TIC has a formula that:

fixes a figure based on elements of the owner’s capital costs and a return on its asset.

Why this matters is that we are talking about monopoly infrastructure that cannot discharge – well, there is a problem with monopolists discharging market prices, so this is a scheme that replicates, as her Honour accepted, a regulated pricing scheme based upon the principles of reimbursement. 

Now, is there a contractual term saying that there cannot be double recovery?  No, there is not.  But neither is there provision permitting it, so what your Honours are faced with here is a case where there is a principal contract – we are talking about pricing that has a principal basis – and you have a lacuna in the contract about whether it is permissible or not permissible to do what was done here, and the question is ‑ ‑ ‑ 

EDELMAN J:   Mr McKenna, some of the cases in this field speak about unconscionability arising in relation to contractual rights as a result of what is sometimes described as a situational vulnerability.  That was the reasoning in the dissent in Berbatis and some of the later cases have picked up on that.  What is the situational vulnerability here, other than the fact that there was no express term included in the contract saying that you cannot recover, in your words, twice.

MR McKENNA:   Well, there are a number of factors, your Honour.  The first thing is that this is the only port that can be used by these coal mines.  Secondly, that all the parties, including my clients, have entered into long‑term contracts that give them no way out of these contracts.  Thirdly, the vulnerability is the one your Honour just described, which is there is the ability of the port owner to deal with other users without reference to us in a way that has a significant effect on us. 

But here is the fourth point, which is critical, there was actually evidence at trial about whether when these contracts were negotiated anyone actually foresaw the kind of thing that happened here, and there was no evidence that – there were I think seven or eight coal companies involved here who were all involved in the negotiations, no one subjectively anticipated that a port owner ‑ which at the time was a government corporation – would do…..

That really leads me to the next point, which is where the Court of Appeal – the approach the Court of Appeal takes uses a concept of objective foreseeability and how that leads to some kind of deemed acceptance of a risk by a party in our situation.  So, just to elaborate that a little bit more, the proposition is that if objectively you can see from this contract that there was a gap, that is there was the potential for the port owner to deal with other parties, then you enter, in effect, a value‑free zone, or an unconscionability‑free zone, because parties entering that kind of agreement are deemed to have accepted the risks of whatever dealings might be done between the port owner and other parties.  Now, that is not a concept one readily sees in the case law ‑ ‑ ‑

KEANE J:   Mr McKenna, that might be because we are dealing not with widows and orphans or mortgagors and mortgagees, but we are dealing with very large, very well‑resourced entities who know their business and who are there putting their best foot forward for themselves and their shareholders, and who are armed to the teeth with people who know their business and are astute to protect their interests in maximising their profits and minimising their losses.  To speak of it as an unconscionability‑free zone is probably a little glib, given that it is difficult to see where the usual considerations that give rise to concerns about the exploitation of situations of disadvantage appear here.

MR McKENNA:   Your Honour has really put your finger on – if I may say so – the contradiction that lives in this area of the law.  On the one hand, you have Chief Justice Allsop saying in Paciocco that the whole point of statutory unconscionability is that parties like ours can actually deal with each other without having to expressly provide that each other will not behave in an unconscionable way.  It is a framework of norms that everyone can assume as the basis for their contractual arrangements. 

So, when they are sitting down to negotiate a contract they do not have to deal with – and dealing with the State in particular here – can one imagine negotiating a term with the State that they will not engage in conduct of this kind.  It is just not something that anyone would have foreseen at the time.  There is no evidence anyone did foresee it, that a transaction of this kind would occur.

KEANE J:   One might also say that the parties did not foresee that the State would drop out and there would be a private party on the other side of the transaction.

MR McKENNA:   We would embrace that, your Honour.  That is the fundamental problem about long‑term contracts – and that is why this case is important.  We want, as a system of law, to allow parties to enter into 15‑year contracts.  If we require them to provide for every possible contingency – including those that would be characterised as unconscionable – that creates a problem.

The approach that Paciocco took at the Full Federal Court level was to invite parties to contract with each other on the basis that each other would not behave towards each other in a way that contravenes those norms.

EDELMAN J:   But, Mr McKenna, it is not leaving out of the contract every possible contingency when one is considering the manner in which $250 million is going to be recovered.  This is not just a tiny detail.

