Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd

No judgment structure available for this case.

CITATION: Maitland Main Collieries Pty Limited v Xstrata Mt Owen Pty Limited [2006] NSWSC 1235

HEARING DATE(S): 5/6/06, 6/6/06, 7/6/06, 7/8/06, 20/9/06.

JUDGMENT DATE :
23 November 2006

JUDGMENT OF: Bergin J

DECISION: Declarations made in relation to implied duty to co-operate and implied duty to act reasonably and in good faith.

CATCHWORDS: [CONTRACTS] - Deed - construction - whether implied duty to co-operate - whether implied duty to act reasonably and in good faith - whether defendant in breach of Deed for failure to indemnify plaintiff for costs of preparing Plan required by condition imposed on its approval to mine under the defendant's Rail Line - whether defendant in breach of implied duty to co-operate. [DECLARATIONS] - whether proposed declarations should be made - whether utility in making declarations.

LEGISLATION CITED: Rail Safety Act 2002

CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228
Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2005] NSWSC 1327
Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2006] NSWCA 258
Park v Brothers (2005) 222 ALR 421
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Stirling v Maitland (1864) 5 B & S 840

PARTIES: Maitland Main Collieries Pty Limited - Plaintiff
Xstrata Mt Owen Pty Limited - Defendant

FILE NUMBER(S): SC 50050/06

COUNSEL: RJ Ellicott QC/D Miller - Plaintiff
BR McClintock SC/RC Beasley - Defendant

SOLICITORS: Allens Arthur Robinson - Plaintiff
Minter Ellison - Defendant

- 42 -

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

BERGIN J

23 NOVEMBER 2006

50050/06 MAITLAND MAIN COLLIERIES PTY LIMITED v XSTRATA MT OWEN PTY LIMITED

JUDGMENT

1 The plaintiff, Maitland Main Collieries Pty Limited, was granted Coal Lease 382 (the Lease) for the Glennies Creek Colliery (the Colliery) on 12 November 1991 pursuant to the Coal Mining Act 1973 which was later repealed and incorporated into the Mining Act 1992. The Colliery is located in the Patrick Plains Mine Subsidence District near Singleton, New South Wales. Coal is mined at the Colliery using underground longwall mining techniques known as “second workings”.

2 The Lease contained covenants requiring the plaintiff to comply with the Coal Mines Regulation Act 1982. The Lease also contained the following:

METHODS OF OPERATION

(b) The registered holder shall not commence or carry out any underground mining operations within the subject area:-

(i) unless with the consent of the Minister first had and obtained; or

(ii) except by a direction by the Minister pursuant to paragraph (c) of this Condition;

and subject to such conditions, provisions and stipulations as the Minister may impose.

(c) If directed so to do by the Minister and within such time as may be stipulated by the Minister the registered holder shall commence underground mining operations within the subject area and the registered holder shall thereafter carry out such operations to the Minster’s satisfaction.

(d) Where the registered holder desires to commence and to carry out underground mining operations within the subject area or where the Minister notifies the registered holder that he proposes to issue a direction pursuant to paragraph (c) of this condition. The registered holder shall furnish to the Minister a plan showing the proposed workings in the section of the land to be so mined together with such other details as the Minister may require.

3 The defendant, Xstrata Mt Owen Pty Limited formerly known as Hunter Valley Coal Corporation Pty Limited, operates a coal mine at nearby Mt Owen.

Background to the Deed

4 In July 1995 the defendant wrote to the NSW Department of Mineral Resources, which later changed its name (the Department), seeking approval for the construction of a rail link (the Rail Line) from the Mt Owen Mine to the main railway line. The Department advised the defendant that the proposed route for the Rail Line traversed areas that could be subject to subsidence from proposed multi seam underground longwall mining in the Colliery. The Department also advised the defendant that its support for the proposal would depend upon confirmation from the plaintiff that the proposed Rail Line would not sterilise any coal reserves or conflict with developments proposed for the Colliery. Finally the Department advised the defendant that the proposed Rail Line might have to be designed for subsidence in some areas and that this could only be determined after consultation with the plaintiff.

5 It was not until 30 October 1995 that the defendant provided confirmation to the plaintiff of its proposed Rail Line. On 8 November 1995 the plaintiff advised the defendant in writing that the proposed Rail Line crossed many of the plaintiff’s proposed long wall panels and that this would create problems for both organisations. The plaintiff proposed that it construct a rail line for use by both the plaintiff and the defendant provided that some suitable financial arrangement could be reached. As an alternative the plaintiff advised the defendant it would be willing to agree to its proposed Rail Line on the basis that the defendant provided satisfactory guarantees to protect the plaintiff’s current and future position.

6 On 10 November 1995 notice of the defendant’s proposed Development Application was published in the local paper, the Singleton Argus. On 21 November 1995 the defendant declined the plaintiff’s offer to build a rail line for joint use and advised that the defendant’s interests would be “best served by continuing to pursue approval for and construction of our own spur line and loop”. The defendant provided a “draft legal release” to the plaintiff to consider which it suggested should “relieve” the plaintiff “of any financial responsibility for the impact that your underground operations might have on our rail spurline”.

7 On 23 November 1995 the plaintiff lodged with Singleton Shire Council (the Council) an objection to the defendant’s Development Application “on the grounds that the proposed route overlies” the Colliery and was “likely to restrict mining of these coal reserves or impede remedial works associated with planned subsidence from longwall extraction”. The plaintiff addressed a number of matters in its objection including that it envisaged “delays and increased costs, associated with investigations, when applying to the Department for permission for secondary extraction due to the need to meet the legitimate concerns of the State Rail Authority, in particular, regarding safety, operational and liability issues”. The objection also included the claim that if secondary extraction was not permitted or was limited in order to protect the proposed rail line, there would be sterilisation of coal and financial loss to both the plaintiff and the community.

8 Also on 23 November 1995 the Department responded to the Council’s request for its comments on the Statement of Environmental Effects (EIS) for the defendant’s proposed Rail Line. The Department informed the Council of the detail of its advice to the defendant in July 2005 and advised that neither it, nor the plaintiff, were satisfied that the proposal would not sterilise a significant amount of coal reserves. The Department advised the Council that because the EIS did not adequately address the “critical issues of coal resource sterilisation, the effects of subsidence on the rail line, or all the alternatives” it could not support the defendant’s proposal.

9 On 30 November 2005 a meeting was held at the Department’s premises for the purpose of consultation with all affected mine operators regarding the defendant’s proposal to construct the Rail Line. That meeting was attended by, inter alia, representatives of the plaintiff, the defendant and the Department. At the meeting the plaintiff’s concerns were noted as: (1) liability to damage of line by subsidence; (2) resource sterilisation; and (3) increased difficulty in approvals process. The defendant’s representative advised the meeting that the defendant was confident that mining under the Rail Line would not unduly impact the Rail Line and that the defendant was prepared to indemnify the plaintiff “against any subsidence damage caused to the rail line” by the plaintiff.

10 On 5 December 2005 the Department wrote to the Council informing it that as a result of the meeting held at its premises on 30 November 2005 it was in a position to support the defendant’s proposal on the following bases:

1. [The defendant] enter into a legal agreement to the satisfaction of [the plaintiff] which will allow [the plaintiff] unfettered access to the underground coal resources within their mining lease. [The plaintiff] will inform you once a satisfactory agreement is reached.

11 On 7 December 1995 the Mine Subsidence Board (the Board) wrote to the defendant advising it that under the Mine Subsidence Compensation Act 1961, the erection of proposed improvements in proclaimed Mine Subsidence Districts required the approval of the Board. The defendant was advised that:

This applies to all improvements and the only specific issue regarding those pertaining to coal mining is that if a colliery damages its own improvements, it is not eligible for compensation. However, if improvements of a coal mining company are damaged by subsidence from coal mining operations of another colliery owner, then those improvements are eligible for compensation (provided the improvements were erected in accordance with Mine Subsidence Board approval).

12 Between 30 November 1995 and 13 December 1995 the plaintiff and the defendant exchanged various drafts of the proposed Deed. On 12 December 1995 the plaintiff wrote to the Council advising that since it had lodged its objection it had been negotiating an agreement to allow it “to safeguard its mining rights and thus withdraw its objection”. The plaintiff advised the Council that the parties were near to a satisfactory agreement and that upon the Deed being signed the plaintiff intended to withdraw its objection to the defendant’s proposed Rail Line.

The Deed

13 On 13 December 1995 the plaintiff and defendant executed a Deed of Release and Indemnity (the Deed) in the following terms:

RECITALS:

A. BHP Minerals Holdings holds all of the shares in [the defendant].

B. [The defendant] wishes to construct a rail spur line (called “the Rail Line”) in connection with the Mt Owen Coal Project over certain land shown on the attached plan (called “the Land”) above Coal Lease 382 where [the plaintiff] intends to operate multi seam longwall panels.

C. [The plaintiff] holds Coal Lease No. 382 beneath the Land and [the plaintiff] will withdraw its objection lodged with the Singleton Shire Council to the construction of the Rail Line by [the defendant] as referred to in Recital B provided that [the defendant] enters into this Deed of Release and Indemnity.

THIS DEED NOW WITNESSES as follows:

1. [The plaintiff] agrees to withdraw immediately its objection lodged with the Singleton Shire Council to the construction of the Rail Line by [the defendant] over the Land.

2. [The plaintiff] will advise [the defendant] of its proposed second working applications and plans so as to give [the defendant] at least 6 months notice of extraction near the Rail Line and [the defendant] will not object to the proposed second working applications so disclosed to [the defendant] in accordance with this clause.

4. [The defendant] hereby releases and indemnifies [the plaintiff] from all claims costs demands losses or expenses in connection with damage to the Rail Line due to subsidence arising out of or in connection with [the plaintiff]’s underground mining activities carried out under Coal Lease No. 382 on the Land provided that the mining is carried out by [the plaintiff] legally in accordance with approvals from the Department of Mineral Resources. Without limiting the generality of the above provisions of this clause, [the defendant] also indemnifies [the plaintiff] from all costs that it may incur due to the need for extra remedial drainage work (“the incremental works”) occasioned by the existence of the Rail Line beyond those works that would otherwise have been necessary. Should a dispute arise as to the necessity or extent of the incremental works it will be determined by an independent expert appointed by the President of the Australian Institute of Mining and Metallurgy whose decision shall be final and binding on the parties.

5. The parties acknowledge that [the defendant] intends to purchase certain land over which Coal Lease No. 382 is held by [the plaintiff]. In consideration for [the plaintiff] entering into this Deed, [the defendant] shall not unreasonably withhold its consent or agreement to [the plaintiff] entering upon any land owned by [the defendant] over which Coal Lease No. 382 exists for the purpose of exploration and development of roads or other services and infrastructure subject to the parties entering into a written agreement in relation to such entry on terms which are acceptable to both parties. Such agreement shall be binding on the successors and assigns of each party.

14 On 15 December 1995 the plaintiff withdrew its objection to the defendant’s Development Application, which was subsequently approved by the Council. The Rail Line was constructed in 1996.

Plaintiff’s application to Mine

15 On 5 August 2005 the plaintiff applied for the relevant approval for a Subsidence Management Plan (SMP). That application sought approval to extract longwalls 7 to 9 at the Colliery. The defendant was consulted and the application was notified to it at least 6 months before the intended extraction near the defendant’s Rail Line.

16 On 5 September 2005 the defendant wrote to the Department objecting to the SMP application. In that application the defendant asserted that the Deed was of no effect because the plaintiff was in breach of its own development consent. On 8 December 2005, the defendant wrote again to the Department urging that it should not approve the SMP until various inadequacies had been addressed. That letter referred to the Deed and suggested that it applied to “second working applications” and not to approvals for an SMP.

Previous proceedings

17 The plaintiff commenced proceedings in the Equity Division and on 13 December 2005 Young CJ in Eq dismissed the plaintiff’s proceedings in which it sought an injunction to prevent the defendant from objecting to the plaintiff’s application for approval to mine to remove longwalls 7 to 9 beneath the defendant’s rail line: Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2005] NSWSC 1327.

18 The plaintiff appealed from that decision and on 22 September 2006 the Court of Appeal (Mason P, Handley and Beazley JJA) upheld the appeal and set aside the orders made by Young CJ in Eq: Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2006] NSWCA 258. Mason P, with whom Handley and Beazley JJA agreed, said:

42 In my view, an objection to an application for SMP approval for longwall mining is within the scope of cl 2 of the Deed. The appellant’s application for SMP approval is not an end in itself, but a step towards obtaining s138 approval. The SMP procedure addresses two of the three broad areas of concern that were and remain issues that the Minister takes into account in granting s138 approval and fashioning the conditions of such approval.

Guidance Notes

Guideline

Guidance Notes

44 The presence of “associated first workings” in the works for which SMP approval is sought does not alter the substance of application in its intent or details. Second workings extraction will involve over 90 per cent of the mining that will take place if and when s138 approval follows after SMP approval.

19 The Court of Appeal made the following relevant declarations and orders:

1. Declaration that the respondent breached clause 2 of the Deed of Release and Indemnity, having made an objection dated 5 September 2005 (the “ Objection ”) to the appellant’s application to the Department of Primary Industries for approval of a subsidence management plan for the secondary extraction of coal from Longwall panels 7 to 9 inclusive at its Glennies Creek Coal Mine.

2. An Order that the respondent is restrained from making an objection to any future second workings applications by the appellant for the extraction of coal from Longwall panels 7-9 inclusive at the Glennis Creek Coal Mine.

20 In the circumstances of these findings and orders I will refer to second workings applications and the SMP applications without distinction.

Conditional approval

21 On 14 March 2006 the plaintiff’s application for approval of its SMP was approved subject to certain conditions (the SMP approval). Condition 11 of the SMP approval provided as follows:

11. Mt Owen Mine Rail Line

“Rail Line” means the Mt Owen railway, and any associated structures, features and infrastructure (including but not limited to the water pipeline within the railway easement).

Prior to undertaking any longwall mining that may impact on the Rail Line, the leaseholder must obtain the Director-General’s approval of a management plan specifically developed for the Rail Line. The management plan must detail the measures to be implemented to manage the impact of longwall mining on the Rail Line.

The leaseholder may, at any time, submit to the Director-General an amended management plan for approval.

The leaseholder must notify the Department (Principal Subsidence Engineer) immediately on becoming aware of any risk to the safety and serviceability of the Rail Line arising from subsidence caused by longwall mining.

These proceedings

22 The plaintiff commenced these proceedings by Summons filed on 20 April 2006. At that time the parties were in dispute as to their respective obligations regarding the formulation or implementation of the management plan for the Rail Line as required by Condition 11 (the Rail Line SMP). The plaintiff originally sought orders that the defendant provide to it forthwith, at the defendant’s own cost and expense, all necessary information, documents and data to enable the plaintiff to prepare and submit the Rail Line SMP for approval by the Director General of the Department in accordance with condition 11 of the SMP approval.

23 The Summons was made returnable on 28 April 2006 on an urgent basis. The Court was informed that the matter was urgent and it was listed for hearing for 3 days commencing on 5 June 2006. That hearing occurred on those dates when Mr RJ Ellicott QC, leading Mr D Miller of counsel, appeared for the plaintiff and Mr BR McClintock SC, leading Mr RC Beasley of counsel, appeared for the defendant. On 7 June 2006 I made the following consent orders (the Interim order):

1. Each party by 5.00pm 8 June 2006 to identify the persons/entities/consultants they require to attend a conclave of experts to facilitate and enable the preparation by MMC of a Rail Line SMP in accordance with the 2003 departmental guidelines for Subsidence Management Approval so as to satisfy Condition 11 of the SMP approval dated 14 March 2006 which provides as follows: [Condition 11 to be set out in full]

2. The parties to use their best endeavours to ensure that all identified persons/entities/consultants agree to participate, and subsequently meet in the week beginning 12 June 2006.