MR McKENNA:   No, it is not, your Honour, but I think the point is – I guess – we have evidence of the people who were involved at the time, and it is not difficult to understand why, at the time, no one contemplated that a port owner – in this case the Ports Corporation of Queensland – when confronted by this kind of situation, with one party wanting to get out of a contract, that they would say to that party, thank you very much, I will take a prepayment of your reimbursements of my costs, but I am not going to give any credit to anyone else for it.

Perhaps the reason we are at odds about this is that reimbursement, in our submission, carries with it notions of compensation and values and norms that are just so commonly used in our system.  That is why it is not something that anyone contemplated at the time.  That is actually quite powerful when you have eight well‑resourced coal companies not contemplating this – not even discussing this possibility.  That tells you why it is important to have a backdrop – a safety net, as it were – of norms of behaviour.  They do not need to…..

To follow through the point about the object of foreseeability, that really undercuts unconscionability in this area.  If it means that the question for courts in future when dealing with parties performing contracts is, was this kind of consequence something objectively foreseeable at the time – regardless of whether the party has actually foreseen or not – if it was objectively foreseeable – and not this particular transaction, which is the consequence – the possibility of a private dealing between a counterparty and another contractor – if that was objectively foreseeable, then it is not a relevant inquiry to look into how that power was exercised – it is not even a power – a liberty – how that was exercised or not.

Could I just give you a couple of examples that flow from that?  If you are dealing contractually – take this situation.  Let us say it was objectively foreseeable that this conduct would occur and parties in my situation negligently failed to foresee that, does that negligence, as it were, preclude them from complaining about unconscionable conduct in the future?  It introduces a deemed acceptance of risk that is removed from the kind of discourse in this area, which is focused on subjective matters, not on objective matters ‑ ‑ ‑

EDELMAN J:   If your argument is right, Mr McKenna, does that not necessarily mean that there was a breach of contract in unreasonably exercising a contractual discretion in a manner which goes so far beyond the protection of the parties’ interests?

MR McKENNA:   Not in this case, your Honour, because before Mr McHugh, the arbitrator, it was contended that there was an implied duty of good faith in this case, and the arbitrator held there was not.  So it is one of these cases where contract does not help, because ‑ ‑ ‑ 

EDELMAN J:   But it seems to me, your argument is directly in the teeth of that conclusion.  If all of your submissions are correct, then that conclusion by Mr McHugh could not possibly stand.

MR McKENNA:   With respect, no, because Mr McHugh was focusing on the contractual position, the implied contractual position, and he said there was no implied contractual duty of good faith here, so we just do not need to go any further.  In the unconscionability analysis, we start with the proposition that parties ought to behave towards each other in good faith and in accordance with norms.  So, we start from a different starting point.

EDELMAN J:   But your submission is that that those norms are different from the norms that would be implied into a contract of reasonableness, or an extent of reasonableness in the exercise of a contractual discretion.

MR McKENNA:   Yes, otherwise, what work does statutory unconscionability do?

EDELMAN J:   Well, it may be that it looks to something more than a situational disadvantage that is no more than the terms of a contract.

MR McKENNA:   Well, I guess what we would say in response to that, with respect, your Honour, is that there is a body of authority already where parties have entered into patently – a patent situation of situational disadvantage but the courts have had no difficulty applying unconscionability there.

EDELMAN J:   They are almost always cases that Justice Keane referred to as “widows and orphans”.  I mean, the primary judge here referred to the Kobelt Case – I mean, this case could not be any further removed from the circumstances of Kobelt.

MR McKENNA:   Quite.  One example - there is a case involving Westpac, where Westpac was dealing with counterparties based upon a bank bill, or a standard bank bill rate, and yet Westpac – and so, it was an integer in their relationship that was vulnerable to being affected by Westpac’s conduct.  Westpac manipulated that bill rate, it was held to be unconscionable conduct vis-à-vis their relational party.  It was situational ‑ ‑ ‑ 

KEANE J:   But the situational disadvantage there, in terms of knowledge and financial strength, is obvious.  Here, it is the other end of the spectrum.