3. The purpose of the meeting (and any subsequent meetings referred to below) is for the parties to share whatever information, resources and expertise to facilitate and enable the preparation by MMC of the Rail Line SMP to permit the mining of longwalls 7 to 9, whilst allowing the safe operation of the Mt Owen Rail Line with the aim of MMC obtaining approval for that Rail Line SMP from the Department of Primary Industry.

4. These meetings should continue thereafter expeditiously (subject to the reasonable availability of the identified persons/entities/consultants) as required in order to ensure the prompt provision of all information, resources and expertise of each consultant or entity, to enable the finalisation of the Rail Line SMP by 15 July 2006 and its submissions to the DPI by that date.

5. Subject to agreement between the parties, they will where necessary, include representatives of the Department of Primary Industries in such discussions. However, the parties further agree to ensure copies of all communications in relation to the preparation of the management plan required by Condition 11 of the SMP Approval with the Department of Primary Industries are copied to each other (i.e. Xstrata and its related entities and MMC and its related entities).

6. Without limitation to the foregoing, the defendant will take the steps and provide the information referred to in the letter of Minter Ellison to Allens Arthur Robinson dated 7 June 2006 (annexed to these short minutes and marked “A”).

7. Each party shall nominate a representative(s) as a point of contact to facilitate the steps outlined above.

8. All meetings and all information provided in implementation of these short minutes shall be without prejudice to the rights of the parties in relation to all litigation between the parties and their related bodies corporate, and specifically without prejudice in relation to any participation of Mr Waddington.

24 The parties were granted leave to apply to the Court on two hours’ notice. The costs of the proceedings and the final determination of the costs of the implementation of the orders were reserved and the matter was stood over to 7 August 2006. On 7 August 2006 the parties advised the Court that on 14 July 2006 the plaintiff had lodged the Rail Line SMP with the Department for the Director General’s approval. Having regard to the fact that the Department had not processed the plaintiff’s application at that time and also having regard to the fact that the appeal from Young CJ in Eq was listed later in August in the Court of Appeal, I adjourned the matter to 1 September 2006 for further case management and directions.

25 Later in August 2006 the plaintiff sought to issue subpoenas to the Director-General and the Deputy Director-General of the Department to give evidence in the proceedings on the return of the subpoenae. I refused the plaintiff’s application as it seemed to me quite inappropriate to require the decision makers in relation to the SMP to appear to be cross-examined about their deliberations at that time. The Department had written to the plaintiff’s solicitors on 22 August 2006 in response to an apparent application that there be an expedition of the determination of the Rail Line SMP. The Department’s letter included the following:

It is important to note that the Department’s assessment and approval process has been put in place [to] ensure that safety risks resulting from subsidence will be effectively managed. This assessment is very technical in nature and may take some time. The Department would be derelict in its duty if the assessment process were hurried and technical detail was not given full consideration.

26 Notwithstanding my decision on 7 August 2006 that the finalisation of the matter should await the outcome of the Department’s approval process and the decision of the Court of Appeal, on the urging of the plaintiff, I listed the matter for final submissions on 20 September 2006 when the matter was finalised. The Court of Appeal delivered its decision on 22 September 2006 and the parties made further written submissions in respect of the effect of that decision on 27 and 28 September 2006.

Adjusted claims

27 In its Further Amended Summons (FAS) filed in Court on 7 August 2006 the plaintiff sought declarations, inter alia, the following of which are now pressed (adopting the numbers in the FAS and utilising abbreviations):

2. That pursuant to the Deed the defendant is obliged to release and indemnify the plaintiff from all claims costs demands losses or expenses in connection with damage to the defendant’s rail line due to subsidence arising from the plaintiff’s underground mining activities carried out under the Lease in accordance with approvals from the Department, including subsidence arising out of or in connection with the secondary extraction of coal from longwall panels 7 to 9 inclusive at the Colliery.

3. It is an implied term of the Deed that the defendant must act reasonably and in good faith in the performance of its obligations under the Deed.

4. It is an implied term of the Deed that the defendant must co-operate with the plaintiff and do all things necessary to be done in order for the plaintiff to have the benefit of the Deed.

5. It is an implied term of the deed that the defendant must co-operate with the plaintiff, and at its own expense do all things necessary to be done, in order for the plaintiff to have the benefit of the Deed, including take all necessary measures to protect its Rail Line against subsidence from the plaintiff’s second workings.

6. It is an implied term of the Deed that the defendant will take and pay the cost of any steps necessary to ensure that its Rail Line is not damaged due to subsidence arising out of or in connection with the plaintiff’s underground mining activities carried out under the Lease and on being given 6 months notice by the plaintiff of extraction near the Rail Line will do so in a timely fashion so as to allow the plaintiff to mine safely under the Rail Line and to maximise its extraction of coal under the Lease.

7. That in the events which have happened, the defendant has breached each of the terms of the Deed set out in paragraphs 2 to 6 above.

…

28 On 20 September 2006 the plaintiff filed written submissions adjusting its claims in consequence of the events that had occurred since it had commenced the proceedings. It relied upon three actual and one anticipated breach of contract by the defendant. The written submissions claimed that in logical order the breaches are as follows:

(a) In 1996, when it constructed the rail line, the Defendant failed to cause it to be constructed in such a manner that the Defendant could comply with the requirements of the MSB. This was a breach of clause 3 of the Deed.

(b) Following the approval of the SMP and the imposition of Condition 11 in March 2006, the Defendant refused to accept responsibility for the costs of preparing the reports necessary to comply with that Condition. This was in breach of clause 4.

(c) Following the Defendant’s refusal, the Plaintiff itself took steps to seek to comply with Condition 11. The Defendant failed to co-operate with those steps. This was a breach of the implied obligation of co-operation in the Deed. It has still not been possible to obtain approval of the Department so as to comply with Condition 11.

29 Notwithstanding that the matter was fixed for final submissions on 20 September 2006, the plaintiff made the following written submissions on that day:

2. The first three breaches identified above have all taken place and the evidence to demonstrate those breaches has already been presented in these proceedings. It will be open to the Court, if satisfied that the conduct does represent a breach as alleged by the Plaintiff, to make a declaration to that effect. Having regard to the way in which the case has been conducted, it is not possible nor does the Plaintiff consider that it would be desirable, to expect the Court itself to assess the damages. This is for two reasons. First, until the question of whether Condition 11 will or will not be satisfied is determined, it is not clear how extensive the damages will be. Second, in any event, the Plaintiff contends that the assessment of the damages is a matter which the Court might well consider would more appropriately be undertaken by a referee.

3. Given the interim order which has been made by the Court, the first three breaches do not now give rise to the need for any further relief at least until the question of whether Condition 11 can be satisfied is determined. Therefore, the Plaintiff does not ask the Court to grant an injunction at this stage.

4. However, should it prove impossible to comply with Condition 11, at that point the Plaintiff will seek an injunction restraining the Defendant from committing the further breach referred to in 1(d) above (ie. an injunction restraining the Defendant from using the rail line until further order). This could [be] done either by formulating a self-executing order at this stage or by waiting for a period, eg until mid to late October 2006, to ascertain whether Condition 11 is going to be satisfied, before undermining longwall 7 impacts on the rail line.

30 The plaintiff also relied on paragraph 111 of its original submissions that included the statement that it acknowledged “the likely necessity to stand the matter over to a date around 31 October 2006 for submissions as regards the final terms of any orders including injunctions”. The reiteration of that submission and the inclusion of the above submissions leads to the unfortunate conclusion that the listing of the matter on 20 September 2006 was less efficient than my original preference to await the outcome of the Department’s decision. In any event, the plaintiff seeks declarations that the defendant has breached the Deed in the manner referred to above and seeks to reserve its position to apply to the Court for orders, perhaps including an injunction, at a later time. It submitted that it is not premature to deal with the claim for declarations of breaches and suggested that the present situation and circumstances are akin to those discussed in Spry’s Equitable Remedies, 6th ed. (2001) at p. 128 as follows:

But this is not to say that the mere anticipation of possible difficulties leads to a refusal of relief. If, on the materials before the court, performance may or may not be able to be completed, the various probabilities will be taken into account in deciding on the order that is most just in all the circumstances. Thus it may be most appropriate to order specific performance in the ordinary manner, so that if necessary the defendant may later approach the court for a modification or variation by reason of subsequent difficulties or may rely upon them in any subsequent proceedings in relation to the enforcement of the order. Again, if at the time of the original application there is shown to be a substantial risk that performance will not be possible, it may be most appropriate to make a conditional order or else to adjourn the proceedings until the position becomes more clear.

31 The situation in the present case is quite different. The plaintiff eschewed the further adjournment of the proceedings until the position became clearer and so I must consider its applications in the circumstances that the Rail Line SMP has been submitted but its outcome is unknown.

Construction of the Deed

32 The Deed is to be construed in the light of the surrounding circumstances and having regard to the purpose it was intended to serve: Park v Brothers (2005) 222 ALR 421 at 432 [39]. It is an agreement between commercial parties and should be given a construction consistent with commercial common sense. The purpose of the Deed can in part be gleaned from its title, “Deed of Release and Indemnity”. The defendant agreed to provide a release and indemnity to the plaintiff in consideration for the plaintiff withdrawing its objection to the defendant’s application for approval of the Rail Line.

33 Pursuant to clause 1 of the Deed the plaintiff agreed to withdraw its objection “immediately”. Clause 2 was for the purpose of enabling the plaintiff to proceed with its mining plan in the knowledge that, so long as it gave the defendant the 6 months’ notice of extraction near the Rail Line, the defendant would not object to the plaintiff’s applications for approval for that mining activity. Clause 2 is a fundamental term of this Deed. The plaintiff had the support of the Department in its objection to the Rail Line and appeared to be in a reasonably strong position. The withdrawal of the objection was at the “price” of the defendant promising: (1) not to “object” to the plaintiff’s proposed second working applications/SMP applications; (2) to comply with conditions imposed on the use of the Rail Line; (3) to release and indemnify the plaintiff in the manner set out in clause 4 of the Deed; and (4) not to unreasonably withhold consent to the plaintiff’s entry to its land for the purposes set out in clause 5 of the Deed.

34 The word “object” is not defined in the Deed. In Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2005] NSWSC 1327 Young CJ in Eq said:

38 As to the word "object" the plaintiff says that the defendant has objected to the application and, if it has not already done so, it clearly threatened to do so. Mr Robertson SC says the word "object" must be construed in its wider sense. I think that is right. The etymology in the Oxford English dictionary is that "object" means a barrier from somebody throwing something, and these days one looks at an objection as a barrier from someone establishing a proposition or an application. There are, however, cases where courts have considered the word "object" in other contexts. Merely for a barrister to say "I object" without reasons, or to say, "I don't see the relevancy of that" has been held in Georgia not to be an objection, ( Pylant v State 13 SE (2d) 380, (1941), Supreme Court of Georgia) and whilst that court is not necessarily the mightiest authority, that case seems to be a good illustration of the point that merely using the word "object" is not enough for what one does to be classified as an objection.

Commonwealth v O'Donohue

35 I am satisfied that the word “object” in this Deed includes both informal and formal objections. The defendant is prohibited from making submissions or representations to a Department or other instrumentality or person that the plaintiff’s second working applications/SMP applications should not be approved or should only be approved on certain conditions. The parties intended that irrespective of any conditions that the relevant agencies might impose on either the plaintiff or the defendant, the defendant would not object to the plaintiff’s applications to mine. Further, it was intended that the defendant would not oppose the plaintiff’s applications in whole or in part by making representations to the relevant agencies that approval should not be granted in whole or in part.

36 Pursuant to clause 3 of the Deed the defendant agreed that it (and its contractors and agents) would abide by conditions imposed by the Council, the Department or the Board on the use of the Rail Line to allow the plaintiff to maximise the second workings. Clause 3 does not expressly state on which person the conditions are imposed. I am of the view that the parties intended that so long as the condition related to the use of the defendant’s Rail Line, the defendant, its contractors and/or agents had to “abide by” that condition. Even if there was another person operating the Rail Line the fact that the condition is imposed on the use of “its”, the defendant’s, Rail Line requires the defendant and its contractors or agents to comply with that condition. The word “use” of the Rail Line in its context in clause 3 of the Deed means the transportation of coal in trains on the Rail Line from the Mt Owen mine to the main railway and trains travelling back from the main railway to the Mt Owen mine.

37 The release and indemnity in clause 4 of the Deed focuses upon “damage” to the Rail Line. The defendant agreed to release and indemnify the plaintiff from all claims, costs, demands, losses and expenses (expenses etc) in connection with damage to the Rail Line arising out of or in connection with the plaintiff’s mining activities. The expression “in connection with” is a broad term. The plaintiff submitted that the use of that expression evidences the intention of the parties to include in the expenses etc, items associated with avoiding damage, such as expenses for the production of the Rail Line SMP. It was submitted that such expenditure is “in connection with damage” because it is a plan that seeks to mitigate or avoid damage to the Rail Line.

38 Notwithstanding the general release and indemnity at the beginning of clause 4 in relation to “damage to the Rail Line due to subsidence”, the parties turned their minds to a specific matter in the second part of the clause. The defendant agreed to indemnify the plaintiff for the costs of the incremental works, being “extra remedial drainage works occasioned by the existence of the Rail Line beyond those works that would otherwise have been necessary” had the Rail Line not been present.

39 Mr Ellicott submitted that the incremental works were “mitigatory” works and that by the use of the expression “in connection with damage to the Rail Line due to subsidence” the parties intended that the indemnity included expenses etc for preventing or mitigating damage to the Rail Line. It was submitted that it was not necessary that damage had to occur before the plaintiff was entitled to be indemnified. On the other hand, Mr McClintock submitted that the parties turned their minds to the specific matter of incremental works, which suggests that if they had intended that the plaintiff was to be indemnified for work that was otherwise necessary to reduce the prospect of subsidence and thus damage to the Rail Line they would have expressly provided for it and they did not.

40 At the time the Deed was executed the plaintiff was very well aware of the prospect of possible additional delay and costs that it may incur in its second workings applications by reason of the presence of the Rail Line. This was a matter raised in its objection to the Council. The manner in which the plaintiff sought to protect itself from the additional costs or delay in relation to its second workings applications/SMP approval process was by the inclusion of clause 2 in the Deed. If the parties had intended that the plaintiff was to be indemnified for all expenses etc it incurred in relation to the steps it took to lessen the likelihood of subsidence near the Rail Line then all that was needed was the insertion of the words “or possible damage” or the words “or probable damage” after the word “damage” in clause 4. This was not done. I do not agree that the inclusion of the indemnity for the incremental works means that the general indemnity applied irrespective of whether the Rail Line had been damaged. The prerequisite to the indemnity at the commencement of clause 4 of the Deed is damage to the Rail Line, not merely the prospect of damage.