MR McKENNA:   I can only come back to this point, your Honour, which is, practically speaking, if you are asking parties to subjectively – to either predict future conduct and provide for conduct that would otherwise be regarded as unconscionable in their contract, that is actually changing the approach to this area of the law, in our respectful submission, because the approach that we would urge is one where parties can assume that each party will behave towards them in accordance with ordinary…..

KEANE J:   So, you are setting up then, are you, an argument about the exercise of discretions and powers reasonably – and if you are, why is that not a matter that should be put as a case of a breach of implied term or a breach of an obligation of good faith?

MR McKENNA:   Because, your Honour, we are actually not talking about exercises of powers or discretions.  There was no contractual discretion in AAPT to deal with another contracting party in a different way.  That topic was just not covered.  That is what is interesting about this case.  It is not the case of AAPT having a contractual discretion to deal with another contracting party in a particular way.  The contract was just silent about it.  We would say it was a loophole in the contract.  Now that is obviously a value‑laden word but what I mean by “loophole”, it is a topic that just was not covered by the contract and why that is important.

KEANE J:   To say there is a loophole is to say that the distribution of risks affected the contract - left risks with one party rather than another.

MR McKENNA:   I would agree with that, your Honour, but the risk was not actually subjectively foreseen on the facts of this case.  The approach that the Court of Appeal took was to say, who cares, if it was objectively foreseeable that your counterparty could deal with another party, then by entering the contract, you accept that risk and there is no escape from conscionability.

We say that is a very, very important finding that will affect the direction of this area of the law, because it means that in future cases, accepting that the parties did not go into the contract – were not induced to enter the contract by unconscionability, it means that in every future case about unconscionable performance of a contract, the question will be, what was objectively foreseeable at the beginning, and if the kind of consequences – not the conduct, but the consequences are seen as objectively foreseeable at the beginning, then it becomes not a relevant inquiry to find out whether ‑ ‑ ‑

EDELMAN J:   Mr McKenna, could you point me to the paragraph of the Court of Appeal’s reasons where they say that in every case the answer will be concluded by reference to whether there is objective foreseeability?

MR McKENNA:   They do not say that, Justice Edelman.  What they say is – they use this analysis as the key – the pivotal point in their conclusion. 

So, in relation to vulnerability, the key paragraph is at page 145 of the appeal record, paragraph [154].  In relation to “unconscionability”, the key paragraphs are [167] and [168].

EDELMAN J:   What do you say is wrong with anything that is said at [154], [167] or [168]?

MR McKENNA:   The inquiry about object of foreseeability is not an appropriate inquiry in this area of unconscionability.  The focus should have been – why we are considering foreseeability at all – the relevant concept is consent or acquiescence that means – and the proposition is a pretty obvious one – that if a party enters into an arrangement – understanding that your counterparty is going to behave in a particular way – it is pretty hard to later complain that it is unconscionable.  But this is moving the inquiry from subject of foreseeability to objective foreseeability, in circumstances where the evidence of this case was that nobody foresaw the events that occurred in this case. 

Those two paragraphs I took you to tie back to paragraph [143], on page 144 of the appeal record, where their Honours say: 

The operation of the user agreements that way did not create a burden upon the respondents, which they could not have anticipated when they entered into their user agreements.

The words of “object of foreseeability”, in circumstances where there was actual evidence of how these agreements were negotiated, the risks that the parties thought they were entering into and no acceptance of any subjective foreseeability.  They are our submissions.

KEANE J:   Thanks, Mr McKenna.  Yes, Mr Walker.

MR WALKER:   May it please your Honours, on that last point of any real distinction between objective and subjective foreseeability, can I start with the former.  The trial judge, at the application book 46, in her Honour’s paragraph [164], described the consequence of the reduction in number of users so as to produce a proportionate increase in their payments as being, “plainly foreseeable”.

As to the subjective matter, if your Honours were to go to page 235 of the book, you will see there a reference, in footnote 2, to two of the witnesses who give evidence concerning what might be called “the subjective side” of foreseeability.  For our part, we would urge that, in the area of unconscionability with respect to the exercise of rights under a contract, it would be always central to consider foreseeability without artificially dividing into objective and subjective for fear, of course, that otherwise the negligence of one highly sophisticated party could be required to be covered financially by the other party – the counterparty – entirely of that negligence.

EDELMAN J:   Almost by definition, every contract term is a matter of objective foreseeability.  So, if we were to disregard objective foreseeability entirely, we would not look at the terms of the contract. 

MR WALKER:   Exactly so, and your Honour anticipates this next reference.  Since Taylor v Johnson there can be little doubt that it is the objective meaning of terms that matters, and so this dichotomy of objective and subjective with respect to foreseeability does not really assist.  But, as you will see from the passages in the transcript to which we have drawn attention in footnote 2 on page 235, in fact of course were this case to be granted special leave, at the appeal close attention would be given to the facts that show that, yes, this was in the contemplation of parties at the time of negotiation.  That is the first point.

The second point is that there is no challenge, nor could there be, to the fact that there was not a promise that there would be a maintenance of extant users of the facility such that there would be no proportionate increase by the algorithms that governed their several obligations upon a reduction by one or more of other people using the facility.  That much, of course, was plainly held by Justice McHugh, and nothing in court under section 21 permits, as it were, a backdoor challenge to that simple proposition.  In allies, obviously, with foreseeability.  There was simply no achievement of a negotiation if it was such an important matter for any of the other parties, whereby they were assured that their payment could not go up by a reduction in the number of other users. 

The next point, of course, is to point out that one cannot, as our friend Mr McKenna has urged your Honours, simply say that section 21 exists.  It stands alongside, perhaps outside the law of contract, and thus to give it work to do there ought to be, in cases brought under section 21, a downgrading of the expectations and allocation of risk which can be manifested objectively in the terms of a contract. 

In our submission, there is first of all no possible indication in the terms of section 21, and in section 22 in glossary of it, which could possibly give rise to this unnatural putting to one side of the essential characteristics of a commercial bargain as to which there is not a single vitiating factor alleged or held.  

EDELMAN J:   Mr Walker, that may put it slightly too highly.  It may be sufficient, even in the absence of vitiating factors, if there are some other circumstances of what might be described as high individual vulnerability or particular individual circumstances that might give rise to unconscionability.  But it may be that this case is just a long way from those sorts of circumstances.

MR WALKER:   Yes, is the short answer.  But my proposition cannot stand unqualified.  I was coming, of course, to the question of manner, which the provision contemplates.  Manner, of course, in terms of enforcing contractual rights, stands quite apart from the absence of any vitiating feature in the formation of the contract. 

So, a contract unexceptionable in its terms, unexceptionable in its formation, nonetheless by manner of exercise of a right, or discretion, may attract the Court’s statutory jurisdiction under section 21.  We accept that.  That is why this case is not a case for special leave.  There is not some fundamentally important, let alone profoundly commercially significant issue raised by this case concerning the relation between the contract and section 21. 

It is accepted on all hands and was never the subject of argument in this case that one did not need to have a breach of contract as a prerequisite to a finding under section 21.  But it is, with respect, not to complain about a bargain, that is, to repent the bargain, even given the…..matters to which I have already referred and enlists section 21 as a means of saying “I did not bargain for this, I should now be relieved of it”.

It can be tested in this case as follows.  Unchallenged by our friends is the proposition that, had there been no $255 million bargained for, for the termination of one of these user contracts, and that user contract had been simply terminated by agreement for no or nominal payment, then there surely could not have been a complaint, unless of course, it turns out that in order to comply with the negative requirements of section 21, these are contracting parties who, from our point of view, were obliged quasi trustee style, to turn their rights to account for the benefit of the several counterparties, and I stress several counterparties, because the contracts are not identical and they are not mutually dependent.

Now, in our submission, that is bizarrely remote from anything that section 21 is concerned with in relation to seriously negotiated contractual obligations and it has to be doubted whether it would be within, in truth, the issues pleaded and available to be determined in this case.

Before moving from the $255 million I need to observe to your Honours, as you are aware from our writing, that it cannot be assumed that on any appeal it would be accepted, because it is resisted, that the $255 million is to be regarded as a net present value.  It is certainly what we got in return for giving up rights of periodic payment to undertake or pay, but your Honours should not proceed on the basis that the evidence will in fact support any proposition ‑ ‑ ‑

EDELMAN J:   There was a finding somewhere that it was close to the net present value, was there not?