41 The parties always contemplated that there would be subsidence of at least 0.8m arising from the plaintiff’s mining activities. If remedial drainage work/incremental works are required because of the presence of the Rail Line the defendant agreed to indemnify the plaintiff for those works. However the parties recognised that there might be a dispute as to the necessity for or the extent of the incremental works and provided for a dispute resolution mechanism in respect of such dispute. The express and separate provision in relation to the indemnity for incremental works was necessary because that indemnity applies even where there is no damage to the Rail Line. The only prerequisite for that indemnity is that the incremental works are necessitated by the presence of the Rail Line.

42 Clause 5 of the Deed gave to the plaintiff the benefit of the defendant’s agreement to allow it (or not unreasonably to withhold its consent) to enter the defendant’s land for the purpose of “exploration and development of roads or other services and infrastructure”.

43 The plaintiff submitted that the object of the Deed was to permit the plaintiff to mine under the Rail Line “unaffected” by the presence of the Rail Line on the surface. Emphasis was placed on clause 2 of the Deed in support of that submission. It was submitted that the requirement on the plaintiff in clause 2 to give the defendant 6 months’ notice of its extraction near the Rail Line was to allow the defendant to adjust the operation of the Rail Line so that it did not impede the plaintiff’s mining plan. It was submitted that such adjustment could include cessation of use of the Rail Line or relocation of the Rail Line. At the time of execution of the Deed the parties anticipated that the defendant would have obligations to ensure that the Rail Line complied with the relevant legislative regime and that conditions may be imposed on the use of the Rail Line. That is clear from the terms of Clause 3 of the Deed. The defendant would have to know when the plaintiff was going to mine under the Rail Line so that it could notify the relevant authorities of the possibility of subsidence in the area and also take appropriate measures to safeguard the Rail Line from the anticipated subsidence.

44 The plaintiff’s submission that one purpose of the 6 months’ notice was so that the defendant could relocate the Rail Line does not seem to me to be consistent with commercial common sense. It does not make commercial sense that these parties, who agreed implicitly that they expected that the Rail Line might be damaged by subsidence and put in place an indemnity for the plaintiff in such circumstances, would expect that when the 6 months’ notice was given the defendant would stop using the Rail Line or indeed, relocate it. I am of the view that the reason for the 6 months’ notice was so the defendant could comply with its statutory obligations and also so that it could take reasonable measures to protect the Rail Line against subsidence.

45 I do not agree that the object of the Deed was so that the plaintiff could mine “unaffected” by the Rail Line. The release and indemnity was provided because it was anticipated that the plaintiff’s mining activities may well be affected by the presence of the Rail Line. The parties anticipated that damage may be caused to the Rail Line by subsidence from the mining activity and that if that happened the defendant had to release and indemnify the plaintiff for expenses etc “in connection with” that damage which, depending on the circumstances, may well include the expenses etc for interruption to its mining activities. The parties also anticipated that the plaintiff’s mining activities may well be affected by the presence of the Rail Line in so far as it may need to carry out the incremental works.

46 When the plaintiff and the defendant entered into the Deed they entered into a new commercial relationship in the knowledge that the Rail Line would traverse the land above much of the plaintiff’s Colliery. They each took on the burden of complying with conditions that might be imposed in this new regime – the plaintiff, with the conditions that might be imposed on the approval of its second working applications/SMP applications and the defendant, with the conditions that might be imposed on the use of the Rail Line. Those conditions were, in the main, beyond their control but what they settled by this Deed was the way in which they would behave vis-à-vis each other as the plaintiff mined under the Rail Line.

Implied term – obligation to co-operate

47 The plaintiff claims, by its application for declaration 4, that there is an implied term of the Deed that the defendant must co-operate with the plaintiff and do all things necessary to be done for the plaintiff to have the benefit of the Deed.

48 In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, Mason J said at 607-608:

Mackay v Dick

“as a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”

Butt v M’Donald

“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.”

It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.

49 The duty to co-operate does not rise above the promises made by the parties to the contract. It “cannot over-ride the express provisions of the contract”: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 per Sheller JA (with whom Powell and Beazley JJA agreed) at 368C.

50 Under clause 1 of the Deed the plaintiff was obliged to withdraw its objection “immediately”. There was nothing further that the plaintiff was required to do by way of co-operation for the defendant to obtain the benefit of the Deed in that respect. The parties’ obligations under clause 2 are clear. Firstly, the plaintiff is obliged to advise the defendant 6 months in advance of its extraction near the Rail Line. Secondly, the defendant is obliged not to object to the plaintiff’s second workings/SMP approval applications. It does not have to co-operate with the plaintiff to give the plaintiff the benefit of that obligation. It simply has an obligation not to “object”, as that word is to be understood as I have referred to above.

51 The terms of clause 3 make clear that the parties contemplated that the relevant agencies might impose conditions on the use of the Rail Line to facilitate the plaintiff maximising its second workings (or maximizing the extraction of the resource). The defendant, its contractors and agents are obliged to abide by those conditions. There is no need to co-operate with the plaintiff to give it the benefit of that obligation. It simply has an obligation to comply with any condition imposed on the use of the Rail Line by those agencies.

52 Clause 4 is a fundamental term of the Deed and is in a different category. There are two aspects of the indemnity that require co-operation between the parties for the plaintiff to have the benefit of this aspect of the Deed. Judgments have to be made about whether any damage to the Rail Line is “due to subsidence arising out of or in connection with” the plaintiff’s mining activities. The plaintiff and the defendant need to co-operate to identify the real cause of the damage to the Rail Line. This may include the defendant having access to the Colliery and the plaintiff having access to the Rail Line. There is also the need to co-operate in determining the necessity for and extent of the incremental works due to the presence of the Rail Line. Once again this may include the defendant having access to the Colliery and the plaintiff having access to the Rail Line. Without the co-operation between the parties the plaintiff will not be able to receive the benefit of the indemnities. The co-operation is not limited to the defendant, as sought in declaration 4. The plaintiff must co-operate with the defendant in the manner specified above for it to have the benefit of the indemnities. I am satisfied that there is an implied term that the parties will do all things necessary to be done for the plaintiff to have the benefit of clause 4 of the Deed.

53 Similarly there is a need for mutual co-operation for the plaintiff to have the benefit of access to the defendant’s land pursuant to clause 5 of the Deed. The defendant is entitled to refuse access but only if such refusal is not unreasonable. Additionally the parties are obliged to enter into a “written agreement” in respect of the plaintiff’s access for the specified purpose. The plaintiff would have to co-operate by providing to the defendant the detail of the “exploration and development of roads or other services and infrastructure” in relation to which entry is sought and thereafter the parties have to co-operate with each other to reach the agreement that is then to be reduced to writing. I am satisfied that there is an implied term that the parties will do all things necessary to be done for the plaintiff to have the benefit of clause 5 of the Deed.

Implied term – obligation to act reasonably and in good faith

54 The plaintiff seeks a declaration that it is an implied term of the Deed that the defendant must act reasonably and in good faith in the performance of its obligations under the Deed. In this regard the plaintiff relied upon the following statement in Stirling v Maitland (1864) 5 B & S 840 at 852:

If a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.

55 In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 Warren CJ said (footnotes omitted):

3. … Therefore, the current reticence attending the application and recognition of a duty of good faith probably lies as much with the vagueness and imprecision inherent in defining commercial morality. The modern law of contract has developed on the premise of achieving certainty in commerce. If good faith is not readily capable of definition then that certainty is undermined. It might be that a duty of good faith is no more than a duty to act reasonably in performance and enforcement, a long established duty. Of course, some commentators have regarded the duty to act reasonably as properly subsumed within the duty of good faith.

56 The force of these observations in the commercial context is undoubted, however it seems to me that even when “commercial leviathans are contractually engaged”, it will depend on the nature of the obligations in the contract as to whether a duty to act reasonably and in good faith is to be implied. Commercial contracts are not a class of contracts that have an implied obligation of good faith. In this instance there is an express term that the defendant will not act unreasonably when the plaintiff seeks its consent to access to its land pursuant to clause 5 of the Deed. To imply an additional obligation of good faith in the performance of the obligation under clause 5 of the Deed is in my view unwarranted.