MR WALKER:   Yes, there is a finding to that effect, which would be the subject of close attention because the closeness is in the eye of the beholder and probably depends upon an incorrect view of the relevant period in question.  But, be that as it may, it does not matter whether it is coincidentally spot on, deliberately spot on, or an approximation or an excess or a deficiency.  The fact is that that number is itself truly arbitrary when it comes to section 21, because in answer to questions, what should our client have done, then it would appear lurking behind all of this is you should have obtained money which you then would have devoted – presumably the theory of the case is as to 100 per cent of it – towards the defraying of expenses et cetera, the so‑called reinvestment which we know is not contractually…..in order that there not be the operation of the terms as had been plainly foreseeable upon the reduction in number of users.

Now, that is, to use section 21, in the interests of sophisticated sturdy commercial counterparties for nothing more than the revisiting of a bargain, and it gives rise to questions which are, in our submission, entirely invidious, earning them the kind of epithets that have been used by the Court with respect to the kind of conduct that answers the description of statutory unconscionability.

How do any of those phrases or words – without rushing to use them – possibly apply to the position of our client, for example, prepared not to charge anything for the termination of one of the user contracts.  Then one can do it by a Dutch auction, intellectually, as between zero and $255 million.  At what point does this become an amount which cannot be got for the termination without being either shared or wholly given to the surviving users?

GLEESON J:   Mr Walker, the focus of Mr Lloyd’s submissions was what was reasonably necessary for the protection of your client’s legitimate interests.

MR WALKER:   Yes.  Yes, that is right, and the legitimate interests in this case, of course, included the fact that we have cash flow streams under “take or pay” contracts.  Now, the “take or pay” terms, not being mutually dependent as between the several user contracts, necessarily meant, of course, that that which the trial judge held to be foreseeable could come about.  The legitimate interests of my client, of course, includes the financial or economic worth of the bundle of contractual promises owed to it by the several users.  There is, in our submission, a circularity and assuming of the conclusion in characterising those matters as falling outside legitimate interests.

Of course, it is a legitimate interest for us to accept a negotiated sum of money for a party who wishes to resolve their outstanding obligations by a one‑off payment.  It is difficult to understand how that could be otherwise.  Equally, with respect, except by revisiting a bargain, the mutual dependency which did not exist between these user contracts cannot be required in order that our rights and interests under one of those contracts be regarded as not legitimate. 

So, the notion that one sees in the Court of Appeal application book 147, paragraphs [166], [167], [168], is a complete answer, with respect, to the notion that there was something alien to our legitimate interests as a counterparty to one of these user contracts to accept a price not itself said to be untoward in any respect, for the release of those obligations into the future.

It is for those reasons that it is only by reading section 21 as a charter for the revisiting of bargains, notwithstanding the foreseeability of the position, commercially irksome to the applicants for relief, it can be seen that this is a case where section 21 is being put to a use that has no textual indication in the enactment at all as having been a purpose, let alone a central purpose. 

Your Honours, it is therefore highly significant that neither of our friends, nor our friends in the writing, have identified passages in the reasoning of the Court of Appeal for which they seek special leave to challenge where there is a misreading of or a departure from the true meaning of section 21 and its related provisions.

This is not a case which presents, jurisdictionally, so to speak, the case of a court having stepped outside boundaries or regarded itself as constrained by excessively narrow boundaries by reference to their Honours’ reading of the provisions.  So, the case simply does not present as a vehicle for the correction of a misreading in this case, said to be excessively constrained, of section 21.

So, I return to where I started.  You are left with the question, was it an error for there to be as a central part of the reasoning in our favour below that these were parties not disadvantaged in any Blomley v Ryan or any other sense, who have been visited with the foreseeable consequences of circumstances that have come to pass – of which they knew they were bearing the risk.

Is it an error for their Honours to have regarded that as significant for an evaluation of conduct against the statutory content of the expression “unconscionable”?  Our submission is no – axiomatically, of course it is not.  How could you not refer to such matters even if they are not, in paradigm cases for section 21’s intervention, the whole of the story.

That is why this is a case where there simply is not the more which…..its terms, section 21 contemplates will produce a need of justification for judicial intervention pursuant to section 21, notwithstanding the absence of breach of contract.

For those reasons, in our submission, that the point that has been the subject of addresses for special leave is not truly a good special leave point.  There is a dense factual record, which goes to matters that I have already referred to, which would need to be explored on appeal.  If we are correct in what we contend in that regard, then it will undercut very considerably the platform for success.

Second, it is not an appropriate vehicle for any statutory interpretation of section 21, for the reasons I have put.  Finally, I come to the point frankly acknowledged not in itself to be a special leave point, the quantification of damages on any view, and whether there would be a grant on the first ground or not.  That should not be a matter which attracts the attention of this Court.  May it please the Court.

KEANE J:  Thanks, Mr Walker.  Mr McKenna, anything in reply?

MR McKENNA:   Thank you, your Honour.  Just very briefly, further to your Honour Justice Gleeson’s point, legitimate interest in a contract relating to reimbursement is to be reimbursed, to receive money that does reimburse you for the costs.  That is the first point.  The second point is that the references on page 235 of the record to subjective recognition at the time had nothing to do with the idea of a port owner deliberately negotiating a termination with another user on the basis that they would be paid a substantial amount of money that did not involve reimbursement of that kind.  That is all I wish to add. 

KEANE J:   Mr Lloyd, anything in reply?

MR LLOYD:   Just very briefly.  We say Mr Walker’s argument, which really finds reflection in the Court of Appeal’s reasoning, is that if they are contractually able to do something, they have a legitimate interest in being able to pursue that - we say that that is the circularity that the answer that the Court of Appeal gave is that AAPT was entitled to do what it did.  It cannot be unconscionable to do what it did, if it was entitled to do it.  We say that is not the correct way of looking at it. 

There was a capacity to do what it did but choosing to do it could be unconscionable in circumstances and we say that here it was so.  One reason for looking at it is to identify what the legitimate interests are and legitimate interests for the purpose of 22(1)(b) cannot just be everything that you can do under a contract.  The court below had no difficulty at [166] in identifying what the broad objectives of the contract were and the way that the powers have been exercised in this case were not ‑ ‑ ‑

KEANE J:   Mr Lloyd, the legitimate interests of a party are not identified exclusively and exhaustively by reference to the broad objectives of the contract.  The legitimate interests of the parties are determined by reference to the distribution of risks and reward affected by the contract.  It is not about the broad objectives.

MR LLOYD:   It has to be also necessary for the legitimate interests, we say, and here the contractual terms were to recover a certain amount of money – or according to a certain formula – and in order to pay for the assets and what was recovered was very substantially more than that. 

Two other points – one is, insofar as the Court asked questions about disadvantage and what is the disadvantage here, recently the Full Court in Quantum Services construed this Court’s decision in Kobelt as six of the seven Justices not requiring any pre‑existing disadvantage.  So, to that extent, we say that that is just a factor that can be relevant – it is not a necessary element.  Then, finally, your Honour Justice Edelman asked what is wrong with a number of paragraphs – including [168].  At [168] the Court says:

What happened here was that this risk to the users eventuated, and not by the appellant’s contrivance –

The risk is the risk that there would be a substantial unused capacity.  That only eventuated because AAPT took the steps that it took to end QCPL’s contract.  If that had not happened, there would not have been any unused capacity that had to be funded by the remaining person. 

So, it is just simply wrong to say that that is not by the – putting aside the pejorative nature of the word “contrivance” – it was by the appellant’s action.  But for AAPT doing what it did, there would not have been an unused capacity that would not have triggered the obligations on my clients to pay the extra money.  It was their choice to do that and they did it in a way that was designed to give themselves the value of the port charges by QCPL and then to recover that same money from my client and the other users.  May it please the Court.

KEANE J:   Thanks, Mr Lloyd.  The Court will adjourn for a few minutes to decide the course it will take in this matter.  Adjourn the Court.

AT 10.30 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.33 AM:

KEANE J:   Neither application is a suitable vehicle for the agitation of any question of general principle, and in each case the appeal foreshadowed by the application does not enjoy sufficient prospects of success to warrant the grant of special leave to appeal.  Each application is therefore dismissed with costs. 

Adjourn the Court, please.

AT 10.34 AM THE MATTERS WERE CONCLUDED