57 However there are two aspects of the defendant’s performance under the Deed in respect of which I am satisfied it will be necessary for the defendant to act reasonably and in good faith for the plaintiff to have the benefit of the Deed. The first is the obligation under clause 3 to abide by the conditions imposed by the named instrumentalities on the use of the Rail Line. The defendant agreed that not only it, but also its contractors and agents, would abide by such conditions. Under the Rail Safety Act 2002, referred to later in this judgement, a person other than the owner may be the accredited operator of the Rail Line. Indeed in this case such a circumstance appears to exist. The defendant might seek to avoid its obligations under clause 3 by arrangement with the accredited operator that ensures that the operator is neither the defendant’s agent nor its contractor. It seems to me that the defendant is obliged to act reasonably and in good faith in ensuring the plaintiff has the benefit of the promise that the defendant, its contractors and/or agents will abide by any conditions imposed on the use of the Rail Line. In my view the defendant is under an obligation to act in good faith in ensuring that its agents and contractors and the accredited operator is aware of clause 3 of the Deed. It is also obliged to act in good faith in making arrangements with those persons so that the plaintiff has the benefit of the defendant’s promise in clause 3 of the Deed, that is, that the defendant will abide by any condition imposed on the use of its Rail Line, irrespective of the identity of the person on whom the condition is imposed.

58 The other aspect of the defendant’s obligations is the provision of the release and indemnities in clause 4 of the Deed. As I have said earlier the parties are required to co-operate with each other to ensure that the plaintiff obtains this fundamental benefit. In ascertaining whether the damage to the Rail Line is due to subsidence arising from the plaintiff’s mining activities for the purpose of indemnifying the plaintiff for expenses etc in connection with such damage, the defendant is obliged to act reasonably and in good faith. Similarly when a question arises as to whether there is a need for extra remedial drainage work/incremental works, the defendant is obliged to act reasonably and in good faith in reaching a view about the necessity for that work and the extent of that work that is caused by the presence of the Rail Line. The plaintiff is dependant upon the defendant for its costs of that necessary and extra work.

59 I am satisfied that there is an implied obligation under the Deed that the defendant will act reasonably and in good faith in performing its obligations under clauses 3 and 4 of the Deed.

Declarations 3 and 4

60 I do not intend to make the declarations in the terms as sought in respect of the implied obligation to co-operate and the implied obligation to act reasonably and in good faith. However I will make declarations: (1) that there is an implied term that the parties will do all things necessary to be done for the plaintiff to have the benefit of clauses 4 and 5 of the Deed; and (2) that there is an implied term that the defendant will act reasonably and in good faith in performing its obligations under clauses 3 and 4 of the Deed.

Declaration 2

61 For ease of reference I will set out again the terms of this proposed declaration:

2. That pursuant to the Deed the defendant is obliged to release and indemnify the plaintiff from all claims costs demands losses or expenses in connection with damage to the defendant’s rail line due to subsidence arising from the plaintiff’s underground mining activities carried out under the Lease in accordance with approvals from the Department, including subsidence arising out of or in connection with the secondary extraction of coal from longwall panels 7 to 9 inclusive at its Colliery.

62 This declaration is merely a recital of what the Deed provides with the addition of the express inclusion of subsidence from the mining of longwall panels 7 to 9. To include longwall panels 7 to 9 and not others may create uncertainty in relation to subsidence for those longwall panels that are not included by reference. The parties agreed that the plaintiff would be indemnified for damage to the Rail Line due to subsidence from the plaintiff’s mining activities. There is no real utility in making the declaration as sought and I refuse to do so.

Declarations 5 and 6

63 The plaintiff also sought declarations 5 and 6 in the following terms:

5. It is an implied term of the deed that the defendant must co-operate with the plaintiff, and at its own expense do all things necessary to be done, in order for the plaintiff to have the benefit of the Deed, including take all necessary measures to protect its Rail Line against subsidence from the plaintiff’s second workings.

6. It is an implied term of the Deed that the defendant will take and pay the cost of any steps necessary to ensure that its Rail Line is not damaged due to subsidence arising out of or in connection with the plaintiff’s underground mining activities carried out under the Lease and on being given 6 months notice by the plaintiff of extraction near the Rail Line will do so in a timely fashion so as to allow the plaintiff to mine safely under the Rail Line and to maximise its extraction of coal under the Lease.

64 Proposed declaration 5 includes a number of implications. The first is that there is a general duty to co-operate. There is also the very loose implication that the defendant, “at its own expense”, will have to do all things necessary for the plaintiff to have the benefit of the Deed. That is so broad as to be quite meaningless and on that basis I refuse to make the proposed declaration. It would also create uncertainties. The use of the expression “take all necessary measures” may mean that the defendant must have access to the Colliery to determine those necessary measures. It may mean that it only has to take measures on the surface rather than in the Colliery. These parties were well aware that the various government agencies with jurisdiction over mining and railways were going to be authorising their respective activities and it is obvious from clauses 2 and 3 of the Deed that each anticipated that they would have to comply with relevant conditions to ensure not only the safety of the mining operations but also the safety of the Rail Line. That was their intention. I refuse to make declaration 5.

65 In addition to the fact that the proposed declaration 6 rolls up numerous concepts that would create uncertainties, the observations made in respect of declaration 5 are applicable to proposed declaration 6. I refuse to make this declaration.

Declaration 8 - Breach of clause 3 of the Deed

66 Although the plaintiff defined the alleged breach of clause 3 of the Deed as the defendant’s failure to certify the drawings for the construction of the Rail Line, it repeated its original submissions in paragraphs 85 to 91 and 92 to 97 in which it claimed that Condition 11 was a condition on the “use” of the defendant’s Rail Line and the defendant was obliged to abide by it. The plaintiff claims that the defendant has breached clause 3 of the Deed in two respects: (1) by its failure to comply with Condition 11 of the SMP; and (2) by its failure to comply with the requirement to certify the construction drawings. In relation to these alleged breaches the plaintiff claims that it is entitled to declaration 8 in the FAS.

Condition 11

67 The plaintiff submitted that Condition 11 of the SMP, which requires the approval of the Rail Line SMP, is a condition imposed by the Department “on the use of” the defendant’s Rail Line to allow the plaintiff to maximise its second workings. Accordingly it was submitted that the defendant must abide by the condition and, at its cost, prepare and implement the Rail Line SMP. It was submitted that the defendant refused to pay the cost of the preparation of the Rail Line SMP and it has indicated that it will not pay the cost of its implementation. It was submitted that the defendant is therefore in breach of clause 3 of the Deed.

68 Condition 11 was imposed on the plaintiff. Relevantly it required the plaintiff to: (1) prepare the Rail Line SMP; and (2) obtain the Director-General’s approval for that SMP before it undertook any longwall mining that may impact on Rail Line. The plaintiff submitted that the Rail Line SMP was “directed to the use and the safety of the use of the Rail Line”. It was also submitted that the expression “on the use” should be construed to include “in relation to the use of” the Rail Line.

69 It submitted that the defendant, as owner of the Rail Line, had an obligation under s 14 of the Rail Safety Act 2002 to submit a “safety management system” that satisfied the terms of s 48A of that Act. Section 48A(2) of the Rail Safety Act requires, inter alia, that the safety management system: “(a) identify any significant risks that have arisen or may arise from the carrying out of railway operations by or on behalf of the accredited person; and (b) specify the controls (including audits, expertise, resources and staff) that are to be employed by the accredited person to manage the risks and to monitor safety outcomes in relation to those railway operations”. Such a system is required to be submitted to what is known as the Independent Transport Safety and Reliability Regulator constituted under the Transport Administration Act 1988. In any event it is not the “owner” that has the obligation under s 14 of the Rail Safety Act but rather the “applicant for accreditation”. The Act requires that the “operator” of the railway must be accredited (s 8). An “operator” is a person who is responsible (whether because of ownership, control, management or contractual obligations) for a railway operation in relation to the railway (s 5). The evidence establishes that Barclay Mowlem Construction Limited was accredited as “a railway owner and operator” on 18 November 1998 under the Rail Safety Act 1993 (the predecessor to the Rail Safety Act 2002). “Mt Owen Mine” was granted accreditation as a “railway owner and operator” on 2 June 1999 under the Rail Safety Act 1993. The Mt Owen application for accreditation was lodged by Thiess Contractors Pty Ltd on 30 March 1999.

70 It would appear that the defendant may not be the relevant “operator” but in any event, even assuming that the defendant did have the obligation under the Rail Safety Act as suggested by the plaintiff, it can hardly assist the plaintiff in these submissions in relation to the alleged breach of clause 3 of the Deed. This alleged obligation under the Rail Safety Act points up the difference between the obligation imposed on the plaintiff in Condition 11 in respect of what it must do before it can commence longwall mining under the Rail Line and the statutory obligation imposed on the defendant before it can use or operate the Rail Line.

71 I am satisfied that Condition 11 is a condition on the plaintiff’s entitlement to mine under the Rail Line. It is not a condition on “the use of” the Rail Line. Nor is it a condition “in relation to the use of” the Rail Line. It is no doubt a condition imposed on the plaintiff because the Rail Line exists but it is not a condition on its use as that expression is to be understood in Clause 3 of the Deed. Condition 11 requires the plaintiff to address how it is going to manage the impact of the mining on the Rail Line, that is, what it is going to do to avoid and/or cope with subsidence in the area of the Rail Line. The plaintiff might even suggest to the Department that the defendant should cease use of the Rail Line in particular circumstances. However Condition 11, which requires the plaintiff to submit the Rail Line SMP, is not a condition on the use of the Rail Line.

72 The plaintiff has not established that the defendant has breached clause 3 of the Deed in failing to abide by Condition 11 of the SMP. I refuse to make declaration 8 in the FAS based on this alleged breach of clause 3 of the Deed.

Certified drawings

73 The plaintiff relied upon two documents in support of its claim that the defendant breached clause 3 of the Deed by failing to lodge certified drawings with the Council. The first was a letter from the Board to the defendant dated 11 January 1996 advising that the Board had granted “conditional approval” for the Rail Line:

… on the condition that the final drawings, to be submitted prior to commencement of construction, contain a certification by a qualified structural engineer, to the effect that any improvement constructed to meet the specifications of such final drawings will be safe, serviceable and repairable, taking into account the following mine subsidence parameters: [maximum subsidence 0.8m; maximum strain 1-2 mm/m; maximum tilt 4 mm/m]

…

74 The second document relied upon was an e-mail dated 14 June 2005 at 8.35am from Steve Kovac of the plaintiff to Garry Moore of the Board and the return e-mail from Mr Moore at 3.13pm that day. Mr Kovac’s e-mail included the following:

Subject: Mt Owen Water Pipeline

75 Mr Moore’s response included the following:

The following info is provided re your letter dated 6th June 2005 Glennies Creek Colliery – Longwalls 7 to 9.

To this date we have not received those certified plans, therefore the rail spur is not covered under the act until those plans are received.

76 The plaintiff submitted that: (1) the condition in the Board’s conditional approval of the construction of the Rail Line was a condition “on the use of” the Rail Line: (2) the defendant is in breach of that condition by failing to supply the certified drawings; and (3) therefore the defendant is in breach of clause 3 of the Deed.

77 The Board apparently allowed the defendant to construct the Rail Line without complying with the condition imposed as to what had to happen prior to the commencement of construction. The Rail Line has been in use since 1996 and now an employee/officer of the Board has suggested in 2005 that no certification has been provided. The only evidence relied upon in support of this alleged breach is the letter and e-mail extracted above. Mr Ellicott submitted that although it might be thought that the condition imposed by the Board related to “construction” rather than “use” of the Rail Line “the whole purpose of the construction of the rail line was to use it” (written submissions par 8: 20/09/06; tr 172). It was further submitted that although it was a precondition to the construction of the Rail Line, it was also a precondition to its use (tr 172). I disagree. That condition imposed by the Board was a condition relating specifically to what had to happen prior to the commencement of construction of the Rail Line. The fact that the purpose of the construction of the Rail Line was to use it does not convert a pre-condition to construction into a condition as to use. A condition as to use of the Rail Line would include such things as the times of operation, the number of movements per day, permissible weights and the like. This was not a condition on the use of the Rail Line.

78 The plaintiff has not established a breach of clause 3 of the Deed. I refuse to make declaration 8 in the FAS based on this alleged breach of clause 3 of the Deed.

Declaration 10 - Breach of clause 4

79 The plaintiff seeks declaration 10 in the following terms:

10. That pursuant to its obligations under the Deed to release and indemnify and in the events which have happened the defendant is bound to prepare or assist in preparation of, and once approved by the Director-General of the Department, implement the Rail Line SMP as referred to in Condition 11 of the approval of the SMP for Longwalls 7 to 9 and to incur and pay the costs of and associated therewith.

80 There are a number of possible claims rolled up in this proposed declaration. One is that the Deed requires the defendant to indemnify the plaintiff for the costs it has incurred and may incur in relation to the preparation and, if approved, implementation of the Rail Line SMP. Another is that “in the events that have happened”, whatever that might mean, the defendant is required to so indemnify the plaintiff. Another is that the defendant is required to prepare or assist in the preparation of the Rail Line SMP. Another is that the defendant is required to implement the SMP or to assist in the implementation of the SMP. The uncertainty introduced by the use of the expression “in the events that have happened” convinces me that this proposed declaration is doomed. It is also doomed by the nature of the various claims made within it. There are all sorts of difficulties that could be caused if such a declaration were to be made. One simply does not know what the Director General may do in respect of any approval. For example, a condition might be imposed that employees mining near the Rail Line would be subject to certain safety checks which, if the declaration were to be made, would mean the defendant would have to carry out the checks in the plaintiff’s Colliery, creating an unsatisfactory and uncertain situation. I refuse to make this declaration.

Failure to meet costs – Breach of clause 4

81 The plaintiff submitted that clause 4 of the Deed imposes a direct obligation on the defendant to indemnify the plaintiff for the costs and expenses of preparing the reports for the purpose of complying with Condition 11 of the SMP.

82 As I have said earlier when the parties executed this Deed they each took on the burden of complying with conditions that might be imposed in this new regime. The requirement for the plaintiff to prepare a Rail Line SMP is a condition imposed on it in consequence of its SMP application. At the time the Deed was executed the plaintiff knew that parts of longwalls 7 to 9 were directly under the proposed Rail Line and must have known that its mining activities would be affected by the presence of the Rail Line. It is clear that it knew that the presence of the Rail Line would probably increase the costs of both investigations in relation to its applications for approval and the applications for approval of its mining activities under the Rail Line. It also knew that there might be delays in the approval process by reason of the presence of the Rail Line. This is clear from the terms of its objection to the Council that was withdrawn on the signing of the Deed. The plaintiff did not seek indemnity for those extra costs or associated costs from the possible delays. It sought indemnity for and release in connection with damage to the Rail Line.

83 Condition 11 required the plaintiff to detail in the Rail Line SMP the measures it intended to implement to manage the impact of the longwall mining on the Rail Line. It is obvious that there must be co-operation between the plaintiff and the defendant for the purpose of ensuring the safety of both the miners and other workers in the Colliery and the operators of the Rail Line. That co-operation will increase the costs of both parties. But that is a cost that each party will have to bear. This is simply a by-product of the new regime into which they entered when they executed the Deed. I am not satisfied that the defendant’s failure to indemnify the plaintiff (or accept responsibility) for the costs of the preparation of the Rail Line SMP is in breach of clause 4 of the Deed.

Breach of implied duty to co-operate

84 The plaintiff claimed that the defendant failed to co-operate with it so that it could comply with Condition 11. This is said to be a breach of the implied duty to co-operate. It seems to me that the defendant accepts that it has an obligation to co-operate with the plaintiff so that the plaintiff may comply with the condition imposed on it by reason of the presence of the Rail Line. In any event, the plaintiff is entitled to the indemnities in clause 4 of the Deed and I have held that there is an implied duty to co-operate so that the plaintiff may obtain the benefit of those indemnities. One matter upon which the parties must co-operate is the ascertainment of the necessity and/or extent of the incremental works. Compliance with Condition 11 may well have included an assessment of the need or extent of incremental works and it seems to me that the defendant rightly accepted that it should co-operate with the plaintiff so that the plaintiff may be in a position to comply with Condition 11.

85 It was submitted that the defendant breached this obligation, at least in the initial stages and up to the time the Interim order was made on 7 June 2006. In those circumstances it was submitted that a breach subsisted for the whole of the period from the time when a request was made for assistance and co-operation in April 2006 up to 7 June 2006.

86 Unfortunately these parties have been in a litigious mode for some time prior to these proceedings being commenced. There were the proceedings before Young CJ in Eq to which reference has already been made and there were also proceedings in the Land and Environment Court in which I understand the defendant claimed that the plaintiff was mining inconsistently with its approvals. The claim that the defendant has failed to co-operate with the plaintiff is, in my view, misconceived. That misconception may have occurred because the plaintiff was making a combined claim for indemnity and co-operation. On 5 April 2006 the plaintiff wrote to the defendant, relevantly to this claim, requesting that it “without delay agree to consult, provide the information necessary and cooperate with us to enable condition 11 to be satisfied”. It also sought the indemnity for its costs in relation to compliance with the SMP and its implementation. On 13 April 2006 the defendant wrote back in terms that included the following:

Whilst I am happy to meet with you to discuss [the plaintiff’s] management plan for the Mt Owen Rail Line, [the defendant] will not agree to pay for preparation and implementation of the plan nor for monitoring referred to above.

…

In order to properly deal with the Rail Line, [the defendant] will need to take steps to monitor the impacts. We will co-operate with you in this regard. However, this should not in anyway be seen as limiting any obligation upon [the plaintiff] to undertake or fund such activities under the SMP Approval or otherwise.

87 The next step taken by the plaintiff was on 20 April 2006 when it filed the Summons which commenced these proceedings. It is clear to me that the defendant was willing to meet with the plaintiff in a spirit of co-operation notwithstanding that it declined to indemnify the plaintiff for the work required as a result of the imposition of Condition 11. The plaintiff’s litigious response did not augur well for a co-operative environment. However, during the course of the proceedings before me the defendant, through Mr McClintock, claimed it was willing to co-operate. The genuineness of that claim was established by its consent to the Interim order.

88 The plaintiff contends further that even since the Interim order the defendant has failed to comply fully with its obligation to assist the plaintiff in complying with Condition 11. The plaintiff claims that the defendant’s contractor, Theiss, has taken the position that it has no obligation to implement the plan once approved and that it will only do so if the defendant will pay the costs of doing so. It was submitted that the defendant’s position appears to be that it has no contractual power to direct Theiss as to what to do under the contract or alternatively that it is premature to deal with this issue. At the moment the Court does not know what will be necessary to implement any plan that is approved. I agree with the defendant’s submission that this claim is quite premature.

89 I am not satisfied that the plaintiff has established that the defendant has breached the implied obligation to co-operate or, for that matter, the implied obligation to act reasonably and in good faith.

Anticipatory breach

90 As referred to earlier the plaintiff made this claim in its written submissions dated 20 September 2006:

(d) Should, through no fault of the Plaintiff, it prove impossible to obtain such approval by the time the Plaintiff approaches the point at which its undermining will impact on the Defendant’s rail line, then if the Defendant continues to operate the rail line, the Plaintiff will be forced to cease mining. Should this occur, this too will be a breach of the Defendant’s obligation to co-operate, which in the circumstances, would require it to cease operating the rail line so as to permit the mining to take place.

91 There are many uncertainties involved in this claim. It seems to me that such a claim should not have been made. If the plaintiff is unable to obtain approval to mine then it will be necessary to assess the matter on the basis of the facts as they then appear, and not on the basis of a series of hypothetical situations.

Breach of clause 2

92 Although the plaintiff had defined in writing what it wished the Court to determine, Mr Ellicott sought to make a further claim during oral submissions that the defendant had breached clause 2 of the Deed. I had some difficulty in ascertaining what particular conduct of the defendant was said to amount to the breach of clause 2 of the Deed. As I understand it, the plaintiff submits that clause 2 should be construed as an undertaking by the defendant not to allow the Rail Line to impede the plaintiff’s undermining. It was submitted that the defendant’s conduct in claiming that the plaintiff cannot undermine longwalls 7 to 9 until Condition 11 is complied with is in breach of clause 2 of the Deed (tr 175-180). As I have said above, the Department imposed Condition 11 and the plaintiff is required to comply with it. If it is the case that the defendant has claimed that the plaintiff cannot undermine until it has approval, it is a mere statement of the legal and factual position. I do not accept that it constitutes a breach of clause 2 of the Deed.

Conclusion

93 There is some utility in making the declarations as to the implied obligations to co-operate and to act reasonably and in good faith. It will assist the parties to know the extent of their obligations in their future commercial dealings. The plaintiff’s claims are otherwise refused. The parties are to bring in Short Minutes of Order and an agreed order as to costs. If they are unable to agree on costs I will hear argument in due course. The matter is listed for directions on 1 December 2006.

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Key Legal Topics

Areas of Law

Contract Law

Legal Concepts

Contract Formation
Implied Terms
Breach of Contract
Good Faith
Duty to Cooperate

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Citations

Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd [2006] NSWSC 1235

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Statutory Material Cited

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Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2005] NSWSC 1327

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CITATION:	Maitland Main Collieries Pty Limited v Xstrata Mt Owen Pty Limited [2006] NSWSC 1235
HEARING DATE(S):	5/6/06, 6/6/06, 7/6/06, 7/8/06, 20/9/06.
JUDGMENT DATE :	23 November 2006
JUDGMENT OF:	Bergin J
DECISION:	Declarations made in relation to implied duty to co-operate and implied duty to act reasonably and in good faith.
CATCHWORDS:	[CONTRACTS] - Deed - construction - whether implied duty to co-operate - whether implied duty to act reasonably and in good faith - whether defendant in breach of Deed for failure to indemnify plaintiff for costs of preparing Plan required by condition imposed on its approval to mine under the defendant's Rail Line - whether defendant in breach of implied duty to co-operate. [DECLARATIONS] - whether proposed declarations should be made - whether utility in making declarations.
LEGISLATION CITED:	Rail Safety Act 2002
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2005] NSWSC 1327 Maitland Main Collieries Pty Ltd v Hunter Valley Coal Corporation Pty Ltd [2006] NSWCA 258 Park v Brothers (2005) 222 ALR 421 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Stirling v Maitland (1864) 5 B & S 840
PARTIES:	Maitland Main Collieries Pty Limited - Plaintiff Xstrata Mt Owen Pty Limited - Defendant
FILE NUMBER(S):	SC 50050/06
COUNSEL:	RJ Ellicott QC/D Miller - Plaintiff BR McClintock SC/RC Beasley - Defendant
SOLICITORS:	Allens Arthur Robinson - Plaintiff Minter Ellison - Defendant

[2006] NSWSC 1235

23 November 2006

Key Legal Topics

Areas of Law

Contract Law

Legal Concepts

Contract Formation

Implied Terms

Breach of Contract

Good Faith

Duty to Cooperate